GTX CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K) - Marketscreener.com

The following discussion and analysis of our financial condition and results of operations should be read together with the audited financial statements and related notes included elsewhere in this registration statement. Certain statements contained in this registration statement, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that are not historical facts, are “forward-looking” statements. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results discussed in the forward-looking statements.
GTX Corp and its subsidiaries (currently, Global Trek Xploration, Inc. and LOCiMOBILE, Inc.) are engaged in businesses that design, develop and sell various interrelated and complementary products and services in the Personal Location Services marketplace. Global Trek Xploration focuses on hardware and software design and development of products and services by offering a Global Positioning System (“GPS”), Bluetooth Low Energy (“BLE”) and cellular location platform that enables subscribers to track in real time the whereabouts of people, pets or high valued assets through a miniaturized transceiver module, wireless connectivity gateway, middleware and viewing portal. LOCiMOBILE, Inc. has developed and owns LOCiMobileTM, and Track My Work Force (“TMWF”), a suite of mobile tracking applications that turn the iPhone, Android, and other GPS enabled handsets into a tracking device which can then be tracked from handset to handset or through our Location Data Center tracking portal and which allows the user to send a map to the recipient’s phone showing the user’s location.
2021 brought us continued Covid related opportunities and setbacks. Early in the year, we stated we could not accurately predict how long the Personal Protection Equipment (“PPE”) business would remain in demand, and based on the current events and sales trends, we expected to transition out of many PPE products, focusing only on the strong sellers while ramping up for the launch of our new SmartSoles, NFC Blockchain platform and other wearable medical devices. Then came the Delta and Omnicom variants, which spiked demand for supplies and test kits, which we were able to support that demand, but that also created logistic delays in the supply chain and slowed down work productivity due to stay at home sick policies, and labor shortages, all of which impacted the launch of our 4G SmartSoles and our ongoing intellectual property licensing campaign.
On the medical supply side we managed to stay in front of it, had inventory on hand or great relationships with our vendors which allowed us to respond quickly to the demand and maintain our ability to ship 99% of all orders within 1-2 business days. Even during Q1 2022 we continued to sell supplies and test kits and keep enough inventory on hand to fill incoming orders. Even with the overall setbacks and restrictions due to COVID, which brought about a reduction in revenues, we still managed to maintain product sales, service our customer base, and reduced our general expenses. We sold hundreds of thousands of PPE items to a wide range of entities such as essential businesses, assisted living facilities, pharmacies, Fortune 1,000 companies, hospitals, police departments, non-profits, and local, state, and federal government agencies, in every State across the U.S. positioning GTX as a trusted health & safety supplier of high-quality products which helped increase our brand awareness.
However subscriptions were down for the year and lower than expected due to COVID-19 and because many of the cellular providers worldwide transitioned to 4G and 5G shutting down 2G and 3G in many parts of the world. Even though we had been planning for the 2G and 3G shutdown we had no way to plan for COVID. Most of our distributors and B2B customers stopped placing new orders in the 4th quarter of 2019, allowing for them to sell out of their existing inventory ahead of receiving our new 4G products. The 2G and 3G shutdown also had an impact on our B2C subscriptions as consumers were experiencing connectivity issues in certain geographical areas and suspended their subscriptions. In spite of these temporary setbacks, we saw and continue to see a steady flow of pre-orders for our 4G SmartSoles and expect to see subscriptions ramp up during the first quarter of 2022. Continuing throughout the year 2021, we saw significant sales coming from COVID Rapid Test Kits.
On the business development front, we continued to look at expanding our presence in our market by signing collaboration agreements and working with new partners on selling and developing new products in the tracking, biometrics, block chain and health and wellness space. We are still in the early stage of exploring different concepts, and avenues, but we are making progress and expect to have a more detailed roadmap in the coming months. We had a lot of collaboration and partnership activity during 2021. We strengthened our partnership with KGH, which enabled us to sell product into many different government channels. We signed a distribution agreement with OPU lab which enabled us to distribute COVID Pre-screening test kits. We formed alliances with Inner Scope, and Halberd Corporation, and started selling their health and wellness products. We signed collaboration and distribution agreements with Life Connect and GBT Technologies, to add their medical devices to our SmartSole platform. That development is in progress and we expect to make some announcements in the coming months.
