NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
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 IP portfolio of patents, patents pending, registered trademarks,
copyrights, URLs and a library of software source code, all of which is also managed by Global Trek.
LOCiMOBILE,
Inc., is the Companies digital platform which has been at the forefront of Smartphone application (“App”) development
since 2008. With a suite of mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking
device which can be tracked from handset to handset or through our tracking portal or on any connected device with internet access.
LOCiMOBILE has launched over 20 Apps across multi mobile device operating systems and continues to launch consumer and enterprise
apps.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States. 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.
On
June 22, 2018, the Company effected a 1-for-75 reverse stock split of its common stock. All references to shares of common stock
outstanding, average number of shares outstanding and per share amounts in these consolidated financial statements and notes to
consolidated financial statements have been restated to reflect as if the reverse stock split occurred as of the earliest period
presented.
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
a net loss of $586,325 during the year ended December 31, 2019, has incurred losses since inception resulting in an accumulated
deficit of $23,559,519 as of December 31, 2019 and has a stockholders’ deficit of $3,597,538 as of December
31, 2019. 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 of the financial statements being 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. The financial statements do not include any adjustments that might be necessary if the Company
is unable 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.
SUMMARY OF 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 (see Note 3, below).
Product
sales
At
the inception of each contract, we assess the goods and services promised in our contracts and identify each distinct performance
obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an
amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large
majority of the Company’s sales, transfer of control occurs once product has shipped and title and risk of loss have transferred
to the customer.
Services
Income
The
Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements
without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable
basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our
subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable
and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
The
majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues
recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain
professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance
method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition
of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services
are performed.
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 year ended December 31, 2019 the Company recognized $650,000
from a license to one customer (Note 3) and revenue on 14 other settlements of $112,915 for a total of $762,915
in royalty revenue, there was $50,000 of licensing revenue in 2018.
Disaggregation
of Net Sales
The
following table shows the Company’s disaggregated net sales by product type:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Product sales
|
|
$
|
398,433
|
|
|
$
|
443,069
|
|
Service income
|
|
|
339,464
|
|
|
|
193,974
|
|
IP and consulting
income
|
|
|
762,915
|
|
|
|
50,000
|
|
Total
|
|
$
|
1,500,812
|
|
|
$
|
687,043
|
|
The
following table shows the Company’s disaggregated net sales by customer type:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
B2B
|
|
$
|
594,157
|
|
|
$
|
230,069
|
|
B2C
|
|
|
132,071
|
|
|
|
176,974
|
|
Military
|
|
|
11,669
|
|
|
|
230,000
|
|
IP
|
|
|
762,915
|
|
|
|
50,000
|
|
Total
|
|
$
|
1,500,812
|
|
|
$
|
687,043
|
|
Allowance
for Doubtful Accounts
We
extend credit based on our evaluation of the customer’s financial condition. We carry our accounts receivable at net realizable
value. We monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments. We determine
these allowances by (1) evaluating the aging of our receivables; and (2) reviewing high-risk customers financial condition. Past
due receivable balances are written off when our internal collection efforts have been unsuccessful in collecting the amount due.
Our allowance for doubtful accounts was $12,028 as of December 31, 2019 and $15,918 as of December 31, 2018. The allowance
fully reserves our accounts receivable balances over 90 days.
Shipping
and Handling Costs
Shipping
and handling costs are included in cost of goods sold in the accompanying consolidated statements of operations.
Product
Warranty
The
Company’s warranty policy provides repair or replacement of products (excluding GPS Shoe devices) returned for defects within
ninety days of purchase. The Company’s warranties are of an assurance-type and come standard with all Company products to
cover repair or replacement should product not perform as expected. Provisions for estimated expenses related to product warranties
are made at the time products are sold. These estimates are established using historical information about the nature, frequency
and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers. Management actively
studies trends of warranty claims and takes action to improve product quality and minimize warranty costs. The Company estimates
the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty
purposes. As of December 31, 2019 and 2018, products returned for repair or replacement have been immaterial. Accordingly, a warranty
liability has not been deemed necessary.
