UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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☐ (Do not check if a smaller reporting company) | Smaller reporting company | |||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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METALERT INC. AND SUBSIDIARIES
For the quarter ended March 31, 2023
FORM 10-Q
2 |
PART I
ITEM 1. FINANCIAL STATEMENTS
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net | ||||||||
Inventory | ||||||||
Investment in marketable securities | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Intangible assets, net | ||||||||
Property and equipment, net | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Accrued expenses, related parties | ||||||||
Deferred revenues | ||||||||
Short-term debt – line of credit | ||||||||
Short-term debt - CARE loans | ||||||||
Convertible promissory notes, net of discount | ||||||||
Notes payable | ||||||||
Notes payable – related parties | ||||||||
Total current liabilities | ||||||||
Long-term debt - CARE loan | ||||||||
Total liabilities | ||||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Preferred stock series A, $ | par value; shares authorized; shares issued and outstanding at March 31, 2023 and December 31, 2022||||||||
Preferred stock series B, $ | par value; shares authorized, and issued and outstanding at March 31, 2023 and December 31, 2022, respectively||||||||
Preferred stock series C, $ | par value; shares authorized, and||||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ deficit | ( | ) | ( | ) | ||||
Total liabilities and stockholders’ deficit | $ | $ |
See accompanying notes to condensed consolidated financial statements.
3 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Product sales | $ | $ | ||||||
Service income | ||||||||
Licensing income | ||||||||
Total revenues | ||||||||
Cost of products sold | ||||||||
Cost of service revenue | ||||||||
Cost of licensing revenue | ||||||||
Total cost of goods sold | ||||||||
Gross margin | ||||||||
Operating expenses: | ||||||||
Wages and benefits | ||||||||
Professional fees | ||||||||
Sales and marketing expenses | ||||||||
General and administrative | ||||||||
Total operating expenses | ||||||||
Loss from operations | ( | ) | ( | ) | ||||
Other income/(expenses): | ||||||||
Gain/loss on settlement of debt | ||||||||
Gain/loss on marketable securities | ( | ) | ( | ) | ||||
Amortization of debt discount | ( | ) | ( | ) | ||||
Grant from Care loans | ||||||||
Interest expense and financing costs | ( | ) | ( | ) | ||||
Total other income/(expenses) | ( | ) | ||||||
Net income (loss) | $ | ( | ) | $ | ( | ) | ||
Weighted average number of common shares outstanding - basic and diluted | ||||||||
Net income/(loss) per common share - basic and diluted | $ | ( | ) | $ | ( | ) |
See accompanying notes to condensed consolidated financial statements.
4 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Three Months Ended March 31, 2023 and March 31, 2022 (Unaudited)
For the Three Months Ended March 31, 2023 (Unaudited)
Series A Preferred | Series B Preferred | Series C Preferred | Common Shares | Additional | ||||||||||||||||||||||||||||||||||||||||
Shares | Shares | Shares | Shares | Paid-In | Accumulated | Equity | ||||||||||||||||||||||||||||||||||||||
Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
Balance December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
Issuance of common stock for the conversion of notes | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
Balance March 31, 2023 | $ | 2 | $ | 19 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
For the Three Months Ended March 31, 2022 (Unaudited)
Series A Preferred | Series B Preferred | Series C Preferred | Common Shares | Additional | ||||||||||||||||||||||||||||||||||||||||
Shares | Shares | Shares | Shares | Paid-In | Accumulated | Equity | ||||||||||||||||||||||||||||||||||||||
Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
Balance December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
Issuance of common stock for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for the conversion of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
Balance March 31, 2022 | $ | $ | 675 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities | ||||||||
Net income / (loss) | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net income / (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | ||||||||
Change in fair value of marketable securities | ||||||||
Stock based compensation | ||||||||
Grant from CARE loans | ( | ) | ||||||
Amortization of debt discount | ||||||||
Loss on the settlement of debt and accrued interest | ||||||||
Bonus shares issued | ||||||||
Payment proceeds against loan | ||||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Inventory | ||||||||
Other current and non-current assets | ||||||||
Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
Accrued expenses - related parties | ||||||||
Accrued interest and financing costs | ||||||||
Deferred revenues | ( | ) | ( | ) | ||||
Due to/from Officers | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from investing activities | ||||||||
PP&E purchases | ||||||||
Proceeds from the sale of marketable securities | ||||||||
Net cash used in investing activities | ||||||||
Cash flows from financing activities | ||||||||
Proceeds from line of credit | ||||||||
Proceeds from issuance of preferred stock | ||||||||
Proceeds from the exercise of warrants | ||||||||
Proceeds from the issuance of debt | ||||||||
Payments on notes | ||||||||
Payments on debt | ( | ) | ( | ) | ||||
Net cash provided by financing activities | ||||||||
Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
Cash and cash equivalents, beginning of period | ||||||||
Cash and cash equivalents, end of period | $ | $ | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Income taxes paid | $ | $ | ||||||
Interest paid | $ | $ | ||||||
Supplemental disclosure of noncash investing and financing activities: | ||||||||
Issuance of common stock for conversion of debt and interest | $ | $ | ||||||
Debt discount on convertible notes | $ | $ | ||||||
Conversion of preferred stock to common stock | $ | $ |
See accompanying notes to condensed consolidated financial statements.
