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: Septemberended June 30, 20172023
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)
| 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 numberAugust 9, 2023, there were 1,325,017 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.
FORMLogicMark, Inc.
Form 10-Q
TABLE OF CONTENTS
SeptemberTable of Contents
June 30, 20172023
i
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
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 | ||||
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 7,649,730 | $ | 6,977,114 | ||||
| Restricted cash | 59,988 | 59,988 | ||||||
| Accounts receivable, net | 16,409 | 402,595 | ||||||
| Inventory | 987,219 | 1,745,211 | ||||||
| Prepaid expenses and other current assets | 600,270 | 349,097 | ||||||
| Total Current Assets | 9,313,616 | 9,534,005 | ||||||
| Property and equipment, net | 253,472 | 255,578 | ||||||
| Right-of-use assets, net | 146,173 | 182,363 | ||||||
| Product development costs, net of amortization of $15,029 at June 30, 2023 and December 31, 2022 | 1,177,302 | 646,644 | ||||||
| Software development costs | 470,545 | 364,018 | ||||||
| Goodwill | 10,958,662 | 10,958,662 | ||||||
| Other intangible assets, net of amortization of $5,285,611 and $4,904,713, respectively | 3,318,956 | 3,699,854 | ||||||
| Total Assets | $ | 25,638,726 | $ | 25,641,124 | ||||
| Liabilities, Series C Redeemable Preferred Stock and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 446,692 | $ | 673,052 | ||||
| Accrued expenses | 847,637 | 1,740,490 | ||||||
| Total Current Liabilities | 1,294,329 | 2,413,542 | ||||||
| Other long-term liabilities | 407,600 | 440,263 | ||||||
| Total Liabilities | 1,701,929 | 2,853,805 | ||||||
| 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; 10 shares issued and outstanding as of June 30, 2023 and December 31, 2022 | 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; 106,333 and 173,333 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively, aggregate liquidation preference of $319,000 as of June 30, 2023 and $520,000 as of December 31, 2022 | 319,000 | 520,000 | ||||||
| Common stock, par value $0.0001 per share: 100,000,000 shares authorized; 1,325,017 and 480,447 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | 133 | 48 | ||||||
| Additional paid-in capital | 111,521,965 | 106,070,253 | ||||||
| Accumulated deficit | (89,711,601 | ) | (85,610,282 | ) | ||||
| Total Stockholders’ Equity | 22,129,497 | 20,980,019 | ||||||
| Total Liabilities, Series C Redeemable Preferred Stock and Stockholders’ Equity | $ | 25,638,726 | $ | 25,641,124 | ||||
The accompanying notes are an integral part of these condensed consolidated financial 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 | ||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | 2,326,995 | $ | 3,367,692 | $ | 5,136,713 | $ | 7,018,380 | ||||||||
| Costs of goods sold | 727,276 | 1,364,586 | 1,674,445 | 2,811,891 | ||||||||||||
| Gross Profit | 1,599,719 | 2,003,106 | 3,462,268 | 4,206,489 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Direct operating cost | 312,426 | 336,544 | 575,228 | 810,987 | ||||||||||||
| Advertising costs | 85,277 | - | 133,393 | - | ||||||||||||
| Selling and marketing | 517,931 | 275,011 | 983,466 | 464,216 | ||||||||||||
| Research and development | 250,266 | 204,592 | 564,154 | 467,077 | ||||||||||||
| General and administrative | 2,443,860 | 2,115,700 | 4,857,619 | 4,451,647 | ||||||||||||
| Other expense | 50,646 | 2,000 | 78,964 | 32,084 | ||||||||||||
| Depreciation and amortization | 215,703 | 194,691 | 431,701 | 389,054 | ||||||||||||
| Total Operating Expenses | 3,876,109 | 3,128,538 | 7,624,525 | 6,615,065 | ||||||||||||
| Operating Loss | (2,276,390 | ) | (1,125,432 | ) | (4,162,257 | ) | (2,408,576 | ) | ||||||||
| Other Income | ||||||||||||||||
| Interest income | 8,510 | 13,159 | 60,938 | 13,159 | ||||||||||||
| Total Other Income | 8,510 | 13,159 | 60,938 | 13,159 | ||||||||||||
| Loss before Income Taxes | (2,267,880 | ) | (1,112,273 | ) | (4,101,319 | ) | (2,395,417 | ) | ||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net Loss | (2,267,880 | ) | (1,112,273 | ) | (4,101,319 | ) | (2,395,417 | ) | ||||||||
| Preferred stock dividends | (75,000 | ) | (88,144 | ) | (150,000 | ) | (176,144 | ) | ||||||||
| Net Loss Attributable to Common Stockholders | $ | (2,342,880 | ) | $ | (1,200,417 | ) | $ | (4,251,319 | ) | $ | (2,571,561 | ) | ||||
| Net Loss Attributable to Common Stockholders Per Share – Basic and Diluted | $ | (1.83 | ) | $ | (2.50 | ) | $ | (3.73 | ) | $ | (5.39 | ) | ||||
| Weighted Average Number of Common Shares Outstanding – Basic and Diluted | 1,282,794 | 479,738 | 1,139,437 | 476,934 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nxt-ID,LogicMark, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCHANGES 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 June 30, 2023 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - March 31, 2023 | 106,333 | $ | 319,000 | 1,220,308 | $ | 123 | $ | 111,079,795 | $ | (87,443,721 | ) | $ | 23,955,197 | |||||||||||||||
| Stock based compensation expense | - | - | - | - | 365,458 | - | 365,458 | |||||||||||||||||||||
| Fees incurred in connection with equity offerings | - | - | - | - | (10,772 | ) | - | (10,772 | ) | |||||||||||||||||||
| Fractional shares issued in the 1-for-20 stock split | - | - | 40,228 | 4 | (4 | ) | - | - | ||||||||||||||||||||
| Warrants exercised for common stock | - | - | 64,481 | 6 | 162,488 | - | 162,494 | |||||||||||||||||||||
| Series C Preferred stock dividends | - | - | - | - | (75,000 | ) | - | (75,000 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (2,267,880 | ) | (2,267,880 | ) | |||||||||||||||||||
| Balance - June 30, 2023 | 106,333 | $ | 319,000 | 1,325,017 | $ | 133 | $ | 111,521,965 | $ | (89,711,601 | ) | $ | 22,129,497 | |||||||||||||||
| Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - January 1, 2023 | 173,333 | $ | 520,000 | 480,447 | $ | 48 | $ | 106,070,253 | $ | (85,610,282 | ) | $ | 20,980,019 | |||||||||||||||
| Stock based compensation expense | - | - | - | - | 792,300 | - | 792,300 | |||||||||||||||||||||
| Shares issued as stock based compensation | - | - | 5,000 | 1 | 2,202 | - | 2,203 | |||||||||||||||||||||
| Sale of common stock and warrants pursuant to a registration statement on Form S-1 | - | - | 701,250 | 70 | 5,211,358 | - | 5,211,428 | |||||||||||||||||||||
| Fees incurred in connection with equity offerings | - | - | - | - | (816,017 | ) | - | (816,017 | ) | |||||||||||||||||||
| Fractional shares issued in the 1-for-20 stock split | - | - | 40,228 | 4 | (4 | ) | - | - | ||||||||||||||||||||
| Warrants exercised for common stock | - | - | 64,481 | 6 | 162,488 | - | 162,494 | |||||||||||||||||||||
| Series F Preferred stock converted to common stock | (67,000 | ) | (201,000 | ) | 27,089 | 3 | 200,997 | - | - | |||||||||||||||||||
| Common stock issued to settle Series F Preferred stock dividends | - | - | 6,522 | 1 | 48,388 | - | 48,389 | |||||||||||||||||||||
| Series C Preferred stock dividends | - | - | - | - | (150,000 | ) | - | (150,000 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (4,101,319 | ) | (4,101,319 | ) | |||||||||||||||||||
