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.
Unless otherwise noted, the terms "
GTX Corp", the "Company", "we", "us", and "our" refer to the ongoing business operations of GTX Corpand our wholly-owned subsidiaries, Global Trek Xploration, and LOCiMOBILE, Inc.
organization and presentation
During the periods covered by the accompanying financial statements,
GTX Corpand 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 Californiacorporation 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, $150,000.00during the second quarter 2022, and subsequently raised an additional $30,000.00in 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
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
$64,401for the Q2 2022 as compared to $159,603for 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,
cost of goods sold
Cost of goods sold were
$41,962for the Q2 2022 compared to $48,319for 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
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
$20,611or 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
General and administrative
General and administrative expenses decreased by in the second quarter of 2022
Other income/(expense), net
Other expenses, down 84% net or
net income (loss)
Net loss decreased by 11% or
Six months ended
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
$157,207in 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
Wages and benefits
Wages and benefits up 3% and 3% respectively in Q1 and Q2 2022
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
$22,621or 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 $54,150during 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
Other income/(expense), net
Other expense, net decreased 113% or
$153,922from Q1 and Q2 2022 to Q1 and Q2 2021 primarily as a result of a $67,870from the forgiveness of a CAREloan, the decrease in the amortization of debt discounts and $34,191in 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
$118,284from Q1 and Q2 2022 to Q1 and Q2 2021 primarily as a result of $67,870from the forgiveness of a CAREloan, the decrease in the amortization of debt discounts and $34,191in 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
June 30, 2022, we had $61,135of cash and cash equivalents, and a working capital deficit of $2,983,441, compared to $138,342of cash and cash equivalents and a working capital deficit of $2,829,165as of December 31, 2021. During the six months ended June 30, 2022, our net loss was $420,608compared to a net loss of $545,915for the six months ended June 30, 2021. Net cash used in operating activities in the six months ended June 30, 2022and in the six months ended June 30, 2021was $269,697and $243,364, respectively. Net cash used in investing activities during the six months ended June 30, 2022was $0, as compared to net cash used in investing activities during the six months ended June 30, 2021which was $63,242which consisted of proceeds totaling $1,258received from the sale of marketable securities and $64,500in developments cost assets. Net cash provided by financing activities during the six months ended June 30, 2022was $192,490and consisted of $150,000received form the purchase of 5,000,000 shares of common stock at $0.03per share, $25,000received for the conversion of warrants, $25,000from the issuance of debt and $34,180from draws upon our line of credit. This was offset by payments on debt of $32,510and $9,180on the line of credit. Net cash used by financing activities during the six months ended June 30, 2021was $658,707and consisted of $16,293in upon our lines of credit and a term loan, and $675,000received 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
$3,052,303and negative working capital of $2,983,441as of June 30, 2022and used cash in operations of $269,697during the current period then ended. A significant part of our negative working capital position at June 30, 2022consisted 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, 2021for 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.
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