UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 20172022, or
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 000-54960001-36616
Nxt-ID,
LogicMark, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 46-0678374 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
285 North Drive
Suite D
Melbourne, FL 32904
| 2801 Diode Lane |
| Louisville, KY 40299 |
(Address of principal executive offices) (Zip Code)
|
| (502) 442-7911 |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| Common Stock, par value $0.0001 per share | LGMK | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to filedfile such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | Smaller reporting company | ☒ | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 13, 2017, the total number10, 2022, there were 9,608,937 shares of shares outstandingcommon stock, par value $0.0001 per share, of the registrant’s common stock was 19,016,654.registrant issued and outstanding.
NXT-ID, INC.LogicMark, Inc.
FORMForm 10-Q
TABLE OF CONTENTS
Table of Contents
September 30, 20172022
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Nxt-ID,
LogicMark, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 514,602 | $ | 3,299,679 | ||||
| Restricted cash | 40,371 | 40,371 | ||||||
| Accounts receivable | 2,513,883 | 1,218,705 | ||||||
| Inventory, net | 4,878,195 | 5,341,500 | ||||||
| Prepaid expenses and other current assets | 2,144,224 | 1,347,627 | ||||||
| Total Current Assets | 10,091,275 | 11,247,882 | ||||||
| Property and equipment: | ||||||||
| Equipment | 204,300 | 175,537 | ||||||
| Furniture and fixtures | 98,828 | 79,062 | ||||||
| Tooling and molds | 581,881 | 581,881 | ||||||
| 885,009 | 836,480 | |||||||
| Accumulated depreciation | (574,485 | ) | (456,752 | ) | ||||
| Property and equipment, net | 310,524 | 379,728 | ||||||
| Goodwill | 23,433,922 | 15,479,662 | ||||||
| Other intangible assets, net of amortization of $1,155,257 and $318,842, respectively | 12,694,710 | 8,285,725 | ||||||
| Total Assets | $ | 46,530,431 | $ | 35,392,997 | ||||
| Liabilities, Series C Preferred Stock and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 2,301,268 | $ | 2,070,658 | ||||
| Accrued expenses | 3,139,072 | 2,901,672 | ||||||
| Customer deposits | 3,676,395 | 6,068,894 | ||||||
| Short-term debt | 212,960 | 773,969 | ||||||
| Convertible notes payable, net of discount of $351,078 and $1,366,667, respectively, and net of deferred debt issuance costs of $0 and $123,563, respectively | 1,743,330 | 9,770 | ||||||
| Other current liabilities – contingent consideration | 5,340,432 | 1,496,442 | ||||||
| Total Current Liabilities | 16,413,457 | 13,321,405 | ||||||
| Other long-term liabilities – contingent consideration | 3,839,875 | 4,832,028 | ||||||
| Long-term debt | 638,881 | - | ||||||
| Revolving loan facility, net of deferred debt issuance costs of $365,000 and $769,453, respectively | 14,635,000 | 14,230,547 | ||||||
| Deferred tax liability | 2,267,325 | 190,286 | ||||||
| Total Liabilities | 37,794,538 | 32,574,266 | ||||||
| Commitments and Contingencies | ||||||||
| Series C Preferred Stock | ||||||||
| Series C Preferred Stock, $0.0001 par value: 2,000 shares designated, 2,000 and 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 1,900,000 | - | ||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, $0.0001 par value: 10,000,000 shares authorized | ||||||||
| Series A Preferred Stock, $0.0001 par value: 3,125,000 shares designated; 0 and 211,424 shares issued and outstanding (aggregate liquidation preferences of $0 and $440,594) as of September 30, 2017 and December 31, 2016, respectively | - | 182,851 | ||||||
| Series B Preferred Stock, $0.0001 par value: 4,500,000 shares designated; 0 and 4,500,000 shares issued and outstanding (aggregate liquidation preferences of $0 and $5,625,000) as of September 30, 2017 and December 31, 2016, respectively | - | 4,090,000 | ||||||
| Common Stock, $0.0001 par value: 100,000,000 shares authorized; 16,069,477 and 7,379,924 shares issued and outstanding, respectively | 1,607 | 738 | ||||||
| Additional paid-in capital | 47,454,771 | 33,204,943 | ||||||
| Accumulated deficit | (40,620,485 | ) | (34,659,801 | ) | ||||
| Total Stockholders’ Equity | 6,835,893 | 2,818,731 | ||||||
| Total Liabilities, Series C Preferred Stock and Stockholders’ Equity | $ | 46,530,431 | $ | 35,392,997 | ||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 9,328,504 | $ | 12,044,415 | ||||
| Restricted cash | 59,988 | 210,131 | ||||||
| Accounts receivable, net | 416,852 | 98,749 | ||||||
| Inventory, net | 1,077,160 | 1,237,280 | ||||||
| Prepaid expenses and other current assets | 889,413 | 849,190 | ||||||
| Total Current Assets | 11,771,917 | 14,439,765 | ||||||
| Property and equipment: | ||||||||
| Equipment | 414,671 | 410,444 | ||||||
| Furniture and fixtures | 35,761 | 35,761 | ||||||
| Website and other | 259,646 | 9,427 | ||||||
| 710,078 | 455,632 | |||||||
| Accumulated depreciation | (463,376 | ) | (455,632 | ) | ||||
| Property and equipment, net | 246,702 | - | ||||||
| Right-of-use assets, net | 199,619 | 248,309 | ||||||
| Product development costs | 481,768 | - | ||||||
| Goodwill | 10,958,662 | 10,958,662 | ||||||
| Other intangible assets, net of amortization of $4,710,437 and $4,127,920, respectively | 3,900,138 | 4,476,647 | ||||||
| Total Assets | $ | 27,558,806 | $ | 30,123,383 | ||||
| Liabilities, Series C Redeemable Preferred Stock and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,330,780 | $ | 492,431 | ||||
| Accrued expenses | 1,049,754 | 849,285 | ||||||
| Total Current Liabilities | 2,380,534 | 1,341,716 | ||||||
| Other long-term liabilities | 331,351 | 385,196 | ||||||
| Total Liabilities | 2,711,885 | 1,726,912 | ||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Series C Redeemable Preferred Stock | ||||||||
| Series C redeemable preferred stock, par value $0.0001 per share: 2,000 shares designated; 200 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | 1,807,300 | 1,807,300 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, par value $0.0001 per share: 10,000,000 shares authorized | ||||||||
| Series F preferred stock, par value $0.0001 per share: 1,333,333 shares designated; 173,333 shares issued and outstanding as of September 30, 2022, aggregate liquidation preference of $520,000 as of September 30, 2022, and December 31, 2021 | 520,000 | 520,000 | ||||||
| Common stock, par value $0.0001 per share: 100,000,000 shares authorized; 9,608,937 and 9,163,039 issued and outstanding as of September 30, 2022 and December 31, 2021 | 961 | 917 | ||||||
| Additional paid-in capital | 105,697,391 | 104,725,115 | ||||||
| Accumulated deficit | (83,178,731 | ) | (78,656,861 | ) | ||||
| Total Stockholders’ Equity | 23,039,621 | 26,589,171 | ||||||
| Total Liabilities, Series C Redeemable Preferred Stock and Stockholders’ Equity | $ | 27,558,806 | $ | 30,123,383 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
Nxt-ID,LogicMark, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Revenues | $ | 18,867,564 | $ | 3,174,151 | ||||
| Cost of goods sold | 8,740,792 | 1,886,802 | ||||||
| Gross Profit | 10,126,772 | 1,287,349 | ||||||
| Operating Expenses | ||||||||
| General and administrative | 5,764,111 | 4,659,647 | ||||||
| Selling and marketing | 3,373,370 | 1,910,030 | ||||||
| Research and development | 939,726 | 824,888 | ||||||
| Total Operating Expenses | 10,077,207 | 7,394,565 | ||||||
| Operating Income (Loss) | 49,565 | (6,107,216 | ) | |||||
| Other Income and (Expense) | ||||||||
| Interest income | - | 23 | ||||||
| Interest expense | (5,596,931 | ) | (1,684,959 | ) | ||||
| Change in fair value of derivative liabilities | - | (2,299,020 | ) | |||||
| Change in fair value of contingent consideration | (133,755 | ) | - | |||||
| Loss on extinguishment of debt | - | (272,749 | ) | |||||
| Total Other Expense, Net | (5,730,686 | ) | (4,256,705 | ) | ||||
| Loss before Income Taxes | (5,681,121 | ) | (10,363,921 | ) | ||||
| Provision for Income Taxes | (279,563 | ) | (5,000 | ) | ||||
| Net Loss | (5,960,684 | ) | (10,368,921 | ) | ||||
| Preferred stock dividends | (705,149 | ) | (581,303 | ) | ||||
| Net Loss applicable to Common Stockholders | $ | (6,665,833 | ) | $ | (10,950,224 | ) | ||
| Net Loss Per Share – Basic and Diluted applicable to Common Stockholders | $ | (0.60 | ) | $ | (1.87 | ) | ||
| Weighted Average Number of Shares of Common Stock Outstanding – Basic and Diluted | 11,023,375 | 5,841,933 | ||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 (1) | 2022 | 2021 (1) | |||||||||||||
| Revenues | $ | 2,751,570 | $ | 2,383,029 | $ | 9,769,951 | $ | 7,604,287 | ||||||||
| Costs of goods sold | 1,047,204 | 1,255,445 | 3,860,176 | 3,319,710 | ||||||||||||
| Gross Profit | 1,704,366 | 1,127,584 | 5,909,775 | 4,284,577 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Direct operating cost | 345,972 | 228,512 | 1,156,959 | 729,038 | ||||||||||||
| Selling and marketing | 332,698 | 75,389 | 796,916 | 245,292 | ||||||||||||
| Research and development | 374,842 | 136,891 | 841,917 | 730,236 | ||||||||||||
| General and administrative | 2,575,105 | 969,264 | 7,025,674 | 3,426,596 | ||||||||||||
| Other expense | 3,222 | 20,588 | 35,306 | 45,856 | ||||||||||||
| Depreciation and amortization | 210,632 | 193,823 | 599,686 | 599,004 | ||||||||||||
| Total Operating Expenses | 3,842,471 | 1,624,467 | 10,456,458 | 5,776,022 | ||||||||||||
| Operating Loss | (2,138,105 | ) | (496,883 | ) | (4,546,683 | ) | (1,491,445 | ) | ||||||||
| Other Income and (Expense) | ||||||||||||||||
| Interest income (expense) | 44,587 | (144,821 | ) | 57,747 | (1,395,611 | ) | ||||||||||
| Forgiveness of Paycheck Protection Program loan and accrued interest | - | - | - | 349,176 | ||||||||||||
| Warrant modification expense | - | - | - | (2,881,729 | ) | |||||||||||
| Total Other Income (Expense), Net | 44,587 | (144,821 | ) | 57,747 | (3,928,164 | ) | ||||||||||
| Loss before Income Taxes | (2,093,518 | ) | (641,704 | ) | (4,488,936 | ) | (5,419,609 | ) | ||||||||
| Income tax (expense) benefit | - | - | - | - | ||||||||||||
| Net Loss | (2,093,518 | ) | (641,704 | ) | (4,488,936 | ) | (5,419,609 | ) | ||||||||
| Preferred stock dividends | (81,790 | ) | (82,301 | ) | (257,934 | ) | (2,253,102 | ) | ||||||||
| Net Loss Attributable to Common Stockholders | $ | (2,175,308 | ) | $ | (724,005 | ) | $ | (4,746,870 | ) | $ | (7,672,711 | ) | ||||
| Net Loss Per Share - Basic and Diluted | $ | (0.23 | ) | $ | (0.12 | ) | $ | (0.50 | ) | $ | (1.43 | ) | ||||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | 9,608,937 | 5,969,312 | 9,562,347 | 5,377,465 | ||||||||||||
| (1) | Expenses in 2021 have been reclassified to conform to the 2022 presentation format. |
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
Nxt-ID,LogicMark, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSof CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Revenues | $ | 4,530,088 | $ | 3,093,356 | ||||
| Cost of goods sold | 1,706,020 | 1,747,633 | ||||||
| Gross Profit | 2,824,068 | 1,345,723 | ||||||
| Operating Expenses | ||||||||
| General and administrative | 2,541,753 | 1,946,233 | ||||||
| Selling and marketing | 1,288,949 | 792,481 | ||||||
| Research and development | 677,104 | 80,208 | ||||||
| Total Operating Expenses | 4,507,806 | 2,818,922 | ||||||
| Operating Loss | (1,683,738 | ) | (1,473,199 | ) | ||||
| Other Income and (Expense) | ||||||||
| Interest expense | (2,173,919 | ) | (969,450 | ) | ||||
| Change in fair value of contingent consideration | (80,307 | ) | - | |||||
| Total Other Expense, Net | (2,254,226 | ) | (969,450 | ) | ||||
| Loss before Income Taxes | (3,937,964 | ) | (2,442,649 | ) | ||||
| Provision for Income Taxes | (93,188 | ) | (5,000 | ) | ||||
| Net Loss | (4,031,152 | ) | (2,447,649 | ) | ||||
| Preferred stock dividends | (97,080 | ) | (438,717 | ) | ||||
| Net Loss applicable to Common Stockholders | $ | (4,128,232 | ) | $ | (2,886,366 | ) | ||
| Net Loss Per Share – Basic and Diluted applicable to Common Stockholders | $ | (0.28 | ) | $ | (0.44 | ) | ||
| Weighted Average Number of Shares of Common Stock Outstanding – Basic and Diluted | 14,849,099 | 6,576,004 | ||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - July 1, 2022 | 173,333 | $ | 520,000 | 9,608,937 | $ | 961 | $ | 105,318,990 | $ | (81,078,423 | ) | $ | 24,761,528 | |||||||||||||||
| Issuance of stock options for services | - | - | - | - | 453,401 | - | 453,401 | |||||||||||||||||||||
| Shares issued as stock compensation | - | - | - | - | - | - | - | |||||||||||||||||||||
| Series C Redeemable Preferred stock dividends | - | - | - | - | (75,000 | ) | - | (75,000 | ) | |||||||||||||||||||
| Series F Preferred stock dividends | - | - | - | - | - | (6,790 | ) | (6,790 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (2,093,518 | ) | (2,093,518 | ) | |||||||||||||||||||
| Balance - September 30, 2022 | 173,333 | $ | 520,000 | 9,608,937 | $ | 961 | $ | 105,697,391 | $ | (83,178,731 | ) | $ | 23,039,621 | |||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - January 1, 2022 | 173,333 | $ | 520,000 | 9,163,039 | $ | 917 | $ | 104,725,115 | $ | (78,656,861 | ) | $ | 26,589,171 | |||||||||||||||
| Issuance of stock options for services | - | - | - | - | 669,015 | - | 669,015 | |||||||||||||||||||||
| Shares issued as stock compensation | - | - | 445,898 | 44 | 528,261 | - | 528,305 | |||||||||||||||||||||
| Series C Redeemable Preferred stock dividends | - | - | - | - | (225,000 | ) | - | (225,000 | ) | |||||||||||||||||||
| Series F Preferred stock dividends | - | - | - | - | - | (32,934 | ) | (32,934 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (4,488,936 | ) | (4,488,936 | ) | |||||||||||||||||||
| Balance - September 30, 2022 | 173,333 | $ | 520,000 | 9,608,937 | $ | 961 | $ | 105,697,391 | $ | (83,178,731 | ) | $ | 23,039,621 | |||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - July 1, 2021 | - | - | 5,331,190 | $ | 533 | $ | 89,045,519 | $ | (71,686,702 | ) | $ | 17,359,350 | ||||||||||||||||
| Issuance of stock options for services | - | - | - | - | 40,000 | - | 40,000 | |||||||||||||||||||||
| Issuance of Series F Preferred stock, net | 1,333,333 | 3,999,999 | - | - | - | - | 3,999,999 | |||||||||||||||||||||
| Conversion of Series F Preferred stock to common stock | (1,160,000 | ) | (3,479,999 | ) | 656,604 | 66 | 3,479,933 | - | - | |||||||||||||||||||
| Sale of common stock and warrants pursuant to a registration statement on Form S-1 | - | - | 2,788,750 | 279 | 11,834,443 | - | 11,834,722 | |||||||||||||||||||||
| Fees incurred in connection with equity offerings | - | - | - | - | (380,657 | ) | - | (380,657 | ) | |||||||||||||||||||
| Shares issued as stock compensation | - | - | 50,000 | 5 | 287,995 | - | 288,000 | |||||||||||||||||||||
| Common Stock issued for dividends | - | - | 3,695 | - | 19,584 | (19,584 | ) | - | ||||||||||||||||||||
| Series C Redeemable Preferred stock dividends | - | - | - | - | (75,000 | ) | - | (75,000 | ) | |||||||||||||||||||
| Series F Preferred stock dividends | - | - | - | - | - | (7,301 | ) | (7,301 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (641,704 | ) | (641,704 | ) | |||||||||||||||||||
| Balance - September 30, 2021 | 173,333 | $ | 520,000 | 8,830,239 | $ | 883 | $ | 104,251,817 | $ | (72,355,291 | ) | $ | 32,417,409 | |||||||||||||||
LogicMark, Inc.
