PART II AND III 2 partiiandiii.htm

 

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

 

PRELIMINARY OFFERING CIRCULAR - SUBJECT TO COMPLETION

 

GTX Corp

 

Registrant’s principal address: 117 W 9th Street, Suite 1214, Los Angeles, CA 90015

Registrant’s telephone number, including area code: 213-489-3019

Registrant’s website: https://gtxcorp.com

 

Dated: October ___, 2021

 

GTX Corp (herein referred to as “we,” “us,” “our,” “GTXO,” and the “Company”) is offering a maximum of 100,012,500 shares of our common stock (the “Shares”) at a price of $______ [between $0.02 and $0.10] per share, for maximum gross proceeds of up to $2,000,250, before deduction of offering expenses, assuming all shares are sold. In addition, up to 30,002,500 of the Company’s common stock may be offered hereby by selling shareholders at a price of $______ [between $0.02 and $0.10] for maximum proceeds to selling shareholders of $600,075. For more information on the securities offered hereby, please see the item titled “Securities Being Offered” on page 53. The minimum investment established for each investor purchasing through the Company is $10,000 unless such minimum is waived by the Company in its sole discretion. Shares offered by the Company will be sold through the Company’s executive officers and directors on a best-efforts basis. We may also engage sales agents licensed through the Financial Industry Regulatory Authority (“FINRA”) and pay such agents cash and/or stock-based compensation, which will be announced through a supplement to this Offering Circular if and when applicable. We are bearing all of the expenses in connection with the registration of the shares of common stock and their qualification or exemption under state “Blue Sky” laws, but all selling and other expenses incurred by the selling stockholders, including commissions and discounts, if any, attributable to the sale or disposition of the shares will be borne by them.

 

Price of Common Stock 

Price to

Public [1]

 

Underwriting Discount and Commissions

[2]

  Proceeds to Issuer [3] 

Proceeds to

Selling Securityholders

Per Share  $0.10   $         0.00   $0.10   $$0.10 
Total Minimum  $0.00   $0.00   $0.00   $0.00 
Total Maximum  $2,600,325   $0.00   $2,000,250   $600,075 

 

(1) All amounts in this chart and circular are in U.S. dollars unless otherwise indicated.
(2) The shares sold by the Company will be offered on a best efforts basis by the Company’s officers and directors. Accordingly, there are no underwriting fees or commissions currently associated with this offering; however, the Company may engage sales associates after this offering commences. Selling shareholders will be responsible for expenses relating to their sale of shares.
(3) We expect to incur approximately $45,000 in expenses relating to this offering, including legal, accounting, travel, printing and other miscellaneous expenses.

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

Our common stock is not now listed on any national securities exchange or the Nasdaq stock market. However, our stock is quoted on the OTC Market’s OTC Pink® Open Market under the symbol “GTXO.” While our common stock is on the OTC Pink® Open Market, there has been limited trading volume. There is no guarantee that an active trading market will develop in our securities.

 

This offering is being made pursuant to Tier 2 of Regulation A (Regulation A Plus), following the Form 1-A Offering Circular disclosure format.

 

This offering is highly speculative and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” on page 6.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

 

 
 

 

TABLE OF CONTENTS

 

SUMMARY INFORMATION 3
   
RISK FACTORS 6
   
SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS 19
   
DILUTION 19
   
PLAN OF DISTRIBUTION AND SELLING SECURITYHOLDERS 19
   
USE OF PROCEEDS 23
   
DESCRIPTION OF BUSINESS 24
   
DESCRIPTION OF PROPERTY 32
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 32
   
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES 45
   
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS 48
   
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS 51
   
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS 53
   
SECURITIES BEING OFFERED 53
   
FINANCIAL STATEMENTS F-1
   
EXHIBITS 55

 

2
 

 

SUMMARY INFORMATION

 

This summary highlights some of the information in this circular. It is not complete and may not contain all of the information that you may want to consider. To understand this offering fully, you should carefully read the entire circular, including the section entitled “Risk Factors,” before making a decision to invest in our securities. Unless otherwise noted or unless the context otherwise requires, the terms “we,” “us,” “our,” “GTX,” “GTXO,” the “Company,” and “GTX Corp” refer to GTX Corp together with its wholly owned subsidiaries.

 

The Company

 

GTX Corp is a technology company that owns and operates two wholly owned subsidiaries engaged in health, safety and wellness solutions with a focus in the growing multi-billion-dollar location based wearable technology and real-time location systems (“RTLS”) industry. GTX designs, manufactures and sells complementary medical products and services for the purpose of protection, health and safety. GTX owns 100% of the issued and outstanding capital stock of its two subsidiaries - Global Trek Xploration, Inc. (“Global Trek Xploration”) and LOCiMOBILE, Inc. (“LOCiMOBILE”). The two subsidiaries operate in various interrelated sectors of real-time location systems (“RTLS”) and the wearable technology industry. Through these subsidiaries, GTX Corp is engaged in the design, development, manufacturing, distribution, sales and support of related products and services, for the consumer, enterprise, and military. Utilizing GPS, cellular, Bluetooth Low Energy (“BLE”), Near Field Communications (“NFC”), Radio Frequency (“RF”), and WiFi technologies through a proprietary enterprise monitoring platform and licensing subscription business model, the Company offers a complete end to end solution of hardware, middleware, apps, connectivity, and professional services that can track and monitor people or assets at the touch of a button in real-time. In addition to selling products and monthly service subscriptions, the Company also generates revenues through licensing its technology and intellectual property, custom development projects and the sale of OEM medical devices and supplies.

 

Global Trek Xploration was founded in 2002, and as part of a reverse merger became publicly traded in 2008, as a 100% wholly owned subsidiary of GTX Corp (OTC: GTXO), which operates out of Los Angeles, California, with distributors and customers across the globe in over 35 countries. GTX’s, patented, comprehensive, end-to-end hardware, software and middleware platform delivers tracking and monitoring solutions in vertical niche markets worldwide. We answer the “where is” question: such as, where is my mother, child, employee, soldier, pet, drone, rifle, artwork, or other high value assets, through its proprietary IoT (“Internet of Things”) enterprise platform.

 

Since inception, GTX has sold, developed and commercially launched numerous products, including, our GPS Smart Shoes, SmartSoles, Bluetooth Low Energy (“BLE”) SmartSoles, hand-held GPS tracking devices, a proprietary custom military personnel and asset tracking solution, a weapons tracker, pet tracker, infant tracker and more than 20 smartphone and tablet Apps, all supported by our hosted and scalable backend monitoring platform and intellectual property portfolio. The Company has multiple lines of business units comprising of our core wearable tech SmartSole line, Military line, OEM devices and supplies, professional services, Near Field Communications (NFC) asset tracking and intellectual property licensing. The business units generate various revenue streams, such as product sales, recurring subscriptions, software and intellectual property (IP) licensing, fees for custom hardware and software development, professional consulting, and support and maintenance services. Many of our products are protected by GTX’s IP portfolio of issued patents, licensed patents, patents pending, registered trademarks, copyrights, URLs and a library of proprietary hardware and software designs.

 

As of October 8, 2021, we had approximately 214,882,930 shares of common stock, 1,000,000 shares of Series A Preferred Stock, 204 shares of Series B Preferred Stock, and 675 shares of Series C Preferred Stock outstanding. The Company’s common shares are currently quoted on OTC Market’s OTC Pink® Open Market under the symbol “GTXO.”

 

Our principal executive offices are located at 117 W 9th Street, Suite 1214, Los Angeles, CA 90015 and our telephone number is 213-489-3019.

 

3
 

 

Going Concern

 

The consolidated financial statements included in this Offering Circular 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 $368,407 and $586,325 for the years ended December 31, 2020 and 2019, respectively, has incurred losses since inception resulting in an accumulated deficit of $24,177,926 as of December 31, 2020, and has negative working capital of $2,894,105 as of December 31, 2020. A significant part of our negative working capital position at December 31, 2020 consisted of $956,661, 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.

 

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.

 

Business Overview

 

Management’s corporate strategy is to continue to build and develop GTX as a health & safety wearable technology company that provides turnkey solutions for the consumer, enterprise, and government. Most of the GTX tracking and monitoring products are sold with a monthly, quarterly or annual subscription service plan or licensing fees ranging from $2.00 to $35.00, per month per monitored asset. In addition to product sales and recurring service fees, the Company also generates revenues through software and IP licensing. Many of our patents have filing dates going back to 2004, 2005 and 2006 and still have open continuations and our legal team is constantly identifying new companies that are a potential licensee candidate.

 

As part of our long-term growth strategy, we are focused on launching new products, adding new subscribers and signing new licensing agreements so that we can build a steady base of recurring revenues. Launching new products, new vertical sales channels and building out our patent portfolio are the key drivers for growth. The more products we develop and sell the more subscribers we bring onboard. And, as our patent portfolio grows and evolves so do our licensing opportunities. To date we have built a network of strategic partners, a robust technology platform of proprietary hardware and software and a growing intellectual property (IP) portfolio. The GTX product lines of embedded smart wearable GPS devices, Stand-Alone GPS devices, Digital Apps, BLE/NFC solution, encrypted RF military personnel and asset tracking solutions and protective medical supplies and devices are sold both direct to consumer (“B2C”) and business to business (“B2B”) and direct to the Military, through our global network of resellers, affiliates, distributors, non-profit organizations, government agencies, police departments, manufacturers reps and retailers. The Company has been ramping up its product distribution and sales channels and, as of December 31, 2020, the Company had live units in the field and / or paying subscribers in over 35 countries, with well-established customers and distributors in Canada, Mexico, Europe, Latin America, Asia, the Middle East and Africa. In the U.S. the Company sells direct to the consumer through its online ecommerce platform, a host of retailers and resellers along with hundreds of online affiliates. The Company also manages direct B2B enterprise and government sales through its business development team and advisors. The B2B initiatives comprise of supporting existing distributors along with bringing on new distributors, working with U.S. and Foreign Military agencies, to support existing business and secure new business, and domestically to work with local, state, and federal agencies in order to acquire reimbursement codes for its line of SmartSoles. To date GTX has been issued a vendor number for reimbursement in 11 U.S. states and internationally in Canada, Norway, Sweden and in the U.K. the National Health Services (“NHS”) began conducting regional pilots for the wander assistive GPS SmartSoles, in urban centers with high populations of seniors afflicted with dementia. Under these reimbursement programs, the SmartSoles are either partially (50% to 60%) or sometimes up to (100% including the monthly subscriptions) paid for or subsidized by the local, state or federal agencies. We have also applied for grants and private insurance reimbursement along with other health and municipal services in several other countries. Where granted, the subsidies lower the cost of acquiring and owning our tracking products, which can result in an increase in customers and revenues.

 

4
 

 

The Offering

 

This circular relates to the sale of up to 130,015,000 shares of our common stock (the “Shares”) at a price of $______ [between $0.02 and $0.10] per share, for total offering proceeds of up to $2,600,325 if all offered shares are sold. 100,012,500 of such Shares are being offered directly by the Company, for offering proceeds up to $2,000,250, and 30,002,500 Shares are being offered by selling securityholders for offering proceeds up to $600,075. There is no minimum offering amount and no provision to escrow or return investor funds if any minimum number of shares is not sold. The minimum investment amount established for each investor is $10,000. All funds raised by the Company from this offering will be immediately available for the Company’s use. All funds raised by the selling securityholders from this offering will be retained by the selling securityholders.

 

The aggregate purchase price to be paid by any investor for the securities sold hereby cannot exceed 10% of the greater of the investor’s annual income or net worth (for entity investors, revenues or net assets for the investor’s most recently completed fiscal year are used instead). The foregoing limitation does not apply to “accredited investors” and non-natural investors.

 

Shares offered by the Company will be sold by our directors and executive officers. We may also elect to engage licensed broker-dealers. No sales agents have yet been engaged to sell shares. Shares offered by selling securityholders will be sold directly by the selling securityholders or by broker-dealers engaged by such selling securityholders. All shares will be offered on a “best-efforts” basis. Investors may be publicly solicited through our website, investment websites, social media, or otherwise.

 

This offering will terminate at the earlier to occur of: (i) all shares offered hereby are sold, or (ii) one year from the date this Offering Circular is qualified with the SEC. Notwithstanding the foregoing, the Company may terminate this offering at any time or extend this offering by ninety (90) days, in its sole discretion.

 

ABOUT THIS CIRCULAR

 

We have prepared this Offering Circular to be filed with the SEC for our offering of securities. The Offering Circular includes exhibits that provide more detailed descriptions of the matters discussed in this Offering Circular.

 

You should rely only on the information contained in this Offering Circular and its exhibits. We have not authorized any person to provide you with any information different from that contained in this Offering Circular. The information contained in this Offering Circular is complete and accurate only as of the date of this Offering Circular, regardless of the time of delivery of this Offering Circular or sale of our shares. This Offering Circular contains summaries of certain other documents, but reference is hereby made to the full text of the actual documents for complete information concerning the rights and obligations of the parties thereto. All documents relating to this offering and related documents and agreements, if readily available to us, will be made available to a prospective investor or its representatives upon request.

 

INDUSTRY AND MARKET DATA

 

The industry and market data used throughout this Offering Circular have been obtained from our own research, surveys or studies conducted by third parties and industry or general publications. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. We believe that each of these studies and publications is reliable. We have not engaged any person or entity to provide us with industry or market data.

 

TAX CONSIDERATIONS

 

No information contained herein, nor in any prior, contemporaneous or subsequent communication should be construed by a prospective investor as legal or tax advice. We are not providing any tax advice as to the acquisition, holding or disposition of the securities offered herein. In making an investment decision, investors are strongly encouraged to consult their own tax advisor to determine the U.S. Federal, state and any applicable foreign tax consequences relating to their investment in our securities. This written communication is not intended to be “written advice,” as defined in Circular 230 published by the U.S. Treasury Department

 

5
 

 

RISK FACTORS

 

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this Offering Circular before deciding whether to purchase our common stock. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. Our common stock is quoted on OTC Market’s OTC Pink® Open Market under the symbol “GTXO”. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock. As of the date of this Offering Circular, there has not been significant trading of shares of our common stock. The trading price could decline due to any of these risks, and an investor may lose all or part of his, her, or its investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting us. This Offering Circular also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this Offering Circular. In addition to the other information provided in this Offering Circular, you should carefully consider the following risk factors in evaluating our business and before purchasing any of our common stock. All material risks identified by the Company are discussed in this section.

 

Risks Related to this Offering and our Common Stock

 

You could experience substantial dilution in the book value per share of the common stock you purchase.

 

If we offer new stock at a price per share less than the net tangible book value per share, you could experience dilution should the net tangible book value per share drop below the offering price of the shares. Issuance of preferred shares as compensation and shares under convertible debt or derivative securities transactions could affect dilution.

 

We are subject to the reporting requirements of federal securities laws, which is expensive.

 

We are a public reporting company in the United States and, accordingly, subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders causes our expenses to be higher than they would be if we remained a privately-held company.

 

Our stock price may be volatile, which may result in losses to our stockholders.

 

The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies quoted on the OTC Pink® Open Market, where our shares of common stock are quoted, generally have been very volatile and have experienced sharp share-price and trading-volume changes. The trading price of our securities is likely to remain volatile and could fluctuate widely in response to many factors, including but not limited to the following, some of which are beyond our control:

 

  variations in our operating results;
     
  changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;
     
  changes in operating and stock price performance of other companies in our industry;
     
  additions or departures of key personnel; and
     
  future sales of our common stock.

 

6
 

 

Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.

 

In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

 

Our common shares are thinly-traded, and in the future, may continue to be thinly-traded, and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate such shares.

 

We cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.

 

The market price for our common stock may be particularly volatile given that we are a relatively small company and have experienced losses from operations that could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.

 

We do not anticipate paying any cash dividends.

 

We presently do not anticipate that we will pay any dividends on any of our common stock in the foreseeable future. The payment of dividends, if any, would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of our Board of Directors (the “Board”). We presently intend to retain all earnings to implement our business plan; accordingly, we do not anticipate the declaration of any dividends in the foreseeable future.

 

Our common stock may be subject to penny stock rules, which may make it more difficult for our stockholders to sell their common stock.

 

Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 per share. The penny stock rules require a broker-dealer, prior to a purchase or sale of a penny stock not otherwise exempt from the rules, to deliver to the customer a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules.

 

We may need additional capital, and the sale of additional shares or other equity securities could result in additional dilution to our stockholders.

 

We may require additional capital for the development and commercialization of our products and may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our stockholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

 

7
 

 

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

 

The trading market for our common stock could be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

Because our management will have broad discretion and flexibility in how the net proceeds from this offering are used, we may use the net proceeds in ways in which you disagree.

 

We currently intend to use the net proceeds from this offering for general corporate purposes, including working capital. The intended use of proceeds from this offering is more particularly described in the Section titled “Use of Proceeds,” however, such description is not binding and the actual use of proceeds may differ from the description contained therein. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.

 

The offering price of our shares from the Company has been arbitrarily determined.

 

Our management has determined the shares offered by the Company. The price of the shares we are offering was arbitrarily determined based upon the illiquidity and volatility of our common stock, our current financial condition and the prospects for our future cash flows and earnings, and market and economic conditions at the time of the offering. The offering price for the common stock sold in this offering may be more or less than the fair market value for our common stock.

 

The best efforts structure of this offering may yield insufficient gross proceeds to fully execute our business plan.

 

Our officers and directors are offering shares of our common stock in this offering on a best efforts basis. Officers and directors are not required to sell any specific number or dollar amount of common stock, but will use their best efforts to sell the shares offered by us. As a “best efforts” offering, there can be no assurance that the offering contemplated by this offering statement will result in any proceeds being made available to us.

 

We may not register or qualify our securities with any state agency pursuant to blue sky regulations.

 

The holders of our shares of common stock and persons who desire to purchase them in the future should be aware that there may be significant state law restrictions upon the ability of investors to resell our shares. We currently do not intend to and may not be able to qualify securities for resale in states which require shares to be qualified before they can be resold by our shareholders.

 

The resale of shares by the holders of our convertible promissory notes and our other investors could depress the market price of our common stock.

 

We have issued a substantial amount of convertible promissory notes in the recent past to fund our working capital and other financial needs and may need to do so in the future. A number of the holders of these convertible notes have been converting these promissory notes into shares of our common stock. In addition, a substantial additional number of shares are issuable upon the conversion of currently outstanding convertible notes. The resale of a significant number of these shares into the public market by the investors could depress the market price of our common stock.

 

8
 

 

Our convertible notes may be converted into shares of our common stock at less than the then-prevailing market price for our common stock if the lenders chooses to convert the notes.

 

As of December 31, 2020, we had short term convertible notes with outstanding principal balances totaling $912,788 and during the first quarter of 2021 we did not enter into any additional short term convertible notes all of which can potentially be convertible into shares of the Company’s common stock at prices less than the then-prevailing market price. The lenders for these convertible notes have a financial incentive to convert the notes and realize the profit equal to the difference between the conversion price and the market price. If the convertible notes are converted, the price of our common stock could decrease. See further discussion regarding the conversion features of our convertible debentures in footnote 8 of our Financial Statements included herein.

 

During 2020, we converted notes payable with principal balances of approximately $421,355 owed to various investors into 53,612,687 shares of our common stock. Our average market price during 2020 was $0.0133 per share. Although our goal is to limit future issuances of such convertible notes, no assurance can be given that we will not have to raise funds from these types of investments in the future.

