METALERT, INC. The following discussion and analysis of our financial condition and results of operations should be read together with the audited financial statements and related notes included elsewhere in this registration statement. Certain statements contained in this registration statement, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements. Our Management's Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results discussed in the forward-looking statements.
Overview
Year in Review
2021 brought us continued Covid related opportunities and setbacks. Early in the year, we stated we could not accurately predict how long the Personal Protection Equipment ("PPE") business would remain in demand, and based on the current events and sales trends, we expected to transition out of many PPE products, focusing only on the strong sellers while ramping up for the launch of our new SmartSoles, NFC Blockchain platform and other wearable medical devices. Then came the Delta and Omnicom variants, which spiked demand for supplies and test kits, which we were able to support that demand, but that also created logistic delays in the supply chain and slowed down work productivity due to stay at home sick policies, and labor shortages, all of which impacted the launch of our 4G SmartSoles and our ongoing intellectual property licensing campaign.
On the medical supply side we managed to stay in front of it, had inventory on
hand or great relationships with our vendors which allowed us to respond quickly
to the demand and maintain our ability to ship 99% of all orders within 1-2
business days. Even during Q1 2022 we continued to sell supplies and test kits
and keep enough inventory on hand to fill incoming orders. Even with the overall
setbacks and restrictions due to COVID, which brought about a reduction in
revenues, we still managed to maintain product sales, service our customer base,
and reduced our general expenses. We sold hundreds of thousands of PPE items to
a wide range of entities such as essential businesses, assisted living
facilities, pharmacies, Fortune 1,000 companies, hospitals, police departments,
non-profits, and local, state, and federal government agencies, in every State
across the
However subscriptions were down for the year and lower than expected due to COVID-19 and because many of the cellular providers worldwide transitioned to 4G and 5G shutting down 2G and 3G in many parts of the world. Even though we had been planning for the 2G and 3G shutdown we had no way to plan for COVID. Most of our distributors and B2B customers stopped placing new orders in the 4th quarter of 2019, allowing for them to sell out of their existing inventory ahead of receiving our new 4G products. The 2G and 3G shutdown also had an impact on our B2C subscriptions as consumers were experiencing connectivity issues in certain geographical areas and suspended their subscriptions. In spite of these temporary setbacks, we saw and continue to see a steady flow of pre-orders for our 4G SmartSoles and expect to see subscriptions ramp up during the first quarter of 2022. Continuing throughout the year 2021, we saw significant sales coming from COVID Rapid Test Kits.
26
On the business development front, we continued to look at expanding our presence in our market by signing collaboration agreements and working with new partners on selling and developing new products in the tracking, biometrics, block chain and health and wellness space. We are still in the early stage of exploring different concepts, and avenues, but we are making progress and expect to have a more detailed roadmap in the coming months. We had a lot of collaboration and partnership activity during 2021. We strengthened our partnership with KGH, which enabled us to sell product into many different government channels. We signed a distribution agreement with OPU lab which enabled us to distribute COVID Pre-screening test kits. We formed alliances with Inner Scope, and Halberd Corporation, and started selling their health and wellness products. We signed collaboration and distribution agreements with Life Connect and GBT Technologies, to add their medical devices to our SmartSole platform. That development is in progress and we expect to make some announcements in the coming months.
We also continued to grow our brand awareness, by being featured in
On
The Company intends to use the proceeds predominately in the following 5 categories:
1. Inventory and raw material procurement, to offset current supply chain delays
and support the current and future product demand.
2. Marketing and advertising to promote our new 4G SmartSoles and longevity
revolution rollout.
3. R&D across all our technology - hardware, software, firmware and apps.
4. Intellectual Property, by filing more patents and revamping our monetization
licensing campaign.
5. Grow our insurance reimbursement and 3rd party payer programs.
Management believes investing in these 5 categories should increase revenues, enhance its IP portfolio, bring new products to the market and strengthen the Company's overall position in the marketplace.
