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John H. Ford
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For the past 30 years, I have been involved in startups, as a founder, and active investor. My first company was purchased by Johnson & Johnson, which set the foundation for future investments. My level of trading escalated after graduating from college, primarily as a result of my... More
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  • GTX's Lead Product Just Validated By Medi-Cal

    GTX just announced that its SmartSole's have been approved for 100% reimbursement with Medi-Cal. This means that 11 million Medi-Cal subscribers now have access to free SmartSoles and free monthly subscriptions.

    This is important for 3 reasons:

    Number 1: GTX now has product validation from a major government agency.

    Number 2: GTX can immediately begin selling products to this large subscriber group.

    Number 3: it will now be much easier for GTX to obtain reimbursement from other states, because once California is on board, the rest should follow.

    This is a home run for the company, and just one more example of management's ability to execute.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please clickhere.

    Tags: GTXO
    Apr 08 12:05 PM | Link | 2 Comments
  • Forget Shake Shack, Chanticleer Could Provide More Than A 2X Return

    Summary

    · The current rights offering should be a game changer for Chanticleer because it could allow the company to turn profitable next quarter.

    · The company is in hypergrowth mode with year-over-year quarterly revenue growth exceeding 400%.

    · Chanticleer is trading at a .5 price to sales ratio, well below the 3.8. peer average.

    I have been buying shares of Chanticleer Holdings (NASDAQ:HOTR) based on the company's year-over-year 473% quarterly revenue growth, potential near-term profitability, and ridiculous level of undervaluation. The results of the just completed rights offering will be announced early next week and could provide a powerful catalyst for shareholders.

    This company is completely under Wall Street's radar, and should provide more than a 100% return.

    Acquisition strategy could turn Chanticleer profitable next quarter

    Chanticleer has been acquiring hidden gems in the restaurant sector, and this strategy could generate profitability next quarter. Chanticleer is following a similar growth strategy that Opko (NYSE:OPK) successfully implemented; growth by acquisition. I first covered Opko when it was trading at $4, and it is currently trading at over $14, primarily as a result of Dr. Philip Frost well-managed acquisition strategy.

    Chanticleer's business

    Chanticleer owns and operates multiple restaurant brands including Hooters, American Burger and Just Fresh. The Company owns all or part of the Hooters franchise rights to develop and operate Hooters restaurants in South Africa, Australia, Europe, and the Pacific Northwest. But it's the better burger segment that really has me interested in Chanticleer.

    Chanticleer is conducting a game changing rights offering

    With the goal of preserving the company's $18 million in NOLs, Chanticleer offered shareholders the right to buy shares at $2. This offering is intended to raise the cash needed to make accretive acquisitions. The currently planned acquisitions will significantly grow Chanticleer's top line revenue, and could take the company to profitability, almost immediately.

    The results of the rights offering will be announced early next week, possibly as early as Monday, and positive results should be a strong catalyst for the share price.

    Chanticleer is severely undervalued when compared to peers

    One of the best ways to value companies is to use a price to sales ratio. McDonald's, the gold standard in burger territory has a price to sales ratio of 3.3. Shake Shack's price to sales ratio is 4.97 and Zoe's is 3.9. Chipotle has a price to sales ratio of 4.9. On the other end of the spectrum, we have Wendy's which has a price to sales ratio of 1.9. The average price to sales ratio for all these companies is 3.8.

    It should be noted that Shake Shack and Zoe's are reporting losses. Zoe's just reported a net loss of $10 million for 2014, compared to a net loss of $3.7 million the previous year. Even though these 2 competitors are losing money, they are given very healthy valuations based on substantial projected future profits.

    What's fair valuation for Chanticleer today?

    Chanticleer is currently valued at $16 million. If we include the value of Chanticleer's 3% controlling stake in Hooters of America, which should be worth at least $4 million in cash when the sale is concluded later this year, that gives Chanticleer an effective valuation of $12 million. But in order to keep all estimates conservative, we will use the $16 million number.

    That's for a company that should generate at least $45 million this year if there are no acquisitions, and with acquisitions and new restaurant openings Chanticleer could generate at least $68 million this year. That's an insane level of mispricing with a forward price to sales ratio of .2. Remember, the average price to sales ratio for the top companies in this sector is 3.8. It's almost unheard of to see a price to sales ratio as low as Chanticleer's but it provides a tremendous investment opportunity.

    I estimate Chanticleer's 2014 revenue to be at least $25 million. If we use a discounted price to sales ratio of 2.8, which is 25% below the 3.8% peer average, that would give Chanticleer a fair valuation of $70 million. Keep in mind $25 million for 2014 is conservative, because most analysts are projecting greater than $30 million for the year.

    With a fair valuation of $70 million, and 8 million shares outstanding, Chanticleer should be trading for $8.75 today if it were valued 25% lower than its peers. That's over 3 times today's shareprice. Talk about mispricing! Even if Chanticleer's shareprice were to double, that would still be an extreme level of undervaluation when compared to peers.

    What would Chanticleer be worth by year-end with no acquisitions?

    If Chanticleer makes no acquisitions this year, it should generate at least $45 million for 2015. With a price to sales ratio of 2.8, that would give Chanticleer a valuation of $126 million.

    To keep the estimates conservative, let's assume that the share count is increased from the current 8 million to 10 million. With a fair valuation of $126 million, Chanticleer's share price would be $12.60. But that's a worst-case scenario, because in reality, Chanticleer will most likely make accretive acquisitions which will bring the revenue significantly higher.

    What would Chanticleer be worth by year-end with acquisitions?

    If the rights offering generates $8 million, that would increase the share count to 12 million shares and would allow the company to complete all current acquisitions including the opening of about 3 new Hooters locations. I estimate with the current business and revenue from planned acquisitions and new restaurant openings, Chanticleer should generate at least $68 million this year, and that's not including the sales of Hooters of America which should bring in an additional $4 million to $5 million.

    Just to be clear, when Chanticleer sells its 3% controlling stake in Hooters of America, it will still own all its Hooters restaurants and franchises, the 3% controlling stake was a separate investment in the parent company.

    With $68 million in recurring revenue, and a 2.8 price to sales ratio, Chanticleer would be fairly valued at $190 million. With 12 million shares outstanding, that would give Chanticleer a shareprice of $15.86. When we include the Hooters of America sale, the share price would be even higher.

    Which is the most accurate price target, $12 or $15?

    By early next week, probably Monday, we will know the results of the rights offering, and just how much cash Chanticleer raised. If very little cash was raised, the $12 price target will be more accurate because there may be no immediate acquisitions. If $8 million or more was raised, all acquisitions and restaurant openings should be priced into the model, and a $15 price target is realistic. If only $4 million is raised, the price target will be $13 to $14, because the acquisitions will be smaller in scale.

    Who cares about price targets, Chanticleer is worth $8.75 today

    I bought shares in the low $2 range, so even if Chanticleer only reaches today's fair valuation, which is $8.75, that's more than a 3X return on my investment. If the share price goes to $12 or $15, that will be great, but as far as I'm concerned, that simply an added bonus.

    Chanticleer's impressive revenue growth

    Take a look at these revenue numbers, and you will see why I have invested in Chanticleer:

    · Q3 2013: $1.6 million

    · Q4 2013: $3.3 million

    · Q1 2014: $5.8 million

    · Q2 2014: $6.9 million

    · Q3 2014: $9.1 million

    3rd quarter 2014 restaurant revenue was $9.1mn, an increase of 473.5% year-over-year. Restaurant EBITDA stood at $0.9mn, an increase of 1040% year-over-year. These are numbers generally seen by companies trading at a premium, not a discount.

    If all acquisitions and new restaurant openings are completed, a high level of growth will continue and Wall Street should begin to take notice.

    Acquisitions could make Chanticleer profitable this year

    The biggest advantage the planned acquisitions will give investors is that Chanticleer could become profitable as a result of the acquisitions. In fact Chanticleer could be profitable as early as Q2 of this year because all revenue is accretive, and applicable immediately following the transaction.

    One important element that tips the scale to profitability is the increase in the number of high-margin better burger restaurants that Chanticleer will own following the acquisitions.

