NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2017
(Unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
During
the periods covered by these financial statements, GTX Corp and subsidiaries (collectively, the “Company,” “GTX,”
“we” or “our”) were engaged in businesses that design, develop and sell various interrelated and complementary
products and services in the Personal Location Wearable Technology marketplace. GTX owns 100% of the issued and outstanding capital
stock of Global Trek Xploration (“GTX California”) and LOCiMOBILE, Inc.
Global
Trek Xploration designs, develops, manufactures and distributes hardware, software, connectivity services of Global Positioning
System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking solutions that provide real-time
tracking of the whereabouts of people and high valued assets. Utilizing a miniature quad band GPRS transceiver, antenna, circuitry,
battery and inductive charging pad our product(s) can be customized and integrated into numerous products and form factors whose
location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular
telephone. Our core products and services are supported by an extensive IP portfolio of patents, patents pending, registered trademarks,
copyrights, URLs and a library of software source code.
LOCiMOBILE,
Inc. has been developing Smartphone application (“App”) since 2008. With a suite of mobile application
s
that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can be tracked from handset
to handset or through our tracking portal or on any connected device with internet access. LOCiMOBILE has launched numerous Apps
across multi mobile device operating systems and continues to launch consumer and enterprise apps.
Basis
of Presentation
The
accompanying unaudited consolidated financial statements of 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 three and six months ended June
30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The accompanying
unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for
the year ended December 31, 2016, 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 $502,948 and $638,309 for the six months ended June 30, 2017 and 2016, respectively, has incurred losses since inception
resulting in an accumulated deficit of $20,242,367 as of June 30, 2017, and has negative working capital of $1,781,585 as of June
30, 2017. 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.
Comprehensive
Income (Loss)
FASB
ASC 220 establishes rules for reporting and displaying comprehensive income (loss) and its components. Comprehensive income
(loss) is the sum of net income (loss) as reported in the consolidated statements of operations and comprehensive
income (loss) transactions as reported in the consolidated statement of stockholders’ deficit. Comprehensive income
(loss) transactions that currently apply to the Company result from unrealized losses on available for sale investments.
Reclassifications
For
comparability, certain prior period amounts have been reclassified, where appropriate, to conform to the financial statement presentation
used in 2017. These reclassifications have no impact on net income (loss).
Recently
Issued Accounting Pronouncements
The
Financial Accounting Standards Board has recently issued accounting pronouncements, most of which represent technical corrections
to the accounting literature or application to specific industries, which are not expected to have a material impact on the Company’s
financial position, results of operations or cash flows. We do not believe that the adoption of any recently issued accounting
standards will have a material effect on our financial position and results of operations.
3.
JOINT VENTURE AND INVESTMENT IN EQUITY SECURITIES
On
June 16, 2016, the Company entered into a Definitive Agreement with Inventergy Innovations, LLC (“Inventergy”), a
subsidiary of Inventergy Global, Inc. (NASDAQ: INVT). The Company partnered with Inventergy to monetize three (3) GTX Patents.
Upon signing the Agreement, the Patents were assigned to an Inventergy subsidiary, and Inventergy assigned a 45% interest in the
entity to GTX. Inventergy is also obligated to make a sequence of quarterly payments to GTX beginning in January 2017, which payments
represent non-refundable advances against future royalty and other payments. Pursuant to a non-exclusive license back to GTX,
GTX will still retain all use rights of the 3 patents. During the six month period ended June 30, 2017, the Company has recognized
$50,000 as non-refundable advances, of which $25,000 has been paid from Inventergy.
The
Company uses the equity method to account for its 45% investment in the Inventergy subsidiary. Under the equity method, the Company
recognizes its share of the earnings and losses of the subsidiary as they accrue instead of when they are realized. As of June
30, 2017, the Company’s investment in the subsidiary was $0.
In
addition to the Definitive Agreement, the Company entered into a Consulting Agreement with Inventergy for a period of eighteen
months. The Company was issued 42,500 shares of restricted common stock of INVT valued at $62,479 on the date of grant, of which
1/6th of the stock vests at the close of each calendar quarter and Inventergy agreed to make five monthly payments to GTX totaling
$250,000 through December 2016 as compensation. As of June 30, 2017, $20,827 of stock has been recognized as deferred revenues,
which represents the non-vested portion of the restricted common stock and $20,826 has been recognized as consulting revenue
in the six months ended June 30, 2017. As of June 30, 2017, we owned 42,500 shares of restricted common stock of INVT at a closing
price of $0.14, for a value of $5,950.
