MLRT 10-Q
Metalert, Inc. (MLRT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
For
the quarterly period ended
OR
For the transition period from __________ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) (Zip Code) |
| (Registrant’s telephone number, including area code) |
Securities registered under Section 12(b) of the Act:
| Title of each class registered: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common shares issued and outstanding as of June 26, 2024.
METALERT INC. AND SUBSIDIARIES
For the quarter ended March 31, 2024
FORM 10-Q
| 2 |
PART I
ITEM 1. FINANCIAL STATEMENTS
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Investment in marketable securities | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued expenses, related parties | ||||||||
| Deferred revenues | ||||||||
| Short-term debt – line of credit | ||||||||
| Short-term debt - CARE loans | ||||||||
| Convertible promissory notes, net of discount | ||||||||
| Convertible notes, related parties, net of discount | ||||||||
| Notes payable | ||||||||
| Notes payable – related parties | ||||||||
| Total current liabilities | ||||||||
| Long-term debt - CARE loan | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock series A, $ par value; shares authorized; shares issued and outstanding at March 31, 2024 and December 31, 2023 | ||||||||
| Preferred stock series B, $ par value; shares authorized, and issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Preferred stock series C, $ par value; shares authorized, and issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Preferred stock series D, $ par value; shares authorized, and issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Product sales | $ | $ | ||||||
| Service income | ||||||||
| Licensing income | ||||||||
| Total revenues | ||||||||
| Cost of products sold | ||||||||
| Cost of service revenue | ||||||||
| Cost of licensing revenue | ||||||||
| Total cost of goods sold | ||||||||
| Gross margin | ||||||||
| Operating expenses: | ||||||||
| Wages and benefits | ||||||||
| Professional fees | ||||||||
| Sales and marketing expenses | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses): | ||||||||
| Gain/loss on settlement of debt | ||||||||
| Gain/loss on marketable securities | ( | ) | ||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||
| Grant from Care loans | ||||||||
| Interest expense and financing costs | ( | ) | ( | ) | ||||
| Total other income (expenses) | ( | ) | ( | ) | ||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||
| Net income (loss) per common share - basic and diluted | $ | ) | $ | ) | ||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Three Months Ended March 31, 2024 and March 31, 2023 (Unaudited)
For the Three Months Ended March 31, 2023 (Unaudited)
| Series A Preferred | Series B Preferred | Series C Preferred | Series D Preferred | Common Shares | Additional | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Shares | Shares | Paid-In | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | 15,000 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for financings | - | - | - | 60,000 | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | 75,000 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2022 (Unaudited)
| Series A Preferred | Series B Preferred | Series C Preferred | Series D Preferred | Common Shares | Additional | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Shares | Shares | Paid-In | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for the conversion of notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net income / (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income / (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Change in fair value of marketable securities | ||||||||
| Stock based compensation | ||||||||
| Grant from CARE loans | ||||||||
| Amortization of debt discount | ||||||||
| Loss on the settlement of debt and accrued interest | ||||||||
| Bonus shares issued | ||||||||
| Payment proceeds against loan | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Other current and non-current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Accrued expenses - related parties | ||||||||
| Accrued interest and financing costs | ||||||||
| Deferred revenues | ( | ) | ||||||
| Due to/from Officers | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| PP&E purchases | ( | ) | ||||||
| Proceeds from the sale of marketable securities | ||||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from line of credit | ||||||||
| Proceeds from issuance of preferred stock | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from the issuance of debt | ||||||||
| Payments on notes | ( | ) | ||||||
| Payments on debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Issuance of common stock for conversion of debt and interest | $ | $ | ||||||
| Debt discount on convertible notes | $ | $ | ||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
METALERT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
During
the periods covered by these financial statements, MetAlert, Inc. and its subsidiaries (the “Company”, “MetAlert”,
“we”, “us”, and “our”) were engaged in business operations that design, manufacture and sell various
interrelated and complementary products and services in the wearable technology and Personal Location Services marketplace. MetAlert
owns
Global Trek Xploration, Inc. is a wearable technology company which designs, manufactures, sells, and distributes tracking and remote patient monitoring solutions for humans. Utilizing patent protected proprietary hardware, software, connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which provides real-time tracking and monitoring of people. Utilizing a miniature quad-band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated into numerous products whose location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular telephone. Our core products and services are supported by an IP portfolio of patents, patents pending, registered trademarks, copyrights, URL’s and a library of software source code, all of which is managed by Global Trek.