    When you include the sale of Hooters of America, of which Chanticleer controls 3%, that should add another $4 million-$5 million to Chanticleer's bottom line, which would push the company into monster profitability in Q2. That's assuming the Hooters of America sale closes by Q2.

    Rave Restaurant Group provides the best comp to Chanticleer

    Rave Restaurant Group (NASDAQ:RAVE) provides an excellent comp, with $44 million in annual revenue, no earnings, and a valuation of $140 million. Rave is growing much slower than Chanticleer, with Q4 2013 revenues of $10 million which grew to $11 million in Q4 of 2014. That's only a 10% % year-over-year revenue increase. Compare that to Chanticleer's 473% year-over-year growth.

    Rave is being given a price to sales ratio of 3.2. With Chanticleer's superior revenue growth, one could easily make a case that Chanticleer deserves a much higher price to sales ratio than Rave.

    Why is Chanticleer so undervalued?

    The primary reason is that Wall Street hasn't caught on to Chanticleer's phenomenal growth rate, and ridiculous level of undervaluation. Shake Shack has gotten all the publicity, while Chanticleer has remained under the radar. That will change at some point, probably sooner rather than later as a result of the current acquisitions and the buzz in the better burger space. The Shake Shack IPO will ultimately be helpful in directing attention towards Chanticleer.

    MarketWatch article provides validation of Chanticleer's strength

    There was also a good MarketWatch article released yesterday that provides a very compelling chart presented at the beginning of the article. If you're considering investing in Chanticleer, I highly recommend studying the chart because it clarifies how much Chanticleer stands out when compared to peers.

    Conclusion

    At the very least I expect the shareprice to double, and longer-term investors could realize 6X to 8X returns. If Q2 is profitable, and Chanticleer receives $5 million from the Hooters of America sale, the company could report blockbuster numbers which should generate attention from Wall Street and significant share price appreciation.

    The rights offering is a huge catalyst for Chanticleer, because if substantial capital is raised, not only does that validate demand for the company's stock, but more importantly it could push Chanticleer into profitability. Equally important, the company would be able to generate levels of revenue that will force Wall Street to pay attention.

    Chanticleer is an ideal asymmetrical trade, tremendous upside potential, and with a $16 million valuation, downside is limited.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please click here.

    Mar 13 12:03 PM | Link | 5 Comments
  • GTX: This Wearable Tech Company Could Deliver 6X Short-Term Returns

    Summary

    · GTX is the most undervalued company I have ever encountered, trading at an 85% discount to fair value.

    · GTX is the best pure play investment in the wearable tech sector.

    · The company's lead product should capture a large portion of an $8.6 billion market.

    · The first production run completely sold out with preorders and this was accomplished with no advertising.

    · GTX is the CEO's 7th startup, and all of his previous companies achieved profitability.

    · GTX management is so bullish that many have chosen to take most of their salary in stock.

    · GTX's 80 patents are worth more than twice the company's current valuation.

    · The company should generate significant year-over-year revenue growth this quarter.

    · Strong demand for the company's products should produce profitability beginning in Q2 or Q3 of this year.

    With quality companies, early investors often reap the greatest rewards. I distinctly remember when Apple (NASDAQ:AAPL), was trading for $.92, split-adjusted. Apple stock recently rose above $130 a share providing early investors with more than 100X return. Anyone who invested $10,000 back then would be a millionaire today.

    After over 300 hours of due diligence, I have discovered a similar opportunity with wearable tech company, GTX Corp (OTCPK:GTXO). If this company continues to execute, which I believe it will, investors could ultimately realize 100X returns. But GTX is so undervalued right now that investors could capture near-term 6X returns as Wall Street becomes aware of this company's fundamentals and pushes the share price towards fair valuation.

    Wearable tech could be the hottest sector for 2015

    The wearable tech sector has been on fire and investing early could provide tremendous returns for investors. Investors began to take notice when Facebook paid $2 billion for Oculus VR. Early Oculus VR investors invariably did very well.

    According to Juniper research, revenue from this sector is expected to grow 1000% in the next 5 years. Credit Suisse believes this will be a $50 billion market in 3 to 5 years.

    When wearable tech companies Fitbit and Jawbone IPO later this year, the demand for wearable tech investments could go parabolic. With very few wearable tech companies to invest in, GTX shares could trade at a premium.

    Right now the only wearable tech investments include tech giants like Apple, Google (NASDAQ:GOOG), Samsung, and Facebook (NASDAQ:FB), but the problem is, these are not pure play wearable tech investments.

    And then we have VC backed private companies which include MC10, mCube, Misfit, Quanttus, and Zepp. Some of these companies will most likely go public, possibly this year, but as of now, we cannot invest in these companies.

    That's what makes GTX so attractive, not only does it appear to have the best product on the market, but in my opinion it's the best pure play wearable tech investment.

    Last year's hot sector was security, where companies like Digital Ally (NASDAQ:DGLY) provided investors with 10X returns when it went from $3 to over $30 in just a few weeks.

    I expect GTX to perform even better because the company has 80 patents covering an $8.6 billion market and is currently trading at an 85% discount to fair value. The key to this investment thesis is GTX's sustainable competitive advantage with a best in class product.

    GTX is providing the best solution to an unsolved problem

    Currently over 100 million people require oversight due to various forms of memory impairment caused by Alzheimer's, dementia, autism and traumatic brain injury. That number is expected to increase to 277 million by 2050.

    One of the biggest problems with this population is that they go wandering, get lost, and family members and caregivers have no reliable way to find them. The police are called and a search ensues. Each police search costs on average about $10,000, and can go up to over $100,000. It just depends on how quickly the person is located. The emotional and economic impact are substantial, and up to now there hasn't been a reliable solution for locating these memory impaired individuals.

    According to the 2013 World Alzheimer's Report:

    · 60% will become lost at least once.

    · 70% of those will become lost 3 or more times.

    · 46% of those not found within 24 hours may die.

    With 46% facing death if not found within 24 hours, the need to quickly find these individuals is evident. GTX has developed the best solution that reliably allows caregivers, police departments and family members to immediately locate these individuals.

    GTX's patented GPS SmartSoles features a miniaturized GPS tracking chip embedded in insoles, which are inserted into a wearer's shoe. SmartSoles send a signal to the central GTX monitoring website showing the wearer's exact location, using a combination of satellite and cellular technology.

    After you activate your tracking account, you will be able to monitor the person wearing SmartSoles right from your computer, tablet, or smart phone. In other words, the wanderer will never be lost because you will always know exactly where they are.

    One of the biggest advantages is SmartSoles allows the caregivers to relax. Without this technology, caregivers literally need to keep an eye on memory impaired individuals 24 hours a day. My neighbor's wife has Alzheimer's, and the only way he can leave the house for even 5 minutes, is to hire someone to watch over his wife while he is gone.

    Why SmartSoles provides the best solution

    With today's technology, there are only 3 options for monitoring and locating memory impaired individuals:

    Number 1: up to now the most popular method uses a small GPS device that is carried in the patient's pocket or purse, or on a lanyard around their neck. This is a great solution, when it's actually on the patient.

    The problem is, many people forget to take their monitoring devices before they go wandering, or in some cases purposely remove them. This population is often tech adverse and wants no part of carrying an electronic sensor. This solution sort of works some of the time.

    Number 2: the 2nd most popular method uses a GPS bracelet or anklet. The problem is, most individuals rebel strongly against the stigma attached to these devices, and often try to remove or destroy them. Nobody wants their friends or family to see them wearing an "Alzheimer's Bracelet".

    Another problem is that Alzheimer's and autistic individuals in particular are often paranoid, and do not like any kind of change, especially a foreign device being attached to their bodies. Getting them to wear it once can be a challenge, and having in on them consistently is almost impossible. But for the few who are willing to wear these devices, they are very effective.

    Number 3: the 3rd method, which should soon become the market leader, involves GTX's SmartSoles, a GPS tracking device is hidden in the wearer's shoe. SmartSoles are effective because the wearer doesn't know they are there. Equally important, memory impaired individuals are almost always wearing shoes when they go wandering. It's automatic, something ingrained since childhood. This is by far the most effective solution on the market today.