6 |
METALERT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
During
the periods covered by these financial statements, MetAlert, Inc. and its subsidiaries (the “Company”, “MetAlert”, “we”,
“us”, and “our”) were engaged in business operations that design, manufacture and sell various interrelated and
complementary products and services in the wearable technology and Personal Location Services marketplace. MetAlert owns
Global Trek Xploration, Inc. focuses on the design, manufacturing and sales distribution of its hardware, software, and connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which provides real-time tracking and monitoring of people and high valued assets. Utilizing a miniature quad-band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated into numerous products whose location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular telephone. Our core products and services are supported by an intellectual property (“IP”) portfolio of patents, patents pending, registered trademarks, copyrights, URLs and a library of software source code, all of which is also managed by Global Trek.
LOCiMOBILE, Inc., is the Companies digital platform which has been at the forefront of Smartphone application (“App”) development since 2008. With a suite of mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can be tracked from handset to handset or through our tracking portal or on any connected device with internet access. LOCiMOBILE has launched over 20 Apps across multi mobile device operating systems and continues to launch consumer and enterprise apps.
Basis of Presentation
The accompanying unaudited consolidated financial statements of MetAlert have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and applicable regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position and results of operations have been included. Our operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2022, which are included in our Annual Report on Form 10-K.
The accompanying consolidated financial statements reflect the accounts of MetAlert, Inc. and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated.
Going Concern
The
consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has a stockholders’ deficit
of $
The Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying the Company’s audited financial statements for the year ended December 31, 2022. The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to raise additional capital through the future issuances of debt or equity is unknown. The ability to obtain additional financing, the successful development of the Company’s contemplated plan of operations, or its ability to achieve profitable operations are necessary for the Company to continue operations, and there is no assurance that these can be achieved. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
7 |
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.
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.
All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them.
The Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
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.
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.
8 |
IP Licensing Revenue
Licensing revenue recorded by the Company relates exclusively to the Company’s License and Partnership agreement with Inventergy which provides for ongoing royalties based on monetization of IP licenses. The Company recognizes revenue for royalties 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 license(s) relate are completed. During the periods ended March 31, 2023 and March 31, 2022, the Company did not recognize any licensing revenue.
Disaggregation of Net Sales
The following table shows the Company’s disaggregated net sales by product type:
March 31, 2023 | March 31, 2022 | |||||||
Product sales | $ | $ | ||||||
Service income | ||||||||
IP and consulting income | ||||||||
Total | $ | $ |
The following table shows the Company’s disaggregated net sales by customer type:
March 31, 2023 | March 31, 2022 | |||||||
B2B | $ | $ | ||||||
B2C | ||||||||
Military | ||||||||
IP | ||||||||
Total | $ | $ |
Allowance for Doubtful Accounts
We
extend credit based on our evaluation of the customer’s financial condition. We carry our accounts receivable at net realizable
value. We monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments. We determine these
allowances by (1) evaluating the aging of our receivables; and (2) reviewing high-risk customers financial condition. Past due receivable
balances are written off when our internal collection efforts have been unsuccessful in collecting the amount due. Our allowance for
doubtful accounts was $
Shipping and Handling Costs
Shipping and handling costs are included in cost of goods sold in the accompanying consolidated statements of operations.