 

Risks Related to our Business

 

We will need additional funding in the near future to continue our current level of operations and growth.

 

As of December 31, 2020, we had a working capital deficit of $2,894,105 and an accumulated deficit of $24,177,926. In addition, for the year ended December 31, 2020, we had a loss of $368,407. Revenues generated from our current operations are not sufficient to pay our on-going operating expenses. In addition to product and services sales, our working capital needs in 2020 were partially funded by the sale of approximately $275,000 in PPE’s and $20,000 of licensing income that we received from our LLC partnership with Inventergy Innovations and the Inpixon transaction, the sale of our preferred securities as part of a Securities Purchase Agreement (“SPA”) for $250,000 and drawing down $139,319 on our Lines of Credit. Therefore, we continue to obtain additional funding from the sale of our securities or from strategic transactions in order to fund our current level of operations.

 

Aside from continuing these loan transactions, we have not identified the sources for additional financing that we may require, and we do not have commitments from third parties to continue to provide this financing. Being a micro-cap stock, certain investors may be unwilling to invest in our securities. There is no assurance that sufficient funding through a financing will be available to us at acceptable terms or at all. Historically, we have raised capital through the issuance of convertible debt securities or straight equity securities. However, given the risks associated with our business, the risks associated with our common stock, the worldwide financial uncertainty that has affected the capital markets, and our status as a small, unknown public company, we expect in the near future, we will have a great deal of difficulty raising capital through traditional financing sources. Therefore, we cannot guarantee that we will be able to raise capital, or if we are able to raise capital, that such capital will be in the amounts needed. Our failure to raise capital, when needed, and in sufficient amounts, will severely impact our ability to continue to develop our business as planned. In addition, if we are unable to obtain funding as, and when needed, we may have to further reduce and/or cease our future operations. Any additional funding that we obtain in an equity or convertible debt financing is likely to reduce the percentage ownership of the company held by our existing security holders.

 

Based on the above factors, our auditors have concluded that there is substantial doubt as to our ability to continue as a going concern.

 

There is substantial doubt about the entity’s ability to continue as a 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 $368,407 and $586,325 for the years ended December 31, 2020 and 2019, respectively, has incurred losses since inception resulting in an accumulated deficit of $24,177,926 as of December 31, 2020, and has negative working capital of $2,894,105 as of December 31, 2020. A significant part of our negative working capital position at December 31, 2020 consisted of $912,788, of amounts due to various accredited investors of the Company for convertible promissory notes, loans and a letter of credit, as well as $217,870 in CARE loans. The Company anticipates further losses in the development of its business.

 

9
 

 

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.

 

We have had operating losses since formation and expect to continue to incur net losses for the near term.

 

We currently have a working capital deficit and our current and projected revenues are not sufficient to fund our anticipated operating needs. We have reported net losses of $368,407 and $586,325 for the years ended December 31, 2020 and 2019, respectively. While we anticipate that revenues will increase in 2021, unless our sales increase substantially in the near future, we will continue to incur net losses in the near term, and we may never be able to achieve profitability. In order to achieve profitable operations, we need to significantly increase our revenues from the sales of product, subscriptions and licensing fees. We cannot be certain that our business will ever be successful or that we will generate significant revenues and become profitable. As a result, an investment in our company is highly speculative and no assurance can be given that our business model will be successful and, therefore, that our stockholders will realize any return on their investment or that they will not lose their entire investment.

 

The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.

 

Our Amended and Restated Bylaws contain specific provisions that eliminate the liability of our directors for monetary damages to our company and stockholders, and permit indemnification of our directors and officers to the extent provided by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and stockholders.

 

Our current sources of funding are limited, and any additional funding that we may obtain may be on unfavorable terms and may significantly dilute our existing shareholders.

 

We have not identified sources to fund our current and proposed operating activities. The amount of revenues that we currently generate is not sufficient to fund our operating expenses. As a result, unless and until our revenues increase significantly in the near future, we will have to obtain additional public or private equity financings or debt financings in order to continue our operations. 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. To the extent we raise additional capital by issuing equity securities, our stockholders will experience further dilution. If we raise funds through debt financings, we may become subject to restrictive covenants. We may also attempt to raise funds through corporate collaboration and licensing arrangements. To the extent that we raise additional funds through such means, we may be required to relinquish some rights to our technologies or products, or 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 will have to reduce or even totally discontinue our operations, which would have a significant negative impact on our stockholders and could result in a total loss of their investment in our stock.

 

10
 

 

Our future capital requirements, and our currently projected operating and liquidity requirements, will depend on many factors, including:

 

  The ramping and scaling of the GPS SmartSole® and BLE SmartSole;
     
  Supporting growth with advertising and marketing;
     
  Our ongoing general and administrative expenses related to our being a reporting company;
     
  The cost of developing and improving our products and technologies thru R&D and staying competitive; and
     
  The maintenance and the ongoing development of our IP portfolio.

 

Funding, especially on terms acceptable to us, may not be available to meet our future capital needs because of the state of the credit and capital markets. Global market and economic conditions have been, and continue to be, disruptive and volatile. The cost of raising money in the debt and equity capital markets for smaller companies like ours has increased substantially while the availability of funds from those markets has diminished significantly. Also, low valuations and decreased appetite for equity investments, among other factors, may make the equity markets difficult to access on acceptable terms or unavailable altogether.

 

If adequate funds are not available, we may be required to delay, scale-back or eliminate our product enhancement and new product development programs. There can be no assurance that additional financing will be available on acceptable terms or at all, if and when required.

 

Our projected revenues in 2021 rely on the scaling of the our new 4G LTE GPS SmartSole®, adding subscribers, increasing our military business, growing our OEM and IP monetization business, and continuing the sales of PPE and other related medical products and supplies.

 

Due to the financial slowdown of 2020 which impacted our subscription business and launch our new 4G LTE SmartSoles, we did not generate adequate revenues in 2020 from the sales of the SmartSoles and from on-going subscription fees to cover all of our operating expenses. Our revenue projections for 2021 assume that the revenues we generate from the SmartSole, including subscriptions will increase from the amount generated in 2020 and that our other business units will grow accordingly. However, we cannot predict the future and continued market acceptance of the SmartSole product line. Accordingly, it is uncertain whether our revenues will equal our internally projected levels. Failure to reach our target revenue levels will materially, and adversely, affect our financial condition.

 

We may never receive significant additional revenues from our strategic agreement with Inventergy Innovations, LLC.

 

On June 16, 2016, the Company entered into a Definitive Agreement with Inventergy Innovations, LLC, a subsidiary of Inventergy Global, Inc. (NASDAQ: INVT). The purpose of the Definitive Agreement is to allow Inventergy to monetize three of the Company’s location based patents. Inventergy Innovations intends to generate a return by either licensing these patents to third parties, sell the patents, or to initiate a patent infringement suit against potential infringers and seek damages from infringers. The Company owns a 45% interest in Inventergy Innovations. Therefore, if Inventergy Innovations is successful in monetizing the three patents, the potential return to the Company from its arrangement with Inventergy could be substantial. However, the Company cannot predict the amount Inventergy will be able to generate as a return from these patents, how much revenue Inventergy could generate, or when such returns would be realized. There are numerous risks associated with monetizing the three patents, including Inventergy’s ability to fund protracted infringement litigation with potential infringers, its ability to successfully out-license the rights, and its determination and willingness to pursue these patented rights.

 

11
 

 

The nature of our business is speculative and dependent on a number of variables beyond our control that cannot be reliably ascertained in advance.

 

The revenues and profits of an enterprise involved in the location based business are generally dependent upon many variables. Our customer appeal depends upon factors which cannot be reliably ascertained in advance and over which we have no control, such as unpredictable customer and media reviews, industry analyst commentaries, and comparisons to competitive products. As with any relatively new business enterprise operating in a specialized and intensely competitive market, we are subject to many business risks which include, but are not limited to, unforeseen marketing difficulties, excessive research and development expenses, unforeseen negative publicity, competition, product liability issues, manufacturing and logistical difficulties, and lack of operating experience. Many of the risks may be unforeseeable or beyond our control. There can be no assurance that we will successfully implement our business plan in a timely or effective manner, that we will be able to generate sufficient interest in our products, or that we will be able to market and sell enough products and services to generate sufficient revenues to continue as a going concern.

 

Our wireless location products and technologies have to continuously evolve and respond to market changes. If we are unable to commercially release products that are accepted in the market or that generate significant revenues, our financial results will continue to suffer.

 

Wireless technology is rapidly changing, as are the products that our customers are demanding. In order to be able to provide our customers with the products and services that they desire, we too must continuously develop and offer new and improved products and services. We have attempted to adjust our product offerings to address changing market conditions by offering products such as proprietary GPS enabled transport containers, footwear location products, and a variety of smartphone location Apps, secure backpacks, etc. These products have met with short-term or limited commercial success, and there can be no assurances that consumer or commercial demand for our future products will meet, or even approach, our expectations. In addition, our pricing and marketing strategies may not be successful. Lack of customer demand, a change in marketing strategy and changes to our pricing models could dramatically alter our financial results. Unless we are able to release location based products that meet a significant market demand, we will not be able to improve our financial condition or the results of our future operations.

 

In order for our products to be successful, we need to establish market recognition quickly, following the introduction of our products.

 

We believe it is imperative to our success that we obtain significant market recognition in order to compete in our various markets. Accordingly, it is important that we establish market recognition for our brands in order to be able to continue to be a material participant in the large markets that we are addressing. To date, we have utilized various marketing and free media exposure and have tried to build market recognition both directly for our products and also by tying our products to our LOCiMOBILE Apps and the Code Amber Alertag brand that we own. However, because of our lack of funding and limited resources, our ability to quickly establish our brands may be severely hampered.

 

We may encounter manufacturing or assembly problems for our products, which would adversely affect our results of operations and financial condition.

 

To date, we have only manufactured a limited number of products. In addition, we are continually redesigning and enhancing our products and we are designing new products based on that technology that we hope to manufacture and market in the near future. The manufacture and assembly of our products involves complex and precise processes, some of which have subcontracted to other companies and consultants. To date, we have experienced some quality issues with the limited production of some of our initial products. Although we continue to address these issues, we have only manufactured a limited quantity of products and so we do not yet know whether we will encounter any serious problems in the production of larger quantities of our existing or new products. Any significant problems in manufacturing, assembling or testing our products could delay the sales of our products and have an adverse impact on our business and prospects. The willingness of manufacturers to make the product, or lack of availability of manufacturing capacity, may have an adverse impact on the availability of our products and on our ability to sell our products. Manufacturing difficulties will harm our ability to compete and adversely affect our results of operations and financial condition, and may hinder our ability to grow our business as we expect.

 

12
 

 

We primarily depend upon two manufacturers for the components of our SmartSole and if we encounter problems with these manufacturers there is no assurance that we could obtain products from other manufacturers without significant disruptions to our business.

 

The principal components and subassemblies of our products are currently manufactured for us by two manufacturers. Although we could arrange for other manufacturers to supply these components and subassemblies, there is no assurance that we could do so without undue cost, expense and delay. If our manufacturers are unable to provide us with adequate supplies of high-quality components on a timely and cost-efficient basis, our operations will be disrupted and our net revenue and profitability will suffer. Moreover, if those manufacturers cannot consistently produce high-quality products that are free of defects, we may experience a high rate of product returns, which would also reduce our profitability and may harm our reputation and brand. Although we believe that we could locate alternate contract manufacturers, our operations would be impacted until alternate manufacturers are found.

 

Our markets are highly competitive, and our failure to compete successfully would limit our ability to sell our products, attract and retain customers and grow our business.

 

Our markets are highly competitive, and we expect that both direct and indirect competition will increase in the future. Within each of our markets, we encounter direct competition from various larger U.S. and non-U.S. competitors. The adoption of new technology in the communications industry likely will intensify the competition for improved wireless location technologies. The wireless location services market has historically been dominated by large companies, such as Siemens AG, AT&T and LoJack Corporation. In addition, a number of other companies such as Trimble Navigation, Zoomback, Verizon, FireFly, Disney, Mattel, Digital Angel Corporation, Location-Based Technologies, Inc. and WebTech Wireless Inc. either have announced plans for new products or have commenced selling products that are similar to our wireless location products, and new competitors are emerging both in the U.S. and abroad to compete with our wireless location services products. Due to the rapidly evolving markets in which we compete, additional competitors with significant market presence and financial resources may enter those markets, thereby further intensifying competition, adversely affecting our sales, and adversely affecting our business and prospects.

 

We may not be successful in developing our new products and services.

 

The market for telecommunications based products and services is characterized by rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards. These market characteristics are exacerbated by the emerging nature of this market and the fact that many companies are expected to continually introduce new and innovative products and services. Our success will depend partially on our ability to introduce new products, services and technologies continually and on a timely basis and to continue to improve the performance, features and reliability of our products and services in response to both evolving demands of prospective customers and competitive products. There can be no assurance that any of our new or proposed products or services will maintain the limited market acceptance that we have to date established. Our failure to design, develop, test, market and introduce new and enhanced products, technologies and services successfully so as to achieve market acceptance could have a material adverse effect upon our business, operating results and financial condition.

 

There can be no assurance that we will not experience difficulties that could delay or prevent the successful development, introduction or marketing of new or enhanced products and services, or that our new products and services will adequately satisfy the requirements of prospective customers and achieve significant acceptance by those customers. Because of certain market characteristics, including technological change, changing customer needs, frequent new product and service introductions and evolving industry standards, the continued introduction of new products and services is critical. Delays in the introduction of new products and services may result in customer dissatisfaction and may delay or cause a loss of revenue. There can be no assurance that we will be successful in developing new products or services or improving existing products and services that respond to technological changes or evolving industry standards.

 

In addition, new or enhanced products and services introduced by us may contain undetected errors that require significant design modifications. This could result in a loss of customer confidence which could adversely affect the use of our products, which in turn, could have a material adverse effect upon our business, results of operations or financial condition.

 

13
 

 

Our software products are complex and may contain unknown defects that could result in numerous adverse consequences, resulting in costly litigation or diverting management’s attention and resources.

 

Complex software products such as those associated with our products often contain latent errors or defects, particularly when first introduced, or when new versions or enhancements are released. We have experienced and addressed errors and defects in the software associated with our products, but do not believe these errors will have a material negative effect in the future on the functionality of the products. However, there can be no assurance that, despite testing, additional defects and errors will not be found in the current version, or in any new versions or enhancements of this software or any of our products, any of which could result in damage to our reputation, the loss of sales, a diversion of our product development resources, and/or a delay in market acceptance, and thereby materially adversely affecting our business, operating results and financial condition. Furthermore, there can be no assurance that our products will meet all of the expectations and demands of our customers. The failure of our products to perform to customer expectations could give rise to warranty claims. Any of these claims, even if not meritorious, could result in costly litigation or divert management’s attention and resources. Any product liability insurance that we may carry could be insufficient to protect us from all liability that may be imposed under any asserted claims.

 

We cannot accurately predict our future revenues and expenses.

 

We are currently developing various sources of revenues based on market conditions and the type of products that we are marketing. Our sales will not become stable and predictable until we either have a larger installed base of users for our tracking devices (which will provide us with predictable, monthly revenues), we enter into other license agreements that provide us with regular royalties or subscription revenues, or we consummate other large scale enterprise contracts. As such, the amount of revenues we receive from the sale and use of our products, our subscriptions, and our licensing agreements, will fluctuate and depend upon our customer’s willingness to buy our products, and for our partner’s abilities to sell the products that contain our technology. As with any developing enterprise operating in a specialized and intensely competitive market, we are subject to many business risks which include, but are not limited to, unforeseen negative publicity, competition, product liability and lack of operating experience. Many of the risks may be unforeseeable or beyond our control. There can be no assurance that we will successfully implement our business plan in a timely manner, or generate sufficient interest in our products or services, or that we will be able to market and sell enough products and services to generate sufficient revenues to continue as a going concern.

 

Our expense levels in the future will be based, in large part, on our expectations regarding future revenue, and as a result net income/loss for any quarterly period in which material orders are delayed could vary significantly. In addition, our costs and expenses may vary from period to period because of a variety of factors, including our research and development costs, our introduction of new products and services, cost increases from third-party service providers or product manufacturers, production interruptions, changes in marketing and sales expenditures, and competitive pricing pressures.

 

There are risks of international sales and operations.

 

We anticipate that a growing, and potentially substantial portion of our future revenue from the sale of our products and services may be derived from customers located outside the United States. As such, a portion of our sales and operations could be subject to tariffs and other import-export barriers, currency exchange risks and exchange controls, foreign product standards, potentially adverse tax consequences, longer payment cycles, problems in collecting accounts receivable, political instability, and difficulties in staffing and managing foreign operations. Although we intend to monitor our exposure to currency fluctuations and currently the U.S. dollar is very strong giving us a significant buying advantage, there can be no assurance that exchange rate fluctuations will not have an adverse effect on our results of operations or financial condition. In the future, we could be required to sell our products and services in other currencies, which would make the management of currency fluctuations more difficult and expose our business to greater risks in this regard.

 

Our products may be subject to numerous foreign government standards and regulations that are continually being amended. Although we will endeavor to satisfy foreign technical and regulatory standards, there can be no assurance that we will be able to comply with foreign government standards and regulations, or changes thereto, or that it will be cost effective for us to redesign our products to comply with such standards or regulations. Our inability to design or redesign products to comply with foreign standards could have a material adverse effect on our business, financial condition and results of operations.

 

14
 

 

Because of the global nature of the telecommunications business, it is possible that the governments of other states and foreign countries might attempt to regulate our transmissions or prosecute us for violations of their laws. There can be no assurance that violations of local laws will not be alleged by state or foreign governments, that we might not unintentionally violate such law, or that such laws will not be modified, or new laws enacted, in the future.

 

Any of the foregoing factors could have a material adverse effect on our business, results of operations, and financial condition.

 

If we fail to develop and maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, our current and potential stockholders could lose confidence in our financial reports, which could harm our business and the trading price of our common stock.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and, depending on our future growth, may require our independent registered public accounting firm to annually attest to our evaluation, as well as issue their own opinion on our internal controls over financial reporting. The process of implementing and maintaining proper internal controls and complying with Section 404 is expensive and time consuming. We cannot be certain that the measures we will undertake will ensure that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controls that we will need will become more complex, and significantly more resources will be required to ensure our internal controls remain effective. Failure to implement required controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our auditors discover a material weakness in our internal controls, the disclosure of that fact, even if the weakness is quickly remedied, could diminish investors’ confidence in our financial statements and harm our stock price. In addition, non-compliance with Section 404 could subject us to a variety of administrative sanctions, including the suspension of trading, ineligibility for future listing on one of the Nasdaq Stock Markets or national securities exchanges, and the inability of registered broker-dealers to make a market in our common stock, which may reduce our stock price.

 

We may suffer from product liability claims.

 

Faulty operation of our products may result in product liability claims brought against us. Regardless of the merit or eventual outcome, product liability claims may materially adversely affect our business and further result in:

 

  decreased demand for our products or withdrawal of the products from the market;
     
  injury to our reputation and significant media attention;
     
  costs of litigation; and
     
  substantial monetary awards to plaintiffs.

 

We have purchased annual product liability insurance with liability limits of $1,000,000 per occurrence and $2,000,000 in the aggregate. This coverage may not be sufficient to fully protect us against product liability claims. We intend to expand our product liability insurance coverage as sales of our products expand. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against product liability claims could prevent or limit the commercialization of our products and expose us to liability in excess of our coverage.

