FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 |
(Mark
one)
|
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended September 30, 2014
|
OR
|
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________ |
Commission file number 000-53046 |
GTX Corp
|
(Exact name of registrant as specified in its
charter)
|
Nevada
|
|
98-0493446
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
117 W. 9th Street, Suite 1214, Los Angeles,
CA, 90015 |
(Address of principal executive offices) (Zip Code) |
(213) 489-3019 |
(Registrant's telephone number, including area code) |
|
(Former name, former address and former fiscal year, if changed since last report.) |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes [X ] No [_]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
[ ] Accelerated filer [ ]
Non-accelerated filer
[ ] Smaller reporting company [X]
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: 188,620,555 common shares issued and outstanding as
of November 19, 2014.
GTX CORP AND SUBSIDIARIES
For the quarter ended September 30, 2014
FORM 10-Q
PAGE NO.
PART I. FINANCIAL INFORMATION |
3 |
Item 1. |
Financial Statements: |
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Consolidated Balance Sheets at September 30, 2014 and December 31, 2013 (unaudited) |
3 |
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Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited) |
4 |
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Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited) |
5 |
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Notes to Consolidated Financial Statements (unaudited) |
6 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
15 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
24 |
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Item 4. |
Controls and Procedures |
25 |
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PART II. OTHER INFORMATION |
25 |
Item 1. |
Legal Proceedings |
25 |
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Item 1A. |
Risk Factors |
25 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
26 |
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Item 3. |
Defaults Upon Senior Securities |
26 |
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Item 4. |
Mine Safety Disclosures |
26 |
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Item 5. |
Other Information |
26 |
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Item 6. |
Exhibits |
27 |
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Signatures |
27 |
PART I
ITEM 1. FINANCIAL
STATEMENTS
GTX CORP AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
| |
| |
|
| |
September 30, | |
December 31, |
| |
2014 | |
2013 |
| |
| |
|
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 15,396 | | |
$ | 64,754 | |
Accounts receivable, net | |
| 28,463 | | |
| 1,892 | |
Inventory | |
| 1,329 | | |
| 766 | |
Other current assets | |
| 29,377 | | |
| 27,740 | |
| |
| | | |
| | |
Total current assets | |
| 74,565 | | |
| 95,152 | |
| |
| | | |
| | |
Property and equipment, net | |
| 1,945 | | |
| 7,722 | |
Intangible assets | |
| 131,602 | | |
| 82,222 | |
| |
| | | |
| | |
Total assets | |
$ | 208,112 | | |
$ | 185,096 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 587,218 | | |
$ | 340,226 | |
Accrued expenses - related parties | |
| 325,537 | | |
| 306,250 | |
Deferred revenues | |
| 39,498 | | |
| 18,991 | |
Short-term debt - related party | |
| — | | |
| 4,000 | |
Convertible promissory note, net of discount | |
| 208,939 | | |
| 90,797 | |
Derivative liabilities | |
| 183,186 | | |
| 70,535 | |
Total current liabilities | |
| 1,344,378 | | |
| 830,799 | |
| |
| | | |
| | |
Long-term convertible debt | |
| 309,295 | | |
| 237,672 | |
Long-term derivative liabilities | |
| 621,584 | | |
| 411,708 | |
| |
| | | |
| | |
Total liabilities | |
| 2,275,257 | | |
| 1,480,179 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ deficit: | |
| | | |
| | |
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding | |
| — | | |
| — | |
Common stock, $0.001 par value; 2,071,000,000 shares authorized; 170,095,555 and 131,352,518 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively | |
| 170,095 | | |
| 131,352 | |
Additional paid-in capital | |
| 14,804,327 | | |
| 14,009,430 | |
Accumulated deficit | |
| (17,041,567 | ) | |
| (15,435,865 | ) |
| |
| | | |
| | |
Total stockholders’ deficit | |
| (2,067,145 | ) | |
| (1,295,083 | ) |
| |
| | | |
| | |
Total liabilities and stockholders’ deficit | |
$ | 208,112 | | |
$ | 185,096 | |
| |
| | | |
| | |
See accompanying notes to consolidated financial statements. | |
| | |
GTX CORP AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited) |
| |
| |
| |
| |
|
| |
| |
| |
| |
|
| |
Three Months Ended September 30, | |
Nine Months Ended September 30, |
| |
2014 | |
2013 | |
2014 | |
2013 |
| |
| |
| |
| |
|
Revenues | |
$ | 42,030 | | |
$ | 26,198 | | |
$ | 96,935 | | |
$ | 121,610 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of goods sold | |
| 19,179 | | |
| 22,751 | | |
| 45,066 | | |
| 69,283 | |
| |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| 22,851 | | |
| 3,447 | | |
| 51,869 | | |
| 52,327 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Wages and professional fees | |
| 198,626 | | |
| 198,241 | | |
| 613,822 | | |
| 603,831 | |
General and administrative | |
| 64,468 | | |
| 33,132 | | |
| 202,852 | | |
| 126,513 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 263,094 | | |
| 231,373 | | |
| 816,674 | | |
| 730,344 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (240,243 | ) | |
| (227,926 | ) | |
| (764,805 | ) | |
| (678,017 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income/(expenses) | |
| | | |
| | | |
| | | |
| | |
Finance costs | |
| — | | |
| (200,000 | ) | |
| — | | |
| (200,000 | ) |
Gain/(Loss) on extinguishment of debt | |
| 35,556 | | |
| (52,106 | ) | |
| (202,771 | ) | |
| (104,868 | ) |
Derivative income (expense), net | |
| (155,197 | ) | |
| (108,063 | ) | |
| (604,230 | ) | |
| (124,378 | ) |
Interest expense | |
| (18,518 | ) | |
| (8,355 | ) | |
| (33,896 | ) | |
| (17,112 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total other income/(expenses) | |
| (138,159 | ) | |
| (368,524 | ) | |
| (840,897 | ) | |
| (446,358 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (378,402 | ) | |
$ | (596,450 | ) | |
$ | (1,605,702 | ) | |
$ | (1,124,375 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding - basic and diluted | |
| 163,672,512 | | |
| 106,711,903 | | |
| 154,376,742 | | |
| 97,705,298 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss per common share - basic and diluted | |
$ | (0.00 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
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| | | |
| | | |
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See accompanying notes to consolidated financial statements. |
GTX CORP AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
|
| |
Nine Months Ended September 30, |
| |
2014 | |
2013 |
Cash flows from operating activities | |
| | | |
| | |
Net loss | |
$ | (1,605,702 | ) | |
$ | (1,124,375 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 7,222 | | |
| 58,097 | |
Stock-based compensation | |
| 139,208 | | |
| 84,303 | |
Loss on extinguishment of debt | |
| 202,771 | | |
| 104,868 | |
Derivative expense, net | |
| 604,230 | | |
| 124,378 | |
Finance costs | |
| — | | |
| 200,000 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (26,571 | ) | |
| 3,351 | |
Inventory | |
| (563 | ) | |
| (689 | ) |
Other current and non-current assets | |
| (24,830 | ) | |
| 105,000 | |
Accounts payable and accrued expenses | |
| 301,778 | | |
| 100,706 | |
Accrued expenses - related parties | |
| 19,287 | | |
| 143,374 | |
Deferred revenues | |
| 20,507 | | |
| (7,665 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (362,663 | ) | |
| (208,652 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchase of property and equipment | |
| (1,445 | ) | |
| — | |
| |
| | | |
| | |
Net cash used in investing activities | |
| (1,445 | ) | |
| — | |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from debt | |
| 318,750 | | |
| 270,000 | |
Payments of debt | |
| — | | |
| (34,500 | ) |
Payments on short-term debt - related party | |
| (4,000 | ) | |
| — | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 314,750 | | |
| 235,500 | |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| (49,358 | ) | |
| 26,848 | |
| |
| | | |
| | |
Cash and cash equivalents, beginning of period | |
| 64,754 | | |
| 30,649 | |
| |
| | | |
| | |
Cash and cash equivalents, end of period | |
$ | 15,396 | | |
$ | 57,497 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Income taxes paid | |
$ | — | | |
$ | — | |
Interest paid | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Supplemental disclosure of noncash investing and financing activities: | |
| | |
Issuance of common stock for other current asset | |
$ | 750 | | |
$ | — | |
Issuance of common stock for conversion of debt | |
$ | 660,723 | | |
$ | 131,558 | |
Issuance of debt for intangible assets | |
$ | 43,750 | | |
$ | — | |
Issuance of common stock for accrued expenses - related parties | |
$ | 51,272 | | |
$ | 171,450 | |
Issuance of common stock for prepaid advisory agreement | |
$ | — | | |
$ | 145,000 | |
Issuance of stock payable for other current asset | |
$ | — | | |
$ | 36,000 | |
| |
| | | |
| | |
| |
| | | |
| | |
See accompanying notes to consolidated financial statements. | |
| | | |
| | |
GTX CORP
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2014
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
GTX Corp and subsidiaries (the “Company”
or “GTX”) are engaged in businesses that design, develop and sell various interrelated and complementary products and
services in the Personal Location Services marketplace. GTX owns 100% of the issued and outstanding capital stock of Global Trek
Xploration (“GTX California”), LOCiMOBILE, Inc., and Code Amber News Service, Inc. (“CANS”).
GTX California
is a solution provider offering an enterprise GPS and cellular location platform that provides real-time tracking of the whereabouts
of people, pets, vehicles and high valued assets through a miniaturized transceiver module, wireless connectivity gateway, middleware
and viewing portal. 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. LOCiMOBILE, Inc., has been engaged in Smartphone
application (App) development since 2008. With a suite of mobile applications that turn the
iPhone, iPad, Android, BlackBerry and other GPS enabled handsets into a tracking device which can then be tracked from handset
to handset or through our Location Data Center tracking portal and which allows the user to send a map to the recipient’s
phone showing the user’s location. LOCiMOBILE has launched numerous Apps across multi mobile device operating systems and
continues to launch consumer and enterprise apps. CANS is a U.S. and Canadian syndicator of all state Amber Alerts providing website
tickers and news feeds to merchants, internet service providers, affiliate partners, corporate sponsors and local, state and federal
agencies, as well as, marketing and selling the patent pending electronic personal health record Code Amber Alertag.
Basis of Presentation
The accompanying unaudited consolidated financial
statements of GTX have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial information and applicable regulations of the U.S. Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair statement of financial position and results of operations
have been included. Our operating results for the nine months ended September 30, 2014 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2014. The accompanying unaudited consolidated financial statements should
be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2013, which are included
in our Annual Report on Form 10-K.
The accompanying consolidated financial statements
reflect the accounts of GTX Corp and its wholly owned subsidiaries. All significant inter-company balances and transactions have
been eliminated.
Going Concern
The consolidated financial statements have
been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities
in the normal course of business for the foreseeable future. The Company has incurred net losses of $1,605,702 and $1,124,375
for the nine months ended September 30, 2014 and 2013, respectively, has incurred losses since inception resulting in an accumulated
deficit of $17,041,567 as of September 30, 2014, and has negative working capital of $1,269,813 as of September 30, 2014.
The Company anticipates further losses in the development of its business.
The ability to continue as a going concern
is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to
raise additional capital through the future issuances of debt or equity is unknown. The obtainment of additional financing, the
successful development of the Company’s contemplated plan of operations, or its attainment of profitable operations are necessary
for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s
ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that
may result from the outcome of these aforementioned uncertainties.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the accompanying unaudited
consolidated financial statements requires the use of estimates that affect the reported amounts of assets, liabilities, revenues,
expenses and contingencies. These estimates include, but are not limited to, estimates related to revenue recognition, allowance
for doubtful accounts, inventory valuation, tangible and intangible long-term asset valuation, warranty and other obligations and
commitments. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances.
Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to
differ from current estimates.
Fair Value Estimates
Pursuant to the Accounting Standards Codification
(“ASC”) No. 820, “Disclosures
About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value.
ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding
fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
(an exit price) in an orderly transaction between market participants at the reporting date. ASC No. 820 establishes a three-tier
hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1—Inputs
are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs
(other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through
correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life.
Level 3—Inputs
reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement
date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The carrying values for cash and cash equivalents,
accounts receivable, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short
maturities.
Derivative Instruments
Our debt or equity instruments may contain
embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from
the associated host instrument and accounted for separately as a derivative instrument liability.
Our derivative instrument liabilities
are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges
or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted
for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes option pricing
model. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return,
our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life
of the option.
Reclassifications
For comparability, certain prior period amounts
have been reclassified, where appropriate, to conform to the financial statement presentation used in 2014. These reclassifications
have no impact on net loss.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue From Contracts
With Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer
of promised goods and services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when
it becomes effective. The new standard will be effective for the Company on January 1, 2017. Early application is not permitted.
ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected
a transition method nor has it determined the potential effect that ASU 2014-09 will have on its consolidated financial statements
and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability
to Continue as a Going Concern. The new standard provides guidance around management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure.
The new standard is effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15,
2016. Early adoption is permitted. The adoption standard is not expected to have a material impact on our financial statements.
3. RELATED PARTY TRANSACTIONS
In order to preserve cash for other working
capital needs, various officers and members of management have agreed to accrue, and defer payment of, portions of their salaries
since fiscal 2011. As of September 30, 2014 and December 31, 2013, the Company owed $325,537 and $306,250, respectively for such
accrued wages.
4. DEBT
The following table summarizes the components
of our short-term borrowings:
| |
September 30, 2014 | |
December 31, 2013 |
| |
| | | |
| | |
Atlantic Note | |
$ | 200,000 | | |
$ | 112,500 | |
Fund 4th Debenture dated July 28, 2014 | |
| 75,000 | | |
| — | |
BSM Note dated June 26, 2013 | |
| — | | |
| 30,000 | |
Total short-term convertible notes | |
| 275,000 | | |
| 142,500 | |
Less: Debt discount | |
| (66,061 | ) | |
| (51,703 | ) |
Short-term convertible notes, net of debt discount | |
| 208,939 | | |
| 90,797 | |
| |
| | | |
| | |
Related party short-term borrowings | |
| — | | |
| 4,000 | |
| |
| | | |
| | |
Short-term borrowings | |
$ | 208,939 | | |
$ | 94,797 | |
| |
| | | |
| | |
Short-term derivative liabilities | |
$ | 183,186 | | |
$ | 70,535 | |
| |
| | | |
| | |
Short-term convertible notes
Atlantic Agreement and SPA
On July 12, 2013, the Company entered into
an Exclusive Manufacturing Agreement (the “Agreement”) with Atlantic Footcare, Inc., a Rhode Island corporation (“Atlantic”)
whereby Atlantic would be the Company’s exclusive manufacturer of its new shoe insole to be used with the Company’s
embedded GPS devices. In conjunction with the Agreement, on July 24, 2013, we also entered into a Security Purchase Agreement
(the “SPA”) with Atlantic. Pursuant to the SPA, Atlantic committed to purchase (i) a convertible promissory note (the
“Atlantic Note”)
in the original principal amount of $200,000, accruing 6% interest per annum, and matured on November 13, 2014, and (ii) a warrant
to purchase shares of the Company’s common stock, par value $0.001 per share (the “Warrant”).
In accordance with the
SPA, Atlantic agreed to lend to the Company up to $200,000, as follows:
i.
$50,000 (comprised of $25,000 in cash and $25,000 in insole development and tooling costs
associated with manufacturing insoles containing the Company’s GPS devices, the value of which shall be determined by Atlantic
(the “Services”); and
ii.
3 installments of $50,000 (each comprised of $25,000 in cash and $25,000 in Services).
The $200,000 loan
has been fully funded. Atlantic may at any time elect to convert all of the entire outstanding principal amount of the Atlantic
Note plus the accrued interest into 12% of the Company’s issued and outstanding common stock immediately following the issuance
thereof, multiplied by a fraction, the numerator of which is the principal amount of the Atlantic Note then outstanding and the
denominator of which is $200,000.
If Atlantic is unable to
dispose of the shares of common stock into which the Atlantic Note may be converted and the Warrant may be exercised (the “Registrable
Shares”) under Rule 144 as promulgated by the United States Securities and Exchange Commission (the “SEC”) under
the Securities Act of 1933, as amended (the “Securities Act”), Atlantic may request that the Company file a Form S-1
registration statement or Form S-3 registration statement (if applicable) with respect to one hundred percent (100%) of the Registrable
Shares then outstanding, then the Company shall, as soon as practicable, and in any event within sixty (60) days after the date
such request is given by Atlantic, file a registration statement under the Securities Act covering all Registrable Shares that
Atlantic requested to be registered.
112359 Factor Fund
On July 28, 2014, we entered into a 4th
convertible debenture with the Fund (defined in “Long-term debt” below) in the principal amount of $75,000 (the
“4th Debenture”). The 4th Debenture matures on January 30, 2015 and accrues interest on the unconverted
outstanding principal balance hereof at a rate per annum of the lesser of the applicable Federal Rate or 6%. The outstanding amounts
due under the 4th Debenture are convertible at the option of the Fund into shares of the Company’s common stock
at 50% of the average of the five lowest closing market prices for the common stock for the 30 trading days preceding each conversion.
As consideration for the 4th Debenture, we are required to have in reserve at all times, enough shares of our common
stock to effect the issuance of all of the conversion shares due to the Fund upon conversion of outstanding amounts owed under
the Debentures (defined in “Long-term debt” below), the 4th Debenture and any future convertible
debentures held by the Fund. As of November 18, 2014, we had approximately 957,000,000 shares of our common stock reserved to fulfill
this requirement.
BSM Lending, LLC Convertible Promissory
Note
On June 26, 2013, the Company entered into
a Convertible Promissory Note with BSM Lending, LLC (“BSM”), for the principal sum of $30,000 plus interest of 15%
per annum (the “BSM Note”). The BSM Note is convertible into shares of common stock of the Company at a price equal
to 65% of the 5 day average closing price per share of the Company’s common stock. On April 14, 2014, BSM Lending, LLC converted
the BSM Note of $30,000 plus accrued interest of $3,514 into 1,463,493 shares of our common stock, resulting in a loss on extinguishment
of debt in the amount of $13,464.
Long-term debt
The following table summarizes the components
of our long-term debt:
| |
September 30, 2014 | |
December 31, 2013 |
| |
| | | |
| | |
Fund A & R 1st Debenture dated September 19, 2013 | |
$ | — | | |
$ | 53,438 | |
Fund 2nd Debenture dated September 19, 2013 | |
| 200,000 | | |
| 200,000 | |
Fund 3rd Debenture dated September 19, 2013 | |
| 530,000 | | |
| 477,000 | |
Total long-term convertible notes | |
| 730,000 | | |
| 730,438 | |
Less: Debt discount | |
| (420,705 | ) | |
| (492,766 | ) |
Total long-term convertible notes, net of debt discount | |
$ | 309,295 | | |
$ | 237,672 | |
| |
| | | |
| | |
Long-term derivative liabilities | |
$ | 621,584 | | |
$ | 411,708 | |
| |
| | | |
| | |
At September 30, 2014, our long-term debt matures as
follows:
2014 |
|
$ |
- |
2015 |
|
|
- |
2016 |
|
|
106,000 |
2017 |
|
|
624,000 |
2018 and thereafter |
|
|
- |
Total |
|
$ |
730,000 |
112359 Factor Fund
Effective September 19, 2013, the Company
entered into a Securities Purchase Agreement with 112359 Factor Fund, LLC (the “Fund”) pursuant to which the Company
issued and sold to the Fund (i) an amended and restated convertible debenture (the “A
& R 1st Debenture”) in the principal amount of $123,394,
(ii) a secured convertible debenture in the principal amount of $200,000 (the “2nd Debenture”), and (iii)
a secured convertible debenture payable in eight (8) tranches totaling an aggregate principal balance of $901,000 (the “3rd
Debenture” and together with the A & R 1st Debenture and 2nd Debenture, the “Debentures”).
The A & R 1st Debenture accrued
interest at the lesser of the applicable Federal Rate or 6% per annum and was convertible into shares of common stock of the Company
at a price equal to 100% of the average of the 5 lowest closing market prices for the Company’s common stock for the 30 trading
days preceding conversion. During the nine months ended September 30, 2014, the Fund converted the remaining principal amount owed
under the A & R 1st Debenture of $53,438 into 5,625,075 shares of our common stock, resulting in a loss on extinguishment
of debt of $11,813. In accordance with the terms of the A & R 1st Debenture, all accrued interest owed was forgiven
as the debt was converted in full prior to its maturity date.
The 2nd Debenture, in
the amount of $200,000, was issued to the Fund in consideration for the Fund’s various agreements issued under the Security
Purchase Agreement. The 2nd Debenture matures December 31, 2017 and accrues interest on the unconverted outstanding principal balance
at a rate per annum of the lesser of the applicable Federal Rate or 6%. Following the Payment Compliance Date, as defined below,
at the option of the Fund, the outstanding principal amount due under the 2nd Debenture may be converted into shares
of the Company’s common stock at a price equal to the lesser of (a) the outstanding balance due under the Debenture divided
by $0.01 per shares (the “Conversion Price,”) or (b) 9.99% of the then-current issued and outstanding capital stock
of the Company as of the first (1st) anniversary of the Payment Compliance Date. The “Payment Compliance Date”
shall mean the later to occur of (a) the date on which the Fund has paid the Company the full $425,000 purchase price of the 3rd
Debenture, or (b) the date on which all amounts due to the Fund, except for amounts due under the 2nd Debenture, have been fully
paid. If the 2nd Debenture is repaid and/or converted in full prior to its maturity date, all accrued interest will be forgiven.
The face amount of
the 3rd Debenture is $901,000. The Fund has agreed to purchase the 3rd Debenture in eight (8) installments
(each such installment that is paid is referred to as a “Tranche”). The 3rd Debenture matures on the third (3rd)
anniversary date of each Tranche payment. The payment and maturity dates of each Tranche are as follows:
Tranche Number |
Tranche Payment Date |
Tranche |
|
Obligation |
Maturity Date |
1 |
September 19, 2013 |
$75,000 |
|
$159,000 |
September 18, 2016 |
2 |
October 14, 2013 |
$50,000 |
|
$106,000 |
October 13, 2016 |
3 |
November 15, 2013 |
$50,000 |
|
$106,000 |
November 14, 2016 |
4 |
December 13, 2013 |
$50,000 |
|
$106,000 |
December 12, 2016 |
5 |
January 17, 2014 |
$50,000 |
|
$106,000 |
January 16, 2017 |
6 |
February 14, 2014 |
$50,000 |
|
$106,000 |
February 13, 2017 |
7 |
March 14, 2014 |
$50,000 |
|
$106,000 |
March 13, 2017 |
8 |
April 18, 2014 |
$50,000 |
|
$106,000 |
April 17, 2017 |
Total Principal |
$425,000 |
|
$901,000 |
|
Interest on the 3rd Debenture accrues on the
unconverted outstanding principal balance hereof at a rate per annum of the lesser of the applicable Federal Rate or 6% and on
a pro rata basis to the extent that each Tranche has been paid. The outstanding amounts due under the 3rd Debenture are convertible
at the option of the Fund into shares of the Company’s common stock at 100% of the average of the five lowest closing market
prices for the Common Stock for the thirty (30) trading days preceding each conversion; provided, however, that the Fund cannot
own more than 4.99% of the Company’s outstanding shares of common stock at any time, which limit may be waived by the Fund
upon 65 days’ notice. If the 3rd Debenture is repaid and/or converted in full prior to its maturity date, all accrued interest
will be forgiven. During the nine months ended September 30, 2014, the Fund converted $371,000 owed under the 3rd Debenture
into 22,830,293 shares of our common stock resulting in a loss on extinguishment of debt of $177,494. As of September 30, 2014,
the Fund had made all of the eight Tranche payments required under the 3rd Debenture.