Product Warranty
9 |
Use of Estimates
The preparation of the accompanying unaudited financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, estimates related to revenue recognition, allowance for doubtful accounts, inventory valuation, tangible and intangible long-term asset valuation, warranty and other obligations and commitments. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current estimates.
Fair Value Estimates
Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 - | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. | |
Level 2 - | Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life. | |
Level 3 - | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
The carrying values for cash and cash equivalents, accounts receivable, investment in marketable securities, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities. The carrying values of notes payable and other financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.
Concentrations
We currently rely on one manufacturer to supply us with our GPS SmartSole and one manufacturer to supply us with the GPS device included in the GPS SmartSole. The loss of either of these manufacturers could severely impede our ability to manufacture the GPS SmartSole.
As
of March 31, 2023, the Company had four customers representing approximately
The Company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur.
10 |
Marketable Securities
The
Company’s securities investments that are acquired and held principally for the purpose of selling them in the near term are classified
as trading securities. Trading securities are recorded at fair value based on quoted market price (level 1) on the balance sheet in current
assets, with the change in fair value during the period included in earnings. As of March 31, 2023 and December 31, 2022 the fair value
of our investment in marketable securities was $
Derivative Liabilities
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.
At
March 31, 2023 and December 31, 2022, the balance of the derivative liabilities was $
Basic loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted unless they are antidilutive. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:
March 31, | ||||||||
2023 | 2022 | |||||||
Warrants | ||||||||
Preferred B shares | ||||||||
Preferred C shares | ||||||||
Conversion shares upon conversion of notes | ||||||||
Total |
Segments
The Company operates in one segment for the manufacture and distribution of its products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.
11 |
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As small business filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 2022.
Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
3. INVESTMENT IN MARKETABLE SECURITIES
As
of December 31, 2022, the Company owned
In
June 2019, the Company acquired
During
the period ended December 31, 2021, the Company sold
During
the period ended December 31, 2022, the Company shares were reverse down to
The
Company was able to obtain observable evidence that the remaining
12 |
4. INVENTORY
Inventories consist of the following:
March 31, 2023 | December 31, 2022 | |||||||
Raw materials | $ | $ | ||||||
Finished goods | ||||||||
Total Inventories | $ | $ |
5. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
March 31, 2023 | December 31, 2022 | |||||||
Software | $ | $ | ||||||
Website development | ||||||||
Software development | ||||||||
Equipment | ||||||||
Less: accumulated depreciation | ( | ) | ( | ) | ||||
Total property and equipment, net | $ | $ |
Depreciation
expense for the period ended March 31, 2023 and 2022 was $
6. INTANGIBLE ASSETS
Intangible assets, net, consists of the following:
March 31, 2023 | December 31, 2022 | |||||||
Trademarks | $ | $ | ||||||
Less: accumulated amortization | ||||||||
Total intangible assets, net | $ | $ |
Amortization
expense for the period ended March 31, 2023 and 2022 was $
7. NOTES & LOANS PAYABLE
The following table summarizes the components of our short-term borrowings:
March 31, 2023 | December 31, 2022 | |||||||
(a) Term loan | $ | $ | ||||||
(b) Revolving line of credit | ||||||||
(c) CARE loans | ||||||||
Total | $ | $ |
13 |
(a) Term loans
In
2022, the Company entered into an unsecured short-term loan agreements with various third parties for an aggregate principal balance
of $
In
September of 2019, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of
$
(b) Lines of Credit
The
Company obtained a revolving line of credit agreement with an accredited investor of $
The
line bears interest of
(c) CARE Loans
As
of December 31, 2021, the Company has assumed, due to lack of correspondence, until otherwise received, that twelve months of its EIDL
loan (see Note 8(b)), or $
8. CONVERTIBLE PROMISSORY NOTES
As
of March 31, 2023 and December 31, 2022, the Company had a total of $
March 31, 2023 | December 31, 2022 | |||||||
Convertible Notes – with fixed conversion, past due | $ | $ | ||||||
Convertible Notes – with fixed conversion | $ | $ | ||||||
Convertible Notes – with fixed conversion and OID | ||||||||
Less: Debt discount | ( | ) | ||||||
Total convertible notes, net of debt discount | $ | $ |
a) | Included
in Convertible Notes - with fixed conversion terms, are loans provided to the Company from various investors These notes carry simple
