UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2021
March 31, 2022, 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: 001-36616
Nxt-ID,LogicMark, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 46-0678374 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2801 Diode Lane
Louisville, KY 40299
| 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:Act
| Title of each class Symbol(s) | Trading | Name of exchange on which registered | ||
| Common Stock, par value $0.0001 per share | 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 if any, every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “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 9, 2021,May 16, 2022, there were 8,896,4799,593,378 shares of common stock, par value $0.001$0.0001 per share, of the registrant issued and outstanding.
LogicMark, Inc.
NXT-ID, INC.
FORMForm 10-Q
TABLE OF CONTENTSTable of Contents
September 30, 2021March 31, 2022
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash | $ | 16,046,625 | $ | 4,387,416 | ||||
| Restricted cash | 185,130 | 150,130 | ||||||
| Accounts receivable, net | 67,048 | 133,719 | ||||||
| Inventory, net | 912,889 | 767,351 | ||||||
| Prepaid expenses and other current assets | 770,116 | 455,553 | ||||||
| Total Current Assets | 17,981,808 | 5,894,169 | ||||||
| Property and equipment: | ||||||||
| Equipment | 183,044 | 183,044 | ||||||
| Furniture and fixtures | 98,839 | 98,839 | ||||||
| Tooling and molds | 644,462 | 644,462 | ||||||
| 926,345 | 926,345 | |||||||
| Accumulated depreciation | (926,345 | ) | (897,137 | ) | ||||
| Property and equipment, net | - | 29,208 | ||||||
| Right-of-use assets | 263,379 | 306,786 | ||||||
| Goodwill | 15,479,662 | 15,479,662 | ||||||
| Other intangible assets, net of amortization of $3,935,901 and $3,366,105, respectively | 4,668,666 | 5,238,462 | ||||||
| Total Assets | $ | 38,393,515 | $ | 26,948,287 | ||||
| Liabilities, Series C Preferred Stock and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,229,486 | $ | 2,748,814 | ||||
| Accrued expenses | 1,659,521 | 1,315,262 | ||||||
| Term loan facility | - | 2,062,500 | ||||||
| Other short-term debt | - | 346,390 | ||||||
| Other current liabilities | 1,072,500 | - | ||||||
| Total Current Liabilities | 3,961,507 | 6,472,966 | ||||||
| Term loan facility, net of debt discount of $137,855 and deferred debt issuance costs $713,119 | - | 8,182,403 | ||||||
| Other long-term liabilities | 206,819 | 1,326,409 | ||||||
| Total Liabilities | 4,168,326 | 15,981,778 | ||||||
| Commitments and Contingencies | ||||||||
| Series C Preferred Stock, par value $0.0001 per share: 2,000 shares designated; 200 shares issued and outstanding as | ||||||||
| of September 30, 2021 and December 31, 2020 | 1,807,300 | 1,807,300 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, par value $0.0001 per share: 10,000,000 shares authorized | ||||||||
Series F Preferred Stock, par value $0.0001 per share: 1,333,333 shares designated: 173,333 shares issued and outstanding as of September 30, 2021, aggregate liquidation preference of $520,000 as of September 30, 2021 | 520,000 | - | ||||||