| Balance - June 30, 2023 | 106,333 | $ | 319,000 | 1,325,017 | $ | 133 | $ | 111,521,965 | $ | (89,711,601 | ) | $ | 22,129,497 | |||||||||||||||
LogicMark, Inc.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - April 1, 2022 | 173,333 | $ | 520,000 | 479,669 | $ | 48 | $ | 105,280,786 | $ | (79,953,006 | ) | $ | 25,847,828 | |||||||||||||||
| Stock based compensation expense | - | - | - | - | 96,533 | - | 96,533 | |||||||||||||||||||||
| Shares issued as stock based compensation | - | - | 778 | - | 17,584 | - | 17,584 | |||||||||||||||||||||
| Series C Preferred stock dividends | - | - | - | - | (75,000 | ) | - | (75,000 | ) | |||||||||||||||||||
| Series F Preferred stock dividends | - | - | - | - | - | (13,144 | ) | (13,144 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (1,112,273 | ) | (1,112,273 | ) | |||||||||||||||||||
| Balance - June 30, 2022 | 173,333 | $ | 520,000 | 480,447 | $ | 48 | $ | 105,319,903 | $ | (81,078,423 | ) | $ | 24,761,528 | |||||||||||||||
| Six Months Ended June 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 | 458,152 | $ | 46 | $ | 104,725,986 | $ | (78,656,861 | ) | $ | 26,589,171 | |||||||||||||||
| Stock based compensation expense | - | - | - | - | 608,882 | - | 608,882 | |||||||||||||||||||||
| Shares issued as stock based compensation | - | - | 22,295 | 2 | 135,035 | - | 135,037 | |||||||||||||||||||||
| Series C Preferred stock dividends | - | - | - | - | (150,000 | ) | - | (150,000 | ) | |||||||||||||||||||
| Series F Preferred stock dividends | - | - | - | - | - | (26,145 | ) | (26,145 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (2,395,417 | ) | (2,395,417 | ) | |||||||||||||||||||
| Balance - June 30, 2022 | 173,333 | $ | 520,000 | 480,447 | $ | 48 | $ | 105,319,903 | $ | (81,078,423 | ) | $ | 24,761,528 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial 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 | $ | - | ||||
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (4,101,319 | ) | $ | (2,395,417 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 50,803 | 770 | ||||||
| Stock based compensation | 794,503 | 743,919 | ||||||
| Amortization of intangible assets | 380,898 | 388,284 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 386,186 | (159,760 | ) | |||||
| Inventory | 757,992 | 614,387 | ||||||
| Prepaid expenses and other current assets | (251,173 | ) | 75,681 | |||||
| Accounts payable | (372,865 | ) | 296,080 | |||||
| Accrued expenses | (840,937 | ) | (17,433 | ) | ||||
| Net Cash Used in Operating Activities | (3,195,912 | ) | (453,489 | ) | ||||
| Cash flows from Investing Activities | ||||||||
| Purchase of equipment and website development | (48,697 | ) | (172,908 | ) | ||||
| Product development costs | (400,630 | ) | (176,285 | ) | ||||
| Software development costs | (90,050 | ) | (92,983 | ) | ||||
| Purchase of intangible assets | - | (4,808 | ) | |||||
| Net Cash Used in Investing Activities | (539,377 | ) | (446,984 | ) | ||||
| Cash flows from Financing Activities | ||||||||
| Proceeds from sale of common stock and warrants | 5,211,428 | - | ||||||
| Fees paid in connection with equity offerings | (816,017 | ) | - | |||||
| Warrants exercised for common stock | 162,494 | - | ||||||
| Series C redeemable preferred stock dividends | (150,000 | ) | (150,000 | ) | ||||
| Net Cash Provided by (Used in) Financing Activities | 4,407,905 | (150,000 | ) | |||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 672,616 | (1,050,473 | ) | |||||
| Cash, Cash Equivalents and Restricted Cash - Beginning of Period | 7,037,102 | 12,254,546 | ||||||
| Cash, Cash Equivalents and Restricted Cash - End of Period | $ | 7,709,718 | $ | 11,204,073 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued Series C redeemable and Series F preferred stock dividends | $ | - | $ | 26,145 | ||||
| Conversion of Series F preferred stock to common stock | 201,000 | - | ||||||
| Common stock issued to settle Series F Preferred stock dividends | 48,389 | - | ||||||
| Product development costs included in accounts payable | 130,027 | - | ||||||
| Software development costs included in accounts payable | 16,478 | - | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nxt-ID,LogicMark, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
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 company2012 and was reincorporated in the State of Nevada on June 1, 2023. LogicMark 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 technology that creates a connected care platform. The Company’s devices give people the ability to receive care at home and 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 direct-to-consumer through the Company’s eCommerce platform, to retailers and distributors, and 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.Health Administration.
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.
Note 3NOTE 2 - Liquidity and Management PlansLIQUIDITY AND MANAGEMENT PLANS
The Company isgenerated an emerging growth company and recorded operating incomeloss of $49,565$4.1 million and a net loss of $5,960,684 during$4.1 million for the ninesix months ended SeptemberJune 30, 2017.2023. As of SeptemberJune 30, 2017,2023, the Company had acash and cash equivalents of $7.6 million. As of June 30, 2023, the Company had working capital deficiency of $6,322,182 (including contingent consideration$8.0 million compared to working capital as of $5,340,432) and stockholders’ equityDecember 31, 2022 of $6,835,893. $7.1 million.
Given the Company’s cash position at SeptemberJune 30, 2017, proceeds from equity and note offerings subsequent to September 30, 2017 (See Note 10)2023, 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. In orderThe Company may also raise funds through equity or debt offerings to executeaccelerate the Company’sexecution of its long-term strategic plan to develop and commercialize its core products and to fulfill its product development commitmentscommitments.
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and fundapplicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. In the 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 Annual Report on Form 10-K for the year ended December 31, 2022 which was filed with the SEC on March 30, 2023.
On June 1, 2023 (“Effective Date”), LogicMark, Inc., a Delaware corporation (the “Predecessor”), merged with and into its obligationswholly-owned subsidiary, LogicMark, Inc., a Nevada corporation (the “Reincorporation”), pursuant to an agreement and plan of merger, dated as they come due,of June 1, 2023 (the “Agreement”). At the Effective Date and pursuant to the Agreement, the Company may needsucceeded to raise additional funds, through public or private equity offerings, debt financings, or other means. Should the Company not be successfulassets, continued the business and assumed the rights and obligations of the Predecessor existing immediately prior to the Reincorporation.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - BASIS OF PRESENTATION (CONTINUED)
Net loss per share and all share data for the three and six months ended June 30, 2022 have been retroactively adjusted to reflect the 1-for-20 reverse stock split that occurred on April 21, 2023, in obtainingaccordance with ASC 260-10-55-22, Restatement of EPS Data. See Note 6.