CONDENSED STATEMENTS of CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - January 1, 2021 | - | - | 4,061,997 | $ | 407 | $ | 74,586,801 | $ | (65,427,998 | ) | $ | 9,159,210 | ||||||||||||||||
| Issuance of stock for services | - | - | - | - | 120,000 | - | 120,000 | |||||||||||||||||||||
| Issuance of Series E Preferred stock, net | 1,476,016 | 4,000,003 | - | - | - | - | 4,000,003 | |||||||||||||||||||||
| Conversion of Series E Preferred stock to common stock | (1,476,016 | ) | (4,000,003 | ) | 295,203 | 29 | 3,999,974 | - | - | |||||||||||||||||||
| Deemed dividend related to beneficial conversion feature of Series E preferred stock | - | - | - | - | 1,480,801 | (1,480,801 | ) | - | ||||||||||||||||||||
| Issuance of Series F Preferred stock, net | 1,333,333 | 3,999,999 | - | - | - | - | 3,999,999 | |||||||||||||||||||||
| Conversion of Series F Preferred stock to common stock | (1,160,000 | ) | (3,479,999 | ) | 656,604 | 66 | 3,479,933 | - | - | |||||||||||||||||||
| Exercise of common stock purchase warrants on a cash basis | - | - | 536,774 | 54 | 6,669,957 | - | 6,670,011 | |||||||||||||||||||||
| Exercise of common stock purchase warrants on a cashless basis | - | - | 423,933 | 42 | (42 | ) | - | - | ||||||||||||||||||||
| Warrant modification expense recorded in connection with the issuance of replacement warrants | - | - | - | - | 2,881,729 | - | 2,881,729 | |||||||||||||||||||||
| Shares issued in connection with the management incentive plan for 2018 and 2019 | - | - | 13,283 | 1 | 80,455 | - | 80,456 | |||||||||||||||||||||
| Sale of common stock and warrants pursuant to a registration statement on Form S-1 | - | - | 2,788,750 | 279 | 11,834,443 | - | 11,834,722 | |||||||||||||||||||||
| Fees incurred in connection with equity offerings | - | - | - | - | (424,813 | ) | - | (424,813 | ) | |||||||||||||||||||
| Shares issued as stock compensation | - | - | 50,000 | 5 | 287,995 | - | 288,000 | |||||||||||||||||||||
| Common Stock issued for dividends | - | - | 3,695 | - | 19,584 | (19,584 | ) | - | ||||||||||||||||||||
| Series C Redeemable Preferred stock dividends | - | - | - | - | (765,000 | ) | - | (765,000 | ) | |||||||||||||||||||
| Series F Preferred stock dividends | - | - | - | - | - | (7,299 | ) | (7,299 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (5,419,609 | ) | (5,419,609 | ) | |||||||||||||||||||
| Balance - September 30, 2021 | 173,333 | $ | 520,000 | 8,830,239 | $ | 883 | $ | 104,251,817 | $ | (72,355,291 | ) | $ | 32,417,409 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
Nxt-ID,LogicMark, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | (5,960,684 | ) | $ | (10,368,921 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 117,733 | 191,545 | ||||||
| Stock based compensation | 1,381,974 | 926,676 | ||||||
| Amortization of debt discount | 1,448,506 | 515,032 | ||||||
| Amortization of intangible assets | 836,415 | 136,232 | ||||||
| Amortization of discount on contingent consideration | 124,701 | - | ||||||
| Change in fair value of contingent consideration | 133,755 | - | ||||||
| Non-cash charge for modification of convertible exchange note terms | 191,630 | - | ||||||
| Non-cash charge for modification of warrant terms | 37,000 | - | ||||||
| Loss on extinguishment of debt | - | 272,749 | ||||||
| Amortization of deferred debt issuance costs | 985,516 | 282,822 | ||||||
| Non-cash inventory charge | - | 48,405 | ||||||
| Deferred taxes | 279,563 | - | ||||||
| Change in fair value of derivative liabilities | - | 2,299,020 | ||||||
| Loss on conversion of convertible note interest | - | 44,628 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,203,368 | ) | (372,375 | ) | ||||
| Inventory | 463,305 | (461,445 | ) | |||||
| Prepaid expenses and other current assets | (437,112 | ) | (325,338 | ) | ||||
| Accounts payable | (45,509 | ) | 236,956 | |||||
| Accrued expenses | 218,383 | 887,344 | ||||||
| Customer deposits | (2,641,948 | ) | 2,670,581 | |||||
| Total Adjustments | 1,890,544 | 7,352,832 | ||||||
| Net Cash Used in Operating Activities | (4,070,140 | ) | (3,016,089 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Restricted cash | - | 1,495,449 | ||||||
| Pay down of contingent consideration | (1,500,000 | ) | - | |||||
| Acquisition, net of cash acquired | (89,111 | ) | (17,390,290 | ) | ||||
| Purchase of equipment | (6,486 | ) | (39,073 | ) | ||||
| Net Cash Used in Investing Activities | (1,595,597 | ) | (15,934,698 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds received from issuance of Series A preferred stock, net | - | 1,869,775 | ||||||
| Proceeds received from issuance of Series B preferred stock, net | - | 4,090,000 | ||||||
| Proceeds received from short-term promissory note | - | 400,000 | ||||||
| Revolver borrowings, net | - | 14,000,000 | ||||||
| Pay down of short-term debt | (773,969 | ) | (250,000 | ) | ||||
| Proceeds received in connection with issuance of common stock and warrants, net | 3,069,940 | - | ||||||
| Proceeds received from issuance of convertible exchange notes, net | 594,408 | - | ||||||
| Fees paid in connection with equity offerings | (9,719 | ) | (44,521 | ) | ||||
| Proceeds from exercise of common stock warrants | - | 50,000 | ||||||
| Net Cash Provided by Financing Activities | 2,880,660 | 20,115,254 | ||||||
| Net (Decrease) Increase in Cash | (2,785,077 | ) | 1,164,467 | |||||
| Cash – Beginning of Period | 3,299,679 | 418,991 | ||||||
| Cash – End of Period | $ | 514,602 | $ | 1,583,458 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | $ | 2,832,934 | $ | 237,500 | ||||
| Taxes | $ | 4,500 | $ | 8,764 | ||||
| Non-cash financing activities: | ||||||||
| Equipment purchases on payment terms | $ | 10,075 | $ | - | ||||
| Fees incurred in connection with revolving credit facility | $ | 450,000 | $ | 350,000 | ||||
| Accrued fees incurred in connection with equity offerings | $ | 102,123 | $ | 160,467 | ||||
| Issuance of common stock in connection with accelerated installments of notes payable | $ | - | $ | 3,294,850 | ||||
| Issuance of common stock in connection with conversion of interest on convertible notes | $ | - | $ | 291,588 | ||||
| Reclassification of conversion feature liability in connection with note modification | $ | - | $ | 1,702,400 | ||||
| Issuance of common stock in connection with conversion of Series A preferred stock | $ | - | $ | 1,556,706 | ||||
| Exchange of short-term promissory note for Series A preferred stock | $ | - | $ | 400,000 | ||||
| Issuance of common stock in connection with conversion of Series A preferred stock and related dividends | $ | 338,749 | $ | - | ||||
| Issuance of common stock in connection with conversion of Series B preferred stock and related dividends and liquidated damages | $ | 6,075,000 | $ | - | ||||
| Accrued Series A preferred dividends | $ | - | $ | 143,471 | ||||
| Accrued Series B preferred dividends | $ | - | $ | 209,375 | ||||
| Accrued Series C preferred dividends | $ | 35,890 | $ | - | ||||
| Non cash consideration paid for LogicMark acquisition | $ | - | $ | 9,900,000 | ||||
| Preliminary Purchase Price Allocation in Connection with Fit Pay Acquisition: | ||||||||
| Assets acquired and liabilities assumed: | ||||||||
| Current assets, including cash acquired | $ | 179,794 | $ | - | ||||
| Property and equipment | 31,967 | - | ||||||
| Other intangible assets | 5,245,400 | - | ||||||
| Goodwill | 7,954,260 | - | ||||||
| Accounts payable and accrued liabilities | (1,130,113 | ) | - | |||||
| Customer deposits | (286,948 | ) | - | |||||
| Deferred taxes | (1,797,476 | ) | - | |||||
| Net Assets Acquired | 10,196,884 | - | ||||||
| Less: cash paid to acquire Fit Pay | (100,000 | ) | - | |||||
| Non cash consideration | $ | 10,096,884 | $ | - | ||||
| Non-cash consideration consisted of: | ||||||||
| Note payable issued to seller | $ | 851,842 | $ | - | ||||
| Common stock issued to sellers | 3,289,161 | - | ||||||
| Series C preferred stock issued to sellers | 1,900,000 | - | ||||||
| Earn-out provision | 4,055,881 | - | ||||||
| Non-cash consideration | $ | 10,096,884 | $ | - | ||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (4,488,936 | ) | $ | (5,419,609 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 17,171 | 29,208 | ||||||
| Stock based compensation | 1,197,320 | 288,000 | ||||||
| Amortization of debt discount | - | 137,855 | ||||||
| Amortization of intangible assets | 582,517 | 569,796 | ||||||
| Amortization of deferred debt issuance costs | - | 713,119 | ||||||
| Non-cash charge for modification of warrant terms | - | 2,881,729 | ||||||
| Forgiveness of Paycheck Protection Plan loans and accrued interest | - | (349,176 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (318,103 | ) | 66,671 | |||||
| Inventory | 160,120 | (145,538 | ) | |||||
| Prepaid expenses and other current assets | (40,223 | ) | (314,563 | ) | ||||
| Accounts payable | 817,094 | (1,519,328 | ) | |||||
| Accrued expenses | 162,380 | (228,483 | ) | |||||
| Net Cash Used in Operating Activities | (1,910,660 | ) | (3,290,319 | ) | ||||
| Cash flows from Investing Activities | ||||||||
| Purchase of equipment and website development | (242,618 | ) | - | |||||
| Product development costs | (481,768 | ) | - | |||||
| Purchase of intangible assets | (6,008 | ) | - | |||||
| Net Cash Used in Investing Activities | (730,394 | ) | - | |||||
| Cash flows from Financing Activities | ||||||||
| Proceeds from sale of common stock and warrants | - | 11,834,722 | ||||||
| Proceeds received in connection with issuance of Series E preferred stock, net | - | 4,000,003 | ||||||
| Proceeds received in connection with issuance of Series F preferred stock, net | - | 3,999,999 | ||||||
| Proceeds from exercise of common stock warrants | - | 6,670,494 | ||||||
| Term loan repayment | - | (11,095,877 | ) | |||||
| Fees paid in connection with equity offerings | - | (424,813 | ) | |||||
| Series C redeemable preferred stock dividends | (225,000 | ) | - | |||||
| Net Cash (Used in) Provided by Financing Activities | (225,000 | ) | 14,984,528 | |||||
| Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash | (2,866,054 | ) | 11,694,209 | |||||
| Cash, Cash Equivalents and Restricted Cash - Beginning of Year | 12,254,546 | 4,537,546 | ||||||
| Cash, Cash Equivalents and Restricted Cash - End of Period | $ | 9,388,492 | $ | 16,231,755 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | - | 1,395,611 | ||||||
| Taxes | - | 47,874 | ||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued fees incurred in connection with equity offerings | - | - | ||||||
| Accrued Series C redeemable and Series F preferred stock dividends | 32,934 | 266,907 | ||||||
| Shares issued in connection with prior year accrual | - | 80,456 | ||||||
| Conversion of Series E preferred stock to common stock | - | 4,000,003 | ||||||
| Conversion of Series F preferred stock to common stock | - | 3,479,999 | ||||||
| Website development included in accounts payable | 21,255 | - | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
Nxt-ID,LogicMark, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
(Unaudited)
Note 1 – Organization and Basis of Presentation
Organization and Principal Business Activities
Nxt-ID,LogicMark, Inc. (“Nxt-ID”LogicMark” or the “Company”) was incorporated in the State of Delaware on February 8, 2012. Nxt-ID is a security technology company and operates its business in one segment — hardware and software security systems and applications. The Company’s innovative MobileBio® solution mitigates risks associated with mobile computing, m-commerce and smart OS-enabled devices. With extensive experience in biometric identity verification, security, privacy, encryption and data protection, payments, miniaturization and sensor technologies, the Company partners with companies to provide solutions for modern payment and the “Internet of Things” (“IoT”) applications.
On July 25, 2016, the Company completed the acquisition of LogicMark LLC (“LogicMark”) pursuant to an Interest Purchase Agreement by and among the Company, LogicMark and the holders of all of the membership interests of LogicMark (the “LogicMark Sellers”), dated May 17, 2016. The Company was required to pay the LogicMark Sellers an earn-out payment of (i) $1,500,000 for calendar year 2016 and (ii) and may be required to pay the LogicMark Sellers an earn-out payment of up to $5,000,000 for calendar year 2017 if LogicMark meets certain gross profit targets set forth in the Interest Purchase Agreement. The secured subordinated promissory note originally issued to LogicMark Investment Partners on July 25, 2016 and amended on November 29, 2016 (the “LogicMark Note”) was to mature on September 23, 2016 but was extended to April 15, 2017 and then extended to July 15, 2017. The Company and the LogicMark Sellers also agreed to extend the due date on the 2016 earn-out payment to July 15, 2017. On July 19, 2017, the Company paid the 2016 earn-out payment in the amount of $1,500,000 to the LogicMark Sellers. In addition, in July 2017, the remaining balance of $594,403 owed on the LogicMark Note, including accrued and unpaid interest, was purchased by certain investors in exchange for $594,408 in principal amount of convertible notes of the Company and warrants exercisable for 297,202 shares of Common Stock. See Note 7
On May 23, 2017, the Company completed a merger (the “Merger”) pursuant to an executed Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Fit Merger Sub, Inc., a wholly-owned subsidiary of the Company (the “Merger Sub”), Fit Pay, Inc. (“Fit Pay”), Michael Orlando (“Orlando”), Giesecke & Devrient Mobile Security America, Inc. (“G&D”), the other stockholders of Fit Pay (the “Other Holders”) and Michael Orlando in his capacity as stockholder representative representing the Other Holders (the “Stockholder Representative”, and together with Orlando and G&D, the “Sellers”). Pursuant to the Merger, Fit Pay merged with and into the Merger Sub, with the Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of the Company. See Note 5.