4.
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 June 30, 2017 and December 31, 2016, the Company owed $122,036
and $23,992, respectively, for such accrued wages.
On
September 30, 2016, management elected to transfer accrued salaries into long-term convertible promissory notes, due on March
31, 2018, totaling $318,671. On December 31, 2016, management elected to transfer additional accrued salaries into long-term convertible
promissory notes, due on March 31, 2018, totaling $110,326. The notes will bear a 10% annual interest rate. Management shall have
the right, but not the obligation to convert up to 50% of the amount advanced and accrued interest into shares, warrants or options
of common or preferred stock of the Company at $0.01 per share. As of June 30, 2017, the outstanding balance on the convertible
promissory notes is $428,997.
5.
DEBT
The
following table summarizes the components of our short-term borrowings:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Q4 2014 Convertible Notes
|
|
$
|
126,000
|
|
|
$
|
126,000
|
|
Q1 2015 Convertible Notes
|
|
|
60,000
|
|
|
|
60,000
|
|
Q2 2015 Convertible Notes
|
|
|
200,000
|
|
|
|
200,000
|
|
Q3 2015 Convertible Notes
|
|
|
45,000
|
|
|
|
45,000
|
|
Q1 2016 Convertible Notes
|
|
|
60,000
|
|
|
|
60,000
|
|
Q2 2016 Convertible Notes
|
|
|
-
|
|
|
|
225,431
|
|
Q3 2016 Convertible Notes
|
|
|
507,671
|
|
|
|
507,671
|
|
Q4 2016 Convertible Notes
|
|
|
110,326
|
|
|
|
162,826
|
|
Q1 2017 Convertible Notes
|
|
|
97,500
|
|
|
|
-
|
|
Q2 2017 Convertible
Notes
|
|
|
225,000
|
|
|
|
-
|
|
Total short-term convertible notes
|
|
|
1,431,497
|
|
|
|
1,386,928
|
|
Less: Debt
discount
|
|
|
(157,766
|
)
|
|
|
(90,119
|
)
|
Convertible
notes, net of debt discount
|
|
$
|
1,273,731
|
|
|
$
|
1,296,809
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
1,273,731
|
|
|
$
|
867,812
|
|
Long-term
borrowings
|
|
$
|
-
|
|
|
$
|
428,997
|
|
Short-term
derivative liabilities
|
|
$
|
100,182
|
|
|
$
|
78,112
|
|
Short-term
convertible notes
Convertible
Notes
The Company’s convertible notes
contain variable conversion rates that are defined in the convertible note agreements. The common stock issued to the investors
for the conversion of debt was performed in accordance with the terms of their respective note agreements. The resulting conversion
rates may vary from time to time resulting in the varying number of shares issued.
On
January 4, 2017, we issued a total of 10,000,000 shares of common stock to an investor for converting $24,500 in debt from a Convertible
Note that was issued in the second quarter of 2016.
On
January 13, 2017, we issued a total of 11,970,339 shares of common stock to an investor for converting $29,327 in debt from a
Convertible Note that was issued in the second quarter of 2016.
On
January 31, 2017, we received the second tranche of $97,500 (“Q1 2017”) from 2 investors from their November 21, 2016
Security Purchase Agreements. The investors may convert their notes into common shares in the Company at a price equal to the
lower of 51% of the lowest trading price in the prior 20 days, or at $0.005 per share. The notes do not bear interest. The Company
may prepay the notes at any time with a premium of 10% of the amount to be paid off, in the first 90 days, and 20% any time thereafter.
The notes matured on July 31, 2017 and are in default. The notes were issued pursuant to Section 4(a)(2) of the
Securities Act of 1933.
On
August 1, 2017, an investor dated to convert $15,000 in debt into 9,803,922 shares of common stock.
On
February 9, 2017, we paid down a Q2 2016 Convertible Note for $10,000.
On
February 17, 2017, we issued 16,339,869 shares of common stock to an investor for converting $25,000 in debt from a Convertible
Note that was issued in the fourth quarter of 2016.