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.
NoteNOTE 4 - Summary Of Significant Accounting PoliciesSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Financial StatementsUSE OF ESTIMATES IN THE CONDENSED FINANCIAL STATEMENTS
The preparation of financial statements in conformity withU.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 condensed 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.
Principles of consolidationCASH AND CASH EQUIVALENTS
The condensed consolidated financial statements include the accounts of Nxt-ID and its wholly-owned subsidiaries, 3D-ID, LogicMark and Fit Pay. Intercompany balances and transactions have been eliminated in consolidation.
Concentrations of Credit Risk
During the nine and three months ended September 30, 2017, the Company recognized revenue of $7,057,032 and $767,751, respectively, from World-Ventures Holdings, LLC (“WVH”), a related party based on its position as the Company’s largest stockholder. At September 30, 2017, the Company’s accounts receivable balance included $1,893,662 due from WVH.
Revenue Recognition
The Company recognizes revenue fromconsiders 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. The Company had cash equivalents of $7.1 million and $6.6 million as of June 30, 2023 and December 31, 2022, respectively.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRICTED CASH
Restricted cash includes amounts held as collateral for company credit cards. Restricted cash included in Cash, Cash Equivalents and Restricted Cash, as presented on the Condensed Statements of Cash Flows amounted to $60 thousand as of June 30, 2023 and December 31, 2022.
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 balances may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.
REVENUE RECOGNITION
The Company’s revenues consist of product sales when persuasive evidenceto either end customers, to distributors or bulk sales to the United States Veterans Health Administration. The Company’s revenues are derived from contracts with customers, which are in most cases customer purchase orders. For each contract, the promise to transfer the title of an arrangement exists, the service has been renderedproducts, 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 payments are generally prepaid or product delivery has occurred,due Net 30 days after the invoice date for retailers and distributors. The majority of prepaid contracts are with the United States Veterans Health Administration, which consists of the majority of the Company’s revenues. The Company’s products are almost always sold at fixed prices. In determining the transaction price, we evaluate whether the price is fixedsubject to any refunds, due to product returns or readily determinableadjustments 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 title 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 collectabilityhas legal title of the sale is reasonably assured.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 destination. For the three and six months ended June 30, 2023 and 2022, none of our sales were recognized over time.
SALES TO DISTRIBUTORS AND RETAILERS
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 to revenue with a corresponding reduction to cost of goods sold for the estimated cost of inventory that is expected to be returned. These reserves were not material as of June 30, 2023 and December 31, 2022.
Accounts Receivable
SHIPPING AND HANDLING
Amounts billed to customers for shipping and handling are included in revenues. The related freight charges incurred by the Company are included in cost of goods sold and were $0.1 million and $0.2 million for the three and six months ended June 30, 2023, and $0.2 million and $0.4 million, respectively, for the three and six months ended June 30, 2022.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE - NET
For the three and six months ended June 30, 2023 and 2022, the Company’s revenues were primarily the result of shipments to VA hospitals and clinics, which are made on a prepaid basis. The Company also sells its products to distributors and retailers, typically providing customers with trade credit terms. Sales made to distributors and retailers are done with limited rights of return and are subject to the normal warranties offered to the ultimate consumer for product defects.
Accounts receivable is stated at net realizable value. The Company regularly reviews accounts receivable balances and adjusts the accounts receivable reservesallowance for doubtful accounts, as necessary whenever events or circumstances indicate the carrying value may not be recoverable. The Company had noAs of June 30, 2023 and December 31, 2022, the allowance for doubtful accounts at September 30, 2017 and December 31, 2016.were immaterial.
INVENTORY
InventoryThe 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. Cost is determined using the first-in, first-out method.
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. As of SeptemberJune 30, 2017,2023, inventory was comprised of $3,756,866 in raw materials$0.8 million and $1,121,329$0.2 million, in finished goods on hand. Inventory athand and inventory in-transit from vendors, respectively. As of December 31, 20162022, inventory was comprised of $3,797,499 in raw materials$0.6 million and $1,544,001$1.2 million, in finished goods on hand. hand and inventory in-transit from vendors, respectively.
The Company is required to prepay for raw materialsinventory with certain vendors until credit terms can be established. As of SeptemberJune 30, 2017,2023 and December 31, 2016, the Company had prepaid2022, $0.4 million and $0.01 million 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 isrespectively, are included in prepaid expenses and other current assets on the condensed consolidated balance sheet.
GoodwillLONG-LIVED ASSETS
The Company’s goodwill relatesLong-lived assets, such as property and equipment, and other intangible assets 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 acquisitionscarrying 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, fixtures, website and other is 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 |
LogicMark, and Fit Pay.Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is reviewed annually in the fourth quarter, or when circumstances indicate that an impairment may have occurred. The Company began testingfirst 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 inimpairment. The Company may elect to bypass the third quarter of 2017 as it relatesqualitative assessment and proceed directly 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 entityquantitative test. If a quantitative goodwill impairment test is not required, to calculate the fair value is determined using a variety 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 threeassumptions including estimated future cash flows using applicable discount rates (income approach) and nine months ended Septembercomparisons to other similar companies (market approach). As of June 30, 2017, the Company determined that it was more likely than not that the fair value2023, no indicators 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.
were noted.
Other Intangible Assets
OTHER INTANGIBLE ASSETS
The Company’s intangible assets are all related to the acquisitionsacquisition of LogicMark LLC in 2016, the former subsidiary that was merged with and Fit Payinto the Company and are included in other intangible assets in the Company’s condensed consolidated balance sheets at SeptemberCondensed Balance Sheets as of June 30, 20172023 and December 31, 2016.2022.
At SeptemberAs of June 30, 2017, the other intangible assets related to the acquisition of LogicMark are comprised of patents of $3,657,833; trademarks of $1,182,973; and customer relationships of $2,875,123. At December 31, 2016,2023, the other intangible assets are comprised of patents of $3,936,612;$1.5 million; trademarks of $1,230,002;$0.8 million; and customer relationships of $3,119,111.$1.0 million. As of December 31, 2022, the other intangible assets are comprised of patents of $1.7 million; trademarks of $0.9 million; and customer relationships of $1.2 million. 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 threesix months ended SeptemberJune 30, 2017,2023, the Company had amortization expense of $569,796$0.2 million 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,$0.4 million, respectively. During the ninethree and threesix months ended SeptemberJune 30, 2017,2022, the Company had amortization expense of $266,619$0.2 million and $187,244, respectively, related to the Fit Pay intangible assets.$0.4 million, respectively.
As of SeptemberJune 30, 2017,2023, total amortization expense estimated for the remainder of fiscal year 2017 related to both the LogicMark2023 is $0.4 million. Amortization expense estimated for 2024 and Fit Pay intangibles2025 is approximately $380,000 and for each of the next five(5) fiscal years, 2018 through 2022, the amortization expense is estimatedexpected to be approximately $1,505,000$0.8 million per year.year, $0.6 million for 2026, $0.3 million for 2027, and approximately $0.5 million thereafter.
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-basedstock 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-basedstock 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. The Company generally issues new sharesStock based compensation is recorded in the same component of common stock to satisfy conversion and warrant exercises.operating expenses as if it were paid in cash.
