NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
During
the periods covered by these financial statements, GTX Corp and its subsidiaries (the “Company”, “GTX”,
“we”, “us”, and “our”) were engaged in business operations that design, manufacture and sell
various interrelated and complementary products and services in the wearable technology and Personal Location Services marketplace.
GTX owns 100% of the issued and outstanding capital stock of its two subsidiaries - Global Trek Xploration, Inc. and LOCiMOBILE,
Inc.
Global
Trek Xploration, Inc. focuses on the design, manufacturing and sales distribution of its hardware, software, and connectivity,
Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which
provides real-time tracking and monitoring of people and high valued assets. Utilizing a miniature quad-band GPRS transceiver,
antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated into numerous products whose
location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular
telephone. Our core products and services are supported by an intellectual property (“IP”) portfolio of patents, patents
pending, registered trademarks, copyrights, URLs and a library of software source code, all of which is also managed by Global
Trek.
LOCiMOBILE,
Inc., is the Company’s digital platform which has been at the forefront of Smartphone application (“App”)
development since 2008. With a suite of mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets
into a tracking device which can be tracked from handset to handset or through our tracking portal or on any connected device
with internet access. LOCiMOBILE has launched over 20 Apps across multi mobile device operating systems and continues to launch
consumer and enterprise apps.
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 nine months ended
September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The
accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial
statements for the year ended December 31, 2019, 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 a stockholders’
deficit of $2,892,022 and negative working capital of $2,688,217 as of September 30, 2020 and used cash in operations during the
period then ended of $416,016. The Company anticipates further losses in the development of its business. These factors raise
substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial
statements are issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability
to raise additional funds and implement its business plan until such time as revenues and related cash flows are sufficient to
fund our operations.
The
Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying
the Company’s audited financial statements for the year ended December 31, 2019. The Company’s financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The
ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining
the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come
due. The Company’s ability to raise additional capital through the future issuances of debt or equity is unknown. The ability
to obtain additional financing, the successful development of the Company’s contemplated plan of operations, or its ability
to achieve profitable operations are necessary for the Company to continue operations, and there is no assurance that these can
be achieved. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue
as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the
outcome of these aforementioned uncertainties.
2.
SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
The
Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”).
The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount
expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms
of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations
in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance
obligations, and (5) recognizing revenue as each performance obligation is satisfied.
The
Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers
contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities
are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised
service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which
generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time.
All
of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required
post-shipment for customers to derive the expected value from them.
The
Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns
have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance
obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance
for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
We
derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware
includes our SmartSole, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers
accessing our cloud-based software solutions and subscription or license fees for our platform. Professional services and other
revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related
to our solutions. IP licensing is related to our agreement with Inventergy whereby we have partnered in order to monetize our
IP portfolio.
Product
sales
At
the inception of each contract, we assess the goods and services promised in our contracts and identify each distinct performance
obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an
amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large
majority of the Company’s sales, transfer of control occurs once product has shipped and title and risk of loss have transferred
to the customer.
Services
Income
The
Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements
without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable
basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our
subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable
and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
The
majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues
recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain
professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance
method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition
of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services
are performed.
IP
Licensing Revenue
Licensing
revenue recorded by the Company relates exclusively to the Company’s License and Partnership agreement with Inventergy which
provides for ongoing royalties based on monetization of IP licenses. The Company recognizes revenue for royalties under ASC 606,
which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: 1) sale
or usage of the products or 2) satisfaction of the performance obligations. The Company has satisfied its performance obligations
and therefore recognizes licensing revenue when the sales to which the license(s) relate are completed. During the period ended
September 30, 2020 the Company did not recognize any licensing revenue, there was $732,125 of licensing revenue in 2019.