The Debentures are secured by a
blanket lien on substantially all of the Company’s assets pursuant to the terms of a security agreement (the “Security
Agreement”) executed by the Company and its subsidiaries in favor of the Fund. If an event of default occurs and continues
for more than 30 days following written notice of default from the Fund, under the Security Agreement, the fund may, in addition
to any other remedies available to it, foreclose upon the assets securing such Debentures.
In addition, to further secure the Company’s
obligations under the Debentures, the Company’s Chief Executive Officer, Mr. Patrick Bertagna, has pledged 13,180,378 shares
of his common stock of the Company (the “Pledged Securities”) pursuant to a stock pledge agreement (the “Pledge
Agreement”) executed by Mr. Bertagna in favor of the Fund. Upon the breach of any provision in the Pledge Agreement or upon
the occurrence of any default event under the Debentures, the Fund may exercise any rights and remedies available, including, but
not limited to, sale, assignment or other disposal of any or all of the Pledged Securities in exchange for cash or credit. The
Fund’s rights under the Pledge Agreement are limited to the extent that the Fund has agreed not to own more than 4.99% of
the Company’s outstanding shares of common stock at any time, which limitation the Fund can, however, waive upon 65 days’
notice.
Derivative liabilities
The conversion features embedded in the convertible
notes were evaluated to determine if such conversion feature should be bifurcated from its host instrument and accounted for as
a freestanding derivative. Excluding the 2nd Debenture, in all of the long-term and short-term convertible notes outstanding
at September 30, 2014 and December 31, 2013, the conversion feature was accounted for as a derivative liability. The derivatives
associated with the long-term and short-term convertible notes were recognized as a discount to the debt instrument and the discount
is amortized over the expected life of the notes with any excess of the derivative value over the note payable value recognized
as additional interest expense at the issuance date. Included in Derivative Expense, net in the accompanying consolidated statements
of operations is expense related to the recording and amortization of the debt discount totaling $164,886 and $1,065,268 during
the three and nine months ended September 30, 2014, respectively.
The derivative
liability was calculated using the Black Scholes method over the expected terms of the convertible debentures, with a risk free
rate of 0.63% and volatility of 211% as of September 30, 2014 and a risk free rate of 1% and volatility of 301% as of December
31, 2013. Included in Derivative Income (Expense), net in the accompanying consolidated statements of operations is income
arising from the change in fair value of the derivatives of $9,689 and $461,038 for the three and nine months ended September 30,
2014, respectively
5. EQUITY
Common
Stock
The
Company issued the following shares of common stock during the nine months ended September 30, 2014:
| |
Value of Shares | |
Number of Shares |
Shares issued for services rendered | |
$ | 109,125 | | |
| 6,566,176 | |
Shares issued for accrued expenses | |
| 51,272 | | |
| 1,508,000 | |
Shares issued with repurchase rights | |
| 9,543 | | |
| 750,000 | |
Shares issued for conversion of debt | |
| 660,722 | | |
| 29,918,861 | |
| |
| | | |
| | |
Total shares issued | |
$ | 830,662 | | |
| 38,743,037 | |
| |
| | | |
| | |
Shares
issued for services rendered were to various members of management, the Board of Directors, employees and consultants and are expensed
as Stock-Based Compensation in the accompanying consolidated statement of operations. Shares issued for accrued expenses were granted
to a Board Member, a consultant and an employee as payment for portions of amounts owed to them for services rendered in previous
periods. Shares issued with repurchase rights relate to shares granted to members of management and the Board of Directors whereby
the Company retained the rights to acquire the shares from the stock recipients and such repurchase rights lapsed rateably over
twelve months at a rate of 1/12th per month beginning on January 1, 2013. Upon vesting, the shares are revalued based
on the average stock price during the respective month and the related stock based compensation expense is recognized. Shares issued
for conversion of debt relate to conversions of the BSM Note and Fund Debentures discussed in Note 4.
Common Stock Warrants
Since inception, the Company has issued warrants
to purchase shares of the Company’s common stock to shareholders, consultants and employees as compensation for services
rendered and/or through private placements.
A summary of the Company’s warrant activity
and related information is provided below:
| |
Exercise Price $ | |
Number of Warrants |
Outstanding and exercisable at December 31, 2013 | |
| 0.02 - 0.08 | | |
| 7,720,000 | |
Warrants exercised | |
| — | | |
| — | |
Warrants granted | |
| — | | |
| — | |
Warrants expired | |
| 0.08 | | |
| (5,720,000 | ) |
Outstanding and exercisable at September 30, 2014 | |
| 0.02 | | |
| 2,000,000 | |
| |
| | | |
| | |
Stock Warrants as of September 30, 2014 |
Exercise | |
Warrants | |
Remaining | |
Warrants |
Price | |
Outstanding | |
Life (Years) | |
Exercisable |
| | | |
| | | |
| | | |
| | |
$ | 0.02 | | |
| 2,000,000 | | |
| 0.94 | | |
| 2,000,000 | |
In connection with the SPA entered into with
Atlantic on July 12, 2013 (See Note 4), the Company issued a Warrant to Atlantic, whereby Atlantic is entitled to purchase from
the Company a total number of shares of common stock, such that, when added to the total number of shares of common stock acquired
by Atlantic upon conversion of the Atlantic Note, equals 12% of the common stock outstanding as of the date of such conversion,
as such total outstanding amount may, be increased by issuances of common stock occurring on or prior to November 13, 2014 (or
by issuances of common stock occurring after November 13, 2014 but pursuant to convertible instruments issued or commitments made
by the Company prior to November 13, 2014), other than issuances of excluded securities as such term is defined in the Atlantic
Note, at an exercise price per share equal to $0.001 per share, at any time and from time to time on or after the Closing Date
and through and including November 13, 2020. As of the September 30, 2014, Atlantic has not converted any portion of the Atlantic
Note.
Common Stock Options
Under the Company’s
2008 Equity Compensation Plan (the “2008 Plan”), we are authorized to grant stock options intended to qualify as Incentive
Stock Options, “ISO”, under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified options, restricted
and unrestricted stock awards and stock appreciation rights to purchase up to 7,000,000 shares of common stock to our employees,
officers, directors and consultants, with the exception that ISOs may only be granted to employees of the Company and its subsidiaries,
as defined in the 2008 Plan. After adjusting for expired and estimated pre-vesting forfeitures, options for approximately 2,216,000
shares were still available for grant under the 2008 Plan as of September 30, 2014.
Stock option activity under the 2008 Plan for
the nine months ended September 30, 2014 is summarized as follows:
| |
Shares | |
Weighted Average Exercise Price | |
Weighted Average Remaining Contractual Life (in years) | |
Grant Date Fair Value |
Outstanding at December 31, 2013 | |
| 775,133 | | |
$ | 0.14 | | |
| 1.09 | | |
$ | 46,901 | |
Options granted | |
| — | | |
| — | | |
| — | | |
| — | |
Options exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Options cancelled/ forfeited/ expired | |
| (322,139 | ) | |
$ | 0.22 | | |
| — | | |
| (31,924 | ) |
Outstanding at September 30, 2014 | |
| 452,994 | | |
$ | 0.081 | | |
| 1.00 | | |
$ | 14,977 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at September 30, 2014 | |
| 452,994 | | |
$ | 0.081 | | |
| 1.00 | | |
$ | 14,977 | |
The Company recognizes option expense ratably
over the vesting periods. As all outstanding options had vested as of December 31, 2012, we have recognized no compensation expense
related to options granted under the 2008 Plan during the three and nine months ended September 30, 2014 and 2013. The Company
intends to issue new shares to satisfy share option exercises.
6. SUBSEQUENT
EVENTS
Subsequent to September 30, 2014, we entered
into six separate note and share purchase agreements with six independent accredited investors. As a result, we have issued six
convertible notes with a total principal balance of $141,000 (the “Subsequent Convertible Notes”) and issued 1,175,000
shares of common stock (“the “Subsequent Common Stock”) in exchange for proceeds of $117,500. The Subsequent
Convertible Notes carry an original issue discount of 17%, mature on December 31, 2015 and are convertible into common stock of
the Company at $0.015 per share (the “Conversion Price”), subject to adjustment and mandatory conversion, as more fully
described in the Subsequent Convertible Note agreements. The Subsequent Common Stock was valued at the fair market value of $11,750
and is recorded as finance costs. Should the Subsequent Convertible Notes not be repaid or converted prior to June 30, 2015, the
investors will receive an additional 1,175,000 shares of the Company’s common stock.
On October 1, 2014, the Fund converted $70,000
owed under the 3rd Debenture into 7,000,000 shares of our common stock. On October 24, 2014, the Fund converted $85,000 owed under
the 3rd Debenture into 8,500,000 shares of our common stock. The conversion price represented the fair market value of our common
stock at the time of conversion. Accordingly, there was no gain or loss on conversion. As a result, the remaining outstanding principal balance of the 3rd Debenture as of November 19, 2014 was $375,000.
On October 7, 2014 we issued a total of 1,850,000
shares of common stock (valued at $18,500) to various consultants for services rendered in conjunction with business development
and marketing.
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
As used in this
Quarterly Report, the terms “GTX Corp”, “GTX”, "we", "us", "our", and “the
Company” mean GTX Corp and our three wholly-owned subsidiaries.
Operations
We currently conduct
our operations through three wholly-owned subsidiaries that operate in various interrelated sectors of the emerging Location-Based
Services and wearable technology marketplace. Our subsidiaries are summarized as follows:
·
Global Trek Xploration (“GTX California”) focuses
on hardware, software, connectivity, design and development of GPS monitoring products by offering a GPS and cellular location
platform that enables subscribers to track in real time the whereabouts of people, pets or high valued assets. Our GPS device,
which consists of a miniature transceiver, antenna, circuitry and battery, can be customized and integrated into numerous
products whose location and movement can be monitored in real time over the Internet through our 24x7 location data center (“Location
Data Center”) tracking portal or on a web enabled cellular telephone. The Location Data Center 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 California’s proprietary, fault-tolerant, carrier-class, and application-specific
interface software. Our Location Data Center services are also offered to non-GTX California 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).
During 2013, we entered into an exclusive
three-year contract with Atlantic Footcare, Inc., (“Atlantic”) to develop and launch the GPS SmartSoleTM
(the “SmartSole”), a product designed to monitor the location of the wearer of shoes that are outfitted with the SmartSole.
Atlantic is the Company’s exclusive manufacturer of the new shoe insole to be used with our embedded GPS devices. The patented
SmartSole fits easily into most shoes providing the user even more opportunities to use the tracking device.