On
February 22, 2017, we issued 16,442,455 shares of common stock to an investor for converting $24,170 in debt from a Convertible
Note that was issued in the second quarter of 2016.
On
March 3, 2017, we issued 5,820,000 shares of common stock to an investor for converting $25,000 in principal and $4,100 in accrued
interest from a Convertible Note that was issued in the second quarter of 2016.
On
March 24, 2017, we issued 3,267,974 shares of common stock to an investor for converting $10,000 in debt from a Convertible Note
that was issued in the fourth quarter of 2016.
On
April 6, 2017, the Company entered into two Note and Share Purchase Agreements with two accredited investors. As a result, we
issued two convertible notes with a total principal balance of $75,000. The Purchasers may convert their notes into common shares
in the Company at a price equal to the lower of 60% of the average of the lowest volume-weighted average price in the prior 30
days, or at $0.005 per share. The notes do not bear interest. The Company may prepay the notes at any time with a premium of 10%
of the amount to be paid off, in the first 90 days, and 20% any time thereafter. The notes mature on October 6, 2017. The notes
were issued pursuant to Section 4(a)(2) of the Securities Act of 1933.
On
April 25, 2017, we issued 13,950,618 in common stock to an investor for converting $110,000 in principal and $3,000 in interest
of their debt from a Convertible Note that was issued in the second quarter of 2016.
On
May 16, 2017, the Company entered into two Note and Share Purchase Agreements with two accredited investors. As a result, we issued
two convertible notes with a total principal balance of $75,000. The Purchasers may convert their notes into common shares in
the Company at a price equal to the lower of 60% of the average of the lowest volume-weighted average price in the prior 30 days,
or at $0.005 per share. The notes do not bear interest. The Company may prepay the notes at any time with a premium of 10% of
the amount to be paid off, in the first 90 days, and 20% any time thereafter. The notes mature on November 16, 2017. The notes
were issued pursuant to Section 4(a)(2) of the Securities Act of 1933.
On
June 1, 2017, we issued 7,300,793 shares of common stock to an investor for converting $17,500 in debt from a Convertible Note
that was issued in the fourth quarter of 2016.
On
June 20, 2017, the Company entered into two Note and Share Purchase Agreements with two accredited investors. As a result, we
issued two convertible notes with a total principal balance of $75,000. The Purchasers may convert their notes into common shares
in the Company at a price equal to the lower of 60% of the average of the lowest volume-weighted average price in the prior 30
days, or at $0.005 per share. The notes do not bear interest. The Company may prepay the notes at any time with a premium of 10%
of the amount to be paid off, in the first 90 days, and 20% any time thereafter. The notes mature on December 20, 2017. The notes
were issued pursuant to Section 4(a)(2) of the Securities Act of 1933.
6.
EQUITY
Common
Stock
On
January 4, 2017, we issued a total of 10,000,000 shares of common stock to an investor for converting $24,500 in debt from a Convertible
Note that was issued in the second quarter of 2016.
On
January 13, 2017, we issued a total of 11,970,339 shares of common stock to an investor for converting $29,327 in debt from a
Convertible Note that was issued in the second quarter of 2016.
On
January 20, 2017, we issued 500,000 shares of common stock (valued at $2,000) to a consultant and 1,000,000 shares of common stock
(valued at $4,000) to 4 members of the board of directors for their services.
On
February 17, 2017, we issued 16,339,869 shares of common stock to an investor for converting $25,000 in debt from a Convertible
Note that was issued in the fourth quarter of 2016.
On
February 22, 2017, we issued 16,442,455 shares of common stock to an investor for converting $24,170 in debt from a Convertible
Note that was issued in the second quarter of 2016.
On
March 2, 2017, we issued 3,750,000 shares of common stock (valued at $26,250) to two consultants for their services.
On
March 3, 2017, we issued 5,820,000 shares of common stock to an investor for converting $25,000 in principal and $4,100 in accrued
interest from a Convertible Note that was issued in the second quarter of 2016.
On
March 24, 2017, we issued 3,267,974 shares of common stock to an investor for converting $10,000 in debt from a Convertible Note
that was issued in the fourth quarter of 2016.