Disaggregation
of Net Sales
The
following table shows the Company’s disaggregated net sales by product type:
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
Product sales
|
|
$
|
760,379
|
|
|
$
|
302,697
|
|
Service income
|
|
|
170,711
|
|
|
|
250,255
|
|
IP and consulting income
|
|
|
-
|
|
|
|
732,125
|
|
Total
|
|
$
|
931,090
|
|
|
$
|
1,285,077
|
|
The
following table shows the Company’s disaggregated net sales by customer type:
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
B2B
|
|
$
|
430,044
|
|
|
$
|
430,430
|
|
B2C
|
|
|
501,046
|
|
|
|
110,117
|
|
Military
|
|
|
-
|
|
|
|
12,405
|
|
IP
|
|
|
-
|
|
|
|
732,125
|
|
Total
|
|
$
|
931,090
|
|
|
$
|
1,285,077
|
|
Use
of Estimates
The
preparation of the accompanying unaudited financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. These estimates include, but are not limited to, estimates related to revenue recognition, allowance for doubtful accounts,
inventory valuation, tangible and intangible long-term asset valuation, warranty and other obligations and commitments. Estimates
are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and
circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current
estimates.
Fair
Value Estimates
Pursuant
to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”,
the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value,
clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in
the valuation methodologies in measuring fair value:
|
Level
1 -
|
Inputs
are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
|
|
|
|
|
Level
2 -
|
Inputs
(other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through
correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life.
|
|
|
|
|
Level
3 -
|
Inputs
reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement
date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
|
The
carrying values for cash and cash equivalents, accounts receivable, investment in marketable securities, other current assets,
accounts payable and accrued liabilities approximate their fair value due to their short maturities. The carrying values of notes
payable and other financing obligations approximate their fair values because interest rates on these obligations are based on
prevailing market interest rates.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities.
Concentrations
We
currently rely on one manufacturer to supply us with our GPS SmartSole and one manufacturer to supply us with the GPS device included
in the GPS SmartSole. The loss of either of these manufacturers could severely impede our ability to manufacture the GPS SmartSole.
For
the nine months ended September 30, 2020, the Company had four customers representing approximately 34%, 20%, 11% and 8% of sales,
respectively, and four customers representing approximately 17%, 13%, 12% and 12% of total accounts receivable, respectively,
as of the period then ended. The Company had two customers representing approximately 77%, and 8% of sales, respectively, for
the nine months ended September 30, 2019, and four customers representing approximately 31%, 16%, 16% and 14% of total accounts
receivable, respectively, as of the period then ended.
Stock-based
Compensation
The
Company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions
of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement,
ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
Under ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair
value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes
option pricing model, and accounts for forfeitures when they occur.
Marketable
Securities
The
Company’s securities investments that are acquired and held principally for the purpose of selling them in the near term
are classified as trading securities. Trading securities are recorded at fair value based on quoted market price (level 1) on
the balance sheet in current assets, with the change in fair value during the period included in earnings. As of September 30,
2020 and December 31, 2019, the fair value of our investment in marketable securities was $4,597 and $59,224, respectively.
Derivative
Liabilities
Our
derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative
liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options
that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes
option pricing model. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return,
our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life
of the option.
Net
Loss Per Common Share
Basic
loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of outstanding
common shares during the period. Shares of restricted stock are included in the basic weighted average number of common shares
outstanding from the time they vest. Diluted loss per share is computed by dividing net loss applicable to common stockholders
by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued. Shares of restricted stock are included in the diluted weighted average
number of common shares outstanding from the date they are granted unless they are antidilutive. Diluted loss per share excludes
all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the
shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants
|
|
|
55,750,000
|
|
|
|
15,190,000
|
|
Preferred B shares
|
|
|
100,000,000
|
|
|
|
-
|
|
Preferred C shares
|
|
|
13,333,333
|
|
|
|
-
|
|
Conversion shares upon conversion of notes
|
|
|
41,986,503
|
|
|
|
179,311,707
|
|
Total
|
|
|
211,069,836
|
|
|
|
194,501,707
|
|
Segments
The
Company operates in one segment for the manufacture and distribution of its products. In accordance with the “Segment Reporting”
Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,
who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing
guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information
quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which
the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment
Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services;
and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information
required by “Segment Reporting” can be found in the accompanying financial statements.
Recently
Issued Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC
326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts
and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss”
model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the
standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective. As a small business filer, the standard will be effective for us for interim and annual
reporting periods beginning after December 15, 2022. The Company is currently assessing the impact of adopting this standard on
the Company’s financial statements and related disclosures.
