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GTX 8-K 2008 Documents found in this filing:SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of
Report (date of earliest event reported): March 14, 2008
GTX
CORP
(Exact
name of registrant as specified in its charter)
Registrant’s
telephone number, including area code (213)
489-3019
Deeas
Resources Inc.
6348
49th Avenue
Ladner,
British Columbia, V4K 5A1
Telephone:
604-808-6211
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligations of the registration under any of the following
provisions:
Forward-Looking
Statements
This
Current Report on Form 8-K and other reports filed by Registrant from time to
time with the Securities and Exchange Commission (collectively, the “Filings”)
contain or may contain forward-looking statements and information that are based
upon beliefs of, and information currently available to, Registrant’s management
as well as estimates and assumptions made by Registrant’s management. When used
in the filings the words “anticipate,” “believe,” “estimate,” “expect,”
“future,” “intend,” “plan” or the negative of these terms and similar
expressions as they relate to Registrant or Registrant’s management identify
forward-looking statements. Such statements reflect the current view of
Registrant with respect to future events and are subject to risks,
uncertainties, assumptions and other factors (including the risks contained in
the section of this report entitled “Risk Factors”) relating to Registrant’s
industry, Registrant’s operations and results of operations and any businesses
that may be acquired by Registrant. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed,
estimated, expected, intended or planned.
Although
Registrant believes that the expectations reflected in the forward-looking
statements are reasonable, Registrant cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, Registrant does not intend
to update any of the forward-looking statements to conform these statements to
actual results. The following discussion should be read in conjunction with
Registrant’s pro forma financial statements and the related notes that will be
filed herein.
Unless
otherwise indicated or the context otherwise requires, all references below in
this Current Report on Form 8-K to “we,” “us,” “our,” “Registrant,” “GTX Corp”
and the “Company” refer to GTX Corp, a Nevada corporation
Item
1.01 Entry into a Material
Definitive Agreement.
On March
4, 2008, GTX Corp (formerly known as Deeas Resources Inc. and hereinafter
referred to as “GTX Corp”) a Nevada corporation, entered into a Share Exchange
Agreement (the “Exchange Agreement”) with Global Trek Xploration, a California
corporation (“GTX California”), the shareholders of GTX
California (the “Selling Shareholders”) and Jupili Investment S.A., a
company incorporated under the laws of the Republic of Panama (“Jupili”),
pursuant to which the Company agreed to acquire all of the outstanding capital
stock of GTX California in exchange for the issuance of approximately 18,000,001
shares of the Company’s common stock to the Selling Shareholders (the “Merger”
or “Exchange Transaction”). The Exchange Transaction closed on March
14, 2008 (the “Closing” or the “Closing Date”).
The
description of the material terms and conditions of the Exchange Agreement are
set forth below under Item 2.01 and such description is incorporated herein by
reference.
Item
2.01 Completion
of Acquisition or Disposition of Assets.>
CLOSING
OF SHARE EXCHANGE AGREEMENT
On March
4, 2008, GTX Corp entered into the Exchange Agreement with GTX California, the
Selling Shareholders and Jupili pursuant to which the Company agreed to acquire
all of the outstanding capital stock of GTX. Pursuant to the Exchange
Agreement, at the Closing, GTX Corp issued 18,000,001 shares of GTX Corp’s
common stock for all of the issued and outstanding shares of GTX California on
the basis of 0.8525343 shares of GTX Corp for every one share of
GTX. As a result, GTX California is now a wholly-owned subsidiary of
GTX Corp. As a result of this Exchange Transaction, the Selling
Shareholders acquired approximately 50% of the issued and outstanding common
shares of the Company. A copy of the Exchange Agreement was attached
as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated March 4, 2008
filed with the Securities Exchange Commission (“SEC”) and is incorporated herein
by reference, and the following description of the Exchange Agreement is
qualified in its entirety by the contents of the Exchange
Agreement.
1
The
Closing of the Exchange Agreement was subject to the satisfaction of conditions
precedent as set forth in the Exchange Agreement, including but not limited to
the following:
Effective
March 14, 2008, we completed a merger with our wholly owned subsidiary, GTX
Corp, a Nevada corporation, which we formed in February 2008 in connection with
the Exchange Transaction. As a result of the merger, we changed our
company’s name from “Deeas Resources Inc.” to “GTX Corp”. Also on March 4, 2008,
we effected a 20.71 for 1 forward stock split of our authorized and or our
issued and outstanding common stock.
Before
the Closing of the Exchange Agreement, we had approximately 2,176,000 common
shares issued and outstanding. Upon completion of the Exchange
Agreement on the Closing Date, we had approximately 36,040,963 common shares
issued and outstanding based upon: (i) the cancellation of 1,500,000 pre-split
common shares held by Jeffrey Sharpe; (ii) the 20.71 for 1 forward tock split;
(iii) the issuance of 18,000,001 common shares to the Selling Shareholders at
the Closing; (iv) the issuance of 2,666,668 common shares pursuant to the
Financing; and (v) the issuance of 1,374,334 common shares pursuant to the
conversion of the $1,000,000 bridge loan plus accrued interest of $30,750. The
issuance of 18,000,001 common shares to the Selling Shareholders represents
approximately 50% of our share capital as of the Closing of the Exchange
Agreement.
The
issuance of the Company’s shares of common stock in connection with the Exchange
is intended to be exempt from registration under the Securities Act of 1933, as
amended (the “Securities Act”) pursuant Section 4(2)and such other available
exemptions. As such, these issued securities may not be offered or
sold in the United States unless they are registered under the Securities Act,
or an exemption from the registration requirements of the Securities Act is
available. No registration statement covering these securities has been filed
with the Securities Exchange Commission (“SEC”) or with any state securities
commission in respect of the Exchange Transaction.
The
closing of the transactions contemplated by the Exchange Agreement and the
closing of the Financing, which is described below, occurred on March 14, 2008.
Following the Closing, GTX California became our wholly owned
subsidiary.
FINANCING
Immediately
following the Closing, we received gross proceeds of approximately $2,000,000 in
connection with the Financing. Pursuant to Securities Purchase
Agreements entered into with investors, we sold an aggregate total of 2,666,668
Units at a price of $0.75 per Unit. Each Unit consists of one common share and
one share purchase warrant (“Warrant”). Each Warrant is exercisable
into an additional common share for a period of twelve or eighteen months,
depending upon certain circumstances as set out in the Exchange Agreement, at an
exercise price of $1.25 per share. Thus, at Closing we issued
2,666,668 shares of common stock to investors and warrants to purchase an
aggregate of 2,666,668 shares of our common stock.
2
At
Closing, pursuant to the Exchange Agreement, we also converted a $1,000,000
bridge loan to GTX California (“Bridge Loan”) held by Jupili Investments S.A., a
company incorporated under the laws of the Republic of Panama (“Jupili”) plus
accrued interest into Units at $0.75 per Unit, based upon the same terms and
conditions as the Financing. Thus, at Closing we also issued 1,374,334 shares of
common stock to Jupili and warrants to purchase an aggregate of 1,374,334 shares
of our common stock to Jupili.
Jupili
arranged the Bridge Loan and Financing. For its services, Jupili
received a payment of $60,000 from GTX Corp, calculated as 2% of the aggregate
amount of the Bridge Loan and the Financing.
The
issuance of the Units in connection with the Financing and upon conversion of
the Bridge Loan is intended to be exempt from registration under the Securities
Act pursuant to Regulation S. As such, these issued securities may not be
offered or sold in the United States unless they are registered under the
Securities Act, or an exemption from the registration requirements of the
Securities Act is available.
However,
we are required to register the shares of common stock and the shares issuable
upon exercise of the Warrants issued in the Financing and upon conversion of the
Bridge Loan under a registration statement filed with the SEC (the “Registration
Statement”) as soon as practicable after Closing. If we fail to file
the Registration Statement to register the Securities for resale:
We shall
be required to pay Jupili liquidated damages equal to 5% of the total offering
of the Financing, payable in Units on the same terms as the Financing (the
“Additional Units”), and will register the Additional Units in the Registration
Statement. If the Registration Statement is declared effective by the
SEC prior to the issuance of the Additional Units, we shall be required to
immediately file a post effective amendment to the Registration Statement in
accordance to register the Additional Units.
Further,
Jupili guarantees that no less than 1,000,000 Warrants will be exercised in cash
within six months of the Closing, provided that if the Registration Statement is
not filed as provided above, the exercise period will be extended so that Jupili
guarantees that no less than 1,000,000 Warrants will be exercised in cash within
ten (10) months of the Closing. If the Warrants are not exercised at
the end of such six month period (or ten (10) months, if extended as required),
GTX shall have the right to compel Jupili to purchase 1,000,000 shares of common
stock in the capital of GTX Corp at $1.25 per share.
Except
for the Exchange Agreement and the Transactions contemplated thereby, neither
GTX Corp nor the sole officer and director of GTX Corp serving prior to the
consummation of the Exchange Transaction had any material relationship with GTX
California or any of the Selling Shareholders.
Effective
as of the Closing, Jeffrey Sharpe resigned as the Company’s Chief Executive
Officer, President, Secretary and Treasurer. He has retained a
position as a member of the Board of Directors of the Company. Concurrently, the
following persons were appointed as the Company’s new executive
officers:
3
In
addition, effective as of the Closing, four new members were appointed to the
Company’s Board of Directors. As of the Closing, members of the
Company’s Board of Directors include the following persons:
Additional
information regarding the above-mentioned directors and/or executive officers
are set forth below under the section titled “Directors and Executive
Officers”.
For
accounting purposes, the Merger was treated as an acquisition of GTX Corp and a
recapitalization of GTX California. GTX California is the accounting
acquirer and the results of its operations carryover. Accordingly,
the operations of GTX Corp are not carried over and will be adjusted to
$0.
Except
for the Exchange Agreement and the transactions contemplated by that agreement,
neither the Company, nor the directors and officers of the Company serving prior
to the consummation of the Exchange, had any material relationship with GTX, or
any of the Selling Shareholders.
BUSINESS
BACKGROUND
GTX CORP
GTX Corp
was incorporated in the State of Nevada on April 7, 2006 under its former name
“Deeas Resources Inc.” Prior to the Closing, GTX Corp was a public
shell company with nominal assets. We were engaged in the exploration
of mineral properties. Our sole property interest involved the
Treg-Rouchon property, which interest is limited to the exploration and
exploitation of gold placer deposits. The Treg-Rouchon property is
located in central British Columbia, approximately 102 km north-east of the city
of Quesnel, and 712 km north-east of Vancouver, situated in the Caribou Gold
District. The Treg-Rouchon property extends along the Tregillus Creek extending
1.5 kilometres below Tregillus Lake to 200 meters (600 feet) above the mouth of
the Willow River. As our management conducted due diligence on the
property interest, management realized that the property did not present the
best opportunity for our company to realize value for our
shareholders. In an effort to substantiate shareholder value, GTX
Corp then sought to identify, evaluate and investigate various companies and
compatible or alternative business opportunities with the intent that, should
the opportunity arise, a reverse take-over transaction be negotiated and
completed pursuant to which GTX Corp would acquire the target with an operating
business with the intent to continue the acquired company’s business as a
publicly held entity.
As a
result, we entered into the Exchange Agreement on March 4, 2008 as a means to
enter into a new business sector through the consummation of the Exchange
Agreement with GTX California. We currently do not plan to conduct
any business other than owning the shares of GTX, which will continue to conduct
its operations that it has, to date, been engaged in. GTX California
is now our wholly owned operating subsidiary.
GTX
CALIFORNIA
GTX
California was incorporated in California on September 10,
2002. Since its inception in 2002, its business has predominantly
focused on research and development (“R&D”). Through December 31, 2007, GTX
California had spent approximately $771,000 on its R&D
activities. GTX California focused its business development on the
following:
4
GTX
California is a developer of patented wireless location products and services
for family safety and communications, and law enforcement and security
technology solutions. Its portfolio of intellectual property includes our
proprietary integration of the U.S. Government's Global Positioning System (GPS)
and wireless communication technologies; various processes which integrate
numerous GPS and wireless communication technologies into a specifically applied
product solution; and software techniques which when applied to the combined
technologies produces a significant cost saving advantage when compared to other
companies’ technologies claiming to attain the same level of communication
efficiencies.
OUR
BUSINESS
GTX
California is the Company’s wholly owned operating subsidiary.
GTX
California is transitioning from a research and development stage to a marketing
and customer driven stage of operations.
GTX
California has developed a comprehensive, end-to-end GPS location system. Its
tested and proven GPS location system enables subscribers to obtain accurate
location information for loved-ones or valuable property directly through the
Internet or over any wi-fi enabled phone, 24 hours-a-day, seven days a
week.