The Company’s wholly-owned subsidiary, LogicMark, manufactures and distributes non-monitored and monitoredprovides personal emergency response systems (PERS), health communications devices, and Internet of Things (“IoT”) technology that creates a connected care platform. The Company’s devices give people the ability to receive care at home and the confidence to age independently. LogicMark revolutionized the PERS industry by incorporating two-way voice communication technology directly in the medical alert pendant and providing life-saving technology at a price point everyday consumers could afford. The PERS technologies are sold through dealers and distributors, as well as directly to the United States Department of Veterans Affairs, healthcare durable medical equipment dealers and distributors and monitored security dealers and distributors. The Company’s wholly-owned subsidiary, Fit Pay, has a proprietary technology platform that delivers payment, credential management, authentication and other secure services to the IoT ecosystem. The platform uses tokenization, a payment security technology that replaces cardholders’ account information with a unique digital identifier, to transact highly secure contactless payment and authentication services.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of September 30, 2017 and for the nine and three months then ended have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The unaudited condensed consolidated balance sheet as of September 30, 2017 and the condensed consolidated statements of operations for the nine and three months ended September 30, 2017 and September 30, 2016 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and September 30, 2016 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the nine and three months ended September 30, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017 or for any future interim period. The condensed consolidated balance sheet at December 31, 2016 has been derived from audited consolidated financial statements. However, it does not include all of the information and notes required by GAAP for complete consolidated financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016, and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on April 14, 2017 (the “2016 10-K”), and Amendment No. 1 to the 2016 10-K filed with the SEC on July 7, 2017.
Note 2 – Reverse Stock Split
On September 1, 2016, the Company’s board of directors and stockholders approved a resolution to amend the Company’s Certificate of Incorporation and to authorize the Company to effect a reverse split of the Company’s outstanding common stock at a ratio of 1-for-10 (the “Reverse Split”). On September 9, 2016, the Company effected the Reverse Split. Upon effectiveness of the Reverse Split, every ten (10) shares of outstanding common stock decreased to one (1) share of common stock. Throughout this report, the Reverse Split was retroactively applied to all periods presented.
Health Administration.
NOTE 2 - LIQUIDITY AND MANAGEMENT PLANS
Note 3 - Liquidity and Management Plans
The Company isgenerated an emerging growth company and recorded operating incomeloss of $49,565$4,546,683 and a net loss of $5,960,684 during$4,488,936 for the nine months ended September 30, 2017.2022. As of September 30, 2017,2022, the Company had a working capital deficiency of $6,322,182 (including contingent consideration of $5,340,432)cash and cash equivalents and stockholders’ equity of $6,835,893. $9,328,504 and $23,039,621, respectively. As of September 30, 2022, the Company had working capital of $9,391,383 compared to working capital on December 31, 2021, of $13,098,049.
Given the Company’s cash position aton September 30, 2017, proceeds from equity and note offerings subsequent to September 30, 2017 (See Note 10)2022, and its projected cash flow from operations, over the next twelve months, the Company believes that it will have sufficient capital to sustain operations over the next twelve monthsfor a period of one year following the date of this filing.
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. In order to executethe opinion of management, the information herein reflects all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations, financial position, stockholders’ equity, and cash flows. The results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction with the audited financial statements and notes thereto included in the Company’s long-term strategic plan to develop and commercialize its core products, fulfill its product development commitments and fund its obligations as they come due,Annual Report on Form 10-K for the Company may need to raise additional funds, through public or private equity offerings, debt financings, or other means. Shouldyear ended December 31, 2021 which was filed with the Company not be successful in obtainingSEC on April 15, 2022.
Certain prior year amounts have been reclassified for consistency with the necessary financing, or generate sufficient revenue to fund its operations,current year’s presentation. These reclassifications had no effect on the Company would need to engage in certain cost containment efforts, and/or curtail certainreported results of its operational activities.operations.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NoteNOTE 4 - Summary Of Significant Accounting PoliciesSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with GAAPgenerally accepted accounting principles in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s management evaluates these significant estimates and assumptions, including those related to the fair valuesvalue of acquired assets and liabilities, assumed in business combinations, stock basedstock-based compensation, derivative financial instruments, income taxes, allowance for doubtful accounts, long-lived assets, and related valuation allowances, accounts receivable and inventory,inventories, and other matters that affect the condensed consolidated financial statements and disclosures. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities with an original maturity date of three months or less when purchased to be cash equivalents. Due to their short-term nature, cash equivalents are carried at cost, which approximates fair value. On September 30, 2022, and December 31, 2021, cash and cash equivalents totaled $9,328,504 and $12,044,415, respectively.
RESTRICTED CASH
On September 30, 2022, and December 31, 2021, the Company had restricted cash of $59,988 and $210,131, respectively. Restricted cash includes amounts held back by the Company’s third-party credit card processor for potential customer refunds, claims, and disputes and held as collateral for company credit cards.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents balances in large well-established financial institutions located in the United States. At times, the Company’s cash and cash equivalents balances may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. Cash equivalents amounted to $9,057,747 on September 30, 2022.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PrinciplesREVENUE RECOGNITION
The Company’s revenues consist of consolidation
product sales to either end customers or distributors. The condensed consolidated financial statements includeCompany’s revenues are derived from contracts with customers, which are in most cases customer purchase orders. For each contract, the accountspromise to transfer the control of Nxt-IDthe products, each of which is individually distinct, is considered to be the identified performance obligation. As part of the consideration promised in each contract, the Company evaluates the customer’s credit risk. Our contracts do not have any financing components, as payment terms are generally due Net-30 days after the invoice date. The Company’s products are almost always sold at fixed prices. In determining the transaction price, we evaluate whether the price is subject to any refunds, due to product returns or adjustments due to volume discounts, rebates, or price concessions to determine the net consideration we expect to be entitled to. The Company’s sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer, which generally occurs when the Company ships or delivers the product from its fulfillment center to our customers, when our customer accepts and has the legal title of the goods, and the Company has a present right to payment for such goods. Based on the respective contract terms, most of our contract revenues are recognized either (i) upon shipment based on free on board (FOB) shipping point, or (ii) when the product arrives at its wholly-owned subsidiaries, 3D-ID, LogicMark and Fit Pay. Intercompany balances and transactions have been eliminated in consolidation.
Concentrations of Credit Risk
Duringdestination. For the nine and three months ended September 30, 2017,2022, and 2021, none of our sales were recognized over time.
SALES TO DISTRIBUTORS AND RESELLERS
Sales to certain distributors and resellers are made under terms allowing limited rights of return of the Company’s products held in their inventory or upon sale to their end customers. The Company maintains a reserve for unprocessed and estimated future price adjustments claims and returns as a refund liability. The reserve is recorded as a reduction to revenue in the same period that the related revenue is recorded and is calculated based on an analysis of historical claims and returns over a period of time to appropriately account for current pricing and business trends. Similarly, sales returns and allowances are recorded based on historical return rates, as a reduction in revenue with a corresponding reduction to cost of sales for the estimated cost of inventory that is expected to be returned. These reserves were not material on the Condensed Balance Sheets on September 30, 2022, and December 31, 2021.
SHIPPING AND HANDLING
Amounts billed to customers for shipping and handling are included in revenues. The related freight charges incurred by the Company recognized revenueare included in the cost of $7,057,032goods sold and $767,751,were $94,080 and $467,293, respectively, from World-Ventures Holdings, LLC (“WVH”), a related party based on its position asfor the three and nine months ended September 30, 2022, and $149,923, and $374,484, respectively, for the three and nine months ended September 30, 2021.
ACCOUNTS RECEIVABLE - NET
For the three and nine months ended September 30, 2022, and the year ended December 31, 2021, the Company’s largest stockholder. At September 30, 2017, the Company’s accounts receivable balancerevenues primarily included $1,893,662 due from WVH.
Revenue Recognition
The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, the service has been rendered or product delivery has occurred, the price is fixed or readily determinable and collectabilityshipments of the sale is reasonably assured.LogicMark products. The terms and conditions of these sales provided certain customers with trade credit terms. In addition, these sales were made to the retailers with no rights of return and are subject to the normal warranties offered to the ultimate consumer for product defects.
Accounts Receivable
Accounts receivable isare stated at net realizable value. The Company regularly reviews accounts receivable balances and adjusts the receivable reservesallowance for doubtful accounts as necessary whenever events or circumstances indicate the carrying value may not be recoverable. TheOn September 30, 2022, and December 31, 2021, the Company had noan allowance for doubtful accounts at September 30, 2017of $1,146 and December 31, 2016.$5,411, respectively.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
InventoryINVENTORY
The Company measures inventory at the lower of cost or net realizable value, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
The Company performs regular reviews of inventory quantities on hand and evaluates the realizable value of its inventories. The Company adjusts the carrying value of the inventory as necessary with estimated valuation reserves for excess, obsolete, and slow-moving inventory by comparing the individual inventory parts to forecasted product demand or production requirements. The inventory is valued at the lower of cost or net realizable value with cost determined using the first-in, first-out method. As of September 30, 2017,2022, inventory was comprised of $3,756,866 in raw materials and $1,121,329$1,077,160 in finished goods on hand. Inventory atAs of December 31, 20162021, inventory was comprised of $3,797,499 in raw materials and $1,544,001$1,237,280 in finished goods on hand. The Company is required to prepay for raw materialscertain inventory with certain vendors until credit terms can be established. As of September 30, 2017,2022, and December 31, 2016, the Company had prepaid2021, $670,221 and $559,938 respectively, of prepayments made for inventory of $1,321,230 and $1,089,770, respectively. These prepayments were made primarily for raw materials inventory and prepaid inventory isare included in prepaid expenses and other current assets on the condensed consolidated balance sheet.
LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, and other intangibles are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. When indicators exist, the Company tests for the impairment of the definite-lived assets based on the undiscounted future cash flow the assets are expected to generate over their remaining useful lives, compared to the carrying value of the assets. If the carrying amount of the assets is determined not to be recoverable, a write-down to fair value is recorded. Management estimates future cash flows using assumptions about expected future operating performance. Management’s estimates of future cash flows may differ from actual cash flow due to, among other things, technological changes, economic conditions, or changes to the Company’s business operations.
PROPERTY AND EQUIPMENT
Property and equipment consisting of equipment, furniture and fixtures, and website and other are stated at cost. The costs of additions and improvements are generally capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful life of the respective asset as follows:
| Equipment | 5 years | |||
| Furniture and fixtures | 3 to 5 years | |||
| Website and other | 3 years |
GOODWILL
Goodwill is reviewed annually in the fourth quarter, or when circumstances indicate that an impairment may have occurred. The Company first performs a qualitative assessment of goodwill impairment, which considers factors such as market conditions, performance compared to forecast, business outlook, and unusual events. If the qualitative assessment indicates a possible goodwill impairment, goodwill is then quantitatively tested for impairment. The Company may elect to bypass the qualitative assessment and proceed directly to the quantitative test. If a quantitative goodwill impairment test is required, the fair value is determined using a variety of assumptions including estimated future cash flows using applicable discount rates (income approach) and comparisons to other similar companies (market approach).
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GoodwillOTHER INTANGIBLE ASSETS
The Company’s goodwill relates to the acquisitions of LogicMark and Fit Pay. The Company began testing goodwill for impairment in the third quarter of 2017 as it relatesintangible assets are related to the acquisition of LogicMark, which occurred on July 25, 2016. As part of the annual evaluation, the Company utilized the option to first assess qualitative factors, which include but are not limited to, economic, market and industry conditions, as well as the financial performance of LogicMark. In accordance with applicable guidance, an entity is not required to calculate the fair value of a reporting unit if, after assessing these qualitative factors, the Company determines that it is more likely than not that its reporting unit’s fair value is greater than its carrying amount. During the three and nine months ended September 30, 2017, the Company determined that it was more likely than not that the fair value of LogicMark exceeded its respective carrying amount and therefore, a quantitative assessment was not required. The Company has not recognized any goodwill impairment in 2017 in connection with its annual impairment test. The Company will begin testing the Fit Pay related goodwill for impairment annually in the second quarter of each year.
Other Intangible Assets
The Company’s intangible assets are all related to the acquisitions of LogicMark and Fit PayLLC and are included in other intangible assets in the Company’s condensed consolidated balance sheets atsheet on September 30, 20172022 and December 31, 2016.2021.
AtOn September 30, 2017, the other2022, Other intangible assets, related to the acquisitionnet of LogicMarkamortization, are comprised of patents of $3,657,833;$1,793,889; trademarks of $1,182,973;$867,559; and customer relationships of $2,875,123. At$1,238,690. On December 31, 2016, the other2021, Other intangible assets are comprised of patents of $3,936,612;$2,072,984; trademarks of $1,230,002;$915,619; and customer relationships of $3,119,111.$1,488,044. The Company will continue amortizingamortizes these intangible assets using the straight-line method over their estimated useful lives which for the patents, trademarks, and customer relationships are 11 years;years, 20 years;years, and 10 years, respectively. During the ninethree and threenine months ended September 30, 2017,2022, the Company hadrecorded amortization expense of $569,796$194,232 and $192,019, respectively related to the LogicMark intangible assets.
At September 30, 2017, the other intangible assets related to the acquisition of Fit Pay, which was completed on May 23, 2017, are comprised of trademarks of $392,286; technology of $3,225,675; and customer relationships of $1,360,820. The Company will continue amortizing these intangible assets using the straight-line method over their estimated useful lives which for trademarks, technology and customer relationships are 25 years; 7 years; and 6 years,$582,516, respectively. During the ninethree and threenine months ended September 30, 2017,2021, the Company hadrecorded amortization expense of $266,619$192,019 and $187,244, respectively, related to the Fit Pay intangible assets.$569,796, respectively.
As of September 30, 2017,2022, total amortization expense estimated for the remainder of fiscal year 2017 related to both the LogicMark and Fit Pay intangibles2022 is approximately $380,000$194,241, and for each of the next five(5)five fiscal years, 2018 through 2022, the total amortization expense is estimated to be approximately $1,505,000 per year.as follows: 2023 - $776,964; 2024 - $776,964; 2025 - $776,964; 2026 - $602,648; 2027- $241,218; and later years - $531,139.