| Common Stock, par value $0.001 per share: 100,000,000 shares authorized; 8,830,239 and 4,061,997 shares | ||||||||
| issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 8,831 | 4,062 | ||||||
| Additional paid-in capital | 104,244,350 | 74,583,144 | ||||||
| Accumulated deficit | (72,355,292 | ) | (65,427,997 | ) | ||||
| Total Stockholders’ Equity | 32,417,889 | 9,159,209 | ||||||
| Total Liabilities, Series C Preferred Stock and Stockholders’ Equity | $ | 38,393,515 | $ | 26,948,287 | ||||
LogicMark Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 12,224,887 | $ | 12,044,415 | ||||
| Restricted cash | 210,118 | 210,131 | ||||||
| Accounts receivable, net | 133,262 | 98,749 | ||||||
| Inventory, net | 876,084 | 1,237,280 | ||||||
| Prepaid expenses and other current assets | 893,388 | 849,190 | ||||||
| Total Current Assets | 14,337,739 | 14,439,765 | ||||||
| Property and equipment: | ||||||||
| Equipment | 404,925 | 410,444 | ||||||
| Furniture and fixtures | 78,268 | 35,761 | ||||||
| Tooling and molds | 9,427 | 9,427 | ||||||
| 492,620 | 455,632 | |||||||
| Accumulated depreciation | (455,889 | ) | (455,632 | ) | ||||
| Property and equipment, net | 36,731 | 0 | ||||||
| Right-of-use assets | 232,569 | 248,309 | ||||||
| Goodwill | 10,958,662 | 10,958,662 | ||||||
| Other intangible assets, net of amortization of $4,322,026 and $4,127,920, respectively | 4,282,541 | 4,476,647 | ||||||
| Total Assets | $ | 29,848,242 | $ | 30,123,383 | ||||
| Liabilities, Series C Preferred Stock and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,059,414 | $ | 492,431 | ||||
| Accrued expenses | 766,313 | 849,285 | ||||||
| Total Current Liabilities | 1,825,727 | 1,341,716 | ||||||
| Other long-term liabilities | 367,387 | 385,196 | ||||||
| Total Liabilities | 2,193,114 | 1,726,912 | ||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Series C Preferred Stock | ||||||||
| Series C Preferred Stock, par value $0.0001 per share: 2,000 shares designated; 200 shares issued and outstanding as of March 31, 2022, and December 31, 2021 | 1,807,300 | 1,807,300 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, par value $0.0001 per share: 10,000,000 shares authorized | - | - | ||||||
| Series F Preferred Stock, par value $0.0001 per share: 1,333,333 shares designated; 173,333 shares issued and outstanding as of March 31, 2022, aggregate liquidation preference of $520,000 as of March 31, 2022, and December 31, 2021 | 520,000 | 520,000 | ||||||
| Common Stock, par value $0.0001 per share: 100,000,000 shares authorized; 9,593,378 and 9,163,039 issued and outstanding as of March 31, 2022, and December 31, 2021 | 959 | 917 | ||||||
| Additional paid-in capital | 105,279,875 | 104,725,115 | ||||||
| Accumulated deficit | (79,953,006 | ) | (78,656,861 | ) | ||||
| Total Stockholders’ Equity | 25,847,828 | 26,589,171 | ||||||
| Total Liabilities, Series C Preferred Stock and Stockholders’ Equity | $ | 29,848,242 | $ | 30,123,383 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
statements
1
LogicMark Inc.
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 7,604,286 | 8,866,205 | |||||
| Cost of goods sold | 2,966,177 | 2,378,148 | ||||||
| Gross Profit | 4,638,109 | 6,488,057 | ||||||
| Operating Expenses | ||||||||