Level 2 Security Products, Inc. is in the high value non-human asset monitoring and recovery business for items such as firearms, vehicles, bikes, boats, ATVs, and a host of other valuable mobile assets which require oversight monitoring and theft recovery.
LOCiMOBILE, Inc’s, digital assets are now under the management of the parent company MetAlert and remain there, post dissolution, of the corporate entity (LOCiMobile, Inc.). The Company’s digital platform which has been at the forefront of Smartphone application (“App”) development since 2008 designs mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can then be tracked from any mobile device or through our proprietary tracking portal or on any connected device with internet access.
Basis of Presentation
The accompanying unaudited consolidated financial statements of MetAlert have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and applicable regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position and results of operations have been included. Our operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K.
The accompanying consolidated financial statements reflect the accounts of MetAlert, Inc. and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated.
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 $
| 7 |
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, 2023. 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.
We derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware includes our SmartSole, GunTracker, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers accessing our Geo-Location cloud-based platform through subscription or license fee, that are billed monthly, quarterly, semi-annual or annually. Predominately most of our subscriptions at this time are billed monthly and recognized at the time of billing. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related to our solutions, which are also recognized at the time of billing once the service has been performed/delivered IP licensing is related to any agreement with 3rd parties to license our IP portfolio and that revenue is recognized as per the term of the specific licensing agreements.
The Company’s initial point of contact with its retail customers is thru its e-commerce site whereby any contract with the customer is entered into and dealt with thru the online ordering process and does not require performance beyond delivery. 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.
The Company’s recognizes revenues with its wholesale customers, as with retail, upon shipment, and recurring subscription revenue is recognized at the time of billing which is done 30 days in the arrears from delivery of service. Rendering the service obligation fulfilled
| 8 |
Product sales
At the inception of each customer sale, either online or through a purchase order, we assess the goods and services promised in our contracts and identify each distinct performance obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large majority of the Company’s sales, transfer of control occurs once the product has shipped and title and risk of loss have transferred to the customer.
Services Income
The Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
Other revenue can include various items, such as our professional services arrangements that are recognized on a time and materials basis. Professional services revenues recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services are performed. Additionally, we have had non-compete revenue from the sale of assets, engineering, and design work, all of which are recognized over the term of the agreed contracts.
Royalty revenue from a non-compete agreement expired in June of 2023.
Licensing Revenue
Licensing revenue recorded by the Company relates exclusively to the Company’s monetization of IP licenses. The Company recognizes revenue for licensing under ASC 606, which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: 1) sale or usage of the products or 2) satisfaction of the performance obligations. The Company has satisfied its performance obligations and therefore recognizes licensing revenue when the sales to which the licensing relate are completed, under the terms of the specific licensing agreement.
During the period ended March 31, 2024, the Company did not recognize any revenue on settlements.
Disaggregation of Net Sales
The following table shows the Company’s disaggregated net sales by product type:
| March 31, 2024 | March 31, 2023 | |||||||
| Product sales | $ | $ | ||||||
| Service income | ||||||||
| IP and consulting income | ||||||||
| Total | $ | $ | ||||||
The following table shows the Company’s disaggregated net sales by customer type:
| March 31, 2024 | March 31, 2023 | |||||||
| B2B | $ | $ | ||||||
| B2C | ||||||||
| Military | ||||||||
| IP | ||||||||
| Total | $ | $ | ||||||
| 9 |
Allowance for Doubtful Accounts
We
extend credit based on our evaluation of the customer’s financial condition. We carry our accounts receivable at net realizable
value. We monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments. We determine these
allowances by (1) evaluating the aging of our receivables; and (2) reviewing high-risk customers financial condition. Past due receivable
balances are written off when our internal collection efforts have been unsuccessful in collecting the amount due. Our allowance for
doubtful accounts was $
Shipping and Handling Costs
Shipping and handling costs are included in cost of goods sold in the accompanying consolidated statements of operations.
Product Warranty
Use of Estimates
The preparation of the accompanying unaudited financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, estimates related to revenue recognition, allowance for doubtful accounts, inventory valuation, tangible and intangible long-term asset valuation, warranty and other obligations and commitments. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current estimates.
