Attached files
| file | filename |
|---|---|
| EX-32.2 - GTX CORP | ex32-2.htm |
| EX-32.1 - GTX CORP | ex32-1.htm |
| EX-31.2 - GTX CORP | ex31-2.htm |
| EX-31.1 - GTX CORP | ex31-1.htm |
| EX-10.1 - GTX CORP | ex10-1.htm |
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 March 31, 2017
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 incorporation or organization) |
(I.R.S. Employer 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.)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] . No [ ].
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: 597,408,886 common shares issued and outstanding as of May 12, 2017.
GTX CORP AND SUBSIDIARIES
For the quarter ended March 31, 2017
FORM 10-Q
| 2 |
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 13,760 | $ | 95,431 | ||||
| Accounts receivable, net | 71,258 | 56,714 | ||||||
| Inventory | 59,380 | 110,948 | ||||||
| Other current assets | 21,649 | 20,607 | ||||||
| Total current assets | 166,047 | 283,700 | ||||||
| Property and equipment, net | 120,755 | 135,301 | ||||||
| Investment in equity securities | 13,776 | 31,875 | ||||||
| Intangible assets | 18,150 | 18,465 | ||||||
| Total assets | $ | 318,728 | $ | 469,341 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 286,320 | $ | 305,761 | ||||
| Accrued expenses | 222,832 | 197,024 | ||||||
| Accrued expenses - related parties | 81,170 | 23,992 | ||||||
| Deferred revenues | 34,495 | 44,908 | ||||||
| Convertible promissory note, net of discount | 826,618 | 867,812 | ||||||
| Derivative liabilities | 326,466 | 78,112 | ||||||
| Total current liabilities | 1,777,901 | 1,517,609 | ||||||
| Long-term convertible debt – related parties | 428,997 | 428,997 | ||||||
| Total liabilities | 2,206,898 | 1,946,606 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding | - | - | ||||||
| Common stock, $0.001 par value; 2,071,000,000 shares authorized; 579,458,268 and 510,367,631 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively | 579,458 | 510,367 | ||||||
| Additional paid-in capital | 17,887,648 | 17,782,391 | ||||||
| Accumulated other comprehensive loss | (48,703 | ) | (30,604 | ) | ||||
| Accumulated deficit | (20,306,573 | ) | (19,739,419 | ) | ||||
| Total stockholders’ deficit | (1,888,170 | ) | (1,477,265 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 318,728 | $ | 469,341 | ||||
See accompanying notes to consolidated financial statements.
| 3 |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Product sales | $ | 70,001 | $ | 72,295 | ||||
| Service income | 37,151 | 14,154 | ||||||
| Royalty and consulting income | 35,413 | - | ||||||
| Total revenues | 142,565 | 86,449 | ||||||
| Cost of products sold | 53,029 | 35,075 | ||||||
| Costs of other revenue | 16,379 | 5,756 | ||||||
| Total cost of goods sold | 69,408 | 40,831 | ||||||
| Gross margin | 73,157 | 45,618 | ||||||
| Operating expenses: | ||||||||
| Wages and benefits | 154,582 | 246,200 | ||||||
| Sales and marketing | 23,633 | - | ||||||
| Professional fees | 92,079 | 27,843 | ||||||
| General and administrative | 83,359 | 59,958 | ||||||
| Total operating expenses | 353,653 | 334,001 | ||||||
| Loss from operations | (280,496 | ) | (288,383 | ) | ||||
| Other income/(expenses): | ||||||||
| Amortization of debt discount | (86,699 | ) | - | |||||
| Derivative expense | (170,960 | ) | - | |||||
| Interest expense | (28,999 | ) | (13,643 | ) | ||||
| Total other income/(expenses) | (286,658 | ) | (13,643 | ) | ||||
| Net loss | $ | (567,154 | ) | $ | (302,026 | ) | ||
| Components of comprehensive loss: | ||||||||
| Unrealized loss on available for sale investment | (18,099 | ) | - | |||||
| Comprehensive net loss | $ | (585,253 | ) | $ | (302,026 | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | 549,130,294 | 357,642,741 | ||||||
| Net loss per common share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
See accompanying notes to consolidated financial statements.
