ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this report include forward-looking statements. These forward looking statements are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "proposed," "intended," or "continue" or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other "forward-looking" information. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including but not limited to: variability of our revenues and financial performance; risks associated with product development and technological changes; the acceptance our products in the marketplace by existing and potential future customers; general economic conditions. You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.

 

Introduction

As used in this Quarterly Report, the terms "we", "us", "our", “Registrant”, “this company” and "GTX Corp" mean GTX Corp and our operational wholly-owned subsidiaries.

 

GTX Corp was incorporated in the State of Nevada on April 7, 2006 under its former name “Deeas Resources Inc.”  On March 14, 2008, we acquired all of the outstanding capital stock of Global Trek Xploration, a California corporation (“GTX California”), in exchange for the issuance of 18,000,001 shares of GTX Corp common stock (the “Exchange Transaction”).

 

Although we acquired GTX California in the Exchange Transaction, for accounting purposes, the Exchange Agreement was treated as an acquisition of GTX Corp and a recapitalization of GTX California.  Accordingly, the financial statements contained in this Quarterly Report, and the following description of our results of operations and financial condition, reflect (i) the operations of GTX California alone prior to the Exchange Transaction, and (ii) the combined results of this company and all three of its subsidiaries since the Exchange Transaction.

 

Immediately following the closing of the Exchange Transaction, in a private placement we sold $2,000,000 of our securities to qualified investors (the “Financing”).  In the Financing, we sold an aggregate total of 2,666,668 units (“Units”) at a price of $0.75 per Unit. Each Unit consists of one share of common stock and one warrant (“Warrant”) to purchase one share of common stock at an exercise price of $1.25 per share. Each Warrant is exercisable into an additional common share for a period of eighteen (18) months with respect to the first 1,666,666 Warrants issued and for a period of twelve (12) months with respect to the remaining 1,000,002 Warrants issued.  Eighteen (18) month warrants were issued to six (6) investors and twelve (12) month warrants were issued to two (2) investors.

 

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At closing of the Exchange Transaction, pursuant to the Exchange Agreement, we also converted a $1,000,000 bridge loan, plus accrued and unpaid interest, made by Jupili Investment S.A. to GTX California (“Bridge Loan”) into Units at a conversion price of $0.75 per Unit, based upon the same terms and conditions as the Financing. Thus, concurrently with the Exchange Transaction, we also issued 1,374,334 shares of common stock to Jupili and eighteen (18) month Warrants to purchase an aggregate of 1,374,334 shares of our common stock to Jupili.

 

In May 2008 we completed a second private placement (the “Additional Financing”) of 1,732,000 units (“Additional Units”) of our securities.  The Additional Units were sold at a price of $1.00 per Additional Unit for aggregate proceeds of $1,732,000. Each Additional Unit consisted of one common share and one share purchase warrant (“Additional Warrant”).  Each Additional Warrant is exercisable at an exercise price of $1.50 per share for a three-year term.

 

Operations

 

We currently conduct our operations through three wholly-owned subsidiaries that operate in related sectors of the personal location-based market specialized in the monitoring and recovery of missing people, pets and high valued assets.  In general:

 

·

GTX California currently offers a global positioning system (GPS) and cellular location platform that enables subscribers to track in real time the whereabouts of people, pets or high valued assets through the company’s miniaturized transceiver module, wireless connectivity gateway, middleware and viewing portal. We launched our initial GpVector™ product during the third calendar quarter of 2008 on a limited basis and in May 2009 we entered into a platform test agreement with a global leader in pedorthic and Orthotic footwear to embed our technology into their footwear products to bring GPS shoes to the senior market.  There are a growing number of seniors suffering from dementia and over 50% of them ‘wander’ without anyone’s knowledge of where they are and where they are heading.  The GTX patented GPS technology we are embedding into the Aetrex footwear line will help authorized family members, friends or caretakers reduce their stress and anguish by enabling them to locate their loved ones instantly with the click of a mouse from any computer or mobile device with internet access.