Fair Value Estimates
Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
| Level 1 - | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. | |
| Level 2 - | Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life. | |
| Level 3 - | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
| 10 |
The carrying values for cash and cash equivalents, accounts receivable, investment in marketable securities, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities. The carrying values of notes payable and other financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.
Principles of Consolidation
The accompanying condensed consolidated financial statements at March 31, 2024 and December 31, 2023 and for the years then ended include the accounts of MetAlert, Inc. and the following majority-owned subsidiaries.
| Subsidiary: | Percentage Owned | |||||||
| March 31, 2024 | December 31, 2023 | |||||||
| % | % | |||||||
| % | % | |||||||
All Intercompany transactions have been eliminated upon consolidation.
Concentrations
We can rely on one or two manufacturers to supply us with our GPS SmartSole, in Germany and the U.S. Currently, for the Gun Tracker we have one supplier in China, but in order to have redundances we are looking for sources in the US and Mexico for manufacturing. However, the loss of any of these manufacturers could severely impede our ability to manufacture the GPS SmartSole and Gun Tracker, and thus as we increase production we are looking to augment and grow our vendors and supply chains accordingly.
As
of March 31, 2024, the Company had four customers representing approximately
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.
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 March 31, 2024 and December 31, 2023 the fair value
of our investment in marketable securities was $
| 11 |
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:
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Preferred B shares | ||||||||
| Preferred C shares | ||||||||
| Preferred D shares | ||||||||
| Conversion shares upon conversion of notes | ||||||||
| Total | ||||||||
Segments
The
Company operates in
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 small business filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 2022.
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.
| 12 |
3. INVESTMENT IN MARKETABLE SECURITIES
As
of December 31, 2022, the Company owned shares of Inventergy Global, Inc. common stock with a fair value of $
In
June 2019, the Company acquired shares of Inpixon’s restricted common stock (after giving effect to a
During
the period ended December 31, 2021, the Company sold of its Inpixon shares for total net proceeds of $
During
the period ended December 31, 2022, the Company shares were reversed down to shares. The Company was able to obtain observable evidence
that these shares had a market value of $
The
Company was able to obtain observable evidence that the remaining shares
had a market value of $
4. INVENTORY
Inventories consist of the following:
March 31, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total Inventories | $ | $ | ||||||
5. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
March 31, 2024 | December 31, 2023 | |||||||
| Software | $ | $ | ||||||
| Website development | ||||||||
| Software development | ||||||||
| Equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the period ended March 31, 2024 and 2023 was $
| 13 |
6. INTANGIBLE ASSETS
Intangible assets, net, consists of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Trademarks | $ | $ | ||||||
| Tooling and molds | ||||||||
| Website development | ||||||||
| Software development | ||||||||
| Acquired patents and trademarks | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
Amortization
expense for the period ended March 31, 2024, and 2023 was $
As part of the Level 2 Securities LLC acquisition, the Company determined the value of the IP (various tooling, product and software development, trademarks, and patents costs) at this early stage, pre-revenue, by taking the accumulated selected costs, summing them by category, and calculating each categories percent of the total, to come up with a list of capitalizable assets that had value as part of the merger. These accumulated capitalized costs were then applied an obsolescence factor to discount those values, allowing for an arm’s length, non-bargain purchase price. This allocation of the IP was done using the cost approach as the economic benefit to MetAlert are the avoided costs spent to date, and thus would not have to spend those development costs going forward ourselves.
This method is especially relevant when there are no reliable forecasts for the business at date of acquisition or said forecasts would involve a lot of speculation. We then determined that a 5-year amortization period for these assets would be considered reasonable.