GTX
California’s first hardware product, a GPS Locator embedded module, combines the
power of assisted GPS and digital personal communications service (“PCS”)
technologies. This product has embedded its highly miniaturized location system
within a lightweight enclosure to be worn by athletes in
competition.
GTX
California can provide location and tracking information in real-time to
customers using the product for both routine and emergency situations through
GTX's 24x7 location data center (“Location Data Center”) and Internet
infrastructures. Following purchase and service activation, a subscriber may
determine the locations of the product by accessing the Internet either by
computer or telephony handset enabled with wi-fi capabilities.
The
Location Data Center equipment is fully equipped with an off-the-shelf database
and computer call distribution application software. Subscriber Internet
communications are routed through GTX California’s proprietary,
fault-tolerant, carrier-class, and application-specific interface
software.
GTX
California intends to design and license a family of GPS Locators to address
five major markets: children, adults (Alzheimer’s patients, senior, disabled,
active adults, teenagers), automotive/commercial/payload tracking, pet owners
and corrections (electronic offender monitoring). Following purchase and service
activation, a subscriber may determine the locations of the product through the
Internet.
GTX
California’s hardware products are essentially enablers of its location service
system. We expect that the majority of GTX California’s gross margin after
subscriber buildup will come from recurring service fee
revenues.
5
GTX California’s Personal Locator
Services>
GTX
California’s objective is to be a leading provider of wireless location services
through the convergence of state-of-the-art enhanced global positioning,
wireless communications and other technologies that empower people and
businesses with the ability to locate loved-ones or personal property whenever
and wherever needed.
We
believe that GTX California’s multi-pronged strategy to penetrate our target
markets by offering exclusive licenses to our technology can create significant
barriers to entry. The initial target markets include:
GTX
California’s planned GPS Personal Locator licenses are targeted to address five
major markets: children, adults, automotive/commercial/payload tracking, pet
owners and institutional living. GTX California intends to offer its Location
Data Center services to non-GTX California products and hardware systems (i.e.
handsets, personal electronics) of major electronics manufacturers as such
third-party products and systems as they become available through the offer and
sale of exclusive licenses to either geographical regions or product
categories.
Children. Due to the
emotional nature of the benefit GTX California is offering, we view this segment
as having immediate market potential. The GPS Personal Locator
license for children will target prospective licensees currently marketing their
existing products to dual-income and single parents of 4-12 year old children.
At the lower end of this age range, children are starting to gain more
independence from their parents and are more likely to be "out of the parent's
sight" for a variety of reasons (day care; school; playing with friends; etc).
GTX California’s believe that both parent and child interest in the product
would level off after age 12, when a child's range of freedom and desire for
privacy increases dramatically. The service was positioned as "complementary" to
parent supervision, not a replacement for it.
Adults. GTX California
believes the demographic segments offering the greatest opportunities are
Alzheimer's patients, seniors (65+ years of age), and active adults and teens.
Another primary application is for "active adults": those who participate in
recreational activities (such as boating, jogging, hiking, camping) that could
put them at risk of getting lost, being injured or becoming a victim to a
violent crime. Other potential users include working women, teens, couples and
developmentally challenged adults. GTX California believes that these people
would be very interested in using the location service during an emergency
situation, as a combination location service/notification to law enforcement
when a crime is in process where a subscriber is the victim, and simply as a
means of communicating one's location to a friend or loved-one.
Automotive/Commercial/Payload
Tracking. As competitive forces continue, we believe that car
and truck dealers will continue to look for ways of increasing their
profitability through value-added services and after-market sales. We believe
that GTX California’s products and services would offer prospective licensees
now doing business with dealers this type of profit-building
opportunity. Permanent installation for theft recovery applications
would be simplified due to the miniaturized nature of the hardware and the
embedded antenna technology. It could be placed in virtually any car or truck
the dealer sells.
GTX
California is also targeting businesses and organizations that use fleets of
vehicles. We believe GTX California’s products would be attractive to any
business owner who needs to know the location of their vehicles and/or
payload(s).
6
Pet Owners. This market
segment would utilize GTX California’s technology to locate pets that have run
away, been stolen or become lost. The pet collar device will be attached to a
collar or by similar means and will utilize the same location (GPS) and
communication (cellular) technologies as the GPS Personal Locator; however,
since it will not need many of the added features (watch display, paging,
wearer-triggered alarm), we anticipate that GTX California will be able to
produce it at a lower unit cost.
Institutional Living. Current technologies used to
monitor individuals with movement-restrictions often do not meet the needs of
law enforcement officials. For example, house arrest systems that utilize an "RF
tether" to monitor an individual's presence in his or her home will alert
officials if the person leaves the house, but will not provide information on
where the person has gone. We believe the increase in over-crowding in jails and
prisons provides a further incentive to utilize location and tracking
products.
Establishing
and building United States and international partnerships, licensing agreements,
OEM, and carrier relationships with major market players, utilizing GTX
California’s technologies will facilitate efficient entry into new markets.
Forging strategic partnerships including co-branding, distribution and marketing
with telecommunication companies, wireless carriers, national retailers, major
consumer brand companies and mass media will align the sales and marketing
efforts with licensed sales channels.
We
believe GTX California is one of the first companies to successfully design and
develop a low-cost, embedded module for the consumer and business markets using
existing wireless and GPS "chip" sets, networks and technologies. We believe
that leveraging existing third-party telephony, contract manufacturing,
application software packages and data/call center infrastructures will minimize
GTX California’s costs and time-to-market.
GTX
California has developed a comprehensive, miniaturized, end-to-end personal
location system, which includes both an embedded module and a proprietary
Location Data Center (software). Their tested and proven technology will enable
people to obtain accurate location information for loved-ones or valuable
property directly through the Internet or over any phone, 24 hours-a-day, seven
days a week. Having designed and built a personal location system, and developed
enhanced GPS with GSM technology, GTX California plans to integrate this
technology into a wide variety of products for prospective licensees in the
emerging location-based services marketplaces around the world.
GTX
California’s products provide real-time information on product location as a
service to consumer and business customers in both routine and emergency
situations. This service will be provided through the 24x7 Location Data Centers
housed in web co-hosting data center companies. The Location Data Centers use
GTX California’s proprietary application-specific interface "thin-client"
software (patent pending) equipment that is connected to existing telephony and
Internet infrastructures.
GTX
California’s proprietary Location Data Center provides the complete array of
back-end services to subscribers. Upon purchase of the product from prospective
licensees, selection of a service plan and activation of service, customers
establish their personal pass code and configure their account services. A
subscriber can have more than one product included on his or her account, and
can set up individual profiles for each product.
The
subscriber initiates requests for information on their product's location
through the Internet via the prospective GTX California licensee’s web site. GTX
California’s Location Data Center (“LDC”) automatically contacts the product via
the local cellular communications infrastructure, requesting the product's
location. The embedded GTX California module utilizes GSM/GPRS technology and
transmits on a GSM network. The GTX California locator utilizes quad-band GSM
technology.
7
The
product’s GPS electronics, utilizing advanced "weak signal server-enhanced"
technology, will provide rapid location identification. With this technology,
the most current satellite data (“Ephemeris data”) is delivered to the product
during the request for location. This greatly enhances GPS performance in
less-than-ideal circumstances (i.e. urban canyons, deep building interiors, and
other difficult areas), enabling the product to get a location from GPS
satellites ten times faster (10 seconds versus 100 seconds) than with Standard
GPS. The cellular tower ID is also used to augment the location information
provided.
Having determined its location, the product then communicates the
location information to the Location Data Center. The location information is
then passed to the subscriber via the Internet (with a map and closest street
address). In most cases, the entire process takes less than 30 seconds. A copy
of the event is stored in the customer's files.
The
accuracy of the location information provided by GTX California’s products is
within 37 feet in optimum conditions, significantly better than that required by
FCC (150 feet).
In
addition to these basic location reporting capabilities, the Location Data
Center also offers several additional features to subscribers:
Breadcrumbing. The subscriber
is able to get a report on a series of location events through “breadcrumbing”.
With this feature, the user can determine the location history of the user.
Parents may want to use this feature to confirm the whereabouts of their child
if he or she is in the care of a guardian and has several appointments
throughout the day. To utilize this feature, the subscriber predetermines the
number of locations he or she wishes to track, as well as the desired time
interval between locations (i.e. identify a total of 12 locations, one every 15
minutes). Once all locations are identified, a report will be automatically
issued. The subscriber can then request a mapping of the desired
locations.
Temporary Guardians. Through
the Location Data Center, subscribers can set-up a “temporary guardian” which
will have access to location features only (no account management functions).
Parents may want to use this feature when their child is visiting a relative and
they want that person to be able to determine the child's location.
GeoFencings. Subscribers can
establish geographic limits for each user that will be programmed in place
through the Internet access provided by the GTX California licensee to their
customers. Once these limits have been programmed in to the account,
when the user crosses these boundaries, alerts are sent out to the subscriber
over the Internet through email or to wireless cellular device by SMS or text
messaging.
Technology>
GTX
California’s current product design utilizes quad-band GSM telephony chip sets
and can be adapted in the future to the then-prevalent wireless technology, be
it 2.5G or 3G. The product’s GPS electronics, utilizing advanced “weak signal
server-enhanced” technology will provide rapid location
identification.
Each
product is programmed with a unique identification number and uses standard
cellular frequencies to communicate its location. The product is also programmed
with a unique subscriber identification number. This allows the owner to
subscribe to the service needed.
GTX
California has developed a “carrier-class” architecture and facility to create
and manage our proprietary Location Data Center (reliable to 99.999%). The Local
Service Center runs on redundant off-the-shelf servers. This enables
cost-efficient expansion, without the need for application code
changes.
The
products will offer wide network coverage throughout the United States and
Canada on the AT&T Wireless networks. In addition, the personal
locators will have the ability to roam seamlessly on the networks of 290
partners in over 130 countries.
8
Our
Intellectual Property Investment
GTX
California has invested significantly in intellectual properties, which consist
of apparatus patents and applications and system and method patents and
applications. GTX California has filed claims that cover all aspects
of the personal locator, its operating system and user interface. Set
forth below is a list of our patents and patent applications.
U.S.
Patent Holdings
Foreign
Patent Holdings
GTX
California owns the Internet domain name www.GTXCorp.com as
well as the names of other related domains that could have use in future
business and vertical marketing initiatives. Under current domain
name registration practices, no one else can obtain an identical domain name,
but someone might obtain a similar name, or the identical name with a different
suffix, such as “.org” or with a country designation. The regulation
of domain names in the United States and in foreign countries is subject to
change, and we could be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of our domain
names.
Revenue
Sources
GTX
California expects revenues to be based on the following sales and revenue
sources:
9
GTX California’s Industry>
After
several years of fitful industry interest, location-based services are once
again central to the wireless industry. Technological challenges have
been resolved with 2.5G and 3G network speeds now consistent with higher-speed
coverage that is widely available. In our ever-mobile society, it
helps to know where we are and where we are going. According to a
2006 study authored for International Data Corporation (“IDC”) by Rena
Bhattacharyya and Scott Ellison and entitled U.S. Market for Wireless Location
Based Studies, the demand for Global Positioning System (“GPS”) devices
is growing rapidly. Due to the demands of families with dual earners,
and the number of single parent homes, many children are left without a parent
home during the day. Parents in those situations desire the ability
to know where their children are and where they are going. Having
such information is possible when we have access to real-time information
delivered on-demand. The technology that makes this possible has
provided us the ability to move faster than before.
According
to a research report released by the Consumer Electronics Association (“CEA”),
overall satisfaction among owners of such devices is high and consumer interest
for the technology is quickly increasing. The report, “GPS –
Exploring Ownership and Interest” revealed that the owner satisfaction rate is
at 80 percent, strongly influenced by the ease of use and display quality of
devices. Navigation assistance in a vehicle was the primary use of the
technology in consumer devices.
Since
2002, IDC research has consistently shown very high levels of consumer interest
in location based services – especially in family/friend locator
devices. Access, controlled by the parent and permission-based among
other adults, gives the parents the means to stay connected to their children as
well as the opportunity to use the geofencing technology to control access to
particular areas. The results of this study indicate that there is
significant opportunity for GPS manufacturers and marketers throughout multiple
industries. The key will be to respond with products that include GPS
capability in easy-to-use formats and devices to speed adoption. We
believe GTX California’s GpVectorTM
technology will be well received when taken to the market, although there can be
no assurance that will be true.
Target
Markets and Marketing Strategy
We
believe that GTX California’s primary target market will consist of prospective
licensees who will be characterized as companies currently selling related
products or technology services in to markets such as home security and child
safety, medical and elder care providers, campers, hikers, backpackers,
adventure seekers, extreme sports enthusiasts, freight and cargo carriers,
delivery services, pet owners, vehicle finance companies, auto dealerships, law
enforcement agencies, military organizations and individuals wishing to track
valuable personal items.