Use
of Estimates
The
preparation of 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. Material
estimates relate to the assumptions made in determining reserves for uncollectible receivables, inventory reserves and returns,
impairment analysis of long-term assets and deferred tax assets, accruals for potential liabilities and assumptions made in valuing
the fair market value of equity transactions. 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.
Cash
and Cash Equivalents
Cash
equivalents consist of highly liquid investments with insignificant rate risk and with original maturities of three months or
less at the date of purchase.
Inventory
Inventory
generally consists of raw materials and finished goods and is valued at the lower of cost (first-in, first-out) or net realizable
value. The Company evaluates its inventory for excess and obsolescence on a regular basis. In preparing the evaluation the Company
looks at the expected demand for the product, as well as changes in technology, in order to determine whether or not a reserve
is necessary to record the inventory at net realizable value. For the years ending December 31, 2019 and 2018 the Company did
not recognize any charges to expense associated with excess and obsolete inventory cost adjustments.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated
using the straight-line method over the estimated three-year useful lives of the assets. When property and equipment are retired
or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain
or loss is included in operations. Expenditures for maintenance and repairs are expensed as incurred.
Management
assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to
result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset,
an impairment loss is recognized to write down the asset to its estimated fair value.
Research
and Development Costs
Research
and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and
other expenses relating to the acquisition, design, development and testing of the Company’s products. Research and development
expenditures are expensed as incurred and totaled ($3,880) and $25,163 for the years ended December 31, 2019 and 2018,
respectively.
Concentrations
We
currently rely on one manufacturer to supply us with our GPS SmartSole and one manufacturer to supply us with the GPS device included
in the GPS SmartSole. The loss of either of these manufacturers could severely impede our ability to manufacture the GPS SmartSole.
As
of December 31, 2019, the Company had three customers representing approximately 74%, 9% and 4% of sales and two customers representing
approximately 34% and 30% of total accounts receivable, respectively. The Company had four customers representing approximately
40%, 30%, 9% and 8% of sales and three customers representing approximately 54%, 12%, and 9% of total accounts receivable, respectively,
for the year ended December 31, 2018.
Intangible
Assets
The
Company records identifiable intangible assets acquired from other enterprises or individuals at cost. Intangible assets consist
of a licensing agreement enabling the Company to sell its GPS-related vehicle tracking software and services which is being
amortized over the life of the licensing agreement.
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.
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.
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:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Warrants
|
|
|
36,000,000
|
|
|
|
11,555,000
|
|
Conversion shares upon conversion of notes
|
|
|
40,480,550
|
|
|
|
48,534,191
|
|
Total
|
|
|
76,480,550
|
|
|
|
60,089,191
|
|
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized by applying the statutory tax rates in effect in the years in which the differences between the financial
reporting and tax filing bases of existing assets and liabilities are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be realized.
Stock-based
Compensation
The
Company periodically issues common stock and stock options to officers, directors, and consultants for services rendered. Options
vest and expire according to terms established at the issuance date of each grant. Stock grants, which are generally time vested,
are measured at the grant date fair value and charged to operations ratably over the vesting period. Through December 31, 2018,
the Company accounted for stock-based payments to officers and directors by measuring the cost of services received in exchange
for equity awards utilizing the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line
basis in the Company’s financial statements over the vesting period of the awards. The Company accounted for stock-based
payments to Scientific Advisory Committee members and consultants by determining the value of the stock compensation based upon
the measurement date at either (a) the date at which a performance commitment was reached or (b) at the date at which the necessary
performance to earn the equity instruments was complete.
In
accordance with the Company’s adoption of Accounting Standards Update 2018-07, Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment Accounting, effective January 1, 2019, stock options granted to outside
consultants are now accounted for consistent with the accounting for stock-based payments to officers and directors, as described
above, by measuring the cost of services received in exchange for equity awards utilizing the grant date fair value of the awards,
with the cost recognized as compensation expense on the straight-line basis in the Company’s financial statements over the
vesting period of the awards.
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 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.