Other
recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on
the Company’s present or future consolidated financial statements.
3.
INVESTMENT IN MARKETABLE SECURITIES
In
June 2019, the Company acquired 22,222 shares of Inpixon’s restricted common stock (after giving effect to a 1:45 stock
split) valued at $634,000. As of December 31, 2019, after the sale of 10,889 Inpixon shares, the Company owned 11,333 Inpixon
shares with a fair value of $58,374. During the period ended September 30, 2020, the Company sold 8,500 of its Inpixon shares
for total proceeds of $146,201 and recognized a gain from the sale of these shares of $102,420. The Company was able to obtain
observable evidence that the remaining 2,833 shares had a market value of $3,654 as of September 30, 2020, as such, the Company
recorded a loss from the decrease in the fair value of the shares of $11,537, resulting in a net gain from their investment in
Inpixon shares of $90,883 during the current period ended September 30, 2020.
4.
INVENTORY
Inventories
consist of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Raw materials
|
|
$
|
567
|
|
|
$
|
690
|
|
Finished goods
|
|
|
98,167
|
|
|
|
35,502
|
|
Total Inventories
|
|
$
|
98,734
|
|
|
$
|
36,192
|
|
5.
PROPERTY AND EQUIPMENT
Property
and equipment, net, consists of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Software
|
|
$
|
25,890
|
|
|
$
|
25,890
|
|
Website development
|
|
|
91,622
|
|
|
|
91,622
|
|
Software development
|
|
|
294,751
|
|
|
|
294,751
|
|
Equipment
|
|
|
1,750
|
|
|
|
1,750
|
|
Less: accumulated depreciation
|
|
|
(404,948
|
)
|
|
|
(395,609
|
)
|
Total property and equipment, net
|
|
$
|
9,065
|
|
|
$
|
18,404
|
|
Depreciation
expense for the period ended September 30, 2020 and 2019 was $9,339 and $34,639, respectively, and is included in general and
administrative expenses.
6.
NOTES PAYABLE
The
following table summarizes the components of our short-term borrowings:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
(a) Term loan
|
|
$
|
15,983
|
|
|
$
|
160,000
|
|
(b) Term loan
|
|
|
50,000
|
|
|
|
50,000
|
|
(c) Revolving line of credit
|
|
|
25,500
|
|
|
|
98,000
|
|
(d) Revolving line of credit
|
|
|
2,691
|
|
|
|
-
|
|
Total
|
|
$
|
94,174
|
|
|
$
|
308,000
|
|
(a)
Term loan
In
2015, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of $200,000
at an interest rate of 14% per annum, with the interest adjusted as of December 2019 to 8.5%. The term loan became due on April
14, 2017 and as such, currently past due. At December 31, 2019, balance of the term loan was $160,000. During the nine months
ended September 30, 2020, we issued 15,000,000 shares of common stock to convert $112,500 of principal of the term loan. The Company
also paid down in cash the principal balance by $31,517, which brought the principal balance outstanding on the term loan as of
September 30, 2020 to be $15,983. The balance of related accrued interest at September 30, 2020 was $108,666 with $4,287 having
been paid down in 2020.
(b)
Term loan
In
September of 2019, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance
of $50,000 at an interest rate of 5% per annum in relation to an Asset Purchase Agreement. The term loan became due on
September 13, 2020, and is currently past due. The principal balance outstanding on the note as of September 30, 2020 and
December 31, 2019 was $50,000, respectively.
(c)
Line of Credit
The
Company obtained a line of credit agreement with an accredited investor of $500,000 during 2018. There were three borrowings against
the line as of December 31, 2018 for aggregate borrowings of $65,000 and two borrowing in 2019 for $65,000 for a total of $130,000.
During the year ended December 31, 2019, the Company repaid $32,000 in principal and all of its accrued interest of $19,465, resulting
in a balance due of $98,000 as of December 31, 2019. During the period ended September 30, 2020, the Company repaid $72,500 in
principal and all of its accrued interest of $3,258, resulting in a balance due of $25,500 as of September 30, 2020.