interest rates ranging from |
14 |
During
the twelve months ended December 21, 2021, we issued | ||
During
the twelve months ended December 31, 2022, an additional $ | ||
During
the three months ending March 31, 2023, noteholders converted $ | ||
As
of March 31, 2023, and December 31, 2022 $ |
9. CARE Loans
March 31, 2023 | December 31, 2022 | |||||||
a) PPP loan – short term | $ | $ | ||||||
b) EIDL loan – short term | ||||||||
b) EIDL loan – long term | ||||||||
Total CARE loans | $ | $ |
(a) Paycheck Protection Program Loan
On
April 30, 2020, the Company executed a note (the “PPP Note”) for the benefit of MUFG Union Bank, NA (the “Lender”)
in the aggregate amount of $
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During
the period ended March 31, 2022, the Company received notification that the loan was forgiven, and as such, $
(b) Economic Injury Disaster Loan
On
June 10, 2020, the Company executed a secured loan with the U.S. Small Business Administration (SBA) under the Economic Injury Disaster
Loan program in the amount of $
As
of March 31, 2023, the Company calculated that 22 months of the 360 periods on the
10. RELATED PARTY TRANSACTIONS
Convertible Notes Due to Related Parties
During
the period ended December 31, 2022, the Company relieved the outstanding payables due to related parties by $
During
the period ended December 31, 2021, the Company relieved the outstanding payables due to related parties by $
Accrued
wages and costs - In order to preserve cash for other working capital needs, various officers, members of management, employees and directors
agreed to defer portions of their wages and sometimes various out-of pocket expenses since 2011. As of March 31, 2023, and December 31,
2022, the Company owed $
16 |
11. DERIVATIVE LIABILITIES
Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has issued certain convertible notes which conversion prices are based on a future market price. However, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. As a result, the conversion option is classified as a liability and bifurcated from the debt host and accounted for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
At
March 31, 2023 and December 31, 2022, the balance of the derivative liabilities was $
12. EQUITY
The Company has shares of preferred stock authorized. From this pool the following preferred shares have been classified as:
Preferred Stock – Series A
During
the year ended December 31, 2018, the Company authorized
At December 31, 2020 is was determined that the Preferred A shareholders having the majority vote, can agree to increase the number of authorized shares, if needed, to settle any convertible debt, and thus any derivative liabilities are not necessary to reserve for this.
Preferred Stock – Series B
During
the year ended December 31, 2019, the Company authorized
During
the period ended December 31, 2020, the Company issued
During
the period ended December 31, 2021, the two accredited investors converted
17 |
Preferred Stock – Series C
During
the period ended December 31, 2020, the Company authorized
During
the period ended December 31, 2020, the Company issued
During
the period ended December 31, 2021, the Company issued
During
the period ended December 31, 2021, the two accredited investors converted
Common Stock
During the period ending March 31, 2023, the Company issued shares of its common stock to various noteholders and employees for conversions of their notes within the terms, resulting in no gain or loss on the transaction.
During
the period ending March 31, 2022, the Company issued
Common Stock Warrants
Since inception, the Company has issued numerous warrants to purchase shares of the Company’s common stock to shareholders, consultants and employees as compensation for services rendered.
A
summary of the Company’s warrant activity and related information is provided below (the exercise price and the number of shares
of common stock issuable upon the exercise of outstanding warrants have been adjusted to reflect a
Exercise Price $ | Number of Warrants | |||||||
Outstanding and exercisable at December 31, 2022 | – | |||||||
Warrants exercised | ||||||||
Warrants granted | ||||||||
Warrants expired | ||||||||
Outstanding and exercisable at March 31, 2023 | - |
Stock Warrants as of March 31, 2023 | ||||||||||||||
Exercise | Warrants | Remaining | Warrants | |||||||||||
Price | Outstanding | Life (Years) | Exercisable | |||||||||||
$ | ||||||||||||||
$ | ||||||||||||||
$ |
18 |
During the period ended March 31, 2023, the Company had no warrant activity.
The outstanding and exercisable warrants at March 31, 2023 had an intrinsic value of approximately $ .
Common Stock Options
Under the Company’s 2008 Equity Compensation Plan (the “2008 Plan”), we are authorized to grant stock options intended to qualify as Incentive Stock Options, “ISO”, under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified options, restricted and unrestricted stock awards and stock appreciation rights to purchase up to shares of common stock to our employees, officers, directors and consultants, with the exception that ISOs may only be granted to employees of the Company and its subsidiaries, as defined in the 2008 Plan.