    Everyone I spoke with believes SmartSoles will become the market leader

    I spent a week speaking with customers, distributors, opinion leaders, and assisted living facility executives. They all evaluated SmartSoles, and everyone made it clear that SmartSoles are badly needed and will replace most of the old school anklets, bracelets, and portable GPS and RFID devices. My impression was that there is significant excitement and demand for this new product and for that reason I believe sales will ramp up aggressively.

    One of the most common themes in these conversations was that SmartSoles provide peace of mind for caregivers and patients. Both could relax, because there was no longer the fear of someone becoming lost.

    When you're living with a memory impaired individual, you can't take your eye off them for even one minute, because they can walk out the door at any time, day or night and become lost. With SmartSoles you can relax and go about your normal life. The people I spoke with who are currently using SmartSoles made it clear how much this product had changed their lives. It was inspiring to hear these stories.

    SmartSoles reduces costs and improve quality of life

    One of the things I learned by speaking with executives who managed senior facilities, was that SmartSoles will allow seniors to live at home for much longer before needing to move into a facility. If a caregiver can prevent someone from wandering by using SmartSoles, the need to move to a facility could be delayed for years. Not only does this provide positive economic impact for families, because facilities cost up to $8000 per month, but it greatly improves the quality of life for the entire family.

    I believe sales will ramp up quickly in this sector, because most families would much rather spend $30 a month for SmartSoles, and keep the family member at home, as opposed to spending $8000 per month, and having him or her committed to a facility. ($30 a month is what consumer's pay, which is higher than the $20 per month average which includes wholesale and international distributor rates.)

    SmartSoles reduces guilt and stress for patients

    It's obvious how this product helps caregivers, police departments, and assisted living facilities, but what really surprised me was that Alzheimer's and dementia sufferers appreciate the product as well. I spoke with one dementia patient, and he said SmartSoles relieved a lot of the guilt that he felt, because he was totally aware of the burden he was placing on his wife and kids because they always had to keep an eye on him. He appreciated how SmartSoles allowed his family members to relax, which in turn allowed him to relax.

    SmartSoles locate patients immediately

    I spoke with one couple whose mother moved to an assisted living facility because her wandering was making it impossible to keep her at home. But after a very short time at the facility, she simply walked out the front door and became lost.

    After searching for hours no one could locate her. Finally, a stranger found her lying on the ground, in 20° weather, near death. She recovered, but this event was traumatic to everyone involved. This could have been completely prevented with SmartSoles because once she walked out the front door, she could have been located within minutes.

    NBC highlights GTX's technology

    NBC recently published a news story which focused on one of the organizations that are currently demoing SmartSoles. The Jefferson Board for Aging, or JABA is the first of 600 area agencies to pilot GTX's SmartSoles. This is a significant development for GTX because even if only half of these 600 agencies become customers that would generate significant revenue for GTX.

    But the most important information in this NBC story is that JABA employees stated that SmartSoles are better than any technology they've seen in the past. This is a noteworthy statement because not only does it reinforce my point about SmartSoles being the best technology available but it also indicates that JABA could become a large GTX customer.

    GTX technology validated by CES

    GTX was chosen to be interviewed for the highly sought-after 2015 Internet of Things webcast produced at CES. This honor positions GTX as one of the top innovators in the Technology/Internet space. Most tech companies would give anything for this opportunity and the fact that GTX was chosen is a strong validation for the company's technology because only the top tech companies get to participate in this event.

    CES (International Consumer Electronics Show) showcases more than 3500 high-tech companies and generally receives over 150,000 attendees from more than 140 countries. This is an important conference, because it attracts the world's business leaders and pioneering thinkers to a forum where the industry's most relevant issues are addressed. This is a huge coup for GTX.

    I recommend watching the CES video, because it will give you a good sense of GTX's CEO, and also the video opens with a story about someone who is using SmartSoles. It's always good to hear the perspective of someone who is actually using the product.

    GTX is a finalist for the Connected World Awards

    The Connected World Awards honor companies that have solved critical problems for the Internet of Things. Winners are chosen based on innovation, market size and competitive advantage. GTX excels in all these areas.

    Hundreds of companies compete for these awards, but only the best of the best are chosen as finalists. The fact that GTX was chosen, along with tech giants like AT&T, Verizon, and Joy Global, is just one more validation of GTX's technology.

    How big is the market?

    With 100 million people worldwide requiring oversight, the market is large. But not everyone in the world can afford SmartSoles, so the actual addressable market is around 36 million people. If GTX is able to receive Medicare and insurance reimbursement, which I believe it will, this 36 million number could more than double.

    GTX charges on average $20 per month for monitoring. This is a recurring fee with margins up to 75%, so this will be a powerful cash generating instrument for GTX. With 36 million potential customers, the total addressable market for monitoring is $8.6 billion annually. This is recurring revenue that will grow as the market grows from the current 100 million people to 277 million people.

    Hardware sales would add another $10.8 billion, but hardware represents one time sales, not recurring, so as a profit center, this will be less significant than the monitoring revenue. For the sake of keeping estimates conservative, I'm going to base GTX's business model only on the recurring monitoring revenue, and will not include hardware revenue even though hardware revenue will more than double the company's top line revenue.

    How much market share could GTX capture?

    Given that GTX appears to have the most effective solution, the company could ultimately capture a large portion of the $8.6 billion market, assuming a new and superior product doesn't enter the market. But it will take time to reach that level of penetration, and GTX needs to grow at a reasonable rate so as not to introduce challenges associated with hyper growth.

    Here are 3 projections of potential market penetration based on 250 million shares outstanding. As of the last filing, there were about 200 million shares outstanding and I am factoring in an additional 50 million shares to cover the recently announced $167,000 financing, and the debt conversion. There could be a little less or a little more than 250 million fully diluted shares outstanding today, so this is an estimate.

    I am basing GTX's valuation calculations on a low 2X revenue multiple. In other words, if the company had $500 million in revenue, a conservative valuation for the company would be 2 times revenue or $1 billion. In a buyout, a company with rapid growth and a sustainable competitive advantage could receive a 4X to 10X multiple, so 2X is rock-bottom.

    Just to make the point about the value of GTX's sustainable competitive advantage; Coca-Cola, with its lethargic 5% growth rate is given a multiple of 4X, solely based on the company's sustainable competitive advantage. Many will argue that GTX should be given a multiple of at least 4X, and I agree, but I'm using 2X to estimate the most conservative valuations.

    Here's a summary of GTX valuation estimates:

    · Worst-case: GTX captures 3% of the market: annual revenue: $258 million. GTX future valuation: $516 million. Shareprice: $2.06.

    · Most probable: GTX captures 10% of the market: annual revenue $860 million. GTX future valuation: $1.72 billion. Shareprice: $6.88.

    · Best case: GTX captures 30% of the market: annual revenue $2.58 billion. GTX future valuation: $5.16 billion. Shareprice: $20.64.

    Keep in mind that these are future values, and present value should only reflect a fraction of future value. Net present value calculations usually give us a present value that represents about 25% of future value or a 75% discount. In other words, if a company would be worth $1 billion in 5 years, the estimated value today would be around $250 million.

    Also remember that these estimates are only based on the recurring monitoring revenue, and do not include hardware revenue, which if included would significantly raise the estimates because top line revenue would be more than doubled.

    But here's what's important about this analysis: In a worst-case scenario, where GTX only captures 3% of the total addressable market, because of today's extreme undervaluation investors could realize a 100X return. That's what I like about this trade!

    Reimbursement codes could more than triple GTX's revenue

    The catalyst that would propel GTX from capturing 10% of the market to 30% of the market, would be success in obtaining reimbursement codes. This would be a game changer for GTX, because Medicare and insurance companies would then cover some or even the bulk of the cost, which would more than triple the number of patients who could afford SmartSoles. Many lower income patients wouldn't buy SmartSoles if they had to pay themselves, but would buy if Medicare or an insurance provider paid.

    A reimbursement category for this type of device; "a tracking device for patients with memory disorders", already exists, so in my opinion, there is a high probability of GTX receiving reimbursement codes. Given the level of need, why wouldn't they? When that happens, all financial estimates could triple.