The
line bears interest of 17%. The line is based upon GTX providing the investor with purchase orders and use of proceeds, including
production of goods schedules and loan repayment timelines. These loans/drawdowns are specifically for product, inventory and/or
purchase order financing. Upon completion of the terms of the Line of Credit, GTX Corp. will issue to the investor 7,500,000 shares
of GTX common stock or $75,000 of GTX common stock, whichever is greater.
(d)
Line of Credit
The
Company also has an unsecured line of credit, guaranteed by its CEO, with its business bank, Union Bank, whereby funds can be
borrowed at a revolving adjustable rate of 2 points over prime, currently 5.25%, with a max borrowing amount of $100,000. The
balance at December 31, 2019 was $0 while during the period ended September 30, 2020 the Company was advanced a total of $139,319
and had repaid $136,628 of the balance. As such the balance outstanding as of September 30, 2020 is $2,691.
7.
CONVERTIBLE PROMISSORY NOTES – PAST DUE
As
of September 30, 2020 and December 31, 2019, the Company had a total of $841,423 and $1,099,278, respectively, of outstanding
convertible notes payable, which consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
a) Convertible Notes – with fixed conversion terms
|
|
$
|
714,500
|
|
|
$
|
894,000
|
|
b) Convertible Notes – with variable conversion
|
|
|
126,923
|
|
|
|
205,278
|
|
Total convertible notes – past due
|
|
$
|
841,423
|
|
|
$
|
1,099,278
|
|
|
a)
|
Included
in Convertible Notes - with fixed conversion terms, are loans provided to the Company from various investors. These notes
carry simple interest rates ranging from 0% to 14% per annum and with terms ranging from 1 to 2 years. In lieu of the repayment
of the principal and accrued interest, the outstanding amounts are convertible, at the option of the note holder, generally
at any time on or prior to maturity and automatically under certain conditions, into the Company’s common shares at
$0.015 to $0.30 per share. These notes became due in 2017 and prior, and are currently past due.
|
|
|
|
|
|
At
December 31, 2019, balance of the convertible notes was $894,000. During the nine months ended September 30, 2020, we issued
28,026,792 shares of common stock to convert $175,000 of principal of these outstanding convertible notes and
$39,518 in accrued interest. Of the total Notes converted during the period, approximately $110,000 of the notes were
converted at a conversion price that was higher than the market price of the shares on the date of conversion. As such, the
Company issued 81,792 common shares with a fair value of $1,420 in settlement of the $131,000 debt, which resulted in a $129,261
gain on the conversion of the Notes. The Company also paid down $4,500 of the principal balance of the convertible notes,
which brought the outstanding balance of the convertible notes to $714,500 as of September 30, 2020. These convertible notes
are currently past due.
|
|
b)
|
Convertible
notes payable with principal balance of $126,923 as of September 30, 2020 consist of loans provided to the Company from various
investors. These notes are non-interest bearing and with terms ranging from 1 to 2 years. In lieu of the repayment of the
principal and accrued interest, the outstanding amounts are convertible, at the option of the note holder, generally at any
time on or prior to maturity and automatically under certain conditions, into the Company’s common shares at 60% of
the lowest trading price in the prior 30 days. The Company determined that since the conversion floor of these notes had no
limit to the conversion price, the Company could no longer determine if it had enough authorized shares to fulfil its conversion
obligation. As such, pursuant to current accounting guidelines, the Company determined that the conversion feature of these
notes created a derivative at the date of issuance which was recorded as a valuation discount that was fully amortized as
of December 31, 2019. At December 31, 2019, balance of the loan was $205,278. During the nine months ended September 30, 2020,
we issued 8,454,828 shares of common stock to convert $78,355 of these outstanding convertible notes, which brought the principal
balnce down to $126,923 as of the period then ended. These notes became due in 2019 and prior, and are currently past due.
|
8.
CARE Loans
|
|
September 30, 2020
|
|
|
December
31, 2019
|
|
a) PPP loan
|
|
$
|
67,870
|
|
|
$
|
-
|
|
b) EIDL loan
|
|
|
150,000
|
|
|
|
-
|
|
Total CARE loans
|
|
$
|
217,870
|
|
|
$
|
-
|
|
Paycheck
Protection Program Loan
On
April 30, 2020, the Company executed a note (the “PPP Note”) for the benefit of MUFG Union Bank, NA (the “Lender”)
in the aggregate amount of $67,870 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”). The PPP is administered by the U.S. Small Business Administration (the “SBA”).