We also continued to grow our brand awareness, by being featured in CIO Magazine with a 6-page spread highlighting the Company as one of the 10 Most Innovative Companies to watch in 2021. We were also mentioned in a Smart Footwear Market Research Report, and we attended 2 LD Micro Conferences (one virtual and one in person)
On October 27, 2021, the Company registered an Offering Statement on a Form 1-A (“Reg A”). This offering relates to the sale of up to 86,677,500 shares of our common stock (the “Shares”) at a price of $0.03 per share, for total offering proceeds of up to $2,600,325 if all offered shares are sold. 66,675,000 of such Shares are being offered directly by the Company, for offering proceeds up to $2,000,250, and 20,002,500 Shares are being offered by selling securityholders for offering proceeds up to $600,075. There is no minimum offering amount and no provision to escrow or return investor funds if any minimum number of shares is not sold. The minimum investment amount established for each investor is $10,000. All funds raised by the Company from this offering will be immediately available for the Company’s use. All funds raised by the selling securityholders from this offering will be retained by the selling securityholders.
The Company intends to use the proceeds predominately in the following 5 categories:
Management believes investing in these 5 categories should increase revenues, enhance its IP portfolio, bring new products to the market and strengthen the Company’s overall position in the marketplace.
At the end of the fourth quarter of 2021, we began production of our next generation GPS SmartSoles, which will utilize a host of new technologies, including CatM1, NB-IoT, enhanced Wifi, and Bluetooth, for better accuracy, faster location requests, less power consumption, and most importantly, the ability to connect through Bluetooth to other medical devices through our SmartSole platform, transforming our GPS footwear into a mobile hub that will not only transmit location data but also medical data. This new feature will be protected through a recent patent the company was issued which specifically addresses Bluetooth communication. This new hardware platform will also be small enough and robust enough to be embedded into a variety of other wearable technology and offered as a licensed hardware platform as well. The demand for the GPS SmartSoles continues to be strong as we begin fulfilling pre-orders orders in Q1 of 2022. Subscriptions which, as mentioned above, were affected by Covid-19 and supply chain issues, based on our pre-orders going into 2022 we expect subscriptions to start ramping up quickly as soon as we begin fulfilling pre-orders.
On the IP front, in December of 2021, the USPTO sent us two notices of allowance for two new patents. One for the GPS SmartSoles and the other for the Comm Protocol, both these patents have now been issued, which helps strengthen our competitive barriers and could increase the value of our outbound licensing campaign. Due to Covid and other resource related circumstances the GTX IP campaign did stall during 2021, and after several months of analysis on how to revamp the campaign it was mutually agreed by the BOD of Inventergy and GTX, that GTX would take back full control of its Comm Protocol patents which it had licensed at a 55% equity stake to Inventergy in 2016 and the outbound licensing strategy. Effective November 20, 2021, GTX dissolved its patent license agreement with Inventergy, LLC whereby Inventergy transferred and assigned back to GTX all rights, title and interest in each of the Patents, consistent with what was specified in Section 4.1 of the original agreement, including all (sole) responsibility for future prosecution and maintenance of the Patents, including any rights to receive any further royalties, compensation, revenue share for any past present or future monetization effort, effectively relinquishing its fifty-five (55%) ownership interest, back to GTX. Subsequently, in December of 2021 the USPTO granted a notice of allowance on a patent application which covers different aspects of the GPS SmartSole product, and we expect to receive more patents covering other aspects on related applications in the future as we continue to expand our IP portfolio in the wearable technology space, especially as the global wearable medical device market continues to grow and expecting to reach $9.4 billion in 2022. This fourth patent helps solidify our portfolio with respect to wearable tracking and monitoring technologies embedded in footwear. That came on the heels of another office action from the USPT for our 6th comm protocol family patent which was allowed. GTX has filed ongoing open continuations for both of these patents which we expect will further enhance the portfolio and strengthen our licensing strategy.