| 4 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (567,154 | ) | $ | (302,026 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 14,861 | - | ||||||
| Bad debt expense | 16,828 | - | ||||||
| Stock-based compensation | 32,250 | 140,400 | ||||||
| Derivative expense | 170,960 | - | ||||||
| Amortization of debt discount | 86,699 | 15,370 | ||||||
| Fair value of common stock received as income | (10,413 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (31,372 | ) | 11,433 | |||||
| Inventory | 51,568 | (41,303 | ) | |||||
| Other current and non-current assets | (1,042 | ) | (9,995 | ) | ||||
| Accounts payable and accrued expenses | 10,466 | (6,957 | ) | |||||
| Accrued expenses - related parties | 57,178 | 72,350 | ||||||
| Net cash used in operating activities | (169,171 | ) | (120,728 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible promissory notes | 97,500 | 162,000 | ||||||
| Payments on convertible promissory notes | (10,000 | ) | (11,000 | ) | ||||
| Net cash provided by financing activities | 87,500 | 151,000 | ||||||
| Net change in cash and cash equivalents | (81,671 | ) | 30,272 | |||||
| Cash and cash equivalents, beginning of period | 95,431 | 7,868 | ||||||
| Cash and cash equivalents, end of period | $ | 13,760 | $ | 38,140 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Income taxes paid | $ | - | $ | - | ||||
| Interest paid | $ | - | $ | - | ||||
| Supplementary disclosure of noncash financing activities: | ||||||||
| Unrealized loss on available for sale investments | $ | 18,099 | $ | - | ||||
| Debt discount on convertible promissory notes | $ | - | $ | 23,000 | ||||
| Issuance of common stock for conversion of debt | $ | 142,097 | $ | 30,000 | ||||
| Debt discount related to derivative liabilities | $ | 77,394 | $ | - | ||||
See accompanying notes to consolidated financial statements.
| 5 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
During the periods covered by these financial statements, GTX Corp and subsidiaries (the “Company” or “GTX”) were engaged in businesses that design, develop and sell various interrelated and complementary products and services in the Personal Location Wearable Technology marketplace. GTX owns 100% of the issued and outstanding capital stock of Global Trek Xploration (“GTX California”) and LOCiMOBILE, Inc.
Global Trek Xploration designs, develops, manufactures and distributes - hardware, software, connectivity services of Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking solutions that provide real-time tracking of the whereabouts of people and high valued assets. Utilizing a miniature quad band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our product(s) can be customized and integrated into numerous products and form factors 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 extensive IP portfolio of patents, patents pending, registered trademarks, copyrights, URLs and a library of software source code.
LOCiMOBILE, Inc., 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 numerous 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 months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2016, 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 incurred net losses of $567,154 and $302,026 for the three months ended March 31, 2017 and 2016, respectively, has incurred losses since inception resulting in an accumulated deficit of $20,306,573 as of March 31, 2017, and has negative working capital of $1,611,854 as of March 31, 2017. The Company anticipates further losses in the development of its business.
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 obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, or its attainment of profitable operations are necessary for the Company to continue operations. 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
Use of Estimates
The preparation of the accompanying unaudited consolidated financial statements requires the use of estimates that affect the reported amounts of assets, liabilities, revenues, expenses and contingencies. 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.
| 6 |
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, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities.
Derivative Instruments
Our debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
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.
Comprehensive Loss
FASB ASC 220 establishes rules for reporting and displaying comprehensive loss and its components. Comprehensive loss is the sum of net loss as reported in the consolidated statements of operations and comprehensive loss transactions as reported in the consolidated statement of stockholders’ deficit. Comprehensive loss transactions that currently apply to the Company result from unrealized losses on available for sale investments.
Reclassifications
For comparability, certain prior period amounts have been reclassified, where appropriate, to conform to the financial statement presentation used in 2017. These reclassifications have no impact on net loss.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board has recently issued accounting pronouncements, most of which represent technical corrections to the accounting literature or application to specific industries, which are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. We do not believe that the adoption of any recently issued accounting standards will have a material effect on our financial position and results of operations.
