DISCUSSION AND ANALYSIS OF GTX CORP’S FINANCIAL STATEMENT AND RESULTS OF MANAGEMENT (Form 10-Q) – Marketscreener.com | Vette Leader

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 2 of Part I
of this report include forward-looking statements. These forward looking
statements are based on our management's current expectations and beliefs and
involve numerous risks and uncertainties that could cause actual results to
differ materially from expectations. In some cases, you can identify
forward-looking statements by terminology such as "may," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"proposed," "intended," or "continue" or the negative of these terms or other
comparable terminology. You should read statements that contain these words
carefully, because they discuss our expectations about our future operating
results or our future financial condition or state other "forward-looking"
information. Many factors could cause our actual results to differ materially
from those projected in these forward-looking statements, including but not
limited to: variability of our revenues and financial performance; risks
associated with product development and technological changes; the acceptance
our products in the marketplace by existing and potential future customers;
general economic conditions. You should be aware that the occurrence of any of
the events described in this Quarterly Report could substantially harm our
business, results of operations and financial condition, and that upon the
occurrence of any of these events, the trading price of our securities could
decline. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
growth rates, levels of activity, performance or achievements. We are under no
duty to update any of the forward-looking statements after the date of this
Quarterly Report to conform these statements to actual results.

introduction


Unless otherwise noted, the terms "GTX Corp", the "Company", "we", "us", and
"our" refer to the ongoing business operations of GTX Corp and our wholly-owned
subsidiaries, Global Trek Xploration, and LOCiMOBILE, Inc.


organization and presentation




During the periods covered by the accompanying financial statements, GTX Corp
and its subsidiaries were engaged in business operations that design,
manufacture and sell various interrelated and complementary products and
services in the wearable technology and Personal Location Services marketplace.
GTX owns 100% of the issued and outstanding capital stock of its two
subsidiaries - Global Trek Xploration, Inc. and LOCiMOBILE, Inc.



Global Trek Xploration is a California corporation which engages in the business
of design, development, manufacturing, and sales of health and safety wearable
technology solutions. Utilizing Global Positioning Satellite ("GPS"), Cellular,
Radio Frequency ("RF"), Near Field Communications ("NFC"), WiFi, and Bluetooth
low energy ("BLE") as core technologies for monitoring and tracking assets. GTX
is vertically integrated and provides hardware, software, and connectivity,
delivering a complete end to end location-based platform that enables
subscribers to track in real time the whereabouts of people, pets, or high
valued assets. Our proprietary GPS devices, which consist of a miniature
quad-band General Packet Radio Service ("GPRS") transceiver, custom antenna,
circuitry, battery, and inductive charging pad can be customized and integrated
into numerous form factors. The finished products are then placed or worn so
that their location and movement can be monitored in real time over the Internet
through our 24x7 tracking portal or on a web-enabled cellular telephone.


21






Many of our core products and services are supported by an intellectual property
portfolio of patents, patents pending, registered trademarks, copyrights, URLs
and a library of software source code, all of which is also managed by Global
Trek.



LOCiMOBILE, Inc., is the Company's digital platform which has been at the
forefront of Smartphone application ("App") development since 2008. With a suite
of mobile applications that turn the iPhone, iPad, Android and other GPS enabled
handsets into a tracking device which can be tracked from handset to handset or
through our tracking portal or on any connected device with internet access.
LOCiMOBILE has launched over 20 Apps across multi mobile device operating
systems and continues to launch consumer and enterprise apps.



Operations


The Company designs, develops, manufactures, sells, and distributes health and
safety products and services, and other related medical supplies and equipment,
through a global business to business ("B2B") network of resellers, affiliates,
distributors, nonprofit organizations, local, state, and federal government
agencies, police departments, manufacturers reps and retailers, and direct
business to consumer ("B2C"). Offering a variety of electronic and
non-electronic devices and equipment, a proprietary Internet of things ("IoT")
enterprise monitoring platform and a licensing subscription business model. The
Company provides a complete end to end solution of hardware, middleware, apps,
connectivity, licensing, and professional services, letting our customers know
where or how someone, or something, is at the touch of a button, delivering
safety, security, and peace of mind in real-time. Except for our military
products and medical protective equipment, all of our consumer and enterprise
tracking products funnel into the GTX Corp IoT monitoring platform which
supports end user customers in over 35 countries. The Company is also in the
business of licensing intellectual property and monetizing its patent portfolio.