The
marketing initiatives will include:
Growth
Strategy
GTX
California’s objective is to become one of the major providers of personal and
asset location services to the mass consumer market. The strategy is
to establish licensing relationships with key industry partners who are
recognized for providing safety and security technologies into a wide array of
marketplaces whether it be for their children, their pets, or asset tracking
(luggage, vehicles, boats and the like). Key elements of our strategy
include:
10
GTX California’s Website
The
website, www.gtxcorp.com, provides a description of
GTX California’s corporate business along with contact information including
address, telephone number and e-mail addresses. The website also
provides prospective customers with relevant information about our products,
pricing and payment options, ordering capability, frequently asked questions and
access to corporate investor relations information. Information
contained on the website is not a part of this
report.
Competition
Personal
location and property tracking devices are just beginning to significantly
penetrate the marketplace. We believe this condition represents a
tremendous opportunity as customers will be attracted in large numbers once the
intrinsic value of such devices is recognized and mass market adoption
begins.
Competitors
include Location Based Technologies, Inc, Zoombak, Inc., Trimble Navigation,
Inc., Geospatial Platform Providers, Application Developers, SOS Gps, Inc. and
Wherify Wireless, Incorporated. GTX California’s competitors may be
better financed, or have greater marketing and scientific resources than we can
provide.
In
related markets, GPS devices have become widely used for automotive and marine
applications where line-of-sight to GPS satellites is not a significant
issue. Manufacturers such as Garmin, Navman, Magellan, TomTom,
Pharos, NovAtel and DeLorne are finding a market interested in using these
products for both business and leisure purposes.
As a
result, use of GPS technology in devices such as chart plotters, fitness and
training devices, fish finders, laptop computers, and PDA location devices are
gaining significant market acceptance and commercialization. Prices
range from $350 to several thousand dollars. We expect that
increasing consumer demand in these markets will drive additional applications
and lower price points.
Government
Regulation
GTX
California is subject to federal, state and local laws and regulations applied
to businesses generally as well as FCC, IC and CE wireless device regulations
and controls. We believe that GTX California is in conformity with
all applicable laws in all relevant jurisdictions. We do not believe
that GTX California’s operations are subject to any environmental laws and
regulations of the United States and the states in which they
operate.
Research
and Development
GTX
California is currently in full development mode with completion of the locator
device projected to be accomplished in April 2008 and certification processes to
begin immediately thereafter (initial certifications will be sought from the
FCC, the PCS Type Certification Review Board, or PTCRB, and the various wireless
network carriers they plan to use to transmit and receive data from the
GpVectorTM
device). Prototype testing is scheduled to begin in April
2008. Additionally, GTX California is working with several other
entities who are conducting research on key aspects of the device itself
(including expanded antennae capability, battery capacity, and enhanced location
reliability and accuracy). We anticipate GTX California will have
ongoing involvement with such developmental activities throughout the
foreseeable future.
Employees
and Consultants
As of
March 19, 2008, GTX and GTX California had a combined total of seven (7)
full-time employees and seven (7) part-time consultants. The employees are not
represented by a labor union. We believe that the employee relations are
good. We anticipate that GTX California will hire four to six key
employees in the next six months, with selective and controlled growth
commensurate with significant increases in GTX California’s
revenues. We anticipate that GTX California will continue to
extensively use the services of independent contractors and consultants to
support its expansion, customer service, and business development activities in
a robust outsourcing business model.
11
Principal
Executive Offices
GTX’s
headquarters is located at 117 W. 9th Street, # 1214, Los Angeles, CA
90015. We lease approximately 2,000 square feet under a lease
agreement which expires in December 2009. Our headquarters houses all of
our employees. Our lease payments are $705.00 per month. In
management’s opinion, the leased premises are adequately insured.
WHERE
YOU CAN FIND MORE INFORMATION
Because
we are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, (“Exchange Act”) we file reports, proxy statements and
other information with the SEC. You may read and copy these reports, proxy
statements and other information at the public reference room maintained by the
SEC at its Public Reference Room, located at 100 F Street, N.E. Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the SEC at (800) SEC-0330. In addition, we are required to file
electronic versions of those materials with the SEC through the SEC’s EDGAR
system. The SEC also maintains a web site at http://www.sec.gov, which contains
reports, proxy statements and other information regarding registrants that file
electronically with the SEC.
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision
with regard to our securities. The statements contained in or incorporated into
this offering that are not historic facts are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements. If
any of the following risks actually occurs, our business, financial condition or
results of operations could be harmed. In that case, the trading price of our
common stock could decline, and you may lose all or part of your
investment.
Our
operations have been devoted to research and development and we have not
launched our product to a large number of customers, making it difficult to
evaluate our future prospects and results of operations.
GTX
California, formed in 2002, dedicated its resources to research and development
until recently and has not yet launched a product to a large number of
customers. Accordingly, you should consider our future prospects in
light of the risks and uncertainties experienced by early stage companies in
evolving industries. Some of these risks and uncertainties relate to our ability
to:
· offer
new and innovative products to attract and retain a larger customer
base;
· attract
additional customers and increase spending per customer;
· increase
awareness of our brand and continue to develop user and customer
loyalty;
· respond
to competitive market conditions;
· manage
risks associated with intellectual property rights;
· maintain
effective control of our costs and expenses;
· raise
sufficient capital to sustain and expand our business;
· attract,
retain and motivate qualified personnel; and
· upgrade
our technology to support additional research and development of
newproducts.
If we are
unsuccessful in addressing any of these risks and uncertainties, our business
may be materially and adversely affected.
If
we fail to develop and maintain an effective system of internal controls, we may
not be able to accurately report our financial results or prevent fraud; as a
result, current and potential shareholders could lose confidence in our
financial reports, which could harm our business and the trading price of our
common stock.
12
Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002
requires us to evaluate and report on our internal controls over financial
reporting and have our independent registered public accounting firm annually
attest to our evaluation, as well as issue their own opinion on our internal
controls over financial reporting. We plan to prepare for compliance with
Section 404 by strengthening, assessing and testing our system of internal
controls to provide the basis for our report. The process of strengthening our
internal controls and complying with Section 404 is expensive and time
consuming, and requires significant management attention, especially given that
we have not yet undertaken any efforts to comply with the requirements of
Section 404. We cannot be certain that the measures we will undertake will
ensure that we will maintain adequate controls over our financial processes and
reporting in the future. Furthermore, if we are able to rapidly grow our
business, the internal controls that we will need will become more complex, and
significantly more resources will be required to ensure our internal controls
remain effective. Failure to implement required controls, or difficulties
encountered in their implementation, could harm our operating results or cause
us to fail to meet our reporting obligations. If we or our auditors discover a
material weakness in our internal controls, the disclosure of that fact, even if
the weakness is quickly remedied, could diminish investors’ confidence in our
financial statements and harm our stock price. In addition, non-compliance with
Section 404 could subject us to a variety of administrative sanctions, including
the suspension of trading, ineligibility for listing on one of the Nasdaq Stock
Markets or national securities exchanges, and the inability of registered
broker-dealers to make a market in our common stock, which would further reduce
our stock price.
We
will incur increased costs as a public company which may affect our
profitability and an active trading market.
As a
public company, we will incur significant legal, accounting and other expenses
that it did not incur as a private company. We are now subject to the SEC’s
rules and regulations relating to public disclosure. SEC disclosures generally
involve a substantial expenditure of financial resources. In addition, the
Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the SEC
have required changes in corporate governance practices of public companies. We
expect that full compliance with these new rules and regulations will
significantly increase our legal and financial compliance costs and make some
activities more time-consuming and costly. For example, we will be required to
create additional board committees and adopt policies regarding internal
controls and disclosure controls and procedures. Such additional reporting and
compliance costs may negatively impact our financial results. To the extent our
earnings suffer as a result of the financial impact of our SEC reporting or
compliance costs, our ability to develop an active trading market for our
securities could be harmed.
Risk
Relating to an Investment in Our Securities
Our
common stock is illiquid and shareholders may be unable to sell their
shares.
There is
currently no market for our common stock and we can provide no assurance to
investors that a market will develop. If a market for our common stock does not
develop, our shareholders may not be able to re-sell the shares of our common
stock that they have purchased and they may lose all of their investment. Public
announcements regarding our company, changes in government regulations,
conditions in our market segment or changes in earnings estimates by analysts
may cause the price of our common shares to fluctuate substantially. These
fluctuations may adversely affect the trading price of our common
shares.
We do not expect to pay dividends for
the foreseeable future, and we may never pay dividends. Investors seeking cash dividends
should not purchase our common stock.>
We
currently intend to retain any future earnings to support the development of our
business and do not anticipate paying cash dividends in the foreseeable future.
Our payment of any future dividends will be at the discretion of our board of
directors after taking into account various factors, including but not limited
to our financial condition, operating results, cash needs, growth plans and the
terms of any credit agreements that we may be a party to at the time. In
addition, our ability to pay dividends on our common stock may be limited by
Nevada corporate law. Accordingly, investors must rely on sales of their common
stock after price appreciation, which may never occur, as the only way to
realize a return on their investment. Investors seeking cash dividends should
not purchase our common stock.
13
The
application of the “penny stock” rules could adversely affect the market price
of our common stock and increase your transaction costs to sell those
shares.
As long
as the trading price of our common shares is below $5 per share, the open-market
trading of our common shares will be subject to the “penny stock” rules. The
“penny stock” rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of US$1,000,000
or annual income exceeding US$200,000 or US$300,000 together with their spouse).
For transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchaser’s written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the willingness
of broker-dealers to sell our common stock, and may result in decreased
liquidity for our common stock and increased transaction costs for sales and
purchases of our common stock as compared to other securities.
There
is no current market for our common stock. If one develops we
expect our common stock to be thinly traded and, you may be unable to
sell at or near “ask” prices or at all if you need to sell your shares to raise
money or otherwise desire to liquidate your shares.
Our
common stock is currently listed on the OTC Bulletin Board under the symbol
“GTXO”; however there is no trading market. We cannot predict the extent to
which an active public market for our common stock will develop or be
sustained. However, we do not rule out the possibility of applying
for listing on the Nasdaq Global Select Market, Nasdaq Global Market, Nasdaq
Capital Market (the “Nasdaq Markets”), or other exchanges. If a
trading market develops, we expect our common stock to be “thinly-traded” on the
OTC Bulletin Board, meaning that the number of persons interested in purchasing
our common stock at or near bid prices at any give time may be relatively small
or nonexistent. This is attributable to a number of factors, including the fact
that we are a small company which is relatively unknown to stock analysts, stock
brokers, institutional investors and others in the investment community that
generate or influence sales volume, and that even if we came to the attention of
such persons, they tend to be risk-adverse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we become more seasoned and viable. As a consequence,
if a market for our common stock develops, there may be periods of several days
or more when trading activity in our shares is minimal or non-existent, as
compared to a seasoned issuer that has a large and steady volume of trading
activity that will generally support continuous sales without an adverse effect
on share price. We cannot give you any assurance that a broader or more active
public trading market for our common stock will develop or be sustained, or that
current trading levels will be sustained.
The
market price of our common stock will be particularly volatile given our status
as a relatively small company with a small and thinly traded “float” that could
lead to wide fluctuations in our share price. The price at which you purchase
our common stock may not be indicative of the price that will prevail in the
trading market. You may be unable to sell your common stock at or above your
purchase price if at all, which may result in substantial losses to
you.
The
market for our common stock will be characterized by significant price
volatility when compared to seasoned issuers, and we expect that our share price
will continue to be more volatile than a seasoned issuer for the indefinite
future. The volatility in our share price will be attributable to a number of
factors. As noted above, our common stock is sporadically and/or thinly traded.
As a consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event a large number of our common shares
are sold on the market without commensurate demand, as compared to a seasoned
issuer which could better absorb those sales without adverse impact on its share
price. The following factors also may add to the volatility in the price of our
common stock: actual or anticipated variations in our quarterly or annual
operating results; adverse outcomes; additions to or departures of our key
personnel, as well as other items discussed under this “Risk Factors” section,
as well as elsewhere in this Report. Many of these factors are beyond our
control and may decrease the market price of our common stock, regardless of our
operating performance. We cannot make any predictions or projections as to what
the prevailing market price for our common stock will be at any time, including
as to whether our common stock will sustain its current market prices, or as to
what effect the sale of shares or the availability of common shares for sale at
any time will have on the prevailing market price. However, we do not rule out
the possibility of applying for listing on the Nasdaq Markets or another
exchange.
14
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (2)
manipulation of prices through pre-arranged matching of purchases and sales and
false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
Volatility
in our common stock price may subject us to securities litigation.
The
market for our common stock may be characterized by significant price volatility
when compared to seasoned issuers, and we expect our share price will be more
volatile than a seasoned issuer for the indefinite future. In the past,
plaintiffs have often initiated securities class action litigation against a
company following periods of volatility in the market price of its securities.