 

15
 

 

Our ability to compete could be jeopardized and our business seriously compromised if we are unable to protect ourselves from third-party challenges or infringement of the proprietary aspects of the wireless location products and technology we develop.

 

Our products utilize a variety of proprietary rights that are critical to our competitive position. Because the technology and intellectual property associated with our wireless location products are evolving and rapidly changing, our current intellectual property rights may not adequately protect us in the future. We rely on a combination of patent, copyright, trademark and trade secret laws and contractual restrictions to protect the intellectual property utilized in our products. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. In addition, monitoring unauthorized use of our products is difficult and we cannot be certain the steps we have taken will prevent unauthorized use of our technology. Also, it is possible that no additional patents or trademarks will be issued from our currently pending or future patent or trademark applications. Because legal standards relating to the validity, enforceability and scope of protection of patent and intellectual property rights are uncertain and still evolving, the future viability or value of our intellectual property rights is uncertain. Moreover, effective patent, trademark, copyright and trade secret protection may not be available in some countries in which we distribute or anticipate distributing our products. Furthermore, our competitors may independently develop similar technologies that limit the value of our intellectual property, design or patents. In addition, third parties may at some point claim certain aspects of our business infringe their intellectual property rights. While we are not currently subject to nor aware of any such claim, any future claim (with or without merit) could result in one or more of the following:

 

  Significant litigation costs;
     
  Diversion of resources, including the attention of management;

 

  Our agreement to pay certain royalty and/or licensing fees;
     
  Cause us to redesign those products that use such technology; or
     
  Cessation of our rights to use, market, or distribute such technology.

 

Any of these developments could materially and adversely affect our business, results of operations and financial condition. In the future, we may also need to file lawsuits to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Whether successful or unsuccessful, such litigation could result in substantial costs and diversion of resources. Such costs and diversion could materially and adversely affect our business, results of operations and financial condition.

 

We depend on our key personnel to manage our business effectively in a rapidly changing market. If we are unable to retain our key employees, our business, financial condition and results of operations could be harmed.

 

Our future success depends to a significant degree on the skills, efforts and continued services of our executive officers and other key engineering, manufacturing, operations, sales, marketing and support personnel. If we were to lose the services of one or more of our key executive officers or other key engineering, manufacturing, operations, sales, marketing and support personnel, we may not be able to grow our business as we expect, and our ability to compete could be harmed, adversely affecting our business and prospects.

 

Our products depend on continued availability of GPS and cellular wireless telecommunications systems.

 

Our products use existing GPS and cellular wireless telecommunications systems to identify the position of our products. Any temporary or permanent change in the availability of these systems, or any material change in the existing infrastructure and our ability to access those systems, would materially and adversely affect our business, operating results and financial condition may be materially and adversely affected.

 

Rapid technological change in our market and/or changes in customer requirements could cause our products to become obsolete or require us to redesign our products, which would have a material adverse effect on our business, operating results and financial condition.

 

The market for our products is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changing customer demands and evolving industry standards, any of which can render existing products obsolete. We believe that our future success will depend in large part on our ability to develop new and effective products in a timely manner and on a cost-effective basis. As a result of the complexities inherent in our products, major new products and product enhancements can require long development and testing periods, which may result in significant delays in the general availability of new releases or significant problems in the implementation of new releases. In addition, if we or our competitors announce or introduce new products our current or future customers may defer or cancel purchases of our products, which could materially adversely affect our business, operating results and financial condition. Our failure to develop successfully, on a timely and cost effective basis, new products or new product enhancements that respond to technological change, evolving industry standards or customer requirements would have a material adverse effect on our business, operating results and financial condition.

 

16
 

 

Changes in the government regulation of our wireless location products or wireless carriers could harm our business.

 

Our products, wireless carriers and other components of the communications industry are subject to domestic government regulation by the Federal Communications Commission (the “FCC”) and international regulatory bodies. If we are unable to satisfy all of the regulations of the FCC or any other regulatory body, we could be prevented from releasing one or more of our products, which could materially and adversely affect our future revenues. In addition, any delay in obtaining FCC and other regulatory approval could likewise have a negative impact on our business and on our relationships with our customers. These regulatory bodies could enact regulations that affect our products or the service providers which distribute our products, such as limiting the scope of the service providers’ market, capping fees for services provided by them or imposing communication technology standards which impact our products. Changes in these regulations could affect our products and, thereby, adversely affect our business and operations.

 

Future acquisitions or strategic investments may not be successful and may harm our operating results.

 

As part of our strategy, we have acquired or established smaller businesses, and we may do so in the future. For example, in the past we established our LOCiMOBILE, Inc. subsidiary and purchased our Code Amber News Service, Inc. subsidiary, which was discontinued in February 2015. Future acquisitions or strategic investments could have a material adverse effect on our business and operating results because of:

 

  The assumption of unknown liabilities, including employee obligations. Although we normally conduct extensive legal and accounting due diligence in connection with our acquisitions, there are many liabilities that cannot be discovered, and which liabilities could be material.
     
  We may become subject to significant expenses related to bringing the financial, accounting and internal control procedures of the acquired business into compliance with U.S. GAAP financial accounting standards and the Sarbanes Oxley Act of 2002.
     
  Our operating results could be impaired as a result of restructuring or impairment charges related to amortization expenses associated with intangible assets.
     
  We could experience significant difficulties in successfully integrating any acquired operations, technologies, customers’ products and businesses with our existing operations.
     
  Future acquisitions could divert substantial capital and our management’s attention.
     
  We may not be able to hire the key employees necessary to manage or staff the acquired enterprise operations.

 

Our executive officers and directors have the ability to significantly influence matters submitted to our stockholders for approval.

 

As of October 8, 2021, our executive officers and directors, in the aggregate, beneficially own shares representing approximately 0.35% of our common stock as well as super voting rights due to the Directors’ ownership of Series A preferred shares (see the item titled “Security Ownership of Management and Certain Securityholders” on page 51). Beneficial ownership includes shares over which an individual or entity has investment or voting power and includes shares that could be issued upon the exercise of options and warrants within 60 days after the date of determination. On matters submitted to our stockholders for approval, holders of our common stock are entitled to one vote per share. If our executive officers and directors choose to act together, they would have significant influence over all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these individuals, if they chose to act together, would have significant influence on the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

 

17
 

 

Failure to manage growth effectively could adversely affect our business, results of operations and financial condition.

 

The success of our future operating activities will depend upon our ability to expand our support system to meet the demands of our growing business. Any failure by our management to effectively anticipate, implement, and manage changes required to sustain our growth would have a material adverse effect on our business, financial condition, and results of operations. We cannot assure you that we will be able to successfully operate acquired businesses, become profitable in the future, or effectively manage any other change.

 

Current global financial conditions have been characterized by increased volatility which could negatively impact our business, prospects, liquidity and financial condition.

 

Current global financial conditions and recent market events have been characterized by increased volatility and the resulting tightening of the credit and capital markets has reduced the amount of available liquidity and overall economic activity. We cannot guaranty that debt or equity financing, the ability to borrow funds or cash generated by operations will be available or sufficient to meet or satisfy our initiatives, objectives or requirements. Our inability to access sufficient amounts of capital on terms acceptable to us for our operations will negatively impact our business, prospects, liquidity and financial condition.

 

We will need to grow the size of our organization, and we may experience difficulties in managing any growth we may achieve.

 

As our development and commercialization plans and strategies develop, we expect to need additional research, development, managerial, operational, sales, marketing, financial, accounting, legal, and other resources. Future growth would impose significant added responsibilities on members of management. Our management may not be able to accommodate those added responsibilities, and our failure to do so could prevent us from effectively managing future growth, if any, and successfully growing our company.

 

We may expend our limited resources to pursue a particular product and may fail to capitalize on products that may be more profitable or for which there is a greater likelihood of success.

 

Because we have limited financial and managerial resources, we have focused our efforts on particular products. As a result, we may forego or delay pursuit of opportunities with other products that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Any failure to improperly assess potential products could result in missed opportunities and/or our focus on products with low market potential, which would harm our business and financial condition.

 

Any inability to protect our intellectual property rights could reduce the value of our technologies and brands, which could adversely affect our financial condition, results of operations and business.

 

Our business is dependent upon our trademarks, trade secrets, copyrights and other intellectual property rights. There is a risk of certain valuable trade secrets being exposed to potential infringers. The efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time consuming. There is a risk that we may have insufficient resources to counter adequately such infringements through negotiation or the use of legal remedies. It may not be practicable or cost effective for us to fully protect our intellectual property rights in some countries or jurisdictions. If we are unable to successfully identify and stop unauthorized use of our intellectual property, we could lose potential revenue and experience increased operational and enforcement costs, which could adversely affect our financial condition, results of operations and business.

 

18
 

 

If we are unable to develop and maintain our brand and reputation for our product offerings, our business and prospects could be materially harmed.

 

Our business and prospects depend, in part, on developing and then maintaining and strengthening our brands and reputation in the markets we serve. If problems with our products or technologies cause customers to experience operational disruption or failure or delays, our brand and reputation could be diminished. If we fail to develop, promote and maintain our brand and reputation successfully, our business and prospects could be materially harmed.

 

The novel coronavirus disease of 2019 (“COVID-19”) has had, and continues to have, broad impacts on multiple sectors of the global economy, making it difficult to predict the extent of its impact on our business.

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this Offering Circular. As such, it is uncertain as to the full magnitude that the pandemic will have on our financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity for the foreseeable future.

 

SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS

 

Some of the statements in this Offering Circular are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the factors set forth above under “Risk Factors.” The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place undue reliance on these forward-looking statements.

 

We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements in this document to reflect any future or developments. However, the Private Securities Litigation Reform Act of 1995 is not available to us as a non-reporting issuer. Further, Section 27A(b)(2)(D) of the Securities Act and Section 21E(b)(2)(D) of the Exchange Act expressly state that the safe harbor for forward looking statements does not apply to statements made in connection with an initial public offering.

 

DILUTION

 

There is no material disparity between the public offering price of our shares and the effective cash cost to officers, directors, promoters and affiliated persons for shares acquired by them in a transaction during the past year, or that they have a right to acquire.

 

PLAN OF DISTRIBUTION AND SELLING SECURITYHOLDERS

 

We currently plan to have our directors and executive officers sell the Shares offered by the Company on our behalf. Our officers and directors will receive no discounts or commissions. Our executive officers will deliver this circular to those persons who they believe might have interest in purchasing all or a part of this offering. The Company may generally solicit investors, including, but not limited to, the use of social media, newscasts, advertisements, roadshows and the like.

 

There is no minimum offering amount and no provision to escrow or return investor funds if any minimum number of shares is not sold. The minimum investment amount established for each investor purchasing through the Company is $10,000. All funds raised by the Company from this offering will be immediately available for the Company’s use. In lieu of cash, the Company may elect to accept the exchange of existing debt for shares offered hereby, pursuant to the terms of this Offering Circular.

 

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As of the date of this Offering Circular, we have not entered into any arrangements with any selling agents for the sale of the securities; however, we may engage one or more selling agents to sell the securities in the future. If we elect to do so, we will file a supplement to this circular to identify such selling agent(s).

 

Our directors and officers will not register as broker-dealers under Section 15 of the Securities Exchange Act of 1934 in reliance upon Rule 3a4-1. Rule 3a4-1 sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed to be a broker-dealer. The conditions are that:

 

the person is not statutorily disqualified, as that term is defined in Section 3(a)(39) of the Exchange Act, at the time of his participation; and
   
the person is not at the time of their participation an associated person of a broker-dealer; and
   
the person meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that he (i) primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the issuer otherwise than in connection with transactions in securities; and (ii) is not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and (iii) does not participate in selling and offering of securities for any issuer more than once every 12 months other than in reliance on paragraphs (a)(4)(i) or (a)(4)(iii) of Rule 3a4-1 of the Exchange Act.

 

Our officers and directors are not statutorily disqualified, are not being compensated, and are not associated with a broker-dealer. They are and will continue to hold their positions as officers or directors following the completion of the offering and have not been during the past 12 months and are currently not brokers or dealers or associated with brokers or dealers. They have not nor will they participate in the sale of securities of any issuer more than once every 12 months.

 

Unless sooner withdrawn or canceled by us, the offering will continue until (i) the maximum offering amount has been sold, or (ii) one year from the date this Offering Circular is qualified with the SEC. Notwithstanding the foregoing, the Company may terminate this offering at any time or extend this offering by ninety (90) days, in its sole discretion.

 

Selling Securityholders

 

The following table sets forth, based on information provided to us by the selling securityholders or known to us, the name of each selling securityholder, the number of shares of our common stock beneficially owned by the securityholder before this offering, the amount of Shares offered for the securityholder’s account, and the amount to be owned after the offering. We have assumed all shares of common stock reflected on the table will be sold from time to time in the offering covered by this Offering Circular. Since the selling securityholders may offer all or any portions of the shares of common stock listed in the table below, no estimate can be given as to the amount of those shares of common stock covered by this Offering Circular that will be held by the selling securityholders upon the termination of the offering.

 

Name of Selling Securityholder 

Number of Shares Beneficially

Owned Before the Offering

   Shares Being Offered   Percentage of Outstanding Shares (1)  

Number of Shares Beneficially

Owned After Offering

 
Gregory Castaldo   12,333,334    12,333,334    5.74%   0 
Special Equities Opportunity Fund, LLC (2)   10,000,000    10,000,000    4.66%   0 
The Special Equities Group, LLC (3)   10,020,000    10,000,000    4.66%   20,000 
Iroquois Master Fund, Ltd. (4)   11,111,100    11,111,100    5.18%   0 
Iroquois Capital Investment Group, LLC (5)   5,555,566    5,555,566    2.59%   0 
Selling securityholders as a group [5 persons]   49,020,000    30,002,500    22.82%   20,000 

 

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(1) Based on 214,882,930 shares outstanding as of October 8, 2021.
   
(2) Special Equities Opportunity Fund, LLC is managed by Jonathan Schechter, Joseph Reda, and Andrew Arno.
   
(3) The Special Equities Group, LLC is managed by Jonathan Schechter, Joseph Reda, and Andrew Arno.
   
(4) Iroquois Master Fund, Ltd. is managed by Richard Abbe and Kimberly Page.
   
(5) Iroquois Capital Investment Group, LLC is managed by Richard Abbe.

 

Each selling securityholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal trading market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling securityholder may use any one or more of the following methods when selling securities:

 

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
  block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
  an exchange distribution in accordance with the rules of the applicable exchange;
  privately negotiated transactions;
  settlement of short sales;
  in transactions through broker-dealers that agree with the selling securityholders to sell a specified number of such securities at a stipulated price per security;
  through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
  a combination of any such methods of sale; or
  any other method permitted pursuant to applicable law.

 

The selling securityholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this offering statement.

 

Broker-dealers engaged by the selling securityholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling securityholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement or amendment to this Offering Circular, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

In connection with the sale of the securities or interests therein, the selling securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling securityholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling securityholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this offering statement, which securities such broker-dealer or other financial institution may resell pursuant to this offering statement (as supplemented or amended to reflect such transaction).

 

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The selling securityholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling securityholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the selling securityholders or any other person. We will make copies of this Offering Circular available to the selling securityholders and have informed them of the need to deliver a copy of this Offering Circular to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

Prior to selling any shares offered hereby, the selling securityholders must first exercise warrants held by the selling securityholders. Some of these warrants may be exercised by cashless exercise. For those not exercised through cashless exercise, the Company will receive proceeds equal to the exercise price of the applicable warrant multiplied by the shares exercised. There is no way for the Company at this point to determine the number of warrants to be exercised by the selling securityholders or the proceeds to be received by the Company as a result thereof.

 

OTC Markets Considerations

 

The OTC Markets is separate and distinct from the Nasdaq stock market or other national exchange. Nasdaq has no business relationship with issuers of securities quoted on the OTC Markets. The SEC’s order handling rules, which apply to Nasdaq-listed securities, do not apply to securities quoted on the OTC Markets.

 

Although the Nasdaq and other national stock markets have rigorous listing standards to ensure the high quality of their issuers, and can delist issuers for not meeting those standards; the OTC Markets has no listing standards. Rather, it is the market maker who chooses to quote a security on the system, files the application, and is obligated to comply with keeping information about the issuer in its files.

 

Although we believe being listed on the OTC Markets increases liquidity for our stock, investors may have greater difficulty in getting orders filled than if we were on Nasdaq or other exchange. Investors’ orders may be filled at a price much different than expected when an order is placed. Trading activity in general is not conducted as efficiently and effectively on OTC Markets as with exchange-listed securities. Also, because OTC Markets stocks are usually not followed by analysts, there may be lower trading volume than for Nasdaq-listed securities.

 

Investors must contact a broker-dealer to trade OTC Markets securities. Investors do not have direct access to the quotation service. For OTC Markets securities, there only has to be one market maker.

 

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USE OF PROCEEDS

 

The following table illustrates the amount of net proceeds to be received by the Company on the sale of the common shares offered hereby and the intended uses of such proceeds over an approximate twelve (12) month period. The net proceeds of the maximum offering would be approximately $2,600,325, $600,075 of which will be delivered directly to the selling securityholders and the balance of $2,000,250 would be available for immediate use by the Company. It is possible that we may not raise the entire $2,000,250 in shares being offered through this Offering Circular. In such case, we will reallocate the use of proceeds as the board of directors deems to be in the best interests of the Company in order to effectuate its business plan. The Company may also receive proceeds from the exercise of warrants held by the selling securityholders, which the Company will use for general working capital. The intended use of proceeds are as follows:

 

Capital Sources and Uses

 

    100%   75%   50%   25%
Gross Offering Proceeds  $2,000,250   $1,500,188   $1,000,125   $500,063 
Offering Costs(1)  $45,000   $45,000   $45,000   $45,000 
                     
Use of Net Proceeds:                    
                     
Infrastructure(2)  $50,000   $37,500   $25,000   $12,500 
Legal and Accounting  $100,000   $100,000   $100,000   $73,563 
Working Capital(3)  $50,250   $26,438   $2,625   $- 
Product Certification(4)  $100,000   $75,000   $50,000   $25,000 
Inventory  $500,000   $375,000   $250,000   $125,250 
Sales and Marketing  $400,000   $300,000   $200,000   $100,000 
Product Insurance  $30,000   $22,500   $15,000   $7,500 
Packaging and Set-up Costs(5)  $75,000   $56,250   $37,500   $18,750 
Insurance Reimburse Costs(6)  $50,000   $37,500   $25,000   $12,500 
Licensing and Royalties  $125,000   $93,750   $62,500   $1,250 
Web & App Development  $175,000   $106,250   $37,500   $3,750 
SG&A  $300,000   $225,000   $150,000   $75,000 

 

Notes:

 

(1) The Company expects to spend approximately $45,000 in expenses relating to this offering, including legal, accounting, travel, printing and other miscellaneous fees.
   
(2) The Company intends to expand its technological infrastructure such as servers to host applications, computers, phone systems for customer support, e-commerce sales, and application programming interface (API) development for automatic onboarding
   
(3) The Company will use working capital to pay for miscellaneous and general operating expenses.
   
(4) The Company intends to seek FCC, PTCRB, CE, EC62133 and UN38.3 product certifications
   
(5) The Company expects to use these funds to acquire and develop materials such as molds, tooling, packaging, marketing material, user guides, warranty documentation, etc.
   