Overview


During the second quarter of 2022, we focused on ramping up production for our
GPS SmartSoles, getting all of our international distributors back online and
fulfilling their backorders, finishing our new NFC product which we expect to
launch in Q3 2022, continued to support the Endstate NFC/NFT rollout, and
attended the LD Micro conference to meet with investors and discuss our REG A,
which is priced above market at $.03.



Revenues were not as anticipated for the second quarter 2022, mostly due to a
significant spike in COVID cases, ongoing supply chain disruptions, looming
worries about the overall health of the economy, and general market
volatilities, hence we did not meet our revenue expectations and revenues were
down by 40% compared to the comparable previous quarter. Under these challenging
circumstances, we did however see continued demand for our SmartSoles, with
orders to fulfill throughout the rest of the year. More domestic product sales
will subsequently increase our higher margin subscription business which saw a
12% increase over the comparable previous quarter. Also, our Endstate NFC/NFT
business increased, with now close to 2,400 units on order for delivery in Q3,
2022. And on the cash flow and balance sheet side, we continued to keep a low
burn rate and reduced our net losses by 23% from the comparable previous
quarter, took on no new convertible debt, management continued to defer and
accrue 34% of our salary and we raised from our Reg A, $150,000.00 during the
second quarter 2022, and subsequently raised an additional $30,000.00 in July.


22





With the recent spike in COVID cases across the country we did continue to see
demand for protective medical supplies and fulfill orders daily. With the
continued demand for our SmartSoles we increased our production commitment for
an additional 1,000 units. And we released a new version of our tracking app
along with a new ecommerce store on the Shopify platform, which enables us to
have more capabilities to sell through social media platforms such as Facebook
and Instagram, along with having better accounting and inventory management
capabilities as we start ramping up domestic sales. We also implemented Wi-Fi
capabilities on the SmartSole platform which will enable us to track indoors and
gets us one step closer to implementing the Bluetooth feature which will then
convert the SmartSole from a tracking device to a mobile hub capable of
interacting with other wearable medical devices.



We remain optimistic that COVID-19 pandemic is behind us. However, we still have
some inventory on hand and solid relationships with our vendors so as long as
there is demand we will be ready to serve our customers. Our focus continues to
be on ramping up sales of the new SmartSoles, NFC products, other medical
wearable devices, A.I. and IP licensing. Health & Safety, Track & Trace.
Everyone wants to be healthy, live better and longer, and know where someone or
something is and has been. We believe we are in a position to monetize from
these trends and keep hearing from many of our B2B customers and international
distributors that they want more wearable solutions and technology to serve
the
medical community.


Results of Operations

The following discussion should be read in conjunction with our consolidated interim financial statements and related notes, which appear elsewhere in this quarterly report.

Three months ended June 30, 2022 (“Q2 2022”) compared to the past three months
June 30, 2021 (“Q2 2021”)

                                                         Three Months Ended June 30,
                                                   2022                               2021
                                          $           % of Revenues          $           % of Revenues

Product sales                             31,245                  49 %      112,656                  71 %
Service income                            33,156                  51 %       46,947                  29 %
IP royalties                                   -                   0 %            -                   0 %
Total revenues                            64,401                 100 %      159,603                 100 %
Cost of products sold                     35,989                  56 %       29,959                  19 %
Cost of service revenue                    5,973                   9 %       18,360                  12 %
Cost of licensing revenue                      -                   0 %     
      -                   0 %
Cost of goods sold                        41,962                  65 %       48,319                  30 %
Gross profit                              22,440                  35 %      111,284                  70 %

Operating expenses:
Wages and benefits                       131,323                 204 %      120,160                  75 %
Professional fees                         77,177                 120 %       97,790                  61 %
Sales and marketing expenses               5,058                   8 %       59,802                  37 %
General and administrative                27,292                  42 %       41,650                  26 %
Total operating expenses                 240,850                 374 %      319,402                 200 %

Gain/(loss) from operations             (218,410 )              -339 %     (208,118 )              -130 %

Other (expense)/income, net               (7,813 )               -12 %     
(47,370 )               -30 %
Net income/(loss)                       (226,223 )              -351 %     (255,488 )              -160 %



23





Revenues

Revenues were $64,401 for the Q2 2022 as compared to $159,603 for the Q2 2021,
representing a decrease of 60%, This decrease was primarily driven from
transitioning out of direct-to-consumer PPE sales during Covid into our core B2B
business.