We may, in the future, be the target of similar litigation. Securities
litigation could result in substantial costs and liabilities and could divert
management’s attention and resources.
Legislative
actions, higher insurance costs and potential new accounting pronouncements may
impact our future financial position and results of operations.
There
have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
there may potentially be new accounting pronouncements or additional regulatory
rulings that will have an impact on our future financial position and results of
operations. The Sarbanes-Oxley Act of 2002 and other rule changes, as well as
proposed legislative initiatives following the Enron bankruptcy, are likely to
increase general and administrative costs and expenses. In addition, insurers
are likely to increase premiums as a result of high claims rates over the past
several years, which we expect will increase our premiums for insurance
policies. Further, there could be changes in certain accounting rules. These and
other potential changes could materially increase the expenses we report under
generally accepted accounting principles, and adversely affect our operating
results.
Past
activities of our company and its affiliated may lead to future liability for
our company.
Prior to
our acquisition of GTX California in 2008, we engaged in businesses unrelated to
our current operations. Although certain previously controlling shareholders of
our company are providing certain indemnifications against any loss, liability,
claim, damage or expense arising out of or based on any breach of or inaccuracy
in any of their representations and warranties made regarding such acquisition,
any liabilities relating to such prior business against which we are not
completely indemnified may have a material adverse effect on our
Company.
Future
sales of shares of our common stock may decrease the price for such
shares.
Actual
sales, or the prospect of sales by our shareholders, may have a negative effect
on the market price of the shares of our common stock. We may also register
certain shares of our common stock that are subject to outstanding convertible
securities, if any, or reserved for issuance under our stock option plans, if
any. Once such shares are registered, they can be freely sold in the public
market upon exercise of the options. If any of our shareholders either
individually or in the aggregate causes a large number of securities to be sold
in the public market, or if the market perceives that these holders intend to
sell a large number of securities, such sales or anticipated sales could result
in a substantial reduction in the trading price of shares of our common stock
and could also impede our ability to raise future capital.
15
Mergers
of the type we just completed with GTX California are often heavily scrutinized
by the SEC and we may encounter difficulties or delays in obtaining future
regulatory approvals which would negatively impact our financial condition and
the value and liquidity of your shares of common stock.
Historically,
the SEC and Nasdaq have not generally favored transactions in which a
privately-held company merges into a largely inactive company with publicly
listed stock, and there is a significant risk that we may encounter difficulties
in obtaining the regulatory approvals necessary to conduct future financing or
acquisition transactions, or to eventually achieve a listing of shares on one of
the Nasdaq stock markets or on a national securities exchange. On June 29, 2005,
the SEC adopted rules dealing with private company mergers into dormant or
inactive public companies. As a result, it is likely that we will be scrutinized
carefully by the SEC and possibly by the Financial Industry Regulatory Authority
(“FINRA”) or Nasdaq, which could result in difficulties or delays in achieving
SEC clearance of any future registration statements or other SEC filings that we
may pursue, in attracting FINRA-member broker-dealers to serve as market-makers
in our common stock, or in achieving admission to one of the Nasdaq stock
markets or any other national securities market. As a consequence, our financial
condition and the value and liquidity of your shares of our common stock may be
negatively impacted.
Our
corporate actions are substantially controlled by our officers and directors who
beneficially own approximately 17.8% of our issued and outstanding capital
stock.
Our
officers and directors own 6,491,617 of our outstanding common stock,
representing approximately 17.8% of our voting power. These shareholders, acting
as a group, could exert substantial influence over matters such as electing
directors and approving mergers or other business combination transactions. In
addition, because of the percentage of ownership and voting concentration in
these officers and directors, elections of our Board of Directors may generally
be within the control of these shareholders. While all of our shareholders are
entitled to vote on matters submitted to our shareholders for approval, the
concentration of shares and voting control presently lies with principal
shareholders and their affiliated entities. As such, it would be difficult for
shareholders to propose and have approved proposals not supported by management.
There can be no assurances that matters voted upon by our officers and directors
in their capacity as shareholders will be viewed favorably by all shareholders
of our company.
The
elimination of monetary liability against our directors, officers and employees
under Nevada law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by us and may
discourage lawsuits against our directors, officers and employees.
Our
Amended and Restated Bylaws contain specific provisions that eliminate the
liability of our directors for monetary damages to our company and shareholders,
and we are prepared to give such indemnification to our directors and officers
to the extent provided by Nevada law. We may also have contractual
indemnification obligations under our employment agreements with our officers.
The foregoing indemnification obligations could result in our company incurring
substantial expenditures to cover the cost of settlement or damage awards
against directors and officers, which we may be unable to recoup. These
provisions and resultant costs may also discourage our company from bringing a
lawsuit against directors and officers for breaches of their fiduciary duties,
and may similarly discourage the filing of derivative litigation by our
shareholders against our directors and officers even though such actions, if
successful, might otherwise benefit our company and shareholders.
We
currently lack liquidity and have limited revenues. We will need to raise
additional capital, which will result in substantial dilution to existing
stockholders.
As of
December 31, 2007 we had cash and cash equivalents of approximately
$736,000. Substantially all of our cash has been raised through
capital raising transactions rather than operations. In order to license,
manufacture, and sell our products and to execute on our business plan, we need
substantial additional capital. We are currently considering possible sources of
this additional capital, including raising capital through the issuance of
equity securities. Although the exact amount we intend to raise has not yet been
determined, we are contemplating an amount in excess of $10 million. There
can be no assurance that we will be able to raise sufficient additional capital
at all or on terms favorable to our stockholders or us. If we issue equity
securities in order to raise additional capital in the amounts currently
contemplated, the stockholders will experience immediate and substantial
dilution in their ownership percentage of the combined company. In addition, to
raise the capital we need, we may need to issue additional shares at a discount
to the current market price. If the terms of such financing are unfavorable to
us or our stockholders, the stockholders may experience substantial dilution in
the net tangible book value of their stock. In addition, any new equity
securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise funds on acceptable terms,
we may not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
all of which could have a material adverse effect on us.
16
Risks
Related to our Business
We
have only recently begun production of our GpVectorTM product
and may encounter manufacturing problems during the production process, which
would adversely affect our results of operations and financial
condition.
Our
GpVectorTM
product is a new product and we have discontinued manufacturing all of
our other products. The manufacture of our GpVectorTM product
involves complex and precise processes, which we have subcontracted to another
company. To date, we have only initiated a limited production of this product
and so we do not yet know whether we will encounter any serious problems during
the production process in the long-term. Any significant problems in
manufacturing, assembling or testing of this product could delay the roll-out of
the GpVector™ product and have an adverse impact on our business and prospects.
The willingness of manufacturers to make the product or lack of availability of
manufacturing capacity may have an adverse impact on our ability to go to
market, and as a result we may not be able to grow our business as we expect,
and our ability to compete could be harmed, adversely affecting our results of
operations and financial condition.
Our software products are complex and
may contain unknown defects that could result in numerous adverse
consequences, resulting
in costly litigation or diverting management's attention and
resources>.
Complex
software products such as those associate with our GpVectorTM product
often contain latent errors or defects, particularly when first introduced, or
when new versions or enhancements are released. We have experienced errors and
defects in our most recent release of the software associated with our
GpVectorTM
product, but do not believe these errors will have a material negative effect on
the functionality of the GpVectorTM
product. However, there can be no assurance that, despite testing, additional
defects and errors will not be found in the current version, or in any new
versions or enhancements of this software, any of which could result in damage
to our reputation, the loss of sales, a diversion of our product development
resources, and/or a delay in market acceptance, and thereby materially adversely
affecting our business, operating results and financial condition. Furthermore,
there can be no assurance that our products will meet all of the expectations
and demands of our customers. The failure of our products to perform to customer
expectations could give rise to warranty claims. Any of these claims, even if
not meritorious, could result in costly litigation or divert management's
attention and resources. Any product liability insurance that we may carry could
be insufficient to protect us from all liability that may be imposed under any
asserted claims.
We
depend on our key personnel to manage our business effectively in a rapidly
changing market. If we are unable to retain our key employees, our
business, financial condition and results of operations could be
harmed.
Our
future success depends to a significant degree on the skills, efforts and
continued services of our executive officers and other key engineering,
manufacturing, operations, sales, marketing and support personnel who have
critical industry experience and relationships. If we were to lose the services
of one or more of our key executive officers and senior management members, we
may not be able to grow our business as we expect, and our ability to compete
could be harmed, adversely affecting our business and prospects.
17
Our
markets are highly competitive, and our failure to compete successfully would
limit our ability to sell our products, attract and retain customers and grow
our business.
Competition
in the wireless location services market and the facial composite software
market is intense. In addition, the adoption of new technology in the
communications industry likely will intensify the competition for improved
wireless location technologies. The wireless location services market has
historically been dominated by large companies, such as Siemens AG and LoJack
Corporation. In addition, a number of other companies such as Trimble
Navigation, Verizon, FireFly, Disney, Mattel, Digital Angel Corporation,
Location-Based Technologies, Inc. (OTCBB: LBAS) and WebTech Wireless Inc. either
have announced plans for new products or have commenced selling products that
are similar to our wireless location products, and new competitors are emerging
to compete with our wireless location services products. Due to the rapidly
evolving markets in which we compete, additional competitors with significant
market presence and financial resources may enter those markets, thereby further
intensifying competition. All competitors in the wireless location services
market rely on retail distributors to sell their products to consumers.
Additional competitors in this market may limit the availability or interest of
retail distributors to carry our wireless location services product and launch
it into the market. These issues may have an adverse impact on our ability to go
to market, and as a result we may not be able to grow our business as we expect,
and our ability to compete could be harmed, adversely affecting our business and
prospects.
Our
wireless location products and technology are new and may not be accepted in the
market, which would dramatically alter our financial results.
We have
had only a limited release of one of our planned wireless locator products in
the market. There can be no assurances that consumer demand will meet, or even
approach, our expectations. In addition, our pricing and marketing strategies
may not be successful. Lack of customer demand, a change in marketing strategy
and changes to our pricing models could dramatically alter our financial
results.
Standards
in wireless communications industry are in flux, and if we are unable to comply
with these industry standards, our business will be harmed.
Standards
in the wireless communications industry are evolving. The emergence and broad
adoption of new industry standards could require us to redesign our products. If
we are unable to design our products to comply with these new standards, our
products would become obsolete and consumers would instead purchase other
standard-compliant products. As a result, our business could be harmed, and our
financial condition and results of operations could be adversely
affected.
Changes
in the government regulation of our wireless location product or wireless
carriers could harm our business.
Our
products, wireless carriers and other members of the communications industry are
subject to domestic government regulation by the Federal Communications
Commission (the “FCC”) and international regulatory bodies. These regulatory
bodies could enact regulations which affect our products or the service
providers which distribute our products, such as limiting the scope of the
service providers' market, capping fees for services provided by them or
imposing communication technology standards which impact our
products.
If
our wireless locator products fail to achieve broad market acceptance, our
business results will be harmed.
We have
not begun selling our wireless location products for use by direct purchase
consumers or for resale by distributors. If our products are not widely accepted
by the market, our business results could be harmed. Factors that may affect the
market acceptance of our location products include price, reliability,
performance, technological innovation/enhancements, network coverage, ease of
use, and availability.
If we
fail to perform adequately on the basis of each of these factors versus
competing products and technologies, our business results could be
harmed.
18
Our
ability to compete could be jeopardized and our business seriously compromised
if we are unable to protect ourselves from third-party challenges, the
development and maintenance of the proprietary aspects of wireless location
products and technology we develop.
Our
products utilize a variety of proprietary rights that are critical to our
competitive position. Because the technology and intellectual property
associated with our wireless location products are evolving and rapidly
changing, our current intellectual property rights may not adequately protect us
in the future. We rely on a combination of patent, copyright, trademark and
trade secret laws and contractual restrictions to protect the intellectual
property utilized in our products. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or otherwise obtain
and use our products or technology. In addition, monitoring unauthorized use of
our products is difficult and we cannot be certain the steps we have taken will
prevent unauthorized use of our technology. Also, it is possible that no patents
or trademarks will be issued from our currently pending or future patent or
trademark applications. Because legal standards relating to the validity,
enforceability and scope of protection of patent and intellectual property
rights in new technologies are uncertain and still evolving, the future
viability or value of our intellectual property rights is uncertain. Moreover,
effective patent, trademark, copyright and trade secret protection may not be
available in some countries in which we distribute or may anticipate
distributing our products. Furthermore, our competitors may independently
develop similar technologies that limit the value of our intellectual property
or design or patents.. If competitors are able to use our technology,
our competitive edge would be reduced or eliminated.