Net Loss per ShareNET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE
Basic net loss attributable to common stockholders per share (“Basic net loss per shareshare”) was computed using the weighted average number of common shares outstanding. Diluted net loss applicable to common stockholders 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 35,928 shares of common stock and warrants to purchase 1,253,985 shares of common stock as of SeptemberJune 30, 20172023, 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 18,270 shares of common stock and warrants to purchase 214,769 shares of common stock as of June 30, 2022, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.
Recent Accounting PronouncementsRESEARCH AND DEVELOPMENT AND PRODUCT DEVELOPMENT COSTS
Research and development costs are expenditures on new market development and related engineering costs. In May 2014,addition to internal resources, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, RevenueCompany 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 three and six months ended June 30, 2023, the Company capitalized $0.3 million and $0.5 million of such product development costs, respectively, and capitalized $0.1 million of such software development costs for both periods. For the three and six months ended June 30, 2022, the Company capitalized $0.2 million of such product development costs and $0.1 million of such software development costs for both periods. There was no amortization of product development costs during the three and six months ended June 30, 2023 and 2022. Cumulatively, as of June 30, 2023 and December 31, 2022, approximately $0.6 million and $0.3 million, respectively, of capitalized product and software development costs arose from Contracts with Customers (“ASU 2014-09”), which stipulates that an entity should recognize revenueexpenditures to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsa company considered to be entitled in exchange for such goods or services. To achieve this core principle, an entity should applya related party since it is controlled by the following steps: (1) identify the contract(s) with 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 uncertaintyCompany’s Vice-President 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 effective 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.Engineering.
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.LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2016, theRecent accounting standards that have been issued or proposed by 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 entitiesor other standards-setting bodies that enter into contracts with customers to transfer goods or services (thatdo not require adoption until a future date 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:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Salaries, payroll taxes and vacation | $ | 126,732 | $ | 114,030 | ||||
| Merchant card fees | 15,583 | 15,062 | ||||||
| Professional fees | 80,000 | 25,000 | ||||||
| Management incentives | 303,800 | 519,800 | ||||||
| Lease liability | 65,875 | 69,402 | ||||||
| Dividends – Series C and F Preferred Stock | - | 48,389 | ||||||
| Inventory in transit | - | 812,970 | ||||||
| Other | 255,647 | 135,837 | ||||||
| Totals | $ | 847,637 | $ | 1,740,490 | ||||
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCKHOLDERS’ EQUITY AND REDEEMABLE PREFERRED STOCK
Reincorporation
On the Effective Date, the Predecessor merged with and into its wholly-owned subsidiary pursuant to the Agreement. At the Effective Date and pursuant to the Agreement, the Company succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor existing immediately prior to the Reincorporation.
At the Effective Time, pursuant to the Agreement, (i) each outstanding share of the Predecessor’s common stock automatically converted into one share of common stock, par value $0.0001 per share, of the Company (“Registrant Common Stock”), (ii) each outstanding share of the Predecessor Series C preferred stock automatically converted into one share of Series C Non-Convertible Voting Preferred Stock, par value $0.0001 per share, of the Company, (iii) each outstanding share of the Predecessor Series F preferred stock automatically converted into one share of Series F Convertible Preferred Stock, par value $0.0001 per share, of the Company, and (iv) each outstanding option, right or warrant to acquire shares of Predecessor common stock converted into an option, right or warrant, as applicable, to acquire an equal number of shares of Registrant Common Stock under the same terms and conditions as the original options, rights or warrants, as applicable. In May 2017,addition, by operation of law, the FASB issued ASU 2017-09, “Compensation—Company assumed all of the Predecessor’s obligations under its equity incentive plans. The shares of Predecessor Common Stock Compensation (Topic 718): Scoperemaining available for awards under such plans were automatically adjusted upon the Reincorporation into an identical number of Modification Accounting” to provide clarityshares of Registrant Common Stock, and reduce both (1) diversity in practice and (2) cost and complexity when applyingall awards previously granted under such plans that were outstanding as of the guidance in Topic 718, Compensation—Effective Time were automatically adjusted into awards for the identical number of shares of Registrant Common Stock, Compensation, to awithout any other change to the form, 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 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s condensed consolidated financial statements.such awards.
Note 5 – Acquisitions
Acquisition of Logicmark LLCApril 2023 Reverse stock split
On July 25, 2016,April 21, 2023, the Company completed the acquisitioneffected a 1-for-20 reverse split of LogicMark. The Company determined that as of July 25, 2016, it was more likely than not that the gross profit targets as they relate to the contingent considerations would be achievedits outstanding common stock and any fair value adjustment of the earn-out was due to time value of the payout.
On July 25, 2016, in order to fund part of the acquisition purchase price of LogicMark, the Company and a group of lenders, including ExWorks Capital Fund I, L.P. as agent for the lenders (collectively, the “Lenders”), entered into a Loan and Security Agreement (the “Loan Agreement”), whereby the Lenders extended a revolving loan (the “Revolving Loan”) to the Company in the principal amount of $15,000,000 (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 asSeries C Redeemable Preferred Stock. 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 maturity date of the Revolving Loan was July 25, 2017, and the Revolving Loan bears interest at a rate of 15% per annum.
The Company has the ability to extend the Revolving Loan 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, 2018 and accordingly, the Company has classified the Revolving Loan as a non-current liability as of September 30, 2017 and December 31, 2016.
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, the Company entered into a forbearance agreement with LogicMark Investment Partners, LLC in connection with the LogicMark Note originally issued on July 22, 2016 in the amount of $2,500,000 which expired on September 22, 2016. The Company formally requested that the lender extend the LogicMark Note on Septemberreverse splits, each 20 2016. As discussed below, the LogicMark Note was extended to July 15, 2017 pursuant to an amendment.
Under the terms 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) 1,912,303pre-split shares of common stock which was equivalent to 19.96%outstanding and each 20 pre-split shares of Series C Redeemable Preferred Stock outstanding were automatically exchanged for one new share of each without any action on the part of the holders. The number of outstanding shares of common stock was reduced from approximately 24,406,155 shares to approximately 1,220,308 shares, and the number of outstanding shares of Series C Redeemable Preferred Stock was reduced from 200 shares to 10 shares. 40,228 shares of Common Stock were issued as a result of the Company (the “Common Stock”); (ii) 2,000treatment of fractional shares in connection with this reverse stock split, which rounded up outstanding post-split shares to the nearest whole number. The reverse stock split did not affect the total number of shares of thecapital stock, including Series C Non-ConvertibleRedeemable Preferred Stock, of the Company (the “Series C Preferred Stock”); (iii) the payment of certain debts 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 connection 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,that 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 subjectauthorized to change.issue.
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 tangibleNet loss per share 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,all share data 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 President of the wholly-owned subsidiary, Fit Pay. The term of 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, 2017 and September 30, 2016. The pro forma combined amounts are based upon available information and reflect a reasonable estimate of the effects of the acquisitions of LogicMark and Fit Pay 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 on the date assumed, nor is it necessarily indicative of the results that may be expected 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 attributable to the Company has been calculated using actual historical information and is adjusted for certain pro forma adjustments based on the assumption that the acquisitions of LogicMark and Fit Pay and the application of fair value adjustments to intangible assets occurred on January 1, 2016. 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 ninesix months ended SeptemberJune 30, 2017 include2022 have been retroactively adjusted to reflect the following adjustments; (a) amortization expense related to the acquired intangible assetsreverse stock splits in accordance with ASC 260-10-55-12, Restatement 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.EPS Data.