The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual
number of days elapsed in a year of 360 days. Commencing seven months after the effective date of the PPP Note, GTX is required
to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance
of the loan by the two-year anniversary of the effective date of the PPP Note (the “Maturity Date”). The Maturity
Date can be extended to five years if mutually agreed upon by both the Lender and GTX. The PPP Note contains customary events
of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA
or the Lender, or breaching the terms of the PPP Note. The occurrence of an event of default may result in the repayment of all
amounts outstanding under the PPP Note, collection of all amounts owing from GTX, or filing suit and obtaining judgment against
GTX. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the
loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for
payment of payroll costs and any payments of mortgage interest, rent, and utilities. Recent modifications to the PPP by the U.S.
Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible
for GTX to apply for forgiveness of its PPP loan. No assurance can be given that GTX will be successful in obtaining forgiveness
of the loan in whole or in part. The Company was in compliance with the terms of the PPP loan as of September 30, 2020.
Economic
Injury Disaster Loan
On
June 10, 2020, the Company executed an secured loan with the U.S. Small Business Administration (SBA) under the Economic Injury
Disaster Loan program in the amount of $150,000. The loan is secured by all tangible and intangible assets of the Company and
payable over 30 years at an interest rate of 3.75% per annum. Installment payments, including principal and interest, will begin
June 10, 2021. As part of the loan, the Company also received an advance of $10,000 from the SBA. While the SBA refers to this
program as an advance, it was written into law as a grant. This means that the amount given through this program does not need
to be repaid and has been recognized as Other Income.
9.
RELATED PARTY TRANSACTIONS
Convertible
Notes Due to Related Parties
Convertible
Notes to Related Parties represent amounts due to members of Management for past services that were converted to notes payable
in prior years. Under the note agreement, the holder 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
security.
As
of September 30, 2020 and December 31, 2019, the outstanding balance on the convertible promissory notes was $884,546. As of September
30, 2020 and December 31, 2019, interest of $242,414 and $221,988, respectively, is deferred on the above notes and included in
accrued expenses to related parties.
Accrued
wages and costs - In order to preserve cash for other working capital needs, various officers, members of management, employees
and directors agreed to defer portions of their wages and sometimes various out-of-pocket expenses since 2011. As of September
30, 2020, and December 31, 2019, the Company owed $556,564 and $458,131, respectively, for such deferred wages and other
expenses owed for other services which are included in the accrued expenses – related parties on the accompanying balance
sheet.
10.
DERIVATIVE LIABILITIES
Under
authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s
own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has
issued certain convertible notes which conversion prices are based on a future market price. However, since the number of shares
to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available
to share settle the conversion option. As a result, the conversion option is classified as a liability and bifurcated from the
debt host and accounted for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting
period with the change in value reported in the statement of operations.
At
December 31, 2019, the balance of the derivative liabilities was $223,536. At September 30, 2020, the balance of the derivative
liabilities was $18,988 resulting in a decrease of $204,548 that was reflected in other income on the accompanying statement of
operations for the period then ended.
At
September 30, 2020 and December 31, 2019, the derivative liabilities were valued using a Black-Scholes-Merton pricing model with
the following assumptions:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Conversion feature:
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.11
|
%
|
|
|
1.56
|
%
|
Expected volatility
|
|
|
255.44
|
%
|
|
|
297.87
|
%
|
Expected life (in years)
|
|
|
.1 to .773 years
|
|
|
|
.1 to .773 years
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Fair Value:
|
|
|
|
|
|
|
|
|
Conversion feature
|
|
$
|
18,988
|
|
|
$
|
223,536
|
|
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility
of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the
notes was based on the remaining contractual term of the notes. The expected dividend yield was based on the fact that the Company
has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders
in the future.
11.