| General and administrative | 3,748,699 | 3,455,555 | ||||||
| Selling and marketing | 1,661,340 | 1,865,626 | ||||||
| Research and development | 719,515 | 757,221 | ||||||
| Total Operating Expenses | 6,129,554 | 6,078,402 | ||||||
| Operating (Loss) Income | (1,491,445 | ) | 409,655 | |||||
| Other Income and (Expense) | ||||||||
| Interest expense | (1,395,611 | ) | (1,717,561 | ) | ||||
| Forgiveness of PPP loan and accrued interest | 349,176 | - | ||||||
| Warrant modification expense | (2,881,729 | ) | - | |||||
| Total Other Expense, Net | (3,928,164 | ) | (1,717,561 | ) | ||||
| Loss before Income Taxes | (5,419,609 | ) | (1,307,906 | ) | ||||
| Provision for Income Taxes | - | - | ||||||
| Net Loss | (5,419,609 | ) | (1,307,906 | ) | ||||
| Preferred stock dividends, including deemed dividend on redeemable Series E convertible preferred stock | (2,272,686 | ) | (75,000 | ) | ||||
| Net Loss applicable to Common Stockholders | $ | (7,692,295 | ) | $ | (1,382,906 | ) | ||
| Net Loss Per Share – Basic and Diluted | $ | (1.43 | ) | $ | (0.44 | ) | ||
| Weighted Average Number of Common Shares Outstanding – Basic and Diluted | 5,377,465 | 3,158,090 | ||||||
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 (1) | |||||||
| Revenues | $ | 3,650,689 | $ | 2,438,682 | ||||
| Costs of goods sold | 1,447,305 | 989,388 | ||||||
| Gross Profit | 2,203,384 | 1,449,294 | ||||||
| Operating Expenses | ||||||||
| Direct operating cost | 474,442 | 244,669 | ||||||
| Selling and marketing | 189,207 | 80,123 | ||||||
| Research and development | 262,484 | 313,896 | ||||||
| General and administrative | 2,335,949 | 1,379,071 | ||||||
| Other expense | 30,084 | 10,568 | ||||||
| Depreciation and amortization | 194,363 | 203,857 | ||||||
| Total Operating Expenses | 3,486,529 | 2,232,184 | ||||||
| Operating Loss | (1,283,145 | ) | (782,890 | ) | ||||
| Other Income and (Expense) | ||||||||
| Interest expense | - | (861,248 | ) | |||||
| Forgiveness of Paycheck Protection Program loan and accrued interest | - | 303,710 | ||||||
| Warrant modification expense | - | (2,881,729 | ) | |||||
| Total Other Expense, Net | - | (3,439,267 | ) | |||||
| Loss before Income Taxes | (1,283,145 | ) | (4,222,157 | ) | ||||
| Income Tax (Expense) Benefit | - | - | ||||||
| Net Loss | (1,283,145 | ) | (4,222,157 | ) | ||||
| Preferred stock dividends | (88,000 | ) | (1,555,801 | ) | ||||
| Net Loss Applicable to Common Stockholders | $ | (1,371,145 | ) | $ | (5,777,958 | ) | ||
| Net Loss Per Share - Basic and Diluted | $ | (0.14 | ) | $ | (1.20 | ) | ||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | 9,481,963 | 4,819,255 | ||||||
| (1) | Expenses in 2021 have been reclassified to conform to the 2022 presentation format. |
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
2
LogicMark Inc.
Nxt-ID, Inc. and SubsidiariesCONDENSED CHANGES IN STOCKHOLDERS’ EQUITY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 2,383,029 | $ | 2,639,193 | ||||
| Cost of goods sold | 1,115,570 | 760,965 | ||||||
| Gross Profit | 1,267,459 | 1,878,228 | ||||||
| Operating Expenses | ||||||||
| General and administrative | 1,078,830 | 1,569,736 | ||||||