    GTX's patent portfolio is worth at least $10 million

    GTX owns a valuable patent portfolio, consisting of over 80 patents worldwide. The best way to estimate the value of this portfolio is to look at what other tech portfolios have sold for recently. Here are some examples of recent patent transactions, and the resulting patent valuations:

    · Kodak sold 1100 patents for $527 million, an average of $479,000 per patent.

    · The Nortel patent portfolio sold for $4.5 billion, an average of $750,000 per patent.

    · AOL sold 800 patents to Microsoft for over $1 billion, an average of $1.3 million per patent.

    · Average value per patent: $843,000

    Since GTX is just beginning to generate meaningful revenue this quarter, I will apply a 70% discount to the $843,000 number, giving each GTX patent an average valuation of $253,000. I believe that's a conservative estimate given the expected high growth rate of the wearable tech sector and GTX's best in class product. As revenue increases, the average value of each patent will increase significantly since the value of a patent is tied directly to future revenue it protects.

    I estimate that only 40 of the 80 patents are core patents, which would give the total portfolio a valuation of $10.1 million. In reality, given the excitement in the wearable technology space, and the size of GTX's total addressable market, the patent portfolio could be worth more than twice that amount today. It's also important to realize that the company will most likely will continue to expand its IP position and file additional patents.

    I've heard estimates as high as $20 million for today's portfolio value so a $10 million valuation is conservative. As the company's profits increase, and the wearable tech sector becomes more prominent on Wall Street's radar, the value of this patent portfolio could ultimately approach the $1 billion mark, but that level of valuation is years away.

    Of course the real value in GTX's patent portfolio is the sustainable competitive advantage that this IP protection gives the company. As Google and Apple expand their wearable tech pipeline, neither company will be able to compete directly with GTX, because of GTX's strong patent portfolio. The only option would be for Google or Apple to buy GTX outright. With a combined $85 billion in cash, buying GTX may be the best way to increase their presence in the wearable tech sector.

    GTX could dominate this market segment

    GTX's patent portfolio not only gives the company first mover advantage, which translates to capturing a large percentage of the total market, but given the strength of the portfolio, GTX could rapidly achieve market dominance, which is only relegated to the likes of Microsoft (NASDAQ:MSFT), and Apple. In other words, if GTX has the best product on the market, and IP that prevents other companies from directly competing, GTX could ultimately capture more than 50% of the $8.6 billion market.

    What is GTX worth today?

    GTX's primary assets are its product and patents. Product values are determined by the size of the total addressable market and the probability of capturing a significant percentage of that market. Since GTX appears to have the best product in an $8.6 billion market and 80 patents to protect market share, fair valuation for the company is substantial.

    The most recognized method of calculating a company's present valuation is to discount future value based on the most probable level of market penetration. In order to keep my estimate simple and conservative, I will use a basic calculation to discount GTX's $516 million future valuation which is tied to a worst-case 3% market penetration. Some of you will argue that I should use a most probable level of market penetration, 10%, rather than worst-case, but I prefer to keep the estimates as conservative as possible.

    When I discount $516 million by 90%, that gives GTX a valuation today of $50 million. This figure is only based on future revenue, and does not include the value of the patent portfolio which would bring the valuation up to $60 million.

    Keep in mind that many investors would only use a 75% discount, so a 90% discount is very aggressive and gives us the most conservative valuation possible. A 75% discount would give GTX a valuation of $130 million today.

    I realize that even if GTX were trading for $60 million today, that could be considered low when compared to other fast-growing tech companies that are about to turn profitable. It's the $8.6 billion total addressable market protected by 80 patents that suggests a valuation above $60 million today could be warranted.

    You'll have no trouble finding scores of tech companies with smaller addressable markets that are years from profitability with valuations well over $100 million. In fact, there are dozens of money-losing tech companies valued in the billions; just take a look at Workday (NYSE:WDAY), Splunk (NASDAQ:SPLK) or Snapchat (private). The combined valuation of these 3 companies is over $20 billion and they're burning through huge amounts of cash.

    Or take a look at any of the pre-revenue biotech's that are years away from generating revenue, let alone profitability, with valuations over $1 billion. Bluebird Bio (NASDAQ:BLUE), is a perfect example; the company is still in phase 2/3 clinical trials, a long ways from generating product revenue, only has a potential customer base of 40,000 people, yet is being given a valuation of $2.75 billion.

    Remember, GTX has a customer base of at least 36 million. That larger customer base not only provides significantly more potential revenue, but also gives GTX decades of revenue growth. With that in mind, a $60 million valuation for GTX seems extremely low compared to these highflying companies.

    When you add the fact that GTX is probably the best pure play investment in the high growth wearable tech sector, the argument for valuing GTX higher than $60 million become stronger. Hot sectors produce high valuations.

    Now let's take a look at comparable companies and see how GTX stacks up in terms of valuation.

    Valuations of comparable companies

    The 2 closest wearable tech comps to GTX are LoJack (NASDAQ:LOJN), and Omnilink, a private company. Omnilink makes anklets for prisoners, and was recently sold for $37 million in cash to Numerex (NASDAQ:NMRX). Omnilink has a much smaller total addressable market than GTX, so I believe GTX should receive a higher valuation than Omnilink. There are many more memory impaired individuals needing GTX's products than prisoners requiring tracking anklets.

    LoJack sells a radio frequency tracking bracelet and over the last year the company has been valued above $124 million, although the valuation is now lower because the company is losing money. In my opinion GTX's GPS/cell approach is a newer and more effective technology than LoJack's radio frequency (CB radio), and GTX will ultimately take over most of LoJack's tracking bracelet market share. Remember, wearing an Alzheimer's Bracelet is just not something that most people want to do, and prisoner anklets are even worse, so I believe most people will convert to SmartSoles.

    Another good comparison is the high profile wearable tech company, Fitbit, which according to Techcrunch is valued at $300 million. Given the last capital raise of $43 million, the company may not yet be profitable, but we will know profitability status after the IPO later this year. When one considers the buzz that is starting to be generated in the wearable tech sector, Fitbit could be one of the hottest IPOs of the year and could make a good short-term trade.

    A direct competitor with Fitbit is Jawbone, which was last valued at $3.3 billion. Jawbone is also planning an IPO this year and it should perform well even though it's not a pure play wearable tech company.

    It should be noted that both Fitbit and Jawbone are further developed than GTX, and for now deserve higher valuations than GTX. However investors also need to remember that GTX is providing a product where there is a real need, whereas Fitbit and Jawbone are delivering products that could become short-lived fads.

    My favorite comp is @Road, a company that provided a 7X return, when it was bought out by Trimble Navigation (NASDAQ:TRMB), for $496 million. @Road is similar to GTX, because its product provides tracking information for vehicle fleets by using cellular and GPS technology. I bought shares of @Road for a little over $1, and the company was bought out for $7.50 a share. It was a profitable investment, but I believe GTX will provide a significantly greater return.

    Valuations of GTX comps

    · Omnilink: $37 million.

    · LoJack: $124 million.

    · Fitbit: $300 million.

    · Jawbone: $3.3 billion.

    · @Road: $496 million.

    With these comparisons I'm not arguing GTX is worth hundreds of millions of dollars today, of course it's not, not yet. I'm just making the point that by any comparison, GTX's current undervaluation is beyond ridiculous. Comps are rarely perfect, but they steer us in the right direction.

    Valuation summary

    When we look at how GTX should be valued today, $60 million is a reasonable estimate. This is especially true when you keep in mind that all estimates only include monitoring revenue, and do not include hardware revenue which would more than double GTX's top line revenue. If hardware revenue were included in the estimates, the $60 million valuation would be considerably higher.

    But for now, in order to keep estimates as conservative as possible, I'm going to cut that $60 million figure in half, and call today's fair valuation $30 million. I realize some of my readers will argue that a higher valuation would be more appropriate. I don't disagree, but I'd rather establish a rock-bottom valuation and benefit as Wall Street pushes the valuation higher.