7. NOTES & LOANS PAYABLE
The following table summarizes the components of our short-term borrowings:
March 31, 2024 | December 31, 2023 | |||||||
| (a) Term loan | $ | $ | ||||||
| (b) Revolving line of credit | ||||||||
| (b) Revolving line of credit | ||||||||
| Total | $ | $ | ||||||
(a) Term loans
In
2022, the Company entered into unsecured short-term loan agreements with various third parties for an aggregate principal balance
of $
In
September of 2019, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of
$
| 14 |
(b) Lines of Credit
The
Company obtained a revolving line of credit agreement with an accredited investor of $
The
line bears interest of
8. CONVERTIBLE PROMISSORY NOTES
As
of March 31, 2024 and December 31, 2023, the Company had a total of $
March 31, 2024 | December 31, 2023 | |||||||
| Convertible Notes – with fixed conversion, past due | $ | $ | | |||||
| Convertible Notes – with fixed conversion | ||||||||
| Convertible Notes – with fixed conversion and OID | ||||||||
| Convertible Note – with variable conversion | ||||||||
| Notes issued in relation to acquisition – with fixed conversion | ||||||||
| Less: Debt discount | ( | ) | ( | ) | ||||
| Total convertible notes, net of debt discount | $ | $ | ||||||
| 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 |
| During
the twelve months ending December 31, 2023, noteholders converted $ | ||
| During
the twelve months ended December 31, 2023, an additional $ |
| 15 |
| A
noteholder invested $ | ||
| On
July 25, 2023, and August 30, 2023, a noteholder invested $ | ||
| During
the twelve months ended December 31, 2023, the Company consolidated various past-due convertible promissory notes in an aggregate
amount of $ | ||
| During
the twelve months ended December 31, 2023, the Company issued $ | ||
| As
of December 31, 2023, and December 31, 2022, $ |
9. CARE Loans
March 31, 2024 | December 31, 2023 | |||||||
| a) EIDL loan – short term | $ | $ | ||||||
| a) EIDL loan – long term | ||||||||
| Total CARE loans | $ | $ | ||||||
(a) Economic Injury Disaster Loan
On
June 10, 2020, the Company executed a secured loan with the U.S. Small Business Administration (SBA) under the Economic Injury Disaster
Loan program in the amount of $
As
of March 31, 2024, the Company calculated that 34 months of the 360 periods on the
10. RELATED PARTY TRANSACTIONS
Convertible Notes Due to Related Parties
During the period ended March 31, 2024, there was
During
the period ended December 31, 2023, the related parties converted $
| 16 |
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 March 31, 2024, and December 31,
2023, the Company owed $
Officer Loans
On
November 18, 2022, an officer loaned the Company $
During
the period ended December 31, 2023, the same office loaned another $
A
second officer loaned the Company $
For
the period ending March 31, 2024, the outstanding balance on officer loans was $
11. 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
March 31, 2024 and December 31, 2023, the balance of the derivative liabilities was $
12. EQUITY
The Company has 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 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 shares
to certain officers and board members. The Company retained a third-party valuation firm whose input was utilized in determining the
related per share valuation of the preferred shares. Based on Management’s assessment and the valuation report, the fair value
of the preferred shares was determined to be $ per share or an aggregate of $
At December 31, 2020 is was determined that the Preferred A shareholders having the majority vote, can agree to increase the number of authorized shares, if needed, to settle any convertible debt, and thus any derivative liabilities are not necessary to reserve for this.
| 17 |
Preferred Stock – Series B
During
the year ended December 31, 2019, the Company authorized shares of preferred stock to be designated available for Series B preferred
shares that have a value of $ each and are convertible into common shares at fixed price of $. Holders shall be entitled to
receive, and the Company shall pay, dividends on shares of Series B Preferred Stock equal (on an as-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 Series Preferred B shares and
warrants to an accredited investor for their financings for an aggregate value of $
During
the period ended December 31, 2020, the Company issued Series B preferred shares and warrants to an accredited investor
for their financings for an aggregate value of $
During
the period ended December 31, 2021, the two accredited investors converted Series B preferred shares into common shares
at the conversion price of $
Preferred Stock – Series C
During
the period ended December 31, 2020, the Company authorized shares of preferred stock to be designated available for Series C preferred
shares that have a stated value of $
During
the period ended December 31, 2020, the Company issued Series C preferred shares and warrants to two accredited investors
for their financings for an aggregate value of $
During
the period ended December 31, 2021, the Company issued Series C preferred shares and warrants to an accredited investor
for their financings for an aggregate value of $
During
the period ended December 31, 2021, the two accredited investors converted Series C preferred shares into common shares
at the conversion price of $
| 18 |
Preferred Stock – Series D
During the period ended December 31, 2023, the Company authorized shares of preferred stock to be designated available for Series D preferred shares that have a convertible value into shares of the Company’s common stock. The holder(s) of the shares of Series D Preferred Stock shall have no other rights, privileges or preferences with respect to the Series D Preferred Stock.