CONVERTIBLE INSTRUMENTS
The Company applies the accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies to separate conversion options from their host instruments and account for them as free-standing derivatives according to certain criteria. The criteria include circumstances in which (i) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative and the host contract is not re-measured at fair value under generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative would be considered a derivative. The derivative is subsequently marked to market at each reporting date based on the current fair value, with the changes in fair value reported in the results of operations.
Conversion options with variable settlement features such as provisions to adjust the conversion price upon subsequent issuances at exercise prices more favorable than that in the hybrid contract generally result in their separation from the host instrument.
The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The debt discounts under these arrangements are amortized over the earlier of (i) the term of the related debt using the straight-line method which approximates the interest rate method or (ii) conversion of the debt. The amortization of debt discount is included as interest expense included in other income and expenses in the unaudited condensed statements of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not use derivatives to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Derivative financial instruments accounted for as liabilities are initially recorded at fair value and then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivatives, the Company uses the Black-Scholes or binomial option valuation model to value the derivatives at inception and on subsequent valuation dates. The Company accounts for conversion features that are embedded within the Company’s convertible notes payable that do not have fixed settlement provisions as a separate derivative. In addition, warrants issued by the Company that do not have fixed settlement provisions are also treated as derivatives. The classification of derivatives, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative could be required within 12 months of the unaudited condensed balance sheet date.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based CompensationSTOCK-BASED COMPENSATION
The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. The Company accounts for equity instruments issued to non-employees at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instrument vests or becomes non-forfeitable. Non-employee stock-basedStock-based compensation charges are amortized over the vesting period or as earned. Stock-based compensation is recorded in the same component of operating expenses as if it were paid in cash. The Company generally issues new shares of common stock to satisfy conversion and warrant exercises.
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS PER SHARE
Net Lossloss attributable to common shareholders equals the Company’s net loss minus preferred stock dividends.
Basic net loss attributable to common shareholders per Share
share (“Basic net loss per shareshare”) was computed using the weighted average number of common shares outstanding. Diluted net loss applicable to common shareholders per share (“Diluted net loss per shareshare”) includes the effect of diluted common stock equivalents. Potentially dilutive securities of 1,151,374 realizable from the convertible exchange notes and related accrued interest and from the exercise of 3,926,251stock options to purchase 444,660 shares of common stock and warrants to purchase 4,295,380 shares of common stock as of September 30, 20172022, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive for the nine and three months ended September 30, 2017. As of September 30, 2016, potentiallyanti-dilutive. Potentially dilutive securities realizable from the convertible Series A and Series B Preferred Stock, and from the exercise of 1,319,049stock options to purchase 40,858 shares of common stock and warrants to purchase 4,393,230 shares of common stock as of September 30, 2021, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.
RESEARCH AND DEVELOPMENT AND PRODUCT DEVELOPMENT COSTS
Research and development costs are expenditures on new market development and related engineering costs. In addition to internal resources, the Company utilizes functional consulting resources, third-party software, and hardware development firms. The Company expenses all research and development costs as incurred until technological feasibility has been established for the product. Once technological feasibility is established, development costs including software and hardware design are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. For the nine months ended September 30, 2022, the Company capitalized $481,768 of such product development costs. Amortization of these costs, which will be on a straight-line basis over three years, has not yet commenced.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
In May 2014, the Financialaccounting standards that have been issued or proposed by FASB (Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which stipulatesBoard) or other standards-setting bodies that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) withdo not require adoption until a customer; (2) identify the performance obligations in the contract(s); (3) determine the transaction price(s); (4) allocate the transaction price(s) to the performance obligations in the contract(s); and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires advanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In August 2015, the FASB issued Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), which defers the effectivefuture date of FASB’s revenue standard under ASU 2014-09 by one year for all entities and permits early adoption on a limited basis. As a result of ASU 2015-14, the guidance under ASU 2014-09 shall apply for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. As permitted under the standard, the Company plans to adopt ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach and recognize the cumulative effect to existing contracts in opening retained earnings on the effective date. The Company is currently reviewing and evaluating this guidance and its impact on its consolidated financial statements.
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09 (“ASU 2016-09”), “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 will affect all entities that issue share-based payment awards to their employees and is effective for annual periods beginning after December 15, 2016 for public entities. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this standard in the first quarter of 2017 and it did not have a material impact on its condensed consolidated financial statements.
In May 2016, the FASB issued ASU No. 2016-12 (“ASU 2016-12”), “Revenue from Contracts with Customers (Topic 606): Narrow- Scope Improvements and Practical Expedients.” ASU 2016-12 will affect all entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this update affect the guidance in ASU 2014-09 which is not yet effective, the amendments in this update affect narrow aspects of Topic 606 including among others: assessing collectability criterion, noncash consideration, and presentation of sales taxes and other similar taxes collected from customers. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently evaluating the effect that ASU 2016-12 will have on the Company’s condensed consolidated financial position and results of operations.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash (“ASU No. 2016-18”). The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash and require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this update provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s condensed consolidated financial statements.statements upon adoption.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Salaries, payroll taxes and vacation | $ | 160,719 | $ | 54,229 | ||||
| Merchant card fees | 17,018 | 17,853 | ||||||
| Professional fees | 197,825 | 104,500 | ||||||
| Management incentives | 420,350 | 285,000 | ||||||
| Lease liability | 71,101 | 64,346 | ||||||
| Dividends – Series C and F Preferred Stock | 53,524 | 94,933 | ||||||
| Other | 129,217 | 228,424 | ||||||
| Totals | $ | 1,049,754 | $ | 849,285 | ||||
In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCKHOLDERS’ EQUITY AND REDEEMABLE PREFERRED STOCK
October 2021 Reverse stock split
On October 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s condensed consolidated financial statements.
Note 5 – Acquisitions
Acquisition of Logicmark LLC
On July 25, 2016,2021, the Company completed the acquisitionannounced that its shareholders had approved a reverse split of LogicMark. The Company determined that asits common stock and Series C Redeemable Preferred at a ratio of July 25, 2016, it was more likely than not that the gross profit targets as they relate to the contingent considerations would be achieved and any fair value adjustment1 for 10. As a result of the earn-out was due to time valuereverse split, every 10 pre-split shares of common stock outstanding and every 10 pre-split shares of Series C Redeemable Preferred Stock outstanding were automatically exchanged for one new share of each without any action on the payout.
On July 25, 2016, in order to fund part of the acquisitionholders. The number of outstanding common shares was reduced from approximately 88.3 million shares to approximately 8.8 million shares, and the number of outstanding Series C preferred shares was reduced from 2,000 shares to 200 shares. The reverse stock split did not affect the total number of shares of capital stock, including Series C Redeemable Preferred Stock, that the Company is authorized to issue.
September 2021 Offering
On September 15, 2021, the Company sold an aggregate of (i) 2,788,750 shares of common stock, par value of $0.0001 per share, and (ii) accompanying warrants to purchase up to an aggregate of 2,788,750 shares of Common Stock, at an exercise price of LogicMark,$4.95 per share, both of which include the underwriter’s full over-allotment option to purchase an additional 363,750 shares of common stock.
The Shares and the Warrants were offered and sold to the public pursuant to the Company’s registration statement on Form S-1, as amended (File No. 333-259105), filed by the Company with the Securities and Exchange Commission (SEC) under the Securities Act of 1933, as amended (Securities Act), which became effective on September 14, 2021.
The Warrants were not immediately exercisable, as the Company did not have a groupsufficient number of lenders, including ExWorks Capital Fund I, L.P. as agentshares of Common Stock to reserve for issuance for the lenders (collectively,Warrants until the “Lenders”), entered into a Loan and Security Agreementdate (the “Loan Agreement”“Initial Exercise Date”), whereby that the Lenders extended a revolving loan (the “Revolving Loan”)Company’s stockholders approved an amendment to the Company inCompany’s certificate of incorporation to affect a reverse stock split of the principal amountshares of $15,000,000Common Stock so that there were a sufficient number of shares of Common Stock for issuance upon exercise of the Warrants. The Warrants became exercisable on the Initial Exercise Date (the “Debt Financing”). The Company originally incurred $1,357,356 in deferred debt issue costs related to the revolving loan. In addition, the Company incurred an additional $450,000 in deferred debt issue costs as a result of extending the revolving loan. At September 30, 2017 the unamortized balance of those deferred debt issue costs was $365,000. The initial maturityeffective date of the Revolving Loanreverse stock split) and will terminate five years after the Initial Exercise Date. The exercise price of the Warrants is subject to customary adjustments for stock dividends, stock splits and other subdivisions, combinations, and re-classifications, and was July 25, 2017,reset on the date of the Company’s reverse stock split to the lower of (i) the closing price per share of the Common Stock immediately before the reverse stock split, giving effect to the reverse stock split and (ii) the exercise price then in effect. The Warrants are also exercisable on a cashless basis under certain circumstances, any time after the Initial Exercise Date, pursuant to the formula outlined in the Warrants. On October 15, 2021, after shareholder and Board approval of the reverse stock split, the exercise price for the Warrants was adjusted to $3.956 per share, The reverse stock split and the Revolving Loan bears interest at a rateexercise price were retroactively reported in accordance with ASC 260-10-55-12, Restatement of 15% per annum.EPS Data.
On the Closing Date, the Company received gross proceeds of approximately $12.5 million, before deducting underwriting discounts and commissions and estimated offering expenses. The Company has been using the ability to extendnet proceeds from the Revolving LoanOffering primarily for one (1) additional year at its sole discretion with no subjective acceleration by the Lender, provided the Company is not in default on the loan. The Company exercised the option to extend the maturity date to July 25, 2018new product development, marketing and accordingly, the Company has classified the Revolving Loan as a non-current liability as of September 30, 2017 and December 31, 2016.working capital.
August 2021 Offering
The Loan Agreement contains customary covenants, including an EBITDA requirement and a fixed charges ratio, as defined in the loan agreement. As of September 30, 2017, the Company was in compliance with such covenants.
On September 23, 2016,August 13, 2021, the Company entered into a forbearancesecurities purchase agreement with LogicMark Investment Partners, LLC in connection withinstitutional accredited investors providing for an aggregate investment of $3,999,999 for the LogicMark Note originally issued on July 22, 2016 inissuance by the amountCompany of $2,500,000 which expired on September 22, 2016. The Company formally requested that the lender extend the LogicMark Note on September 20, 2016. As discussed below, the LogicMark Note was extended to July 15, 2017 pursuant to an amendment.
Under the terms(i) 1,333,333 shares of Series F Convertible Preferred Stock, par value $0.0001 per share, of the forbearance agreement, the LogicMark Sellers agreed to extend the maturity date of the LogicMark Note and the Company agreed to pay to the LogicMark Sellers in immediately available funds: (i) $250,000 on September 23, 2016; (ii) $100,000 on October 24, 2016; and (iii) $1,150,000, plus all accrued and unpaid interest due under the LogicMark Note on October 31, 2016. The Company also agreed to reduce the Escrow Amount (as defined in the Interest Purchase Agreement) by a total of $500,000, and to make certain other changes to the definition of “Escrow Amount” in the Purchase Agreement. The Company also agreed to make certain representations and warranties in respect of the LogicMark Seller’s forbearance. During June 2017, the Company paid down $250,000 of the LogicMark Note with cash generated from operations. The LogicMark Note originally was to mature on September 23, 2016 but was extended to July 15, 2017. In July 2017, the remaining balance of the LogicMark Note including the accrued interest owed was settled.
Acquisition of Fit Pay
As discussed in Note 1, the Company completed the “Merger” on May 23, 2017. Pursuant to the terms of the Merger Agreement, the aggregate purchase price paid for Fit Pay stock was: (i) 1,912,303(the Series F Preferred Stock) convertible into shares of common stock, which was equivalent to 19.96% of the outstanding shares of common stockpar value $0.0001 per share, of the Company (the “Common Stock”); (ii) 2,000that is issuable upon conversion of shares of Series F Preferred Stock; (ii) warrants, with a term of five and a half years exercisable after February 16, 2022, to purchase an aggregate of up to 666,667 shares of Common Stock at an exercise price of $7.80 per share. The securities issued to the Series C Non-Convertible Preferred Stockinvestors were exempt from registration under the Securities Act of 1933, as amended, or the Company (the “Series C Preferred Stock”); (iii) the paymentSecurities Act, in reliance on Section 4(a)(2) thereof and Rule 506 of certain debtsRegulation D thereunder, based on representations made by the Company; and (iv) the payment of certain unpaid expenses of the Fit Pay Sellers of $724,116 by the Company. In addition, the Company will be required to pay the Fit Pay Sellers an earn-out payment equal to 12.5% of the gross revenue derived from Fit Pay’s technology for sixteen (16) fiscal quarters commencing on October 1, 2017 and ending on December 31, 2021. To date, Fit Pay has had minimal revenue. The operating results of Fit Pay have been included in the condensed consolidated financial statements from the effective date of the acquisition, May 23, 2017.
In connectioninvestors, their prior relationship with the merger on May 23, 2017, the Company recorded deferred tax liabilities of $1,797,476 as part of its preliminary purchase price allocation. As indicated below, the Company is in the process of completing its analysis of the fair value of the net assets acquired and the consideration granted and therefore the deferred tax liabilities recorded are considered preliminary and subject to change.
Preliminary Allocation of Purchase Price of Fit Pay
The Merger Agreement was accounted for under the acquisition method of accounting. The purchase price was preliminarily allocated to the tangible and identifiable assets acquired and liabilities assumed of Fit Pay based upon their estimated fair values. The excess purchase price over the fair value of the underlying net assets acquired was allocated to goodwill. The Company is in the process of completing its analysis of the fair value of the net assets acquired and the consideration granted through the use of an independent valuation firm and management’s preparation of estimates. Since the following information is based on preliminary assessments made by management, the acquisition accounting for Fit Pay is subject to final adjustment and it is possible that the final assessment of values may differ from the preliminary assessment. The following table summarizes the preliminary assessment of the estimated fair values of the identifiable assets acquired and liabilities assumed net of cash acquired, as of the date of acquisition of May 23, 2017.
| Cash | $ | 10,889 | ||
| Accounts receivable | 91,810 | |||
| Other current assets | 77,095 | |||
| Property and equipment | 31,967 | |||
| Goodwill | 7,954,260 | |||
| Intangible assets (See Note 4) | 5,245,400 | |||
| Assets acquired | 13,411,421 | |||
| Accounts payable | 165,650 | |||
| Accrued liabilities | 964,463 | |||
| Customer deposits | 286,948 | |||
| Deferred taxes | 1,797,476 | |||
| Liabilities assumed | 3,214,537 | |||
| Net assets acquired | $ | 10,196,884 |
Goodwill arising from the transaction consists of the expected operational synergies upon combining the entity and intangibles not qualifying for separate recognition.
In connection with the Fit Pay transaction, the Company entered into an employment agreement with Michael Orlando, the former Chief Executive Officer of Fit Pay.
Mr. Orlando is now the Chief Operating Officer of the Company, and Presidentthe absence of any general solicitation. The Company used the wholly-owned subsidiary, Fit Pay. The term ofnet proceeds from this offering for working capital and liability reduction purposes. In the employment agreement is for one (1) year and the employment agreement includes provisions for term extensions. In addition to Mr. Orlando’s salary, the employment agreement also provides for all necessary and reasonable out-of-pocket expenses incurred in the performance of his duties under the agreement, eligibility to participate in bonus or incentive compensation plans of the Company and eligibility to receive equity awards as determined by the board of directors.