| Selling and marketing | 482,563 | 577,085 | ||||||
| Research and development | 202,949 | 257,832 | ||||||
| Total Operating Expenses | 1,764,342 | 2,404,653 | ||||||
| Operating Loss | (496,883 | ) | (526,425 | ) | ||||
| Other Income and (Expense) | ||||||||
| Interest expense | (144,821 | ) | (551,916 | ) | ||||
| Total Other Expense, Net | (144,821 | ) | (551,916 | ) | ||||
| Loss before Income Taxes | (641,704 | ) | (1,078,341 | ) | ||||
| Provision for Income Taxes | - | - | ||||||
| Net Loss | (641,704 | ) | (1,078,341 | ) | ||||
| Preferred stock dividends | (101,885 | ) | (25,000 | ) | ||||
| Net Loss applicable to Common Stockholders | $ | (743,589 | ) | $ | (1,103,341 | ) | ||
| Net Loss Per Share – Basic and Diluted | $ | (0.12 | ) | $ | (0.32 | ) | ||
| Weighted Average Number of Common Shares Outstanding – Basic and Diluted | 5,969,312 | 3,425,210 | ||||||
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance - January 1, 2021 | 4,061,997 | $ | 407 | $ | 74,586,801 | $ | (65,427,997 | ) | $ | 9,159,211 | ||||||||||||||||||
| Issuance of stock for services | 40,000 | 40,000 | ||||||||||||||||||||||||||
| Issuance of Series E preferred stock, net | 1,476,016 | 4,000,003 | 4,000,003 | |||||||||||||||||||||||||
| Conversion of Series E preferred stock to common stock | (1,476,016 | ) | (4,000,003 | ) | 295,203 | 29 | 3,999,974 | - | ||||||||||||||||||||
| Deemed dividend related to beneficial conversion feature of Series E preferred stock | 1,480,801 | (1,480,801 | ) | - | ||||||||||||||||||||||||
| Exercise of common stock purchase warrants on a cash | 536,774 | 54 | 6,669,957 | 6,670,011 | ||||||||||||||||||||||||
| Exercise of common stock purchase warrants on a cashless basis | 423,933 | 42 | (42 | ) | - | |||||||||||||||||||||||
| Warrant modification expense recorded in connection with the issuance of replacement warrants | 2,881,729 | 2,881,729 | ||||||||||||||||||||||||||
| Shares issued in connection with the management incentive plan for 2018 and 2019 | 13,283 | 1 | 80,455 | 80,456 | ||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | (44,156 | ) | (44,156 | ) | ||||||||||||||||||||||||
| Series C Preferred stock dividends | (75,000 | ) | (75,000 | ) | ||||||||||||||||||||||||
| Net loss | (4,222,157 | ) | (4,222,157 | ) | ||||||||||||||||||||||||
| Balance - March 31, 2021 | - | - | 5,331,190 | $ | 533 | $ | 89,620,519 | $ | (71,130,955 | ) | $ | 18,490,097 | ||||||||||||||||
| Balance - January 1, 2022 | 173,333 | 520,000 | 9,163,039 | 917 | 104,725,115 | (78,656,861 | ) | 26,589,171 | ||||||||||||||||||||
| Issuance of stock options for services | 385,339 | 385,339 | ||||||||||||||||||||||||||
| Shares issued as stock compensation | 430,339 | 42 | 244,421 | 244,463 | ||||||||||||||||||||||||
| Series C Preferred stock dividends | (75,000 | ) | (75,000 | ) | ||||||||||||||||||||||||
| Series F Preferred stock dividends | (13,000 | ) | (13,000 | ) | ||||||||||||||||||||||||
| Net loss | (1,283,145 | ) | (1,283,145 | ) | ||||||||||||||||||||||||
| Balance - March 31, 2022 | 173,333 | $ | 520,000 | 9,593,378 | $ | 959 | $ | 105,279,875 | ($ | 79,953,006 | ) | $ | 25,847,828 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
3
LogicMark Inc.