At the end of the fourth quarter of 2021, we began production of our next generation GPS SmartSoles, which will utilize a host of new technologies, including CatM1, NB-IoT, enhanced Wifi, and Bluetooth, for better accuracy, faster location requests, less power consumption, and most importantly, the ability to connect through Bluetooth to other medical devices through our SmartSole platform, transforming our GPS footwear into a mobile hub that will not only transmit location data but also medical data. This new feature will be protected through a recent patent the company was issued which specifically addresses Bluetooth communication. This new hardware platform will also be small enough and robust enough to be embedded into a variety of other wearable technology and offered as a licensed hardware platform as well. The demand for the GPS SmartSoles continues to be strong as we begin fulfilling pre-orders orders in Q1 of 2022. Subscriptions which, as mentioned above, were affected by Covid-19 and supply chain issues, based on our pre-orders going into 2022 we expect subscriptions to start ramping up quickly as soon as we begin fulfilling pre-orders.
On the IP front, in December of 2021, the USPTO sent us two notices of allowance
for two new patents. One for the GPS SmartSoles and the other for the Comm
Protocol, both these patents have now been issued, which helps strengthen our
competitive barriers and could increase the value of our outbound licensing
campaign. Due to Covid and other resource related circumstances the GTX IP
campaign did stall during 2021, and after several months of analysis on how to
revamp the campaign it was mutually agreed by the BOD of Inventergy and GTX,
that GTX would take back full control of its Comm Protocol patents which it had
licensed at a 55% equity stake to Inventergy in 2016 and the outbound licensing
strategy. Effective
On the balance sheet front, we continued to reduce our debt and outstanding
payables, took on no new debt and pre-paid close to
As we look over the horizon into 2022, we are optimistic and seeing encouraging signs. One thing is for certain, there is a big desire for innovation and new solutions in the wearable technology healthcare industry post COVID-19 era, along with continued demand for PPE while the pandemic is still not fully behind us. GTX has been at the forefront of many innovative technologies, we pivoted early into the PPE business at the start of the pandemic and built an entire new business unit under extremely challenging conditions, so we know we are resilient, determined, and confident and will continue to garner new opportunities in order to grow shareholder value.
27 Sources of Revenue
Our main sources of revenue are product sales, recurring subscriptions, technology and intellectual property licensing, and professional services.
Product Sales
? During 2020-2021 the majority of our product sales came from medical
supplies, as determined by COVID-19 demand.
? Post COVID we expect the majority of our product sales will consist of
our core products lines, i.e. SmartSoles, Take-Along-Trackers and other
hardware related tracking technologies.
Other Revenue:
? Subscription monitoring fees - charged to customers/subscribers for our
web-based tracking and information services.
? Licensing of our patents, technology and software platforms.
? Professional fees for new product designs and support and maintenance of
existing products.
Costs and Expenses
Cost of Revenue
? Hardware - consists primarily of manufacturing and assembly of raw
materials.
? Recurring - usage fees for data and 24/7 access to our platform.
? Licensing - legal, USPTO and related filing fees and maintenance fees
and engineering development costs.
Operating Expense
? Operating expenses consists primarily of SG&A, which includes, but is
not limited to payroll, rent, infrastructure and communication,
professional fees and other related office expenses.
Sales and Marketing Expense
? Sales and marketing expenses for the purchase of advertising time/space.
Other Expense
? Depreciation and amortization expense.
Research and Development Expense
? Consists of costs related to the development of new products. Key Business Metrics
In addition to our GAAP financial information, we utilize several performance indicators. Below are several key metrics we use to manage and evaluate our business, measure our performance, identify trends affecting our business and make strategic decisions:
? # of new customers ? # of subscribers, current, new and churn ? # of new product launches ? # of new geographical territories ? # of 3rd party payers, i.e. Medicare Results of Operations
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Annual Report.
The following table represents our statement of operations for the years ended
Years ended December 31,
2021 2020
% of % of
$ Revenues $ Revenues
Product sales 407,357 69 % 830,829 78 %
Service income 182,083 31 % 208,441 20 %
IP royalties - - % 20,000 2 %
Total revenues 589,440 100 % 1,059,270 100 %
Cost of goods sold 334,184 57 % 598,963 57 %
Gross Margin 255,254 43 % 460,307 43 %
Operating expenses:
Wages and benefits 501,544 85 % 621,347 59 %
Professional fees 337,627 57 % 252,765 24 %
Sales and marketing expenses 75,391 13 % 28,091 3 %
General and administrative 245,238 42 % 185,315 17 %
Total operating expenses 1,159,800 197 % 1,087,519 103 %
Gain/(loss) from operations (904,546 ) -153 % (627,212 ) -59 %
Other expense/income, net (295,912 ) -48 % 258,805 24 % Net loss (1,200,458 ) -202 % (306,407 ) -35 % Revenues
Revenues as a whole in fiscal 2021 decreased by 44% or
We increased our customer base by at least 2,000 for fiscal 2020 compared to fiscal 2019, and again by over a 1,000 in 2021.