LICENSE AGREEMENTS
IP
Monetization Agreement
On
June 16, 2016, the Company entered into a Definitive Agreement with Inventergy Innovations, LLC (“Inventergy”), a
subsidiary of Inventergy Global, Inc. (“INVT”). The Company partnered with Inventergy to monetize three (3)
GTX Patents, which now due to ongoing continuations has grown to 5 Patents, were assigned to an Inventergy subsidiary (“Inventergy
LBS, LLC”), and Inventergy assigned a 45% revenue share in net revenue collected on these patents to GTX.
Pursuant
to a non-exclusive license back to GTX, GTX will still retain all use rights of the 5 patents. The agreement provides for ongoing
royalties based on monetization of IP licenses. The Company recognizes revenue for these licenses upon execution of the licensing
agreement. During the period ended December 31, 2019 thirteen licensing agreements were entered into for $247,500 of which our
share is 45% or $111,375, plus extra residuals of $1,540.
Inpixon
Asset Purchase Agreement
On
June 27, 2019 the Company completed its sale and licensing of certain assets and patents (the “Assets”) of
GTX to Inpixon, consisting of a portfolio of global positioning system (“GPS”) technologies and intellectual
property, including, but not limited to the following:
(a)
an intellectual property portfolio that includes a registered patent, along with more than 20 pending patent applications or licenses
to registered patents or pending applications relating to GPS technologies;
(b)
a smart school safety network (“SSSN”) solution that consists of a combination of wristbands, gateways and proprietary
backend software, which rely on the Bluetooth Low-Energy (“BLE”) protocol and a low-power enterprise wireless 2.4Ghz
platform, to help school administrators identify the geographic location of students or other people or things (e.g., equipment,
vehicles, tools, etc.) in order to, among other things, ensure the safety and security of students while at school;
(c)
a personnel equipment tracking system (“P.E.T.S.”) and ground personnel safety system (“GPSS”), which
includes a combination of hardware and software components, for a GPS and radio frequency (“RF”) based personnel,
vehicle and asset-tracking solution designed to provide ground situational awareness and near real-time surveillance of personnel
and equipment traveling within a designated area for, among other things, government and military applications; and,
(d)
a right to 30% of royalty payments that may be received by GTX in connection with its ownership interest in Inventergy LBS, LLC
(“Inventergy LBS”), which is the owner of certain patents related to methods and systems for communication
with a tracking device.
The
Assets were sold for aggregate consideration of $884,000 consisting of (i) $250,000 in cash delivered at the closing (the “Cash
Consideration”) and (ii) 1,000,000 shares of Inpixon’s restricted common stock, par value $0.001 per share (the “Shares”)
valued at $634,000 at the date of the sale. 100,000 of the Shares are subject to certain holdback restrictions and forfeiture
for the purpose of satisfying indemnification claims. In addition, the Company and Inpixon entered into a six month consulting
agreement, pursuant to which the Company will provide services to assist Inpixon with the transition of the assets acquired under
the Agreement. Under the consulting agreement, the Company received monthly fees of $15,000 over the 6-month term
of the consulting agreement commencing on July 1, 2019.
The
Company analyzed and performed an assessment of the terms of the Asset Purchase Agreement with Inpixon pursuant
to the provisions of ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the objective when
allocating the transaction price is for an entity to allocate the transaction price to each performance obligation (or distinct
good or service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange
for transferring the promised goods or services to the customer. Based on the provisions of ASC 606, the Company determined $650,000
of the purchase price represented the value from the licensing agreements and was recognized as revenue at the date of the agreement
as all performance obligations had been met; and $184,000 represented the fair value of the consulting services that amortized
as revenue as the services were provided over 6 month period ending December 31, 2019. In addition, $50,000 was allotted
to deferred revenue and is being amortized over a four year service period, of which $6,250 of this amount was amortized and
$43,750 remains deferred at December 31, 2019.
4.
INVESTMENTS IN MARKETABLE SECURITIES
The Company’s investments in marketable
securities is comprised of shares of stock of two (2) entities with ownership percentages of less than 5%. The Company accounted
for these investments pursuant to ASU 320, Investments – Debt and Equity Securities. As such, these investments were
recorded at their market value as of December 31, 2019, with the change in fair value being reflected in the statement of operations.