 

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LOCiMOBILE, Inc. has developed and is selling applications for GPS enabled handsets that enable authorized users to locate and track the movement of the holder of the handset.  In April 2009, LOCiMOBILE, Inc. launched LOCiMe, its first in a series of geo-specific applications that transform iPhones into real time, GPS transceivers.  LOCiMe utilizes the phone’s cell based Web services (HTTP) to transmit its latitude and longitude coordinates to the GTX/PLS Portal allowing authorized friends, co-worker and loved ones to know where you are, where you have been, how fast you are moving, and what direction you are heading.  In June 2009, LOCiMOBILE, Inc. launched iLOCi2, its second in a series of geo-specific applications that transform iPhones into real time, GPS transceivers, utilizing some of the latest technological breakthroughs of the Apple 3.0 operating system.  iLOCi2 allows you to push your coordinates to anyone with an iPhone so they can see exactly where you are within seconds.  This application doesn’t require the use of the GTX/GPS portal to see your location, but rather uses Google Maps to display the exact location for viewing on that person’s iPhone.  LOCiMOBILE, Inc. expects to release these services for other GPS enabled handsets in the near future.  LOCiMOBILE, Inc. is currently developing more applications for the iPhone and is exploring development on other platforms such as RIM and Android

 

·

Code Amber News Service, Inc. (“CANS”), a member of ONA (Online News Association) and RTNDA (Radio Television News Directors Association), is a U.S. and Canadian syndicator and content provider of all state Amber Alerts (public notifications of child abductions) and missing person alerts.  We began selling Code Amber News Service subscriptions and sponsored links in February 2009.

 

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Results of Operations

 

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Quarterly Report.

The information in the tables below represents our statement of operations data for the three and six months ended June 30, 2009 and 2008:

		Three Months Ended June 30,
		2009								2008
		$				% of Revenues				$				% of Revenues
Revenues		$	36,755				100	%		$	47,683				100	%
Cost of goods sold			12,602				34	%			29,772				62	%
Net profit			24,153				66	%			17,911				38	%
Salaries and professional fees			379,312				1,032	%			532,746				1,117	%
Research and development			11,288				31	%			113,447				238	%
General and administrative			104,067				283	%			140,892				295	%
Operating expenses			494,667				1,346	%			787,085				1,650	%
Loss from operations			(470,514	)			(1,280	)%			(769,174	)			(1,612	)%
Other income			11,964				33	%			15,473				32	%
Net loss		$	(458,550	)			(1,247	)%		$	(753,701	)			(1,580	)%

 

		Six Months Ended June 30,
		2009								2008
		$				% of Revenues				$				% of Revenues
Revenues		$	58,523				100	%		$	139,062				100	%
Cost of goods sold			27,873				48	%			108,596				78	%
Net profit			30,650				52	%			30,466				22	%
Salaries and professional fees			908,229				1,552	%			1,459,087				1,049	%
Research and development			85,327				146	%			184,798				133	%
General and administrative			187,192				320	%			204,930				147	%
Operating expenses			1,180,748				2,018	%			1,848,815				1,329	%
Loss from operations			(1,150,098	)			(1,966	)%			(1,818,349	)			(1,307	)%
Other income (expense)			27,335				47	%			(44,853	)			(32	)%
Net loss		$	(1,122,763	)			(1,919	)%		$	(1,863,202	)			(1,339	)%

 

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Revenues

Revenues for the three and six months ended June 30, 2009 consisted primarily of monthly service and licensing fees charged to a re-seller of our gpVectorTM Powered Athlete Tracking Systems.  We also recognized some revenues from the sale of CANS subscriptions and the sale of sample miniaturized transceiver modules to prospective new customers of GTX California.  LOCiMOBILE, Inc. recently launched iLOCi2, its second in a series of geo-specific applications that transform iPhones into real time GPS transceivers, utilizing some of the latest technological breakthroughs of the Apple 3.0 operating system.  This application and the LOCiMe application are currently for sale in the iTunes App Store.  Revenues during the three and six months ended June 30, 2008 consisted primarily of various one-time design and enhancement services billed to the same re-seller to allow our GPS technology to better integrate into the re-seller’s product, as well as the re-seller’s purchase of website design and functionality services from us in anticipation of the re-seller’s product launch in the third quarter of 2008.