In
addition, third parties may at some point claim certain aspects of our business
infringe their intellectual property rights. While we are not currently subject
to nor is aware of any such claim, any future claim (with or without merit)
could result in one or more of the following:
· Significant
litigation costs;
· Diversion
of resources, including the attention of management;
· Our
agreement to pay certain royalty and/or licensing fees; and
· Cessation
of our rights to use, market, or distribute such technology.
Any of
these developments could materially and adversely affect our business, results
of operations and financial condition. In the future, we may also need to file
lawsuits to enforce our intellectual property rights, to protect our trade
secrets, or to determine the validity and scope of the proprietary rights of
others. Whether successful or unsuccessful, such litigation could result in
substantial costs and diversion of resources. Such costs and diversion could
materially and adversely affect our business, results of operations and
financial condition.
We
could become subject to litigation regarding intellectual property rights, which
could seriously harm our business and require us to incur significant
costs.
In recent
years, there has been significant litigation in the United States involving
patents and other intellectual property rights. Any parties asserting that our
products infringe upon their proprietary rights would force us to defend
ourselves and possibly our customers or manufacturers against the alleged
infringement. These claims and any resulting lawsuit, if successful, could
subject us to significant liability for damages and invalidation of proprietary
rights. These lawsuits, regardless of their merits, would likely be
time-consuming and expensive to resolve and would divert management time and
attention. Any potential intellectual property litigation also could force us to
do one or more of the following:
· Stop
selling, incorporating or using our products that use the challenged
intellectual property;
· Obtain
from the owner of the infringed intellectual property right a license to sell or
use the relevant technology, which license may not be available on reasonable
terms, or at all; or
· Redesign
those products that use such technology.
If we are
forced to take any of the foregoing actions, our business and prospects may be
seriously harmed.
19
We
currently depend upon one manufacturer for our principal product and if we
encounters problems with this manufacturer there is no assurance that we could
obtain products from other manufacturers without significant disruptions to our
business.
We expect
that our principal product will be manufactured to our specifications by one
manufacturer. Although we could arrange for another manufacturer to supply the
product, there is no assurance that we could do so without undue cost, expense
and delay.
We expect to rely heavily on a few
licensees. The
loss of, or a significant
reduction in, orders from these major customers could have a material adverse
effect on our financial condition and results of operations.>
Our
revenues in the next several years could be heavily dependent on contracts with
a limited number of major market makers in each business segment. The loss of,
or a significant reduction in, orders from these major customers could have a
material adverse effect on our financial condition and results of
operations.
Fluctuations
in operating results could adversely affect the market price of our common
stock.
Our
revenues and operating results are likely to fluctuate significantly in the
future. The timing of order placement, size of orders and satisfaction of
contractual customer acceptance criteria, as well as order delays or deferrals
and shipment delays and deferrals, may cause material fluctuations in
revenue.
Delays or
deferrals in purchasing decisions may increase as we develop new or enhanced
products. The current and anticipated dependence on a small number of customers
increases the revenue impact of each customer's actions relative to these
factors. Our expense levels in the future will be based, in large part, on our
expectations regarding future revenue, and as a result net income for any
quarterly period in which material orders are delayed could vary
significantly.
Because
of these and other factors, investors should not rely on quarter-to-quarter
comparisons of our results of operations, our results of operations or the pro
forma financial information as an indication of future performance. It is
possible that, in future periods, results of operations will differ from the
estimates of public market analysts and investors. Such a discrepancy could
cause the market price of our common stock to decline
significantly.
Delays,
disruptions or quality control problems in manufacturing could result in delays
in shipments of products to customers and could adversely affect our
business.
We might
experience delays, disruptions or quality control problems in the manufacturing
operations of our subcontractors. As a result, we could incur additional costs
that would adversely affect gross margins, and product shipments to our
customers could be delayed beyond the shipment schedules requested by our
customers, which would negatively affect our revenues, competitive position and
reputation. Furthermore, even if we are able to timely deliver products to our
customers, we may be unable to recognize revenue based on our revenue
recognition policies. Any disruptions in the future could adversely affect the
combined company's revenues, gross margins and results of operations. We may
experience manufacturing delays and reduced manufacturing yields upon
introducing new products to our manufacturing lines or when integrating acquired
products.
Rapid
technological change in our market could cause our products to become obsolete
or require us to redesign our products, which would have a material adverse
affect on our business, operating results and financial condition.
We expect
that our markets will be characterized by rapid technological change, frequent
new product introductions and enhancements, uncertain product life cycles,
changing customer demands and evolving industry standards, any of which can
render existing products obsolete. We believe that our future success will
depend in large part on our ability to develop new and effective products in a
timely manner and on a cost effective basis. As a result of the complexities
inherent in our product, major new products and product enhancements can require
long development and testing periods, which may result in significant delays in
the general availability of new releases or significant problems in the
implementation of new releases. In addition, if we or our competitors announce
or introduce new products our current or prospective customers may defer or
cancel purchases of our products, which could materially adversely affect our
business, operating results and financial condition. Our failure to develop
successfully, on a timely and cost effective basis, new products or new product
enhancements that respond to technological change, evolving industry standards
or customer requirements would have a material adverse affect on our business,
operating results and financial condition.
20
Failure
to manage growth effectively could adversely affect our business, results of
operations and financial condition.
The
success of our future operating activities will depend upon our ability to
expand our support system to meet the demands of our growing business. Any
failure by our management to effectively anticipate, implement, and manage
changes required to sustain our growth would have a material adverse effect on
our business, financial condition, and results of operations. We cannot assure
you that we will be able to successfully operate acquired businesses, become
profitable in the future, or effectively manage any other change.
SELECTED
FINANCIAL DATA
You
should read the summary consolidated financial data set forth below in
conjunction with “Management’s
Discussion and Analysis of Financial Condition or Plan of Operations” and
our predecessor’s financial statements and the related notes included elsewhere
in this report. We derived the financial data for the years ended December 31,
2007 and 2006 from GTX California’s financial statements included in this
report. The historical results are not necessarily indicative of the results to
be expected for any future period.
Footnotes
The
transaction contemplated under the Exchange Agreement is deemed to be a reverse
acquisition, where GTX Corp (the legal acquirer) is considered the accounting
acquiree and GTX California (the legal acquiree) is considered the accounting
acquirer. The Pro Forma Financial Statements for the Exchange Transaction are
filed as Exhibit 99.2 to this Current Report
on Form 8-K and are incorporated herein by reference.
21
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and
analysis of the results of operations and financial condition of GTX for the
years ended December 31, 2007 and 2006 should be read in conjunction with the
Selected Consolidated Financial Data, GTX’s financial statements and the notes
to those financial statements that are included elsewhere in this Current Report
on Form 8-K (“Form 8-K”). Our discussion includes forward-looking statements
based upon current expectations that involve risks and uncertainties, such as
our plans, objectives, expectations and intentions. Actual results and the
timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking
Statements and Business sections in this Form 8-K. We use words such as
“anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” or similar expression, variations of those terms or the
negative of those terms to identify forward-looking statements. The forward-looking statements
specified in the following information have been compiled by our management on
the basis of assumptions made by management and considered by management to be
reasonable. Our future operating results, however, are impossible to predict and
no representation, guaranty, or warranty is to be inferred from those
forward-looking statements.
The
assumptions used for purposes of the forward-looking statements specified in the
following information represent estimates of future events and are subject to
uncertainty as to possible changes in economic, legislative, industry, and other
circumstances. As a result, the identification and interpretation of data and
other information and their use in developing and selecting assumptions from and
among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and, accordingly, no opinion is expressed on
the achievability of those forward-looking statements. No assurance can be given
that any of the assumptions relating to the forward-looking statements specified
in the following information are accurate, and we assume no obligation to update
any such forward-looking statements.
RESULTS
OF OPERATIONS
For
the year ended December 31, 2007 as compared to the year ended December 31,
2006.
Revenues.
Revenues
generated during the year ended December 31, 2007 were minor and were received
from one customer in connection with a licensing agreement which was
terminated. We recognized no revenues during the year ended December
31, 2006.
22
Operating
Expenses.
Total
operating expenses for the year ended December 31, 2007 were $1,317,747 as
compared to total operating expenses of $1,225,300 for the year ended December
31, 2006. The increase in operating expenses is attributed to the
following:
Other
Income (Expense)
During
the year ended December 31, 2007, we recognized $1,685 of interest income as
compared to $8,790 recognized during the year ended December 31,
2006.
During
the year ended December 31, 2007, we reported interest expense of $37,592 as
compared to $7,838 for the year ended December 31, 2006. The reported
increase is attributed to the recognition of a $20,000 financing fee paid in
conjunction with the Note Payable agreement entered into on November 9, 2007, as
well as the related interest on the Note Payable accruing at 10% per
annum.
Net
Loss.
During
the year ended December 31, 2007, we reported a net loss of $1,327,654 as
compared to a net loss of $1,224,348 for the year ended December 31, 2006, due
primarily to an increase in operating expenses as discussed above.
Liquidity
and Capital Resources.
We had
cash and cash equivalents of $735,937 and $245,461 as of December 31, 2007 and
2006, respectively. We had significantly more cash as of December 31,
2007, as a result of capital raising efforts whereby the Company executed a Note
Payable during the year ended December 31, 2007 resulting in proceeds of $1
million. We had inventory of $15,312 as of December 31, 2007 which
consisted of finished units and various components that go into the final
product such as antennas, batteries, control boards, SIM card holders,
etc. There was no inventory reported as of December 31,
2006.
As of
December 31, 2007 and 2006, the total of our property and equipment, less
accumulated depreciation, was a net value of $11,810 and $3,491,
respectively. The increase is primarily due to the acquisition of
computer equipment and software during the year ended December 31,
2007.
23
Our total
assets as of December 31, 2007 and 2006 were $763,059 and $248,952,
respectively. The increase in our total assets between the two years was due
primarily to an increase in cash and cash equivalents as of December 31,
2007.
As of December 31, 2007 and 2006, our accounts payable and accrued
expenses were $351,849 and $62,816, respectively. The increase is
primarily due to the accrual of significant legal and accounting fees incurred
as a result of the Merger and the $1 million dollar convertible note payable
agreement, as well as, $90,000 of proceeds derived from a licensing agreement
which have been deferred and included in accounts payable and accrued expenses
at December 31, 2007. Such revenues will be recognized over the term
of the agreement once the product has been delivered in accordance with the
licensing agreement.
Notes
payable totaled $1,078,385 and $78,385 as of December 31, 2007 and 2006
respectively. The increase is primarily due to the execution of a $1
million convertible note payable agreement during the year ended December 31,
2007. Funding of the convertible note payable was received in two
advances consisting of $500,000 on November 14 2007 and $500,000 on December 10,
2007. The Note Payable accrues interest at 10% per annum calculated
from the respective date of each advance. The outstanding principal
balance of the convertible note payable together with all accrued and unpaid
interest was converted into common stock and warrants at the Closing of the
Exchange Agreement. We had no other long term liabilities,
commitments or contingencies at December 31, 2007.
Overview
GTX
California develops, patents and integrates miniaturized Assisted GPS tracking
and cellular location-transmitting technology for consumer products and
applications. As the underlying technology, the Company works with license
branded partners to deliver these innovative solutions to the consumer in a wide
variety of wearable location devices. GTX California’s Personal Location
Services (PLS) suite delivers remote, continuous real-time oversight of loved
ones and high-value assets. Its licensing model and a user friendly format
allows it to transparently embed its technology into a wide variety of consumer
branded products. In addition to geo spatial location-reporting,
which provides peace of mind to caretakers, the Company’s scalable GpVector™
technology platform is also designed to deliver new and innovative life style
based applications, from interactive real-time gaming to performance and health
/ exercise monitoring. The unprecedented miniaturization of its electronics
offers a whole new category of portable hosts to deliver a wide range of new
consumer-oriented high tech wearable solutions. Our first product was
GPS-enabled footwear for children and the elderly with dementia. Additional
deployments in progress include exercise monitoring, law enforcement, maritime
applications, pet tracking, cellular handsets, automotive/commercial/payload
tracking and many others. GTX California holds one patent and seven additional
patents pending. With more than five years in research and development,
strategic partnerships, and an ongoing program of intellectual property
protection, GTX California continues its ongoing efforts to advance the wearable
GPS technology industry and the PLS space. GTX California’s approach is to be
the value-added supporting brand to master consumer brands. The driving goal of
the Company is to utilize advanced assisted GPS, cellular and Internet
technology, then integrate that technology with branded consumer products and
collectively deliver solutions which will benefit people and
society.
Plan
of Operations
Cash
Requirements
We are a
wireless technology company focused on development of a personal location device
system (GpVector™) for licensing out to technology partners seeking to enable
their products with GPS tracking capabilities. We are a
development-stage company, and we expect the initial launch of the GpVector™ during the second calendar
quarter of 2008. Since our inception, we have generated significant
losses. As of December 31, 2007, we had an accumulated deficit of
approximately $4,040,644. We expect to incur continual losses until
sometime in calendar year 2009, although we expect to begin generating revenues
sometime during the first six months of calendar 2008.