These investments consisted of the following:
As of December 31, 2018, the Company owned
42,500 shares of Inventergy Global, Inc. common stock with a fair value of $344. The Company was able to obtain
observable evidence that the investment had a market value of $0.02 per share, or an aggregate value of $850 as of the period
then ended. As such, the Company recorded an unrealized gain from the change in market value of $506 during the year ended December
31, 2019 in its statement of operations.
In
June 2019, the Company acquired 1,000,000 shares of Inpixon’s restricted common stock valued at $634,000, as consideration
for the assets sold to Inpixon (see Note 3), and which accounted for less than 5% in equity of Inpixon. During the year ended
December 31, 2019, the Company sold 490,000 shares of common stock for $42,778. The Company was able to obtain observable evidence
that the remaining 510,000 shares had a market value of $58,374 as of December 31, 2019. As such, the Company recorded a loss
from the sale of the shares and change in fair value of the investment, offset of proceeds of $42,778 received from the sale,
of $532,848 during the year ended December 31, 2019 which has been reflected in the statement of operations.
5.
INVENTORY
Inventories
consist of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Raw
materials
|
|
$
|
690
|
|
|
$
|
717
|
|
Finished
goods
|
|
|
35,502
|
|
|
|
21,850
|
|
Total
Inventories
|
|
$
|
36,192
|
|
|
$
|
22,567
|
|
6.
PROPERTY AND EQUIPMENT
Property
and equipment, net, consists of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
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
|
|
|
(395,609
|
)
|
|
|
(355,625
|
)
|
|
|
|
|
|
|
|
|
|
Total property
and equipment, net
|
|
$
|
18,404
|
|
|
$
|
58,388
|
|
Depreciation
expense for the years ended December 31, 2019 and 2018 was $39,984 and $72,096, respectively, and is included in general and administrative
expenses.
7.
NOTES PAYABLE
The
following table summarizes the components of our short-term borrowings:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
(a)
Term loans
|
|
$
|
210,000
|
|
|
$
|
200,000
|
|
(b)
Line of credit
|
|
|
98,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
308,000
|
|
|
$
|
265,000
|
|
(a)
Term loans
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. The term loan became due on April 14, 2017. The principal balance outstanding on the note
as of December 31, 2019 and December 31, 2018 was $160,000 and $200,000, respectively, and is past due, with $40,000 in principal
and $14,186 of accrued interest having been paid down in 2019.
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 becomes due on April
13, 2020. The principal balance outstanding on the note as of December 31, 2019 and December 31, 2018 was $50,000 and $0, respectively.
(b)
Lines 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.
The
line bears interest of 17%. The line is based upon GTXO 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 GTXO common stock or $75,000 of GTXO common stock, whichever is greater.
The
Company also has line of credit with its business bank, Union Bank, whereby funds can be borrowed at 2 points over prime. During
the period ended December 31, 2019 had borrowed $40,000 and had repaid the entire balance. As such there is no balance outstanding
as of December 31, 2019.
8. CONVERTIBLE PROMISSORY NOTES
– PAST DUE
As
of December 31, 2019 and December 31, 2018, the Company had a total of $1,099,278 and $1,313,133, respectively, of convertible
notes payable, which consisted of the following:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
a) Convertible Notes
– with fixed conversion
|
|
$
|
894,000
|
|
|
$
|
967,000
|
|
b) Convertible
Notes – with variable conversion
|
|
|
205,278
|
|
|
|
346,133
|
|
Total
|
|
|
1,099,278
|
|
|
|
1,313,133
|
|
Less: Debt
discount
|
|
|
-
|
|
|
|
(20,024
|
)
|
Total convertible
notes, net of debt discount
|
|
$
|
1,099,278
|
|
|
$
|
1,293,109
|
|
|
a)
|
Included
in Convertible Notes - with fixed conversion terms, are loans provided to the Company from various investors with principal
balances totaling $894,000 as of December 31, 2019. 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.