On
April 12, 2017, we issued 3,000,000 shares of common stock (valued at $24,000) to two investors as part of their Securities Purchase
Agreements dated April 6, 2017 and 1,000,000 shares of common stock (valued at $8,000) to an advisor for services performed.
On
April 25, 2017, we issued 13,950,618 in common stock to an investor for converting $110,000 in principal and $3,000 in interest
of their debt from a Convertible Note that was issued in the second quarter of 2016.
On
June 1, 2017, we issued 7,300,793 shares of common stock to an investor for converting $17,500 in debt from a Convertible Note
that was issued in the fourth quarter of 2016.
On
June 14, 2017, we issued 6,000,000 shares of common stock (valued at $32,400) to three consultants for their services.
The
Company issued the following shares of common stock during the six months ended June 30, 2017:
|
|
Value
of
Shares
|
|
|
Number
of
Shares
|
|
Shares issued for conversion
of debt
|
|
$
|
272,597
|
|
|
|
85,092,048
|
|
Shares issued for financing
|
|
|
24,000
|
|
|
|
3,000,000
|
|
Shares issued
for services rendered
|
|
|
72,650
|
|
|
|
12,250,000
|
|
Total shares
issued
|
|
$
|
369,247
|
|
|
|
100,342,048
|
|
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 conversion of
debt relate to conversion of the convertible note discussed in Note 5.
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, 2016
|
|
|
0.0125
- 0.03
|
|
|
|
29,900,000
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants granted
|
|
|
-
|
|
|
|
-
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
and exercisable at June 30, 2017
|
|
|
0.0125
- 0.03
|
|
|
|
29,900,000
|
|
Stock
Warrants as of June 30, 2017
|
|
Exercise
|
|
|
Warrants
|
|
|
Remaining
|
|
|
Warrants
|
|
Price
|
|
|
Outstanding
|
|
|
Life
(Years)
|
|
|
Exercisable
|
|
$
|
0.02
|
|
|
|
9,900,000
|
|
|
|
0.57
|
|
|
|
9,900,000
|
|
$
|
0.015
|
|
|
|
13,350,000
|
|
|
|
1.54
|
|
|
|
13,350,000
|
|
$
|
0.0125
|
|
|
|
3,500,000
|
|
|
|
1.80
|
|
|
|
3,500,000
|
|
$
|
0.03
|
|
|
|
3,150,000
|
|
|
|
2.01
|
|
|
|
3,150,000
|
|
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 2,235,000 shares were still available for grant under the 2008 Plan as of June 30, 2017.
During
the six months and June 30, 2017, the Company did not grant any stock options.
7.
SUBSEQUENT EVENTS
On
July 31, 2017, the Company entered into Securities Purchase Agreements to fund inventory and R&D with two accredited investors.
As a result, The investors will purchase, severally and not jointly, an aggregate of up to $224,000 in Subscription Amount corresponding
to an aggregate of up to $224,000 in Principal Amount of Notes. The purchase will occur in four tranches (each a “Tranche,”
and collectively the “Tranches”), with the first Tranche of $56,000 being funded to the Company upon execution of
this Agreement (the “First Closing”). The second Tranche will be for $56,000 and will be funded to the Company 30 calendar days after the First Closing. The third Tranche will be for $56,000 and will be funded to the Company 60 calendar
days after the First Closing. The fourth Tranche will be for $56,000 and will be funded to the Company 90 calendar days after
the First Closing.
On
August 1, 2017 and on August 2, 2017, the Company received it’s first tranche of $28,000 from each of the accredited investors.
As a result, we issued two convertible notes with a total principal balance of $28,000 each. The Purchasers may convert their
notes into common shares in the Company at a price equal to the lower of 60% of the lowest trading price in the prior 30 days,
or at $0.005 per share. The notes do not bear interest. The Company may prepay the notes at any time with a premium of 10% of
the amount to be paid off, in the first 90 days, and 20% any time thereafter. The notes mature 180 days from issuance, or on February
1st and 2
nd
of 2018. The notes were issued pursuant to Section 4(a)(2) of the Securities Act of 1933.
On August 1, 2017, we issued 9,803,922 shares of common stock
to an investor for converting $15,000 in debt that was issued in the first quarter of 2017.