We have a
limited history of operations. To date, we have funded our operations
primarily through personal loans from shareholders and the private placement of
our common stock and convertible notes. As of December 31, 2007, we
had $735,937 in cash and cash equivalents. We believe that our
available cash and cash equivalents will be sufficient to fund anticipated
levels of operations for the next twelve months only.
24
Over the
next six months, we expect to devote approximately $400,000 to continue our
research and development efforts to include all aspects of hardware, software
and interface customization, and website development. In addition,
during that time period we expect to expend approximately $250,000 to develop
our sales, marketing and manufacturing programs associated with the
commercialization and licensing of the GpVector™ technology. We
expect to fund general overhead requirements through anticipated cash and monies
raised from the private sale of our public stock starting sometime in the first
calendar quarter 2008 although there is no assurance that we will be successful
in that regard.
We expect
to have to raise additional funds in the coming 12 months for purposes such as
research and development, and direct sales and marketing costs. We
are not able to estimate the amount of funds necessary as it will be determined
by the volume represented by purchase orders from licensees who desire to sell
our product.
Our
funding requirements will depend on numerous factors, including:
As noted
above, based on budgeted expenditures, we believe that we will have sufficient
liquidity to satisfy our cash requirements for the next twelve months
only. If our existing resources prove to be insufficient to satisfy
our liquidity requirements during that timeframe, we will need to raise
additional external funds through the sale of additional equity or debt
securities. In any event, as noted above, we will need to raise
additional funds during the next 12 months to finance the costs of ongoing
research and development and related expenses. The sale of additional
equity securities will result in additional dilution to our
shareholders. Sale of debt securities could involve substantial
operational and financial covenants that might inhibit our ability to follow our
business plan. Additional financing may not be available in amounts
or on terms acceptable to us or at all. If we are unable to obtain
additional financing, we may be required to reduce the scope of, delay or
eliminate some or all of our planned research, development and commercialization
activities, which could harm our financial conditions and operating
results.
Proposed
Product Research and Development
During
2008, we plan to complete all development necessary for the initial launch of
the GpVector™ module
and to prepare for its production, manufacture and delivery to our first
licensee. Concurrently, stress testing of our “back office” systems
will be conducted and sales and marketing efforts will commence. We
expect that our first purchase orders from this licensee will be early in 2008
and that we will be prepared to deliver product to that licensee in the second
quarter 2008.
Plant
and Equipment; Employees
We do not
plan to purchase or sell any significant equipment, plant or properties during
the foreseeable future. Our business operations are built on a
strategic outsourcing model, thereby negating the need for additional plant and
equipment, or employees. Thus, we do not anticipate hiring a
significant number of additional employees during the next 12
months.
Off-Balance
Sheet Arrangements
We do not
have any relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes.
25
DESCRIPTION
OF PROPERTY
We
maintain one facility which is located at 117 W. 9th Street,
Suite 1214, Los Angeles, California 90015. The facility is
approximately 2,000 square feet and the lease for the facility expires in
December 2009. Our lease payments are $705.00 per month. In
management’s opinion, the leased premises are adequately insured, well
maintained and in good operating condition.
SECURITY
OWNERSHIP PRIOR TO CHANGE OF CONTROL
The
following table sets forth certain information concerning the number of our
common shares owned beneficially as of March 13, 2008, prior to the Closing, by:
(i) each person (including any group) known to us to own more than five percent
(5%) of any class of our voting securities, (ii) each of our directors and named
executive officers, and (iii) officers and directors as a group, and is based on
2,176,000 shares issued and outstanding at that date. Unless
otherwise indicated, our shareholders listed possess sole voting and investment
power with respect to the common shares shown. This table does not
assume the cancellation of 1,500,000 pre-split shares of our common stock by
Jeffrey Sharpe.
26
SECURITY
OWNERSHIP IMMEDIATELY AFTER CHANGE OF CONTROL
The
following table sets forth certain information regarding GTX Corp the Company’s
common stock beneficially owned as of March 19, 2008, for (i) each stockholder
known to be the beneficial owner of 5% or more of GTX Corp the Company’s
outstanding common stock, (ii) each current and incoming executive officer and
director, and (iii) all current and incoming executive officers and directors as
a group, and is based on 36,520,963 shares issued and outstanding at March 19,
2008. Unless otherwise indicated, the shareholders listed possess
sole voting and investment power with respect to the shares shown.
28
DIRECTORS
AND EXECUTIVE OFFICERS
Appointment
of New Officers and Directors
In
connection with the Exchange Agreement, Jeffrey Sharpe resigned as the Company’s
President, Chief Executive Officer, Secretary and Treasurer and remains a
director. Concurrently, Patrick E. Bertagna was appointed Chief Executive
Officer, President and Chairman of the Board of Directors, Murray Williams was
appointed Chief Financial Officer, Treasurer and Secretary, Christopher M. Walsh
was appointed Chief Operating Officer, and Louis Rosenbaum and Patrick Aroff
were appointed to the Company’s Board of Directors. The following
table sets forth information regarding the Company’s directors and executive
officers as of the date of the Closing:
Each
director will hold office until the next annual meeting of stockholders and
until his successor has been elected and qualified.
29
Biographical
Information
Patrick
E. Bertagna – Chief Executive Officer, President and Chairman of the
Board
Mr.
Bertagna was the founder of GTX California in September 2002 and has since
served as its Chief Executive Officer, President and Chairman of the Board of
Directors of GTX. He is co-inventor of the patented GPS Footwear
technology. His career spans over 27 years in building companies in both
technology and consumer branded products.
Mr.
Bertagna began his career in consumer products importing apparel from Europe and
later went on to import and manufacture apparel, accessories and footwear in
over 20 countries. In 1993, Mr. Bertagna transitioned into technology and
founded Barcode World, Inc. a supply chain software company, enabling accurate
tracking of consumer products from design to retail. In June 2002 after selling
this company, Mr. Bertagna combined his two past careers in consumer products
and tracking technology and founded GTX.
Mr.
Bertagna was born in the South of France and is fluent in French and Spanish,
has formed alliances with Fortune 500 companies such as IBM, AT&T, Sports
Authority, Federated Stores, Netscape and GE. He has been a keynote speaker and
has been awarded several patents.
Murray
Williams - Chief Financial Officer, Treasurer and Secretary
Mr.
Williams is the Company’s Chief Financial Officer, Treasurer and
Secretary. Prior to joining GTX, from June 2005 to February 15, 2007,
Mr. Williams was the Chief Financial Officer of Interactive Television Networks,
Inc. ("ITVN"), a leading provider of Internet Protocol Television hardware,
programming software and interactive networks. Prior to joining ITVN, from
September 2001 to present Mr. Williams was a consultant and investor in numerous
companies, including ITVN. In January 1998, Mr. Williams was one of the founding
members of Buy.com, Inc. Mr. Williams developed the finance, legal,
business development and human resource departments of Buy.com and last served
as its Senior Vice President of Global Business Development until August
2001. Prior to joining Buy.com, from January 1993 to January 1998,
Mr. Williams was employed with KPMG Peat Marwick, LLP and last served as a
manager in their assurance practice. Mr. Williams managed a team of
over 20 professionals specializing in financial services with an emphasis on
public offerings, private financings and mergers/acquisitions.
Mr.
Williams is a CPA and received degrees in both Accounting and Real Estate from
the University of Wisconsin-Madison.
Christopher
M. Walsh - Chief Operating Officer
Mr. Walsh
began his career with Nike in 1974 and subsequently established and implemented
Nike’s first manufacturing operation in the Far East. In 1989, Mr. Walsh joined
Reebok International as Vice President of Production. In that role he
established the Company's inaugural Asian organization headquartered in Hong
Kong with satellite organizations across Asia, and also played a critical role
on the Reebok Pump Task Force directing the manufacturing initiatives associated
with the unique components of the Pump system. After Reebok, Mr. Walsh moved to
LA Gear in 1992 and, as Chief Operating Officer, became a critical figure in the
turnaround team assembled by LA Gear and was responsible for all R&D,
design, manufacturing, sourcing, quality control, distribution and
logistics.
Upon
leaving LA Gear in 1995, Mr. Walsh founded CW Resources, a Los Angeles based
firm providing design, development, manufacturing and licensing consulting
services to an extensive client base, both domestic and international, within
the footwear, apparel, textile, sporting goods and action sports industries.
Chief among clients served during this period are Ferris Baker Watts, Heeling
Sports, K Swiss, Mission Six, Proctor and Gamble, etnies, The Parthenon Group,
Quiksilver and VF Corporation. Since January 2005, he has served as an advisor
to GTX California spearheading their Footwear R&D and Marketing
practices.
30
Mr. Walsh
received a B.S. in Marketing from Boston College in 1973 and previously served
on numerous organizational boards within the footwear and textile industries
including The Two Ten International Footwear Foundation and The Footwear
Distributors and Retail Association.
Patrick
Aroff - Director
Mr. Aroff
became a member of GTX’s Board of Directors in October 2007. Mr.
Aroff has worked and held positions in every facet of marketing and advertising,
including producing and directing commercials for television and radio. Mr.
Aroff has won numerous awards nationally and internationally for marketing,
design, advertising and art direction.
After
leaving a successful advertising career of 18 years in June 2003, Mr. Aroff
started a residential and commercial real estate development
company. In June 2004, Mr. Aroff founded Encore Brands, LLC and
continues to serve as its Chief Executive Officer and a Managing
Member.
Mr. Aroff
received his education at the Art Center College Of Design in Pasadena and has
garnered numerous awards during his career, including: Clio, Belding, New York
Ad Club, Best in the West, Cannes International Ad Festival, and an
OBIE.
Louis
Rosenbaum - Director
Mr.
Rosenbaum is a director of the Company. Mr. Rosenbaum was a founder
of GTX California and his initial investment in GTX California constituted the
company’s first substantial funding event. Mr. Rosenbaum is and has
been a valued advisor to the company through the years.
Having
served as the President of Advanced Environmental Services since July 1997, Mr.
Rosenbaum’s responsibilities encompass supervising all administrative and
financial activities, including all contractual aspects of the
business. Mr. Rosenbaum estimates projects and prepares bids, assists
in sales and maintains his own client base. Mr. Rosenbaum has been
working in the environmental and waste disposal industry for the past eighteen
years. He started with Allied Waste Services, a division of Eastern
Environmental (purchased by Waste Management Inc. in 1998) in 1990.
Mr.
Rosenbaum has been a serial entrepreneur. Mr. Rosenbaum founded and
was President of Elements, a successful clothing manufacturer that produced a
line of upscale women’s clothing in Hong Kong, China, Korea and Italy, from 1978
to 1987. He has also been active in many civic administration roles
over the years in and around Stinson Beach, CA.
Jeffrey
Sharpe - Director
Mr.
Sharpe is a member of the Company’s Board of Directors. Mr. Sharpe
co-founded a privately held health and wellness company, No Excuse Inc., based
in Canada. Mr. Sharpe’s principal occupation over the past five years has been
serving as President and Chief Executive Officer of No Excuse
Inc.
Under the
direction of Mr. Sharpe, the No Excuse Inc. expanded operations internationally
and grew to approximately $5,000,000 in annual revenues. Mr. Sharpe has also
served on the Advisory Board of several not-for-profit organizations including
the Canadian Cancer Society and Diamond Ball.
Mr.
Sharpe was granted a Bachelor’s in Human Kinetics from the University of British
Columbia in 1995, and he has not previously served as a director or officer for
any public companies.
Family
Relationships
There are
no family relationships among the Company’s directors, executive officers, or
persons nominated or chosen by the Company to become directors or executive
officers.
31
Involvement
in Certain Legal Proceedings
None of
our directors, executive officers, promoters or control persons, or any proposed
director or executive officer, has been involved in any of the following events
during the past five years:
Code
of Ethics
We have
adopted a Code of Ethics (the “Code”) that applies to our directors, officers
and employees, including our principal executive officer and principal financial
and accounting officer, respectively. The Code is filed as Exhibit
14.1 to this report. A written copy of the Code is available on
written request to the company.
Board
of Directors, Board Meetings and Committees
Prior to
the Closing, Jeffrey Sharpe served as the sole member of the Company’s Board of
Directors. Concurrent with and effective on the Closing Date, Patrick
E.Bertagna, Louis Rosenbaum and Patrick Aroff were appointed as members of the
Company’s Board of Directors.
The Board
of Directors of our Company held no formal meetings during the most recently
completed fiscal year. All proceedings of the Board of Directors were conducted
by resolutions consented to in writing by all the directors and filed with the
minutes of the proceedings of the directors. Such resolutions consented to in
writing by the directors entitled to vote on that resolution at a meeting of the
directors are, according to the corporate laws of the State of Nevada and our
Amended and Restated Bylaws, as valid and effective as if they had been passed
at a meeting of the directors duly called and held.