3. JOINT VENTURE AND INVESTMENT IN EQUITY SECURITIES
On June 16, 2016, the Company entered into a Definitive Agreement with Inventergy Innovations, LLC (“Inventergy”), a subsidiary of Inventergy Global, Inc. (NASDAQ: INVT). The Company partnered with Inventergy to monetize three (3) GTX Patents. Upon signing the Agreement, the Patents were assigned to an Inventergy subsidiary, and Inventergy assigned a 45% interest in the entity to GTX. Inventergy is also obligated to make a sequence of quarterly payments to GTX beginning in January 2017, which payments represent non-refundable advances against future royalty and other payments. Pursuant to a non-exclusive license back to GTX, GTX will still retain all use rights of the 3 patents. During the period ended March 31, 2017, the Company has received $25,000 as a non-refundable advance from Inventergy.
| 7 |
The Company uses the equity method to account for its 45% investment in the Inventergy subsidiary. Under the equity method, the Company recognizes its share of the earnings and losses of the subsidiary as they accrue instead of when they are realized. As of March 31, 2017, the Company’s investment in the subsidiary was $0.
In addition to the Definitive Agreement, the Company entered into a Consulting Agreement with Inventergy for a period of eighteen months. The Company was issued 42,500 shares of restricted common stock of INVT valued at $62,479 on the date of grant, of which 1/6th of the stock vests at the close of each calendar quarter and Inventergy agreed to make five monthly payments to GTX totaling $250,000 through December 2016 as compensation. As of March 31, 2017, $31,240 of stock has been recognized, which represents the non-vested portion of the restricted common stock and $10,413 has been recognized as consulting revenue in the three months ended March 31, 2017. As of March 31, 2017, we owned 42,500 shares of restricted common stock of INVT at a closing price of $0.3241, for a value of $13,776.
4. RELATED PARTY TRANSACTIONS
In order to preserve cash for other working capital needs, various officers and members of management have agreed to accrue, and defer payment of, portions of their salaries since fiscal 2011. As of March 31, 2017 and December 31, 2016, the Company owed $81,170 and $23,992, respectively for such accrued wages.
On September 30, 2016, management elected to transfer accrued salaries into long-term convertible promissory notes, due on March 31, 2018, totaling $318,671. On December 31, 2016, management elected to transfer additional accrued salaries into long-term convertible promissory notes, due on March 31, 2018, totaling $110,326. The notes will bear a 10% annual interest rate. Management 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 share. As of March 31, 2017, the outstanding balance on the convertible promissory notes is $428,997.
5. DEBT
The following table summarizes the components of our short-term borrowings:
| March 31, 2017 | December 31, 2016 | |||||||
| Q4 2014 Convertible Notes | $ | 126,000 | $ | 126,000 | ||||
| Q1 2015 Convertible Notes | 60,000 | 60,000 | ||||||
| Q2 2015 Convertible Notes | 200,000 | 200,000 | ||||||
| Q3 2015 Convertible Notes | 45,000 | 45,000 | ||||||
| Q1 2016 Convertible Notes | 60,000 | 60,000 | ||||||
| Q2 2016 Convertible Notes | 110,000 | 225,431 | ||||||
| Q3 2016 Convertible Notes | 507,671 | 507,671 | ||||||
| Q4 2016 Convertible Notes | 127,826 | 162,826 | ||||||
| Q1 2017 Convertible Notes | 97,500 | - | ||||||
| Total short-term convertible notes | 1,333,997 | 1,386,928 | ||||||
| Less: Debt discount | (78,382 | ) | (90,119 | ) | ||||
| Convertible notes, net of debt discount | $ | 1,255,615 | $ | 1,296,809 | ||||
| Short-term borrowings | $ | 826,618 | $ | 867,812 | ||||
| Long-term borrowings | $ | 428,997 | $ | 428,997 | ||||
| Short-term derivative liabilities | $ | 326,466 | $ | 78,112 | ||||
Short-term convertible notes
Convertible Notes
On January 4, 2017, we issued a total of 10,000,000 shares of common stock to an investor for converting $24,500 in debt from a Convertible Note that was issued in the second quarter of 2016.