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. January 2023 Offering
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,January 25, 2023, 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 intoclosed a Securities Exchange Agreementfirm commitment registered public offering (the “January Offering”) pursuant to which the Company exchanged the LogicMark Note held by the November Holders forissued (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 297,202529,250 shares of Common Stock (the “July 2017 Warrants”). The July 2017 Notes are convertible intoand 10,585,000 common stock purchase warrants (exercisable for 793,875 shares of Common Stock at a conversionpurchase price of $2.00$2.52 per shareshare), subject to certain adjustments and the July 2017 Warrants are exercisable into(ii) 3,440,000 pre-funded common stock purchase warrants that were exercised for 172,000 shares of Common Stock withat a five year term and an exercisepurchase price of $2.00$0.02 per share. The exerciseshare, subject to certain adjustments and the amount3,440,000 warrants to purchase up to an aggregate of 258,000 shares of commonCommon Stock at a purchase price of $2.52 per share and (iii) 815,198 additional warrants to purchase up to 61,140 shares of Common Stock at a purchase price of $2.52 per share, which additional warrants were issued upon the partial exercise by the underwriters of their over-allotment option, pursuant to an underwriting agreement, dated as of January 23, 2023 between the Company and Maxim Group LLC, as representative of the underwriters. The January Offering resulted in gross proceeds to the Company of approximately $5.2 million, before deducting underwriting discounts and commissions of 7% of the gross proceeds (3.5% of the gross proceeds in the case of certain identified investors) and estimated January Offering expenses. Due to the Company effecting the reverse stock split on April 21, 2023, the exercise prices and shares 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 have been retroactively reported in accordance with ASC 260-10-55-12, Restatement of EPS Data, and to purchase 230,000reflect the adjustment to the number of shares of common stock. The Company soldunderlying such warrants and pre-funded warrants and 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 onsuch warrants in accordance with 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.terms thereof.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCKHOLDERS’ EQUITY AND REDEEMABLE PREFERRED STOCK (CONTINUED)
Series C Redeemable Preferred Stock
In May 2017, the Company authorized a new Series C Redeemable 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 datedividends of issuance of the Series C Preferred Stock, cumulative dividends at a rate of 5%15% per annum on a compounded basis, which dividend amount shall be guaranteed. Accrued and unpaid dividends areyear, payable in cash. For each of the ninethree and threesix months ended SeptemberJune 30, 2017,2023, the Company recorded Series C Redeemable Preferred Stock dividends of $35,890$75 thousand and $25,205,$150 thousand, respectively.
Redemption For each of the three and six months ended June 30, 2022, the Company recorded Series C Redeemable Preferred Stock dividends of $75 thousand and $150 thousand, respectively.
The Series C Redeemable 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; 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, aA 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 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 at Septembersheets as of June 30, 2017.2023 and December 31, 2022 until such time that events occur that indicate otherwise.
Long-TermWarrants
The following table summarizes the Company’s warrants outstanding and exercisable as of June 30, 2023 and December 31, 2022:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life In Years | Aggregate Intrinsic Value | |||||||||||||
| Outstanding and Exercisable at January 1, 2023 | 4,295,380 | $ | 120.39 | 3.60 | - | |||||||||||
| Issued | 14,840,198 | 2.52 | 4.58 | - | ||||||||||||
| Issued prefunded warrants | 3,440,000 | 0.02 | - | - | ||||||||||||
| Exercised prefunded warrants | (3,440,000 | ) | 0.02 | - | - | |||||||||||
| Exercised warrants | (859,770 | ) | 2.52 | - | - | |||||||||||
| Expiration of warrants | (186,316 | ) | 459.49 | - | - | |||||||||||
| Outstanding and Exercisable at June 30, 2023 | 18,089,492 | $ | 29.59 | 4.29 | $ | 419,413 | ||||||||||
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - STOCK INCENTIVE PLANS
2023 Stock Incentive Plan
On January 4, 2013, a majority ofMarch 7, 2023, the Company’s stockholders approved by written consent the Company’s 2013 Long-Term2023 Stock Incentive Plan (“LTIP”2023 Plan”). The aggregate maximum aggregate number of shares of common stock that may be issued under the LTIP, including stock awards, stock issued to directors2023 Plan is 68,723 shares for serving onfiscal 2023; thereafter, the Company’s board, and stock appreciation rights,maximum number is limited to 10%15% of the outstanding shares of Common Stock outstandingcommon stock, calculated on the first business or trading day of anyeach fiscal year,quarter. Under the 2023 Plan, options which is 737,992 at January 1, 2017.
During the nine months ended September 30, 2017, the Company issued 131,363are forfeited or terminated, settled in cash in lieu of shares of common stock, under the LTIPor settled in a manner such that shares are not issued, will again immediately become available to five (5) non-executive directors for serving on the Company’s board. The aggregate fair value of the shares issued to the directors was $260,000. Also during the nine months ended September 30, 2017, the Company issued 237,559 shares of Common Stock with an aggregate fair value of $400,000 to executive and certain non-executive employees related to the Company’s 2016 management incentive plan. In September 2017, the Company granted 622,507 restrictedbe issued. If shares of common stock are withheld from payment of an award to satisfy tax obligations with an aggregate value of $1,067,231respect to certain executive and non-executive employees. The vesting period for these restrictedthe award, those 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 737,992will be treated as shares of common stockthat have been issued fromunder the LTIP2023 Plan and there are no further shareswill not again be available to befor issuance.
No stock options were issued under the LTIP for2023 Plan during the remainder of 2017.three and six months ended June 30, 2023.
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 is 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. Theaggregate maximum aggregate 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 which 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 with respect to 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. On March 7, 2023, the Company’s 2017 SIP was terminated upon the approval of the 2023 Plan at the Company’s special meeting of stockholders.
During the three months ended June 30, 2023, the Company did not issue any stock options. During the six months ended June 30, 2023, the Company issued 3,125 stock options vesting over four years to employees with an exercise price of $3.80 per share and a total aggregate fair value of $11 thousand. In addition, 10,528 fully vested stock options were granted to four non-employee Board directors at an exercise price of $3.80 per share. The aggregate fair value of the shares issued to the directors was $35 thousand. As of June 30, 2023, the unrecognized compensation cost related to non-vested stock options is $0.3 million.
During the quarter ended March 31, 2022, the Company issued 21,517 shares of common stock vesting over periods ranging from 30 to 48 months with an aggregate fair value of $1.3 million to certain employees as inducement and incentive grants. During the quarter ended June 30, 2022, the Company issued 778 shares of common stock vesting on September 30, 2022 with an aggregate fair value of $18 thousand to certain non-employees in lieu of cash payment for services. As of June 30, 2022, the unrecognized compensation cost related to non-vested stock options was $0.6 million.