The Company is currently engaged
in over two dozen SmartSole pilot programs in the US, Canada, New Zealand, Norway, Italy, Columbia, Singapore, U.K., and Switzerland,
with several other countries in the pipeline. These pilot programs are being conducted by assisted living facilities, Government
and Municipal agencies, health organizations, retailers, distributors and independent sales representatives. Several of these pilot
programs have been completed or will be concluded during the fourth quarter of 2014 and are expected to transition into commercial
roll outs. The pilot programs generally last 2 to 4 months.
Although still in the test phase,
we have now entered the volume production cycle for the SmartSoles and expect to receive our first delivery of 500 SmartSoles from
Atlantic in December 2014. This first set of 500 SmartSoles is substantially sold out. We are forecasting a four month roll out
of these SmartSoles through the first quarter of 2015.
Designed for less chronic wanderers
and as an introduction to our other footwear-based location monitoring products, in March 2014 we released the Bluetooth Low Energy
(“BLE”) SmartSoles, a footwear system designed to monitor when the wearer enters or leaves a room or building. The
BLE SmartSoles were specifically designed based on the needs of assisted living facilities and the care giving communities. Similar
to the SmartSole, the BLE SmartSole looks and feels like a regular insole, may be placed in most shoes and trimmed to fit. The
BLE SmartSole is embedded with a miniaturized low energy bluetooth chip that reports when the user crosses a virtual perimeter.
The BLE SmartSole has a battery life of over one year, alleviating the caregiver from the worry of recharging or replacing batteries.
The technology is customizable for personal home use or commercial assisted living facilities and the caregiver is alerted via
email or text when the wearer leaves the area. The research and development on the BLE SmartSoles has been concluded and they are
now ready for commercialization.
The Company’s “Stand
Alone” direct-to-consumer GPS device is now offered for sale through the GTX website and on Amazon.com at prices ranging
from $119 to $179 each, with several monthly subscription plans ranging from $17 to $30 per month. We are also introducing voice
capabilities and starting to resell data and voice service plans.
In 2010, GTX California entered into
a license agreement with Aetrex Worldwide, Inc. under which we granted Aetrex the exclusive right to embed our GPS tracking device
into certain footwear products manufactured and sold solely by Aetrex. The NavistarTM GPS Shoes did not meet our expectations
or the expectations of Aetrex and, accordingly, effective March 18, 2014, we did not renew our license agreement with Aetrex. |
· LOCiMOBILE, Inc., our mobile application subsidiary, developed and owns LOCiMOBILE®, a suite of mobile tracking applications (“Apps”) that turn the latest Smartphones and tablets such as iPhone®, iPad, Blackberry, Google Android and other GPS enabled handsets into a tracking and location based social networking device which can then be viewed through our Location Data Center tracking portal or on any connected device with internet access. As of the date of this Annual Report, our 20+ Apps have experienced over 1.6 million downloads in 162 countries. Additionally, we have released our newest enterprise App, Track My Work Force (“TMWF”), which allows employers to easily track and monitor employees, drivers, sales reps, and more using their Smartphone, tablet or any web enabled devices. Due to the anticipated increase in new users the backend portal has been completely upgraded in order to handle new customer sign up and billing. The new site is in beta test now and expected to be released before the end of the year. |
|
|
·
Code Amber News Service, Inc. (“CANS”) is our wholly-owned subsidiary in the U.S. and Canada of all state
Amber Alerts providing website tickers and news feeds to merchants, internet service providers, affiliate partners, corporate sponsors
and local, state and federal agencies, as well as, marketing and selling the patent pending electronic personal health record Code
Amber Alertag. The Alertag is a product and service that provides worldwide access to critical personal information in emergency
situations for persons who subscribe to the product and service. The Alertag complements the overall GTX business model of providing
location based e-health technologies and services.
|
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 September 30,
2014 (“Q3 2014”) Compared to the Three Months Ended September 30, 2013 (“Q3 2013”)
|
|
Three Months Ended September 30, |
|
|
2014 |
|
2013 |
|
|
$ |
% of Revenues |
|
$ |
% of Revenues |
|
|
|
|
|
|
|
Revenues |
$ 42,030 |
100% |
$ 26,198 |
100% |
Cost of goods sold |
|
19,179 |
46% |
|
22,751 |
87% |
Net profit |
|
22,851 |
54% |
|
3,447 |
13% |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
Wages and professional fees |
198,626 |
473% |
|
198,241 |
757% |
General and administrative |
64,468 |
153% |
|
33,132 |
126% |
Total operating expenses |
|
263,094 |
626% |
|
231,373 |
883% |
|
|
|
|
|
|
|
Loss from operations |
|
(240,243) |
-572% |
|
(227,926) |
-870% |
|
|
|
|
|
|
|
Other income (expense), net |
|
(138,159) |
-329% |
|
(368,524) |
-1407% |
Net loss |
|
$ (378,402) |
-900% |
|
$ (596,450) |
-2277% |
|
|
|
|
|
|
|
|
Revenues
Revenues during Q3 2014
increased by 60% or $15,832 in comparison to Q3 2013 primarily due to increases in GPS devices sales and the related monthly subscription
portal fees, increased Track My Work Force App revenues and the sale of the GPS SmartSole. Through September 30, 2014, the GPS SmartSole has been in the test phase. We are commencing our commercial production
during the fourth quarter of 2014 and will be receiving 500 of our first 1,500 unit production order of the GPS SmartSoles in December
2014 of which the majority have already been pre-sold. We expect to begin shipping to channel partners and consumers throughout
the first quarter of 2015. These increases were offset by decreases in App revenue (excluding TMWF) and monthly subscription
fees no longer generated from the Navistar GPS Shoes.
Cost of goods sold
Cost of goods
sold decreased 16% or $3,572 during Q3 2014 in comparison to Q3 2013 primarily due to the write-down of certain capitalized direct
labor costs and shoe molds during the period ended September 30, 2013. The depreciation related to these assets had been recorded
through cost of goods sold and their write off accounts for an overall decrease in cost of goods sold of $9,700 when comparing
Q3 2014 to Q3 2013. Additionally, software development costs related to our LOCiMOBILE® Apps are nearly fully depreciated resulting
in a decrease in software development depreciation of $6,100. The overall decrease was offset by an increase in the sale of GPS
devices and SmartSoles during Q3 2014.
Wages and professional fees
Wages and professional
fees during Q3 2014 remained consistent with Q3 2013.
General and administrative
General and administrative
expenses during Q3 2014 increased 95% or $31,336 in comparison to Q3 2013 primarily due to product development costs on our GPS
and BLE SmartSoles, increases in website development costs and travel expenses. During 2014 we began making improvements to our
website to facilitate the upcoming release of the SmartSoles and TMWF App to the public. Additionally, travel and related marketing
expenses were incurred to promote the SmartSole to potential distributors, channel partners and assisted living care facilities.
Other
income (expense), net
Other income (expense),
net for Q3 2014 consists primarily of costs associated with our debt financings. During Q3 2014, $212,000 of debt was converted
into 10,846,000 shares of our common stock valued at $176,444 resulting in a non-cash gain on extinguishment of debt of $35,556.
Additionally, the accounting treatment for the bifurcation of the derivative liabilities embedded in our long-term and short-term
convertible notes results in net derivative, non-cash loss of $155,197. The net derivative expense represents the change in fair
value of the derivative liability during the period as well as the amortization of the related debt discount.
Nine Months Ended September 30, 2014 Compared to
the Nine Months Ended September 30, 2013
|
|
Nine Months Ended September 30, |
|
|
2014 |
|
2013 |
|
|
$ |
% of Revenues |
|
$ |
% of Revenues |
|
|
|
|
|
|
|
Revenues |
$96,935 |
100% |
$121,610 |
100% |
Cost of goods sold |
|
45,066 |
46% |
|
69,283 |
57% |
Net profit |
|
51,869 |
54% |
|
52,327 |
43% |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
Wages and professional fees |
613,822 |
633% |
|
603,831 |
497% |
General and administrative |
202,852 |
209% |
|
126,513 |
104% |
Total operating expenses |
|
816,674 |
842% |
|
730,344 |
601% |
|
|
|
|
|
|
|
Loss from operations |
|
(764,805) |
-789% |
|
(678,017) |
-558% |
|
|
|
|
|
|
|
Other income (expense), net |
|
(840,897) |
-867% |
|
(446,358) |
-367% |
Net loss |
|
$ (1,605,702) |
-1656% |
|
$ (1,124,375) |
-925% |
|
|
|
|
|
|
|
|
Revenues
Revenues during the nine
months ended September 30, 2014 decreased by 20% or $24,675 in comparison to the same period in 2013 due to decreases in Navistar
GPS Shoe subscriptions, Alertag sales, consumer App sales and platform test agreements. During 2013 we sold 1,000 Alertags resulting
in the recognition of approximately $13,000 of revenues. No such sale occurred during 2014. Revenues generated by our Apps sold
on iTunes decreased $13,000 in comparison to 2013 due to a decrease in the purchase of consumer Apps, and a large increase in downloads
for upgrades by current subscribers, which upgrades are provided free of charge. These decreases were offset by GPS devices sales
and the related monthly portal fees, increased Track My Work Force App revenues and the sale of the GPS SmartSole as discussed
above.
Cost of goods sold
Cost of goods sold decreased
35% or $24,217 during the nine months ended September 30, 2014 in comparison to the same period in 2013 primarily due to the write-down
of certain capitalized direct labor costs and shoe molds during the period ended September 30, 2013. The depreciation related to
these assets had been recorded through cost of goods sold and their write off accounts for $24,300 of the decrease in depreciation
expense when comparing 2014 to 2013. Additionally, software development costs related to our LOCiMOBILE® Apps are nearly fully
depreciated resulting in a decrease in software development depreciation of $13,100. These decreases are offset by the increased
costs of GPS devices and GPS SmartSoles sold during 2014.
Wages and professional fees
Wages and professional
fees during the nine months ended September 30, 2014 increased 2% or $9,991 in comparison to the same period in 2013 despite a
reduction in consultants and marketing expenses since September 30, 2013. This is primarily due to the hiring of a consulting firm
for business development, corporate and financing services.
General and administrative
General and administrative
expenses during the nine months ended September 30, 2014 increased 60% or $76,339 in comparison to the same period in 2013 primarily
due to product development costs associated with our GPS and BLE SmartSoles, increases in website development costs and travel
expenses. During 2014 we began making improvements to our website to facilitate the upcoming release of the SmartSole to the public.
Additionally, several trips throughout the U.S. and Europe were made to plan the development and promote the SmartSole to potential
distributors and channel partners.
Other
income (expense), net
Other income (expense),
net for 2014 consists primarily of costs associated with our debt financings. During the nine months ended September 30, 2014,
$457,951 of debt was converted into 29,918,861 shares of our common stock valued at $660,723 resulting in a non-cash loss on extinguishment
of debt of $202,771. Additionally, the accounting treatment for the bifurcation of the derivative liabilities embedded in our long-term
and short-term convertible notes results in net derivative, non-cash expense of $604,230. The net derivative expense represents
the change in fair value of the derivative liability during the period as well as the amortization of the related debt discount.
Liquidity and Capital Resources
As of September 30, 2014,
we had approximately $15,000 of cash and cash equivalents, and a working capital deficit of $1,270,000, compared to $65,000 of
cash and cash equivalents and a working capital deficit of $736,000 as of December 31, 2013. A portion of our negative working
capital position at September 30, 2014 consisted of $325,000 of amounts due to officers and management of the Company for accrued
wages and $183,000 related to derivative liabilities on our short-term convertible promissory notes. As more fully described below,
we issued additional convertible notes in October 2014 to fund our working capital needs.