(6) The Company anticipates hiring a consultant or an outside firm to file all applicable paper work with the appropriate government agencies to see what kind of insurance reimbursements may be available to the Company.

 

The allocation of the use of proceeds among the categories of anticipated expenditures represents management’s best estimates based on the current status of the Company’s proposed operations, plans, investment objectives, capital requirements, and financial conditions. Future events, including changes in economic or competitive conditions of our business plan or the completion of less than the total offering, may cause the Company to modify the above-described allocation of proceeds. The Company’s use of proceeds may vary significantly in the event any of the Company’s assumptions prove inaccurate. We reserve the right to change the allocation of net proceeds from the offering as unanticipated events or opportunities arise.

 

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DETERMINATION OF OFFERING PRICE

 

In determining the offering price of the common stock, we have considered a number of factors including, but not limited to, the illiquidity and volatility of our common stock, our current financial condition and the prospects for our future cash flows and earnings, and market and economic conditions at the time of the offering. The offering price for the common stock sold in this offering may be more or less than the fair market price for our common stock.

 

DESCRIPTION OF BUSINESS

 

Business Overview and Introduction

 

GTX Corp is a technology company that owns and operates two wholly owned subsidiaries engaged in health, safety and wellness solutions with a focus in the growing multi-billion-dollar location based wearable technology and real-time location systems (“RTLS”) industry. GTX designs, manufactures and sells complementary medical products and services for the purpose of protection, health and safety. GTX owns 100% of the issued and outstanding capital stock of its two subsidiaries - Global Trek Xploration, Inc. (“Global Trek Xploration”) and LOCiMOBILE, Inc. (“LOCiMOBILE”). The two subsidiaries operate in various interrelated sectors of real-time location systems (“RTLS”) and the wearable technology industry. Through these subsidiaries, GTX Corp is engaged in the design, development, manufacturing, distribution, sales and support of related products and services, for the consumer, enterprise, and military. Utilizing GPS, cellular, Bluetooth Low Energy (“BLE”), Near Field Communications (“NFC”), Radio Frequency (“RF”), and WiFi technologies through a proprietary enterprise monitoring platform and licensing subscription business model, the Company offers a complete end to end solution of hardware, middleware, apps, connectivity, and professional services that can track and monitor people or assets at the touch of a button in real-time. In addition to selling products and monthly service subscriptions, the Company also generates revenues through licensing its technology and intellectual property, custom development projects and the sale of OEM medical devices and supplies.

 

Global Trek Xploration was founded in 2002, and as part of a reverse merger became publicly traded in 2008, as a 100% wholly owned subsidiary of GTX Corp (OTC: GTXO), which operates out of Los Angeles, California, with distributors and customers across the globe in over 35 countries. GTX’s, patented, comprehensive, end-to-end hardware, software and middleware platform delivers tracking and monitoring solutions in vertical niche markets worldwide. We answer the “where is” question: such as, where is my mother, child, employee, soldier, pet, drone, rifle, artwork, or other high value assets, through its proprietary Internet of Things (“IoT”) enterprise platform.

 

Since inception, GTX has sold, developed and commercially launched numerous products, including, our GPS Smart Shoes, SmartSoles, Bluetooth Low Energy (“BLE”) SmartSoles, hand-held GPS tracking devices, a proprietary custom military personnel and asset tracking solution, a weapons tracker, pet tracker, infant tracker and more than 20 smartphone and tablet Apps, all supported by our hosted and scalable backend monitoring platform and intellectual property portfolio. The Company has multiple lines of business units comprising of our core wearable tech SmartSole line, Military line, OEM devices and supplies, professional services, Near Field Communications (“NFC”) asset tracking and intellectual property licensing. The business units generate various revenue streams, such as product sales, recurring subscriptions, software and intellectual property (“IP”) licensing, fees for custom hardware and software development, professional consulting, and support and maintenance services. Many of our products are protected by GTX’s IP portfolio of issued patents, licensed patents, patents pending, registered trademarks, copyrights, URLs and a library of proprietary hardware and software designs.

 

Business Segments

 

1) Wearable Technology – Our SmartSole line of wearable footwear technology is designed for people with cognitive memory disorders, such as Alzheimer’s, dementia, autism and traumatic brain injury (“TBI”). Currently that number is estimated at 100 million worldwide and expected to reach 277 million by 2050. Typically, these people tend to wander and require some wander guard technology and remote oversight. The SmartSoles are comfortable orthotic insoles embedded with a GPS and cellular tracking module, so that a caregiver can know in real time where a loved one is at the touch of a button from any smartphone or computer. Approximately 9 million people in the U.S. and over 100 million worldwide are affected with some sort of cognitive memory disorder.
   
2) Military and Custom Development – for tracking military personnel, and high value assets, such as drones, small light weight cargo, and other high value mobile assets that require our robust, small footprint and low power consumption hardware platform.

 

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3) Mobile Apps – mobile and digital for the work force, such as salespersons, journalists, electricians, plumbers, food delivery, property management agents, cleaning services and other industries that require knowing the whereabouts of an employee or contractor in real time but that don’t want to invest in costly GPS devices, instead would rather leverage a user’s smartphone.
   
4) IP licensing – many of our patents were issued over 10 years ago and have garnered interest within the tech community. GTX is currently engaged in a licensing and monetization campaign. Over 150 companies that could potentially license some or all our IP have been identified.
   
5) Short Range and Logistics – our BLE and NFC technology for tracking people in designated areas, such as seniors in assisted living communities or valuable assets across the supply chain, such as expensive wines, foods or pharmaceuticals. BLE - Bluetooth Low Energy and NFC – Near Field Communication are a short-range wireless technology that triggers data exchange from one device to another. The chip is about the size of a nickel and can be attached, embedded, sewn, glued, embroidered, and even ironed on or otherwise affixed to just about any person or product, including print materials, packaging and wearables.
   
6) Medical Health & Safety devices and supplies – our wide range of protective equipment ranging from hearing assisted technology to masks, sanitizing equipment, UV sterilization equipment, and rapid test kits.

 

Corporate Strategy

 

Management’s corporate strategy is to continue to build and develop GTX as a health & safety wearable technology company that provides turnkey solutions for the consumer, enterprise, and government. Most of the GTX tracking and monitoring products are sold with a monthly, quarterly or annual subscription service plan or licensing fees ranging from $2.00 to $35.00, per month per monitored asset. In addition to product sales and recurring service fees, the Company also generates revenues through software and IP licensing. Many of our patents have filing dates going back to 2004, 2005 and 2006 and still have open continuations and our legal team is constantly identifying new companies that are potential licensee candidates.

 

As part of our long-term growth strategy, we are focused on launching new products, adding new subscribers and signing new licensing agreements so that we can build a steady base of recurring revenues. Launching new products, new vertical sales channels and building out our patent portfolio are the key drivers for growth. The more products we develop and sell the more subscribers we bring onboard. And, as our patent portfolio grows and evolves so do our licensing opportunities. To date we have built a network of strategic partners, a robust technology platform of proprietary hardware and software and a growing intellectual property (IP) portfolio. The GTX product lines of embedded smart wearable GPS devices, Stand-Alone GPS devices, Digital Apps, BLE/NFC solution, encrypted RF military personnel and asset tracking solutions and protective medical supplies and devices are sold both direct to consumer (“B2C”) and business to business (“B2B”) and direct to the military, through our global network of resellers, affiliates, distributors, non-profit organizations, government agencies, police departments, manufacturers reps and retailers.

 

The Company has been ramping up its product distribution and sales channels and, as of December 31, 2020, the Company had live units in the field and/or paying subscribers in over 35 countries, with well-established customers and distributors in Canada, Mexico, Europe, Latin America, Asia, the Middle East and Africa. In the U.S. the Company sells direct to the consumer through its online ecommerce platform, a host of retailers and resellers along with hundreds of online affiliates. The Company also manages direct B2B enterprise and government sales through its business development team and advisors. The B2B initiatives comprise of supporting existing distributors along with bringing on new distributors, working with U.S. and foreign military agencies, to support existing business and secure new business, and domestically to work with local, state, and federal agencies in order to acquire reimbursement codes for its line of SmartSoles. To date GTX has been issued a vendor number for reimbursement in 11 U.S. states and internationally in Canada, Norway, Sweden and in the U.K. the National Health Services (“NHS”) began conducting regional pilots for the wander assistive GPS SmartSoles, in urban centers with high populations of seniors afflicted with dementia. Under these reimbursement programs, the SmartSoles are either partially (50% to 60%) or sometimes up to (100% including the monthly subscriptions) paid for or subsidized by the local, state or federal agencies. We have also applied for grants and private insurance reimbursement along with other health and municipal services in several other countries. Where granted, the subsidies lower the cost of acquiring and owning our tracking products, which can result in an increase in customers and revenues.

 

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Industry Overview

 

Smart wearable technology is becoming ubiquitous, and it is starting to find its way into all parts of the global society. Miniature electronic devices that are worn by a person, commonly referred to as wearables, are continuing on a strong upward trajectory evident by the likes of Nike, Garmin, Google, Samsung, Apple, Verizon and a host of other fortune 100 companies that have entered into this space. Wearable Technology is on the rise in personal fitness, wellness, healthcare and business use.

 

Location-Based Services (LBS) and Real-Time Location Systems (RTLS), published by Markets and Markets, are expected to grow from USD 16.0 billion in 2019 to USD 40.0 billion by 2024, at a Compound Annual Growth Rate (“CAGR”) of 20.1%. This growth will be fueled because it is now possible for a network of physical objects (humans, vehicles, buildings, infrastructure, equipment of all shapes and types) to collect and exchange data and to communicate and work together. This enables devices, sensors and systems to operate autonomously in pursuit of goals and objectives set by the human architects of the system. We believe that accurately identifying the location of a person or assets in real time will be a key driver in many applications for the consumer, enterprise and government sectors.

 

The Caregiving Innovation Frontiers (“CIF”) study by the Longevity Network, used analysis and research from Parks Associates found that an estimated 117 million Americans will need assistance of some kind by 2020, but the number of unpaid caregivers is only expected to reach 45 million in the same year. This demand represents a $279 billion revenue opportunity over the next four years across six different business areas identified in the study, with 80% of spending being out-of-pocket costs. Technology solutions and remote health monitoring systems that enable family caregivers to monitor the location of elderly persons could provide key relief, according to the report. The CIF report outlined six areas for business opportunities, with huge potential for revenue grabs. Technology represents an opportunity across all the service areas, according to the Association of American Retired Persons (AARP). Most family caregivers (67% of them) want to use technology to monitor their loved one’s health and safety, but only about 10% are doing so right now, leaving a lot of room for growth.

 

In our ever-mobile society, it helps to know where we are and where we are going. Same with caregivers of seniors suffering from Alzheimer’s and dementia, freight forwarding companies wanting to know where their packages are, and employers wanting to know where their field workers are. Many parents desire to have the ability to know where their children are and where they are going. Having such information is now possible with access to real-time information delivered on-demand through miniaturized, low power consumption locator systems and technologies such as ours.

 

The rising need for real-time location systems (“RTLS”) and wearable location-based services (“LBS”) is influenced by several factors, among them:

 

  Universal awareness and expanding penetration of GPS enabled mobile smartphones & tablets (estimated 2 billion devices).
  Personal and asset security concerns affecting a greater portion of the population. This includes the increased awareness related to global terrorism, active shootings, natural disasters and general unrest.
  Increasing numbers of elderly or memory impaired (Alzheimer’s, dementia, autism, etc. approximately 9 million in U.S. and according to the World Health Organization who estimates that Alzheimer’s will reach 135 million worldwide by 2050).
  Corporations needing to manage worker productivity, efficiency and logistics.
  Government agencies, law enforcement and military need to track personnel and assets.
  Massive lifestyle adoption of location-based advertising and social networking.

 

GTX’s management believes that more and more consumers, enterprises, and government agencies are realizing the importance of using tracking and monitoring information technology. The technology growth story has long focused on the consumer, but as enterprises in every industry sector, including the government sector, look to technology to facilitate and transform their own operations, the opportunities for technology companies have broadened considerably. The following information illustrates the ways in which various tech markets are expected to grow.

 

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The LBS and RTLS market has grown considerably over the past few years and is expected to grow further with increasing portable personal digital assistant (“PDA”) based e-commerce. The overall market is expected to grow from $15.04 billion in 2016 to $77.84 billion by 2021, at a CAGR of 38.9%.

 

Corporate Structure

 

GTX Corp is a Nevada corporation which operates two 100% wholly owned 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 medical devices and supplies, and Global Positioning Satellite (“GPS”), Cellular, Radio Frequency (“RF”) Near Field Communications (“NFC”) WiFi and Bluetooth low energy (“BLE”) monitoring and tracking solutions. GTX is vertically integrated and provides hardware, software and connectivity, delivering a location-based platform that enables subscribers to track in real time the whereabouts of people, or high valued assets. Our proprietary GPS devices, which consist of a miniature quad-band General Packet Radio Service (“GPRS”) transceiver, custom antenna, circuitry, battery and inductive charging pad can be customized and integrated into numerous form factors. The finished products are then placed or worn so that their location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web-enabled cellular telephone. The tracking portal is fully scalable and has been licensed to several partners both in the U.S. and internationally. It is a secure platform equipped with a database, application-programming interface (“API”) for custom integration, and communication SMS gateway software and hardware. Subscriber internet communications are routed through GTX’s proprietary, fault-tolerant, carrier-class, and application-specific interface software. Our Location Data Center services are also offered to non-Global Trek Xploration products and hardware systems (i.e. handsets and personal electronics) of major electronics manufacturers through the offer and sale of exclusive licenses (either geographical, regional or product categories).

 

Markets that Global Trek Xploration is currently in, or is exploring, include:

 

  Families with members who have Alzheimer’s and or dementia, including developmentally challenged adults;
  Elder care support, life-style management and e-health applications;
  Adults and children with cognitive disorders such as Autism and TBI;
  High value asset tracking and location capability of drones, bikes, motorcycles, containers, luggage, artwork and other valuable assets that require monitoring or tracking;
  Mobile work force;
  Security for high-level executives, field workers, first responders, journalists, government employees;
  Military and law enforcement;
  Biometrics, health, safety and wellness; and
  Accessories and peripherals.

 

LOCiMOBILE, Inc., our other 100% wholly owned subsidiary, is a Nevada based corporation which developed and owns a suite of mobile tracking applications (“Apps”) that turn the latest Smartphones and tablets such as iPhone®, iPad, Google Android and other GPS enabled handsets into a tracking and location based real-time tracking device which can be viewed through our tracking portal or on any connected device with internet access. Additionally, we have released our newest enterprise App, Track My Work Force, which allows employers to easily track and monitor employees, drivers, sales reps, and more using their Smartphone, tablet or any wireless devices. The Company continues to rollout new and innovative products which will include a series of applications that will be geared for the enterprise user, by offering “private label” versions of our popular consumer Apps to companies looking for a more personalized and secure methods of keeping track of their employees. Our roadmap also consists of additional applications for the iPad, other tablets, TV’s, and more applications for the iPhone and Google Android operating systems. Our goal is to expand our user base community, increase the value of our brand, and generate revenues from App sales, monthly subscriptions and advertising.

 

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Products and Services

 

  GPS SmartSole – a wearable orthotic insole GPS tracking, monitoring and recovery solution for those at risk of wandering due to Alzheimer’s, dementia and autism.
  Take Along Tracker 4G – a stand-alone miniature tracking and SOS device that allows for GPS capabilities, plus 4G, GSM, data and voice as well as a 3-way motion sensor.
  Track My Workforce – a mobile app allowing employers to monitor mobile employees like drivers and sales representatives through their Smartphone.
  Sole Protector for GPS Smartsole – created specifically for the GPS SmartSole® in order to boost longevity, hygiene, covertness, protection and comfort. Extends the life of the SmartSole with increased shock absorption and water resistance.
  Take Along Friends & the Invisabelt – A GPS cellular tracking and monitoring device for young children and toddlers.
  Protective Medical devices and supplies – Ranging from PPE’s such as masks, sanitizers, face shields, UV wands and assorted equipment all the way to and including; Antibody and Antigen rapid test kits and hearing assisted technologies.
  VeriTap – an NFC tag and middleware application designed to monitor logistics and assets in the supply chain.

 

Customers

 

The Company, along with its international distributors, services thousands of consumers, hundreds of businesses, and dozens of local, state and federal government agencies, across 35 countries. GTX also sells products and services to the U.S. Military and law enforcement agencies and is an approved government contractor. Other GTX customers include public health authorities, municipalities and Universities, in the U.S., Canada and across Europe. GTX also has a vendor number in 11 U.S. States and sells to local and state agencies supported by Medicare and Medicaid. Other customers range from retailers, healthcare facilities, private schools, assisted living facilities, NGOs, small business enterprises, senior care homes, and security companies. The Company also has several branded products and sells direct to the consumer.

 

Intellectual Property

 

GTX’s IP portfolio not only supports the Company’s core product lines by creating barriers of entry to competitors, but also underscores the Company’s intrinsic value and generates revenues from out bound licensing. Our early investment in IP dates back to 2002 and demonstrates GTX’s commitment to developing innovative technology in the growing wearable GPS, LBS and RTLS space. The GTX IP portfolio underpins its business and provides support across all its business units. The portfolio addresses three core areas: Footwear, Communication and International coverage and as of December 31, 2020 we had twenty-three (23) patents and several trademark registrations. These include nineteen (18) issued U.S. utility patents, three of which are insole patents, two (2) issued U.S. design patents, and three (3) other pending U.S. utility patent applications. We also have three (3) issued foreign national patents which include one (1) Canadian utility patent and two (2) Mexican utility patents. We also have one (1) pending European foreign national patent application based on our U.S. filings. In addition to the five (5) comm protocol’s (program-to-program communications access methods), which falls under GTX U.S. Patent 8,760,286, commonly referred to as the 286 GTX patent family, GTX also has several patents on the device side. The international multi- pronged IP protection approach is part of the overall intellectual property strategy protecting all aspects of the GTX enterprise and value of its hardware and platform

 

GTX also has under license one (1) U.S. patent and twelve (12) foreign patents. Included under the IP portfolio GTX has U.S. trademark registrations including, but not limited to, registrations for the marks “LOCi” and “LOCIMOBILE.” In addition, another U.S. trademark application for “GPS SMART SOLE SATELLITE MONITORING AND REALTIME TRACKING”, “GTX CORP”, and “WITH YOU.”

 

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As part of our outbound IP licensing monetization campaign in June 2016 we signed a revenue share monetization agreement with Inventergy Innovations, LLC (“Inventergy”), a subsidiary of Inventergy Global, Inc. (NASDAQ: INVT). Inventergy engaged a highly experienced IP litigation law firm, Cotman IP Law Group in order to support our outbound IP monetization and licensing efforts. Since our portfolio extends beyond our core footwear patents and into areas such as GPS watches, fitness wearables that track location, hand-held GPS devices, tracking apps on Smartphones, standalone GPS tracking devices and location based platforms in general, which represents a very sizable addressable market and due to the large size and scope of this market, the process of identifying potential licensee’s, formulating a strategy and the negotiations or litigation required a lot of time and resources, hence why we brought in a partner. Due to the confidentiality nature of these negotiations and legal proceedings both current and in the future, Inventergy and GTX are limited in making public announcements and usually bound to confidentiality agreements. We will however, be disclosing whatever information we can in our periodic reports. Furthering our current IP monetization strategy, GTX is also exploring licensing some of its other patents that are not part of the Invenergy agreement. This is still in an early phase with only a few exploratory conversations that have taken place so far.