    If GTX reports strong revenue growth over the next couple of quarters and gives positive guidance going forward, obviously that $30 million figure will have to be adjusted well above $100 million. If reimbursement enters into the mix, GTX's valuation will be take another quantum leap.

    GTX assets that have not been included in estimates

    There are couple of assets that have not been included in my estimates, but are of considerable value. First we have GTX's 6 international distributors. Distribution channels are of tremendous value, and I've seen cases where a shareprice soars once a startup company gets its first distributor. Distribution equates to revenue.

    Getting distribution is one of the greatest challenges that startups face. Most of the time a startup doesn't get distribution until the 2nd or 3rd year following product launch. GTX had these distributors well before the product was launched which provides a strong indication of positive future demand. GTX has 6 international distributors and plans to have 20 by the end of year, very impressive for such an early-stage company.

    Another asset that I didn't add into the mix is the SmartSoles brand. It's a bit too early to try to quantify that value, but at some point the brand will carry considerable value. The Google brand, for example has a value of over $90 billion. The Apple brand is currently valued at $98 billion. Brands are assets that companies list on their balance sheets. Obviously it takes years to build brand values of this magnitude, but over time the SmartSoles brand will increase in value.

    How is the market valuing GTX today?

    If GTX fair valuation is $30 million today, and I could buy the company for $15 million, that would be a phenomenal investment. Anytime I can buy a quality company for $.50 on the dollar I will. But what if I could buy GTX for $.15 on the dollar, or at an 85% discount. Opportunities of that magnitude are rare.

    Following is the most important information in this analysis:

    Because of aggressive selling pressure from one institutional investor that converted its floorless convertible notes into common shares, GTX's valuation was driven down to today's incomprehensible $4 million. This fall was amplified when investors began panic selling because they assumed the decline was based on imagined fundamental problems within the company. Investors were wrong. The fundamentals within the company never looked better!

    At today's shareprice, fully diluted GTX is valued at $4 million. This is one of the most severe mispricing's that I have ever witnessed and has created the trade of a lifetime. Now you see why I have taken a large position.

    The institutional selling pressure was just eliminated

    The selling pressure from that institutional investor is over now because the company just announced the retirement of all senior secured convertible promissory notes previously held by the fund. The entire principal balance of all the senior secured convertible notes was converted into common shares or retired. In total $716,000 of debt and liabilities were extinguished from a balance sheet. Not only will this take the pressure off of the share price, and allow it to appreciate to a more appropriate level, but it also eliminates most of the debt from the GTX balance sheet.

    GTX is an ideal buyout candidate

    The wearable tech sector is entering a rapid growth phase, and buyout candidates are few and far between. Given the size and strength of GTX's patent portfolio, we could see GTX in play sometime this year. In fact, I would be surprised if some Fortune 500 companies were not already in early talks with GTX.

    Garmin or Trimble Navigation could be interested, as could any of the large medical device corporations, including Johnson & Johnson, the company that bought my first medical device startup. I would love to receive another block of Johnson & Johnson stock. SmartSoles would also make an ideal complement to Medtronic's or Siemen's pipeline. And of course, given Apple and Google's interest in the wearable tech space, both of these companies could make offers.

    Again, it all comes down to revenue growth this year. If results are exceptional, which I believe will be the case, the potential for buyout offers and bidding wars is amplified. Additionally, with strong revenue numbers, GTX will be in an ideal bargaining position with potential suitors and should be able to leverage a very strong deal.

    Would GTX sell out for $30 million today? I hope not. Not when the company could probably get several times that amount in a couple of years.

    Q1/Q2 2015 revenue should be record-breaking

    GTX just received its first production run from its manufacturer, and this entire run was sold out before GTX even received this shipment. In all my years of investing and involvement with startups, I have never seen this happen before. What makes it even more remarkable is that this was accomplished with absolutely no advertising dollars spent!

    This is important information because it tells us that there is a strong demand for this product, and in my opinion as awareness grows, the demand will grow exponentially. Can you imagine what would happen if the company actually started marketing the product?

    Given that the first production run has already been spoken for, and much of this revenue should apply to Q1, I estimate Q1 revenue will be significantly higher than the previous year's Q1 revenue. This is information that Wall Street has completely missed, and once investors catch on, the share price should rise substantially. Revenue growth of that magnitude is always good for shareholders.

    Is a 6X short-term return too optimistic?

    My readers will invariably raise an eyebrow about a projected 6X short-term return. I understand, and I have attempted to reduce this number but I'm always presented with the same reality; this is a $30 million company trading for $4 million. Some will argue that a $30 million valuation for GTX today is way too low.

    It's important for investors to remember that Wall Street delivers short-term returns greater than 6X. For example, when Zhone Technologies (NASDAQ:ZHNE) was trading at $.26, few investors believed the shareprice would ever double. Investors were wrong, the share price rose to over $5, more than a 20X return.

    Or take Plug Power (NASDAQ:PLUG), which went from $.40 to over $11 dollars, providing a 30X return. Gains above 6X are not uncommon for extremely undervalued companies.

    Once Wall Street becomes aware of GTX, the shareprice could jump sixfold within a very short timeframe. The level of undervaluation is so overdone and Wall Street is just beginning to realize the acceleration of growth in the wearable tech sector, that any level of awareness within the investment community could have a huge effect on the share price. Remember, nobody knows about this company yet!

    GTX could trade at a premium this year

    Not only could GTX rise to fair valuation and provide investors with 6X returns, but the company could begin trading at a premium as investors clamor to find pure play wearable tech companies.

    2 of the hottest IPOs this year could be Fitbit and Jawbone, and these IPOs will amplify demand in the wearable tech sector. As Wall Street becomes aware of GTX, the share price could increase well beyond fair valuation, and give investors short-term returns much greater than 6X.

    Longer-term, we could see 100X returns

    For me the question isn't whether or not a 6X return will happen, I believe it will, but whether or not a 100X return could be realized longer-term. Returns of that magnitude will be completely dependent upon revenue growth and profitability. If GTX performs well in this very hot sector, investors could realize 100X returns. If product demand exceeds expectations, we could see greater than 100X returns.

    As GTX gains traction, it should increase its monitoring prices

    GTX is charging on average $20 per month for monitoring, which is way too low, given that most consumers are spending more than twice that much just for cell phone service. In my opinion, GTX will raise prices as products gain traction, and this will add significantly to the company's bottom line, given the high margins in the monitoring sector.

    I'm not suggesting that GTX gouge customers, but since the products are probably the best on the market, and there's a tremendous need, I believe a 50% increase would not faze the market. We're talking about saving lives here, and raising the average price from $20 a month to $30 a month (consumers are already paying $30 a month), should not be an issue. We could ultimately be looking at a monthly fee well above $30 because the company just announced it will be offering a 24x7 call center concierge service for $50 per month.

    Apple has proven that a premium can be charged for superior products, and I believe GTX will ultimately take that route also. I do agree that keeping the price low while building the brand is an effective strategy, but only temporarily.

    GTX ranking high on Google

    One element that will add to GTX's growth rate, is the fact that GTX comes up on page 1 out of 15 million search results for "GPS wearable technology". This is outstanding, because in my experience, landing on page 1 has a huge effect on sales. This is just one more indication that GTX is doing things right.

    GTX just entered the $6.4 billion drone market

    There's another market that GTX just entered that I have not included in my estimates but bears mentioning because it could provide significant revenue for the company. Last year GTX began selling a standalone GPS tracker that is used to locate drones. This market is in its infancy, but could deliver meaningful revenue to GTX. The company just announced that more than 550 units are currently in the field and before year-end that number is expected to grow to 1000.

    These trackers are used to locate drones that inadvertently fly away and become lost. Apparently losing drones is a more common phenomenon than most people realize. With GTX's tracking device, pilots are able to locate their lost drones within minutes.

    Drones are just coming into their own, and the market for commercial and military applications is expected to reach almost $12 billion within the next decade. GTX will be capturing part of this market, with hardware sales, but even more importantly the recurring monitoring revenue will add to the company's bottom line.