The 2008 Plan provides for the issuance of a maximum of shares, of which, after adjusting for estimated pre-vesting forfeitures and expired options, approximately were available for issuance as of March 31, 2023.
options were granted during the period ending March 31, 2023.
13. COMMITMENTS & CONTINGENCIES
Bonuses
The
Company has an employment agreement with its CEO which, among other provisions, provide for the payment of a bonus, as determined by
the Board of Directors, in amounts ranging from
Contingencies
From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure you that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events. As of March 31, 2023, there was no pending or threatened litigation against the Company.
COVID-19
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
Due to COVID-19, we have experienced some changes in our business, that have been both positive and negative. Specifically, the Company’s IP licensing business has been negatively impacted by the global financial slowdown and many courts, judges and law firms are not working at full capacity, which is creating delays in finalizing licensing agreements or litigation. We have also experienced a small percentage of subscriptions being either cancelled or requested to be put on pause, due to financial hardships. On the positive side we saw an increase in product sales specifically with medical supplies and equipment. Overall, our revenues have not been materially impacted as a whole, however there have been some shifts with certain revenue streams doing better post COVID and others doing worse.
The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
14. SUBSEQUENT EVENTS
On
April 12, 2023, we entered into a convertible note agreement with an investor for $
On
April 26, 2023 the Company consolidated various past-due convertible promissory notes in an aggregate amount of $
19 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report include forward-looking statements. These forward looking statements are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including but not limited to: variability of our revenues and financial performance; risks associated with product development and technological changes; the acceptance our products in the marketplace by existing and potential future customers; general economic conditions. You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
Introduction
Unless otherwise noted, the terms “MetAlert, Inc.”, the “Company”, “we”, “us”, and “our” refer to the ongoing business operations of MetAlert, Inc. and our wholly-owned subsidiaries, Global Trek Xploration, and LOCiMOBILE, Inc.
Organization and Presentation
The Company was originally founded in 2002 as Global Trek Xploration, Inc. and, as part of a reverse merger, became publicly traded in 2008 as a 100% wholly owned subsidiary of MetAlert, Inc. (OTC Pinks: MLRT), a Nevada corporation, under its former name “Deeas Resources Inc.” The Company changed its name to GTX Corp. on March 4, 2008. In September 2022, the Company changed its name from GTX Corp to MetAlert, Inc. and effected a 1-for-65 reverse stock split of its issued and outstanding stock. During the periods covered by this report, MetAlert, Inc. and its subsidiaries were engaged in business operations that design, manufacture and sell various interrelated and complementary products and services in the wearable technology and Personal Location Services marketplace. MetAlert owns 100% of the issued and outstanding capital stock of its two subsidiaries - Global Trek Xploration, Inc. and LOCiMOBILE, Inc.
Global Trek Xploration, Inc. focuses on the design, manufacturing and sales distribution of its hardware, software, and connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which provides real-time tracking and monitoring of people and high valued assets. Utilizing a miniature quad-band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated into numerous products whose location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular telephone. Our core products and services are supported by an IP portfolio of patents, patents pending, registered trademarks, copyrights, URLs and a library of software source code, all of which is also managed by Global Trek.
LOCiMOBILE, Inc., is the Companies digital platform which has been at the forefront of Smartphone application (“App”) development since 2008. With a suite of mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can be tracked from handset to handset or through our tracking portal or on any connected device with internet access. LOCiMOBILE has launched over 20 Apps across multi mobile device operating systems and continues to launch consumer and enterprise apps.
Operations
The Company designs, develops, manufactures, sells, and distributes health and safety products and services, and other related medical supplies and equipment, through a global business to business (“B2B”) and business to consumer (“B2C”) network of resellers, affiliates, distributors, nonprofit organizations, local, state, and federal government agencies, police departments, manufacturers reps and retailers. Offering a variety of electronic and non-electronic devices and equipment, a proprietary Internet of things (“IoT”) enterprise monitoring platform and a licensing subscription business model. The Company provides a complete end to end solution of hardware, middleware, apps, connectivity, licensing, and professional services, letting our customers know where or how someone, or something, is at the touch of a button, delivering safety, security, and peace of mind in real-time. Except for our military products and medical protective equipment, all of our consumer and enterprise tracking products funnel into the MetAlert IoT monitoring platform which supports end user customers in over 35 countries. The Company is also in the business of licensing intellectual property and monetizing its patent portfolio.