Nxt-ID, Inc. and SubsidiariesCONDENSED STATEMENTS OF CASH FLOWS
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (1,283,145 | ) | $ | (4,222,157 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 257 | 16,012 | ||||||
| Stock based compensation | 629,802 | 40,000 | ||||||
| Amortization of debt discount | - | 77,800 | ||||||
| Amortization of intangible assets | 194,106 | 187,845 | ||||||
| Amortization of deferred debt issuance costs | - | 402,454 | ||||||
| Non-cash charge for modification of warrant terms | - | 2,881,729 | ||||||
| Forgiveness of Paycheck Protection Plan loans and accrued interest | (303,710 | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (34,513 | ) | 66,045 | |||||
| Inventory | 361,196 | (13,128 | ) | |||||
| Prepaid expenses and other current assets | (44,198 | ) | (80,715 | ) | ||||
| Accounts payable | 566,983 | (518,601 | ) | |||||
| Accrued expenses | (98,041 | ) | 463,660 | |||||
| Total Adjustments | 1,575,592 | 3,219,391 | ||||||
| Net Cash Provided by (Used in) Operating Activities | 292,447 | (1,002,766 | ) | |||||
| Cash flows from Investing Activities | ||||||||
| Purchase of Equipment | (36,988 | ) | ||||||
| Net Cash Used by Investing Activities | (36,988 | ) | - | |||||
| Cash flows from Financing Activities | ||||||||
| Proceeds from sale of common stock and warrants | - | 6,670,494 | ||||||
| Proceeds received in connection with issuance of Series E preferred stock, net | - | 4,000,003 | ||||||
| Term loan repayment | - | (5,515,625 | ) | |||||
| Fees paid in connection with equity offerings | - | (23,698 | ) | |||||
| Preferred Stock Dividends | (75,000 | ) | - | |||||
| Net Cash (Used in) Provided by Financing Activities | (75,000 | ) | 5,131,174 | |||||
| Net Increase in Cash and Restricted Cash | 180,459 | 4,128,408 | ||||||
| Cash and Restricted Cash - Beginning of Year | 12,254,546 | 4,537,546 | ||||||
| Cash and Restricted Cash - End of Period | $ | 12,435,005 | $ | 8,665,954 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | - | $ | 443,975 | |||||
| Taxes | - | 25,999 | ||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued fees incurred in connection with equity offerings | - | 20,458 | ||||||
| Accrued preferred stock dividends | $ | 107,933 | 75,000 | |||||
| Common stock issued in connection with management incentive plans | - | 80,456 | ||||||
| Conversion of Series E preferred stock to common stock | - | 4,000,003 | ||||||
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – January 1, 2021 | 4,061,997 | 4,062 | 74,583,144 | (65,427,997 | ) | 9,159,209 | ||||||||||||||||||||||
| Issuance of stock options for services | 120,000 | 120,000 | ||||||||||||||||||||||||||
| Issuance of Series E preferred stock, net | 1,476,016 | 4,000,003 | 4,000,003 | |||||||||||||||||||||||||
| Conversion of Series E preferred stock to common stock | (1,476,016 | ) | (4,000,003 | ) | 295,203 | 295 | 3,999,708 | |||||||||||||||||||||
| Deemed dividend related to beneficial conversion feature of Series E preferred stock | 1,480,801 | (1,480,801 | ) | |||||||||||||||||||||||||
| Issuance of Series F preferred stock, net | 1,333,333 | 3,999,999 | 3,999,999 | |||||||||||||||||||||||||
| Conversion of Series F preferred stock to common stock | (1,160,000 | ) | (3,479,999 | ) | 656,604 | 657 | 3,479,342 | |||||||||||||||||||||
| Exercise of common stock purchase warrants for cash | 536,774 | 537 | 6,669,957 | 6,670,494 | ||||||||||||||||||||||||
| Exercise of common stock purchase warrants on a cashless basis | 423,933 | 424 | (424 | ) | ||||||||||||||||||||||||
| Warrant modification expense recorded in connection with the issuance of replacement warrants | - | - | 2,881,729 | 2,881,729 | ||||||||||||||||||||||||
| Shares issued in connection with the management incentive plan for 2018 and 2019 | 13,283 | 13 | 80,443 | 80,456 | ||||||||||||||||||||||||