On January 13, 2017, we issued a total of 11,970,339 shares of common stock to an investor for converting $29,327 in debt from a Convertible Note that was issued in the second quarter of 2016.
On January 31, 2017, we received the second tranche of $97,500 (“Q1 2017”) from 2 investors from their November 21, 2016 Security Purchase Agreements. The Purchasers may convert their notes into common shares in the Company at a price equal to the lower of 51% of the lowest trading price in the prior 20 days, or at $0.005 per share. The notes do not bear interest. The Company may prepay the notes at any time with a premium of 10% of the amount to be paid off, in the first 90 days, and 20% any time thereafter. The notes mature on July 31, 2017. The notes were issued pursuant to Section 4(a)(2) of the Securities Act of 1933.
| 8 |
On February 9, 2017, we paid down a Q2 2016 Convertible Note for $10,000.
On February 17, 2017, we issued 16,339,869 shares of common stock to an investor for converting $25,000 in debt from a Convertible Note that was issued in the fourth quarter of 2016.
On February 22, 2017, we issued 16,442,455 shares of common stock to an investor for converting $24,170 in debt from a Convertible Note that was issued in the second quarter of 2016.
On March 3, 2017, we issued 5,820,000 shares of common stock to an investor for converting $25,000 in principal and $4,100 in accrued interest from a Convertible Note that was issued in the second quarter of 2016.
On March 24, 2017, we issued 3,267,974 shares of common stock to an investor for converting $10,000 in debt from a Convertible Note that was issued in the fourth quarter of 2016.
6. EQUITY
Common Stock
On January 4, 2017, we issued a total of 10,000,000 shares of common stock to an investor for converting $24,500 in debt from a Convertible Note that was issued in the second quarter of 2016.
On January 13, 2017, we issued a total of 11,970,339 shares of common stock to an investor for converting $29,327 in debt from a Convertible Note that was issued in the second quarter of 2016.
On January 20, 2017, we issued 500,000 shares of common stock (valued at $2,000) to a consultant and 1,000,000 shares of common stock (valued at $4,000) to 4 members of the board of directors for their services.
On February 17, 2017, we issued 16,339,869 shares of common stock to an investor for converting $25,000 in debt from a Convertible Note that was issued in the fourth quarter of 2016.
On February 22, 2017, we issued 16,442,455 shares of common stock to an investor for converting $24,170 in debt from a Convertible Note that was issued in the second quarter of 2016.
On March 2, 2017, we issued 3,750,000 shares of common stock (valued at $26,250) to two consultants for their services.
On March 3, 2017, we issued 5,820,000 shares of common stock to an investor for converting $25,000 in principal and $4,100 in accrued interest from a Convertible Note that was issued in the second quarter of 2016.
On March 24, 2017, we issued 3,267,974 shares of common stock to an investor for converting $10,000 in debt from a Convertible Note that was issued in the fourth quarter of 2016.
The Company issued the following shares of common stock during the three months ended March 31, 2017:
| Value of Shares | Number of Shares | |||||||
| Shares issued for conversion of debt | $ | 142,097 | 63,840,637 | |||||
| Shares issued for services rendered | 32,250 | 5,250,000 | ||||||
| Total shares issued | $ | 174,347 | 69,090,637 | |||||
Shares issued for services rendered were to various members of management, the Board of Directors, employees and consultants and are expensed as Stock-Based Compensation in the accompanying consolidated statement of operations. Shares issued for conversion of debt relate to conversion of the convertible note discussed in Note 5.
Common Stock Warrants
Since inception, the Company has issued warrants to purchase shares of the Company’s common stock to shareholders, consultants and employees as compensation for services rendered and/or through private placements.