Overview
As we started planning our 2023 roadmap, we worked with our suppliers to gear up our production for the 4G SmartSoles while preparing them for commercial certification. We conducted meetings with our key suppliers in order to start looking at ways to scale up production and bring down our costs, we came up with several new methods of manufacturing and a design change in the insole itself. We do not expect these proposed changes to impact our production and these improvements will run in parallel to our ongoing production, however we believe once fully implemented we could see a 10% to 18% reduction in costs and a 25% increase in production capacity. We are looking at utilizing labor across the border in Mexico for certain labor intensive processes while also looking at an entire different way to embed the electronics inside the insoles, which will not only reduce costs but add a lot more access to the electronics post production, giving our customer service team more tools to better serve our customers. As we continue to hear from our larger customers, all of this work in process is intended to best position the product for larger government and enterprise applications and contracts. After listening to many of our customers and potential new customers, we believe our new 4G platform with Wi-Fi and BLE is very much in line with current market demands and well positioned once we scale production and lower costs to take advantage of that demand. Historically the SmartSole has always been a very innovative product, but this latest version has the foundation to make it not only innovative but also ready for large scale global commercial deployment.
20 |
Throughout the quarter we continued selling down our PPE inventory to the point where we sold out of many of our products and in fact had to reorder some products just to fill orders when they came in. Overall, we did not have to take any inventory markdowns as we transitioned out of COVID and continue to be able to supply customers on an as needed basis by buying small quantities from key suppliers we have maintained good relationships with.
With businesses opening back up and overall general travel picking back up we saw a 4% increase in B2B sales from Q4 of 2022 in Europe. Overall revenues were down by 57% compared to the previous comparable period but we also recognized a 25% decrease in operating expenses. As we continue to ship back orders and fill new orders we expect our subscriptions to start ramping back up in the second quarter. We also saw continued demand for the new 4G SmartSoles with several thousand units forecasted over the next six months just from our international distributors.
Until recently, our NFC product sales have been limited and only sold direct to consumer (B2C). However, during the first quarter of 2022 we expanded our NFC sales into B2B channels and started providing NFC chips along with professional services to a startup company called Endsate. This company designs and manufactures high end sneakers embedded with NFT and NFC technology that unites the experience from digital art to physical products, which provides the ability to wear the sneakers in the metaverse. During the first quarter of 2023 we saw a 76% increase in this part of our business compared to the previous quarter.
On the business development front, we have not been able to find a path forward to complete the acquisition of Traktec. Under SEC rules the company being acquired must have auditable financial records for at least 2 previous years, and while conducting our due diligence we realized that their books were not kept in a way that could be easily audited. This is not uncommon with small private companies that they typically do not meet the requirements of the Public Company Accounting Oversight Board (PCAOB), but unfortunately that is required to complete an audit and eligible to be acquired. We are still working with their senior management team to explore other paths to work together such as a licensing deal or perhaps an asset purchase.
We did continue to work with our Telehealth partner Hands Free Health (HFH) which will provide real-time telehealth access via Walmart Health Virtual Care (WHVC). We expect to get everything finalized in the coming weeks and prepare for the launch of that product/service, which we expect to play a key role in the SmartSole expansion plan. As we drive towards Medicare reimbursement codes having access to a virtual doctor who could diagnose a person with Alzheimer’s or dementia would then be able to provide a prescription for the SmartSoles based on the diagnoses. This should help facilitate access to SmartSoles by people who require financial assistance.
There is no way to sugar coat this, our numbers were disappointing and we are being faced with many challenges, which we have little to no control over. The markets are volatile, inflation combined with lingering supply chain issues, increasing interest rates and a possible recession in the forecast, all of which is restricting access to capital.
However, we have weathered storms in the past, we know how to keep our expenses low, and our new 4G SmartSoles are the best product we have ever launched. There is a lot of functionality built into the platform that will attract a much wider audience than we were able to attract in the past. This means our mission to positively impact millions of lives is still strong. The product is now made in the U.S. and has better encryption, which opens up more opportunities for us to sell to government agencies. The product works outdoors and indoors, again opening up more opportunities, and several European countries have approved the product for partial or full reimbursement which we see as a possible harbinger for us in the U.S. To all our stakeholders we appreciate your loyalty and support, and we will continue to work tirelessly to navigate through these choppy waters. Thank you.