During the three and six months ended June 30, 2023, the Company had 125 and 750 stock options forfeited, respectively, under the 2017 SIP. During the three and six months ended June 30, 2022, the Company had no stock options forfeited in both periods under the 2017 SIP.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - STOCK INCENTIVE PLANS (CONTINUED)
2013 Long-Term Stock Incentive Plan
On January 4, 2013, the Company’s stockholders approved the Company’s Long-Term Stock Incentive Plan (“2013 LTIP”). The maximum number of shares of common stock that may be issued under the 2013 LTIP, including stock awards, stock issued to directors for serving on the Company’s board,Board, and stock appreciation rights, is limited to 10% of the common shares of Common Stock outstanding on the first business or trading day of any fiscal year, which is atyear. The Company’s 2013 LTIP expired in accordance with its terms on 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.3, 2023.
During the ninethree months ended September 30, 2017,March 31, 2022, the Company issued 437,38411,875 stock options (250 of which were forfeited during the three months ended June 30, 2022) vesting over four years to employees with an exercise price of $67.20 per share and an option for 625 shares of common stock under the 2017 SIP.
Warrants
As of September 30, 2017, the Company had 3,926,251 warrants outstandingto a non-employee with a weighted averagestrike price of $44.00 per share, and such issuance resulted in a total expense of $0.3 million. In addition, 1,364 fully vested stock options were granted to six non-employee Board directors at an exercise price and remaining life in years of $6.54 and 4.043, respectively. At September$44.00 per share during the three months ended March 31, 2022. The aggregate fair value of the shares issued to the directors was $51 thousand. A total of 1,106 stock options were granted to two Advisory Board members at strike prices ranging from $36.00 to $36.40 per share, vesting over periods up to one year during the three months ended June 30, 2017, the warrants had no intrinsic value.2022.
During the ninethree and six months ended SeptemberJune 30, 2017,2023, the Company accrued $700,000 of discretionary managementdid not issue any stock options under the 2013 LTIP. During the three months ended June 30, 2023, the Company had no stock options forfeited and employee bonus expense.during the six months ended June 30, 2023, the Company had 1,250 stock options forfeited under the 2013 LTIP.
DuringStock based Compensation Expense
Total stock based compensation expense during the ninethree and six months ended SeptemberJune 30, 2023 pertaining to awards under the 2017 SIP and 2013 LTIP amounted to $0.4 million and $0.8 million, respectively. Total stock based compensation expense during the Company issued 119,800 fully-vested shares of common stock with a fair value of $240,535three and six months ended June 30, 2022, pertaining to non-employees for services rendered.awards under the 2017 SIP and 2013 LTIP amounted to $0.1 and $0.7 million, respectively.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Note 9 - Commitments and Contingencies
Legal MattersLEGAL MATTERS
From time to time, wethe Company may be involved in various claims and legal actions arising in the ordinary course of our business. ThereOther than the above, 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.
CommitmentsCOMMITMENTS
The Company leases warehouse 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 incurred rent expensealso leases a copier with a lease term of $150,730 and $103,2325 years, ending August 2023. The Company has elected to account for the nine months ended September 30, 2017lease and September 30, 2016, respectively. Minimum futurenon-lease components (insurance and property taxes) as a single lease component for its real estate leases. Lease payments, for non-cancelable operating leaseswhich includes 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 follows:stipulated in the lease contract. Any actual costs in excess of such amounts are expensed as incurred as variable lease cost.
| 2017 | $ | 50,775 | ||
| 2018 | 110,867 | |||
| 2019 | 112,015 | |||
| 2020 | 65,235 | |||
| Total future lease obligations | $ | 338,891 |
The maturityCompany’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 new warehouse space located in Louisville, Kentucky. The Right of Use (ROU) asset value added as a result of this new lease agreement was $0.3 million. The Company’s debt isROU asset and lease liability accounts reflect the inclusion of this lease in the Company’s balance sheets as follows:of June 30, 2023 and December 31, 2022. The current monthly rent of $6.4 thousand commenced in September 2022 and increases approximately 3% annually thereafter.
| 2017 | $ | - | ||
| 2018 | 266,200 | |||
| 2019 | 212,961 | |||
| 2020 | 212,961 | |||
| 2021 | 159,719 | |||
| Total debt | $ | 851,841 |
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 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.
LogicMark, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
For the three and six months ended June 30, 2023, total operating lease cost was $25.3 thousand and $50.7 thousand, respectively, and is recorded in direct operating costs and general and administrative expenses, dependent on the nature of the leased asset. Operating leases cost for the three and six months ended June 30, 2022 amounted to $25.2 thousand and $49.8 thousand, respectively, and was recorded in general and administrative expenses. 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 three 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 June 30, 2023:
| Year Ending December 31, | ||||
| 2023 (for the remainder of 2023) | $ | 42,231 | ||
| 2024 | 80,000 | |||
| 2025 | 54,400 | |||
| Total future minimum lease payments | $ | 176,631 | ||
| Less imputed interest | (23,258 | ) | ||
| Total present value of future minimum lease payments | $ | 153,373 | ||
| As of June 30, 2023 | ||||
| Operating lease right-of-use assets | $ | 146,173 | ||
| Accrued expenses | $ | 65,875 | ||
| Other long-term liabilities | 87,498 | |||
| $ | 153,373 | |||
| As of June 30, 2023 | ||||
| Weighted Average Remaining Lease Term | 2.13 | |||
| Weighted Average Discount Rate | 12.98 | % | ||
NOTE 9 – SUBSEQUENT EVENTS
Note 10 – Subsequent Events
The Company evaluatesCompany’s management has evaluated subsequent events that have occurred afterthrough August 11, 2023, which is the balance sheet date but before thethese condensed financial statements arewere available to be issued.
On October 2, 2017, Management has determined that there were no subsequent events which required recognition, adjustment to or disclosure to the Company issued 6,000 shares of its common stock for the payment of services with a grant date fair value of $13,200.condensed financial statements.
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.
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 threesix months ended SeptemberJune 30, 20172023, should be read together with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report.Quarterly Report on Form 10-Q for the three and six months ended June 30, 2023 (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 incorporated in the state of Delaware on February 8, 2012. Nxt-ID is an emerging technology company engaged in the development of proprietary products, services and solutions for security that serve multiple end markets, including Security, Healthcare, FinanceLogicMark, Inc. provides PERS, health communications devices, and Internet of Things (“IoT”) technology that creates a connected care 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 and providing life-saving technology at a consumer-friendly price point aimed at everyday consumers. The Company is focused on modernizing remote monitoring to help people stay safe and live independently longer. The PERS technologies are sold through retailers and distributors, the Company’s website (logicmark.com) as well as through the United States Veterans Health Administration (“VHA”). The Company enjoys a strong base of business with the VHA and plans to expand to other government services after being awarded the five-year United States General Services Agreement (“GSA”) in 2021.
Reincorporation
On June 25, 2012, the Company acquired 100% of the membership interests in 3D-ID LLC1, 2023 (“3D-ID”Effective Date”), a limited liability company formed in Florida in February 2011 and owned by the Company’s founders. By acquiring 3D-ID, the Company gained the rights to a portfolio of patented technology in the field of three-dimensional facial recognition 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”) 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 “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. In addition, we may be required to pay the LogicMark Sellers earn-out payments of (i) up to $1,500,000 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, 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”):
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.