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A summary of the Company’s warrant activity and related information is provided below:
| Exercise Price $ | Number of Warrants | |||||||
| Outstanding and exercisable at December 31, 2016 | 0.0125 - 0.03 | 29,900,000 | ||||||
| Warrants exercised | - | - | ||||||
| Warrants granted | - | - | ||||||
| Warrants expired | - | - | ||||||
| Outstanding and exercisable at March 31, 2017 | 0.0125 - 0.03 | 29,900,000 | ||||||
| Stock Warrants as of March 31, 2017 | ||||||||||||||
| Exercise | Warrants | Remaining | Warrants | |||||||||||
| Price | Outstanding | Life (Years) | Exercisable | |||||||||||
| $ | 0.02 | 9,900,000 | 0.82 | 9,900,000 | ||||||||||
| $ | 0.015 | 13,350,000 | 1.85 | 13,350,000 | ||||||||||
| $ | 0.0125 | 3,500,000 | 2.00 | 3,500,000 | ||||||||||
| $ | 0.03 | 3,150,000 | 2.27 | 3,150,000 | ||||||||||
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. After adjusting for expired and estimated pre-vesting forfeitures, options for approximately 2,235,000 shares were still available for grant under the 2008 Plan as of March 31, 2017.
7. SUBSEQUENT EVENTS
On April 6, 2017, the Company entered into two Note and Share Purchase Agreements with two accredited investors. As a result, we issued two convertible notes with a total principal balance of $75,000. The Purchasers may convert their notes into common shares in the Company at a price equal to the lower of 60% of the lowest trading price in the prior 30 days, or at $0.005 per share. The notes do not bear interest. The Company may prepay the notes at any time with a premium of 10% of the amount to be paid off, in the first 90 days, and 20% any time thereafter. The notes mature on October 6, 2017. The notes were issued pursuant to Section 4(a)(2) of the Securities Act of 1933.
On April 12, 2017 we issued 3,000,000 shares of common stock (valued at $24,000) to two investors as part of their Securities Purchase Agreements dated April 6, 2017 and 1,000,000 shares of common stock (valued at $12,000) to an advisor for services performed.
On April 25, 2017 we issued 13,950,618 in common stock to an investor for converting $110,000 in principal and $3,000 in interest of their debt from a Convertible Note that was issued in the second quarter of 2016.
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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.
Operations
GTX Corp and its subsidiaries (Global Trek Xploration, Inc. and LOCiMOBILE, Inc.) are engaged in the design, development, manufacturing, distribution and sales of five (5) related products and services in the GPS and BLE wearable technology personal location and wandering assistive technology business. Through a proprietary enterprise (IoT) monitoring platform and licensing subscription business model, the Company offers a complete end to end solution of hardware, middleware, apps, connectivity, licensing and professional services, letting you know where or how someone or something is at the touch of a button, delivering safety, security and peace of mind in real-time.
Overview
Since the start of 2015 the Company has focused on building channels of distribution for its product lines of embedded devices, Stand-Alone devices and Digital Apps which all funnel into the GTX Corp IoT monitoring platform. Each product line is sold both direct to consumer (B2C) and business to business (B2B) through a global network of resellers, affiliates, distributors, nonprofit organizations, government agencies, manufacturers reps and retailers. The Company has been ramping up its product distribution and sales channels and, as of March 31, 2017, the Company had live units in the field and / or paying subscribers in over 35 countries, had 8 regional sales reps in the US, 6 retired and active professional athlete brand ambassadors, over 300 online affiliates, products being sold in 2 retail stores, 13 international distributors. Also, we have been issued a vendor number for reimbursement in 7 U.S. states, and have applied for other State and Federal reimbursement codes, grants and private insurance reimbursement, which if granted is expected to increase the potential market for users of our SmartSole product line. All product lines are sold with a monthly, quarterly or annual subscription service plan ranging from $5 to $49 per month and licensing plans.
Since the start of 2015 the Company has focused on building channels of distribution for its product lines of embedded devices, Stand-Alone devices and Digital Apps which all funnel into the GTX Corp IoT monitoring platform. Each product line is sold both direct to consumer (B2C) and business to business (B2B) through a global network of resellers, affiliates, distributors, nonprofit organizations, government agencies, manufacturers reps and retailers. The Company has been ramping up its product distribution and sales channels and, as of March 31, 2017, the Company had live units in the field and / or paying subscribers in over 35 countries, had 8 regional sales reps in the US, 6 retired and active professional athlete brand ambassadors, over 300 online affiliates, products being sold in 2 retail stores, 13 international distributors. Also, we have been issued a vendor number for reimbursement in 7 U.S. states, and have applied for other State and Federal reimbursement codes, grants and private insurance reimbursement, which if granted is expected to increase the potential market for users of our SmartSole product line. All product lines are sold with a monthly, quarterly or annual subscription service plan ranging from $5 to $49 per month and licensing plans.