| Sale of common stock and warrants pursuant to a registration statement on Form S-1 | 2,788,750 | 2,789 | 11,831,933 | 11,834,722 | ||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | (424,813 | ) | (424,813 | ) | ||||||||||||||||||||||||
| Shares issued as stock compensation | 50,000 | 50 | 287,950 | 288,000 | ||||||||||||||||||||||||
| Common Stock issued for dividends | 3,695 | 4 | 19,580 | (19,584 | ) | - | ||||||||||||||||||||||
| Series F Preferred Stock Dividends | - | - | - | (7,301 | ) | (7,301 | ) | |||||||||||||||||||||
| Net loss | (5,419,609 | ) | (5,419,609 | ) | ||||||||||||||||||||||||
| Series C Preferred stock dividends | (765,000 | ) | (765,000 | ) | ||||||||||||||||||||||||
| Balance – September 30, 2021 | 173,333 | $ | 520,000 | 8,830,239 | $ | 8,831 | $ | 104,244,350 | $ | (72,355,292 | ) | $ | 32,417,889 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
4
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – July 1, 2021 | - | $ | - | 5,331,190 | $ | 5,331 | $ | 89,041,202 | $ | (71,686,703 | ) | $ | 17,359,830 | |||||||||||||||
| Issuance of stock options for services | - | - | 40,000 | - | 40,000 | |||||||||||||||||||||||
| Issuance of Series F preferred stock, net | 1,333,333 | 3,999,999 | 3,999,999 | |||||||||||||||||||||||||
| Conversion of Series F preferred stock to common stock | (1,160,000 | ) | (3,479,999 | ) | 656,604 | 657 | 3,479,342 | |||||||||||||||||||||
| Sale of common stock and warrants pursuant to a registration statement on Form S-1 | 2,788,750 | 2,789 | 11,831,933 | 11,834,722 | ||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | (380,657 | ) | (380,657 | ) | ||||||||||||||||||||||||
| Shares issued as stock compensation | 50,000 | 50 | 287,950 | 288,000 | ||||||||||||||||||||||||
| Common Stock issued for dividends | 3,695 | 4 | 19,580 | (19,584 | ) | - | ||||||||||||||||||||||
| Series F Preferred Stock Dividends | - | - | - | (7,301 | ) | (7,301 | ) | |||||||||||||||||||||
| Net loss | - | - | - | (641,704 | ) | (641704 | ) | |||||||||||||||||||||
| Series C Preferred stock dividends | (75,000 | ) | (75,000 | ) | ||||||||||||||||||||||||
| Balance – September 30, 2021 | 173,333 | $ | 520,000 | 8,830,239 | $ | 8,831 | $ | 104,244,350 | $ | (72,355,292 | ) | $ | 32,417,889 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – January 1, 2020 | - | $ | - | 3,004,885 | $ | 3,005 | $ | 68,515,674 | $ | (61,804,091 | ) | $ | 6,714,588 | |||||||||||||||
| Issuance of stock options for services | - | - | 120,000 | - | 120,000 | |||||||||||||||||||||||
| Issuance of common stock and warrants for cash | 451,348 | 451 | 1,864,077 | - | 1,864,528 | |||||||||||||||||||||||
| Shares issued in connection with the management incentive plan for 2017 and 2018 | 44,762 | 45 | 200,749 | 200,794 | ||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | (65,152 | ) | (65,152 | ) | ||||||||||||||||||||||||
| Net loss | (1,307,906 | ) | (1,307,906 | ) | ||||||||||||||||||||||||
| Preferred stock dividends | (75,000 | ) | (75,000 | ) | ||||||||||||||||||||||||
| Balance – September 30, 2020 | - | $ | - | 3,500,995 | $ | 3,501 | $ | 70,560,348 | $ | (63,111,997 | ) | $ | 7,451,852 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nxt-ID,LogicMark Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – July 1, 2020 | - | $ | - | 3,049,647 | $ | 3,050 | $ | 68,722,019 | $ | (62,033,656 | ) | $ | 6,691,413 | |||||||||||||||
| Issuance of stock options for services | - | - | 40,000 | - | 40,000 | |||||||||||||||||||||||
| Issuance of common stock and warrants for cash | 451,348 | 451 | 1,864,077 | 1,864,528 | ||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | - | - | (40,748 | ) | - | (40,748 | ) | |||||||||||||||||||||
| Net loss | (1,078,341 | ) | (1,078,341 | ) | ||||||||||||||||||||||||