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Results of Operations
The following discussion should be read in conjunction with our interim consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report.
Three Months Ended March 31, 2023 (“Q1 2023”) Compared to the Three Months Ended March 31, 2022 (“Q1 2022”)
Three Months Ended March 31, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
$ | % of Revenues | $ | % of Revenues | |||||||||||||
Product sales | 54,391 | 75 | % | 132,680 | 79 | % | ||||||||||
Service income | 18,302 | 25 | % | 35,836 | 21 | % | ||||||||||
IP royalties | - | 0 | % | - | 0 | % | ||||||||||
Total revenues | 72,693 | 100 | % | 168,516 | 100 | % | ||||||||||
Cost of products sold | 26,063 | 36 | % | 87,945 | 52 | % | ||||||||||
Cost of service revenue | 4,305 | 6 | % | 6,918 | 4 | % | ||||||||||
Cost of licensing revenue | - | 0 | % | - | 0 | % | ||||||||||
Cost of goods sold | 30,368 | 42 | % | 94,863 | 56 | % | ||||||||||
Gross profit | 42,325 | 58 | % | 73,653 | 44 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Wages and benefits | 123,645 | 170 | % | 123,766 | 73 | % | ||||||||||
Professional fees | 31,524 | 43 | % | 98,162 | 58 | % | ||||||||||
Sales and marketing expenses | - | 0 | % | 10,541 | 6 | % | ||||||||||
General and administrative | 65,869 | 91 | % | 61,107 | 36 | % | ||||||||||
Total operating expenses | 221,038 | 304 | % | 293,576 | 174 | % | ||||||||||
Gain/(loss) from operations | (176,712 | ) | -246 | % | (219,923 | ) | -131 | % | ||||||||
Other (expense)/income, net | (70,433 | ) | -97 | % | 24,538 | 15 | % | |||||||||
Net income/(loss) | (249,146 | ) | -343 | % | (195,385 | ) | -116 | % |
Revenues
Revenues were $72,693 for the three months ended March 31, 2023 compared to $168,516 for the three months ended March 31, 2022, representing a decrease of 57%, This decrease was primarily driven from transitioning out of direct-to-consumer PPE sales into our core B2B business.
During the period ended March 31, 2023, the Company’s customer base and revenue streams were comprised of approximately 78.43% B2B (Wholesale Distributors and Enterprise Institutions), 21.57% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 0% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0% Military and Law Enforcement.
During the period ended March 31, 2022, the Company’s customer base and revenue streams were comprised of approximately 71.61% B2B (Wholesale Distributors and Enterprise Institutions), 28.39% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 0% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0% Military and Law Enforcement.
Cost of goods sold
Cost of goods sold were $30,368 for the three months ended March 31, 2023 compared to $94,863 for the three months ended March 31, 2022, representing a decrease of 68%. This decrease was primarily due to the shift form COVID related PPE’s with less margins, to the higher margin 4G SmartSoles. As a result, total gross margin, increased from 44% in fiscal 2022 to 49% in fiscal 2023.
22 |
We expect our margins to increase once we start ramping up our subscriptions and licensing and sell more of our proprietary products like our SmartSoles, where we have no competition. Our overall gross margin was slightly lower in 2022, predominately because most of our revenues came from product sales which require competitive pricing, and that includes shipping charges. In order to be competitive with the major online retailers (many of them include free shipping) we had to reduce our shipping charges to be in line with competitors.
Wages and benefits
Wages and benefits stayed consistent with a 0% difference in three months ended March 31, 2023 as compared to three months ended March 31, 2022.
Professional fees
Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and shareholder communications. Such costs decreased $66,637 or 68% in the three months ended March 31, 2023 as compared to in the three months ended March 31, 2022. 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 decreased by 100% or $10,541 in three months ended March 31, 2023 in comparison to the three months ended March 31, 2021. The decrease was primarily due to the release of the new 4G SmartSole.
General and administrative
General and administrative costs in three months ended March 31, 2023 increased by $4,761 or 8% in comparison to the three months ended March 31, 2022, mostly due to increases in investor relations expense.