During the quarter ended March 31, 2017 the Company continued expanding its sales channels internationally exploring opportunities in Japan, Hong Kong, Spain and the Middle East and attending two large trade shows in Europe – Mobile World Congress and CeBIT. Domestically the Company added two States in the reimbursement program, attended several industry trade shows and began a Google ad word advertising campaign directed at driving online consumer sales. Outside of social media brand awareness, this was the first time the Company has spent money on advertising directly to consumers.
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On the R&D front, the Company began three new product development projects. First being for a CDMA SmartSole that will be operational on the Verizon network, the second for a SmartSole lite which will be a lower price, limited function and available in children sizes, created for lower disposable income markets and for individuals that are not “at risk” due to Alzheimer’s or autism, but rather for more of a general population use. Third the Company began developing a Sole Protector, specifically designed for the GPS SmartSole and made of anti-microbial / anti-fungal material that repels moisture and odor, providing an extra layer of hygiene, covertness, protection and comfort. The Sole Protector was commercially launched on May 1st in the US, U.K. Sweden and Denmark, with over 500 pairs sold in the first week. In addition the Company began working with Energy Harvester to collaborate on the development of delivering on demand power to charge wearable electronics by harnessing energy though human motion, that is integrated within footwear products, giving consumers, commercial, and military users the ability to charge their mobile devices and other electronic devices and sensors, as they walk.
On the IP front - the Company worked closely with Inventergy on the Communication protocol monetization campaign, finalizing pricing models and list of potential licensee’s. Inventergy has announced and publicly disclosed that in early January Inventergy sent out over 100 letters and subsequently an additional 20 letters have gone out as new potential licensees were identified. The Company also worked with existing counsel to prepare filings for additional patents as an ongoing effort to expand and broaden its IP portfolio.
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, 2017 (“Q1 2017”) Compared to the Three Months Ended March 31, 2016 (“Q1 2016”)
| Three Months Ended March 31, | ||||||||||||||||
| 2017 | 2016 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Product sales | 70,001 | 49 | % | 72,295 | 84 | % | ||||||||||
| Service income | 37,151 | 26 | % | 14,154 | 16 | % | ||||||||||
| Consulting income | 35,413 | 25 | % | - | 0 | % | ||||||||||
| Total revenues | 142,565 | 100 | % | 86,449 | 100 | % | ||||||||||
| Cost of products sold | 53,029 | 37 | % | 35,075 | 41 | % | ||||||||||
| Costs of other revenue | 16,379 | 12 | % | 5,756 | 6 | % | ||||||||||
| Cost of goods sold | 69,408 | 49 | % | 40,831 | 47 | % | ||||||||||
| Gross profit | 73,157 | 51 | % | 45,618 | 53 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 154,582 | 108 | % | 246,200 | 285 | % | ||||||||||
| Sales and marketing expenses | 23,633 | 17 | % | - | 0 | % | ||||||||||
| Professional fees | 92,079 | 65 | % | 27,843 | 32 | % | ||||||||||
| General and administrative | 83,359 | 58 | % | 59,958 | 69 | % | ||||||||||
| Total operating expenses | 353,653 | 248 | % | 334,001 | 386 | % | ||||||||||
| Loss from operations | (280,496 | ) | -197 | % | (288,383 | ) | -333 | % | ||||||||
| Other expense, net | (286,658 | ) | -201 | % | (13,643 | ) | -16 | % | ||||||||
| Net loss | (567,154 | ) | -398 | % | (302,026 | ) | -349 | % | ||||||||
Revenues
Revenues from product sales and service income during Q1 2017 increased by 24% or $20,703 in comparison to Q1 2016, which is primarily due to increased SmartSole sales and an increasing subscriber base. Revenues from the sale of GPS SmartSoles in Q1 2016 accounted for approximately 47% of total revenues and 75%, when including related recurring fees, in comparison to Q1 2017 SmartSole sales which accounted for approximately 59% of total revenues and 83%, when including related recurring fees. We also had a 35% increase in international subscribers and 47% increase in international subscription revenues. Subscriber profit margins also increased due to increasing our subscription pricing and lowering our costs through volume and efficiency. The balance of the revenue for the first quarter of 2017 represented sales of stand-alone GPS devices and IP licensing fees.