Pro Forma Financial Information
The following table summarizes the unaudited pro forma financial information assuming that the acquisitions of LogicMark and Fit Pay occurred on January 1, 2016, and their respective results had been included in the Company’s financial results for the nine and three months ended September 30, 20172021, 1,160,000 shares of Series F preferred stock were converted into 656,604 shares of common stock. On October 15, 2021, after shareholder and Board approval of the reverse stock split, the exercise price for the Warrants was adjusted to $4.95 per share and was retroactively reported in accordance with ASC 260-10-55-12, Restatement of EPS Data. For the three months and nine months ended September 30, 2016.2022, the Company recorded Series F Preferred Stock dividends of $6,790 and $32,934, respectively.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCKHOLDERS’ EQUITY AND REDEEMABLE PREFERRED STOCK (CONTINUED)
February 2021 Offering
On February 2, 2021, the Company closed a registered direct offering and concurrent private placement pursuant to which the Company issued (i) an aggregate of 1,476,016 shares of Series E preferred stock, convertible into up to 295,203 shares of common stock, (ii) common stock purchase warrants to purchase up to 100,000 shares of common stock at an exercise price of $12.30 per share, which were exercisable immediately and had a term of five years, and (iii) common stock purchase warrants to purchase up to 195,203 shares of common stock at an exercise price of $12.30 per share with a term of five and one-half years first exercisable nine months after issuance, for gross proceeds of $4,000,003, before deducting any offering expenses. The pro forma combined amounts are based upon available informationCompany used the net proceeds from this offering for working capital and reflectliability reduction purposes. In February 2021, 1,476,016 shares of Series E preferred stock were converted into 295,203 shares of common stock. Also in February 2021, the Company recorded a reasonable estimatedeemed dividend of $1,480,801 from the beneficial conversion feature associated with the issuance of the effectsSeries E convertible preferred stock and warrants.
January 2021 Warrant exchange
On January 8, 2021, the Company entered into a Warrant Amendment and Exercise Agreement (the “Amendment”) with holders (the “Holder”) of a common stock purchase warrant, dated April 4, 2019, previously issued by the Company (the “Original Warrant”).
In consideration for each exercise of the acquisitionsOriginal Warrant within 45 calendar days of LogicMark and Fit Paythe Amendment, in addition to the issuance of the Warrant shares, the Company agreed to deliver a new warrant to purchase shares of the Company’s common stock equal to the number of Original Warrants that the Holder exercised, at an exercise price of $15.25 per share, which represents the average Nasdaq Official Closing Price of the common stock for the periods presented on the basis set forth herein. The following unaudited pro forma combined financial information is presented for informational purposes only and does not purport to represent what the financial position or results of operations would have been had the acquisitions of LogicMark and Fit Pay in fact occurred onfive trading days immediately preceding the date assumed, nor is it necessarily indicative of the results that may be expectedAmendment (the “New Warrants”). The Investor held Original Warrants exercisable for up to 246,913 shares of common stock, subsequently exercised 50,000 Original Warrants within the 45 days, and received 50,000 New Warrants in future periods.
| Nine Months Ended | Three Months Ended | Nine Months Ended | Three Months Ended | |||||||||||||
| September 30, 2017 | September 30, 2016 | |||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Pro forma: | ||||||||||||||||
| Net Sales | $ | 18,961,528 | $ | 4,530,088 | $ | 11,490,257 | $ | 4,014,154 | ||||||||
| Net Loss applicable to Common Stockholders | $ | (7,862,415 | ) | $ | (4,101,606 | ) | $ | (16,898,135 | ) | $ | (4,614,264 | ) | ||||
| Net Loss Per Share - Basic and Diluted applicable to Common Stockholders | $ | (0.71 | ) | $ | (0.28 | ) | $ | (2.09 | ) | $ | (0.53 | ) | ||||
The unaudited pro forma net loss attributableaddition to the Warrant shares.
Series C Redeemable Preferred Stock
In May 2017, the Company has been calculated using actual historical information and is adjusted for certain pro forma adjustments based on the assumption that the acquisitionsauthorized Series C Redeemable Preferred Stock. Holders of LogicMark and Fit Pay and the applicationSeries C Redeemable Preferred Stock are entitled to receive dividends of fair value adjustments to intangible assets occurred on January 1, 2016.15% per year, payable in cash. For the three and nine months ended September 30, 2017, the pro forma financial information excluded the Fit Pay acquisition-related expenses of $26,626 and $149,443, respectively, which are included in the actual reported results, as general and administrative expenses, but excluded from the pro forma amounts above due to their nonrecurring nature. In addition, the pro forma adjustments for the three and nine months ended September 30, 2017 include the following adjustments; (a) amortization expense related to the acquired intangible assets of $nil and $289,066, respectively; (b) interest expense of $nil and $211,406, respectively; and (c) dividends related to the Series C Preferred Stock of $nil and $38,904, respectively.
For the three and nine months ended September 30, 2016, the pro forma financial information reflects the following adjustments; (a) the exclusion of the acquisition-related expenses of $275,948 and $609,466; (b) amortization of the inventory fair value adjustment of $nil and $945,212, respectively; (c) reduction in depreciation expense of $15,719 and $28,935, respectively; (d) amortization expense related to the acquired intangible assets of $378,881 and $1,124,291, respectively; (e) interest expense including the amortization of deferred debt issue costs of $1,443,667 and $4,325,190, respectively; and (f) dividends related to the Series B Preferred Stock and Series C Preferred Stock of $306,456 and $918,545, respectively.
Note 6 – Strategic Agreements with world ventures holdings
The Company is a party to a Master Product Development Agreement with WVH, a related party. During the nine and three months ended September 30, 2017, the Company recorded revenue of $7,057,032 and $767,751, respectively related to WVH. At September 30, 2017, the Company’s accounts receivable balance included $1,893,662 due from WVH.
Note 7 – Convertible Notes Payable
July 2017 Exchange
In order to consummate a registered direct offering and concurrent private placement on July 13, 2017 (See Note 8), the Company was required to obtain consent from the holders (the “November Holders”) of the Company’s (i) Amended and Restated Secured Subordinated Promissory Notes, originally issued on July 25, 2016 (i.e., the LogicMark Note), and amended on November 29, 2016 (the “November Notes”), and (ii) certain common stock purchase warrants (the “November Warrants”) that were initially exercisable on November 29, 2016. In consideration of the November Holders providing such consent to the registered direct offering and concurrent private placement, the Company and the November Holders agreed, as of July 11, 2017, to the following amendments to their respective November Notes, November Warrants, and that certain Exchange Agreement, dated November 29, 2016 (the “Exchange Agreement”):
In connection with the reduction in conversion price of the November Notes from $3.00 to $2.00, the Company incurred a non-cash charge for modification of convertible exchange note terms of $191,630 for the three and nine months ended September 30, 2017. In addition, the Company expensed the remaining unamortized note discount and deferred debt issue costs related to the November Notes of $491,667 and $35,949, respectively. As a result of lowering the conversion price of the November Warrants from $3.00 to $2.00, the Company also incurred a non-cash charge for modification of terms related to the November Warrants of $37,000 for the three and nine months ended September 30, 2017.
On July 19, 2017, the November Holders purchased from LogicMark Investment Partners, LLC (“LogicMark Investment Partners”), the representative of LogicMark, LLC, the outstanding balance of $594,403, including accrued and unpaid interest on the LogicMark Note. In connection therewith, the Company, LogicMark Investment Partners and the November Holders entered into an Assignment and Assumption Agreement, dated July 19, 2017, pursuant to which LogicMark Investment Partners assigned the LogicMark Note to the November Holders. In addition, on July 19, 2017, the Company and the November Holders entered into a Securities Exchange Agreement pursuant to which the Company exchanged the LogicMark Note held by the November Holders for (i) an aggregate principal amount of $594,408 of secured subordinated convertible promissory notes of the Company (the “July 2017 Notes”) due in July 2018, and (ii) warrants exercisable into 297,202 shares of Common Stock (the “July 2017 Warrants”). The July 2017 Notes are convertible into shares of Common Stock at a conversion price of $2.00 per share and the July 2017 Warrants are exercisable into shares of Common Stock with a five year term and an exercise price of $2.00 per share. The exercise and the amount of shares of common stock issuable upon exercise of the July 2017 Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions. reclassifications, mergers or other corporate changes and dilutive issuances.
The conversion option embedded in the convertible exchange notes was determined to contain beneficial conversion features, resulting in the bifurcation of those features as an equity instrument (resulting in a debt discount) at issuance. After allocation of the gross proceeds to the warrants (discussed above) and beneficial conversion feature, the total debt discount recognized was $432,917. The debt discount is being amortized over the term of the debt and the Company amortized $81,839 of the debt discount for the three and nine months ended September 30, 2017.
Note 8 - Stockholders’ Equity
July 2017 Offerings
On July 13, 2017, the Company closed a registered direct offering of an aggregate of 2,170,000 shares of the Company’s common stock, and pre-funded warrants to purchase 230,000 shares of common stock. The Company sold the shares at a price of $1.43 per share and received $1.42 per pre-funded warrant. The Company received gross proceeds from the offering, before deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately $3,429,700. The pre-funded warrants were converted into shares of common stock on September 23, 2017 and as a result were included in the common stock outstanding balance for purposes of computing earnings per share.
On July 13, 2017, the Company also closed on a concurrent private placement with the same investors for no additional consideration, of warrants to purchase 1,800,000 shares of common stock. The warrants will be exercisable beginning on the six (6) month anniversary of the date of issuance, at an exercise price of $2.00 per share and will expire on the fifth anniversary of the initial exercise date.
Series A Preferred Stock
For the nine and three months ended September 30, 2017, the Company recorded Series A Preferred Stock dividends of $34,884 and $0, respectively. During the nine months ended September 30, 2017 holders, of 211,424 shares of Series A Preferred Stock converted $338,749 of Series A Preferred Stock and dividends into 159,219 shares of common stock. As of September 30, 2017, there was no remaining outstanding principal balance on the Series A Preferred Stock.
Series B Preferred Stock
For the nine and three months ended September 30, 2017, the Company recorded Series B Preferred Stock dividends of $634,375 and $71,875, respectively. During the nine months ended September 30, 2017, holders of 4,500,000 shares of Series B Preferred Stock converted $6,075,000 of Series B Preferred Stock, dividends and liquidated damages into 3,106,802 shares of common stock. As of September 30, 2017, there was no remaining outstanding principal balance on the Series B Preferred Stock.
Series C Preferred Stock
In May 2017, the Company authorized a new Series C Preferred Stock. The terms of the Series C Preferred Stock are as follows:
Dividends on Series C Preferred Stock
Holders of Series C Preferred Stock are entitled to receive from and after the first date of issuance of the Series C Preferred Stock, cumulative dividends at a rate of 5% per annum on a compounded basis, which dividend amount shall be guaranteed. Accrued and unpaid dividends are payable in cash. For the nine and three months ended September 30, 2017,2022, the Company recorded Series C Redeemable Preferred Stock dividends of $35,890$75,000 and $25,205,$225,000, respectively.
Redemption ofThe Series C Preferred Stock
The Series CRedeemable Preferred Stock may be redeemed by the Company solely at the Company’s option in cash at any time, in whole or in part, upon payment of the stated value of the Series C Redeemable Preferred Stock and all related accrued but unpaid dividends.
Fundamental Change
If a “fundamental change” occurs, at any time while the Series C Redeemable Preferred Stock is outstanding, the holders of shares of Series C Preferred Stock then outstanding shall be immediately paid, out of the assets of the Company or the proceeds of such fundamental change, as applicable, and legally available for distribution to its stockholders, an amountredeemed in cash equal to the stated value of the Series C Redeemable Preferred Stock, and all related accrued but unpaid dividends.
If the legally available assets of the Company and the proceeds of such “fundamental change” are insufficient to pay the all of the Holders of the Series C Preferred Stock, then the Holders of the Series C Preferred Stock shall share ratably in any such distribution in proportion to the amount that they would have been entitled to. A fundamental change includes but is not limited to any change in the ownership of at least fifty percent (50%) of the voting stock; liquidation or dissolution;dissolution, or the Common Stockcommon stock ceases to be listed on the market upon which it currently trades.
Voting Rights
The holders of the Series C Redeemable Preferred Stock are entitled to vote on any matter submitted to the stockholders of the Company for a vote. One (1) share of Series C Redeemable Preferred Stock shall carrycarries the same voting rights as one (1) share of Common Stock.common stock.
Classification
The Series C Preferred Stock was accounted for under Section 480-10-S99 - Distinguishing Liabilities from Equity (FASB Accounting Standards Codification 480) as amended by ASU 2009-04 - for Redeemable Equity Instruments (“ASU 2009-04”). Under ASU 2009-04, a redeemable equity security is to be classified as temporary equity if it is conditionally redeemable upon the occurrence of an event that is not solely within the control of the issuer. The Company’s financingUpon the determination that such events are probable, the equity security would be classified as a liability. Given that the Series C Redeemable Preferred Stock contains a fundamental change provision, the security is redeemable at the option of the holder under the specified terms and conditions of such preferred stock however, the instrument was not redeemable as of September 30, 2017.considered conditionally redeemable. Therefore, the Company has classified the Series C Redeemable Preferred Stock as temporary equity in the condensed consolidated balance sheet atsheets on September 30, 2017.2022, and December 31, 2021, until such time that events occur that indicate otherwise.
Long-Term
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCKHOLDERS’ EQUITY AND REDEEMABLE PREFERRED STOCK (CONTINUED)
Warrants
There was no warrant activity during the nine months ended September 30, 2022. The following table summarizes the Company’s warrants outstanding and exercisable on September 30, 2022, and December 31, 2021:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life In Years | Aggregate Intrinsic Value | |||||||||||||
| Outstanding and Exercisable at January 1, 2021 | 1,569,007 | $ | 13.30 | 4.10 | $ | 10,850,158 | ||||||||||
| Issued | 3,897,534 | $ | 5.26 | 4.77 | - | |||||||||||
| Exercised | (1,002,307 | ) | 9.07 | - | - | |||||||||||
| Cancelled | (168,854 | ) | 38.32 | - | - | |||||||||||
| Outstanding and Exercisable at December 31, 2021 | 4,295,380 | $ | 6.02 | 4.59 | - | |||||||||||
| Outstanding and Exercisable at September 30, 2022 | 4,295,380 | $ | 6.02 | 4.02 | $ | 0.00 | ||||||||||
NOTE 7 - STOCK INCENTIVE PLANS
2017 Stock Incentive Plan
On January 4, 2013, a majority ofAugust 24, 2017, the Company’s stockholders approved by written consent the Company’s 2017 Stock Incentive Plan (2017 SIP). The aggregate maximum number of shares of common stock that may be issued under the 2017 SIP is limited to 10% of the outstanding shares of common stock, calculated on the first business day of each fiscal year. Under the 2017 SIP, options that are forfeited or terminated, settled in cash in lieu of shares of common stock, or settled in a manner such that shares are not issued, will again immediately become available to be issued. If shares of common stock are withheld from payment of an award to satisfy tax obligations concerning the award, those shares of common stock will be treated as shares that have been issued under the 2017 SIP and will not again be available for issuance.