| Preferred stock dividends | (25,000 | ) | (25,000 | ) | ||||||||||||||||||||||||
| Balance – September 30, 2020 | - | $ | - | 3,500,995 | $ | 3,501 | $ | 70,560,348 | $ | (63,111,997 | ) | $ | 7,451,852 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | (5,419,609 | ) | $ | (1,307,906 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 29,208 | 49,531 | ||||||
| Stock based compensation | 288,000 | 120,000 | ||||||
| Amortization of debt discount | 137,855 | 80,368 | ||||||
| Amortization of intangible assets | 569,796 | 569,796 | ||||||
| Amortization of deferred debt issuance costs | 713,119 | 415,737 | ||||||
| Non-cash charge for modification of warrant terms | 2,881,729 | - | ||||||
| Forgiveness of PPP loans and accrued interest | (349,176 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 66,671 | (19,391 | ) | |||||
| Inventory | (145,538 | ) | 430,943 | |||||
| Prepaid expenses and other current assets | (314,563 | ) | (99,675 | ) | ||||
| Accounts payable | (1,519,328 | ) | (162,119 | ) | ||||
| Accrued expenses | (228,483 | ) | (61,641 | ) | ||||
| Total Adjustments | 2,129,290 | 1,323,549 | ||||||
| Net Cash (Used in) Provided by Operating Activities | (3,290,319 | ) | 15,643 | |||||
| Net Cash Used in Investing Activities | - | - | ||||||
| Cash Flows from Financing Activities | ||||||||
| Term loan repayment | (11,095,877 | ) | (1,696,875 | ) | ||||
| Proceeds received in connection with issuance of Series E preferred stock, net | 4,000,003 | - | ||||||
| Proceeds received in connection with issuance of Series F preferred stock, net | 3,999,999 | - | ||||||
| Proceeds received in connection with issuance of common stock, net | 1,864,528 | |||||||
| Proceeds from exercise of common stock warrants | 6,670,494 | - | ||||||
| Payment of closing related fees | (424,813 | ) | (24,404 | ) | ||||
| Proceeds from PPP loan | - | 346,390 | ||||||
| Proceeds from sale of common stock and warrants | 11,834,722 | - | ||||||
| Net Cash Provided by Financing Activities | 14,984,528 | 489,639 | ||||||
| Net Increase in Cash and Restricted Cash | 11,694,209 | 505,282 | ||||||
| Cash and Restricted Cash – Beginning of Period | 4,537,546 | 1,737,380 | ||||||
| Cash and Restricted Cash – End of Period | ||||||||
| $ | 16,231,755 | $ | 2,242,662 | |||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | $ | 1,395,611 | $ | 1,241,819 | ||||
| Taxes | $ | 47,874 | $ | 10,014 | ||||
| Non-cash financing activities: | ||||||||
| Accrued fees incurred in connection with equity offerings | $ | - | $ | 40,748 | ||||
| Common Stock issued in connection with management incentive plans | $ | 80,456 | $ | 200,794 | ||||
| Accrued Preferred Stock dividends | $ | 266,907 | $ | 25,000 | ||||
| Common stock issued for dividends | $ | 19,584 | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 –- ORGANIZATION AND BASIS OF PRESENTATIONPRINCIPAL BUSINESS ACTIVITIES
ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
Nxt-ID,LogicMark, Inc. (“Nxt-ID”LogicMark” or the “Company”), formerly called Nxt-ID, Inc, was incorporated in the State of Delaware on February 8, 2012. The CompanyLogicMark provides personal emergency response systems (PERS), health communications devices, and IoT technology.technology that creates a connected care platform. The Company evaluatesCompany’s devices give people the performance of its business on, among other things, profitability to receive care at home and loss from operations.the confidence to age independently. LogicMark revolutionized the PERS industry by incorporating two-way voice communication technology directly in the medical alert pendant and providing life-saving technology at a price point everyday consumers could afford. The PERS technologies are sold through dealers and distributors, as well as directly to the United States Veterans Health Administration.