|
|
|
Convertible
notes payable with principal balance of $517,500 were outstanding as of December 31,
2017. During the year ended December 31, 2018, the Company entered into Convertible
Promissory Agreements with accredited investors for an aggregate principal balance of
$470,000. The Purchasers may convert their notes after six months into common shares
in the Company at a price equal to $0.002 to $0.30. The notes bear interest from 1% to
12% mature at various dates ranging from four to six months. The notes were issued pursuant
to Section 4(a)(2) of the Securities Act of 1933. On the dates of the agreement, the
closing price of the common stock range from $0.0018 to $0.23 per share. As the conversion
price embedded in the note agreements was below the trading price of the common stock
on the dates of issuance, a beneficial conversion feature (BCF) was recognized at the
date of issuance. The Company recognized a debt discount at the date of issuance in the
aggregate amount of $181,250 related to the intrinsic value of beneficial conversion
feature. During the year ended December 31, 2018, we issued 5,900,000 shares of common
stock to convert $40,500 of these outstanding convertible notes and paid down in cash
the principal balance on three notes by $2,000.
Also, during the same period, the Company
entered into a Convertible Promissory Agreement with an accredited investor with a principal balance of $25,000. The Purchaser
may convert their note after November 30, 2018 into common shares in the Company at a price equal to a 40% discount to market.
The note bears interest of 1%. As part of the note agreement, the Company issued 500,000 shares of common stock and warrants to
acquire 500,000 shares of common stock at an exercise price of $.04 per share. The Company recognized a debt discount at the date
of issuance in the aggregate amount of $12,500 related to the fair value of the intrinsic value of the beneficial conversion feature
and the equity instruments issued with the financing. During the year ended December 31, 2018 the Company repaid $3,000 of principal
and $22,000 was outstanding as of December 31, 2018.
|
|
|
The
balance of the valuation discount of notes with a fixed conversion as of December 31,
2017 was $52,712. During the period ended December 31, 2018 the Company recorded a valuation
discount of $193,750 upon issuance of convertible notes payable and amortized $246,462
of debt discount leaving no remaining unamortized balance at December 31, 2018.
At
December 31, 2018, balance of the Convertible Notes was $967,000. During the twelve months ended December 31, 2019, we issued
3,000,000 shares of common stock to convert $6,000 of these outstanding convertible notes (see Note 9) and made payments of $22,000.
Additionally, an investor agreed to take $17,500 in cash to satisfy a $45,000 note, resulting in a $27,500 gain on the extinguishment
of debt. As of December 31, 2019, balance of the Convertible Notes was $894,000. These notes are currently past due.
|
|
|
|
|
|
On
certain of these notes the conversion price embedded in the note agreements was below the trading price of the common stock
on the dates of issuance, and a beneficial conversion feature (BCF) was recognized at the date of issuance as a note discount.
As of December 31, 2019, the unamortized discount was $0 and was fully amortized during the period ended December 31, 2019.
|
|
|
|
|
b)
|
Convertible
notes payable with principal balance of $205,278 as of December 31, 2019 consists 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.
|
|
|
|
|
|
Convertible
notes payable with principal balance of $406,375 were outstanding as of December 31,
2017, During the year ended December 31, 2018, we issued 5,216,826 shares of common stock
to convert $154,329 of outstanding convertible notes. In addition, we paid down $56,000
under the note agreements.
During
the period ended December 31, 2018, the Company had issued a Convertible Promissory Note as payment for services incurred under
an Advisory Agreement with a third party for a principal balance of $55,125 under the same terms as the notes above. Additionally,
the same party entered into two other Convertible Promissory Note agreements for services, one for $10,000 at a 40% discount to
market with a 10% interest rate, and the other for $85,000 with a 2% discount rate. 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 with a fair value totaling $96,556 at the date of issuances. The Company recorded
$78,396 as a valuation discount to be amortized over the life of the note and the remaining $18,160 as a financing cost.
The
unamortized valuation discount relating to these notes was $89,405 as of December 31, 2017. During the period ended December 31,
2018 the Company recorded a valuation discount of $78,396 upon issuance of convertible notes payable, and recorded amortization
of debt discount of $147,777 as interest expense. Unamortized debt discount as of December 31, 2018 related to these notes was
$20,024.