Cost of goods sold
Cost of goods sold increased by 70% or $28,577 during Q1 2017 in comparison to Q1 2016. Total gross margin, excluding consulting income, decreased from 53% in Q1 2016 to 35% in Q1 2017, which reflects the fact that we sold over 225 SmartSole units to our distributors in Europe near the end of the quarter, and these have subsequently not yet been sold into the region. Thus, the recurring fees for these units are not reflected yet into the Gross Margins. As the GPS SmartSoles begin to achieve monthly recurring subscription revenue, it is expected that gross margins will increase reflecting the higher margin service subscription revenue.
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Wages and benefits
Wages and benefits during Q1 2017 decreased by 37% or $91,618 in comparison to Q1 2016. The decrease in wages is primarily due to current staff’s abilities to work more efficiently.
Sales and marketing expenses
Sales and marketing expenses increased by 100% or $23,633 during Q1 2017 in comparison to Q1 2016, which reflects an increase in sales and marketing efforts to drive revenues.
Professional fees
Professional fees during Q1 2017 increased by 231% or $64,236 in comparison to Q1 2016. Professional fees are expected to increase as we grow our business and expand our products into the wearable technology marketplace both in the U.S. and internationally
General and administrative
General and administrative expenses during Q1 2017 increased by 39% or $23,401 in comparison to Q1 2016 , primarily due to increased D&O insurance costs and filing fees.
Other expense, net
Other expense, net increased by $273,015 from Q1 2016 to Q1 2017 primarily as a result of the non-cash derivative liabilities and the amortization of debt discounts related to debt financings. As of March 31, 2017, the Company had $326,466 in derivative liabilities. Other expense, net also includes interest expenses related to notes.
Net loss
Net loss increased by 88% or $265,128 from Q1 2016 to Q1 2017 as a result of the non-cash derivative liabilities and the amortization of debt discounts related to debt financings. Strictly on an operational basis, the loss from operations actually decreased by 3% or $7,887 primarily from revenues and the associated gross margins generated by the sale of GPS SmartSoles, an increase in revenues per subscriber (RPS) and the IP licensing revenues.
Liquidity and Capital Resources
As of March 31, 2017, we had $13,760 of cash and cash equivalents, and a working capital deficit of $1,611,854, compared to $95,431 of cash and cash equivalents and a working capital deficit of $1,233,909 as of December 31, 2016. A large part of our negative working capital position at March 31, 2017 consisted of $326,466 of derivative liabilities related to unsecured convertible promissory notes and $826,618 related to the principal balance of unsecured convertible promissory notes, net of discount. As further described below, since March 31, 2017, we have received a total of $97,500 from the sale of unsecured convertible promissory notes.
During the three months ended March 31, 2017, our net loss was $567,154, compared to a net loss of $302,026 for the three months ended March 31, 2016. Net cash used in operating activities for Q1 2017 and Q1 2016 was $169,171 and $120,728, respectively. Net cash used in operations was higher in Q1 2017 as compared to Q1 2016 primarily due to increased payments to lower accounts payable.
Net cash provided by financing activities during Q1 2017 was $87,500 and consisted primarily of proceeds totaling $97,500 received from advances under two convertible note payable agreements as well as a $10,000 payment on a Convertible Note. Net cash provided by financing activities during Q1 2016 was $151,000 and consists of proceeds totaling $162,000 received from advances under a convertible note payable agreement as well as an $11,000 payment on a Convertible Note.
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 capital expenditures and to support our working capital requirements The sale of the SmartSole product, and the recurring revenues that we will receive from users, is expected to enhance our liquidity in 2017, although the amount of revenues we receive in 2017 still cannot be estimated.
Until such time as the SmartSoles can support our working capital requirement, we expect to continue to generate revenues from our other licenses, Track My Work Force 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, especially during the first half of 2017. 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 2017. No assurance can be given that we will be able to obtain the additional funding we need to continue our operations.