During Q2 2022, the Company's customer base and revenue streams were comprised
of approximately 88.21% B2B (Wholesale Distributors and Enterprise
Institutions), 11.79% 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 Q2 2021, the Company's customer base and revenue streams were comprised
of approximately 22.47% B2B (Wholesale Distributors and Enterprise
Institutions), 77.05% 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 0.48% Military and Law Enforcement.

cost of goods sold

Cost of goods sold were $41,962 for the Q2 2022 compared to $48,319 for the Q2
2021, representing a decrease of 13%. This decrease was primarily due to the
shift from COVID related PPE's with less margins, to the higher margin 4G
SmartSoles and the increase in recurring fees.

We expect our margins to increase in 2022 once we start ramping up our
subscriptions and licensing and sell more of our proprietary products like our
SmartSoles, where we have no competition. Our overall gross margin was slightly
lower in 2021, predominately because most of our revenues came from product
sales which require competitive pricing, and that includes shipping charges. In
order to be competitive with the major online retailers (many of them include
free shipping) we had to reduce our shipping charges to be in line with
competitors.

Wages and Perks

Wages and social benefits were increased $11,163or 9% in Q2 2022 compared to Q2 2021. This increase is primarily due to one of our senior sales executives taking on more responsibilities as we transition back into our core business of GPS and SmartSole.

fees


Professional fees consist of costs attributable to consultants and contractors
who primarily spend their time on legal, accounting, product development,
business development, corporate advisory services and shareholder
communications. Such costs decreased $20,611 or 21% in Q2 2022 as compared to in
Q2 2021. Even though some professional fees have decreased as more
responsibilities were transferred from outside contractors and consultants to
in-house personnel. Those 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.

24





Sales and marketing expenses

Sales and marketing expenses fell by 92% and $54,744 in Q2 2022 compared to Q2 2021. This decrease was mainly due to a major awareness campaign by the company in 2021 compared to 2022.

General and administrative

General and administrative expenses decreased by in the second quarter of 2022 $14,358 or 34% compared to Q2 2021, mainly due to adjustments to provisions for prior periods.

Other income/(expense), net

Other expenses, down 84% net or $39,556 in Q2 2022 compared to Q2 2021. This decrease was primarily a result of a decrease in debt discount amortization and $34,191 on recovering EDD payments during Covid.

net income (loss)

Net loss decreased by 11% or $29,260 from Q2 2022 to Q2 2021 mainly due to the decrease in debt discount amortization and $34,191 on recovering EDD payments during Covid.

Six months ended June 30, 2022 (“Q1 and Q2 2022”) compared to the past six months June 30, 2021 (“Q1 and Q2 2021”)

                                                          Six Months Ended June 30,
                                                   2022                               2021
                                          $           % of Revenues          $           % of Revenues
Product sales                            163,925                  70 %      284,989                  73 %
Service income                            68,992                  30 %      105,135                  27 %
IP royalties                                   -                   0 %            -                   0 %
Total revenues                           232,917                 100 %      390,124                 100 %
Cost of products sold                    123,934                  53 %      142,054                  36 %
Cost of service revenue                   12,891                   6 %       53,427                  14 %
Cost of licensing revenue                      -                   0 %     
      -                   0 %
Cost of goods sold                       136,824                  59 %      195,481                  50 %
Gross profit                              96,092                  41 %      194,643                  50 %

Operating expenses:
Wages and benefits                       246,962                 110 %      246,962                  63 %
Professional fees                        197,960                  75 %      197,960                  51 %
Sales and marketing expenses              69,738                   7 %       69,738                  18 %
General and administrative                88,399                  38 %       89,701                  23 %
Total operating expenses                 534,425                 229 %      604,361                 155 %

Gain/(loss) from operations             (438,333 )              -188 %     (409,718 )              -105 %

Other (expense)/income, net               17,725                   8 %    
(136,197 )               -35 %
Net income/(loss)                       (420,608 )              -181 %     (545,915 )              -140 %



25





Revenues


Revenues as a whole in Q1 and Q2 2022 decreased by 40% or $157,207 in comparison
to Q1 and Q2 2021, a result of the reduction in demand for PPP's and the
inability to ship any SmartSoles during the 1st quarter due to supply chain
delays. We continue to fulfill pre-sale orders daily and expect SmartSole
production to catch up with orders over the next few quarters. Additionally, we
are seeing an uptick in PPE demand and increased sales as a result of the new
COVID spike.


Cost of goods sold

The cost of goods sold increased by 30% or $58,658 during Q1 and Q2 2022 compared to Q1 and Q2 2021 primarily due to the shift of purchases from lower margin Health & Safety inventory to higher margin SmartSoles.