On the balance sheet front, we continued to reduce our debt and outstanding payables, took on no new debt and pre-paid close to $72,000 of SmartSole component inventory.
As we look over the horizon into 2022, we are optimistic and seeing encouraging signs. One thing is for certain, there is a big desire for innovation and new solutions in the wearable technology healthcare industry post COVID-19 era, along with continued demand for PPE while the pandemic is still not fully behind us. GTX has been at the forefront of many innovative technologies, we pivoted early into the PPE business at the start of the pandemic and built an entire new business unit under extremely challenging conditions, so we know we are resilient, determined, and confident and will continue to garner new opportunities in order to grow shareholder value.
Our main sources of revenue are product sales, recurring subscriptions, technology and intellectual property licensing, and professional services.
Research and Development Expense
In addition to our GAAP financial information, we utilize several performance indicators. Below are several key metrics we use to manage and evaluate our business, measure our performance, identify trends affecting our business and make strategic decisions:
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Annual Report.
The following table represents our statement of operations for the years ended December 31, 2021 and 2020:
Gain/(loss) from operations (904,546 ) -153 % (627,212 ) -59 %
Revenues as a whole in fiscal 2021 decreased by 44% or $469,830 in comparison to fiscal 2020 mostly as a direct result of the overall setbacks and the restrictive lockdowns due to COVID, which in turn brought about a reduction in IP and subscription revenues, however we still managed to grow our product revenues, grow our customer base, expand our product lines, maintain good profit margins, and reduced our general expenses. Product sales decreased 51% or $423,472 in fiscal 2021 in comparison to fiscal 2020, which is a attributable to our pivot in early March 2020 to expand our health and safety product line into the Personal Protective Equipment (“PPE”) business, which though strong in 2021, was not in as much demand in 2020 as COVID restrictions were reduced. Included in product sales are related party PPE donations of $5,250.
We increased our customer base by at least 2,000 for fiscal 2020 compared to fiscal 2019, and again by over a 1,000 in 2021.
During the year ended December 31, 2021, the Company’s customer base and revenue streams were comprised of approximately 37.57% B2B (Wholesale Distributors and Enterprise Institutions), 60.70% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 0.00% IP (our monetization campaign from consulting, licensing and asserting our patents) and 1.73% Military and Law Enforcement.
During the year ended December 31, 2020, the Company’s customer base and revenue streams were comprised of approximately 63.95% B2B (Wholesale Distributors and Enterprise Institutions), 33.61% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 1.87% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0.56% Military and Law Enforcement.
Cost of goods sold decreased by 44% or $264,779 during fiscal 2021 in comparison to fiscal 2020, due to lower sales. As a result, total gross margin, remained basically steady at 44-45% in fiscal 2020 and 2021.
Wages and benefits for fiscal 2021 decreased by $119,803 or 19% as compared to fiscal 2020, primarily to the decrease of salaries for a reduction in a senior executives’ salary and support staff.
Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and shareholder communications. Such costs increased $84,862 or 34% in fiscal 2021 compared to fiscal 2020. This was as a result of fees related to the registration of our Regulation A and continued IP legal fees to maintain and apply for patents and stock-based compensation related to consulting services.
Sales and marketing expenses increased by 168% or $47,300 during 2021 in comparison to 2020. Primarily due to the initiation and maintenance of a PPE campaign in order to target a larger customer base.
General and administrative
General and administrative costs during fiscal 2021 increased by $59,923 or 32%, in comparison to fiscal 2020, mostly due to increases in depreciation and amortization as we amortize the development costs of developing our next gen SmartSoles, and about $80,000 in positive adjustments made in 2020. We expect these numbers to increase as we ramp up our overall business after the COVID crisis.
Other expense/income in fiscal 2021 decreased 554,717 or 214%, in comparison to fiscal 2020. This is primarily as a result of losses from the extinguishment of debt, interest expense and financing cost and the amortization of debt discounts.
Net loss during fiscal 2021 increased by $832,052, or 226%, in comparison to the net loss incurred during fiscal 2020 primarily as a result of the decrease in PPE related sales as the pandemic crisis ebbed and as the supply chain delays pushed the start of our SmartSole 4G launch until the first quarter of 2022, as well as non-cash related other expenses related to losses on the extinguishment of debt, financing and interest expense and the amortization of debt discounts.