    GTX only needs to sell 5000 units to achieve profitability (see interview), and if 1000 units are accounted for by drone trackers that will generate 20% of the revenue needed to reach profitability. And if this market continues to grow 100% year-over-year, drone trackers could ultimately provide an important source of revenue for GTX.

    Many of my best investments were initiated below $1

    By definition, GTX is currently a penny stock. GTX's penny stock status is part of what's given us this phenomenal investment opportunity, because that has kept the company hidden from Wall Street.

    Many investors have reservations about investing in companies with share prices below $1. That's understandable. Penny stocks have a bad reputation, much of it deserved. Many of these companies are selling for pennies for reason, and investors should stay away. Most of the penny stocks I look at our worthless businesses headed for the graveyard.

    But that's not always the case. Some of my most profitable investments have come from investing in high-quality companies that were trading well under one dollar. The big advantage with penny stocks is that great companies can be found hidden amongst the rubble. And because this sector is completely ignored by Wall Street, the level of mispricing, hence profits, can be substantial.

    For example, I bought MusclePharm (OTCQB:MSLP), pre-reverse split when it was trading for less than one cent. But before becoming a MusclePharm shareholder, I spent weeks on the phone with the company's CEO and CFO, determining whether or not it was a good investment. After a thorough analysis, I liked the company, and established a large position. My positive analysis turned out to be accurate, because the shareprice more than tripled as MusclePharm conducted a reverse split and executed a solid business plan.

    When I began my analysis, few people had heard of MusclePharm, but now you can buy MusclePharm products in Costco and other large retail stores. MusclePharm was a great company hidden in the penny stock graveyard.

    Remember, the best time to invest is before a company becomes a household name. We have a similar situation with GTX, because the company is completely under the radar on Wall Street.

    I also invested in Neuralstem (NYSEMKT:CUR), as a penny stock, and the stock price appreciated more than 6X.

    IsoRay (NYSEMKT:ISR), the same story, a good company trading for pennies that appreciated more than 6X. I also spent weeks on the phone with management from both of these companies, before making the investments.

    One big advantage of investing in penny stocks is that it's a lot easier for a share price to go from $.01 to $.10, than it is to go from $10 to $100. It's also common for penny stocks to be severely mispriced because investors don't have a good frame of reference once the share price gets that low.

    The key to investing successfully in stocks under $1 is to make sure the company has an experienced management team, a realistic business plan, and best in class products. That was the case with MusclePharm, Neuralstem, and IsoRay, and in my opinion, that is also the case with GTX.

    Reverse split and NASDAQ up listing will benefit shareholders

    The interesting thing about penny stocks, is that with a reverse split, a company can immediately exit penny stock status. There is nothing inherently wrong just because the stock is trading for pennies, it's simply a matter of cap structure. A reverse split is a simple procedure that most quality companies can easily initiate.

    I would expect GTX to conduct a reverse split this year, followed by a NASDAQ up listing. There's no reason not to and it will only benefit shareholders, particularly if it's tied to a major event like substantial revenue increases, signing several large contracts, or the Holy Grail; reimbursement.

    The interview

    For the past 2 months, I conducted numerous extensive interviews with CEO, Patrick Bertagna. Following are excerpts from those interviews:

    Question: why do you think SmartSoles offer a good solution for memory impaired individuals?

    Patrick Bertagna: with a tracking device, it needs to be on the person when they go wandering. If your family member has dementia or Alzheimer's, you can't very well say, "Be sure to take your tracking device with you before you go out". Bracelets have been tried, but patients don't like new technology or new devices, and they spend a lot of time trying to remove or destroy the bracelets. No one wants to wear an Alzheimer's Bracelet. An anklet creates the same problem, particularly because anklets are used for prisoners. The best solution is to hide the device in shoes that they are familiar with. They don't even know it's there. And one thing we can count on, is that most people put on their shoes before they go wandering. It's a habit that even Alzheimer's or dementia patients tend to follow. I'm not saying it's 100% guaranteed, but the SmartSoles provide the highest level of reliability in terms of being on a wearer when needed.

    Question: how big is the market?

    Patrick Bertagna: 100 million people worldwide have a memory disorder, and that number is expected to rise to over 277 million by the year 2050. But not everyone in the world has access to or can afford our products today, so realistically the actual addressable market is about 36 million. This is still a big market. Even in a worst-case situation, if we only capture 3% of the market, which is a very small number percentage wise, that's over 1 million customers. If each customer is paying on average $20 per month, that's $240 million per year in high-margin revenue. And that doesn't include the hardware sales, which would bring in an additional $300 million annually. In 10 years, when the customer base grows from the current 36 million to about 100 million, our revenue numbers could triple as well. So even if we stay at 3% of the market, we could still become a multibillion dollar company with millions of paying subscribers.

    Question: what other uses do you see for SmartSoles?

    Patrick Bertagna: we recently spoke with the State Department and they are looking at using these for diplomatic services particularly those who are traveling throughout the Middle East because of all the kidnappings that are going on. In general, high-level executives, high net worth individuals, journalists, diplomats, and ambassadors could benefit with SmartSoles.

    Question: with traumatic brain injury causing early onset dementia for many athletes, are any of these athletes using SmartSoles and do you see this as a significant market?

    Patrick Bertagna: We have several retired NFL players and Boxers who are users and or brand ambassadors of the SmartSoles. Over time we do see this as a growing market. There are thousands of retired NFL players who suffer from TBI and that number is growing. Besides football and boxing, you have hockey, rugby, soccer and with so many people around the world that follow professional sports, that market will be significant to us for creating brand awareness.

    Question: can you comment on your IP?

    Patrick Bertagna: with regards to tracking devices in footwear, we own a lot of IP. We have over 80 patents surrounding monitoring and tracking technology. 16 of these patents apply to our software perhaps 15 or more to embedded footwear. Everything we have developed in-house has early dates going back to as early as 2002 which is when we filed our first patent. We were very early in developing our IP portfolio and believe this will become the cornerstone of our value as the wearable technology market expands and garners mainstream traction.

    Question: could another company develop shoes that are embedded with GPS tracking?

    Patrick Bertagna: Yes, but they would have to go around our patents. More importantly, most people do not want to be forced to wear a different type of shoe, and the SmartSoles allow you to wear shoes you are familiar with and comfortable in.

    Question: what is your burn rate?

    Patrick Bertagna: right now it's costing us about $75,000 per month to run the business and we are bringing in about $30,000 a month, so our burn is currently about $45,000 per month.

    Question: how many units do you need to sell to become profitable?

    Patrick Bertagna: between 5,000 and 6,000. But it's the monthly recurring subscriptions that we need to reach over 5,000 in order to be cash flow positive.

    Question: can you explain how over 5,000 subscribers will take you to profitability?

    Patrick Bertagna: our average monthly revenue per device sold is $20. So 5000 units should generate around $100,000 per month. Then when you add the revenue generated from selling hardware, the actual SmartSoles, that should bring us to or very close to cash flow positive.

    Question: since the sale of 5000 units could push you into profitability, when do you expect to reach that number?

    Patrick Bertagna: we anticipate that happening sometime in Q3 and perhaps even Q2 of this year. We have a few pilot programs, with large companies demoing our products, and if any one of these organizations commits to a full scale rollout, we could ship several thousand units with anyone of them. We have around 30 companies piloting right now. Some of these pilots include the largest assisted living organizations in the U.S., police departments, on-line retailers and we have 6 international distributors with perhaps 4 more coming on line by Q2, so 5,000 units should be achievable from the collective of these potential channel partners.

    Question: you just announced your $167,000 capital raise, will you need any more capital before reaching profitability?

    Patrick Bertagna: if we get a few large orders, we will need to raise $100,000-$200,000 to continue funding our production.

    Question: what's your margin on hardware sales?

    Patrick Bertagna: that ranges from 10% to 30% per unit.

    Question: what's your margin on monitoring revenue?

    Patrick Bertagna: up to 75%.

    Question: when will you have sufficient scale to reduce hardware costs?

    Patrick Bertagna: I would estimate Q3 or Q4 of 2015.

    Question: will that increase your hardware margins?

    Patrick Bertagna: yes absolutely, with our next generation device, we should see at least a 25% increase in hardware margins or we may keep the same margins but reduce our wholesale pricing in order to bring on Big Box retailers. Net/net our next gen hardware will cost us a lot less giving us more options.