During the nine months
ended September 30, 2014 and 2013, we reported a net loss of $1,605,702 and $1,124,375, respectively. However, net cash used in
operating activities for the nine months ended September 30, 2014 and 2013 was only $363,000 and $209,000, respectively. Net cash
used in operations was less than the net loss for the nine months ended September 30, 2014 primarily due to non-cash expenses relating
to the net change in fair value of our derivative liabilities and the amortization of the debt discount on our convertible debt
($604,230), as well as, the non-cash loss on the extinguishment of debt ($202,771). These non-cash expenses during the nine months
ended September 30, 2013 collectively were $229,246.
Net cash used in investing
activities for the nine months ended September 30, 2014 was $1,445 and resulted from the purchase of office equipment. There was
no cash used in investing activities for the nine months ended September 30, 2013.
Net cash provided
by financing activities during nine months ended September 30, 2014 was $314,750 and consisted primarily of proceeds totaling $318,750
received from advances under various convertible note payable agreements. Net cash provided by financing activities during the
nine months ended September 30, 2013 was $235,500 and consisted of proceeds totaling $230,000 received from advances under a convertible
note payable agreement, as well as short-term loans totaling $30,000 and $10,000 each from our Chief Executive Officer and a Board
Member, respectively. As of September 30, 2013, the Company had paid $25,000 towards the related party loans, as well as, $9,500
towards a short-term loan owed to a vendor.
Because revenues
from our operations have, to date, been insufficient to fund our working capital needs, we currently rely on the cash we receive
from our financing activities to fund our capital expenditures and to support our working capital requirements. However,
during July 2013, we entered into an exclusive three-year contract with Atlantic Footcare, Inc. (“Atlantic”), to develop
and launch the GPS SmartSoleTM (the “SmartSole”). Atlantic is the Company’s exclusive manufacturer
of the new shoe insole to be used with our embedded GPS devices. Although primarily still in the evaluation phase, we have recently
entered the volume production cycle for the SmartSoles and expect to receive our first delivery of 500 SmartSoles from Atlantic
in December 2014. We are forecasting a four month roll out of these SmartSoles through the first quarter of 2015. Because the SmartSole
has not yet been commercially introduced, we are not able to forecast the amount of revenues this product will generate or if/when
revenues generated from the SmartSoles will be able to begin supporting our working capital needs.
Until such time as the
SmartSoles can support our working capital requirement, we expect to continue to generate revenues from the sale of stand-alone
GPS devices, licensing revenues, Alertag subscriptions, Track My Work Force subscriptions, international distributors, hardware
sales, professional services and new customers in the pipeline. However, the amount of such revenues is unknown and is not expected
to be sufficient to fund our working capital needs. For our internal budgeting purposes, we have assumed that such revenues will
not be sufficient to fund all of our planned operating and other expenditures. 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 throughout 2014 and 2015.
In order to fund our working
capital needs and our product development costs, subsequent to September 2014, we entered into six separate note and share purchase
agreements with six independent accredited investors. As a result, we have issued six convertible notes with a total principal
balance of $141,000 (the “Subsequent Convertible Notes”) and issued 1,175,000 shares of common stock (“the “Subsequent
Common Stock”) in exchange for proceeds of $117,500. The Subsequent Convertible Notes carry an original issue discount of
17%, mature on December 31, 2015 and are convertible into common stock of the Company at $0.015 per share (the “Conversion
Price”), subject to adjustment and mandatory conversion. The Subsequent Common Stock was valued at the fair market value
of $11,750 and is recorded as finance costs. In addition to the Subsequent Convertible Notes and the Subsequent Common Stock, a
total of 1,175,000 additional shares of the Company’s common stock will be issued to the investors if the Subsequent Convertible
Notes are not repaid or converted prior to June 30, 2015.
In September 2013 we entered
into a Securities Purchase Agreement with 112359 Factor Fund, LLC (the “Fund”) pursuant to which we issued and sold
to the Fund (i) an amended and restated convertible debenture (the “A
& R 1st Debenture”) in the principal amount of $123,394,
(ii) a secured convertible debenture in the principal amount of $200,000 (the “2nd Debenture”), and (iii)
a secured convertible debenture payable in eight (8) tranches totaling an aggregate principal balance of $901,000 (the “3rd
Debenture” and together with the A & R 1st Debenture and 2nd Debenture, the “Debentures”).
The following is a summary of the terms of the Debentures:
The $123,394 A & R
1st Debenture accrued interest at the lesser of the applicable Federal Rate or 6% per annum and was convertible into
shares of common stock of the Company at a price equal to 100% of the average of the five lowest closing market prices for the
Company’s common stock for the 30 trading days preceding conversion. As of September 30, 2014, the A & R 1st
Debenture has been converted in full into 12,300,099 shares of common stock resulting in a total loss on extinguishment of $25,910.
The 2nd Debenture,
in the amount of $200,000, was issued to the Fund in consideration for the Fund’s various agreements issued under the Security
Purchase Agreement. Since this debenture was issued as payment for services and fees, the Company also did not receive any cash
from the issuance of this debenture. The 2nd Debenture matures December 31, 2017 and accrues interest on the unconverted outstanding
principal balance at a rate per annum of the lesser of the applicable Federal Rate or six percent (6%). Upon the later to occur
of (a) the date on which the Fund has paid the Company the full $425,000 purchase price of the 3rd Debenture, or (b)
the date on which all amounts due to the Fund, except for amounts due under the 2nd Debenture, have been fully paid,
at the option of the Fund, the outstanding principal amount due under the 2nd Debenture may be converted into shares
of the Company’s common stock at a price equal to the lesser of (a) the outstanding balance due under the Debenture divided
by $0.01 per shares (the “Conversion Price,”) or (b) 9.99% of the then-current issued and outstanding capital stock
of the Company as of the first (1st) anniversary of the Payment Compliance Date.
The face amount of
the 3rd Debenture is $901,000 and consists of $425,000 of cash proceeds to the Company with the remaining $476,000 being
additional debenture to the Company. The Fund funded the 3rd Debenture in eight monthly installments
during the period from September 18, 2013 through April 21, 2014. The 3rd Debenture matures on the third anniversary date
of each monthly installment. Interest on the 3rd Debenture accrues on the unconverted outstanding principal balance
hereof at a rate per annum of the lesser of the applicable Federal Rate or six percent (6%) and on a pro rata basis to the extent
that each Tranche has been paid. The outstanding amounts due under the 3rd Debenture are convertible at the option of
the Fund into shares of the Company’s common stock at 100% of the average of the five lowest closing market prices for the
common stock for the 30 trading days preceding each conversion; provided, however, that the Fund cannot own more than 4.99% of
the Company’s outstanding shares of common stock at any time, which limit may be waived by the Fund upon 65 days’ notice.
As of the date of
this Quarterly Report, the 3rd Debenture has provided us with the $425,000 of funding. Additionally, the Fund has converted
$526,000 of the $901,000 principal balance into 38,330,293 shares of our common stock resulting in a loss on extinguishment of
debt totalling $177,494.
On July 28, 2014,
we entered into a 4th convertible debenture with the Fund in the principal amount of $75,000 (the “4th
Debenture”). The 4th Debenture was funded in Tranches on or about August 28, 2014, August 30, 2014 and September
30, 2014 in the amounts of $35,000, $20,000, and $20,000, respectively and matures on January 30, 2015. Interest on the 4th
Debenture accrues on the unconverted outstanding principal balance hereof at a rate per annum of the lesser of the applicable Federal
Rate or six percent (6%) and on a pro rata basis to the extent that each Tranche has been paid. The outstanding amounts due under
the 4th Debenture are convertible at the option of the Fund into shares of the Company’s common stock at 50% of
the average of the five lowest closing market prices for the common stock for the 30 trading days preceding each conversion. As
consideration for the 4th Debenture, we are required to have in reserve at all times, enough shares of our common stock
to effect the issuance of all of the conversion shares due to the Fund upon conversion of outstanding amounts owed under the Debentures,
the 4th Debenture and any future convertible debentures held by the Fund. As of November 18, 2014, we had approximately
957,000,000 shares of our common stock reserved to fulfill this requirement.
As described above, on
July 12, 2013, we entered into an Exclusive Manufacturing Agreement (the “Agreement”) with Atlantic, whereby Atlantic
serves as our exclusive manufacturer of its new shoe insole to be used with our embedded GPS devices. In conjunction with the Agreement,
on July 24, 2013 (the “Closing”), we also entered into a Security Purchase Agreement (the “SPA”) with Atlantic.
Pursuant to the SPA, Atlantic purchased (i) a convertible promissory note (the “Atlantic
Note”) in the original principal amount of $200,000, accruing interest 6% per annum, and maturing on November 13,
2014, and (ii) a warrant to purchase shares of the Company’s common stock at the par value of the shares (i.e. at a price
of $0.001 per share). As of June 20, 2014, Atlantic has provided the Company with the full amount of $200,000 under the Atlantic
Note.
Atlantic may at
any time elect to convert all of the entire outstanding principal amount of the Atlantic Note plus the accrued interest into 12%
of the Company’s issued and outstanding common stock immediately following the issuance thereof, multiplied by a fraction,
the numerator of which is the principal amount of the Atlantic Note then outstanding and the denominator of which is $200,000.
On June 26, 2013, the Company
entered into a Convertible Promissory Note with BSM Lending, LLC, for the principal sum of $30,000 plus interest of 15% per annum
(the “BSM Note”). The BSM Note is convertible into shares of common stock of the Company at a price equal to 65% of
the five day average closing price per share of the Company’s common stock. On April 14, 2014, BSM Lending, LLC converted
the BSM Note of $30,000 plus accrued interest of $3,514 into 1,463,493 shares of our common stock, resulting in a loss on extinguishment
of debt in the amount of $13,464.
The licensing agreements,
distribution agreements and product sales initiatives we have in place have, to date, not generated substantial revenues.
No assurance can be given that our current contractual arrangements and the revenues from our GPS SmartSoles, device sales, subscriptions,
Alertags, software licensing, or our smart phone or tablet Apps will generate significant revenues during the balance of 2014 or
in 2015.
In addition to continuing
to incur normal operating expenses, we intend to continue our research and development efforts for our various technologies and
products, including hardware, software, interface customization, and website development, and we also expect to further develop
our sales, marketing and manufacturing programs associated with the commercialization, licensing and sales of our GPS devices and
technology, and the commercialization of the LOCiMOBILE® applications for GPS enabled handsets. We currently do not have sufficient
capital on hand to fully fund our proposed research and development activities, which lack of product development may negatively
affect our future revenues.
As noted above,
based on budgeted revenues and expenditures, unless revenues increase significantly, we believe that our existing and projected
sources of liquidity may not be sufficient to satisfy our cash requirements for the next twelve months. Accordingly,
we will need to raise additional funds throughout 2014 and into 2015. The sale of additional equity securities will
result in additional dilution to our existing stockholders. Sale of debt securities could involve substantial operational and financial
covenants that might inhibit our ability to follow our business plan. Any additional funding that we obtain in a financing is likely
to reduce the percentage ownership of the Company held by our existing security-holders. The amount of this dilution may be substantial
based on our current stock price, and could increase if the trading price of our common stock declines at the time of any financing
from its current levels. We may also attempt to raise funds through corporate collaboration and licensing arrangements. To
the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to grant licenses
on terms that are not favorable to us. There can be no assurance that financing will be available in amounts or on terms acceptable
to us, if at all. If we are unable to obtain the needed additional funding, we may have to further reduce our current level of
operations, or may even have to totally discontinue our operations.