On an earnings per share basis, we saw a reduction in share loss from ($0.01) in 2020 to ($0.01) in 2021.
Liquidity and Capital Resources
As of December 31, 2021, we had $138,342 in cash and $55,016 of other current assets, and $3,136,981 of current liabilities, resulting in a working capital deficit of $2,829,165 compared to $76,912 in cash and a working capital deficit of approximately $2,894,105 as of December 31, 2020.
Net cash used in operating activities was $497,684 for fiscal 2021 compared to net cash used of $556,556 for fiscal 2020. The decrease in net cash used in operating activities was largely attributed to the net change in non-cash items that includes: stock based compensation, loss on the extinguishment of debt, the elimination of derivative income and the interest and financing costs on note assignments and the net change in operating assets and liabilities that includes increased spending for inventory, the payment of accounts payable and accrued expenses, including interest expense attributable to the reduction in debt.
Net cash used by investing activities during fiscal 2021 was $98,763 and net cash provided by investing activities during fiscal year 2020 was $146,200, respectively and consisted of proceeds from the sale of marketable securities.
Net cash provided by financing activities during fiscal 2021 was $657,877 and consisted of proceeds totaling $675,000 in proceeds from the sale of preferred shares of stock with payments on debt and the lines of credit of $17,123. Net cash provided by financing activities during fiscal 2020 was $362,068 and consisted of proceeds totaling $227,870 received from advances under CARE loans, $139,319 from two lines of credit and $250,000 in proceeds from the sale of preferred shares of stock with payments on debt and the lines of credit of $255,121. Thus, reducing our borrowings through notes by $177,148 or 19% from 2020 to 2021.
We expect to continue to generate revenues from all our business units from existing product sales, recurring subscriptions, software and Intellectual Property licensing, military and professional services. We also expect to see new revenues come in from recently launched products and products that are scheduled for launch throughout 2022 however, even though existing product sales and recurring subscriptions are starting to become more consistent, the amount of revenues is still unpredictable and may not be sufficient to fund all our working capital needs. Accordingly, we anticipate that we will have negative cash flow from our operations and, therefore, will have to raise additional capital in order to fund our operations in 2022.
In order to continue funding our working capital needs and our product development costs we continued to draw upon our Lines of Credit with an accredited investor and our bank (see Notes Payable Footnote #c & #d for more information), which resulted in $0 of draws and repayments of $15,000 against this balance in fiscal year 2021. Additionally, during 2021, we entered into a Securities Purchase Agreement (“SPA”) with three accredited investors which led to a $675,000 infusion of cash in return for Preferred B shares, Preferred C shares and Warrants. Further, the Company is actively raising capital through an Offering Statement on Form 1-A, filed on October 15, 2021 and qualified on October 27, 2021.
In fiscal 2021, we did not draw upon our Lines of Credit with an accredited investor or our bank (see Notes Payable Footnote #c & #d for more information), as the Company only made payments of $15,000. In fiscal 2020 we had $139,319 in draws and repayments of $215,604 against this balance. Additionally, during 2020, we entered into a Securities Purchase Agreement (“SPA”) with three accredited investors which led to a $675,000 infusion of cash in return for Preferred B shares, Preferred C shares and Warrants in 2021.
Subsequent to October of 2018 and through the beginning 2023, except for a government backed PPP loan and the exchange of employee payables for long-term notes, the Company has not taken any new debt.
In addition to continuing to incur normal operating expenses, we intend to continue our research and development efforts for our various technologies and products, including hardware, software, interface customization, and website development, and we also expect to further develop our sales, marketing and manufacturing programs associated with the commercialization, licensing and sales of our GPS devices and technology. We currently do not have sufficient capital on hand to fully fund our proposed research and development activities, which lack of product development may negatively affect our future revenues.