During the quarter ended March 31, 2022, the Company issued 430,339 shares of common stock vesting over periods ranging from 30 to 48 months with an aggregate fair value of $1,331,870 to certain employees as inducement and incentive grants. During the quarter ended June 30, 2022, the Company issued 15,559 shares of common stock vesting on September 30, 2022 with an aggregate fair value of $17,582 to certain non-employees in lieu of cash payment for services. No shares were issued during the three months ended September 30, 2022.
2013 Long-Term Stock Incentive Plan (“LTIP”)
On January 4, 2013, the Company’s stockholders approved the Company’s Long-Term Stock Incentive Plan (LTIP). The maximum aggregate number of shares of common stock that may be issued under the LTIP, including stock awards, stock issued to directors for serving on the Company’s board,Board, and stock appreciation rights, isare limited to 10% of the common shares of Common Stock outstanding on the first business or trading day of any fiscal year, which is 737,992 at January 1, 2017.year.
During the ninethree months ended September 30, 2017,March 31, 2022, the Company issued 131,363237,500 stock options (5,000 of which were forfeited during the three months ended June 30, 2022) vesting over four years to employees with an exercise price of $3.36 and an option for 12,500 shares to a non-employee with a strike price of common$2.20 and a total aggregate fair value of $743,310. In addition, 27,276 fully vested stock underoptions were granted to six non-employee Board directors at an exercise price of $2.20 during the LTIP to five (5) non-executive directors for serving on the Company’s board.three months ended March 31, 2022. The aggregate fair value of the shares issued to the directors was $260,000. Also$51,187. A total of 22,101 stock options were granted to two Advisory Board members at strike prices ranging from $1.80 to $1.82 vesting over periods up to one year during the three months ended June 30, 2022 and a total aggregate fair value of $34,203. During the three months ended September 30, 2022, the Company issued 22,500 stock options vesting over four years to employees with an exercise price of $1.09 and 10,900 stock options with 100% cliff vesting in one year to non-employees with a strike price of $1.09 and a total aggregate fair value of $54,233. In addition, 45,875 fully vested stock options were granted to five non-employee Board directors at an exercise price of $1.09 during the three months ended September 30, 2022. The aggregate fair value of the shares issued to the directors was $72,815.
Stock-based Compensation Expense
Total stock-based compensation expense during the nine months ended September 30, 2017, the Company issued 237,559 shares of Common Stock with an aggregate fair value of $400,0002022, pertaining to executive and certain non-executive employees related to the Company’s 2016 management incentive plan. In September 2017, the Company granted 622,507 restricted shares of common stock with an aggregate value of $1,067,231 to certain executive and non-executive employees. The vesting period for these restricted shares of common stock is twelve months. During the nine months ended September 30, 2017, the Company expensed $614,655 related to these restricted stock awards. At September 30, 2017, a total of 737,992 shares of common stock have been issued from the LTIP and there are no further shares available to be issuedawards under the LTIP for the remainder of 2017.
2017 Stock Incentive Plan
On August 24, 2017, a majority of the Company’s stockholders approved at the Company’s annual meeting the Company’s 2017 Stock Incentive Plan (“2017 SIP”). The purpose of the 2017 SIP isand 2013 Long-Term Stock Incentive Plan amounted to enable the Company to provide a means to issue shares of Common Stock or stock options which may be exercised for shares of Common Stock to certain eligible consultants, employees and service providers of the Company as a substitute for, or as an additional incentive to, paying cash compensation to consultants and non-payroll employees or as a portion of severance packages in certain scenarios. The 2017 SIP works in tandem with the 2013 LTIP to provide additional means to compensate our employees. The maximum aggregate number of shares of common stock that may be issued under the 2017 SIP, including stock awards, stock issued to directors for serving on the Company’s board, and stock appreciation rights, is limited to 10% of the shares of Common Stock outstanding on the first business or trading day of any fiscal year, which is at January 1, 2018; provided that for fiscal year 2017, 1,500,000 shares of Common Stock may be delivered to participants under the 2017 SIP.$1,197,320.
During the nine months ended September 30, 2017, the Company issued 437,384 shares of common stock under the 2017 SIP.
LogicMark, Inc.
WarrantsNOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2017, the Company had 3,926,251 warrants outstanding with a weighted average exercise price and remaining life in years of $6.54 and 4.043, respectively. At September 30, 2017, the warrants had no intrinsic value.
During the nine months ended September 30, 2017, the Company accrued $700,000 of discretionary management and employee bonus expense.
During the nine months ended September 30, 2017, the Company issued 119,800 fully-vested shares of common stock with a fair value of $240,535 to non-employees for services rendered.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Note 9 - Commitments and Contingencies
LEGAL MATTERS
Legal Matters
From time to time, wethe Company may be involved in various claims and legal actions arising in the ordinary course of our business. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self-regulatory organization, or body pending or, to the knowledge of the executive officers of our companythe Company or any of our subsidiaries, threatened against or affecting our company, or any of our subsidiaries in which an adverse decision could have a material adverse effect upon our business, operating results, or financial condition.
COMMITMENTS
Commitments
The Company leases office space and equipment, in the U.S., which is classified as operating leases expiring at various dates. The Company determines if an arrangement qualifies as a party to certain leaseslease at the lease inception. Operating lease liabilities are recorded based on the present value of the future lease payments over the lease term, assessed as of the commencement date. The Company’s real estate lease, which is for office space and warehouse facilities,a fulfillment center, with monthly payments ranging from $1,750 to $6,911,a lease term of 5 years, expiring on various dates throughin August 2020.2025. The Company also leases a copier with a lease term of 5 years, ending August 2023. The Company has elected to account for the lease and non-lease components (insurance and property taxes) as a single lease component for its real estate leases. Lease payments, which include lease components and non-lease components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract. Any actual costs over such amounts are expensed as incurred as variable lease costs.
The Company’s lease agreements generally do not specify an implicit borrowing rate, and as such, the Company uses its incremental borrowing rate to calculate the present value of the future lease payments. The discount rate represents a risk-adjusted rate on a secured basis and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams. The Company entered into a new five-year lease agreement in June 2020 for a new warehouse space located in Louisville, Kentucky. The ROU asset value-added because of this new lease agreement was $279,024. The Company’s ROU asset and lease liability accounts reflect the inclusion of this lease in the Company’s balance sheet as of September 30, 2022. The current monthly rent expense of $150,730$6,400 commenced in September 2022 and $103,232increases approximately 3% annually thereafter.
The Company’s lease agreements include options for the Company to either renew or early terminate the lease. Renewal options are reviewed at lease commencement to determine if such options are reasonably certain of being exercised, which could impact the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including the significance of leasehold improvements on the property, whether the asset is difficult to replace, or specific characteristics unique to the lease that would make it reasonably certain that the Company would exercise the option. In most cases, the Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company and thus not included in the Company’s ROU asset and lease liability.
For the nine months ended September 30, 20172022, the total operating lease cost was $75,761 of which $58,613 is recorded in direct operating costs and $17,148 is recorded in general and administrative expenses. The operating lease cost is recognized on a straight-line basis over the lease term. The following summarizes (i) the future minimum undiscounted lease payments under the non-cancelable lease for each of the next four years and thereafter, incorporating the practical expedient to account for lease and non-lease components as a single lease component for our existing real estate lease, (ii) a reconciliation of the undiscounted lease payments to the present value of the lease liabilities, and (iii) the lease-related account balances on the Company’s balance sheet as of September 30, 2016, respectively. Minimum future lease payments for non-cancelable operating leases are as follows:2022:
| 2017 | $ | 50,775 | ||
| 2018 | 110,867 | |||
| 2019 | 112,015 | |||
| 2020 | 65,235 | |||
| Total future lease obligations | $ | 338,891 |
The maturity of the Company’s debt is as follows:
| 2017 | $ | - | ||
| 2018 | 266,200 | |||
| 2019 | 212,961 | |||
| 2020 | 212,961 | |||
| 2021 | 159,719 | |||
| Total debt | $ | 851,841 |
Note 10 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued.
On October 2, 2017, the Company issued 6,000 shares of its common stock for the payment of services with a grant date fair value of $13,200.
On November 13, 2017, the Company closed a registered direct offering of an aggregate of 2,941,177 shares of the Company’s common stock. The Company sold the shares at a price of $1.36 per share. The Company received gross proceeds from the offering, before deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately $4,000,000.
On November 13, 2017, the Company also closed on a concurrent private placement with the same investors for no additional consideration, of warrants to purchase 2,500,000 shares of common stock.
| Year Ending December 31, | ||||
| 2022 (excluding the nine months ended September 30, 2022) | $ | 23,746 | ||
| 2023 | 89,724 | |||
| 2024 | 80,000 | |||
| 2025 | 54,400 | |||
| Total future minimum lease payments | $ | 247,870 | ||
| Less imputed interest | (41,051 | ) | ||
| Total present value of future minimum lease payments | $ | 206,819 |
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
| As of September 30, 2022 | ||||
| Operating lease right-of-use assets | $ | 199,619 | ||
| Other accrued expenses | $ | 71,101 | ||
| Other long-term liabilities | 135,718 | |||
| $ | 206,819 | |||
| As of September 30, 2022 | ||||
| Weighted Average Remaining Lease Term | 2.76 | |||
| Weighted Average Discount Rate | 12.90 | % | ||
NOTE 9 - SUBSEQUENT EVENT
Nasdaq Notification
On October 31, 2022, the Company received a written notification (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market, as set forth under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), because the closing bid price of the Common Stock was below $1.00 per share for the previous thirty (30) consecutive business days. The Notice has no immediate effect on the listing of the Common Stock, which will continue to trade uninterrupted on the Nasdaq Capital Market under the ticker “LGMK”.
Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted 180 calendar days from the date of the Notice, or until April 29, 2023 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement. If at any time during the Compliance Period, the bid price of the Common Stock closes at or above $1.00 per share for a minimum of ten (10) consecutive business days, Nasdaq will provide the Company with written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be closed.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the ninethree and threenine months ended September 30, 20172022 should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q for the quarterly report.period ended September 30, 2022 (this “Form 10-Q”). This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect toconcerning future events and areis subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date of this report.Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform to these statements to actual results.
Overview
We were incorporatedAll share and price per share information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section has been adjusted to reflect our one-for-ten reverse stock split of our outstanding common stock, par value $0.0001 per share (the “Common Stock”), and Series C Redeemable Non-Convertible Voting Preferred Stock, par value $0.0001 per share (the “Series C Redeemable Preferred Stock”), which became effective on October 15, 2021. Expenses included in the stateresults of Delawareoperations for 2021 have been reclassified to conform to the 2022 presentation format.
Overview
LogicMark, Inc. provides PERS, health communications devices, and IoT technology that creates a connected care solutions platform. The Company’s devices provide people with the ability to receive care at home and age independently and to check, manage and monitor a loved one’s health and safety remotely. The Company’s PERS devices incorporate two-way voice communication technology directly in the medical alert pendant providing life-saving technology at a consumer-friendly price point aimed at everyday consumers. The Company is focused on February 8, 2012. Nxt-IDmodernizing remote monitoring to help people stay safe and live independently longer. The PERS technologies are sold through dealers and distributors, as well as through the Veterans Health Administration (the “VA”). The Company enjoys a strong base of business with the VA and plans to expand to other government services after being awarded a five-year General Services Administration agreement in 2021.
Environmental, Social and Governance (“ESG”)
In June 2021, Chia-Lin Simmons was appointed Chief Executive Officer and a member of the Board of Directors and in March 2022 was appointed President. Ms. Simmons and the Board set out to recognize our ESG responsibilities and create the highest standards for both social and shareholder endeavors. We have structured our ESG efforts around two main themes:
Diversity and Equity
Making products that serve the neediest and most vulnerable is an emerging technology company engagedexample of how our social and shareholder responsibility goals align. The Company believes that its core business of providing PERS devices to veterans, the elderly, and our loved ones plays a vital role in making our world more equitable. We believe safety, security, and serving the desire to gracefully age at home are basic needs. Offering differing price points for our products, as well as eliminating ongoing monthly fees, also meets the needs of persons in varying socioeconomic situations.
More than 800,000 of our PERS devices have been deployed, the vast majority to U.S. veterans. Our staff has the privilege of serving as ambassadors in this marketplace, taking an average of 150 calls from veterans each day. Many of our employees work remotely and volunteerism is encouraged in the developmentcommunities where we reside.
Our Chief Executive Officer has been a champion of proprietary products, servicesdiversity and solutionsinclusion throughout her career. In addition to hiring new key female and minority employees, we now have three female Board members on the team. We are continuing to look at Company diversity and inclusion practices and examining labor standards across our supplier base.
Operational Efficiency
Building a sustainable enterprise is a priority for security that serve multiple end markets, including Security, Healthcare, Financethe Company. As a result, we have closed offices to streamline operations and Internet of Things (“IoT”).
On June 25, 2012,reduce cost. We have begun to reduce paper waste throughout the Company acquired 100%and are working toward a goal of decreasing the membership interests in 3D-ID LLC (“3D-ID”), a limited liability company formed in Florida in February 2011amount of marketing collateral and ownedprinted materials included with each device by the Company’s founders. By acquiring 3D-ID, the Company gained the rights50%.
We expect to a portfolio of patented technology in the field of three-dimensional facial recognitionconduct an energy and imaging including 3D facial recognition products for access control, law enforcement and travel and immigration. 3D-ID was an early stage company engaged in the design, research and development, integration, analysis, modeling, system networking, sales and support of intelligent surveillance, three-dimensional facial recognition and three-dimensional imaging devices and systems primarily for identification and access control in the security industries. Since the Company’s acquisition of 3D-ID was a transaction between entities under common control in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations”, Nxt-ID recognized the net assets of 3D-ID at their carrying amounts in the accounts of Nxt-ID on the date that 3D-ID was organized, February 14, 2011.
On July 25, 2016, we completed the acquisition of LogicMark, LLC (“LogicMark”) pursuantresources evaluation to an Interest Purchase Agreement by and among the Company, LogicMark and the holders of all of the membership interests of LogicMark (the “LogicMark Sellers”), dated May 17, 2016 (the “Interest Purchase Agreement”). Pursuant to the Interest Purchase Agreement, we acquired all of the membership interests of LogicMark from the LogicMark Sellers for (i) $17.5 million in cash consideration (ii) $2.5 million in a secured promissory note (the “LogicMark Note”) issued to LogicMark Investment Partners, LLC, as representative of the LogicMark Sellers (the “LogicMark Representative”) (iii) 78,740 shares of common stock, which were issued upon signing of the Interest Purchase Agreement (the “LogicMark Shares”), and (iv) warrants (the “LogicMark Warrants,”) to purchase an aggregate of 157,480 shares of common stock (the “LogicMark Warrant Shares”) for no additional consideration.determine if increased efficiencies are possible. In addition, we may be required to pay the LogicMark Sellers earn-out payments of (i) up to $1,500,000are exploring new packaging and recycling programs for calendar year 2016 and (ii) up to $5,000,000 for calendar year 2017 if LogicMark meets certain gross profit targets set forth in the Interest Purchase Agreement. The LogicMark Note originally was to mature on September 23, 2016 but was extended to July 15, 2017. The earn-out payment related to 2016 and the remaining balance owed on the LogicMark Note including accrued interest were both paid in July 2017.