Other income/(expense), net
Other expense, net decreased 387% or $94,970 in the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This decrease was primarily as a result of the gain of $67,870 from the forgiveness of CARE loans in Q1 2022 not realized in Q1 2023, as well as increases in interest expense, the amortization of debt discounts and financing costs.
Net income/(loss)
Net loss increased by 28% or $53,761 from Q1 2023 to Q1 2022 primarily as a result of the gain of $67,870 from the forgiveness of CARE loans in Q1 2022 not realized in Q1 2023, as well as increases in interest expense, the amortization of debt discounts and financing costs.
Liquidity and Capital Resources
As of March 31, 2023, we had $4,671 of cash and cash equivalents, and a working capital deficit of $3,418,734, compared to $8,534 of cash and cash equivalents and a working capital deficit of $3,233,210 as of December 31, 2022.
During the three months ended March 31, 2023, our net loss was $249,146 compared to a net loss of $195,385 for the three months ended March 31, 2022. Net cash used in operating activities in the three months ended March 31, 2023 and in the three months ended March 31, 2022 was $49,301 and $141,695, respectively.
Net cash used in investing activities during the three months ended March 31, 2023 and March 31, 2022 was $0, respectively.
23 |
Net cash provided by financing activities during the three months ended March 31, 2023 was $45,437 and consisted of $65,000 received for the issuance of debt, $7,000 from the use of the line of credit, and payments to the line of credit of $26,563. Net cash provided by financing activities during the three months ended March 31, 2022 was $25,000 and consisted of $25,000 received for the conversion of warrants. This represents a decrease of 5% in cash provided by financing activities, which is directly related to the Company working to reduce the reliance on any outside funding.
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 2023, although the amount of revenues we receive in 2023 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 2023. 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 2023. 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 2023 we continued to draw down on our credit line to fund purchase orders. However, no assurance can be given that the investor will provide the funding, if and when requested by us.
Going Concern
The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has stockholders’ deficit of $3,505,487 and negative working capital of $3,418,734 as of March 31, 2023 and used cash in operations of $49,301 during the current period then ended. A significant part of our negative working capital position at March 31, 2023 consisted of $1,107,454, of amounts due to various accredited investors of the Company for convertible promissory notes, loans and a letter of credit, net of discount. The Company anticipates further losses in the development of its business. Please see the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022 for more information regarding risks associated with our business.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
We do not believe our business and operations have been materially affected by inflation.
Critical Accounting Policies and Estimates
There are no material changes to the critical accounting policies and estimates described in the section entitled “Critical Accounting Policies and Estimates” under Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company”, we are not required to provide the information under this Item 3.
24 |
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Based on the evaluation as of March 31, 2023, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
These are not all of the risks associated with the Company and must be used in conjunction with those disclosed in the most recent Annual Report filed on Form 10-K for the fiscal year ended December 31, 2022.
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
Due to COVID-19, we have experienced some changes in our business, that have been both positive and negative. Specifically, the Company’s IP licensing business has been negatively impacted by the global financial slowdown and many courts, judges and law firms are not working at full capacity, which is creating delays in finalizing licensing agreements or litigation. We have also experienced a small percentage of subscriptions being either cancelled or requested to be put on pause, due to financial hardships. On the positive side we saw an increase in product sales specifically with medical supplies and equipment. Overall, our revenues have not been materially impacted as a whole, however there have been some shifts with certain revenue streams doing better post COVID and others doing worse.
25 |
The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
ITEM 2.(a). UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 19, 2023, an investor converted a note into 571,400 shares of common stock with a value of $5,714.
On January 23, 2023, employees converted 40,000 of notes into 4,269,600 shares of common stock with a value of $42,696.
On February 6, 2023, an investor converted a note into 812,671 shares of common stock with a value of $8,127.
The issuance of the above shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
(a) Exhibits
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
101.CAL | Inline XBRL Taxonomy Extension Calculation | |
101.DEF | Inline XBRL Taxonomy Extension Definition | |
101.LAB | Inline XBRL Taxonomy Extension Label | |
101.PRE | Inline XBRL Taxonomy Extension Presentation | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
METALERT, INC. | ||
Date: May 22, 2023 | By: | /s/ ALEX MCKEAN |
Alex McKean, | ||
Chief Financial Officer (Principal Financial Officer) |
Date: May 22, 2023 | By: | /s/ PATRICK BERTAGNA |
Patrick Bertagna, | ||
Chief Executive Officer |
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