As noted above, based on budgeted revenues and expenditures, unless revenues increase significantly, we believe that our existing and projected sources of liquidity may not be sufficient to satisfy our cash requirements for the next twelve months. Using currently available capital resources, management believes we can conduct planned operations for 120 days. Accordingly, management believes we need to raise a minimum of $300,000 to remain in business for the next 12 months. The sale of additional equity securities will result in additional dilution to our existing stockholders. Sale of debt securities could involve substantial operational and financial covenants that might inhibit our ability to follow our business plan. Any additional funding that we obtain in a financing is likely to reduce the percentage ownership of the Company held by our existing security-holders. The amount of this dilution may be substantial based on our current stock price, and could increase if the trading price of our common stock declines at the time of any financing from its current levels. We may also attempt to raise funds through corporate collaboration and licensing arrangements. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to grant licenses on terms that are not favorable to us. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain the needed additional funding, we may have to further reduce our current level of operations, or, may even have to totally discontinue our operations.
We are subject to many risks associated with early stage businesses, including the above discussed risks associated with the ability to raise capital. Please see the section entitled “Risk Factors” for more information regarding risks associated with our business.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation and changing prices have had no effect on our net sales and revenues or on our income from continuing operations over our two most recent fiscal years.
The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses of $1,200,458 and $368,407 for the years ended December 31, 2021 and 2020, respectively, has incurred losses since inception resulting in an accumulated deficit of $26,053,384 as of December 31, 2021, and has negative working capital of $2,829,165 as of December 31, 2021. A significant part of our negative working capital position at December 31, 2021 consisted of $758,000, of amounts due to various accredited investors of the Company for convertible promissory notes, loans of $40,640, a letter of credit with a balance of $7,000 and short-term CARE loans of $74,953. The Company anticipates further losses in the development of its business.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to raise additional capital through the future issuances of debt or equity is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, or its attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
Critical Accounting Policies and Estimates
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.
The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below.
We have identified the following critical accounting policies that are most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following is a review of the more critical accounting policies and methods used by us.
The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.
The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time.
We derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware includes our SmartSole, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers accessing our cloud-based software solutions and subscription or license fees for our platform. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related to our solutions. IP licensing is related to our agreement with Inventergy whereby we have partnered in order to monetize our IP portfolio (see Note 3, below).
At the inception of each contract, we assess the goods and services promised in our contracts and identify each distinct performance obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large majority of the Company’s sales, transfer of control occurs once product has shipped and title and risk of loss have transferred to the customer.
The Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
The majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services are performed.
Licensing revenue recorded by the Company relates exclusively to the Company’s License and Partnership agreement with Inventergy which provides for ongoing licensing based on monetization of IP licenses. The Company recognizes revenue for licensing under ASC 606, which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: 1) sale or usage of the products or 2) satisfaction of the performance obligations. The Company has satisfied its performance obligations and therefore recognizes licensing revenue when the sales to which the licensing relate are completed. During the years ended December 31, 2021 and 2020 the Company recognized 0 and 1 settlements for a total of $20,000 in licensing revenue, respectively.
During the year ended December 31, 2021, the Company’s customer base was comprised of approximately 37.57% B2B (Wholesale Distributors and Enterprise Institutions), 60.70% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 0.00% IP (our monetization campaign from consulting, licensing and asserting our patents) and 1.73% Military and Law Enforcement. During the year ended December 31, 2020, the Company’s customer base was comprised of approximately 69.95% B2B (Wholesale Distributors and Enterprise Institutions), 33.61% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes), 1.87% IP (our monetization campaign from consulting, licensing and asserting our patents) and 0.56% Military and Law Enforcement.
The Company’s warranty policy provides repair or replacement of products (excluding GPS Shoe devices) returned for defects within ninety days of purchase. Warranty liabilities are recorded at the time of sale for the estimated costs that may be incurred under our standard warranty. As of December 31, 2021, products returned for repair or replacement have been immaterial. Accordingly, a warranty liability has not been deemed necessary.
Our debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes option pricing model. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return, our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life of the option.
On December 31, 2020, it was determined that the Company had no derivative liabilities.
Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis, which is generally commensurate with the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Recent Accounting Pronouncements
Please refer to footnote for management’s discussion of recent accounting pronouncements.
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