Since inception
in 2002, we have generated significant losses (as of September 30, 2014, we had an accumulated deficit of $17,041,567), and we
currently expect to incur continued losses until our revenue initiatives collectively generate substantial revenues. Please see
the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2013
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, 2013.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting
company”, we are not required to provide the information under this Item 3.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures,
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this
report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal financial
officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective. Disclosure controls are
controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the
Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms. Disclosure controls include controls and procedures designed to reasonably ensure that such information is accumulated
and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial
Reporting
There were no changes in
our internal controls over financial reporting that occurred during the quarterly period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
We
have a working capital deficit and are in need of additional liquidity.
Our
business plan had assumed that sales of the NavistarTM GPS Shoes would provide a substantial amount of our working capital,
which revenues would be supplemented by revenues from our other products. Sales of the GPS Shoes have significantly underperformed
our expectations, and revenues from our other products have also been less than we projected. As a result of the lack of sales
revenues, we currently have a large working capital deficit, and our revenues from our current operations are not sufficient to
fund our current operating needs. Accordingly, we will have to find alternative sources of funding in the near future. If we are
not able to obtain additional funding in the near future, we may have to further reduce our operations, take other action to protect
our properties and business, or cease operations altogether. Any such actions may have a negative effect on the viability of our
company and on the trading price of our shares.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On July 24, 2014,
the Fund converted $77,080 of the 3rd Debenture into 4,100,000 shares of common stock with a fair market value of $82,000.
On August 15, 2014,
the Fund converted $134,920 of the 3rd Debenture into 6,746,000 shares of common stock with a fair market value of $94,444.
On October 1, 2014,
the Fund converted $70,000 of the 3rd Debenture into 7,000,000 shares of common stock with a fair market value of $70,000.
On October 24, 2014,
the Fund converted $88,000 of the 3rd Debenture into 8,500,000 shares of common stock with a fair market value of $88,000.
The
above shares were issued as part of the Securities Purchase Agreement entered into with the Fund in September 2013.
On
August 28, 2014, we issued 250,000 shares of common stock (valued at $2,500) to each of our five board members as compensation
for attending a board meeting. Additionally, a total of 1,000,000 shares of common stock (valued at $10,000) were issued to seven
consultants for corporate advisory and business development services and 100,000 shares of common stock (valued at $1,000) were
issued to two separate employees as compensation for additional services rendered.
On October 7,
2014, we issued a total of 1,850,000 shares of common stock (valued at $18,500) to six consultants for business development services.
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
|
|
|
10.1 |
|
Form of Note and Share Purchase Agreement (October 2014) |
|
|
|
10.2 |
|
Form of Convertible Promissory Note (October 2014) |
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act
|
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act |
|
|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation
|
|
|
|
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.
|
GTX CORP
|
Date: November 19, 2014 By: |
/s/ ALEX MCKEAN
Alex McKean,
Interim Chief Financial Officer (Principal Financial Officer) |
Date: November 19, 2014 By: |
/s/ PATRICK BERTAGNA
Patrick Bertagna,
Chief Executive Officer |
Exhibit10.1
GTX CORP.
____________________________
NOTE
AND SHARE PURCHASE AGREEMENT
Convertible
Promissory Note
Common
Stock
__________________________
NOTE AND SHARE PURCHASE AGREEMENT
This Note and Share Purchase
Agreement (this “Agreement”) is entered into on the date written on the signature page hereof (the “Effective
Date”) by and between GTX Corp., a Nevada corporation (the “Company”), and the undersigned (the “Purchaser”).
The Company and Purchaser shall each be referred to as a “Party” and collectively as the “Parties.”
RECITALS
WHEREAS, the Company is
seeking investors to invest up to Two Hundred and Fifty Thousand Dollars ($250,000) (the “Maximum Offering”),
in units of Twenty Five Thousand Dollars ($25,000) each (each a “Unit” and collectively the “Units”);
WHEREAS, each Unit consists
of (a) a convertible promissory note in the principal amount of $30,000, the form of which is attached hereto as Exhibit A
(the “Note”), (b) Two Hundred and Fifty Thousand (250,000) shares of the Company’s common stock (“Bonus
Shares”) and (c) upon the occurrence of certain events set forth herein, an additional Two Hundred and Fifty Thousand
(250,000) shares of the Company’s common stock (“Contingent Shares”) (the Bonus Shares, the Contingent
Shares and the Note and the shares of common stock to be acquired upon the conversion or the Note, referred to collectively as
the “Securities”);
WHEREAS, the Notes are
due on December 31, 2015, are convertible into common stock of the Company at $0.015 per share, subject to adjustment and mandatory
conversion under certain circumstances, and include an original issuance discount;
WHEREAS, for each Unit
purchased, Purchaser shall receive 250,000 shares of the Company’s common stock;
WHEREAS, for each Unit purchased, Purchaser
shall receive an additional 250,000 shares of the Company’s common stock if the Notes have not been repaid or converted into
shares of the Company’s common stock prior to June 30, 2015; and
WHEREAS, the Company desires
to sell, and the Purchaser desires to purchase, the number of Units set forth on the signature page hereof on the terms and conditions
set forth herein.
NOW, THEREFORE, for good
and adequate consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
AGREEMENT
1. PURCHASE OF UNITS:
On the Closing Date (as hereinafter defined), subject to the terms and conditions set forth in this Agreement, the Purchaser hereby
agrees to purchase, and the Company hereby agrees to sell, the Units set forth on the signature page hereof, with each Unit consisting
of the Note and the Warrants, for a total purchase price equal to the principal amount of the Note (the “Purchase Price”).
2. CLOSING AND DELIVERY:
a) Upon the terms
and subject to the conditions set forth herein, the consummation of the purchase and sale of the Units (the “Closing”)
shall be held at the discretion of the Company (the “Closing Date”) with Closings taking place periodically
thereafter at the discretion of the Company until a final closing on November 30, 2014. There is no minimum offering amount.
b) The Closings
shall take place at the offices of the Company set forth in Section 6 hereof, or by the exchange of documents and instruments by
mail, courier, facsimile and wire transfer. At each Closing:
(i) The Company
and the Purchaser shall execute this Agreement and the Note.
(ii) The
Company shall issue and deliver to the Purchaser the Bonus Shares.
3. REPRESENTATIONS, WARRANTIES AND
AGREEMENTS BY PURCHASER: The Purchaser hereby represents, warrants and agrees as follows:
a)
Purchase for Own Account. Purchaser is acquiring the Securities solely for his, her or its own account and beneficial
interest for investment and not for sale or with a view to distribution of the Securities or any part thereof, has no present intention
of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same,
and does not presently have reason to anticipate a change in such intention.
b)
Ability to Bear Economic Risk. Purchaser acknowledges that an investment in the Securities involves a high degree
of risk, and represents that he is able, without materially impairing his financial condition, to hold the Securities for an indefinite
period of time and to suffer a complete loss of his investment.
c)
Access to Information. The Purchaser acknowledges that the Purchaser has been furnished with such financial and other
information concerning the Company, the directors and officers of the Company, and the business and proposed business of the Company
as the Purchaser considers necessary in connection with the Purchaser’s investment in the Securities. As a result, the Purchaser
is thoroughly familiar with the proposed business, operations, properties and financial condition of the Company and has discussed
with officers of the Company any questions the Purchaser may have had with respect thereto. The Purchaser understands:
(i) The risks
involved in this investment, including the speculative nature of the investment;
(ii) The financial
hazards involved in this investment, including the risk of losing the Purchaser’s entire investment;
(iii) The lack
of liquidity and restrictions on transfers of the Securities; and
(iv) The tax
consequences of this investment.
The Purchaser has consulted
with the Purchaser’s own legal, accounting, tax, investment and other advisers with respect to the tax treatment of an investment
by the Purchaser in the Securities and the merits and risks of an investment in the Securities.
d)
Securities Part of Private Placement. The Purchaser has been advised that the Securities
have not been registered under the Securities Act of 1933, as amended (the “Act”), or qualified under the securities
law of any state, on the ground, among others, that no distribution or public offering of the Securities is to be effected and
the Securities will be issued by the Company in connection with a transaction that does not involve any public offering within
the meaning of section 4(2) of the Act and/or Regulation D as promulgated by the Securities and Exchange Commission under the Act,
and under any applicable state blue sky authority. The Purchaser understands that the Company is relying in part on the Purchaser’s
representations as set forth herein for purposes of claiming such exemptions and that the basis for such exemptions may not be
present if, notwithstanding the Purchaser’s representations, the Purchaser has in mind merely acquiring the Securities for
resale on the occurrence or nonoccurrence of some predetermined event. The Purchaser has no such intention.
e)
Purchaser Not Affiliated with Company. The Purchaser, either alone or with the Purchaser’s
professional advisers (i) is not deemed an affiliate of the Company; (ii) has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and risks of an investment in the Securities; and (iii)
has the capacity to protect the Purchaser’s own interests in connection with the Purchaser’s proposed investment in
the Securities.
f)
Further Limitations on Disposition. Purchaser further acknowledges that the Securities are restricted securities
under Rule 144 of the Act, and, therefore, when the Company issues certificates reflecting the ownership interest in the Securities,
those certificates will contain a restrictive legend substantially similar to the following:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER
THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE
STATE LAW IS AVAILABLE.
Without in any way limiting
the representations set forth above, Purchaser further agrees not to make any disposition of all or any portion of the Securities
unless and until:
(i) There
is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(ii) Purchaser
shall have obtained the consent of the Company and notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the
Company, Purchaser shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the Act or any applicable state securities laws.
Notwithstanding
the provisions of subparagraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for
a transfer by such Purchaser to a partner (or retired partner) of Purchaser, or transfers by gift, will or intestate succession
to any spouse or lineal descendants or ancestors, if all transferees agree in writing to be subject to the terms hereof to the
same extent as if they were Purchasers hereunder as long as the consent of the Company is obtained.
g)
Accredited Investor Status (Please check one). Purchaser is an “accredited investor” as such
term is defined in Rule 501 under the Act because Purchaser either:
(i) has a net
worth of at least $1,000,000 (for purposes of this question, Purchaser may include spouse's net worth and may include the
fair market value of home furnishings and automobiles, but must exclude from the calculation the value of Purchaser’s primary
residence and the related amount of any indebtedness on primary residence up to the fair market value of the primary residence
(any indebtedness that exceeds the fair market value of the primary residence must be deducted from net worth calculation)), or
(ii) had an
individual income of more than $200,000 in each of the two most recent calendar years, and reasonably expects to have an individual
income in excess of $200,000 in the current calendar year; or along with Purchaser’s spouse had joint income in excess of
$300,000 in each of the two most recent calendar years, and reasonably expects to have a joint income in excess of $300,000 in
the current calendar year.
For purposes of this Agreement,
“individual income” means “adjusted gross income” as reported for Federal income tax purposes, exclusive
of any income attributable to a spouse or to property owned by a spouse: (i) the amount of any interest income received which
is tax-exempt under Section 103 of the Internal Revenue Code of 1986, as amended, (the “Code”), (ii) the
amount of losses claimed as a limited partner in a limited partnership (as reported on Schedule E of form 1040), (iii) any
deduction claimed for depletion under Section 611 et seq. of the Code and (iv) any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Sections 1202 of the Internal
Revenue Code as it was in effect prior to enactment of the Tax Reform Act of 1986.