During
the period ended December 31, 2023, the Company issued Series D preferred shares and to an accredited investor for their $
During
the period ended March 31, 2024, the Company issued Series D preferred shares and to an accredited investor for their $
Common Stock
During the period ending March 31, 2024, the Company issued shares of its common stock to consultants for services valued at $.
During the period ending March 31, 2023, the Company issued shares of its common stock to various noteholders and employees for conversions of their notes within the terms, resulting in no gain or loss on the transaction.
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, 2023 | – | |||||||
| Warrants exercised | ||||||||
| Warrants granted | ||||||||
| Warrants expired | ( | ) | ||||||
| Outstanding and exercisable at March 31, 2024 | - | |||||||
| Stock Warrants as of March 31, 2024 | ||||||||||||||
| Exercise | Warrants | Remaining | Warrants | |||||||||||
| Price | Outstanding | Life (Years) | Exercisable | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
During
the period ended March 31, 2024, the Company had
The outstanding and exercisable warrants at March 31, 2024 had an intrinsic value of approximately $.
| 19 |
Common Stock Options
Under the Company’s 2008 Equity Compensation Plan (the “2008 Plan”), we are authorized to grant stock options intended to qualify as Incentive Stock Options, “ISO”, under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified options, restricted and unrestricted stock awards and stock appreciation rights to purchase up to shares of common stock to our employees, officers, directors and consultants, with the exception that ISOs may only be granted to employees of the Company and its subsidiaries, as defined in the 2008 Plan.
The 2008 Plan provides for the issuance of a maximum of shares, of which, after adjusting for estimated pre-vesting forfeitures and expired options, approximately were available for issuance as of March 31, 2024.
options were granted during the period ending March 31, 2024.
13. COMMITMENTS & CONTINGENCIES
Bonuses
The
Company has an employment agreement with its CEO which, among other provisions, provide for the payment of a bonus, as determined by
the Board of Directors, in amounts ranging from
Contingencies
From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure you that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events. As of March 31, 2024, there was no pending or threatened litigation against the Company.
14. SUBSEQUENT EVENTS
On June 6, 2024, the Company entered into a convertible note agreement with a third party, whereby two previous notes totaling $
| 20 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report include forward-looking statements. These forward looking statements are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including but not limited to: variability of our revenues and financial performance; risks associated with product development and technological changes; the acceptance our products in the marketplace by existing and potential future customers; general economic conditions. You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
Introduction
Unless otherwise noted, the terms “MetAlert, Inc.”, the “Company”, “we”, “us”, and “our” refer to the ongoing business operations of MetAlert, Inc. and our wholly owned subsidiaries, Global Trek Xploration, and Level 2 Security Products, Inc.
Overview
Headquartered in Los Angeles, MLRT has developed a suite of products and solutions, powered by a proprietary real time tracking technology platform, allowing remote monitoring, location-based tracking, and health data collection of humans, and theft recovery for high value assets. Many of the products have a wide range of applications, focusing on addressing two pressing global problems: remote patient monitoring for people with cognitive decline and gun safety. Many of the products have a wide range of applications, focusing on addressing two pressing global problems: remote patient monitoring for people with cognitive decline, and gun safety and recovery of firearms and other high value assets. Approximately 3% of the world’s population has some sort of cognitive impairment, such as Alzheimer’s, dementia, autism and traumatic brain injury. And there are over 400 million firearms just in the US alone, making both of these sizeable markets which MLRT has patent protected products and solutions for, that generate high margin recurring subscription service fees.
The Company was originally founded in 2002 as Global Trek Xploration, Inc. and, as part of a reverse merger, became publicly traded in 2008 as a 100% wholly owned subsidiary of GTX Corp, a Nevada corporation, under its former name “Deeas Resources Inc.” In September 2022, the public Company changed its name from GTX Corp to MetAlert, Inc. and effected a 1-for-65 reverse stock split of its issued and outstanding stock (OTC Pinks: MLRT). Post name change the Company kept its 2 wholly owned subsidiaries. During the periods covered by this report, MetAlert, Inc. and its subsidiaries were engaged in business operations that design, manufacture and sell various interrelated and complementary products and services in the wearable technology and Personal Location Services marketplace. In September of 2023, we acquired Level 2 Security, LLC and merged it into a new 100% wholly owned subsidiary Level 2 Security Products, Inc. During that period, the operations of LOCiMobile, Inc., another 100% wholly owned subsidiary, was consolidated under Global Trek Xploration and the corporate entity was dissolved. MetAlert now owns 100% of the issued and outstanding capital stock of its two operating subsidiaries - Global Trek Xploration, Inc. and Level 2 Security Products, Inc. The LOCiMOBILE digital assets are now under the management of the parent company MetAlert and remain there, post dissolution, of the corporate entity (LOCiMobile, Inc.). The Company’s digital platform which has been at the forefront of Smartphone application (“App”) development since 2008 designs mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can then be tracked from any mobile device or through our proprietary tracking portal or on any connected device with internet access.