Cost of goods sold

Cost of goods sold during the three and six months ended June 30, 2009 consisted primarily of monthly cellular costs incurred on our gpVectorTM Powered Athlete Tracking System devices.  Cost of goods sold during the three and six months ended June 30, 2008 consisted of the cost of the design and enhancement services we provided to the re-seller discussed above to allow our GPS technology to better integrate into their products and the cost to provide the reseller website design and functionality services.

Salaries and professional fees

Salaries and professional fees consist of costs attributable to employees, consultants and contractors who primarily spend their time on sales, marketing, technology and corporate administrative services; legal fees relating to general corporate matters and our patent applications; and accounting expenses.  Salaries and professional fees during the three and six months ended June 30, 2009 decreased approximately $153,000 or 29% and $551,000 or 38%, respectively in comparison to the same periods in 2008 due primarily to lower legal and accounting fees in 2009 and our overall cost cutting efforts to preserve our cash position while the economy recovers from the setbacks caused by the crisis in the global financial markets.  During the six months ended June 30, 2009, legal and accounting fees were approximately $220,000 less than that incurred during the six months ended June 30, 2008.  The decrease was due to legal and accounting fees incurred in the Exchange Transaction and the related Financing in 2008 that were not incurred in 2009.  Additionally, during the six months ended June 30, 2008, in conjunction with the creation of the 2008 Equity Compensation Plan, we granted options to purchase a total of 4,068,000 shares of common stock and we issued 577,500 shares of common stock, resulting in an expense of approximately $458,000.  These equity based costs were either not incurred or were substantially less in the six months ended June 30, 2009.

Research and development

Research and development expense consists of costs attributable to employees, consultants and contractors who primarily spend their time on the design, engineering and process development of our personal location services platform and LOCiMobile™ applications for GPS enabled handsets.  Research and development during the three and six months ended June 30, 2009 decreased approximately $102,000 or 90% and $99,000 or 54%, respectively in comparison to the same periods in 2008 due primarily to our gpVectorTM Powered Athlete Tracking System moving substantially out of the research and development stage during the latter part of fiscal 2008.

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General and administrative

General and administrative expenses consist primarily of corporate administrative costs, depreciation, occupancy costs, insurance and travel and entertainment.  General and administrative expenses during the three and six months ended June 30, 2009 decreased approximately $37,000 or 26% and $18,000 or 9%, respectively in comparison to the same periods in 2008.  Such reductions were primarily due to cost cutting measures in the areas of printing, travel and entertainment and website development as well as reductions in corporate filing fees that were not required in 2009. These decreases were partially offset by increases in depreciation, insurance, recruiting and rent.

Other Income (Expense)

During the three and six months ended June 30, 2009, we recognized approximately $12,000 and $27,000, respectively, of interest income, compared to $15,000 and $18,000 during the same periods in 2008.  The increase in interest income during the six month period is attributable to larger than average amount of cash and cash equivalents held in interest bearing accounts and to larger certificates of deposit we held during the six months ended June 30, 2009 compared to the same period in 2008.

No interest expense was incurred during the three or six months ended June 30, 2009, or during the three month period ended June 30, 2008.  However, we incurred $62,511 of interest expense during the six months ended June 30, 2008 as a result of a $40,000 fee paid in conjunction with the Financing, which closed on March 14, 2008, as well as interest expense on the Bridge Loan payable to Jupili accruing at 10% per annum during the first quarter of 2008.  The Bridge Loan was converted to common stock in connection with the Exchange Transaction during March 2008.

Net Loss

Net loss for the three and six months ended June 30, 2009 decreased approximately $295,000 or 39% and $740,000 or 40%, respectively, in comparison to the net loss during the same periods in 2008.  The decrease in the net loss is primarily due to a reduction in salaries and professional fees, research and development, and our overall cost cutting efforts to preserve our cash position during the current economic downturn caused by the global financial crisis.

 

Liquidity and Capital Resources

 

As a “smaller reporting company”, we are not required to provide the information under this Item 3.

 

ITEM 4.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective. Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include controls and procedures designed to reasonably ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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