EQUITY
The
Company has 10,000,000 shares of preferred stock authorized. From this pool the following preferred shares have been classified
as:
Preferred
Stock – Series A
During
the year ended December 31, 2018, the Company authorized 1,000,000 of Series A preferred shares, which shares have voting rights
equal to two-thirds of all the issued and outstanding shares of common stock, shall be entitled to vote on all matters of the
corporation, and shall have the majority vote of the board of directors. The subject preferred stock lacks any dividend rights,
does not have liquidation preference, and is not convertible into common stock. During the year ended December 31, 2018, the Company
issued one million Series A preferred shares to certain officers and board members. The shares remain outstanding as of September
30, 2020.
Preferred
Stock – Series B
During
the year ended December 31, 2019, the Company authorized 10,000 shares of preferred stock to be designated available for Series
B preferred shares that have a stated value of $1,000 each and are convertible into common shares at fixed price of $0.0025. Holders
shall be entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred Stock equal (on an as-if-converted-to-Common-Stock
basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid
on shares of the Company’s Common Stock. No other dividends shall be paid on shares of Series B Preferred Stock, and they
shall have no voting rights and have liquidation preference. During the year ended December 31, 2019, the Company issued 150 Series
B preferred shares.
During
the period ended September 30, 2020, the Company issued 100 Series B preferred shares and 10,000,000 warrants to an accredited
investor for their financings for an aggregate value of $100,000. The Series B preferred shares and warrants shall have a fixed
conversion price per share equal to $0.0025 per share of common stock, subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common Stock. The warrants are exercisable through March
2025. The Company considered the accounting effects of the existence of the conversion feature of the Series B Preferred Stock,
and the issuance of warrants at the date of issuance. In accordance with the current accounting standards, the Company determined
that it should account for the fair value of the conversion feature and relative fair value of the issued warrants (up to the
face amount of the Series B Preferred Stock) as a deemed dividend of $100,000 and a charge to paid in capital.
Preferred
Stock – Series C
During
the period ended September 30, 2020, the Company authorized 1,000 shares of preferred stock to be designated available for Series
C preferred shares that have a stated value of $1,000 each and are convertible into common shares at fixed price of $0.015. Holders
shall be entitled to receive, and the Company shall pay, dividends on shares of Series C Preferred Stock equal (on an as-if-converted-to-Common-Stock
basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid
on shares of the Company’s Common Stock. No other dividends shall be paid on shares of Series C Preferred Stock, and they
shall have no voting rights and have liquidation preference. During the year ended December 31, 2019, the Company had no Preferred
C shares.
During
the period ended September 30, 2020, the Company issued 150 Series C preferred shares and 10,000,000 warrants to an accredited
investor for their financings for an aggregate value of $150,000. The Series C preferred shares and warrants shall have a fixed
conversion price equal to $0.015 per share of common stock, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock. The warrants are exercisable through April 2023.
The Company considered the accounting effects of the existence of the conversion feature of the Series C Preferred Stock, and
the issuance of warrants at the date of issuance. In accordance with the current accounting standards, the Company determined
that it should account for the fair value of the conversion feature and relative fair value of the issued warrants (up to the
face amount of the Series C Preferred Stock) as a deemed dividend of $150,000 and a charge to paid in capital.
Common
Stock
During
the period ended September 30, 2020 the Company issued 12,000,000 shares of common stock with a fair value of $181,100 at the
date of grant for services.
On
October 16, 2018, the Company created a long-term employment retention bonus plan and issued 39,500,000 of restricted common shares
to the plan. In 2019, 36,000,000 of these shares were cancelled. The remaining 3,500,000 shares have a 3-year vesting period and
those eligible, employees, directors and advisors, must have been with the Company for at least 7 years with an additional 2 years
necessary in order to participate in the plan and 3 to become fully vested. The shares will vest with a mandatory 2-year minimum
requirement for such vesting to become valid with 33.4% in year two and 66.66% at the end of year three. If the individual leaves
the Company prior to vesting, the Company or its assignee retains the option to repurchase the unvested shares at par. During
the period ending September 30, 2020, all vesting shares have been forfeited and the Company recognized a gain of $38,767 related
to the retirement of the retention plan. The board is evaluating a new employee stock option plan (ESOP) and intends to select
a new plan by the end of the 2020.
Common
Stock Warrants
Since
inception, the Company has issued numerous warrants to purchase shares of the Company’s common stock to shareholders, consultants
and employees as compensation for services rendered.