 

Technology

 

GTX has developed a “carrier-class” architecture and no longer needs to host the servers in a facility Data Center. Throughout 2020 most of our servers were migrated to the cloud which enables cost-efficient expansion, without the need for application code changes.

 

Our current location tracking product design utilizes quad-band GSM/GPRS telephony chip sets and can be adapted to the prevalent GSM/GPRS wireless technologies. Our modules utilize advanced “weak signal server-enhanced” technology which provide rapid location identification. Each module is programmed with a unique identification number and uses standard cellular frequencies to communicate its location. The module is also programmed with a unique subscriber identification number allowing each owner to subscribe to different services.

 

We continue to modify and upgrade our modules for our SmartSoles and other GPS tracking products. The production and roll-out of version 4 of our SmartSole product is expected to be a benefit because, unlike the earlier versions, we will no longer have to custom make SmartSoles for our international distributors, so our manufacturing cost and timelines are reduced, and we have more flexibility to timely meet our customers’ requirements. Also, we now can bill for data charges in over 100 countries, thereby increasing our potential markets. The ability to produce a product that can be delivered to foreign market without customization and to bill for data charges in additional countries will enable us to increase our RPS (revenue per subscriber). Our core tracking products (SmartSole, Take-Along-Tracker, OEM modules and Track my Work Force App) are supported by the existing infrastructure for the worldwide cell network that provides coverage throughout the United States, Canada, Mexico and numerous other countries that operate on the global GSM Wireless networks. Our personal locator modules have the ability to operate on the networks of 290 carriers in over 210 countries.

 

Strategic Relationships and Licensing

 

We offer location-based hardware and/or IoT data monitoring platform to third parties for the sale and distribution of location-based products/services in various vertical markets. We begin the process by entering into a platform test agreement or pilot program with a potential partner with the intent to transition into a long-term relationship. By establishing and building partnerships, through licensing agreements, OEM, and carrier relationships, we facilitate efficient entry into new markets leveraging each third parties core competencies. We enhance the value of our distribution channels by aligning our sales and marketing efforts with strategic partners, including co-branding, distribution and marketing with telecommunication companies, wireless carriers, national retailers and major consumer branded companies. We can customize our products into different form factors for the specific needs of customers. To date, the Company has created custom solutions for the monitoring of seniors with cognitive memory disorders by installing the GPS device into specially designed shoes and insoles; the monitoring of children by installing the GPS device into specially designed toys, belts, insoles and backpacks; and the monitoring of various high value assets such as drones, long guns and other mobile assets.

 

The Company has several key strategic relationships established both on the supply side and the distribution side. Some of the key partners on the supply side are Atlantic Footcare (which manufactures our SmartSoles), Spline (our engineering firm), Telic (which manufactures our GPS and Cellular electronics) and Telefonica (which provides our global connectivity). On the distribution side, we have numerous partnerships worldwide, ranging from distributors, health organizations, and retailers.

 

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Research and Development

 

As an emerging tech company our long-term growth is predicated on making investments in R&D and Intellectual Property. This year we took the opportunity to invest in our future, by ramping up NFC, BLE and 4G development projects. We are integrating our NFC tags with Blockchain technology and started developing a secured, scalable middleware layer that sits in-between our NFC devices and third-party backend platforms. We started working with several partners that provide various vertical specific Block chain, IoT and AI backend platforms but needed a secure and seamless flow of data from hardware to backend. This middleware lawyer is industry agnostic and is designed to help drive NFC hardware business and other IoT device sales. We also continued testing our Near Field Communication (NFC) Temperature Trackers, which provide real-time temperature sensing and data logging across the supply chain necessary with transportation of perishables; food, drinks, pharmaceuticals and other temperature sensitive products that can be negatively affected by conditions in transit. This is still a new business silo that has not begun generating revenue but we see this new technology as a natural extension into the world of asset tracking, taking us beyond humans to tracking and monitoring of perishable shipments of food, beverages, biopharmaceuticals, live organs and many other temperature sensitive shipments. In addition to temperature sensing we are now looking into NFC tags that can authenticate products, addressing the multibillion dollar worldwide counterfeit market.

 

Growth Strategy

 

We have developed a multi-prong business model approach; business-to-business (B2B), business-to-consumer (B2C), Government and Military sales, and licensing of our technology and IP. We have successfully proven out all our models in a small scale. With B2C, we continue to invest in e-commerce and once we can hit critical mass with lower pricing, we will expand into the mass consumer markets. With B2B our strategy is to establish more partners and relationships with key industry leaders who will embed our technology into their products to sell to their established customer base. In addition, we plan to continue working with the Military both in the U.S. and abroad. Lastly, we plan to continue to identify companies that can license our IP. This approach requires time and capital to grow, however it is also diversified so that all our eggs are not in one basket and once scaled can show rapid growth. As a growing underfinanced company, we have managed to prove out our business models and now need to scale. Management believes that once we have the resources to scale any of these models or all of them, we can expect to see steady and sustainable growth.

 

Key elements of our growth strategy include:

 

  Providing our Personal Locator hardware module to licensees to empower their products with our two-way GPS tracking capabilities;
  OEM private label manufacturing;
  A mass market retail price under $99.00 for Personal Location devices;
  A monthly service fee structure, under $20.00;
  Reduction in hardware size and cost in order to open new markets;
  Continue expanding our medical reimbursement programs;
  Rolling out bio metrics and NFC;
  Expanding distribution channels;
  Increasing the number of solutions for the military and law enforcement markets;
  Ease of use at the location interface point as well as with the device, using state-of-the-art cloud computing and cloud application development and;
  Expanding our IP monetization campaign.

 

Competition

 

Personal location and asset tracking devices of various kinds are currently available from numerous vendors, and the number of competitive products is increasing rapidly in the marketplace. Furthermore, many of the location products and services are available at no cost to the user or are already included in other products. Nevertheless, we believe this rapidly growing market acceptance of the tracking solutions that we offer represents an opportunity as the intrinsic value of the tracking solutions is recognized and mass market adoption continues. The key competitive advantage for GTX in its lead SmartSole product is our innovative approach to embedding electronics inside a flexible footwear system, which advantage is protected by an extensive patent portfolio and first to market. Another key competitive advantage is our large and growing patent portfolio along with our ability, because we are a small company, to be agile and responsive while still having deep and long industry knowledge of the GPS space.

 

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Key differentiators between ourselves and the competition is:

 

B2B:

 

  Providing a comprehensive fully integrated, patented end-to-end solution comprised of hardware, software, and global connectivity, that can be embedded or OEM into other companies’ product lines.
  Being small and nimble we can provide faster turnaround times and lower pricing, which has been a key advantage in our military business.

 

B2C:

 

  Our BLE & GPS SmartSole is the only non-visible, non-intrusive tracking and monitoring solution.

 

There are numerous competitors for GPS products in general, and for our LOCiMOBILE® smart phone applications, including Location Based Technologies, Inc., Google Latitude, Foursquare, Trimble Navigation, Inc., Brick House Security, Verizon, and Trackimo, Inc. Many of our competitors are better financed than we are and/or have greater marketing and scientific resources than we can provide. We are also aware of a number of domestic and foreign competitors that offer much lower quality products in order to gain market share. The U.S. Government systems integration business is intensely competitive and subject to rapid change due to new requirements and budget allocation. We compete with a large number of military suppliers and other large and diverse companies attempting to enter or expand their presence in the U.S. Government market. Many of the existing and potential competitors have greater financial, operating and technological resources than we have. The competitive environment may require us to make changes in our pricing, services or marketing. The competitive bidding process involves substantial costs and a number of risks, including significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us, or that may be awarded, but for which we do not receive meaningful revenues. Accordingly, our success depends on our ability to develop services and products that address changing needs and to provide people and technology needed to deliver these services and products. In the government services sector our competition includes large systems integrators and defense contractors. Some of these competitors include global defense and IT service companies such as, Northrop Grumman and Raytheon. However so far being small and nibble along with our ability to deliver product and services, quickly, at a fair market price and customize products on demand, have been to our advantage, over many larger competitors.

 

Employees and Consultants

 

As of October 4, 2021, the Company had 5 full-time employees and 4 part-time employees. Any selling, marketing, technical, IT and/or software development work that is not handled by our employees, advisors, or sales personnel, is outsourced to qualified contractors and consultants. The Company has over a dozen active outside consultants and contractors which are hired on an as needed basis.

 

General

 

We maintain several Internet websites, blogs and social media sites including; www.gtxcorp.com, www.gtxmask.com, www.locimobile.com, www.trackmyworkforce.co, and www.gpssmartsole.com. Our annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other information related to this Company, are available, free of charge, on our corporate website as soon as we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission. The Company’s various internet websites and the information contained therein, or connected thereto, are not, and are not intended, to be incorporated into this Offering Circular. Our principal executive offices are located at 117 W 9th Street, Suite 1214, Los Angeles, California, 90015 and our main telephone number is (213) 489-3019. The information on, or that can be accessed through, our websites is not part of this report, and you should not rely on any such information in making any investment decision relating to our common stock.

 

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Government Regulation

 

We are subject to federal, state and local laws and regulations applied to businesses generally as well as FCC, IC and CE wireless device regulations and controls. We believe that we are in conformity with all applicable laws in all relevant jurisdictions. We do not believe that our operations are subject to any environmental laws and regulations of the United States nor the states in which they operate.

 

Bankruptcy, Receivership, Etc.

 

Not applicable.

 

Legal Proceedings

 

We are not aware of any pending or threatened legal proceedings in which we are involved.

 

Reclassification, Merger, Consolidation, Etc.

 

Not applicable.

 

Change in Accountant

 

(a) Dismissal of Weinberg & Company P.A. (“Weinberg”), Certified Public Accountants

 

(i) On January 14, 2021, Weinberg & Company P.A. (“Weinberg”) was dismissed as the Company’s independent registered public accounting firm. Weinberg had served as the Company’s independent registered public accounting firm since 2018.

 

(ii) Weinberg’s audit reports on the financial statements of the Company for the fiscal years ended December 31, 2019 and 2018 contained no adverse opinion or disclaimer of opinion, nor were they qualified as to uncertainty, audit scope or accounting principles except that such reports included an explanatory paragraph describing the uncertainty of the Company’s ability to continue as a going concern,

 

(iii) The dismissal of Weinberg was agreed to by the GTX Board of Directors and Audit Committee on January 14, 2021.

 

(iv) During the fiscal years ended December 31, 2019 and 2018, and through January 14, 2021, there were no “disagreements” (as such term is defined in Item 304 of Regulation S-K) or reportable events (as described under Item 304(a)(1)(v) of Regulation S-K) with Weinberg on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to their satisfaction, would have caused Weinberg to make reference to the subject matter of the disagreement in connection with its reports.

 

(v) The Company provided Weinberg with a copy of the disclosures regarding the dismissal of Weinberg and requested in writing that Weinberg furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether or not they agree with such disclosures. Weinberg’s response is filed as an exhibit to this Offering Statement.

 

(b) Appointment of M&K CPAS, PLLC (“M&K”), Certified Public Accountants

 

(i) Following a careful deliberation and competitive process among various accounting firms, on January 11, 2021, the Company’s Board of Directors and Audit Committee approved the engagement of M&K as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020, effective January 11, 2021.

 

(ii) Prior to retaining M&K, the Company did not consult with M&K regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the subject of a “disagreement” or a “reportable event” (as those terms are defined in Item 304 of Regulation S-K).

 

DESCRIPTION OF PROPERTY

 

We have executive, administrative and operating offices at 117 W 9th Street, Suite 1214, Los Angeles, California 90015. Our office space is approximately 1,600 square feet and consists of executive and administrative work space for a base rent of $1,710 per month, plus an additional 630 square feet for inventory and storage for an additional $530 per month, both are on a month-to-month basis.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

During the second quarter 2021, we finalized the hardware design of our next generation miniaturized GPS tracking device, which will utilize a host of new technologies, including CatM1, NB-IoT, enhanced Wifi, and Bluetooth, for better accuracy, faster location requests and less power consumption. We then started testing with our wireless partners both in the U.S. and in Europe and deployed a lot of resources into finalizing our firmware in preparation for production.

 

Due to the global chip shortage and continuing supply chain delays, we began ordering components in Q1 and finished ordering all of our components during the second quarter of 2021. Many of our suppliers had over 20-week lead times or very high minimum order quantities (“MOQ”), but we are happy to report that we did manage to order enough components and receive all of them for our first production run and still have enough components on order for several more production runs. All in all, due to a multitude of factors which we do not control, it has been very difficult and slow to get us to this point, however we are confident and expect to launch in the third quarter, barring any unforeseen issue with certification.

 

The testing so far is very promising, and we believe this will be our best device in over a decade. The amount of engineering and testing that went into this development has been far more extensive than any other device we have built in the past. The silver lining behind the delays, gave us an opportunity to test a lot more than usual and experiment with different components, which so far is yielding very favorable results. One example is we are seeing consistent results with 3-5 days of battery life, which is a 200% improvement over our previous device.

 

On the business development front, we signed several collaboration agreements and have begun working with our partners on developing new products in the tracking, biometrics, and block chain arena. We signed agreements with Tulsa labs, Portum and GBT Technologies. We are still in the early stage of exploring different concepts, but we are making some progress and expect to have a more detailed roadmap by the end of the third quarter.

 

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At the end of the first quarter, we stated we could not accurately predict how long the Personal Protection Equipment (“PPE”) business would remain in demand, and based on the current events and sales trends, we expected to be transitioning out of many PPE products over the coming months only focusing on the strong sellers while ramping up for the launch of the new SmartSoles, NFC Blockchain platform and other medical wearables. Our position at the end of the second quarter 2021 is the same, however we are now seeing a significant uptick in PPE demand due to the rising number of new COVID cases, the rapid spread of the Delta variant, new CDC mask guidelines and back to school mask mandates for k-12. All of this has spurred on new demand which we are responding to quickly. This could be a temporary three or four-week window or could perhaps last longer, either way we are restarting our mask and other PPE marketing efforts and bringing in more inventory to meet the new demand. The continued demand for PPE will enable us to maintain our cash flow, continue to add new customers, and expand our brand visibility, while we prepare for the new SmartSole launch. The cross-marketing pollination is actually working out very well for us, many of our B2B prospects for our tracking solutions such as Schools, assisted living facilities and government institutions are now also actively buying PPE again.

 

During the second quarter 2021, we took a closer look at our marketing and outreach campaigns and because schools or assisted living facilities could potentially buy both PPE and tracking solutions from us, we ramped up our domestic B2B outreach programs and increased our marketing budget which we expect will generate more B2B U.S. sales in the second half of 2021.

 

In the second quarter 2021, we did see a drop in overall revenues primarily due to a reduction in consumer PPE demand as COVID restrictions were lifted, coupled with not finalizing inventory purchases for the NextGen GPS SmartSoles. Between having completely sold out of our last version of the SmartSole in Q1 and expecting to have the new version ready by Q2 and having to deal with the worldwide global chip shortage and supply chain delays, we were not able make any more of the previous versions of the SmartSole to meet demand during this transition period. We have however received hundreds of SmartSole pre-orders that will sell out our first production run. As of right now, we are oversold, and even though we continue to receive pre-orders daily, we will most likely maintain a backlog until early 2022, which is when Qualcomm executives expect the chip shortage to be over and see supply chains come back to normal.

 

On the balance sheet front, we continued to reduce our debt and outstanding payables, took on no new debt and pre-paid for a lot of component inventory for our SmartSoles.

 

Results of Operations for Fiscal Years Ended December 31, 2020 and 2019

 

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Annual Report.

 

The following table represents our statement of operations for the years ended December 31, 2020 and 2019:

 

   Years ended December 31, 
   2020   2019 
   $   % of Revenues   $   % of Revenues 
                 
Product sales   830,829    78%   398,433    27%
Service income   208,441    20%   339,464    23%
IP royalties   20,000    2%   762,915    51%
Total revenues   1,059,270    100%   1,500,812    100%
Cost of goods sold   598,963    57%   193,490    13%
Gross Margin   460,307    43%   1,307,322    87%
                     
Operating expenses:                    
Wages and benefits   621,347    59%   605,557    40%
Professional fees   252,765    24%   267,634    18%
Sales and marketing expenses   28,091    3%   10,701    1%
General and administrative   185,315    17%   236,106    16%
Total operating expenses   1,087,519    103%   1,119,998    75%
                     
Gain/(loss) from operations   (627,212)   -59%   187,324    12%
                     
Other expense/income, net   258,805    24%   (773,649)   -52%
Net loss   (360,407)   -35%   (586,325)   -39%

 

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Revenues

 

Revenues as a whole in fiscal 2020 decreased by 29% or $441,542 in comparison to fiscal 2019 mostly as a direct result of the overall setbacks and the restrictive lockdowns due to COVID, which in turn brought about a reduction in IP and subscription revenues, however we still managed to grow our product revenues, grow our customer base, expand our product lines, maintain good profit margins, and reduced our general expenses. Product sales increased 109% or $432,395 in fiscal 2020 in comparison to fiscal 2019, which is attributable to our pivot in early March 2020 to expand our health and safety product line into the Personal Protective Equipment (“PPE”) business.

 

We increased our customer base by at least 2,000 for fiscal year 2020 compared to fiscal year 2019.

 

During the year ended December 31, 2020, the Company’s customer base and revenue streams were comprised of approximately 63.95% B2B (Wholesale Distributors and Enterprise Institutions), 33.61% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 1.87% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0.56% Military and Law Enforcement.

 

During the year ended December 31, 2019, the Company’s customer base and revenue streams were comprised of approximately 39.59% B2B (Wholesale Distributors and Enterprise Institutions), 8.80% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 50.83% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0.78% Military and Law Enforcement.

 

Cost of goods sold

 

Cost of goods sold increased by 210% or $405,472 during fiscal 2020 in comparison to fiscal 2019, primarily due to less IP and subscription revenues, which are high margin, to lower margin PPE revenues. As a result, total gross margin, decreased from 87% in fiscal 2019 to 44% in fiscal 2020.

 

Wages and benefits

 

Wages and benefits for fiscal 2020 remained fairly steady, increasing only $15,790 or 3% as compared to fiscal 2019, primarily to an increase in warehouse and shipping personnel.

 

Professional fees

 

Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and shareholder communications. Such costs decreased $14,868 or 6% in fiscal 2020 compared to fiscal 2019. As a result, some professional fees decreased as more responsibilities were transferred from outside contractors and consultants to in-house personnel.

 

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Sale and marketing expenses

 

Sales and marketing expenses increased by 163% or $17,390 during 2020 in comparison to 2019, primarily due to initiating a PPE campaign in order to target a larger customer base.

 

General and administrative

 

General and administrative costs during fiscal 2020 decreased by $50,791 or 22%, in comparison to fiscal 2019, mostly due to reductions in depreciation and amortization, travel and entertainment expenses affected by COVID-19, and the stay-at-home mandates. We expect these numbers to increase as we ramp up our overall business after the COVID crisis.

 

Other expense/income, net

 

Other expense/income in 2019 was a net expense of ($773,649), however in 2020 we had a net increase or income of $258,805 which decreased net other income/expense by $1,032,453, or 133%. This is primarily as a net result of non-cash gains from the sale of marketable securities, gains from the extinguishment of debt, the elimination of any derivative expenses, and the lowering of interest expense as we decrease and pay down our debt.