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 CompanyDelaware corporation (the “Merger Sub”“Predecessor”), 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 its wholly-owned subsidiary, LogicMark, Inc., a Nevada corporation (the “Reincorporation”), pursuant to an agreement and plan of merger, dated as of June 1, 2023 (the “Agreement”). At the Merger Sub, withEffective Date and pursuant to the Merger Sub continuing asAgreement, the surviving entityCompany succeeded to the assets, continued the business and a wholly owned subsidiaryassumed the rights and obligations of the Company.
PursuantPredecessor existing immediately prior to the termsReincorporation. The Agreement and transactions contemplated thereby were approved by the affirmative vote of the Merger Agreement, the aggregate purchase price paid for Fit Pay was: (i) 19.96%a majority of the outstanding shares of the Predecessor’s common stock, par value $0.0001 per share (the “Predecessor Common Stock; (ii) 2,000 shares of theStock”), and Series C Non-Convertible Voting Preferred Stock, par value $0.0001 per share (the “Predecessor 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”Stock”). 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,Predecessor’s Series F Convertible Preferred Stock, par value $0.0001 per share (the “Predecessor Series F Preferred Stock”) on an as-converted to Predecessor Common Stock basis, in the aggregate, and entitled to vote on the U.S. Departmentmatter, at the Predecessor’s special meeting of Defense. Nxt-ID has numerous patents pending. Many of these patents pending focusstockholders held on tokenization and protection, as well as payment methodology, voice biometrics, and other biometric forms of directed payment.
March 7, 2023 (the “Special Meeting”).
In healthcare, our business initiatives were bolstered byReverse Stock Split
Prior to the acquisition of LogicMark,Reincorporation, 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)April 21, 2023, 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. OnePredecessor effected 1-for-20 reverse stock splits of the promising applicationsoutstanding shares of our VoiceMatch™ technology is enabling secure commands for restricted medical access. This solution, when coupledPredecessor Common Stock and Predecessor Series C Preferred Stock, whereby every 20 shares of Predecessor Common Stock and Predecessor Series C Preferred Stock was consolidated into 1 share of each such class following such split, with our BioCloud™, combines biometrics with encryption and distributed access control.
Security and privacy concerns are already centralfractional shares rounded up to the adoptionnearest whole share. All applicable information in this Management’s Discussion and Analysis of IoT solutions that provides a large opportunity for the Company to collaborateFinancial Condition 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 section has been retroactively adjusted to reflect such reverse stock splits.
Results of Operations
Comparison of nineThree and threesix months ended SeptemberJune 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,2023, 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 ninesix months ended SeptemberJune 30, 2016, the gross profit2022.
Revenue, Cost of LogicMark which was acquired on July 25, 2016, was included for the post acquisition period only.Goods Sold, and Gross Profit
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | 2,326,995 | $ | 3,367,692 | $ | 5,136,713 | $ | 7,018,380 | ||||||||
| Cost of Goods Sold | 727,276 | 1,364,586 | 1,674,445 | 2,811,891 | ||||||||||||
| Gross Profit | $ | 1,599,719 | $ | 2,003,106 | $ | 3,462,268 | $ | 4,206,489 | ||||||||
| Gross Profit Margin | 69 | % | 59 | % | 67 | % | 60 | % | ||||||||
Operating Expenses.Operating expenses for the nine months ended September 30, 2017 totaled $10,077,207 and consisted of research 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 expenses for the nine months ended September 30, 2017 were higher by $2,682,642 as compared to the nine months ended September 30, 2016. The primary reason for the increase is the inclusion of the operating expenses of LogicMark for the full nine months ended September 30, 2017, whereas for the nine months ended September 30, 2016, LogicMark only was included for the post acquisition period since it was acquired on July 25, 2016. In addition, Fit Pay was not part of our consolidated operating results for the nine months ended September 30, 2016. The research and development expenses relate primarily to salaries and consulting services of $723,781. Selling and marketing expenses consisted primarily of salaries 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
We experienced a 31% decrease 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 $7,394,565 and consisted of research and development expenses of $824,888, selling and marketing expenses of $1,910,030 and general and administrative expenses of $4,659,647. The research and development expenses relate primarily to salaries and consulting services of $392,991, as well as expenses of 218,584 primarily related to the design and development of the “smart card” for WVH 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 for the 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 expensesrevenue for the three months ended SeptemberJune 30, 2017 totaled $4,507,8062023 and consisteda 27% decrease in revenue for the six months ended June 30, 2023, as compared to the same periods ended June 30, 2022. Results in the prior year period included one-time sales of researchFreedom Alert 911+ 4G units replacing older 3G units no longer supported by national cellular network carriers.
Gross profit margin was 69% and development expenses67% for the three and six months ended June 30, 2023, respectively, up from 59% and 60% for the three and six months ended June 30, 2022, respectively, as a result of $677,104,improvements in the Company’s supply chain management, including a return to transpacific shipping (versus air freight) from our Asia based contract manufacturers.
Operating Expenses
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| Operating Expenses | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Direct operating cost | $ | 312,426 | $ | 336,544 | $ | 575,228 | $ | 810,987 | ||||||||
| Advertising costs | 85,277 | - | 133,393 | - | ||||||||||||
| Selling and Marketing | 517,931 | 275,011 | 983,466 | 464,216 | ||||||||||||
| Research and development | 250,266 | 204,592 | 564,154 | 467,077 | ||||||||||||
| General and administrative | 2,443,860 | 2,115,700 | 4,857,619 | 4,451,647 | ||||||||||||
| Other expense | 50,646 | 2,000 | 78,964 | 32,084 | ||||||||||||
| Depreciation and amortization | 215,703 | 194,691 | 431,701 | 389,054 | ||||||||||||
| Total Expenses | $ | 3,876,109 | $ | 3,128,538 | $ | 7,624,525 | $ | 6,615,065 | ||||||||
Direct Operating Cost
The $24 thousand and $0.2 million decrease in direct operating cost for the three and six months ended June 30, 2023, respectively, compared to the same periods ended June 30, 2022, was primarily driven by a reduction in warranty claims related to the sunsetting of 3G cellular support by the national cellular network carriers. In the six months ended June 30, 2022, while we were not obligated to upgrade our customers with 3G PERS units to 4G compatible units, we chose to replace those units still under warranty and to cover all such replacement costs.
Advertising Costs
The $85.3 thousand and $0.1 million increase in advertising costs for the three and six months ended June 30, 2023, respectively, compared to the same periods ended June 30, 2022, was driven by the initiation and continuation in 2023 of social media advertising and web-based advertising to support our eCommerce platform.
Selling and Marketing
The $0.2 million and $0.5 million increase in selling and marketing expenses of $1,288,949for the three and generalsix months ended June 30, 2023, respectively, was driven by the additional sales personnel and their related expenses.
Research and Development
The Company entered calendar year 2022 with no new products in the product development pipeline and has been working diligently on developing new PERS hardware and other software-based solutions for our customers. As a result, our research and development expense for the three and six months ended June 30, 2023, compared to the same periods ended June 30, 2022, increased by $50 thousand and $0.1 million as we continue to ramp up these development efforts.
General and Administrative
General and administrative costs increased $0.3 million and $0.4 million for the three and six months ended June 30, 2023, respectively, compared to the same periods ended June 30, 2022, which was driven by higher recruiting cost, additional personnel and their related expenses, and costs related to the Special Meeting to approve the Reincorporation.