At
December 31, 2018, balance of the loans was $346,133. During the twelve months ended December 31, 2019, we issued 34,606,359
shares of common stock to convert $152,105 of outstanding convertible notes (see Note 9). In addition, certain of the notes
included a penalty provision for non-payment which resulted in an additional finance charge of $11,250 being added to the
principal balance. As of December 31, 2019, balance of the Convertible Notes was $205,278. These notes became due in 2019
and prior, and are currently past due.
|
9.
RELATED PARTY TRANSACTIONS
Convertible
Notes Due to Related Parties
On
September 30, 2016, management elected to convert deferred salaries into long-term convertible promissory notes. The balance
of such note at December 31, 2016 was $428,997. On December 31, 2017, management elected to transfer additional accrued salaries
into long-term convertible promissory notes, due on March 31, 2019, totaling $241,050. The notes 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 $0.75 per share. As of December 31, 2017, the outstanding
balance on the convertible notes was $670,047.
During
the period ended June 30, 2018, the Company recognized additional notes with an aggregate amount of $214,499 which represent 50%
of the related party notes that matured on March 31, 2018. The notes are due on March 31, 2019. Such amount was recorded as noncash
financing cost during the twelve months ended December 31, 2018. As of December 31, 2019 and 2018, the outstanding balance on
the convertible promissory notes was $884,546.
On
December 31, 2019 interest of $221,988 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 December 31, 2019, and 2018, the Company
owed $374,393 and $198,135, 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 whose conversion price is 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, 2017, the balance of the derivative liabilities was $261,172. During the period ended December 31, 2018, the Company
recorded an additional derivative liability with a fair value of $78,396, recorded a gain on extinguishment of derivative liabilities
of $119,099 related to notes that were converted and a change in fair value of $11,693. At December 31, 2018, the balance of the
derivative liabilities was $232,162.
During
the period ended December 31, 2019, the Company recorded a gain on extinguishment of derivative liabilities of $80,799
related to notes that were converted and a change in fair value of $72,173. At December 31, 2019, the balance of the derivative
liabilities was $223,536.
At
December 31, 2019 and December 31, 2018, the derivative liabilities were valued using a probability weighted Black-Scholes-Merton
pricing model with the following assumptions:
|
|
December
31,
2019
|
|
|
December
31,
2018
|
|
Conversion feature:
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.56
|
%
|
|
|
2.57
|
%
|
Expected volatility
|
|
|
297.87
|
%
|
|
|
504.95
|
%
|
Expected life (in years)
|
|
|
.1
to .773 years
|
|
|
|
.1
to .773 years
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Fair Value:
|
|
|
|
|
|
|
|
|
Conversion
feature
|
|
$
|
223,536
|
|
|
$
|
232,162
|
|
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.
INCOME TAXES
Reconciliations of the total income tax provision
tax rate to the statutory federal income tax rate of 21%, 21%, and 34% for the years ended December 31, 2019 and 2018, respectively,
are as follows:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Federal income tax benefit calculated at statutory rate
|
|
$
|
199,000
|
|
|
$
|
598,000
|
|
State income tax benefit, net of federal benefit
|
|
|
43,000
|
|
|
|
132,000
|
|
Less: Stock based compensation expense
|
|
|
(26,000
|
)
|
|
|
(55,000
|
)
|
Effect of rate change from 34% to 21%
|
|
|
(2,167,000
|
)
|
|
|
(2,102,000
|
)
|
Change in valuation allowance
|
|
|
1,951,000
|
|
|
|
1,427,000
|
|
Net tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
The
cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows at
December 31:
|
|
2019
|
|
|
2018
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating losses carried
forward
|
|
$
|
3,502,539
|
|
|
$
|
3,396,282
|
|
Less: Valuation
allowance
|
|
|
(3,502,539
|
)
|
|
|
(3,396,282
|
)
|
Net deferred
tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2019, the Company had an unused net operating loss carryover approximating $16,686,446, subject to section
382 limitations, that is available to offset future taxable income, which expires beginning in 2028.
The
Company established a full valuation allowance. The Company continually reviews the adequacy of the valuation allowance and recognizes
a benefit from income taxes only when reassessment indicates that it is more likely than not that the benefits will be realized.
12.