In order to consummate a registered direct offering and concurrent private placement on July 13, 2017, the Company was required to obtain consent from the holders (the “November Holders”) of the Company’s (i) Amended and Restated Secured Subordinated Promissory Notes, originally issued on July 25, 2016 (i.e., the LogicMark Note), and amended on November 29, 2016 (the “November Notes”), and (ii) certain common stock purchase warrants (the “November Warrants”) that were initially exercisable on November 29, 2016. In consideration of the November Holders providing such consent to the registered direct offering and concurrent private placement, the Company and the November Holders agreed, asour customers. Expansion and improvement of July 11, 2017,domestic and international supply chain channels, and a CO2 offset program are all under review to the following amendments to their respective November Notes, November Warrants,ensure we meet customer demand and that certain Exchange Agreement, dated November 29, 2016 (the “Exchange Agreement”):
suppliers adhere to recommended codes of conduct.
On July 19, 2017,To fulfill our responsibilities and to discharge our duty, these guidelines are subject to modification as the November Holders purchased from LogicMark Investment Partners, LLC (“LogicMark Investment Partners”),Board of Directors deems appropriate and in the representativebest interests of LogicMark, LLC, the outstanding balance of $594,403, including accrued and unpaid interest on the LogicMark Note. In connection therewith, the Company, LogicMark Investment Partners and the November Holders entered into an Assignment and Assumption Agreement, dated July 19, 2017, pursuant to which LogicMark Investment Partners assigned the LogicMark Note to the November Holders. In addition, on July 19, 2017, the Company and the November Holders entered into a Securities Exchange Agreement pursuant to which the Company exchanged the LogicMark Note heldour shareholders or as required by the November Holders for (i) an aggregate principal amount of $594,408 of secured subordinated convertible promissory notes of the Company (the “July 2017 Notes”) due in July 2018,applicable laws and (ii) warrants exercisable into 297,202 shares of Common Stock (the “July 2017 Warrants”). The July 2017 Notes are convertible into shares of Common Stock at a conversion price of $2.00 per share and the July 2017 Warrants are exercisable into shares of Common Stock with a five year term and an exercise price of $2.00 per share. The exercise and the amount of shares of common stock issuable upon exercise of the July 2017 Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions. reclassifications, mergers or other corporate changes and dilutive issuances.
On May 23, 2017, the Company completed a merger (the “Merger”) pursuant to an executed Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Fit Merger Sub, Inc., a wholly-owned subsidiary of the Company (the “Merger Sub”), Fit Pay, Inc. (“Fit Pay”), Michael Orlando (“Orlando”), Giesecke & Devrient Mobile Security America, Inc. (“G&D”), the other stockholders of Fit Pay (the “Other Holders”) and Michael Orlando in his capacity as stockholder representative representing the Other Holders (the “Stockholder Representative”, and together with Orlando and G&D, the “Fit Pay Sellers”). In connection with the Merger, Fit Pay merged with and into the Merger Sub, with the Merger Sub continuing as the surviving entity and a wholly owned subsidiary of the Company.
Pursuant to the terms of the Merger Agreement, the aggregate purchase price paid for Fit Pay was: (i) 19.96% of the outstanding shares of Common Stock; (ii) 2,000 shares of the Series C Preferred Stock; (iii) the payment of certain debts by the Company; and (iv) the payment of certain unpaid expenses by the Company. In addition, the Company will be required to pay the Sellers an earnout payment equal to 12.5% of the gross revenue derived from Fit Pay’s technology for sixteen (16) fiscal quarters commencing on October 1, 2017 and ending on December 31, 2021.
Our innovative MobileBio® security technologies that serve these end markets include encryption and payments, biometrics, security and privacy, sensors and miniaturization. Our core competencies and intellectual property in biometrics, security, sensors, and miniaturization – developed through intensive research and development over the past decade enable us to target and serve multiple large and growing end markets globally.
We believe that our MobileBio® products will provide distinct advantages within m-commerce market by improving mobile security. Currently, most mobile devices continue to be protected simply by PIN numbers. This security methodology is easily duplicated on another device, and can easily be spoofed or hacked. Our security paradigm is Dynamic Pairing Codes (“DPC”). DPC is a new, proprietary method to secure users, devices, accounts, locations and servers over any communication media by sharing key identifiers, including biometric-enabled identifiers, between end-points by passing dynamic pairing codes (random numbers) between end-points to establish sessions and/or transactions without exposing identifiers or keys. The ongoing high-level breaches of personal credit card data demand new securities to offer higher level of consumer protection through the use of biometrics and other proprietary solutions. Our strategic plan envisions using our core biometric facial and voice recognition algorithms to develop security applications (both cloud based and locally hosted) that can be used for companies (for industrial uses, such as enterprise computer networks) as well as individuals (for consumer uses, such as smartphones, tablets or personal computers), law enforcement, the defense industry, and the U.S. Department of Defense. Nxt-ID has numerous patents pending. Many of these patents pending focus on tokenization and protection, as well as payment methodology, voice biometrics, and other biometric forms of directed payment.
regulations.
In healthcare, our business initiatives were bolstered by the acquisition of LogicMark, on July 25, 2016. LogicMark serves a market that enables two-way communication, sensors, biometrics and security to make home care for chronic medical conditions, including “aging in place,” a reality. There are three major trends driving this market: (1) an aging population; (2) desire to “age in place”; and (3) the acute need to lower cost of care. These trends together have produced a large and growing market for us to serve. LogicMark has built a business around emergency communications in healthcare. We have a strong business with the U.S. Department of Veterans Affairs (VA) today serving veterans who suffer from chronic conditions that often require emergency assistance. This business is steady and growing. Our strategic plan calls for expanding LogicMark’s business into other retail and enterprise channels to better serve the expanding demand for secure and remote healthcare.
Remote healthcare, which includes health monitoring and management using IoT and cloud-based processing, is an emerging area for LogicMark. The long-term trend toward more home-based care is a massive shift that is being driven by demographics (an aging population) and basic economics. People also value autonomy and privacy which are important factors in determining which solutions will suit the market. Consumers are beginning to enjoy the benefits of smart home technologies and online digital assistants. One of the promising applications of our VoiceMatch™ technology is enabling secure commands for restricted medical access. This solution, when coupled with our BioCloud™, combines biometrics with encryption and distributed access control.
Security and privacy concerns are already central to the adoption of IoT solutions that provides a large opportunity for the Company to collaborate and license its technology to the consumer-facing firms that are aggressively pursuing IoT opportunities.
In finance, the technology pioneered by our “Wocket” has continued to develop its range of capability while shrinking in size. This provides a technology package that can be integrated into a “smart wallet” that has the same or substantially similar technology as Apple Pay or into a card that can be used for a variety of transactions including – magnetic stripe emulation (Wi-Mag), Near Field Communication (NFC), tokens, barcode/QR codes and a Bluetooth Beacon for remote sensing and response applications. Versions of this technology package provide a functional and secure “vault” that allows for full consumer control and customization by OEMs and solution providers.
Our finance business is being driven by the development of an innovative smartcard that leverages “Wocket” technology. The smartcard is called “Flye” and it is being developed in our partnership with World-Ventures Holdings, LLC (“WVH”). Flye is poised to finally deliver on the smart card vision that appeared in videos years ago. Flye offers new and unique features compared to any other “smartcards” in the market. It handles the core functions such as loading in multiple cards, gathering loyalty points while opening – up new opportunities - for example the Bluetooth Beacon makes it simpler for service providers to automatically open doors, provide access, initiate requests among other things – all with software. Flye is targeted at WVH members who care about travel, food and entertainment. These concerns demand more than payments and include loyalty programs and security features for peace of mind when traveling. Flye is designed to work in synchrony with the WVH smartphone application. It is a “tethered” solution, albeit a wireless one. WVH has a comprehensive vision for its card that includes the ability to deliver a highly tailored membership experience.
With respect to IoT, the Company has joined the Cisco Solution Partner program to provide biometric and encryption solutions in conjunction with other ecosystem partners. Cisco sees security as integral to IoT. Cisco is integrating security directly into network infrastructure to enable companies to use their IoT networks in a secure fashion.
Our merger with FitPay has provided us with a proprietary technology platform that adds contactless payment capabilities to wearable and IoT devices with very little start-up time, investment in software development and instant access to the leading card networks. With payment capabilities powered by FitPay, IoT device manufacturers can create customer loyalty, tab into recurring revenue streams, open new markets, and differentiate their products in a competitive marketplace. FitPay’s lead customer currently is Garmin International.
Our plan also anticipates that we will use our core biometric facial and voice recognition algorithms to develop security applications (both cloud based and locally hosted) that can be used for companies (for industrial uses, such as enterprise computer networks) as well as individuals (for consumer uses, such as smart phones, tablets or personal computers), law enforcement, the defense industry, and the U.S. Department of Defense.
Results of Operations
Comparison ofThree and nine and three months ended September 30, 2017 and September 30, 2016
Revenue.Our revenues for the nine and three months ended September 30, 2017 were $18,867,564 and $4,530,088, respectively,2022, compared to $3,174,151 and $3,093,356, respectively, for the nine and three months ended September 30, 2016. The increase in our revenues for the nine and three months ended September 30, 2017 versus the nine and three months ended September 30, 2016 is directly related to shipments of the Flye card for WVH and LogicMark product sales.
Cost of Revenue and Gross Profit. Our gross profit for the nine and three months ended September 30, 2017 was $10,126,772 and $2,824,068, respectively, compared to gross profit of $1,287,349 and $1,345,723, respectively, for the nine and three months ended September 30, 2016. The increase in gross profit resulted from the shipments of the Flye smartcard and strong gross margin contributed by LogicMark. Forwith the three and nine months ended September 30, 2016, the gross profit2021.
Revenue, Cost of LogicMark which was acquired on July 25, 2016, was includedRevenue, and Gross Profit
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 2,751,570 | $ | 2,383,029 | $ | 9,769,951 | $ | 7,604,287 | ||||||||
| Cost of Goods Sold | 1,047,204 | 1,255,445 | 3,860,176 | 3,319,710 | ||||||||||||
| Gross Profit | $ | 1,704,366 | $ | 1,127,584 | $ | 5,909,775 | $ | 4,284,577 | ||||||||
| Profit Margin | 62 | % | 47 | % | 60 | % | 56 | % | ||||||||
We experienced a 15% increase in revenue for the post acquisition period only.
Operating Expenses.Operating expensesthree months ended September 30, 2022 and a 28% increase in revenue for the nine months ended September 30, 2017 totaled $10,077,2072022, compared to the same periods ended September 30, 2021. Revenue increases were driven by improvements in sales to VA hospitals and consisted of researchclinics. The percentage increase in revenue for the quarter ended September 30, 2022 was lower than that in the previous quarters, as the 3G replacement program was mostly completed by the quarter ended June 30, 2022.
Gross profit increased by 51% for the three months ended September 30, 2022 and development expenses of $939,726, selling and marketing expenses of $3,373,370 and general and administrative expenses of $5,764,111. Our operating expensesby 38% for the nine months ended September 30, 2017 were higher by $2,682,642 as2022, compared to the nine monthssame periods ended September 30, 2016. The primary reason2021. Gross profit margin increased from 47% to 62% for the increase is the inclusion of the operating expenses of LogicMark for the full nine monthsquarter ended September 30, 2017, whereas2022 and from 56% to 60% for the nine months ended September 30, 2016, LogicMark only2022, compared to the same periods ended September 30, 2021. In the quarter ended September 30, 2021 the Company recorded a $314,000 inventory obsolescence reserve. There was includedno inventory write down during the nine months ended September 30, 2022.
Operating Expenses
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Operating Expenses | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Direct operating cost | $ | 345,972 | $ | 228,512 | $ | 1,156,959 | $ | 729,038 | ||||||||
| Selling and marketing | 332,698 | 75,389 | 796,916 | 245,292 | ||||||||||||
| Research and development | 374,842 | 136,891 | 841,917 | 730,236 | ||||||||||||
| General and administrative | 2,575,105 | 969,264 | 7,025,674 | 3,426,596 | ||||||||||||
| Other expense | 3,222 | 20,588 | 35,306 | 45,856 | ||||||||||||
| Depreciation and amortization | 210,632 | 193,823 | 599,686 | 599,004 | ||||||||||||
| Total Expenses | $ | 3,842,471 | $ | 1,624,467 | $ | 10,456,458 | $ | 5,776,022 | ||||||||
Direct Operating Cost
Direct operating costs increased for each of the post acquisition period since it was acquired on July 25, 2016. In addition, Fit Pay was not part of our consolidated operating resultsthree and for the nine months ended September 30, 2016. The research2022, compared to the same periods last year as a result of higher sales and development expenses relate primarilythe initiation of online advertising to salaries and consulting servicessupport the July 2022 launch of $723,781. the Company’s new direct to consumer eCommerce Web site
Selling and Marketing
Expenditures in sales and marketing expenses consisted primarilyfor each of salariesthe three and consulting services of $895,489, amortization of intangibles of $836,415, merchant processing fees of $292,866, sales commissions of $215,389 and advertising and promotional expenses of $146,828. General and administrative expenses consisted of salaries and consulting services of $1,956,608, accrued management and employee incentives of $700,000, legal, audit and accounting fees of $700,181, and fees incurred of $149,443 related to the acquisition of Fit Pay. Also included in general and administrative expenses is $1,024,584 in non-cash stock compensation to employees, consultants and board members.
Operating expenses for the nine months ended September 30, 2016 totaled $7,394,5652022 exceeded such expenditures for the same periods last year due to the addition of a senior sales leader and consistedhigher sales commissions paid on the increase in sales described above for such periods. Increased marketing costs in for the three and nine month periods ended September 30, 2022 were due to the addition of researcha senior marketing leader and a marketing associate as well as the addition of investor relations, public relations, and social media support organizations.
Research and Development
Research and development expensescosts for each of $824,888, sellingthe three and marketing expensesnine month periods ended September 30, 2022 increased from the same periods last year due to our new product development activity. As we strive to accelerate the pace of $1,910,030new product development in future quarters, we expect to continue to see an increase in engineering costs devoted to new product development as compared to the previous year periods.
General and Administrative
Beginning in the first quarter of 2022, we added resources to our organization to drive revenue growth and new product development as well as accounting and finance infrastructure to ensure proper controls and processes were in place to safeguard the Company’s assets. As much as feasible, this is being accomplished with temporary, experienced fractional consultants to minimize permanent expense while also taking advantage of these consultants’ deep expertise and ability to execute quickly. Compared to the first quarter and first nine months of last year, general and administrative expenses of $4,659,647. The researchincreased due to higher D&O insurance costs, higher consultant fees, increased spending in the accounting and development expenses relate primarily to salariesfinance area, and consulting services of $392,991, as well as expenses of 218,584 primarilyhigher legal and proxy solicitation costs related to the designCompany’s August annual general meeting.
Other Income and development(Expense)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Other Income and (Expense) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Interest Income (Expense) | $ | 44,587 | $ | (144,821 | ) | $ | 57,747 | $ | (1,395,611 | ) | ||||||
| Forgiveness of Paycheck Protection Plan loan and accrued interest | - | - | - | 349,176 | ||||||||||||
| Warrant modification expense | - | - | - | (2,881,729 | ) | |||||||||||
| Total Other Income (Expense) | $ | 44,587 | $ | (144,821 | ) | $ | 57,747 | $ | (3,928,164 | ) | ||||||
Liquidity and Capital Resources
Sources of the “smart card” for WVHLiquidity
The Company generated a net loss of $2,093,518 and manufacturing of the Wocket®. Selling and marketing expenses consisted primarily of salaries and consulting services of $532,866 and advertising and promotional expenses, including trade shows, of $412,351. General and administrative expenses$4,488,936, respectively, for the three and nine months ended September 30, 2016 consisted of salaries and consulting services of $787,758, accrued management and employee incentives of $450,000, legal, audit and accounting fees of $1,425,975 and fees incurred of $609,466 related to the acquisition of LogicMark. Also included in general and administrative expenses is $282,300 in non-cash stock compensation to consultants and board members.