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In order to continue funding our working capital needs and our product development costs, during the first quarter of 2017 we entered into 2 separate note and share purchase agreements with 2 independent accredited investors. As a result, we issued convertible notes with a total principal balance of $97,500 for cash proceeds of $97,500.
The licensing agreements, distribution agreements and product sales initiatives we have in place have, to date, not generated substantial revenues. No assurance can be given that our current contractual arrangements and the revenues from our GPS SmartSoles, device sales, subscriptions, software licensing, or our smart phone or tablet Apps will generate significant revenues during the balance of 2017.
In addition to continuing to incur normal operating expenses, we intend to continue our research and development efforts for our various technologies and products, including hardware, software, interface customization, and website development, and we also expect to further develop our sales, marketing and manufacturing programs associated with the commercialization, licensing and sales of our GPS devices and technology, and the commercialization of the LOCiMOBILE® applications for GPS enabled handsets. We currently do not have sufficient capital on hand to fully fund our proposed research and development activities, which lack of product development may negatively affect our future revenues.
As noted above, based on budgeted revenues and expenditures, unless revenues increase significantly, we believe that our existing and projected sources of liquidity may not be sufficient to satisfy our cash requirements for the next twelve months. Accordingly, we will need to raise additional funds in 2017. The sale of additional equity securities will result in additional dilution to our existing stockholders. Sale of debt securities could involve substantial operational and financial covenants that might inhibit our ability to follow our business plan. Any additional funding that we obtain in a financing is likely to reduce the percentage ownership of the Company held by our existing security-holders. The amount of this dilution may be substantial based on our current stock price, and could increase if the trading price of our common stock declines at the time of any financing from its current levels. We may also attempt to raise funds through corporate collaboration and licensing arrangements. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to grant licenses on terms that are not favorable to us. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain the needed additional funding, we may have to further reduce our current level of operations, or may even have to totally discontinue our operations.
Since inception in 2002, we have generated significant losses. As of March 31, 2017, we had an accumulated deficit of $20,306,573, and we currently expect to incur continued losses until our revenue initiatives collectively generate substantial revenues. Please see the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016 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, 2016.
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
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 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.
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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.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 4, 2017, we issued a total of 10,000,000 shares of common stock to an investor for converting $24,500 in debt from a Convertible Note that was issued in the second quarter of 2016.
On January 13, 2017, we issued a total of 11,970,339 shares of common stock to an investor for converting $29,327 in debt from a Convertible Note that was issued in the second quarter of 2016.
On January 20, 2017, we issued 500,000 shares of common stock (valued at $2,000) to a consultant and 1,000,000 shares of common stock (valued at $4,000) to 4 members of the board of directors for their services.
On February 17, 2017, we issued 16,339,869 shares of common stock to an investor for converting $25,000 in debt from a Convertible Note that was issued in the fourth quarter of 2016.
On February 22, 2017, we issued 16,442,455 shares of common stock to an investor for converting $24,170 in debt from a Convertible Note that was issued in the second quarter of 2016.
On March 2, 2017, we issued 3,750,000 shares of common stock (valued at $26,250) to two consultants for their services.
On March 3, 2017, we issued 5,820,000 shares of common stock to an investor for converting $25,000 in principal and $4,100 in accrued interest from a Convertible Note that was issued in the second quarter of 2016.
On March 24, 2017, we issued 3,267,974 shares of common stock to an investor for converting $10,000 in debt from a Convertible Note that was issued in the fourth quarter of 2016.
The issuance of the above shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
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| (a) | Exhibits |
| 10.1 | Form of Promissory Note Issued to Officers | |
| 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 | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation | |
| 101.DEF | XBRL Taxonomy Extension Definition | |
| 101.LAB | XBRL Taxonomy Extension Label | |
| 101.PRE | XBRL Taxonomy Extension Presentation |
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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: May 12, 2017 | By: | /s/ ALEX MCKEAN |
| Alex McKean, | ||
| Chief Financial Officer (Principal Financial Officer) | ||
| Date: May 12, 2017 | By: | /s/ PATRICK BERTAGNA |
| Patrick Bertagna, | ||
| Chief Executive Officer |
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