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 preferred Series A preferred shares, which
shares to have voting rights equal to two-thirds of all the issued and outstanding shares of common stock, shall be entitled
to vote on all matters of the corporation, and shall have the majority vote of the board of directors. The subject preferred stock
lacks any dividend rights, does not have liquidation preference, and is not convertible into common stock. During the year ended
December 31, 2018, the Company issued one million shares to certain officers and board members. The Company retained a
third-party valuation firm whose input was utilized in determining the related per share valuation of the preferred shares. Based
on Management’s assessment and the valuation report, the fair value of the preferred shares was determined to be $0.0463
per share or an aggregate of $46,363. The shares remain outstanding as of December 31, 2019.
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 value of $1,000 each and is convertible into common shares at the prevailing stock price for that
given day. Holders shall be entitled to receive, and the Corporation shall pay, dividends on shares of 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 Common Stock. No other dividends shall be paid on shares of Preferred Stock,
they shall have no voting rights and have liquidation preference.
During
the year ended December 31, 2019, the Company issued 1,500 Preferred B shares and 30,000,000 warrants to an accredited investor
for their financings for an aggregate value of $150,000. The Preferred Shares shall have a conversion price equal to $0.0025,
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 at a price of $0.0025 per share through November 2024.The Company considered
the accounting effects of the existence of the conversion feature of the 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 preferred Stock)
as a deemed dividend and a charge to paid in capital.
Common
Stock
The
Company issued the following shares of common stock for the years ended December 31:
|
|
2019
|
|
|
2018
|
|
|
|
Value
of Shares
|
|
|
#
of shares
|
|
|
Value
of Shares
|
|
|
#
of shares
|
|
Shares issued for services
rendered
|
|
$
|
76,880
|
|
|
|
6,200,000
|
|
|
$
|
60,999
|
|
|
|
39,580,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for conversion of debt
|
|
|
158,105
|
|
|
|
37,606,359
|
|
|
|
194,829
|
|
|
|
11,116,826
|
|
Common shares issued upon exercise of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,419,961
|
|
Shares issued
for financing
|
|
|
3,100
|
|
|
|
250,000
|
|
|
|
19,090
|
|
|
|
856,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares issued
|
|
$
|
238,085
|
|
|
|
44,056,359
|
|
|
$
|
274,918
|
|
|
|
53,973,454
|
|
Shares
issued for services rendered were to various members of management, employees and consultants and are generally expensed as Stock-Based
Compensation in the accompanying consolidated statement of operations. Also included are shares of common stock issued to our
2018 investors in conjunction with their note and share purchase agreements. Shares issued for conversion of debt relate to conversions
of both short and long term debt as discussed in Note 8. Shares issued for financing in 2019 relate to shares granted to investors
for their participation in the 2019 financings.
During
the year ended December 31, 2019 the Company issued 6,200,000 shares of common stock with a fair value of $76,880 at the date
of grant for services. During the year ended December 31, 2018 the Company issued 39,580,667 shares of common stock with a
fair value of $60,999 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. The 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. The shares had a fair value of $1,086,250 at the date of grant, which cost
will be amortized over the three-year vesting period. During the year ended December 31, 2018 the Company amortized $43,229
relating to shares vesting during the period.
During
the year ending December 31, 2019, management and employees agreed to cancel 36 million shares of management’s stock and
all shares were returned to treasury. As shares never vested, the Company reversed the previously recorded stock compensation
costs. The remaining 3,500,000 shares continue to be amortized to expense as the shares vest. As a result, during the year ending
December 31, 2019, the Company recognized net cost of ($4,461) related to the retention plan, and the remaining/adjusted balance
of $57,483 in unamortized expense will be recognized as compensation cost as the remaining shares vest. The board is evaluating
a new employee stock option plan (ESOP) and intends to select a new plan by the end of the 2020.
During
the year ended December 31, 2019 the Company issued 250,000 shares of common stock with a fair value of $3,100 at the date grant
for financing costs. During the year ended December 31, 2018 the Company issued 856,000 shares of common stock with a fair
value of $19,090 at the date grant for financing costs.