For purposes of this Agreement,
“joint income” means, “adjusted gross income,” as reported for federal income tax purposes, including any
income attributable to a spouse or to property owned by a spouse, and increased by the following amounts: (i) the amount of
any interest income received which is tax-exempt under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”),
(ii) the amount of losses claimed as a limited partner in a limited partnership (as reported on Schedule E of Form 1040),
(iii) any deduction claimed for depletion under Section 611 et seq. of the Code and (iv) any amount by which
income from long-term capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202
of the Internal Revenue Code as it was in effect prior to enactment of the Tax Reform Act of 1986.
h)
Purchaser Qualifications.
(i) If the Purchaser
is an individual, the Purchaser is over 21 years of age; and if the Purchaser is an unincorporated association, all of its members
are of such age.
(ii) If the
Purchaser is a corporation, partnership, employee benefit plan or IRA, the Purchaser was either:
(a) not formed
for the purpose of investing in the Securities, has or will have other substantial business or investments, and is (please check
one):
| _____ | an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security
Act of 1974, provided that the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, and
the plan fiduciary is a bank, savings and loan association, insurance company or registered investment adviser; or |
| _____ | an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security
Act of 1974 that has total assets in excess of $5,000,000; or |
| _____ | each of its shareholders, partners, or beneficiaries is an Accredited Investor; or |
| _____ | the plan is a self directed employee benefit plan and the investment decision is made solely by
a person that is an Accredited Investor; or |
| _____ | a corporation, a partnership, or a Massachusetts or similar business trust with total assets in
excess of $5,000,000. |
(b) formed
for the specific purpose of investing in the Securities, and is an Accredited Investor because each of its shareholders or beneficiaries
is an Accredited Investor.
(iii) If the
Purchaser is a Trust, the Purchaser was either:
(a) not formed
for the specific purpose of investing in the Securities, and is an Accredited Investor because (please check one):
_____ the
trust has total assets in excess of $5,000,000 and the investment decision has been made by a “sophisticated person”;
or
_____ the
trustee making the investment decision on its behalf is a bank (as defined in Section 3(a)(2) of the Act), a saving and loan
association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, acting in its fiduciary capacity;
or
_____ the
undersigned trustee certifies that the trust is an Accredited Investor because the grantor(s) of the trust may revoke the trust
at any time and regain title to the trust assets and has (have) retained sole investment control over the assets of the trust and
the (each) grantor(s) is an Accredited Investor; or
_____ the
undersigned trustee certifies that the trust is an Accredited Investor because all of the beneficial owners of the trust are Accredited
Investors
(b) formed
for the specific purpose of investing in the Securities, and the undersigned trustee certifies that the trust is an Accredited
Investor because the grantor(s) of the trust may revoke the trust at any time and regain title to the trust assets and has (have)
retained sole investment control over the assets of the trust and the (each) grantor(s) is an Accredited Investor.
i)
Purchaser Authorization. The Purchaser, if not an individual, is empowered and duly
authorized to enter into this Agreement under any governing document, partnership agreement, trust instrument, pension plan, charter,
certificate of incorporation, bylaw provision or the like; this Agreement constitutes a valid and binding agreement of the Purchaser
enforceable against the Purchaser in accordance with its terms; and the person signing this Agreement on behalf of the Purchaser
is empowered and duly authorized to do so by the governing document or trust instrument, pension plan, charter, certificate of
incorporation, bylaw provision, board of directors or stockholder resolution, or the like.
j)
No Backup Withholding. The Social Security Number or taxpayer identification shown
in this Agreement is correct, and the Purchaser is not subject to backup withholding because (i) the Purchaser has not been
notified that he or she is subject to backup withholding as a result of a failure to report all interest and dividends or (ii)
the Internal Revenue Service has notified the Purchaser that he or she is no longer subject to backup withholding.
4. REPRESENTATIONS, WARRANTIES AND
AGREEMENTS BY COMPANY: The Company hereby represents, warrants and agrees as follows:
a)
Authority of Company. The Company has all requisite authority to execute and deliver this Agreement and to carry
out and perform its obligations under the terms of this Agreement.
b)
Authorization. All actions on the part of the Company necessary for the authorization, execution, delivery and performance
of this Agreement by the Company and the performance of the Company’s obligations hereunder has been taken or will be taken
prior to the issuance of the Securities. This Agreement, when executed and delivered by the Company, shall constitute valid and
binding obligations of the Company enforceable in accordance with their terms, subject to laws of general application relating
to bankruptcy, insolvency, the relief of debtors and, with respect to rights to indemnity, subject to federal and state securities
laws. The issuance of the Securities will be validly issued, fully paid and nonassessable, will not violate any preemptive rights,
rights of first refusal, or any other rights granted by the Company, and will be issued in compliance with all applicable federal
and state securities laws, and will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed
upon the Purchaser through no action of the Company; provided, however, that the Securities may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time the transfer is
proposed.
c)
Governmental Consents. All consents, approvals, orders or authorizations of, or registrations, qualifications, designations,
declarations or filings with, any governmental authority required on the part of the Company in connection with the valid execution
and delivery of this Agreement, the offer, sale or issuance of the Securities, or the consummation of any other transaction contemplated
hereby shall have been obtained, except for notices required or permitted to be filed with certain state and federal securities
commissions, which notices will be filed on a timely basis.
d)
Piggyback Registration Rights. The Company hereby represents and warrants that if the Company at any time proposes
to register any of its securities under the Act, including under an S-1 Registration Statement or otherwise, it will at such time
give written notice to the Purchaser of its intention so to do. If the offering being registered includes an underwriter, then
subject to the approval of the underwriters, and upon the written request of Purchaser given within ten (10) days after receipt
of any such notice, the Company will use its best efforts to cause the shares of common stock underlying the conversion of the
Notes (unless the shares are eligible for resale under Rule 144) and the Bonus Shares and Contingent Shares to be registered under
the Act (with the securities which the Company at the time propose to register). All expenses incurred by the Company in complying
with this section, including without limitation all registration and filing fees, listing fees, printing expenses, fees and disbursements
of all independent accountants, or counsel for the Company and the expense of any special audits incident to or required by any
such registration and the expenses of complying with the securities or blue sky laws of any jurisdiction shall be paid by the Company.
e) Securities Filings.
The Company is current in its filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
f) Use of Proceeds.
The net proceeds from the sale of the Units will be used for general working capital purposes at the discretion of the Company’s
management.
5. INDEMNIFICATION:
The Purchaser hereby agrees to indemnify and defend the Company and its officers and directors and hold them harmless from and
against any and all liability, damage, cost or expense incurred on account of or arising out of:
(a) Any breach of or inaccuracy in the
Purchaser’s representations, warranties or agreements herein;
(b) Any disposition of any Securities
contrary to any of the Purchaser’s representations, warranties or agreements herein; and
(c) Any action, suit or proceeding based
on (i) a claim that any of said representations, warranties or agreements were inaccurate or misleading or otherwise cause for
obtaining damages or redress from the Company or any director or officer of the Company under the Act, or (ii) any disposition
of any Securities.
6. MISCELLANEOUS:
a)
Binding Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the Parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any
third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
b)
Governing Law; Venue. This Agreement shall be governed by and construed under the laws of the State of California
as applied to agreements among California residents, made and to be performed entirely within the State of California. The Parties
agree that any action brought to enforce the terms of this Agreement will be brought in the appropriate federal or state court
having jurisdiction over Los Angeles County, California, United States of America.
c)
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
d)
Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.
e)
Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a)
upon personal delivery to the Party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of
the recipient, if not, then on the next business day, or (c) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All communications shall be sent as follows:
If to the Company: GTX
Corp.
117 W. 9th Street
Suite 1214
Los Angeles, CA 90015
Attn: Patrick Bertagna
If to Purchaser: As set forth on the signature
page hereof
or at such other
address as the Company or Purchaser may designate by ten (10) days advance written notice to the other Party hereto.
f)
Modification; Waiver. No modification or waiver of any provision of this Agreement or consent to departure therefrom
shall be effective unless in writing and approved by the Company and the Purchaser.
g)
Entire Agreement; Successors. This Agreement and the Exhibits hereto constitute the full and entire understanding
and agreement between the Parties with regard to the subjects hereof and no Party shall be liable or bound to the other Party in
any manner by any representations, warranties, covenants and agreements except as specifically set forth herein. The representations,
warranties and agreements contained in this Agreement shall be binding on the Purchaser’s successors, assigns, heirs and
legal representatives and shall inure to the benefit of the respective successors and assigns of the Company and its directors
and officers.
h)
Expenses. Each Party shall pay their own expenses in connection with this Agreement. In addition, should either Party
commence any action, suit or proceeding to enforce this Agreement or any term or provision hereof, then in addition to any other
damages or awards that may be granted to the prevailing Party, the prevailing Party shall be entitled to have and recover from
the other Party such prevailing Party’s reasonable attorneys’ fees and costs incurred in connection therewith.
i)
Currency. All currency is expressed in U.S. dollars.
[remainder of page intentionally left blank;
signature page to follow]
In
Witness Whereof, the Parties have executed this Note and Warrant Purchase Agreement as of the date first written
above.
“Company” |
“Purchaser” |
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GTX Corp., |
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a Nevada corporation |
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By: Patrick Bertagna |
Print Name (and title, if appropriate) |
Its: President and
Chief Executive Officer |
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Dated: |
Dated: |
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|
|
No. of Units: ($25,000 each, minimum of one (1)
Face Value of Note: $ ($30,000 for each Unit purchased)
No. of Bonus Shares: (250,000 for each Unit purchased) |
|
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To be completed by each Purchaser:
Email: |
SSN or FEIN: |
|
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Home Phone: |
Work Phone: |
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Street Address: |
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State of Residence: _______________
Exhibit
10.2
GTX CORP.
THE SECURITIES REPRESENTED BY THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE,
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE
UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
GTX Corp. Note No. [__]
$[insert] [insert], 2014
FOR
VALUE RECEIVED, GTX Corp., a Nevada corporation, its assigns and successors (the “Company”), hereby promises
to pay to the order of [insert], a [insert] (the “Holder”),
in immediately available funds, the total principal sum of [insert] Dollars ($[insert]). The principal hereof shall be due and
payable on or before 5:00 p.m., Pacific Daylight Time, on December 31, 2015 (the “Maturity Date”) (unless
such payment date is accelerated as provided in Section 5 hereof). Payment of all amounts due hereunder shall be made at the address
of the Holder provided for in Section 6 hereof.
This Note is being issued
pursuant to a Note and Share Purchase Agreement by and between the Company and Holder dated [insert], 2014 (the “Agreement”),
and is part of a series of notes between the Company and various Holders issued or to be issued by the Company which shall not
exceed $300,000 in aggregate principal amount. The Notes shall rank equal to each other without preference or priority of any kind
over one another, and all payments of principal with respect to any of the Notes (including prepayments as provided herein) shall
be applied ratably and proportionately on the outstanding Notes on the basis of the principal amount of the outstanding indebtedness
represented thereby. The Holder hereof has executed an Agent Agreement appointing an agent to act on its behalf with respect to
these matters.
1.
PREPAYMENT. The Company may at any time, upon ten (10) business days written notice to Holder, prepay all
or any part of the principal balance of this Note. The advance notice, and the end of the ten (10) day period, shall be referred
to herein as the “Prepayment Notice” and the “Prepayment Date,” respectively. In the event
that the Company sends a Prepayment Notice to Holder, Holder may elect prior to the Prepayment Date to convert into shares of Common
Stock of the Company pursuant to Section 2 hereof, all or part of the amount of principal to be repaid by the proposed prepayment
instead of receiving such prepayment.
2.
CONVERSION. The outstanding principal due under this Note may be converted, in whole or in part, at any time
or from time to time, at the option of the Holder, into common stock of the Company (“Conversion Shares”) at
$0.015 per share (the “Conversion Price”).