Operating expenses for the three months ended September 30, 2017 totaled $4,507,806 and consisted of research and development expenses of $677,104, selling and marketing expenses of $1,288,949 and general and administrative expenses of $2,541,753. Our operating expenses for the three months ended September 30, 2017 were higher by $1,688,884 as compared to the three months ended September 30, 2016. The primary reason for the increase is the inclusion of the operating expenses of LogicMark for the entire three months ended September 30, 2017 versus a partial inclusion for the three months ended September 30, 2016, since LogicMark was on acquired on July 25, 2016. In addition, Fit Pay was not part of our consolidated operating results for the three months ended September 30, 2016. The research and development expenses relate primarily to salaries and consulting services of $595,645. Selling and marketing expenses consisted primarily of salaries and consulting services of $345,062, amortization of intangibles of $379,263, merchant processing fees of $82,560, sales commissions of $70,231 and advertising and promotional expenses of $49,059. General and administrative expenses for the three months ended September 30, 2017 consisted of salaries and consulting services of $619,019, accrued management and employee incentives of $400,000, legal, audit and accounting fees of $219,990, and fees incurred of $26,626 related to the acquisition of Fit Pay. Also included in general and administrative expenses is $820,029 in non-cash stock compensation to employees, consultants and board members.
Operating expenses for the three months ended September 30, 2016 totaled $2,818,922 and consisted of research and development expenses of $80,208, selling and marketing expenses of $792,481 and general and administrative expenses of $1,946,233. The research and development expenses relate primarily to the design, development and manufacturing of the smart card for WVH. Selling and marketing expenses consisted primarily of salaries and consulting services of $219,595, merchant processing fees of $74,008 and sales commissions of $57,585. General and administrative expenses for the three months ended September 30, 2016 consisted of salaries and consulting services of $328,565, accrued management and employee incentives of $150,000, legal, audit and accounting fees of $605,488 and fees incurred of $275,948 related to the acquisition of LogicMark. Also included in general and administrative expenses is $87,028 in non-cash stock compensation to consultants and board members.
Operating Income (Loss).The operating income for the nine months ended September 30, 2017 was $49,565 and the operating loss for the three months ended September 30, 2017 was $1,683,738, respectively, compared with an operating loss of $6,107,216 and $1,473,199, respectively, for the nine and three months ended September 30, 2016. The significant favorable change in operating income for the nine months ended September 30, 2017 is attributable to the enhanced gross margin discussed above as well as certain cost containment efforts related to advertising and trade show expenses and professional fees included in operating expenses.
Net Loss.The net loss for the nine months ended September 30, 2017, was $5,960,684. The net loss for the nine months ended September 30, 2017 was primarily attributable to the interest expense incurred of $5,596,131, an unfavorable change in fair value of contingent consideration of $133,755, and an income tax provision of $279,563 all of which were partially offset by operating income of $49,856. The net loss for the three months ended September 30, 2017 was $4,031,152 and was primarily attributable to an operating loss of $1,683,738, interest expense of $2,173,919, an unfavorable change in fair value of contingent consideration of $80,307, and an income tax provision of $93,188. The net loss for the nine and three months ended September 30, 2016, was $10,368,921 and $2,447,649, respectively, and resulted in part from the operational expenses incurred during the nine and three months ended September 30, 2016. In addition, the net loss was attributable to interest expense incurred of $1,684,959 and $969,450, respectively. For the nine months ended September 30, 2016, the net loss also included, unfavorable changes in fair value of derivative liabilities of $2,299,020 and a loss on extinguishment of debt of $272,749 resulting from the accelerated installment payments made during the nine months ended September 30, 2016.
Liquidity and Capital Resources
We have incurred operating income of $49,565 and a net loss of $5,960,684, for the nine months ended September 30, 2017.
Cash and Working Capital.2022. As of September 30, 2017,2022, the Company had unrestricted cash and stockholders’ equitycash equivalents of $514,602 and $6,835,893, respectively. At$9,328,504. On September 30, 2017,2022, the Company had a working capital deficiency of $6,322,182 (including contingent consideration$9,391,383.
Given our cash position on September 30, 2022, and our projected cash flow from operations, we believe we will have sufficient capital to sustain operations for the next year from this filing. In the future, we may also choose to raise funds through equity or debt offerings to accelerate the execution of $5,340,432).our long-term strategic plan to develop and commercialize our new products or to change our supply chain strategies
Cash (Used in)Flows
Cash Used in Operating Activities.Activities
Our primary ongoing uses of operating cash relate to payments to subcontractors and vendors, for product, research and development, salaries and related expenses for our employees, and consulting and professional fees. Our vendors and subcontractorsconsultants generally provide us with normal trade payment terms.terms (net 30). During the nine months ended September 30, 2017,2022, net cash used in operating activities totaled $4,070,140, which was comprised of a net loss of $5,960,684, positive non-cash adjustments to reconcile net loss to net cash used in operating activities of $5,536,793, and changes in operating assets and liabilities of negative $3,646,249, as compared to net cash used in operating activities of $3,016,089 for the nine months ended September 30, 2016, which was comprised of a net loss of $10,368,921, positive non-cash adjustments to reconcile net loss to net cash used in operating activities of $4,717,109, and changes in operating assets and liabilities of positive $2,635,723.
Cash (Used in) Investing Activities.$1,910,660. During the nine months ended September 30, 2017,2021, net cash used in investingoperating activities totaled $1,595,597 and was primarily related to the payment of $1,500,000 of contingent consideration related to the earnout payment due to the LogicMark Sellers for 2016. In addition, we had purchases of equipment of $6,486 and the cash portion of the purchase price to acquire Fit Pay, net of cash acquired of $89,111 which closed on May 23, 2017. $3,290,319.
Cash Used in Investing Activities
During the nine months ended September 30, 2016, net cash used2022, we purchased $242,618 in investing activities amounted to $15,934,698equipment and was related to changesinvested $481,768 in restricted cash of $1,494,665 which was primarily attributable to the cash proceeds received as a result of the transaction with WVH offset in part by purchases of tooling of $39,073. In addition, the Company used $17,390,290 in cash to acquire LogicMark net of cash acquired.
Cash (Used in) Provided by Financing Activities.product development. During the nine months ended September 30, 2017,2021, we did not use cash in investing activities.
Cash (Used in) Provided by Financing Activities
| Nine Months Ended | ||||||||
| Cash flows from Financing Activities | 2022 | 2021 | ||||||
| Proceeds from sale of common stock and exercise of warrants | - | $ | 11,834,722 | |||||
| Proceeds received in connection with issuance of Series E preferred stock, net | - | 4,000,003 | ||||||
| Proceeds received in connection with issuance of Series F preferred stock, net | - | 3,999,999 | ||||||
| Proceeds from exercise of common stock warrants | - | 6,670,494 | ||||||
| Term loan repayment | - | (11,095,877 | ) | |||||
| Fees paid in connection with equity offerings | - | (424,813 | ) | |||||
| Preferred Stock Dividends | (225,000 | ) | - | |||||
| Net Cash (Used in) Provided by Financing Activities | $ | (225,000 | ) | $ | 14,984,528 | |||
During the three and nine months ended September 30, 2022, we paid cash dividends of $75,000 and $225,000, respectively, to our holders of Series C Redeemable Preferred Stock.
During the nine months ended September 30, 2021, net cash provided by financing activities totaled $2,880,660$14,984,528 and was primarily related to the net proceeds received from the issuancesale of common stock and warrants of $3,069,940 and$11,834,722, the net$6,670,494 in proceeds received from the issuanceexercise of convertible exchange noteswarrants into shares of $594,408. The Company also paid down the LogicMark Note of $773,969 and we also paid $9,719 for legal and other expenses related to equity offerings. During the nine months ended September 30, 2016, the Company receivedcommon stock, proceeds of $2,269,775 (including $400,000 in proceeds received from a short-term promissory note that was exchanged for Series A preferred stock)$4,000,003 from the issuance of Series A Preferred StockE preferred stock, and $4,090,000 in netthe proceeds of $3,999,999 from the issuance of Series B Preferred Stock. The Company also received net proceeds from the revolving credit facilityF preferred stock, all of which were usedwas partially offset by $11,095,877 in part to fund the LogicMark acquisition. In addition, the Company received proceeds of $50,000term loan repayments and $424,813 in fees paid in connection with equity offerings.
COVID-19 Considerations on Our Business and Operations
Like many US-based businesses, the exercise of 100,000 warrants. The Company also paid down $250,000COVID-19 pandemic, and efforts to deal with it, began to impact our business in March 2020. Between April 2020 and January 2022, we experienced decreases in demand from certain key customers, primarily our VA clinics. As the adverse effects of the seller’s note resultingCOVID-19 pandemic began to ease in February 2022, we have begun to experience an increase in sales.
Many of our products are contract manufactured in Asia and, to date, we have been able to work around travel restrictions and supply chain constraints, by, as an example, air freighting certain hardware products to the United States rather than using cargo ship transportation. To date, we have also been able to continue to source certain integrated circuits from the LogicMark acquisition.
Sources of Liquidity.such region with only a minor increase in cost. We are an emerging growth companyconcerned, however, about certain Asian governments’ policies of shutting down major cities and ports, which may impact our ability to source product and have generated lossesit delivered to the United States. In addition, we are concerned about our ability to obtain certain integrated circuits in the future from operations since inception. such region at an economically reasonable price. We’re currently reviewing our supply chain strategies in light of the foregoing.
Impact of Inflation
We incurred a net loss of $5,960,684believe that our business was not materially impacted by inflationary pressures during 2021, but given inflationary trends seen so far in 2022, we believe we will face increased costs in operating, fulfillment, and overhead expenses during the nine months ended September 30, 2017. Asremainder of September 30, 2017, the Company had a working capital deficiency of $6,322,182 (including contingent consideration of $5,340,432)2022 and stockholders’ equity of $6,835,893, respectively.
Given our cash position at September 30, 2017, proceeds from equity and debt offerings subsequent to September 30, 2017 and our projected cash flow from operations over the next twelve months, we believe that we will have sufficient capital to sustain operations over the next twelve months following the date of this filing. In order to execute our long-term strategiclikely onward. We plan to developmitigate part of these increases through productivity and commercialize our core products, fulfill our product development commitmentsefficiency improvements, and fund our obligations as they come due, including the earn-out payments related to the acquisitions of LogicMark and Fit Pay, we may need to raise additional funds, through public or private equity offerings, debt financings, or other means. Should we not be successful in obtaining the necessary financing, or generate sufficient revenue to fund our operations, we would need to curtail certaincost reduction programs. We will also increase prices on some of our operational activities.
products commencing on November 1, 2022.
Off BalanceOff-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitatingto facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.
RECENT ACCOUNTING PRONOUNCEMENTSCritical Accounting Policies
See Note 4There were no significant changes to our condensed consolidated financial statements forcritical accounting policies and estimates during the nine months ended September 30, 2017, included elsewhere2022, from those disclosed in this document.our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk
We are not required to provide the information required by this Item sinceas we are a smaller reporting company, as defined in rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conductedare required to perform an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act. In designing and evaluatingAct, as of September 30, 2022. Management has not completed such evaluation but concluded, based on the disclosurematerial weaknesses in our internal controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on this evaluation, our management concludedover financial reporting described below, that our disclosure controls and procedures were not effective as of September 30, 2022 to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Specifically, as of September 30, 2017,
We noted the following deficiencies that we believe to be material weaknesses:
| - | As of December 31, 2021, management had not completed an assessment of the Company’s internal controls over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Management has concluded that, during the first nine months of 2022, its internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP. |
| - | After the end of 2021, the Company determined that the tax provision related to prior years, prepared by the Company’s tax advisors, was incorrect resulting in a non-cash adjustment to increase deferred tax liabilities and income tax expense in 2021. |
| - | The Company changed accounting software for one of its subsidiaries in 2021 and did not have proper controls in place to ensure the accounting data was transferred over completely and accurately. The migration error was discovered and corrected before the software conversion was completed. |
| - | Due to a limited number of accounting personnel, the Company has historically had difficulty accounting for complex transactions and has limited segregation of duties within the accounting department. |
Additional time is required to complete our management identified certainstaffing, fully document our systems, implement control procedures, and test their operating effectiveness before we can conclude that we have fully remediated our material weaknesses in ourweaknesses. Management is currently assessing the Company’s internal controlcontrols over financial reporting which include difficulty in accounting for complex accounting transactions due to an insufficient numberbased on the 2013 Committee of accounting personnelSponsoring Organizations (COSO) framework along with experience in such area and limited segregationa related evaluation of duties within our accounting and financial reporting functions. In addition, management needs additional time to fully document the systems and controls related to the acquisition of Fit Pay in May 2017.
As part of our remediation plan to address such material weaknesses, our management hired an assistant controller in March 2017 with significant experience to help to improve ourCompany’s internal control over financial reporting and implement new policies, procedures and controls as necessary.controls.
Changes in Internal Controls
During the three months ended September 30, 2017, thereThere were no changes in the Company’s internal control over financial reporting that occurred during the nine months ended September 30, 2022, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Limitations of the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PARTPart II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in variousbecome subject to legal proceedings, claims, and legal actionsor litigation arising in the ordinary course of our business. There is no action, suit, proceeding, inquiry or investigation before or byWe are not presently a party to any court, public board, government agency, self-regulatory organization or body pending or, toother legal proceedings that in the knowledge of the executive officersopinion of our companymanagement, if determined adversely to us, would individually or any of our subsidiaries, threatened against or affecting our company, or any of our subsidiaries in which an adverse decision couldtaken together have a material adverse effect uponon our business, operating results, financial condition, or financial condition.cash flows.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 13, 2017, the Company closed on a concurrent private placement with the same investors as those that participated in the Company’s registered direct offering that closed on July 13, 2017, for no additional consideration, of warrants to purchase 1,800,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). Such warrants are exercisable beginning on the six (6) month anniversary of the date of issuance, at an exercise price of $2.00 per share and will expire on the fifth anniversary of the initial exercise date.None.
On July 19, 2017, the Company entered into a Securities Exchange Agreement with certain investors pursuant to which the Company issued to such investors, as partial consideration for an aggregate of $594,408, warrants convertible into 297,202 shares of Common Stock. Such warrants are exercisable as of July 19, 2017, at an exercise price of $2.00 per share, and will expire on the fifth anniversary of the initial exercise date.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.None.
Item 6. Exhibits
Exhibit
| ||
| Description | ||
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
| * | Filed herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November | By: | /s/ |
Chief Executive Officer | ||
| (Duly Authorized Officer and Principal Executive Officer) | ||
| Date: November | By: | /s/ |
| ||
| (Duly Authorized Officer and Principal Financial and Accounting Officer) | ||
EXHIBIT INDEX24
| ||
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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