 

Net loss

 

Net loss during fiscal 2020 decreased by $217,918, or 37%, in comparison to the net loss incurred during fiscal 2019 primarily as a net result of strong product sales, lowering overall operating expense, non-cash gains from the sale of marketable securities, gains from the extinguishment of debt, the elimination of any derivative expenses, and overall interest expenses were reduced as a result of the lower amount of outstanding debt.

 

On an earnings-per-share basis, we saw a reduction in share loss from ($0.01) in 2019 to ($0.00) in 2020.

 

Liquidity and Capital Resources for Fiscal Years Ended December 31, 2020 and 2019

 

As of December 31, 2020, we had $76,912 in cash and $290,292 of other current assets, and $3,184,397 of current liabilities, resulting in a working capital deficit of $2,894,105 compared to $125,200 in cash and a working capital deficit of approximately $3,630,942 as of December 31, 2019.

 

Net cash used in operating activities was $556,556 for fiscal 2020 compared to net cash used of $140,934 for fiscal 2019. The increase in net cash used in operating activities was largely attributed to the net change in non-cash items that includes: stock based compensation, repatriation of retention bonuses, gain on the extinguishment of debt, lower amortizations of debt discount and the interest and financing costs on note assignments and the net change in operating assets and liabilities that includes increased spending for inventory, the payment of accounts payable and accrued expenses, including interest expense attributable to the reduction in debt.

 

Net cash provided by investing activities during fiscal 2020 and 2019 was $146,200 and $42,778, respectively and consisted of proceeds from the sale of marketable securities.

 

Net cash provided by financing activities during fiscal 2020 was $362,068 and consisted of proceeds totaling $227,870 received from advances under CARE loans, $139,319 from two lines of credit and $250,000 in proceeds from the sale of preferred shares of stock with payments on debt and the lines of credit of $255,121. Net cash provided by financing activities during fiscal 2019 was $153,500 and consisted of proceeds totaling $50,000 received from advances under a term loan agreement, $105,000 from two lines of credit and $150,000 in proceeds from the sale of preferred shares of stock with payments on debt and the lines of credit of $151,500. Thus, reducing our borrowings through notes by $445,000 or 79% from 2019 to 2020.

 

We expect to continue to generate revenues from all our business units from existing product sales, recurring subscriptions, software and Intellectual Property licensing, military and professional services. We also expect to see new revenues come in from recently launched products and products that are scheduled for launch throughout 2021 however, even though existing product sales and recurring subscriptions are starting to become more consistent, the amount of revenues is still unpredictable and may not be sufficient to fund all our working capital needs. Accordingly, we anticipate that we will have negative cash flow from our operations and, therefore, will have to raise additional capital in order to fund our operations in 2021.

 

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In order to continue funding our working capital needs and our product development costs we continued to draw upon our Lines of Credit with an accredited investor and our bank (see Notes Payable Footnote #c & #d for more information), which resulted in $139,319 of draws and repayments of $215,604 against this balance in fiscal year 2020. Additionally, during 2020, we entered into a Securities Purchase Agreement (“SPA”) with three (3) accredited investors which led to a $250,000 infusion of cash in return for Preferred B shares, Preferred C shares and Warrants.

 

In 2019, we entered into one (1) term loan agreement with an accredited investor and continued to draw upon our Lines of Credit with an accredited investor and our bank, which resulted in $105,000 of draws against this balance in fiscal year 2019. This line of credit with the accredited investor carries an 8.5% interest rate, with no prepayment penalty. Additionally, at the end of 2019, we entered into a SPA with an accredited investor which led to a $150,000 infusion of cash in return for Preferred B shares and Warrants.

 

Subsequent to October of 2018 and through the beginning 2021, except for a government backed PPP loan, the Company has not taken any new debt.

 

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. 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 2021. 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.

 

We are subject to many risks associated with early stage businesses, including the above discussed risks associated with the ability to raise capital. Please see the section entitled “Risk Factors” 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

 

Inflation and changing prices have had no effect on our net sales and revenues or on our income from continuing operations over our two most recent fiscal years.

 

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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 $368,407 and $586,325 for the years ended December 31, 2020 and 2019, respectively, has incurred losses since inception resulting in an accumulated deficit of $24,177,926 as of December 31, 2020, and has negative working capital of $2,894,105 as of December 31, 2020. A significant part of our negative working capital position at December 31, 2020 consisted of $956,661, 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.

 

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.

 

Results of Operations for Fiscal Quarters Ended June 30, 2021 and 2020

 

The following discussion should be read in conjunction with our interim consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report.

 

Three Months Ended June 30, 2021 (“Q2 2021”) Compared to the Three Months Ended June 30, 2020 (“Q2 2020”)

 

    Three Months Ended June 30,  
    2021     2020  
    $     %of Revenues     $     %of Revenues  
                         
Product sales     112,656       71 %     422,333       89 %
Service income     46,947       29 %     49,814       11 %
IP royalties     -       0 %     -       0 %
Total revenues     159,603       100 %     472,147       100 %
Cost of products sold     29,959       19 %     167,568       35 %
Cost of service revenue     18,360       12 %     83,271       18 %
Cost of licensing revenue     -       0 %     -       0 %
Cost of goods sold     48,319       30 %     250,839       53 %
Gross profit     111,284       70 %     221,308       47 %
                                 
Operating expenses:                                
Wages and benefits     120,160       75 %     163,185       35 %
Professional fees     97,790       61 %     115,140       248 %
Sales and marketing expenses     59,802       37 %     6,389       1 %
General and administrative     41,650       26 %     11,340       2 %
Total operating expenses     319,402       200 %     296,054       63 %
                                 
Gain/(loss) from operations     (208,118 )     -130 %     (74,746 )     -16 %
                                 
Other (expense)/income, net     (47,370 )     -30 %     98,008       21 %
Net income/(loss)     (255,488 )     -160 %     23,262       5 %

 

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Revenues

 

Revenues as a whole during Q2 2021 decreased by 73% or $312,543 in comparison to Q2 2020 mostly as a result of the reduction in demand for PPE’s and the inability to ship any SmartSoles during the quarter due to supply chain delays. We continue to gather 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 from the Delta variant.

 

We increased our customer base by 64.67% for the quarter ended June 30, 2021 compared to same period in 2020.

 

During the period ended June 30, 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.

 

During the period ended June 30, 2020, the Company’s customer base and revenue streams were comprised of approximately 55.09% B2B (Wholesale Distributors and Enterprise Institutions), 44.91% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 0% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0% Military and Law Enforcement.

 

Cost of goods sold

 

Cost of goods sold decreased by 819% or $202,520 during Q2 2021 in comparison to Q2 2020, primarily due to less IP and subscription revenues, and the reduction in PPE revenues from the lifting of COVID restrictions. However, total gross margin, still increased from 47% in fiscal 2020 to 70% in fiscal 2021.

 

Wages and benefits

 

Wages and benefits during Q2 2021 decreased $43,025 or 26% as compared to Q2 2020, primarily on lower staffing expenses.

 

Professional fees

 

Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and shareholder communications. Such costs decreased $17,351 or 15% during Q2 2021 as compared to Q2 2020. 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.

 

Sales and marketing expenses

 

Sales and marketing expenses increased by 836% or $53,414 during Q2 2021 in comparison to Q2 2020. Primarily due to initiating a PPE campaign in order to target a larger customer base.

 

General and administrative

 

General and administrative costs during Q2 2021 increased by $30,309 or 267% in comparison to Q2 2020 mostly due to reductions in depreciation and amortization, travel and entertainment expenses affected by COVID-19, and the stay-at-home mandates. We expect these numbers to increase as we ramp up our overall business after the COVID crisis.

 

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Other income/(expense), net

 

Other expense, net decreased 148% or $145,378 from Q2 2021 to Q2 2020 primarily as a result of the reduction in gains from securities, extinguishment of debt and derivative income that were recognized in the same period in 2020.

 

Net income/(loss)

 

Net income decreased by 1198% or $278,746 from Q2 2021 to Q2 2020 primarily as a result of the reduction in gains from securities, extinguishment of debt and derivative income that were recognized in the same period in 2020.

 

Six Months Ended June 30, 2021 (“Q1 and Q2 2021”) Compared to the Six Months Ended June 30, 2020 (“Q1 and Q2 2020”)

 

   Six Months Ended June 30, 
   2021   2020 
   $   % of Revenues   $   % of Revenues 
                 
Product sales   284,989    73%   453,940    80%
Service income   105,135    27%   114,923    20%
IP royalties   -    0%   -    0%
Total revenues   390,124    100%   568,863    100%
Cost of products sold   142,054    36%   190,970    34%
Cost of service revenue   53,427    14%   94,507    17%
Cost of licensing revenue   -    0%   -    0%
Cost of goods sold   195,481    50%   285,477    50%
Gross profit   194,643    50%   283,386    50%
                     
Operating expenses:                    
Wages and benefits   246,962    63%   324,085    57%
Professional fees   197,960    51%   161,081    28%
Sales and marketing expenses   69,738    18%   13,149    2%
General and administrative   89,701    23%   80,026    14%
Total operating expenses   604,361    155%   578,341    102%
                     
Gain/(loss) from operations   (409,718)   -105%   (294,955)   -52%
                     
Other (expense)/income, net   (136,197)   -35%   325,125    57%
Net income/(loss)   (545,915)   -140%   30,170    5%

 

Revenues

 

Revenues as a whole in Q1 and Q2 2021 decreased by 31% or $178,739 in comparison to Q1 and Q2 2020, a result of the reduction in demand for PPP’s and the inability to ship any SmartSoles during the quarter due to supply chain delays. We continue to gather 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 from the Delta variant.

 

We increased our customer base by 285.86% for the period ended June 30, 2021 compared to same period in 2020.

 

Cost of goods sold

 

Cost of goods sold increased by 32% or $89,996 during Q1 and Q2 2021 in comparison to Q1 and Q2 2020 primarily due to the purchases of health and safety inventories. The total gross margin remained constant at 49.8% in Q1 and Q2 of 2020 and 2021.

 

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Wages and benefits

 

Wages and benefits during Q1 and Q2 2021 decreased by 24% or $77,122 in comparison to Q1 and Q2 2020, primarily on the reduction of costs related to retention bonuses.

 

Professional fees

 

Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and investor relations. Such costs increased $36,880 or 23% during Q1 and Q2 2021 as compared to Q1 and Q2 2020, primarily due to the Company’s increased need for outside consultants.

 

Sales and marketing expenses

 

Sales and marketing expenses increased by 430% or $56,589 during Q1 and Q2 2021 in comparison to Q1 and Q2 2020. Primarily due to costs related to the ramp up of increased health and safety products and the associated advertising.

 

General and administrative

 

General and administrative costs during Q1 and Q2 2021 increased by $9,675 or 12% in comparison to Q1 and Q2 2020 due to overall slowdown in business operations, we have reductions in travel, entertainment, tradeshows, parking, supplies and other general operational expenses, yet these decreases were offset by a $41k adjustment to accrued expenses that provide a positive credit to G&A in 2020.

 

Other income/(expense), net

 

Other expense, net decreased 142% or $461,323 from Q1 and Q2 2021 to Q1 and Q2 2020 primarily as a result of a $91,470 net gain for the sales of marketable securities held for sale, the gain of $129,261 from the extinguishment of debt and the reduction in expenses related to derivatives of $152,586 that were recognized in 2020. These gains offset the net interest expense related to debt.

 

Net income/(loss)

 

Net loss decreased by 142% or $461,323 from Q1 and Q2 2021 to Q1 and Q2 2020 with GTX posting a profit of $30,170. Mostly attributable to the large gains recognized in sales from marketable securities, the extinguishment of debt and derivatives, reductions in debt and interest, and from the increased sales of our health and safety products. As compared to Q2 2020.

 

Liquidity and Capital Resources for Fiscal Quarters Ended June 30, 2021 and 2020

 

As of June 30, 2021, we had $429,012 of cash and cash equivalents, and a working capital deficit of $2,360,358, compared to $76,912 of cash and cash equivalents and a working capital deficit of $2,894,105 as of December 31, 2020. The 24% or $680,967 reduction in negative working capital is a direct result of the Company’s efforts to reduce debt, increase inventory and having more cash and assets on-hand.

 

During the six months ended June 30, 2021, our net loss was $545,915 compared to a net profit was $30,170 for the six months ended June 30, 2020. Net cash used in operating activities for the six months of 2021 and the six months of 2020 was $243,364 and $434,219, respectively.

 

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

 

Net cash used by financing activities during the six months ended June 30, 2021 was $658,707 and consisted of $18,083 in upon our lines of credit and loans, and $675,000 received from financings. During the six months ended June 30, 2020, net cash provided by financing activities was $412,251 and consists of proceeds totaling $139,319 received from the line of credit, $250,000 from financings, $227,870 from government fundings as well as a $204,938 debt reduction payment on convertible notes and the line of credit. This reduction in additional financings is directly related to the Company not relying on convertible notes for financings, no new convertible notes issued, and the paying down of its debt in either the six months ended June 30, 2021 or June 30, 2020.

 

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Because revenues from our operations have, to date, been insufficient to fund our working capital needs, we currently rely on the cash we receive from our financing activities to fund our growth, capital expenditures and to support our working capital requirements. The sale of our products and services is expected to enhance our liquidity in 2021, although the amount of revenues we receive in 2021 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 2021. 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 2021. 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 first quarter of 2021 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 $2,598,550 and negative working capital of $2,393,850 as of March 31, 2021 and used cash in operations of $76,730 during the current period then ended. A significant part of our negative working capital position at March 31, 2021 consisted of $751,515, 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, 2020 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

 

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.

 

The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below.

 

We have identified the following critical accounting policies that are most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following is a review of the more critical accounting policies and methods used by us.

 

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Revenue Recognition

 

The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

 

The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time.

 

We derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware includes our SmartSole, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers accessing our cloud-based software solutions and subscription or license fees for our platform. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related to our solutions. IP licensing is related to our agreement with Inventergy whereby we have partnered in order to monetize our IP portfolio (see Note 3 to the Company’s financial statements for the periods ending December 31, 2020 and 2019, below).

 

Product sales

 

At the inception of each contract, we assess the goods and services promised in our contracts and identify each distinct performance obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large majority of the Company’s sales, transfer of control occurs once product has shipped and title and risk of loss have transferred to the customer.

 

Services Income

 

The Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.

 

The majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services are performed.

 

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Licensing Revenue

 

Licensing revenue recorded by the Company relates exclusively to the Company’s License and Partnership agreement with Inventergy which provides for ongoing licensing based on monetization of IP licenses. The Company recognizes revenue for licensing under ASC 606, which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: 1) sale or usage of the products or 2) satisfaction of the performance obligations. The Company has satisfied its performance obligations and therefore recognizes licensing revenue when the sales to which the licensing relate are completed. During the years ended December 31, 2020 and 2019 the Company recognized 15 settlements for a total of $20,000 in licensing revenue and $763,000, respectively.

 

During the year ended December 31, 2020, the Company’s customer base was comprised of approximately 69.95% B2B (Wholesale Distributors and Enterprise Institutions), 33.61% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 1.87% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0.56% Military and Law Enforcement. During the year ended December 31, 2019, the Company’s customer base was comprised of approximately 39.59% B2B (Wholesale Distributors and Enterprise Institutions), 8.80% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 50.83% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0.78% Military and Law Enforcement.

 

Product Warranty

 

The Company’s warranty policy provides repair or replacement of products (excluding GPS Shoe devices) returned for defects within ninety days of purchase. Warranty liabilities are recorded at the time of sale for the estimated costs that may be incurred under our standard warranty. As of December 31, 2020, products returned for repair or replacement have been immaterial. Accordingly, a warranty liability has not been deemed necessary.

 

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.

 

Stock-based Compensation

 

Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis, which is generally commensurate with the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.

 

Recent Accounting Pronouncements

 

Please refer to footnote for management’s discussion of recent accounting pronouncements.

 

Trend Information

 

2020 was probably our most transformative year since we launched our GPS SmartSoles in 2015. Even with the overall setbacks and the restrictive lockdowns enforced in California due to the novel coronavirus disease of 2019 (“COVID” or “COVID-19”), which in turn brought about a reduction in revenues, we still managed to grow our product sales, grow our customer base, expand our product lines, maintain good profit margins, and reduced our general expenses. Except for a government assisted very low interest SBA loan, which we have 30 years to pay off, we did not take on any new debt and continued to retire our existing debt by approximately $494,000, or 35%, in 2020.

 

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Overall subscriptions were down for the year and lower than expected due to COVID-19 and because many of the cellular providers worldwide transitioned to 4G and 5G shutting down 2G and 3G in many parts of the world. Even though we had been planning for the 2G and 3G shutdown we had no way to plan for COVID-19. Most of our distributors and B2B customers stopped placing new orders in the 3rd and 4th quarter of 2019 in order for them to sell out of their existing inventory ahead of receiving our new 4G products. The 2G and 3G shutdown also had an impact on our B2C subscriptions as consumers were experiencing connectivity issues in certain geographical areas and suspended their subscriptions. In spite of these temporary setbacks, we saw and continue to see a steady flow of pre-orders for our 4G SmartSoles.

 

Due to our pivot in early March 2020 to expand our health and safety product line into the Personal Protective Equipment (“PPE”) business, we saw a 109% increase in product revenues compared to 2019, added over 2,500 new customers, elevated our product and brand awareness in the U.S. and showed a modest net profit for the first three quarters of 2020. The expansion into the PPE business enabled us to maintain our cash flow, broaden our product offerings, garner a lot of new customers, all of which we believe has expanded our visibility in the marketplace, as we are starting to see more cross selling across our product lines and continue to see a noticeable increase in inquiries from our distributors for wearable tracking and monitoring solutions, which is the cornerstone of our business.

 

Even though overall, revenues compared to last year were down besides COVID, most of that was directly related to IP licensing. In 2019, in addition to our normal IP licensing revenue, we had 1 large transaction for $650,000 that dramatically increased our licensing revenue for that year. However, in 2020 not only did we not have 1 large transaction, but due to COVID all our normal IP licensing revenues were off. Instead of 14 licenses signed in 2019, we only signed one in 2020.

 

During the second quarter of 2020, basically starting April first, the Company was immersed in addressing the impact of COVID-19: from setting up work safety policies, social distancing guidelines, shelter in place lockdowns, contacting our customers and suppliers across the globe to address and ascertain their impact. In addition, we had to quickly expand our infrastructure to support the rapid need and demand for PPE’s. As we were facing the many uncertainties, we filed for government assistance loan programs, which we received late in the second quarter. Even with all the uncertainty, chaos and panic that ensued in early April, we managed to build out our PPE business whereby we sold and donated hundreds of thousands of PPE items to a wide range of entities such as essential businesses, assisted living facilities, pharmacies, Fortune 1,000 companies, hospitals, police departments, nonprofits, and local, state, and federal government agencies, in almost every State across the U.S. We launched a PPE specific website www.gtxmask.com, which within weeks, saw over a 500% increase in website traffic, and 300% increase in consumer orders. GTX is now well positioned as a trusted health & safety supplier for providing a wide variety of high-quality products, excellent customer service and reliable same or next day shipping, all of which is contributing to an increase in our brand awareness and favorable customer testimonials and reviews. Since we are now addressing a much larger potential audience, we started an advertising campaign, and based on the results so far, we expect to keep the campaign going into 2021.

 

Continuing throughout the year, our e commerce business saw a steady monthly increase and many of the new products we introduced were widely accepted and sales quickly ramped up throughout the year, seeing a significant increase in sales coming from COVID Rapid Test Kits beginning in the fourth quarter of 2020.