Global Trek Xploration, Inc. is a wearable technology company which designs, manufactures, sells, and distributes tracking and remote patient monitoring solutions for humans. Utilizing patent protected proprietary hardware, software, connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which provides real-time tracking and monitoring of people. Utilizing a miniature quad-band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated into numerous products whose location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular telephone. Our core products and services are supported by an IP portfolio of patents, patents pending, registered trademarks, copyrights, URL’s and a library of software source code, all of which is managed by Global Trek. Level 2 Security Products, Inc. is in the high value non-human asset monitoring and recovery business for items such as firearms, vehicles, bikes, boats, ATVs, and a host of other valuable mobile assets which require oversight monitoring and theft recovery.
Other technology that the Company has developed or resells includes health and safety monitoring products and wellness products that are complementary to our main product lines and general mission.
| 21 |
Operations
The Company designs, develops, manufactures, sells, and distributes health and safety monitoring products and services, along with other related medical supplies and equipment, and asset theft and recovery products and services, all through a global business to business (“B2B”) and business to consumer (“B2C”) network of resellers, affiliates, distributors, nonprofit organizations, local, state, and federal government agencies, police departments, manufacturers reps, retailers and direct to consumer. Offering a variety of electronic and non-electronic devices and equipment, a proprietary Internet of things (“IoT”) enterprise monitoring platform and a licensing subscription business model. The Company provides a complete end to end solution of hardware, middleware, apps, connectivity, licensing, and professional services, letting our customers know where or how someone, or something, is at the touch of a button, delivering safety, security, and peace of mind in real-time. Except for our military products and recently acquired Level 2 Security devices, all of our consumer and enterprise tracking products funnel into the MetAlert IoT monitoring platform which supports end user customers in over 35 countries. The Company is also in the business of licensing intellectual property, monetizing its patent portfolio, and providing backend infrastructure logistic and subscription management services.
Results of Operations
The following discussion should be read in conjunction with our interim consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report.
Three Months Ended March 31, 2024 (“Q1 20243”) Compared to the Three Months Ended March 31, 2023 (“Q1 2023”)
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Product sales | 24,942 | 50 | % | 54,391 | 75 | % | ||||||||||
| Service income | 23,376 | 48 | % | 18,302 | 25 | % | ||||||||||
| IP royalties | - | 0 | % | - | 0 | % | ||||||||||
| Total revenues | 48,318 | 100 | % | 72,693 | 100 | % | ||||||||||
| Cost of products sold | 4,474 | 10 | % | 26,063 | 36 | % | ||||||||||
| Cost of service revenue | 655 | 1 | % | 4,305 | 6 | % | ||||||||||
| Cost of licensing revenue | - | 0 | % | - | 0 | % | ||||||||||
| Cost of goods sold | 5,129 | 11 | % | 30,368 | 42 | % | ||||||||||
| Gross profit | 43,189 | 89 | % | 42,325 | 58 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 82,883 | 172 | % | 123,645 | 170 | % | ||||||||||
| Professional fees | 56,282 | 116 | % | 31,524 | 43 | % | ||||||||||
| Sales and marketing expenses | 7,785 | 16 | % | - | 0 | % | ||||||||||
| General and administrative | 72,246 | 150 | % | 65,869 | 91 | % | ||||||||||
| Total operating expenses | 219,196 | 4542 | % | 221,038 | 304 | % | ||||||||||
| Gain (loss) from operations | (176,007 | ) | -364 | % | (176,712 | ) | -246 | % | ||||||||
| Other income (expense), net | (75,138 | ) | -156 | % | (70,433 | ) | -97 | % | ||||||||
| Net income (loss) | (251,145 | ) | -520 | % | (249,146 | ) | -343 | % | ||||||||
| 22 |
Revenues
Revenues were $48,318 for the three months ended March 31, 2024 compared to $72,693 for the three months ended March 31, 2023, representing a decrease of 34%. This decrease was primarily driven from transitioning out of direct-to-consumer PPE sales into our core B2B business and the effort to get the new Level 2 Security Products out to market.