Wages and benefits


Wages and benefits up 3% and 3% respectively in Q1 and Q2 2022 $8,126 compared to Q1 and Q2 2021, mainly due to employee benefits and conferences.



Professional fees



Professional fees consist of costs attributable to consultants and contractors
who primarily spend their time on legal, accounting, product development,
business development, corporate advisory services and investor relations. Such
costs decreased $22,621 or 11% during Q1 and Q2 2022 as compared to Q1 and Q2
2021, primarily due to the Company's decreased need for outside consultants.



Sales and marketing expenses



Sales and marketing expenses decreased by 78% or $54,150 during Q1 and Q2 2022
in comparison to Q1 and Q2 2021. Primarily due to costs related to the ramp up
of increased health and safety products and the associated advertising in 2021.



General and administrative


G&A expenses decreased by in Q1 and Q2 2022 $1,300 or 1% compared to Q1 and Q2 2021 and remains constant, with reductions in insurance fees and corporate spending offset by increased product development and general usage costs.



Other income/(expense), net


Other expense, net decreased 113% or $153,922 from Q1 and Q2 2022 to Q1 and Q2
2021 primarily as a result of a $67,870 from the forgiveness of a CARE loan, the
decrease in the amortization of debt discounts and $34,191 in recovery of EDD
payments during Covid. These gains offset the increase in interest expense and
financing cots related to debt and the Reg A.



Net income/(loss)


Net loss decreased by 22% or $118,284 from Q1 and Q2 2022 to Q1 and Q2 2021
primarily as a result of $67,870 from the forgiveness of a CARE loan, the
decrease in the amortization of debt discounts and $34,191 in recovery of EDD
payments during Covid, all while operating expenses remaining fairly stable
during the transition from health and safety products back to our core GPS
and
SmartSole business.


26





liquidity and capital resources


As of June 30, 2022, we had $61,135 of cash and cash equivalents, and a working
capital deficit of $2,983,441, compared to $138,342 of cash and cash equivalents
and a working capital deficit of $2,829,165 as of December 31, 2021.

During the six months ended June 30, 2022, our net loss was $420,608 compared to
a net loss of $545,915 for the six months ended June 30, 2021. Net cash used in
operating activities in the six months ended June 30, 2022 and in the six months
ended June 30, 2021 was $269,697 and $243,364, respectively.

Net cash used in investing activities during the six months ended June 30, 2022
was $0, as compared to net cash used in investing activities during the six
months ended June 30, 2021 which was $63,242 which consisted of proceeds
totaling $1,258 received from the sale of marketable securities and $64,500 in
developments cost assets.

Net cash provided by financing activities during the six months ended June 30,
2022 was $192,490 and consisted of $150,000 received form the purchase of
5,000,000 shares of common stock at $0.03 per share, $25,000 received for the
conversion of warrants, $25,000 from the issuance of debt and $34,180 from draws
upon our line of credit. This was offset by payments on debt of $32,510 and
$9,180 on the line of credit. Net cash used by financing activities during the
six months ended June 30, 2021 was $658,707 and consisted of $16,293 in upon our
lines of credit and a term loan, and $675,000 received from financings. This
represents a decrease of 88%. This reduction in additional financings is
directly related to the Company not relying on convertible notes for financings,
with no new convertible notes being issued.

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 2022, although the amount of revenues we receive in
2022 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
2022. 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 2022 No assurance can be
given that we will be able to obtain the additional funding we need to continue
our operations.

In order to continue funding our growth, IP and working capital needs and new
product development costs, during the second quarter of 2022 we continued to
draw down on our credit line to fund purchase orders. However, no assurance can
be given that the investor will provide the funding, if and when requested
by
us.

Going Concern
The consolidated financial statements have been prepared on a going concern
basis which assumes the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable future. The
Company has stockholders' deficit of $3,052,303 and negative working capital of
$2,983,441 as of June 30, 2022 and used cash in operations of $269,697 during
the current period then ended. A significant part of our negative working
capital position at June 30, 2022 consisted of $923,130, of amounts due to
various accredited investors of the Company for convertible promissory notes,
loans and a letter of credit. The Company anticipates further losses in the
development of its business. Please see the section entitled "Risk Factors"
included in our Annual Report on Form 10-K for the year ended December 31, 2021
for more information regarding risks associated with our business.

27




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 that our business and operations will be 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,
2021.

© Edgar Online, source insights

Leave a Comment