Our Board
of Directors has not yet determined if any if its members qualify as an “audit
committee financial expert” as defined in Item 401(e) of Regulation S-B, or as
“independent“ as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange Act.
We
currently do not have nominating, compensation or audit committees or committees
performing similar functions nor do we have a written nominating, compensation
or audit committee charter. Our Board of Directors does not believe that it is
necessary to have such committees because it believes the functions of such
committees can be adequately performed by our Board of Directors. Further, we
are not a “listed company” under SEC rules and thus we are not required to have
a compensation committee or a nominating committee.
We do not
have any defined policy or procedure requirements for shareholders to submit
recommendations or nominations for directors. Our Board of Directors believes
that, given the early stages of our development, a specific nominating policy
would be premature and of little assistance until our business operations
develop to a more advanced level. We do not currently have any specific or
minimum criteria for the election of nominees to our Board of Directors and we
do not have any specific process or procedure for evaluating such nominees. Our
Board of Directors assesses all candidates, whether submitted by management or
shareholders, and makes recommendations for election or
appointment.
A
shareholder who wishes to communicate with our Board of Directors may do so by
directing a written request addressed to our Chief Executive Officer at the
address appearing on the face page of this Current Report. The Company does not
have a policy regarding the attendance of board members at the annual meeting of
shareholders.
32
EXECUTIVE
COMPENSATION
The
following summary compensation table indicates the cash and non-cash
compensation earned during the Registrant’s last three completed fiscal years by
our former President and each of our other four highest paid executives whose
total compensation exceeded $100,000.
From
inception to the completion of the Company’s last fiscal year, the Company has
not issued any equity awards.
Long-Term
Incentive Plans
There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers, except that our directors and
executive officers may receive stock options at the discretion of our Board of
Directors. We do not have any material bonus or profit sharing plans
pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that stock options may be granted at the
discretion of our Board of Directors.
As of the
date of this report, we have no compensatory plan or arrangement with respect to
any officer that results or will result in the payment of compensation in any
form from the resignation, retirement or any other termination of employment of
such officer’s employment with our company, from a change in control of our
company or a change in such officer’s responsibilities following a change in
control where the value of such compensation exceeds $60,000 per executive
officer.
33
Director
Compensation
We
reimburse our directors for expenses incurred in connection with attending board
meetings. We did not pay director’s fees or other cash compensation
for services rendered to our directors in the year ended August 31,
2007.
We have
no other formal plan for compensating our directors for their service in their
capacity as directors although such directors are expected to receive options in
the future to purchase common shares as awarded by our Board of Directors or (as
to future options) a compensation committee which may be established in the
future. Directors are entitled to reimbursement for reasonable travel
and other out-of-pocket expenses incurred in connection with attendance at
meetings of our Board of Directors. Our Board of Directors may award
special remuneration to any director undertaking any special services on behalf
of our company other than services ordinarily required of a
director.
Employment
Agreements
The
following are summaries of the employment agreements with the Company’s incoming
executive officers that became effective at the Closing of the Exchange
Transaction:
As a
signing bonus, Mr. Bertagna was granted 150,000 shares of the Company’s common
stock pursuant to the Company’s 2008 Equity Compensation Plan. In
addition, he was granted Incentive Stock Options to purchase up to 750,000
shares of our common stock pursuant to the 2008 Equity Compensation
Plan. These options shall vest over 36 months with one-third vesting
on March 14, 2009, two-thirds vesting at a rate of 20,834 each month for the 23
months beginning on April 14, 2009 and the remaining 20,818 Options shall vest
on March 14, 2011.
Mr.
Bertagna may also participate in any and all benefits and perquisites as are
generally provided for the benefit of executive employees. The
agreement terminates on his death, incapacity (after 180 days), resignation or
good cause as defined. If he is terminated without cause, he is
entitled to base salary, all bonuses otherwise applicable, and medical benefits
for six months. A copy of his employment agreement is attached hereto
as Exhibit 10.2 and is incorporated herein by reference.
34
As a
signing bonus, Mr. Walsh was granted 50,000 shares of the Company’s common stock
pursuant to the Company’s 2008 Equity Compensation Plan. In addition,
he shall receive Incentive Stock Options to purchase up to 750,000 shares of our
common stock pursuant to the 2008 Equity Compensation Plan. These
options shall vest over 36 months with one-third vesting on March 14, 2009,
two-thirds vesting at a rate of 20,834 each month for the 23 months beginning on
April 14, 2009 and the remaining 20,818 Options shall vest on March 14,
2011.
Mr. Walsh
may also participate in any and all benefits and perquisites as are generally
provided for the benefit of executive employees. The agreement
terminates on his death, incapacity (after 180 days), resignation or good cause
as defined. If he is terminated without cause, he is entitled to base
salary, all bonuses otherwise applicable, and medical benefits for six
months. A copy of his employment agreement is attached hereto as
Exhibit 10.3 and is incorporated herein by reference.
Murray Williams>, our Chief
Financial Officer, Treasurer and Secretary, is employed pursuant to a written
agreement dated as of March 14, 2008. The agreement is for term of
two years; provided however, that it is automatically extended for additional
one-year periods unless either party provides written notice to the contrary at
least 60 days prior to the end of the term then in effect. Mr.
Williams shall receive a base salary of $150,000 per year. He is entitled to
adjustments to his base salary based on certain performance standards, at the
Company’s discretion, as follows: (i) a bonus in an amount
not less than fifteen percent (15%) of yearly salary, to be paid in
cash or stock, if the Company has in increase in annual revenues and Mr.
Williams performs his duties within the time frame budgeted for such duties and
at or below the cost budgeted for such duties and (ii) a bonus, to be paid in
cash or stock at the Company’s sole discretion, equal to $12,500 for every one
million warrants that are exercised by Jupili.
As a
signing bonus, Mr. Williams shall receive 150,000 shares of the Company’s common
stock pursuant to the Company’s 2008 Equity Compensation Plan. In
addition, he shall also receive Incentive Stock Options to purchase up to
750,000 shares of our common stock pursuant to the 2008 Equity Compensation
Plan. These options shall vest over 36 months with one-third vesting
on March 14, 2009, two-thirds vesting at a rate of 20,834 each month for the 23
months beginning on April 14, 2009 and the remaining 20,818 Options shall vest
on March 14, 2011.
Mr.
Williams may also participate in any and all benefits and perquisites as are
generally provided for the benefit of executive employees. The
agreement terminates on his death, incapacity (after 180 days), resignation or
good cause as defined. If he is terminated without cause, he is
entitled to base salary, all bonuses otherwise applicable, and medical benefits
for six months. A copy of his employment agreement is attached hereto
as Exhibit 10.4 and incorporated herein by reference.
Potential
Payments Upon Termination or Change-In-Control
SEC
regulations state that we must disclose information regarding agreements, plans
or arrangements that provide for payments or benefits to our executive officers
in connection with any termination of employment or change in control of the
company. We currently have no employment agreements with any of our executive
officers, nor any compensatory plans or arrangements resulting from the
resignation, retirement or any other termination of any of our executive
officers, from a change-in-control, or from a change in any executive officer's
responsibilities following a change-in-control. As a result, we have omitted
this table.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Other
than the Exchange Transaction described herein and the transactions set forth
below, there have been no transactions, since the beginning of the Company’s
last fiscal year in which the Company was or is to be a participant and the
amount involved exceeds the lesser of $120,000 or one percent of the average of
the Company’s total assets at year-end for the last three completed fiscal
years, and in which any related person had or will have a direct or indirect
material interest:
On April
7, 2006, the Company issued 1,500,000 shares of common stock to our sole
executive officer, Jeffrey Sharpe, in consideration for a cash payment of
$30,000.
During
the year ended August 31, 2007, the Company’s sole director, Jeffrey Sharpe,
contributed management services to our company at $1,000 per month. This amount
has been recorded as donated services and included in additional paid-in
capital.
35
DESCRIPTION
OF SECURITIES
Common
Stock
Our
authorized capital stock consists of 2,071,000,000 shares of common stock at a
par value of $0.001 per share of which 36,520,963 are issued and outstanding as
of March 19, 2008. Each shareholder of our common stock is entitled
to a pro rata share of cash distributions made to shareholders, including
dividend payments. The holders of our common stock are entitled to
one vote for each share of record on all matters to be voted on by
shareholders. There is no cumulative voting with respect to the
election of our directors or any other matter. Therefore, the holders
of more than 50% of the shares voted for the election of those directors can
elect all of the directors. The holders of our common stock are
entitled to receive dividends when, as and if declared by our Board of Directors
from funds legally available therefore. Cash dividends are at the
sole discretion of our Board of Directors. In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to share ratably in all assets remaining available for distribution to them
after payment of our liabilities and after provision has been made for each
class of stock, if any, having any preference in relation to our common
stock. Holders of shares of our common stock have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to our common stock.
Preferred
Stock
We have
10,000,000 authorized shares of preferred stock. $.001 par value,
authorized. No shares of preferred stock are issued or
outstanding. The Board of Directors is authorized to determine
the number of series into which the preferred stock may be divided, to determine
the designations, powers, preferences, voting and other rights of each
series.
Anti-Takeover
Provisions
Effective
March 13, 2008, we have elected to be subject to by NRS 78.311 through 78.444,
inclusive, of the Nevada Private Corporations Act governing combinations with
interested stockholders. This election will not be effective until 18
months from the date of amendment. Nevada’s business combination
statutes prohibit business combinations with any interested stockholder except
those which are approved by the Board of Directors before the interested
stockholder first obtained a ten percent (10%) ownership interest in the
corporation’s stock. A business combination with the interested stockholder can
also take place so long as a majority of the non-interested stockholders approve
it or if the common stockholders receive the highest share price that the
interested stock-holder paid for the corporation’s stock in the previous three
(3) years. These
provisions, in effect, require either board approval of a business combination
or approval of the non-interested stockholders, unless the interested
stockholder offers the other stockholders his highest price.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
The
Company’s common stock is listed on the OTC Bulletin Board (the “OTCBB”) under
the symbol “GTXO”. However, the Company’s common stock is not
actively trading on the OTCBB. The Company is not aware of any market
activity in its stock since its inception and through the date of this
filing. Further, we intend to apply for a new trading symbol as soon
as possible.
Shareholders
As of
March 14, 2008, we had approximately 81 shareholders of record of our issued and
outstanding common stock.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Empire Stock Transfer
Inc. The transfer agent’s address is 2470 St. Rose Pkwy, Suite 304,
Henderson, NV 89074 and their telephone number is (702)
818-5898.
36
Dividend
Policy
We have
never declared or paid a cash dividend on our capital stock. We do
not expect to pay cash dividends on our common stock in the foreseeable
future. We currently intend to retain our earnings, if any, for use
in our business. Any dividends declared in the future will be at the
discretion of our Board of Directors and subject to any restrictions that may be
imposed by our lenders.
Reports
to Security Holders
We are a
reporting company pursuant to Exchange Act. As such, we provide an
annual report to our security holders, which will include audited financial
statements, and quarterly reports, which will contain unaudited financial
statements.
Securities
Authorized for Issuance Under Equity Compensation Plans
There are
no retirement, pension, or profit sharing plans currently in effect for the
benefit of our officers and directors, and no benefits under any such plan has
been granted to any of our current officers or directors.
Equity
Compensation Plan
The GTX
Corp 2008 Equity Compensation Plan (“Plan”) for the management and employees was
adopted by the Board of Directors of the Company on March 13, 2008. The Plan
reserves 7,000,000 shares of our common stock for issuance pursuant to options,
grants of stock or other stock-based awards. The Plan is
administered by the Board of Directors which has the power, pursuant to the
plan, to delegate the administration of the plan to a committee of the
board. The Plan will be submitted to shareholders for ratification at
the next annual meeting of shareholders. The Plan is attached hereto as
Exhibit 10.8 and incorporated herein by this reference.
LEGAL
PROCEEDINGS
We know
of no material, existing or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceeding or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial shareholder, is an adverse party or has a material
interest adverse to our company.
RECENT
SALES OF UNREGISTERED SECURITIES
Reference
is made to Item 3.02 of this Current Report on Form 8-K for a description
of recent sales of unregistered securities related the Exchange Transaction,
which are hereby incorporated herein by reference.