 

During the third quarter of 2020, GTX was issued a new patent by the United States Patent and Trademark Office (USPTO), U.S Patent No. 10,743,615 entitled “System and Method for Embedding a Tracking Device in a Footwear Insole.” This is GTX’s third patent related to embedding Real-Time Location Systems (RTLS) GPS wearable tracking technology into footwear. This patent covers different aspects of the GPS SmartSole product and we expect to receive more patents covering other aspects on related applications in the future as we continue to expand our IP portfolio in the wearable technology space, especially as the global wearable medical device market continues to grow and expecting to reach $9.4 billion by 2022. This third patent helps solidify our portfolio with respect to wearable tracking and monitoring technologies embedded in footwear.

 

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During the fourth quarter of 2020 we continued making progress with the development of our next generation miniaturized GPS tracking device, which will utilize a host of new technologies, including CatM1, NB-IoT, enhanced Wifi, and Bluetooth, for better accuracy, faster location requests and less power consumption. This new hardware platform will be small enough to be embedded into our line of wearable technology and offered as a licensed hardware platform as well. Unfortunately, we found some issues with our first design, which were quickly resolved, and we put a second version of prototypes in production, which we began testing in the 4th quarter. The demand for our GPS SmartSoles is the highest it has been in over two years, so we are very focused and committed to getting our new product launched in 2021. Subscriptions which directly tie into the sales of our tracking products were still not back to pre-COVID as of December 31, 2020, however based on our preorders going into 2021 we expect subscriptions to start ramping up quickly as soon as we launch our new 4G SmartSoles. We also had a slight increase in IP licensing as the economy began to reopen up towards the 3rd quarter, but then we had the end of year spike in COVID cases which slowed things down again with our IP campaign. IP revenues were significantly lower in 2020 over the previous year and even though we believe the setbacks were related to COVID, we also believe our IP campaign which began with our partnership with Inventergy needs to be revamped as we go into 2021 and management will be exploring several different options.

 

Since we cannot accurately predict how long the PPE business will remain in strong demand, based on the current events, it is unlikely to end completely before the end of the year. The entry into this business has enabled us to broaden our product line, garner thousands of new customers, all of which we believe has expanded our visibility in the wearable technology GPS tracking space as we are starting to see cross selling across our product lines. We have seen a noticeable increase in inquiries from our distributors for wearable tracking, monitoring, and tracking solutions, which is the cornerstone of our business. We intend to leverage the increase in customers and brand awareness to introduce new products in 2021.

 

As we look over the horizon into 2021, we are cautiously optimistic, seeing encouraging signs, hearing from many customers that they are almost fully operational, but the situation still remains fluid. One thing is for certain, there is a big desire for innovation and new solutions in the wearable technology healthcare industry post COVID-19 era, along with continued demand for PPE while the pandemic is still not fully under control. GTX has been at the forefront of many innovative technologies, we pivoted early into the PPE business and built an entire new business unit under extremely challenging conditions, so we know we are resilient, confident and will continue to push forward.

 

We want to thank our entire team and everyone in our inner circle for working tirelessly throughout 2020 under extremely challenging circumstances. For now, we will keep updating everyone as best we can through our podcast, press releases and newsletters and wish everyone a safe and healthy journey into 2021.

 

DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES

 

Our board of directors is elected annually by our shareholders. The board of directors elects our executive officers annually. Our directors and executive officers as of October 4, 2021 are as follows:

 

Name   Position   Age   Term of Office
Patrick E. Bertagna   President, Chief Executive Officer and Chairman of the Board   57   March 14, 2008
Alex McKean   Chief Financial Officer   56   October 3, 2011
Christopher M. Walsh   Director   71  

July 1, 2015, Retired

January 31, 2020

Louis Rosenbaum   VP of Operations & Finance, Director   70  

March 14, 2008

(Director)

March 1, 2015 (VP)

Andrew Duncan   Director, Audit Committee Member, Corporate Secretary and Treasurer   56   April 2, 2010

 

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Biographical Information

 

The following describes the backgrounds of current executive officers and directors. The Company currently has no independent directors, as defined in the NASDAQ rules governing members of boards of directors.

 

Mr. Bertagna is the director and the Chief Executive Officer of Global Trek Xploration and LOCiMOBILE, Inc., Mr. Rosenbaum is the VP of Operations and Finance, and Mr. McKean is the Chief Financial Officer of each of those subsidiaries.

 

Patrick E. Bertagna – Director, Chief Executive Officer, President and Chairman of the Board

 

Mr. Bertagna was the founder of Global Trek Xploration in September 2002 and has since served as its Chief Executive Officer, President and Chairman of the Board of Directors of GTX. He is co-inventor of our patented GPS footwear technology. His career spans over 35 years in building companies in both technology and consumer branded products.

 

Mr. Bertagna began his career in consumer products importing apparel from Europe and later went on to import and manufacture apparel, accessories and footwear in over 20 countries. In 1993, Mr. Bertagna transitioned into technology and founded Barcode World, Inc. a supply chain software company, enabling accurate tracking of consumer products from design to retail. In June 2002 after selling this company, Mr. Bertagna combined his two past careers in consumer products and tracking technology and founded GTX.

 

Mr. Bertagna was born in the South of France and is fluent in French and Spanish, has formed alliances with Fortune 500 companies such as IBM, AT&T, Sports Authority, Federated Stores, Netscape and GE. He has been a keynote speaker and has been awarded several patents (including, but not limited to U.S. Patent #’s: 8,154,401, 8,760,286, 9,219,978).

 

Mr. Bertagna has extensive knowledge of the manufacturing industry, internet software development, building intellectual property portfolios and overall experience in growing early stage high-tech companies. As a founder of Global Trek Xploration and co-inventor of the GPS Shoe, this knowledge enables Mr. Bertagna to be uniquely qualified to be CEO and on the Board of Directors.

 

Alex McKean – Chief Financial Officer

 

Mr. McKean was appointed as our Chief Financial Officer in 2015, previously he was our Interim Chief Financial Officer since October 2011. He is currently also the Chief Financial Officer of Encore Brands, Inc., a position he has held since October 2009. Previous to that, he acted as an independent management consultant under his own firm, SGT Enterprises, Inc. as well as an independent contractor with Robert Half International and Ajilon Finance. Prior to establishing his own firm, during 2004-2007 Mr. McKean was with Parson Consulting working in such areas as: strategy, financial modeling, SEC filings, process management and Sarbanes Oxley. Mr. McKean has held positions as a Controller and VP of Finance at 24:7 Film from 2002-2004, VP of Finance at InternetStudios.com from 2000-2002, Director of FP&A/SVP at Franchise Mortgage Acceptance Company from 1998-2000, as Corporate Accounting Manager/Treasurer of Polygram Filmed Entertainment from 1996-1998 and Assistant Treasurer/Controller for State Street Bank from 1989-1996.

 

Mr. McKean holds an International MBA from Thunderbird’s School of Global Management and undergraduate degrees in Finance and Political Science from Trinity University.

 

Christopher M. Walsh - Director (retired)

 

Mr. Walsh joined this Company as its Chief Operating Officer in March 2008, as of June 30, 2015 we accepted his resignation of the position and transitioned him into a Director on July 1, 2015. Mr. Walsh began his career with Nike in 1974 and subsequently established and implemented Nike’s first manufacturing operation in the Far East. In 1989, Mr. Walsh joined Reebok International as Vice President of Production. In that role, he established the Company’s inaugural Asian organization headquartered in Hong Kong with satellite organizations across Asia, and also played a critical role on the Reebok Pump Task Force directing the manufacturing initiatives associated with the unique components of the Pump system. After Reebok, Mr. Walsh moved to LA Gear in 1992 and, as Chief Operating Officer, became a critical figure in the turnaround team assembled by LA Gear and was responsible for all research and development, design, manufacturing, sourcing, quality control, distribution and logistics.

 

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Upon leaving LA Gear in 1995, Mr. Walsh founded CW Resources, a Los Angeles based firm providing design, development, manufacturing and licensing consulting services to an extensive client base, both domestic and international, within the footwear, apparel, textile, sporting goods and action sports industries. Since January 2005, he has served as an advisor to GTX spearheading their footwear research and development and marketing practices.

 

Mr. Walsh received a B.S. in Marketing from Boston College in 1973 and previously served on numerous organizational boards within the footwear and textile industries including The Two Ten International Footwear Foundation and The Footwear Distributors and Retail Association.

 

Mr. Walsh retired from the Board of Directors, effective January 31, 2020(17).

 

Louis Rosenbaum – VP of Operations and Finance, Director

 

Mr. Rosenbaum served as a member of GTX Board of Directors from September 2002 until June 2005 and then again from October 2007 until March 2008, at which time he became a director of GTX Corp Subsequently, Mr. Rosenbaum was asked to act as the VP of Operations and Finance since March 1, 2015. Mr. Rosenbaum was a founder and early investor in Global Trek Xploration.

 

Mr. Rosenbaum has been the President of Advanced Environmental Services since July 1997. His responsibilities at Advanced Environmental Services encompass supervising all administrative and financial activities, including all contractual aspects of the business. Mr. Rosenbaum has been working in the environmental and waste disposal industry for the past eighteen years. He started with Allied Waste Services, a division of Eastern Environmental (purchased by Waste Management Inc. in 1998) in 1990.

 

Mr. Rosenbaum founded and was President of Elements, a successful clothing manufacturer that produced a line of upscale women’s clothing in Hong Kong, China, Korea and Italy, from 1978 to 1987.

 

Mr. Rosenbaum has a long history in the consumer products industry, electronics and software sales and development. Mr. Rosenbaum is a co-founder of GTX Corp, was the first large investor and has assisted in the overall vision and development of the Company since inception. Mr. Rosenbaum has served on numerous private and community public boards and this unique blend of experience and history, combined with his strategic and tactical insight, makes Mr. Rosenbaum an asset to the GTX Corp Board.

 

Andrew Duncan – Head of International Business Development, Director, Member of Audit Committee, Corporate Secretary and Treasurer

 

Mr. Duncan has been working in the consumer electronics and technology licensing business for over 20 years. Since 2006 he has been the CEO of ClearPlay International, a software licensing company. Prior thereto, he founded Global TechLink Consultants Inc., a technology consultancy company, specializing in technology licensing, multimedia, communication and application technology on a global basis, including Interactive TV, Digital downloads/streaming and Consumer Electronics. From 1994 to 2001, Mr. Duncan worked as Vice President Consumer Electronics for Gemstar TV Guide International (Los Angeles USA).

 

Mr. Duncan earned his honors degree in Chemistry from Nottingham University and postgraduate qualifications in Marketing and Direct Marketing from London University (Kings College). He also has a Certificate of Business Management from the Anderson School of Business UCLA.

 

Mr. Duncan’s experience in global intellectual property, branding and licensing, uniquely qualifies him to serve on our Board. Mr. Duncan’s long involvement in global business development, with an extensive background working in both Europe and Asia as a business strategist for major corporations, directly assists the Board in its international strategic planning objectives and activities.

 

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Director Qualifications and Diversity

 

Our Board of Directors (the “Board”) has not adopted a formal policy with regard to the consideration of diversity when evaluating candidates for election to the Board. However, our Board believes that membership should reflect diversity in its broadest sense, but should not be chosen nor excluded based on race, color, gender, national origin or sexual orientation. In this context, the Board does consider a candidate’s experience, education, industry knowledge, history with the Company, and differences of viewpoint when evaluating his or her qualifications for election to the Board. Whenever our Board evaluates a potential candidate, the Board considers that individual in the context of the composition of the Board as a whole.

 

The standards that our Board considers in selecting candidates (although candidates need not possess all of the following characteristics, and not all factors are weighted equally) include the director’s or nominee’s, Industry knowledge and contacts in industries served by the Company, independent judgment, ability to broadly represent the interests of all stockholders and other constituencies, maturity and experience in policy making decisions, business skills, background and relevant expertise that are useful to the company and its future needs, and other factors determined to be relevant by the Board.

 

Family Relationships

 

There are no family relationships among the Company’s directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers.

 

Director or Officer Involvement in Certain Legal Proceedings

 

Our current directors and executive officers have not at any time in the past five (5) years been convicted in a criminal proceeding (excluding traffic violations and other minor offenses) and no petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of any such officers or directors, or any partnership in which they were a general partner at or within two (2) years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two (2) years before the time of such filing..

 

Code of Business Conduct and Ethics.

 

We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our directors, officers and employees, including our principal executive officer and principal financial and accounting officer. A copy of our code of ethics will be furnished without charge to any person upon written request. Requests should be sent to: Secretary, GTX Corp, 117 W. 9th Street, Suite 1214, Los Angeles, California 90015.

 

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth the annual compensation of each of the highest paid persons who were executive officers or directors during the fiscal year ended December 31, 2020.

 

Summary Compensation Table

 

Name and Principal Position  Salary ($)   Bonus ($)   Stock Awards ($)   Option Awards ($)   All Other Compensation ($)(6)   Total ($) 
Patrick Bertagna(1)   150,000    500    -    -    1,000    151,500 
                               
Alex McKean(2)   96,000    500    -    -    -    96,500 
                               
Louis Rosenbaum(3)   -    500    -    -    1,000    1,000 
                               
Andrew Duncan(4)   -    500    -    -    1,000    1,000 
                               
All directors as a group [3 persons](5)   -    1,500    -    -    3,000    4,500 

 

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(1) Mr. Bertagna, our Chief Executive Officer and President, has agreed to defer portions of his salary in an effort to preserve cash for other working capital needs of the Company. In 2020, Mr. Bertagna accrued wages and $1,000 for Board of Director fees thru December 31, 2020. As of December 31, 2019, Mr. Bertagna has accrued $54,700 of his 2020 salary compensation.
   
(2) Mr. McKean, our Chief Financial Officer, has agreed to defer portions of his salary in an effort to preserve cash for other working capital needs of the Company. As of December 31, 2020, Mr. McKean has accrued $45,700 of his 2020 salary compensation.
   
(3) Mr. Rosenbaum has provided executive management services to the Company in previous years. Mr. Rosenbaum earned $96,000 in 2020 relating to operations and finance services, a $500 bonus and $1,000 for Board of Director fees. As of December 31, 2020, Mr. Rosenbaum has deferred $33,700 of his 2020 consulting compensation and $1,000 of his director’s compensation.
   
(4) Mr. Duncan also provides executive management services to the Company. Mr. Duncan earned $94,000 in 2020 for business development and intellectual property licensing services, a $500 bonus and $1,000 for Board of Director fees. As of December 31, 2020, Mr. Duncan has deferred $31,700 of his 2020 consulting compensation and $1,000 of his director’s compensation.
   
(5) Christopher Walsh, retired from the Board of Directors effective January 31, 2020 and thus did not earn any payment for his time as a director in 2020. Furthermore, Mr. Bertagna’s salary for his services as the Company’s CEO and President are not included in the above calculation for the directors as a group.
   
(6) The values shown in this column include Director fees, additional employee benefits paid including travel, health insurance, auto lease payments and cellular phone service. During 2020 these expenses, other than the Director fees, where applied against previous year’s accruals.

 

Outstanding Equity Awards

 

None.

 

Long-Term Incentive Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.

 

Director Compensation

 

We have no formal plan for compensating our directors for their service in their capacity as directors although such directors are expected to receive shares of common stock and/or options in the future to purchase common shares as awarded by our Board of Directors or (as to future options) a Compensation Committee which may be established in the future. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board of Directors. Our Board of Directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director.

 

Employment Agreements

 

The following are summaries of the employment agreements with the Company’s executive officers:

 

Patrick E. Bertagna, our Chief Executive Officer and President, is employed pursuant to a written agreement dated as of March 14, 2008. The agreement was for a term of two years, but contained a provision under which the agreement is automatically extended for additional one-year periods unless either party provides written notice to the contrary at least 60 days prior to the end of the term then in effect. As such, Mr. Bertagna receives a base salary of $150,000 per year; however, in order to preserve cash for other working capital needs, Mr. Bertagna has agreed to accrue portions of his salary in the past and he is continuing to do so in 2020. He is entitled to adjustments to his base salary based on certain performance standards, at the Company’s discretion, as follows: (i) a bonus in an amount not less than fifteen percent (15%) of yearly salary, to be paid in cash or stock, if the Company has an increase in annual revenues and Mr. Bertagna performs his duties within the time frame budgeted for such duties at or below the cost budgeted for such duties and (ii) a bonus, to be paid in cash or stock at the Company’s sole discretion, equal to $12,500 for every one million of the Company’s outstanding common stock purchase warrants that are exercised.

 

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Mr. Bertagna may also participate in any and all benefits and perquisites as are generally provided for the benefit of executive employees. The agreement terminates on his death, incapacity (after 180 days), resignation or cause as defined in the agreement. If he is terminated without cause, he is entitled to base salary, including back salary owed, all bonuses otherwise applicable, and medical benefits for twelve months.

 

Alex McKean, was appointed as the Company’s Interim Chief Financial Officer from October 3, 2011 and was appointed full-time in 2015. He is not employed pursuant to a written employment agreement.

 

2008 Equity Compensation Plan

 

We have adopted an equity incentive plan, the 2008 Equity Compensation Plan (the “2008 Plan”), pursuant to which we are authorized to grant options, restricted stock, unrestricted stock, and stock appreciation rights to purchase up to 7,000,000 shares of common stock to our employees (as such term is defined in the 2008 Plan), officers, directors and consultants. Awards under the 2008 Plan may consist of stock options (both non-qualified options and options intended to qualify as “Incentive Stock Options” under Section 422 of the Internal Revenue Code of 1986, as amended), restricted and unrestricted stock awards and stock appreciation rights.

 

The 2008 Plan is administered by our Board of Directors or a committee appointed by the Board (the “Committee”). If appointed by the Board, the committee would consist of at least two members of the Board whose members shall, from time to time, be appointed by the Board. The Committee has the authority to interpret the 2008 Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the persons to whom awards will be granted, the type of award to be granted, the number of awards to be granted, and the terms and provisions of stock options granted pursuant to the 2008 Plan, including the vesting thereof, subject to the provisions of the 2008 Plan, and to make all other determinations necessary or advisable for the administration of the 2008 Plan.

 

The 2008 Plan provides that the purchase price of each share of common stock subject to an incentive stock option may not be less than 100% of the fair market value (as such term is defined in the 2008 Plan) of a share of our common stock on the date of grant (or not less than 110% of the fair market value in the case of a grantee holding more than 10% of our outstanding common stock). The aggregate fair market value (determined at the time the option is granted) of the common stock with respect to which incentive stock options are exercisable for the first time by the employee during any calendar year (under all such plans of the grantee’s employer corporation and its parent and subsidiary corporation) shall not exceed $100,000. No incentive stock option shall be exercisable later than the tenth anniversary of its grant; provided, however, that an incentive stock option granted to an employee holding more than 10% of our outstanding common stock shall not be exercisable later than the fifth anniversary of its grant.

 

The Committee shall determine the purchase price of each share of common stock subject to a non-qualified stock option. Such purchase price, however, shall not be less than 100% of the fair market value of the common stock on the date of grant. No non-qualified stock option shall be exercisable later than the tenth anniversary of its grant.