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, 2017
|
|
|
0.0125
- 0.03
|
|
|
|
13,852,000
|
|
Warrants exercised
|
|
|
0.0125
- 0.015
|
|
|
|
(2,865,000
|
)
|
Warrants granted
|
|
|
0.01
- 0.04
|
|
|
|
750,000
|
|
Warrants expired
|
|
|
0.015
- 0.02
|
|
|
|
(182,000
|
)
|
Outstanding and exercisable at December
31, 2018
|
|
|
0.0125
- 0.04
|
|
|
|
11,555,000
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants granted
|
|
|
0.0025
- 0.011
|
|
|
|
35,250,000
|
|
Warrants expired
|
|
|
0.0125
- 2.25
|
|
|
|
(10,805,000
|
)
|
Outstanding and
exercisable at December 31, 2019
|
|
|
0.0025
- 0.04
|
|
|
|
36,000,000
|
|
Stock
Warrants as of December 31, 2019
|
|
Exercise
|
|
|
Warrants
|
|
|
Remaining
|
|
|
Warrants
|
|
Price
|
|
|
Outstanding
|
|
|
Life
(Years)
|
|
|
Exercisable
|
|
$
|
0.0025
|
|
|
|
30,000,000
|
|
|
|
4.98
|
|
|
|
30,000,000
|
|
$
|
0.01
|
|
|
|
3,000,000
|
|
|
|
1.03
|
|
|
|
3,000,000
|
|
$
|
0.011
|
|
|
|
2,500,000
|
|
|
|
1.00
|
|
|
|
2,500,000
|
|
$
|
0.040
|
|
|
|
500,000
|
|
|
|
0.23
|
|
|
|
500,000
|
|
During
the period ended December 31, 2018, 2,865,000 warrants were exercised on a cashless basis that resulted in the issuance of 2,419,962
shares of common stock, in addition warrants 182,000 expired and 750,000 were issued.
During
the year ended December 31, 2019, 5,000,000 of the warrants issued were related to financings with total fair value at grant date
of $49,992, and 250,000 warrants were issued related to an advisory agreement with total fair value at grant date of $4,799, 30,000,000
have a 2-year term and have a strike price of $0.01, and 2,500,000 has a 1.7-year term with a strike price of $0.011.
During the period ended December 31, 2019,
no warrants were exercised, and 10,805,000 expired and 35,250,000 were granted. The 36,000,000 outstanding
and exercisable warrants at December 31, 2019 has no intrinsic value.
Common
Stock Options
Under
the Company’s 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
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 December 31, 2019.
No
options were granted during 2019 and 2018.
13.
COMMITMENTS & CONTINGENCIES
Bonuses
The
Company has an employment agreement with its CEO which, among other provisions, provide for the payment of a bonus, as determined
by the Board of Directors, in amounts ranging from 15% to 50% of the executive’s yearly compensation, to be paid in cash
or stock at the Company’s sole discretion, if the Company has an increase in year over year revenues and the Executive performs
his duties (i) within the time frame budgeted for such duties and (ii) at or below the cost budgeted for such duties. No such
bonuses were declared or accrued during the years ending December 31, 2019 or 2018.
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.
14.
SUBSEQUENT EVENTS
On
January 15, 2020 we issued 500,000 shares of stock to a consulting firm at a price of $0.009 for a fair value of $4,500.
On
January 22, 2020, we retired $10,200 in convertible debt and issued equity in the form of common stock of 3,400,000 shares.
On January 30, 2020, the World Health Organization
(“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the
“COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of
origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
The full impact of the COVID-19 outbreak
continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have
on our financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global
situation on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of
the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak
on our results of operations, financial condition, or liquidity for the year ended December 31, 2020.
On January 31, 2020, a director resigned
from the Company’s board of director’s, due to retirement.
On
February 27, 2020 we issued 1,000,000 shares of stock to a consulting firm at a price of $0.017 for a fair value of $17,000.
On
March 3, 2020, we retired $11,250 in convertible debt and issued equity in the form of common stock of 3,750,000 shares.
On March 6, 2020, we retired $35,000
in debt and $3,150 in accrued interest on convertible debt and issued equity in the form of common stock of 31,792 shares
at a price of $1.20.
March 24, 2020, we received another $50,000
per the SPA from an approved investor.