As a result, during the first quarter of ended March 31, 2024, we did not meet our overall revenue goals, and we had a significant setback due to delays in getting our 10K filed. We did however see some positive trends compared to Q1 2023, with international subscriptions increasing by 99% and domestic subscriptions by 146%. SmartSole B2C sales increasing by 124% in Q1 of 2024, compared to Q1 of 2023. Unlike B2C sales, where subscriptions activate immediately after purchase, the B2B sales has a lag of between 2-4 months, allowing for the distributor to receive the inventory and then activate the customers unit as they sell into the marketplace. Thus, the increase in B2B subscriptions without the corresponding revenue increase, until the distributor inventories are depleted and replenished.
This came as a direct result to some improvements in our production capacity, and we were able to streamline some manufacturing processes, thereby increasing our production quantities and enhancing our low inventory position. We were also able to leverage our OEM manufacturing in Germany. Overall, we still have some supply chain issues, but we are starting to see noticeable improvements in lead times, increases in inventory and shortening our time from order to delivery by 2-3 weeks on average. As we discussed last quarter, we are still evaluating ways to scale up production in the U.S., Germany and we are starting to look at Mexico to reduce costs by 10% to 18% and increase production capacity by 50%.
We also worked on expanding our SmartSole distribution and began pilot programs in the Netherlands and with a large security company in Mexico City by commencing a testing and evaluation period.
Late last year we took transformative steps to broaden our product line and add new markets in order to increase our product and subscription revenues. We successfully acquired Level 2 Security LLC, which we merged into our new 100% wholly owned subsidiary Level 2 Security Products, Inc. During Q1 2024, we brought in a few marketing consultants and retired policy officers to help us build a go to market strategy for the GunAlert product. During that time, we discovered there are numerous avenues and channel partners for us to engage with, of which we have begun a concerted outreach campaign. We also made some significant improvements to the device and filed additional IP.
In summary, we made several positive steps forward but did not meet our revenue targets yet exceed the gross margin for the same quarter in 2023.
During the period ended March 31, 2024, the Company’s customer base and revenue streams were comprised of approximately 56.26% B2B (Wholesale Distributors and Enterprise Institutions), 43.74% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 0% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0% Military and Law Enforcement.
During the period ended March 31, 2023, the Company’s customer base and revenue streams were comprised of approximately 78.43% B2B (Wholesale Distributors and Enterprise Institutions), 21.57% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 0% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0% Military and Law Enforcement.
Cost of goods sold
Cost of goods sold were $5,128 for the three months ended March 31, 2024 compared to $30,368 for the three months ended March 31, 2023, representing a decrease of 83%. This decrease was primarily due to the lower distributor hardware sales, which are larger volume orders, that are dependent upon the activation of SmartSoles sold into their respective markets, which affects the timeliness of their hardware orders to maintain adequate inventory levels.
We expect our margins to increase once we start ramping up our subscriptions and licensing and sell more of our proprietary products like our SmartSoles and GunAlert, where we have no competition. Our overall gross margin was higher than in 2023, predominately because most of our revenues were subscription based with little corresponding expense.
We continue to work with all our suppliers to reduce unnecessary expenses related to production inefficiencies in order to position ourselves to maximize profits as we scale back up.
Wages and benefits
Wages and benefits decreased by 33% or $40,761 for the three months ended March 31, 2024 as compared to three months ended March 31, 2023 because of cost cutting and time saving initiatives.
Professional fees
Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and shareholder communications. Such costs increased $24,758 or 79% in the three months ended March 31, 2024 as compared to in the three months ended March 31, 2023. Even though some professional fees have decreased as more responsibilities were transferred from outside contractors and consultants to in-house personnel, fees related to investor relations and business development have increased due to new products lines and the impending release of the company’s updated SmartSole products on new GunAlert product line, and overaged in our 10K audit fees.
Sales and marketing expenses
Sales and marketing expenses increased by 100% or $7,805 in three months ended March 31, 2024 in comparison to the three months ended March 31, 2023. The increase was primarily due to the release of the new GunAlert product line as we build brand awareness.
| 23 |
General and administrative
General and administrative costs in three months ended March 31, 2024 increased by $7,389 or 11% in comparison to the three months ended March 31, 2023, mostly due to increases in investor relations expense. While at the same time, the Company continues many cost saving measures, including the entire senior management team deferring salaries.