Further,
on April 7, 2006 we issued 1,500,000 shares of our common stock to one (1) named
executive officers of our Company, at an offering price of $0.02 per share for
gross offering proceeds of $30,000 in an offshore transaction pursuant to Rule
903 of Regulation S of the Securities Act of 1933, as amended (“Securities
Act”). The named executive officer is not a U.S. person as that term is defined
in Regulation S. No directed selling efforts were made in the United States by
GTX Corp, any distributor, any of their respective affiliates or any person
acting on behalf of any of the foregoing. In issuing these securities, GTX Corp
relied on the exemption from the registration requirements of the Securities Act
provided by Regulation S, promulgated thereunder. A legend was included on all
offering materials and documents which stated that the shares have not been
registered under the Securities Act and may not be offered or sold in the United
States or to U.S. persons unless the shares are registered under the Securities
Act, or an exemption from the registration requirements of the Securities Act is
available. The offering materials and documents also contained a statement that
hedging transactions involving the shares may not be conducted unless in
compliance with the Securities Act.
37
On August
15, 2006, we issued 676,000 shares of our common stock to thirty-nine (39)
subscribers at an offering price of $0.10 per share for gross offering proceeds
of $67,600 in an offshore transaction relying on Rule 903 of Regulation S of the
Securities Act. None of the subscribers were U.S. persons at that term is
defined in Regulation S. No directed selling efforts were made in the United
States by GTX Corp, any distributor, any of their respective affiliates or any
person acting on behalf of any of the foregoing. In issuing these securities,
GTX Corp relied on the exemption from the registration requirements of the
Securities Act provided by Regulation S, promulgated thereunder. A legend was
included on all offering materials and documents which stated that the shares
have not been registered under the Securities Act and may not be offered or sold
in the United States or to U.S. persons unless the shares are registered under
the Securities Act, or an exemption from the registration requirements of the
Securities Act of 1933 is available. The offering materials and documents also
contained a statement that hedging transactions involving the shares may not be
conducted unless in compliance with the Securities Act of 1933.
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
The
Nevada Revised Statutes authorizes indemnification of a director, officer,
employee or agent of the Company against expenses incurred in connection with
any action, suit, or proceeding to which he or she is named a party by reason of
his or her having acted or served in such capacity, except for liabilities
arising from his or her own misconduct or negligence in performance of his or
her duty. In addition, even a director, officer, employee, or agent
of the Company who was found liable for misconduct or negligence in the
performance of his or her duty may obtain such indemnification if, in view of
all the circumstances in the case, a court of competent jurisdiction determines
such person is fairly and reasonably entitled to
indemnification.
Section
78.7502 of the Nevada Revised Statutes provides that we may indemnify any person
who was or is a party, or is threatened to be made a party, to any action, suit
or proceeding brought by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other entity. The expenses that are subject to this indemnity
include attorneys’ fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by the indemnified party in connection with the
action, suit or proceeding. In order for us to provide this statutory indemnity,
the indemnified party must not be liable under Nevada Revised Statutes section
78.138 or must have acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation. With respect
to a criminal action or proceeding, the indemnified party must have had no
reasonable cause to believe his conduct was unlawful.
Section
78.7502 also provides that we may indemnify any person who was or is a party, or
is threatened to be made a party, to any action or suit brought by or on behalf
of the corporation by reason of the fact that he is or was serving at the
request of the corporation as a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other entity
against expenses actually or reasonably incurred by him in connection with the
defense or settlement of such action or suit if he is not liable under Nevada
Revised Statutes section 78.138 of if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. We may not indemnify a person if the person is adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation, or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which such action or suit was
brought or another court of competent jurisdiction shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity.
Section
78.7502 requires us to indemnify our directors or officers against expenses,
including attorneys’ fees, actually and reasonably incurred by him in connection
with his defense, if he has been successful on the merits or otherwise in
defense of any action, suit or proceeding, or in defense of any claim, issue or
matter.
38
Further,
pursuant to the Nevada Revised Statutes, the Company has adopted the following
indemnification provisions in its Amended and Restated Bylaws for its directors
and officers:
“The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, including all appeals (other than an
action, suit, or proceeding by or in the right of the Corporation) by reason of
the fact that he or she is or was a director or officer of the Corporation (and
the Corporation, in the discretion of the Board of Directors, may so indemnify a
person by reason of the fact that he or she is or was an employee or agent of
the Corporation or is or was serving at the request of the Corporation in any
other capacity for or on behalf of the Corporation), against expenses (including
attorneys’ fees), judgments, decrees, fines, penalties, and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit, or proceeding if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful;
provided, however, the
Corporation shall be required to indemnify an officer or director in connection
with an action, suit, or proceeding initiated by such person only if such
action, suit, or proceeding was authorized by the Board of Directors. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith or in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.”
“The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action or suit,
including all appeals, by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director
or officer of the Corporation (and the Corporation, in the discretion of the
Board of Directors, may so indemnify a person by reason of the fact that he or
she is or was an employee or agent of the Corporation or is or was serving at
the request of the Corporation in any other capacity for or on behalf of the
Corporation), against expenses (including attorneys’ fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been finally adjudged
to be liable for gross negligence or willful misconduct in the performance of
his or her duty to the Corporation unless and only to the extent that the court
in which such action or suit was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper. Notwithstanding the foregoing, the Corporation
shall be required to indemnify an officer or director in connection with an
action, suit, or proceeding initiated by such person only if such action, suit,
or proceeding was authorized by the Board of Directors.”
The
indemnification provisions described above provide coverage for claims arising
under the Securities Act and the Exchange Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. No pending material litigation or proceeding
involving our directors, executive officers, employees or other agents as to
which indemnification is being sought exists, and we are not aware of any
pending or threatened material litigation that may result in claims for
indemnification by any of our directors or executive officers.
39
On March
14, 2008, and as described under Item 2.01 above, pursuant to the Exchange
Agreement, the Company issued 18,000,001 shares of its common stock to the
Selling Shareholders in exchange for 100% of the outstanding shares of GTX. The
issuance of these securities was exempt from registration under Section 4(2) and
Regulation D of the Securities Act. The Company made this
determination based on the representations of the Selling Shareholders, which
included, in pertinent part, that such shareholders were either (a) “accredited
investors” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act (b) not a “U.S. person” as that term is defined in
Rule 902(k) of Regulation S under the Act or (c) had a pre-existing or personal
relationship with the Company. Each Selling Shareholder further represented that
he or she was acquiring our common stock for investment purposes not with a view
to the resale or distribution thereof and understood that the shares of our
common stock may not be sold or otherwise disposed of without registration under
the Securities Act or an applicable exemption therefrom. A legend was included
on all offering materials and documents which stated that the shares have not
been registered under the Securities Act and may not be offered or sold unless
the shares are registered under the Securities Act, or an exemption from the
registration requirements of the Securities Act is available.
The
Closing of the Exchange Agreement was conditional upon, among other things, the
closing of the Financing of Units of the Company based upon the same terms as
the Financing. The Financing consists of $2,000,000 of units
(“Units”) of the Company at $0.75 per Unit. Each Unit consists of one common
share and one share purchase warrant (“Warrant”). Each Warrant is
exercisable into an additional common share for a period of twelve or eighteen
months, depending upon certain circumstances as set out in the Exchange
Agreement, at an exercise price of $1.25 per share. The Financing closed on
March 14, 2008 with sales of 2,666,668 Units for aggregate proceeds
of U.S.$2,000,000.
The
Closing was also contingent upon conversion of the $1,000,000 Bridge Loan to GTX
California held by Jupili plus accrued interest into Units at $0.75 per Unit,
based upon the same terms and conditions as the Financing. At Closing we also
issued 1,374,334 shares of common stock to Jupili and warrants to purchase an
aggregate of 1,374,334 shares of our common stock to Jupili.
The
Financing and Bridge Loan were offshore transactions exempt from registration in
reliance on Rule 903 of Regulation S of the Securities Act. None of the
subscribers were U.S. persons at that term is defined in Regulation S. No
directed selling efforts were made in the United States by the Company, any
distributor, any of their respective affiliates or any person acting on behalf
of any of the foregoing. In issuing these securities, we relied on the exemption
from the registration requirements of the Securities Act provided by Regulation
S, promulgated thereunder. A legend was included on all offering materials and
documents which stated that the securities have not been registered under the
Securities Act and may not be offered or sold in the United States or to U.S.
persons unless the shares are registered under the Securities Act, or an
exemption from the registration requirements of the Securities Act is available
. The offering materials and documents also contained a statement that hedging
transactions involving the securities may not be conducted unless in compliance
with the Securities Act.
Item
5.01 Changes
in Control of Registrant.>
As
explained more fully above in Item 2.01, in connection with the Exchange
Transaction, the Company issued 18,000,001 shares of its common stock to
the Selling Shareholders in exchange for the transfer of 100% of the outstanding
shares of GTX’s capital stock by the Selling Shareholders to the
Company. Immediately prior to the Closing of the Exchange
Transaction, the Company’s shareholders owned 2,167,000 pre-split shares of the
Company’s outstanding common stock. The Company currently has no other voting
class of capital stock outstanding. As such, immediately following the Closing
of the Exchange, the Selling Shareholders held approximately 50% of the total
combined voting power of the Company’s outstanding capital stock entitled to
vote. Reference is made to the disclosures set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
40
In
connection with the Closing of the Exchange Transaction, and as explained more
fully in Item 2.01 above under the section titled “Directors and Executive
Officers” and in Item 5.02 below, effective on March 14, 2008, Jeffrey Sharpe
resigned as the Company’s Chief Executive Officer, President, Secretary and
Treasurer but continues to serve as director.. Further, effective
March 14, 2008, the Board of Directors appointed Patrick E. Bertagna as Chief
Executive Officer, President and Chairman of the Board of Directors of the
Company, Murray Williams as Chief Financial Officer, Treasurer and Secretary of
the Company, Christopher M. Walsh as Chief Operating Officer of the Company, and
Louis Rosenbaum and Patrick Aroff as directors of the Company.
The
Closing of the transaction under the Exchange Agreement, which resulted in the
change of control of the Registrant, occurred on March 14, 2008. A
copy of the Exchange Agreement is included as Exhibit 2.1 to this Current Report
on Form 8-K.
Effective
March 14, 2008, Jeffrey Sharpe resigned as the Company’s Chief Executive
Officer, President, Secretary and Treasurer. Mr. Sharpe shall
continue to serve as a director of the Company.
Effective
March 14, 2008, Patrick E. Bertagna was appointed as Chief Executive Officer,
President and Chairman of the board of directors of the Company.
Effective
March 14, 2008, Murray Williams was appointed as Chief Financial Officer,
Treasurer and Secretary of the Company.
Effective
March 14, 2008, Christopher M. Walsh was appointed as Chief Operating Officer of
the Company.
Effective
March 14, 2008, Louis Rosenbaum and Patrick Aroff were appointed as members of
the Company’s Board of Directors.
Jeffrey
Sharpe, Murray Williams, Christopher M. Walsh, Louis Rosenbaum and Patrick Aroff
have no family relationships with any of the Company’s other executive officers
or directors. Other than the transactions in connection with the Exchange
Transaction, as described above in Item 2.01, no transactions occurred in the
last two years to which the Company was a party in which the above-mentioned
officers and/or directors had or is to have a direct or indirect material
interest.
Descriptions
of the business backgrounds and any compensation arrangements with the newly
appointed or proposed directors and officers can be found in Item 2.01 above, in
the sections titled “Directors and Executive Officers” and “Executive
Compensation” and such descriptions are incorporated herein by
reference.
Item
5.03 Amendments to
Articles of Incorporation or Bylaws; Change in Fiscal Year.
On March
13, 2008 in connection with the Exchange Transaction, our Board of Directors
adopted the Amended and Restated Bylaws. The Amended and Restated Bylaws are
filed as Exhibit 3.2 to this Current Report on Form 8K and are incorporated
herein by reference. The Bylaws, in pertinent part, were amended as
follows:
41
As a
result of the Closing of the Exchange Transaction on March 14, 2008, GTX Corp
acquired all of the outstanding common shares of GTX California and therefore
GTX Corp was the legal acquirer in the Merger. However, for accounting purposes,
the acquisition has been treated as the acquisition of GTX Corp and as a
recapitalization of GTX California, who was the accounting acquirer.
Consequently, going forward, the historical financial information included
in the financial statements of GTX Corp prior to March 14, 2008 will be that of
GTX California. The fiscal year end of GTX California is December 31 which
has now become GTX Corp’s fiscal year end. Item
9.01 Financial Statements
and Exhibits.
The
Audited Financial Statements of Global Trek Xploration for the years ended
December 31, 2007 and 2006 and for the period from September 10, 2002
(inception) to December 31, 2007 are filed as Exhibit 99.1 to this current
report and are incorporated herein by reference.
The Pro
Forma Financial Information is filed as Exhibit 99.2 to this Current Report
and is incorporated herein by reference.
Reference
is made to Items 9.01(a) and 9.01(b) above and the exhibits referred to therein,
which are incorporated herein by this reference.
42
EXHIBIT INDEX>
* Filed
herewith.
43
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Current Report on Form 8-K to be signed on its behalf by the
undersigned hereunto duly authorized.
44
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