A
summary of the Company’s warrant activity and related information is provided below (the exercise price and the number of
shares of common stock issuable upon the exercise of outstanding warrants have been adjusted to reflect a 1-for-75 reverse stock
split):
|
|
Exercise Price
$
|
|
|
Number of Warrants
|
|
Outstanding and exercisable at December 31, 2019
|
|
|
0.0025 – 0.04
|
|
|
|
36,000,000
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants granted
|
|
|
0.0025 – 0.015
|
|
|
|
20,250,000
|
|
Warrants expired
|
|
|
0.04
|
|
|
|
(500,000
|
)
|
Outstanding and exercisable at September 30, 2020
|
|
|
0.0025 - 0.011
|
|
|
|
55,750,000
|
|
Stock Warrants as of September 30, 2020
|
|
Exercise
|
|
|
Warrants
|
|
|
Remaining
|
|
|
Warrants
|
|
Price
|
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Exercisable
|
|
$
|
0.011
|
|
|
|
2,500,000
|
|
|
|
0.25
|
|
|
|
2,500,000
|
|
$
|
0.0025
|
|
|
|
40,000,000
|
|
|
|
4.28
|
|
|
|
40,000,000
|
|
$
|
0.015
|
|
|
|
10,250,000
|
|
|
|
2.62
|
|
|
|
10,250,000
|
|
$
|
0.01
|
|
|
|
3,000,000
|
|
|
|
0.28
|
|
|
|
3,000,000
|
|
In
conjunction with the sale of Series B Preferred stock, the Company granted to investors warrants to purchase 10,000,000 shares
of the Company’s common stock. The warrants are exercisable immediately, have an exercise price of $0.0025, and expire after
its 5-year term.
In
conjunction with the sale of Series C Preferred stock, the Company granted to investors warrants to purchase 10,000,000 shares
of the Company’s common stock. The warrants are exercisable immediately, have an exercise price of $0.015, and expire after
its 3-year term.
Additionally,
during the nine months ended September 30, 2020, we issued to an outside consultant warrant to purchase 250,000 shares of the
Company’s common stock with a strike price of $0.015, and term of 3 years. The fair value of these warrants was estimated
using the Black-Scholes option pricing model based on the following assumptions: (i) volatility rate of 265.59 (ii) discount rate
of 0.18%, (iii) zero expected dividend yield, and (iv) expected life of 3 years. The total fair value of the option grants to
the consultants at their grant dates was $3,793.
The
outstanding and exercisable warrants at September 30, 2020 had an intrinsic value of approximately $244,000.
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.
The
2008 Plan provides for the issuance of a maximum of 7,000,000 shares, of which, after adjusting for estimated pre-vesting forfeitures
and expired options, approximately 2,235,000 were available for issuance as of September 30, 2020.
No
options were outstanding at September 30, 2020.
12.
COMMITMENTS & CONTINGENCIES
Contingencies
From
time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise
in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in
the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition,
the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely
affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the
period incurred. We cannot assure you that additional contingencies of a legal nature or contingencies having legal aspects will
not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events.
COVID-19
The
Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic
on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses
and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively
impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers
around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude
and overall effectiveness of these actions remain uncertain.
Due
to COVID-19, we have experienced some changes in our business, that have been both positive and negative. Specifically, the Company’s
IP licensing business has been negatively impacted by the global financial slowdown and many courts, judges and law firms are
not working at full capacity, which is creating delays in finalizing licensing agreements or litigation. We have also experienced
a small percentage of subscriptions being either cancelled or requested to be put on pause, due to financial hardships. On the
positive side we saw an increase in product sales specifically with medical supplies and equipment. Overall our revenues have
not been materially impacted as a whole, however there have been some shifts with certain revenue streams doing better post COVID
and others doing worse.
The
severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including,
but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s
customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of
Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s
financial condition, liquidity or results of operations is uncertain.
13.
SUBSEQUENT EVENTS
On
October 27, 2020 we issued 1,000,000 shares of stock to a consulting firm at a price of $0.006 for a fair value of $6,000.
On
November 6, 2020, the Company received approval to forgive it’s entire Paycheck Protection Program Loan (“PPP”)
for the full amount of $67,870.