    Question: do you think you will be able to get Medicare or insurance reimbursement?

    Patrick Bertagna: I do. The category for a tracking device to monitor patients with memory disorders already exists. If we get a reimbursement code, that will take us to a whole new level. We also just found out that 13 states will each be receiving a portion of a $200 million federal grant specifically for tracking people with autism and Alzheimer's. Seemingly the government is in favor of using technology to ultimately reduce their costs.

    Question: when are you going to apply for reimbursement?

    Patrick Bertagna: we have begun the process, it is slow and tedious, remember we are dealing with the government and large insurance companies but our insole manufacturing partner Atlantic Footcare, already has 2 codes for diabetic insoles, so they have experience in filing the paper work and they are helping us out with the process.

    Question: when would you expect to receive reimbursement codes?

    Patrick Bertagna: I would be guessing if I gave you a number, but some of the pilots we are conducting with large institutions will lead to case studies which should support our application process, hence possibly fast tracking the process. I want to manage expectations but with that said, this is one of our highest strategic initiatives and we are confident we will announce news on this subject in 2015.

    Question: when will you start shipping your first production run?

    Patrick Bertagna: we just started.

    Question: how long will it take to sell all units in the first production run?

    Patrick Bertagna: the first production run is already completely sold out.

    Question: you mean the first production run was sold out before you even received it from your manufacturer?

    Patrick Bertagna: yes.

    Question: how did you acquire these customers?

    Patrick Bertagna: Most went out and found us. We have online orders coming in every day.

    Question: who else is demoing your product right now?

    Patrick Bertagna: one of our biggest potential channels includes Metropolitan Police Departments and we have 2 that are demoing our product right now.

    Question: why is a police department interested in your products?

    Patrick Bertagna: last year one of the police departments that is demoing our product had 11,000 911 calls for missing persons, many of which were repeat offenders, people with Alzheimer's and autism who are repetitively wandering off and getting lost. The average cost for one search and rescue can cost thousands if not tens of thousands of dollars. It's easy to see how the SmartSoles could significantly reduce the search and rescue cost burden to police departments.

    Question: how did this major Police Department find out about your product? Did they come to you, or did you go to them?

    Patrick Bertagna: they came to us, we have had 5 Police departments contact us over the past few months.

    Question: how did they find out about you?

    Patrick Bertagna: believe it or not, they did a Google search and then contacted us. We come up on page one if you Google search "GPS Wearable Technology"

    Question: if this works for one Police Department, couldn't it work for all police departments in the world?

    Patrick Bertagna: a week after we met with the first Police Department that contacted us, another major police department contacted us, so yes we believe the domino effect could be significant, and most police departments could end up adopting our product. But even in a worst-case scenario, if only 100 police departments, and there's thousands in the US, each distributed 500 units per year that would be 50,000 units per year or approximately $25 million including the annual subscription in revenues.

    Question: are any other large organizations demoing your product now?

    Patrick Bertagna: JABA, a day time assisted living facility has over 600 locations and approx. 120,000 residents. Their residents are only there during the day, and the facilities are much less secure than an assisted living unit.

    Question: how much of the assisted living market do you think you will be able to capture?

    Patrick Bertagna: as soon as one assisted living facility begins using our products, many should follow. We believe the same thing will happen with police departments and other large scale institutions.

    Question: couldn't assisted living facilities make each facility secure like a prison, so that your product wouldn't even be needed?

    Patrick Bertagna: they could, but if you're paying $8000 a month to put your mom in a home, neither you nor she would approve of prisonlike conditions. Its traumatic enough moving into an assisted living situation, so these facilities are very user-friendly, and quite the opposite of a prison. A prisonlike facility would not stay in business for 6 months, because no one would want to live there.

    Question: are patients actually leaving the facilities?

    Patrick Bertagna: yes, that's why the assisted living facilities are so interested in our products.

    Question: you said there's 30 organizations demoing your product right now, have you received any feedback from them yet?

    Patrick Bertagna: so far about 90% of the pilots have been successful and many already committed to a commercial rollout. But this is an ongoing process. We are adding several new pilots every month.

    Question: that's an extremely high conversion rate, why do you think such a high percentage of companies that demo your product want to buy your product?

    Patrick Bertagna: there are several reasons. SmartSoles are easy to use and affordable, that's key. It saves time and money for caregivers and search and rescue. But perhaps the biggest advantage is that SmartSoles have the highest probability of being on someone when they wander.

    Question: your salary is about 50% of what most CEOs in your position are receiving, can you comment on that?

    Patrick Bertagna: my employment agreement grants me a salary of $180,000 per year. I have yet to ever take $180,000 in cash. I never have. Basically, over the last 3 years I've taken about a third of that salary in cash, and the rest in stock. Most of the top management accrues salaries and takes a portion in stock as well.

    Question: why is your salary so low?

    Patrick Bertagna: I am still the largest shareholder, so I do not want unnecessary dilution. I could've just raised a lot of money, taken a big salary, and diluted the company, but that's not in my best interest nor the shareholders best interest. I'm not in this for the salary. This is my 7th company that I've started, my first public company, so with all my private companies, we didn't have access to public capital so I learned frugality through necessity. It's in my DNA.

    Question: why are you taking most of your salary in stock?

    Patrick Bertagna: no salary can compare to an equity upside.

    Question: of the 6 other companies you started, were you able to develop any of these to the level of profitability?

    Patrick Bertagna: Yes, all of them, with a few big wins.

    Question: Have you ever sold any of your GTX stock?

    Patrick Bertagna: when our stock was trading at its highest point I didn't sell one share. I have never sold any stock.

    Question: what do you think fair valuation is for your company today?

    Patrick Bertagna: at least $50 million today.

    Question: why?

    Patrick Bertagna: we have an extensive IP portfolio in a multibillion dollar market. The wearable technology market is expected to explode over the next few years, all while our global target audience is expected to triple over the next 30 years. And we have what appears to be the best solution to a very large problem. With 100 million potential customers, growing to 277 million, the market potential is huge. If we get 1% of the market share, we are an absolute home run. If we get 5% or 10%, which is very possible, the potential is staggering. We already have a global distribution channel, selling across multiple continents. We have both B2B and B2C distribution along with a strong experienced team and channel partners many of which have an equity stake in the company. We are heading into Q1 with expected higher revenues and very little debt on our balance sheet, we expect Q2 to be at or near cash flow positive, and we are just launching. I've seen companies with far less be worth far more.

    Question: once you're profitable, what do you think fair valuation will be for GTX?

    Patrick Bertagna: Profitability is usually a tipping point, so around $80 million. But the real game changer in valuation is once we get a reimbursement code, then we should get into the triple digits.

    Interview summary

    Following are the pertinent points garnered from the interviews:

    · 90% of the pilots have been successful and many already committed to a commercial rollout. That's a very high conversion rate and provides an indication of the level of need and the potential for very rapid revenue growth.

    · A major Metropolitan Police Department was searching for a solution on Google when it found GTX. And then the fact that other major Police Departments contacted GTX is a good indication of the potential rapid adoption rate we could see from police departments around the world. This one sector alone could make GTX a billion dollar company.

    · Patrick Bertagna stated that if one major assisted living facility began using SmartSoles, the others would soon follow. That's a powerful statement, because that would mean rapid adoption by a very large group of users. Even if only half the other assisting living facilities became customers, that would still have a tremendous impact on the company's bottom line.

    · GTX should be cash flow positive by Q2 or Q3 of this year. Once a company turns cash flow positive, the share price often increases exponentially. Wall Street is completely unaware of this catalyst.

    · Most debt has been eliminated. This is important because without interest payments profitability can be generated more rapidly. It also gives the company total control when making important financial decisions.

    · The company expects to announce reimbursement news this year. Any positive indication of reimbursement would be a huge catalyst, because reimbursement could triple top line revenue.

    · 13 states will each be receiving a portion of a $200 million federal grant specifically for tracking people with autism and Alzheimer's. This is very positive because it shows the government is in favor of this technology, which bodes well for Medicare reimbursement. If the government gets behind the GTX technology, the company could rise to a whole new level.