Other income (expense), net
Other expense, net increased 7% or $4,704 in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was primarily as a result of the gain in interest expense, the amortization of debt discounts and financing costs.
Net income (loss)
Net loss increased by 1% or $2,000 from in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase, though small was primarily due to the lower revenues as we transition out of direct-to-consumer PPE sales into our core B2B business and the effort to get the new Level 2 Security Products out to market.
Liquidity and Capital Resources
As of March 31, 2024, we had $86,095 of cash and cash equivalents, and a working capital deficit of $4,035,819, compared to $68,440 of cash and cash equivalents and a working capital deficit of $4,049,388 as of December 31, 2023.
During the three months ended March 31, 2024, our net loss was $251,145 compared to a net loss of $249,146 for the three months ended March 31, 2023. Net cash used in operating activities in the three months ended March 31, 2024 and in the three months ended March 31, 2023 was $160,439 and $49,301, respectively.
Net cash used in investing activities during the three months ended March 31, 2024 and March 31, 2023 was $3,000 and $0, respectively.
Net cash provided by financing activities during the three months ended March 31, 2024 was $181,094 and consisted of $200,000 received for the issuance of preferred shares, and payments to the line of credit of $3,976 and debt of $14,930. Net cash provided by financing activities during the three months ended March 31, 2023 was $45,437 and consisted of $65,000 received for the issuance of debt, $7,000 from the use of the line of credit, and payments to the line of credit of $26,563. This represents an increase of 298% in cash provided by financing activities.
Because revenues from our operations have, to date, been insufficient to fund our working capital needs, we currently rely on the cash we receive from our financing activities to fund our growth, capital expenditures and to support our working capital requirements. The sale of our products and services is expected to enhance our liquidity in 2024, although the amount of revenues we receive in 2024 still cannot be estimated.
Until such time as our products and services can support our working capital requirement, we expect to continue to generate revenues from our other licenses, subscriptions, international distributors, hardware sales, professional services and new customers in the pipeline. However, the amount of such revenues is unknown and is not expected to be sufficient to fund our working capital needs. For our internal budgeting purposes, we have assumed that such revenues will not be sufficient to fund all of our planned operating and other expenditures during 2024. In addition, our actual cash expenditures may exceed our planned expenditures, particularly if we invest in the development of improved versions of our existing products and technologies, and if we increase our marketing expenses. Accordingly, we anticipate that we will have to continue to raise additional capital in order to fund our operations in 2024. No assurance can be given that we will be able to obtain the additional funding we need to continue our operations.
In order to continue funding our growth, IP and working capital needs, as well as our new product development costs, during the first quarter of 2024, 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.
| 24 |
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 $3,902,995 and negative working capital of $4,035,818 as of March 31, 2024 and used cash in operations of $160,439 during the current period then ended. A significant part of our negative working capital position at March 31, 2024 consisted of $1,720,259, of amounts due to various accredited investors of the Company for convertible promissory notes, loans and a letter of credit, net of discount. The Company anticipates further losses in the development of its business. Please see the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023 for more information regarding risks associated with our business.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
We 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, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company”, we are not required to provide the information under this Item 3.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Based on the evaluation as of March 31, 2024, for the reasons set forth below, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
| 25 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 2.(a). UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 10, 2024, we issued 600,000 shares of common stock with a value of $19,740 to a consultant for services.
On February 1, 2024, we issued 800,000 shares of common stock with a value of $27,144 to a consultant for services.
The issuance of the above shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, in reliance on the exemptions provided by Regulation D and Section 4(a)(2), as applicable under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
| 26 |
ITEM 6. EXHIBITS.
(a) Exhibits
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition | |
| 101.LAB | Inline XBRL Taxonomy Extension Label | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 27 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| METALERT, INC. | ||
| Date: June 26, 2024 | By: | /s/ ALEX MCKEAN |
| Alex McKean, | ||
| Chief Financial Officer (Principal Financial Officer) | ||
| Date: June 26, 2024 | By: | /s/ PATRICK BERTAGNA |
| Patrick Bertagna, | ||
| Chief Executive Officer |
| 28 |