(a) Conversion Limitation.
Notwithstanding the foregoing, in no event shall Holder be entitled to convert any portion of the Note to the extent that, after
such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by the Holder, and (2) the number of shares
of Common Stock issuable upon the full or partial conversion of the Note with respect to which the determination of this sentence
is being made, would result in beneficial ownership by Holder of more than 4.99% of the outstanding shares of Common Stock (after
taking into account the shares to be issued to Holder upon such conversion). For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the
“1934 Act”), and Rule 13d-3 promulgated thereunder. The Holder further agrees that if the Holder transfers or
assigns any of the Note to any affiliate of such Holder, such transfer or assignment shall be made subject to the transferee’s
or assignee’s specific agreement to be bound by the provisions of this Section.
(b) Adjustment of Conversion
Price Upon Issuance of Stock for Less than Conversion Price.
(i) Issuance
of Shares of Common Stock. In case after the date hereof, the Company shall issue any shares of Common Stock, except as set
forth in Section 2(c), at a price per share less than the Conversion Price (as then in effect) (a “Dilutive Issuance”),
then in each such event the Conversion Price shall be adjusted downward as determined by the following formula:
A = B x
TA + C
TA + NEW
where: A = the adjusted Conversion
Price;
B = the Conversion Price prior
to adjustment;
TA = the
total number of shares of Common Stock outstanding on the applicable date, including all shares of Common Stock issuable upon exercise,
conversion or exchange of convertible securities outstanding on such date, whether or not exercisable, convertible or exchangeable
on such date (“Outstanding Common Equivalent Shares”);
C = the number
of shares of Common Stock which the aggregate purchase price received by the Company (including the maximum amount it may potentially
receive) in the Dilutive Issuance, would purchase at the Conversion Price;
NEW = the
total number of new shares of Common Stock actually issued or issuable in the applicable Dilutive Issuance.
No adjustment
to the Conversion Price shall be made as the result of the issuance of Common Stock if the Company receives written notice from
the Holders of at least a majority in interest of the Notes, agreeing that no such adjustment shall be made as the result of the
issuance of such additional shares of Common Stock.
(ii) Issuance
of Convertible Securities. In case after the date hereof, the Company shall issue any convertible securities and the minimum
price per share for which shares of Common Stock are issuable pursuant to such convertible securities shall be less than the Conversion
Price in effect immediately prior to the issuance of such convertible securities, then the total maximum number of shares of Common
Stock issuable upon the exercise or conversion of all of such convertible securities shall be deemed to be outstanding and to have
been issued or sold for purposes of Section 2(b)(i) hereof for the minimum price per share as so determined.
Subject to the
following, no further adjustment of the number of Conversion Shares or Conversion Price shall be made upon the actual issuance
of shares of Common Stock so deemed to have been issued. Upon the expiration or termination of the exercise or conversion privileges
of convertible securities for which any adjustment was made pursuant to this Section 2(b), or if the price payable upon exercise
or conversion or the rate of conversion of any such convertible securities shall change at any time, then the Conversion Price
shall be readjusted, and shall thereafter be such number and price as would have prevailed had the Conversion Price been originally
adjusted (or had the original adjustment not been required, as the case may be) on the basis of (i) the shares of Common Stock,
if any, actually issued upon the exercise or conversion of such convertible securities and (B) the consideration actually received
by the Company upon such exercise or conversion plus the consideration, if any, actually received by the Company for the issuance
of convertible securities. No such readjustment shall have the effect of decreasing the number of Conversion Shares or increasing
the Conversion Price by an amount in excess of the amount of the adjustment initially made for the issuance of such convertible
securities.
(c) Dilutive Issuance
Exceptions. The following issuances of Common Stock shall be exempt from Section 2(b), and the issuance thereof shall not cause
any adjustment to the Conversion Price:
(i)
Shares of Common Stock or convertible securities in a private placement issued in an aggregate amount of less than $250,000;
(ii)
shares of Common Stock, options or convertible securities issued by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock;
(iii)
shares of Common Stock or options issued to employees or directors of, or consultants or advisors to, the Company or any
of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Company;
(iv)
shares of Common Stock or convertible securities actually issued upon the exercise of options or shares of Common Stock
actually issued upon the conversion or exchange of convertible securities, in each case provided such issuance is pursuant to the
terms of such option or convertible security;
(v)
shares of Common Stock, options or convertible securities issued to banks, equipment lessors or other financial institutions,
or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the
Board of Directors of the Company;
(vi)
shares of Common Stock, options or convertible securities issued to suppliers or third party service providers in connection
with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Company;
(vii)
shares of Common Stock, options or convertible securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided,
that such issuances are approved by the Board of Directors of the Company; and
(viii)
shares of Common Stock, options or convertible securities issued in connection with sponsored research, collaboration, technology
license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors of
the Company.
(d) Mandatory Conversion.
The outstanding principal due under this Note shall be converted into common stock of the Company at the election of the Company
at the Conversion Price if (i) the Note is not repaid or converted prior to May 31, 2015, (ii) the Common Stock underlying the
Note is eligible for resale under Rule 144 or under an applicable registration statement, and (iii) the closing share price of
the Common Stock as reported on OTC Markets for the ten (10) consecutive trading days prior to conversion is greater than $0.03
per share.
(e) Conversion into
Qualified Financing. The Holder shall have the right, but not the obligation, to convert the outstanding principal due under
this Note into any financing greater than $500,000 in aggregate new proceeds (a “Qualified Financing”) at the
terms of such Qualified Financing, in lieu of the conversion rights set forth herein.
3.
TRANSFERABILITY. This Note shall not be transferred, pledged, hypothecated, or assigned by either party without
the express written consent of the other Party. In the event any third party acquires a controlling interest in the Company or
acquires substantially all of the assets of the Company (a “Reorganization Event”), this Note will survive and
become an obligation of the party that acquires such controlling interest or assets. In the event of a Reorganization Event the
Company agrees to make the party that acquires such controlling interest or assets, aware of the terms of this Section and this
Note.
4.
RESERVATION OF SECURITIES. The Company shall at all times reserve and keep available such number of shares
of Common Stock of the Company as would be necessary to convert the entire amount due and owing under the terms of this Note if
Holder elected to convert said amount under Section 2 hereof.
5.
DEFAULT. The occurrence of any one of the following events shall constitute an Event of Default:
(a) The non-payment, when
due, of any principal pursuant to this Note;
(b) The material breach
of any representation or warranty in this Note. In the event the Holder becomes aware of a breach of this Section 5(b), the Holder
shall notify the Company in writing of such breach and the Company shall have five business days after notice to cure such breach;
(c) The breach of any
covenant or undertaking, not otherwise provided for in this Section 5;
(d) The commencement by
the Company of any voluntary proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or the adjudication of the
Company as insolvent or bankrupt by a decree of a court of competent jurisdiction; or the petition or application by the Company
for, acquiescence in, or consent by the Company to, the appointment of any receiver or trustee for the Company or for all or a
substantial part of the property of the Company; or the assignment by the Company for the benefit of creditors; or the written
admission of the Company of its inability to pay its debts as they mature; or
(e) The commencement against
the Company of any proceeding relating to the Company under any bankruptcy, reorganization, arrangement, insolvency, adjustment
of debt, receivership, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, provided,
however, that the commencement of such a proceeding shall not constitute an Event of Default unless the Company consents to the
same or admits in writing the material allegations of same, or said proceeding shall remain undismissed for twenty (20) days; or
the issuance of any order, judgment or decree for the appointment of a receiver or trustee for the Company or for all or a substantial
part of the property of the Company, which order, judgment or decree remains undismissed for twenty (20) days; or a warrant of
attachment, execution, or similar process shall be issued against any substantial part of the property of the Company.
In the event the Holder
becomes aware of a breach of Sections 5(a), (b) or (c), then provided such breach is capable of being cured by Company, the Holder
shall notify the Company in writing of such breach and the Company shall have thirty (30) calendar days after notice to cure such
breach.
Upon the occurrence of
any Default or Event of Default, the Holder, may, by written notice to the Company, declare all or any portion of the unpaid principal
amount due to Holder, immediately due and payable, in which event it shall immediately be and become due and payable, provided
that upon the occurrence of an Event of Default as set forth in paragraph (d) or paragraph (e) hereof, all or any portion of the
unpaid principal amount due to Holder, shall immediately become due and payable without any such notice.
6.
NOTICES. All notices provided for in this Note shall be in accordance with the notice provisions of the Agreement.
7.
GOVERNING LAW; VENUE. This Note shall be governed by and construed under the laws of the State of California
as applied to agreements among California residents, made and to be performed entirely within the State of California. The Parties
agree that any action brought to enforce the terms of this Note will be brought in the appropriate federal or state court having
jurisdiction over Los Angeles County, California, United States of America.
8.
CONFORMITY WITH LAW. It is the intention of the Company and Holder to conform strictly to applicable usury
and similar laws. Accordingly, notwithstanding anything to the contrary in this Note, it is agreed that the aggregate of all charges
which constitute interest under applicable usury and similar laws that are contracted for, chargeable or receivable under or in
respect of this Note, shall under no circumstances exceed the maximum amount of interest permitted by such laws, and any excess,
whether occasioned by acceleration or maturity of this Note or otherwise, shall be canceled automatically, and if theretofore paid,
shall be either refunded to the Company or credited on the principal amount of this Note.
9.
MODIFICATION; WAIVER. No modification or waiver of any provision of this Note or consent to departure therefrom
shall be effective unless in writing and approved by the Company and Holder. If any provision of this Note shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder
of this Note or the validity or enforceability of this Note in any other jurisdiction. This Note supersedes all prior agreements
and understandings among the parties hereto with respect to the subject matter hereof.
10. RANKING.
This Note is not secured. Nonetheless, the Company shall not issue any security senior to or pari passu with this Note without
the written consent of Holders holding a majority in interest of the Notes measured by outstanding principal amount.
[remainder of page intentionally left blank;
signature page to follow]
IN WITNESS WHEREOF, the
Company has executed this Note as of the date set forth above.
“Company” |
“Holder” |
|
|
GTX Corp., |
|
a Nevada corporation |
|
|
|
|
|
|
|
By: Patrick Bertagna |
By: [insert] |
Its: President and
Chief Executive Officer |
|
EXHIBIT 31.1
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Patrick E. Bertagna, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q of GTX Corp for the period ended September 30, 2014;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the
registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 19, 2014
/s/ PATRICK E. BERTAGNA
Name: Patrick E. Bertagna
Its: Chief Executive
Officer (Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Alex McKean, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q of GTX Corp for the period September 30, 2014;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the
registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 19, 2014
/s/ ALEX MCKEAN
Name: Alex McKean
Its: Interim Chief
Financial Officer (Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with
the Quarterly Report of GTX Corp (the “Company”) on Form 10-Q, for the period ended September 30, 2014 as filed with the
Securities and Exchange Commission, I, Patrick E. Bertagna, President, Chief Executive Officer and Chairman of the Board of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with
the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in
the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: November 19, 2014
/s/ PATRICK E. BERTAGNA
Name: Patrick E. Bertagna
Its: Chief Executive
Officer (Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with
the Quarterly Report of GTX Corp (the “Company”) on Form 10-Q, for the period ended September 30, 2014 as filed with the
Securities and Exchange Commission, I, Alex McKean, Interim Chief Financial Officer, Treasurer and Secretary of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with
the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in
the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: November 19, 2014
/s/ ALEX MCKEAN
Name: Alex McKean
Its: Interim Chief
Financial Officer (Principal Financial Officer)
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