    · The company has a history of operating on a very lean budget, and this should ultimately transfer into impressive EPS numbers. Just as an example, Patrick Bertagna, the CEO is only receiving a salary of $180,000 annually, extremely low for the tech industry. Most executives in his position are receiving at least twice that amount.

    · CEO Patrick Bertagna has been taking most of his salary in the form of equity and is the largest shareholder. This was an arrangement he chose, not something the Board of Directors imposed upon him. In my experience, when executives take salaries in equity, that's a very good sign of commitment and has a strong correlation with the future success of a company.

    · Many of the GTX staff are taking portions of salary in stock. This speaks volumes on the level of commitment within the organization. The only reason someone would take stock instead of salary revolves around an intense belief in the future success of the company.

    My impression of GTX's CEO, Patrick Bertagna

    Over the last 2 months I've spent hours on the phone with Patrick Bertagna and he is one of the primary reasons I've taken such a large position in the company. Having been involved with numerous startups myself, I know what it takes to develop a company to a high level of success, and Patrick Bertagna emulates the qualities I look for in a CEO. He is highly intelligent, experienced, and is working 7 days a week in order to build his company.

    I know from experience, that's what it takes. It took me 4 years of 100 hour work weeks to help build my first startup to the level where Johnson & Johnson was ready to buy us. I loved every minute of it, because I knew I was creating something of value and I get the impression that Patrick is in the same position.

    One of the most important things I learned in the interviews, was that of the previous 6 companies that he started, all of them were developed to the level of profitability. That's an important accomplishment and lets us know that he has the ability to turn GTX into a profitable enterprise. Remember, when building a new business having an experienced management team whose done it before is key.

    GTX's balance sheet

    GTX applies the same strategy that my first startup used before we were bought out by Johnson & Johnson. We kept expenses and dilution to a minimum, which meant that the balance sheet carried no debt, and very little cash. We only raised minimal amounts of cash when needed, so when Johnson & Johnson finally bought us, we all received sizable blocks of Johnson & Johnson stock because we had not diluted our company with numerous financings.

    Also, without surplus money to spend, we didn't spend it. When an engineer wanted a new high-end oscilloscope, he didn't get it, he got an inexpensive used model that would get the job done, nothing fancy. We had cheap office space, our salaries were minuscule, but our frugality paid off when Johnson & Johnson bought our company. Equity proved to be much more valuable than cash.

    The problem with a cash heavy balance sheet, is that many executives are not capable of frugal cash management and a lot of the cash is simply wasted. Worse yet, large amounts of cash end up in management's bank accounts, in the form of excessive salaries, bonuses, etc. We've all seen too many cases where CEOs are paying themselves over $500,000 annually to run money-losing companies. At that point they have little motivation to create a successful company, because they are on the gravy train at shareholder's expense.

    GTX is doing the opposite. The CEO is getting about $60,000 a year, plus $120,000 in stock. The only way he will make money is if the company succeeds. That's the way it should be.

    With companies like GTX where there is a high probability of success, equity is much more valuable than cash and I'm impressed with the company's ability to keep dilution to a minimum.

    Some investors will not like the fact that GTX maintains minimum cash on the balance sheet, only doing small raises when necessary, but in my opinion this strategy is preferable to keeping the balance sheet cash heavy and severely diluting shareholders. I wish more companies would operate this way, it would benefit shareholders. In my opinion it's the most honest way of doing business.

    Keep in mind, the company is only burning $45,000 a month, and could be cash flow positive by Q3, so cash is not much of an issue at this point. They don't need a lot.

    If GTX wanted to raise millions right now, that could be done in an instant with a couple of phone calls. Fortunately that is not the company's strategy and given past history, I expect GTX to remain on this minimally dilutive path.

    Future financings will be directly related to success

    GTX just announced the completion of a $167,000 financing that will be used for funding production of SmartSole's. We could see one more small financing like this before the company reaches profitability in Q2 or Q3. This would actually be a positive event, because funding a production run will mean there is strong demand for the product which will reflect positively in revenue and higher margins. This would result in some dilution, about 5% at today's shareprice, not a big deal.

    On the other hand, if GTX got some huge orders and needed $500,000 the company would invariably do a debt financing which would be easy to obtain with PO's in hand, and the terms would be extremely favorable to GTX.

    Remember, PO's represent financial strength, something lenders require. Best of all, a $500,000 debt financing would not result in any dilution for shareholders. GTX would simply repay the debt with the profits from shipped products and monitoring revenue. It's a great business model!

    Once the company reaches solid profitability, financings will no longer be necessary, because profits will fund production runs. That's the big advantage of having a high-margin recurring revenue stream.

    What's the risk?

    The biggest risk is that large numbers of customers do not come on board as quickly as expected. Keep in mind that GTX just received its first shipment of SmartSoles and even though this first production run sold out completely with preorders, we don't know how quickly the 2nd production run will sell out. This is a new product launch, and the long-term outcome is not known. I believe 2015 will be an impressive year for revenue growth, but the adoption rate could be slower than anticipated.

    On the other hand, if a few of the 30 organizations that are demoing products were to place large orders, we could see revenue growth beyond our expectations.

    Downside risk is somewhat protected by the ridiculously low valuation. You have to ask yourself, is this $4 million company really going to become a $2 million company as it rapidly grows revenue with what is probably a best in class product? In my opinion, that's highly unlikely given the demand and need for this product, as well as the rapid growth in the wearable tech sector.

    Also, keep in mind that the patent portfolio alone is worth $10 million, and that fact gives us downside protection. Once Wall Street becomes aware of this company, I don't think we will ever see a valuation this low again.

    My biggest personal risk is that I sell too early. When a stock is performing well, I often sell when the shareprice has doubled. That's what I did with 22nd Century (OTC:XXII), I established a sizable position at $1, and when it hit $2.20, I sold my entire position. That was great, more than 100% gain, but the share price then went to over $6. I left a lot of money on the table, an all too common error in my trading strategy. My goal with GTX is to exercise patience and not sell too early.

    Conclusion

    GTX provides one of the best investment opportunities I've ever encountered. There is an obvious need for SmartSoles and according to everyone I spoke with GTX has the best product on the market, probably the only viable product. This product changes lives and save lives!

    Given the strength of the patent portfolio, GTX could not only capture most of the $8.6 billion market, but they could hold onto major market share for decades.

    With reimbursement, the market size more than doubles. Remember, this patient population is expected to grow from 100 million to 277 million so GTX's revenue should increase in tandem with the growing patient population.

    The level of undervaluation is beyond ridiculous. The company's patent portfolio is worth more than twice the company's current valuation. Wall Street is obviously completely unaware of this hidden patent asset.

    Since GTX's first production run completely sold out with preorders, the company should generate impressive year-over-year revenue growth this quarter, and should be cash flow positive next quarter, Q3 at the latest. The fact that the first production run sold out without advertising implies strong growth going forward. In my experience products that take off without marketing are generally blockbusters.

    When companies transition from burning cash to profitability, the share price generally increases dramatically. When another company I covered, Marathon Patent Group (OTCQB:MARA), went from burning cash to profitability the share price rapidly went from $3 to $9. Given the level of GTX's current undervaluation and the $8.6 billion addressable market, I believe GTX will prove to be a more profitable investment than Marathon.

    The wearable tech sector is entering an aggressive growth phase, and total revenue in this sector is expected to increase 1000% over the next 5 years. Investors will be searching for opportunities in the sector, and given that GTX appears to be the best pure play, the company could soon be trading at a premium. GTX could go from being a company that investors have never heard of, to a company that Wall Street is raving about. The greatest profits are made when a company goes from being undervalued to being overvalued.

    But what makes this such an exceptional trade is that GTX is a $30 million company, trading for $4 million. Even if GTX was trading for $60 million today, the company could still be a good investment because of the potential for GTX to become a multibillion-dollar company. This severe mispricing provides an ideal asymmetrical trade, tremendous upside potential, with very little downside risk.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please click here.

    Feb 24 11:48 AM | Link | 15 Comments
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