Other Income
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| Other Income | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Interest income | $ | 8,510 | $ | 13,159 | $ | 60,938 | $ | 13,159 | ||||||||
| Total Other Income | $ | 8,510 | $ | 13,159 | $ | 60,938 | $ | 13,159 | ||||||||
During the three and six months ended June 30, 2023, the Company recorded $8.5 thousand and $60.9 thousand, respectively, of $2,541,753. Ourinterest income generated from its cash balances. During the three and six months ended June 30, 2022, the Company recorded $13 thousand in interest income generated from its cash balances.
Liquidity and Capital Resources
Sources of Liquidity
The Company generated an operating expensesloss of $2.3 million and a net loss of $2.3 million for the three months ended SeptemberJune 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 research2023 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 withgenerated 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$4.2 million and a net loss of $5,960,684,$4.1 million for the ninesix months ended SeptemberJune 30, 2017.
Cash and Working Capital.2023. As of SeptemberJune 30, 2017,2023, the Company had cash and stockholders’ equitycash equivalents of $514,602 and $6,835,893, respectively.$7.6 million. At SeptemberJune 30, 2017,2023, the Company had a working capital deficiency of $6,322,182 (including contingent consideration$8.0 million. During the three months ended June 30, 2023, the Company received proceeds of $5,340,432).$0.2 million from the exercise of Common Stock purchase warrants. During the six months ended June 30, 2023, the Company received proceeds of $5.2 million from the issuance of Common Stock, warrants, and the exercise of Common Stock purchase warrants.
Given our cash position as of June 30, 2023 and our projected cash flow from operations, we believe we will have sufficient capital to sustain operations for the twelve months from the date of the filing of our condensed financial statements. We may raise funds through equity or debt offerings to accelerate the execution of our long-term strategic plan to develop and commercialize our new products.
Cash Flows
Cash (Used in)Used in Operating Activities.Activities
During the six months ended June 30, 2023, net cash used in operating activities was $3.2 million. During the six months ended June 30, 2022, net cash used in operating activities was $0.5 million. 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).
Cash Used in Investing Activities
During the ninesix months ended SeptemberJune 30, 2017, net cash used2023, we purchased $49 thousand 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 usedequipment and invested $0.5 million in operating activities of $5,536,793,product development 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 forsoftware development. During the ninesix months ended SeptemberJune 30, 2016, which was comprised of a net loss of $10,368,921, positive non-cash adjustments to reconcile net loss to net cash used2022, we purchased $0.2 million in operating activities of $4,717,109,equipment and changesinvested $0.3 million in operating assetsproduct development and liabilities of positive $2,635,723.software development.
Cash (Used in) Investing Activities.Provided by (Used) Financing Activities
| Six Months Ended | ||||||||
| Cash flows from Financing Activities | 2023 | 2022 | ||||||
| Proceeds from sale of common stock and warrants | $ | 5,211,428 | $ | - | ||||
| Fees paid in connection with equity offerings | (816,017 | ) | - | |||||
| Warrants exercised for common stock | 162,494 | - | ||||||
| Series C redeemable preferred stock dividends | (150,000 | ) | (150,000 | ) | ||||
| Net Cash Provided (Used in) by Financing Activities | $ | 4,407,905 | $ | (150,000 | ) | |||
During the ninesix months ended SeptemberJune 30, 2017, net cash used in investing 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,2023, 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. During the nine months ended September 30, 2016, net cash used in investing activities amounted to $15,934,698 and was related to changes in restricted cash of $1,494,665 which was primarily attributable to the cash proceeds received ascompleted 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.During the nine months ended September 30, 2017, net cash provided by financing activities totaled $2,880,660 and was primarily related to the net proceeds received from the issuanceregistered public offering of common stock and warrants, of $3,069,940 and the net proceeds received from the issuance of convertible exchange notes of $594,408. The Company also paid down the LogicMark Note of $773,969 andwhereby we also paid $9,719 for legal and other expenses related to equity offerings. During the nine months ended September 30, 2016, the Company received 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) from the issuance$5.2 million and paid fees of Series A Preferred Stock and $4,090,000 in net proceeds from the issuance of Series B Preferred Stock. The Company also received net proceeds from the revolving credit facility which were used in part to fund the LogicMark acquisition.$0.8 million. In addition, the Companywe received proceeds of $50,000 in connection with$0.2 million for the exercise of 100,000 warrants. The Company alsowarrants into common stock. During the six months ended June 30, 2023 and 2022, we paid down $250,000Series C Redeemable Preferred Stock dividends amounting to $150 thousand each period.
Impact of the seller’s note resulting from the LogicMark acquisition.Inflation
Sources of Liquidity.We are an emerging growth company and have generated losses from operations since inception. We incurred a net loss of $5,960,684believe that our business has only been modestly impacted by inflationary trends during the nine months ended September 30, 2017. Aspast two fiscal years. However, continued domestic inflation may increase our cost of September 30, 2017,fulfilment in fiscal year 2023 through higher labor and shipping costs, as well as our operating and overhead expenses. Should inflation become a continuing factor in the Company had a working capital deficiencyworldwide economy, it may increase the cost of $6,322,182 (including contingent considerationpurchasing products from our contract manufacturers in Asia, as well as the cost of $5,340,432)certain raw materials, component parts 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 overlabor used in 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 strategic plan to develop and commercialize our core products, fulfill our product development commitments 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 certainproduction of our operational activities.
products. We have been able to maintain our profit margins through productivity, better supply chain management, efficiency improvements, and cost reduction programs.
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 statementscritical accounting policies and estimates during the three and six months ended June 30, 2023, from those disclosed in our Annual Report on Form 10-K for the nine monthsyear ended September 30, 2017, included elsewhere in this document.December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market RiskRisk.
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 June 30, 2023. Management has not completed such evaluation under the disclosure2013 Committee of Sponsoring Organizations (“COSO”) framework, but concluded, based on the material 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 June 30, 2023 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, our management identified certain material weaknesses in our internal control over financial reporting, which includewe had difficulty in accounting for complex accounting transactions due to an insufficient number of accounting personnel with experience in suchthat area and limited segregation of duties within our accounting and financial reporting functions. In addition, management needs additional
As reported in our Annual Report on Form 10-K for the period ended December 31, 2022, the Company retained a Corporate Controller, a Certified Public Accountant in the state of California, with over 10 years of public accounting, audit and accounting experience to assist in completing our remediation procedures for the material weaknesses identified regarding the following:
| - | Management had not completed an assessment of the Company’s internal controls over financial reporting based on the 2013 COSO framework. Management has concluded that, during the first six months of 2023, its internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP. |
| - | 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. |
Management is in the process of completing the 2013 COSO framework and finalizing the design/implementation of our internal controls. Additional time is required to fully document theour 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 our internalimplement control over financial reporting and implement new policies, procedures, and controls as necessary.test their operating effectiveness before we can conclude that we have fully remediated our material weaknesses.
Changes in Internal ControlsControl over Financial Reporting
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 three months ended June 30, 2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Limitations of the Effectiveness of Internal Control
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.
PART 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.Not applicable.
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
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
SIGNATURES
| * | Filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this reportReport to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: | By: | /s/ |
Chief Executive Officer | ||
| ( Principal Executive Officer) | ||
| Date: | By: | /s/ |
| ||
EXHIBIT INDEX
| ||
Principal | ||
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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