 

The plan also permits the grant of stock appreciation rights in connection with the grant of an incentive stock option or a non-qualified stock option, or unexercised portion thereof held by the grantee. The grant price of a stock appreciation right shall be at least at the fair market value of a share on the date of grant of the stock appreciation right, and be subject to such terms and conditions, not inconsistent with the provisions of the 2008 Plan, as shall be determined by the Committee. Each stock appreciation right may include limitations as to the time when such stock appreciation right becomes exercisable and when it ceases to be exercisable, which may be more restrictive than the limitations on the exercise of the stock option to which it relates. No stock appreciation right shall be exercisable with respect to such related stock option or portion thereof unless such stock option or portion shall itself be exercisable at that time. A stock appreciation right shall be exercised only upon surrender of the related stock option or portion thereof in respect of which the stock appreciation right is then being exercised. Upon the exercise of a stock appreciation right, a grantee shall be entitled to receive an amount equal to the product of (i) the amount by which the fair market value of a share of common stock on the date of exercise of the stock appreciation right exceeds the option price per share specified in the related incentive or non-qualified stock option and (ii) the number of shares of common stock in respect of which the stock appreciation right shall have been exercised. Further, a stock appreciation right shall be exercisable during the grantee’s lifetime only by the grantee.

 

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The 2008 Plan also provides us with the ability to grant shares of common stock that are subject to certain transferability, forfeiture or other restrictions. The recipient of restricted stock grants, the type of restriction, the number of shares of restricted stock granted and other such provisions shall be determined by the Committee. The Board, in good faith and in its sole discretion, shall determine the fair market value with regards to awards of restricted stock.

 

The 2008 Plan also provides us with the ability to grant shares of unrestricted stock. The Committee shall determine and designate from time to time those persons who are to be granted unrestricted stock and number of shares of common stock subject to such grant. The Board, in good faith and in its sole discretion, shall determine the fair market value with regards to awards of unrestricted stock. The grantee shall hold common stock issued pursuant to an unrestricted stock award free and clear of all restrictions, except as otherwise provided in the 2008 Plan.

 

Unless otherwise determined by the Committee, awards granted under the 2008 Plan are not transferable other than by will or by the laws of descent and distribution.

 

The 2008 Plan provides that in the event of a merger or change of control, the Committee may substitute stock options, stock awards and stock appreciation rights of the acquired company. Alternatively, the Committee may provide that the stock options, stock awards and stock appreciation rights shall terminate following notice by the Committee.

 

The Board may, at any time, alter, amend, suspend, discontinue, or terminate the 2008 Plan; provided, however, that such action shall not adversely affect the right of grantees to stock awards or stock options previously granted and no amendment, without the approval of the stockholders of the Corporation, shall increase the maximum number of shares which may be awarded under the 2008 Plan in the aggregate, materially increase the benefits accruing to grantees under the 2008 Plan, change the class of employees eligible to receive options under the 2008 Plan, or materially modify the eligibility requirements for participation in the 2008 Plan.

 

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS

 

The following table sets forth the ownership, as of October 4, 2021, of our common stock by each person known by us to be the beneficial owner of more than 10% of our outstanding voting stock, our directors, and our executive officers and directors as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control.

 

As of October 8, 2021, there were: 214,882,930 shares of common stock outstanding; 1,000,000 shares of Series A preferred stock issued and outstanding, which in aggregate represent votes equal to two-thirds of the Company’s issued and outstanding common stock, has the majority vote of the Board of Directors, and are non-convertible; 204 shares of Series B preferred stock issued and outstanding, which in aggregate are convertible into 81,600,000 common shares and have no voting rights except as required by law; and 375 shares of Series C preferred stock issued and outstanding, which in aggregate are convertible into approximately 25,000,000 common shares and have no voting rights except as required by law. There was a total of approximately 357,804,884 votes eligible to be cast in any Company vote as of October 4, 2021.

 

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities.

 

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Except as otherwise indicated and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. Unless stated otherwise, the business address for these shareholders is 117 W 9th Street, Suite 1214, Los Angeles, CA 90015.

 

Name   Title    Number of Common
Shares
    % of Common Shares    Number of Series A Preferred Shares    % of Series A Preferred Shares    % of
Eligible Votes
    Number of Warrants currently exercisable or exercisable in the next 60 days 
Patrick E. Bertagna [1]   CEO and Chairman of the Board    287,188    0.13%   333,333.33    33.33%   22.36%   0 
Alex McKean [2]   CFO    54,489    0.03%   0    0%   0.02%   0 
Louis Rosenbaum [3]   VP of Operations & Finance, Director    134,741    0.06%   333,333.33    33.33%   22.28%   0 
Andrew Duncan [4]   Director, Corporate Secretary and Treasurer    205,848    0.10%   333,333.33    33.33%   22.32%   0 
Christopher Walsh [5]   Director (retired)    70,830    0.03%   0    0%   0.02%   0 
All officers and directors as a group [5 persons]        753,096    0.35%   1,000,000    100%   67.02%   0 

 

  (1) Patrick E. Bertagna owns approximately 287,188 shares of common stock and 333,333 shares of Series A preferred stock, which equal approximately 47,707,318 votes as of October 4, 2021. In addition to the listed shares, a member of Mr. Bertagna’s family holds 72 shares of common stock, which shares have not been included in the above calculations.
     
  (2) Alex McKean owns approximately 54,489 shares of common as of October 4, 2021.
     
  (3) Louis Rosenbaum owns approximately 134,741 shares of common stock and 333,333 shares of Series A preferred stock, which equal approximately 47,707,318 votes as of October 4, 2021. In addition to the listed shares, four members of Mr. Rosenbaum’s family hold an aggregate of 854 shares of common stock, which shares have not been included in the above calculations.
     
  (4) Andrew Duncan owns approximately 205,848 shares of common stock and 333,333 shares of Series A preferred stock, which equal approximately 47,707,318 votes as of October 4, 2021.
     
  (5) Christopher Walsh owns approximately 70,830 shares of common stock as of October 4, 2021. Mr. Walsh retired from the Board of Directors effective January 31, 2020.

 

The above table is based upon information derived from our stock records. Except as otherwise indicated herein and under applicable community property laws, we believe that the beneficial owners of our common stock listed above have sole voting and investment power with respect to the shares shown.

 

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INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

 

Except as described herein (or within the section entitled Executive Compensation of this Offering Circular), none of the following parties (each a “Related Party”) has, in our fiscal years ended 2019, 2020 and 2021, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:

 

any of our directors or officers;
any nominee for election as a director;
any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock; or
any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons.

 

Director Independence. None of our directors is independent within the definition of “independence” as defined in the Nasdaq rules governing members of boards of directors.

 

Related Party Transactions. During 2020, officers and directors accrued $165,800 of deferred back salary and $3,000 of director fees.

 

Except as described above, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to SEC Form 1-A.

 

SECURITIES BEING OFFERED

 

The following description is a summary of the material rights of shareholders. Shareholder rights are dictated via the Company’s Articles of Incorporation and Bylaws. Each of the foregoing documents has been filed as an exhibit to this Offering Circular.

 

Common Stock

 

We are authorized to issue 2,071,000,000 shares of common stock, $0.0001 par value per share. As of October 4, 2021, there were approximately 214,882,930 shares of common stock issued and outstanding, held by approximately 194 shareholders of record.

 

Each share of common stock entitles the holder to one vote, either in person or by proxy, at meetings of shareholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the shareholders of our common stock who hold, in the aggregate, more than fifty percent (50%) of the total voting rights can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any of such directors. Shareholders may take action by written consent.

 

Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available. We have not paid any dividends to common shareholders since our inception, and we presently anticipate that all earnings, if any, will be retained for development of our business. Any future disposition of dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operating and financial condition, capital requirements, and other factors.

 

Holders of our common stock have no pre-emptive rights or other subscription rights, conversion rights, redemption or sinking fund provisions. Upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to shareholders after the payment of all of our debts and other liabilities. There are not any provisions in our Articles of Incorporation or our Bylaws that would prevent or delay change in our control.

 

Preferred Stock

 

The Company has 10,000,000 shares of preferred stock authorized. There are no restrictions on the repurchase or redemption of preferred shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments.

 

53

 

  

Series A

 

During the year ended December 31, 2018, the Company authorized 1,000,000 shares of Series A preferred stock, which shares to have voting rights equal to two-thirds of all the issued and outstanding shares of common stock, shall be entitled to vote on all matters of the corporation, and shall have the majority vote of the Board of Directors. The subject preferred stock lacks any dividend rights, does not have liquidation preference, and is not convertible into common stock. During the year ended December 31, 2018, the Company issued one million shares to certain officers and board members. The Company retained a third-party valuation firm whose input was utilized in determining the related per share valuation of the preferred shares. Based on management’s assessment and the valuation report, the fair value of the Series A preferred shares was determined to be $0.0463 per share or an aggregate of $46,363. The shares remain outstanding as of October 4, 2021.

 

Series B

 

During the year ended December 31, 2019, the Company authorized 10,000 shares of preferred stock to be designated available for Series B preferred shares that have a stated value of $1,000 each and are convertible into common shares at fixed price of $0.0025. Holders shall be entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Company’s Common Stock. No other dividends shall be paid on shares of Series B Preferred Stock, and they shall have no voting rights and have liquidation preference.

 

Series C

 

During the period ended December 31, 2020, the Company authorized 1,000 shares of preferred stock to be designated available for Series C preferred shares that have a stated value of $1,000 each and are convertible into common shares at fixed price of $0.015. Holders shall be entitled to receive, and the Company shall pay, dividends on shares of Series C Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Company’s Common Stock. No other dividends shall be paid on shares of Series C Preferred Stock, and they shall have no voting rights and have liquidation preference.

 

54

 

 

FINANCIAL STATEMENTS

 

GTX CORP AND SUBSIDIARY

 

Index to Financial Statements

 

    Pages
     
Financial Statements    
     
Report of Independent Registered Public Accounting Firm for Years Ended December 31, 2020 and 2019   F-2
     
Consolidated Balance Sheets for Years Ended December 31, 2020 and 2019   F-4
     
Consolidated Statements of Operations and Comprehensive Loss for Years Ended December 31, 2020 and 2019   F-5
     
Consolidated Statements of Stockholders’ Equity for Years Ended December 31, 2020 and 2019   F-6
     
Consolidated Statements of Cash Flows for Years Ended December 31, 2020 and 2019   F-7
     
Notes to Consolidated Financial Statements for Years Ended December 31, 2020 and 2019   F-8
     
Consolidated Balance Sheets for Period Ended June 30, 2021   F-27
     
Consolidated Statements of Operations and Comprehensive Loss for Period Ended June 30, 2021   F-28
     
Consolidated Statements of Stockholders’ Equity for Period Ended June 30, 2021   F-29
     
Consolidated Statements of Cash Flows for Period Ended June 30, 2021   F-31
     
Notes to Consolidated Financial Statements for Period Ended June 30, 2021   F-32

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of GTX Corp

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of GTX Corp (the Company) as of December 31, 2020, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the years in the two-years period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. The financial statements of GTX Corp as of December 31, 2019 were audited by other auditors, whose report dated March 30, 2020 expressed an unqualified opinion on those statements.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below are matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Revenue Recognition

 

As discussed in the financial statement’s footnotes, the Company recognizes revenue upon transfer of control of promised services and goods to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers customers the ability to acquire services with their goods. Significant judgement is exercised by the Company in determining revenue recognition for these customers. Given these factors and due to the volume of transactions, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgement.

 

We have served as the Company’s auditor since 2021.

 

/s/ M&K CPAS, PLLC  
M&K CPAS, PLLC  
Houston, Texas  
March 31, 2021  

 

F-2
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and the Board of Directors

GTX Corp

Los Angeles, California

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of GTX Corp (the “Company”) as of December 31, 2019, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has incurred recurring operating losses and used cash in operations since inception, and has a stockholders’ deficit at December 31, 2019. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

We have served as the Company’s auditor since 2018.

 

/s/ Weinberg & Company, P.A.  
Weinberg & Company, P.A.  
Los Angeles, CA  
March 30, 2020  

 

F-3
 

 

GTX CORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   December 31, 
   2020   2019 
ASSETS          
           
Current assets:          
Cash and cash equivalents  $76,912   $125,200 
Accounts receivable, net   40,484    47,818 
Inventory   114,137    36,192 
Investment in marketable securities   4,166    59,224 
Other current assets   54,593    10,383 
           
Total current assets   290,292    278,817 
           
Property and equipment, net   7,878    18,404 
Intangible assets   -    15,000 
           
Total assets  $298,170   $312,221 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities:          
Accounts payable  $182,610   $203,126 
Accrued expenses   327,293    441,082 
Accrued expenses, related parties   839,810    680,119 
Deferred revenues   37,350    70,072 
Short-term debt – line of credit   21,715    98,000 
Convertible promissory notes, past due   840,673    1,099,278 
Convertible notes, related parties   884,546    884,546 
Notes payable   50,400    210,000 
Derivative liabilities   -    223,536 
Total current liabilities   3,184,397    3,909,759 
           
Long-term debt - CARE loans   217,870    - 
           
Total liabilities   3,402,267    3,909,759 
           
Commitments and contingencies          
           
Stockholders’ deficit:          
Preferred stock series A, $0.001 par value; 10,000,000 shares authorized; 1,000,000 shares issued and outstanding at December 31, 2020 and 2019, respectively   100    100 
Preferred stock series B, $0.001 par value; 250 and 150 shares issued and outstanding at December 31, 2020 and 2019, respectively   1    1 
Preferred stock series C, $0.001 par value; 1,000 shares authorized, 150 and 0 issued and outstanding at December 31, 2020 and December 31, 2019, respectively   -    - 
Common stock, $0.0001 par value; 2,071,000,000 shares authorized; 138,032,482 and 71,419,795 shares issued and outstanding at December 31, 2020 and 2019, respectively   13,803    7,142 
Additional paid-in capital   21,059,925    19,954,738 
Accumulated deficit   (24,177,926)   (23,559,519)
           
Total stockholders’ deficit   (3,104,097)   (3,597,538)
           
Total liabilities and stockholders’ deficit  $298,170   $312,221 

 

See accompanying notes to consolidated financial statements.

 

F-4
 

 

GTX CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Years Ended December 31, 
   2020   2019 
Product sales  $798,061   $398,433 
Product sales – related party   32,768    - 
Service income   208,441    339,464 
Licensing income   20,000    762,915 
Total revenues   1,059,270    1,500,812 
           
Cost of products sold   453,631    62,243 
Cost of other revenue   133,894    56,452 
Cost of licensing revenue   11,438    74,795 
Total cost of goods sold   598,963    193,490 
           
Gross margin   460,307    1,307,322 
           
Operating expenses          
Wages and benefits   621,347    605,557 
Professional fees   252,765    267,634 
Sales and marketing expenses   28,091    10,701 
General and administrative   185,316    236,106 
           
Total operating expenses   1,087,519    1,119,998 
           
Income/(loss) from operations   (627,212)   187,324 
           
Other income (expenses)          
Gain on forgiveness of accrued interest   17,531    - 
Gain/(loss) on marketable securities   91,143    (532,342)
Amortization of debt discount   -    (20,024)
Change in fair value of derivative   223,536    8,626 
Gain on settlement of debt   -    27,500 
Interest expense and financing costs   (73,405)   (257,409)
Total other income (expenses)   258,805    (773,649)
           
Net loss   (368,407)   (586,325)
           
Deemed dividend to Series-B preferred stockholders   (100,000)   (150,000)
Deemed dividend to Series-C preferred stockholders   (150,000)   - 
           
Net loss attributable to common stockholders  $(618,407)  $(736,325)
           
Weighted average number of common shares outstanding - basic and diluted   109,772,603    69,472,678 
           
Net income/(loss) per common share - basic and diluted  $(0.00)  $(0.01)

 

See accompanying notes to consolidated financial statements.

 

F-5
 

 

GTX CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

   Preferred Stock           Additional         
   Series A   Series B   Series C   Common Stock   Paid-In   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
Balance, December 31, 2018   1,000,000    100    -    -              63,363,436    6,336    19,367,130    (22,823,194)   (3,449,628)
Issuance of common stock for services   -    -    -    -              6,200,000    620    76,260    -    76,880 
Issuance of common stock for conversion of debt   -    -    -    -              37,606,359    3,761    154,344    -    158,105 
Issuance of common stock for financing   -    -    -    -              250,000    25    3,075    -    3,100 
Issuance of warrants for services                                           54,791         54,791 
Fair Value of common stock issued to management                                 -    -    (4,461)   -    (4,461)
Issuance of
preferred stock
             150    1              -    -    149,999    -    150,000 
Deemed dividend on fair value of warrants & conversion feature associated with preferred stock                                           150,000    (150,000)   - 
Cancellation of retention bonus shares                                 (36,000,000)   (3,600)   3,600           
Net loss                                 -    -    -    (586,325)   (586,325)
Balance, December 31, 2019   1,000,000   $100    150   $1    -    -    71,419,795   $7,142   $19,954,738   $(23,559,519)  $(3,597,538)
Issuance of common stock for services   -    -    -    -              13,000,000    1,300    170,283    -    171,583 
Issuance of common stock for conversion of debt   -    -    -    -              53,612,687    5,361    398,463    -    403,824 
Proceeds from issuance of preferred stock for financing             100    -    150    -              250,000         250,000 
Fair value of warrants issued for services                                 -    -    3,793    -    3,793 
Deemed dividend                                           250,000    (250,000)   - 
Gains from the forgiveness of debt - related party                                           32,648         32,648 
Net loss                                 -    -    -    (368,407)   (368,407)
Balance, December 31, 2020   1,000,000   $100    250   $       1    150          -    138,032,482   $13,803   $  21,059,925   $(24,177,926)  $  (3,104,097)

 

See accompanying notes to consolidated financial statements.

 

F-6
 

 

GTX CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Years Ended December 31, 
   2020   2019 
Cash flows from operating activities          
Net loss  $(368,407)  $(586,325)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   25,526    41,244 
Bad debt expense   11,572    - 
Gain on receipt of marketable securities from license agreement   -    (634,000)
Loss / (gain) on marketable securities   (91,142)   532,342 
Fair value of common stock issued for services   171,583    76,880 
Change in fair value of derivative   (223,536)   (8,626)
Amortization of debt discount   -    20,024 
Fair value of retention bonus shares   -    (4,461)
Gain on the settlement of debt and accrued interest   (17,531)   (27,500)
Fair value of warrants issued for services   3,793    54,791 
Common stock issued for services   -    3,100 
Interest added to convertible note balance   -    11,250 
Grant from CARE loans   (10,000)   - 
Changes in operating assets and liabilities:          
Accounts receivable   (4,238)   49,754 
Inventory   (77,946)   (13,625)
Prepaid expenses   (44,210)   - 
Other current and non-current assets   (20,516)   (6,904)
Accounts payable and accrued expenses   (71,122)   (40,895)
Accrued expenses - related parties   192,340    347,945 
Deferred revenues   (32,722)   44,072 
           
Net cash used in operating activities   (556,556)   (140,934)
           
Cash flows from investing activities          
Proceeds from the sale of marketable securities   146,200    42,778 
           
Net cash provided by investing activities   146,200    42,778 
           
Cash flows from financing activities          
Proceeds from CARE loans   227,870    - 
Proceeds from issuance of preferred stock   250,000    150,000 
Proceeds from notes payable   -    50,000 
Proceeds from line of credit   139,319    105,000 
Payments on notes payable   -    (40,000)
Payments on convertible debt   (39,517)   (39,500)
Payments on line of credit   (215,604)   (72,000)
           
Net cash provided by financing activities   362,068    153,500 
           
Net change in cash and cash equivalents   (48,288