During the year ended
During the year ended
Cost of goods sold
Cost of goods sold decreased by 44% or
28 Wages and benefits
Wages and benefits for fiscal 2021 decreased by
Professional fees
Professional fees consist of costs attributable to consultants and contractors
who primarily spend their time on legal, accounting, product development,
business development, corporate advisory services and shareholder
communications. Such costs increased
Sale and marketing expenses
Sales and marketing expenses increased by 168% or
General and administrative
General and administrative costs during fiscal 2021 increased by
Other expense/income, net
Other expense/income in fiscal 2021 decreased 554,717 or 214%, in comparison to fiscal 2020. This is primarily as a result of losses from the extinguishment of debt, interest expense and financing cost and the amortization of debt discounts.
Net loss
Net loss during fiscal 2021 increased by
On an earnings per share basis, we saw a reduction in share loss from (
Liquidity and Capital Resources
As of
Net cash used in operating activities was
Net cash used by investing activities during fiscal 2021 was
Net cash provided by financing activities during fiscal 2021 was
29
We expect to continue to generate revenues from all our business units from existing product sales, recurring subscriptions, software and Intellectual Property licensing, military and professional services. We also expect to see new revenues come in from recently launched products and products that are scheduled for launch throughout 2022 however, even though existing product sales and recurring subscriptions are starting to become more consistent, the amount of revenues is still unpredictable and may not be sufficient to fund all our working capital needs. Accordingly, we anticipate that we will have negative cash flow from our operations and, therefore, will have to raise additional capital in order to fund our operations in 2022.
In order to continue funding our working capital needs and our product
development costs we continued to draw upon our Lines of Credit with an
accredited investor and our bank (see Notes Payable Footnote #c & #d for more
information), which resulted in
In fiscal 2021, we did not draw upon our Lines of Credit with an accredited
investor or our bank (see Notes Payable Footnote #c & #d for more information),
as the Company only made payments of
Subsequent to October of 2018 and through the beginning 2023, except for a government backed PPP loan and the exchange of employee payables for long-term notes, the Company has not taken any new debt.
In addition to continuing to incur normal operating expenses, we intend to continue our research and development efforts for our various technologies and products, including hardware, software, interface customization, and website development, and we also expect to further develop our sales, marketing and manufacturing programs associated with the commercialization, licensing and sales of our GPS devices and technology. We currently do not have sufficient capital on hand to fully fund our proposed research and development activities, which lack of product development may negatively affect our future revenues.
As noted above, based on budgeted revenues and expenditures, unless revenues
increase significantly, we believe that our existing and projected sources of
liquidity may not be sufficient to satisfy our cash requirements for the next
twelve months. Using currently available capital resources, management believes
we can conduct planned operations for 120 days. Accordingly, management believes
we need to raise a minimum of
We are subject to many risks associated with early stage businesses, including the above discussed risks associated with the ability to raise capital. Please see the section entitled "Risk Factors" for more information regarding risks associated with our business.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
30 Inflation
Inflation and changing prices have had no effect on our net sales and revenues or on our income from continuing operations over our two most recent fiscal years.
Going Concern
The consolidated financial statements have been prepared on a going concern
basis which assumes the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable future. The
Company has incurred net losses of
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company's ability to raise additional capital through the future issuances of debt or equity is unknown. The obtainment of additional financing, the successful development of the Company's contemplated plan of operations, or its attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
Critical Accounting Policies and Estimates
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in
The financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below.
We have identified the following critical accounting policies that are most important to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following is a review of the more critical accounting policies and methods used by us.
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.
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).
31 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
licensing based on monetization of IP licenses. The Company recognizes revenue
for licensing 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 licensing relate are completed.
During the years ended
During the year ended
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. Warranty liabilities are recorded at the time of sale for the
estimated costs that may be incurred under our standard warranty. As of
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.
32
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.
On
Stock-based Compensation
Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis, which is generally commensurate with the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Recent Accounting Pronouncements
Please refer to footnote for management's discussion of recent accounting pronouncements.
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