NOTE 2 - LIQUIDITY AND MANAGEMENT PLANS
The Company’s wholly-owned subsidiary, LogicMark, LLC (“LogicMark”), manufacturesCompany generated an operating loss and distributes non-monitorednet loss of $1,283,145 for the three months ended March 31, 2022. As of March 31, 2022, the Company had cash and monitored personal emergency response systems sold throughstockholders’ equity of $12,224,887 and $25,847,828, respectively. As of March 31, 2022, the United States DepartmentCompany had working capital of Veterans Affairs, healthcare durable medical equipment dealers, distributors, and monitored security dealers and distributors.$12,512,012 compared to working capital on December 31, 2021, of $13,098,049.
Given the Company’s cash position on March 31, 2022, and its projected cash flow from operations, the Company believes that it will have sufficient capital to sustain operations for a period of one year following the date of this filing.
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as of September 30, 2021, and for the nine and three months ended September 30, 2021 and 2020 have been prepared in accordance with theU.S. generally accepted accounting principles generally accepted in(GAAP) and applicable rules and regulations of the United States of America (“U.S. GAAP”) forSecurities and Exchange Commission (SEC) regarding interim financial reporting. In the opinion of management, the information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the 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, 2021 and the condensed consolidated statements of operations and changes in equity for the nine and three months ended September 30, 2021 and September 30, 2020 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and September 30, 2020 are unaudited, but includeherein reflects all adjustments, consisting only of normal recurring adjustments which the Company considersexcept as otherwise noted, considered necessary for a fair presentationstatement of theresults of operations, financial position, operating resultsstockholders’ equity, and cash flows for the periods presented.flows. The results for the nine and three months ended September 30, 2021interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or for any future interim period. The condensed consolidated balance sheet at December 31, 2020 has been derived from audited consolidated financial statements. However, it does not include all of thefollowing information and notes required by U.S. GAAP for complete consolidated financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidatedaudited financial statements for the year ended December 31, 2020 and the notes thereto included in the Company’s Annual Report on Form 10-K which was filed withfor the SEC on April 15,year ended December 31, 2021.
Net loss per share and all share data for the nine and three months ended September 30,ending March 31, 2021, and 2020 have been retroactively adjusted to reflect the reverse stock split that occurred in October 2021, in accordance with ASC 260-10-55-12, Restatement of EPS Data. See Note 7.
NOTE 2 – LIQUIDITY6.
The Company generated an operating lossCertain prior year amounts have been reclassified for consistency with the current year’s presentation. These reclassifications of $1,491,445 and a net lossexpenses had no effect on the reported results of $5,419,609 during the nine months ended September 30, 2021. As of September 30, 2021, the Company had cash and stockholders’ equity of $16,046,625 and $32,417,889, respectively. At September 30, 2021, the Company had working capital of $14,020,301.
The Company used cash of $3.3 million in operations in the first nine months of 2021, which includes a $1.1 million payout of substantially past due accounts payable. The Company believes the cash balance of $16.0 million is sufficient to sustain operations for at least the next 12 months.
As described in Note 6, the coronavirus could continue to significantly impact the Company’s business, which would potentially require the Company to raise funds to assist with its working capital needs.operations.
5
Nxt-ID,
LogicMark Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 –4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of condensed consolidated financial statements in conformity with U.S. GAAPgenerally accepted accounting principles in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated 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 value of acquired assets and liabilities, stockbasedstock-based compensation, derivative instruments, income taxes, allowance for doubtful accounts, receivable,long-lived assets, and inventories, right-of-use assets and other matters that affect the condensed consolidated financial statements and disclosures. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATIONCASH
The condensed consolidatedCompany considers all highly liquid securities with an original maturity date of three months or less when purchased to be cash equivalents. Due to their short-term nature, cash equivalents are carried at cost, which approximates fair value. On March 31, 2022, and December 31, 2021, the Company had no cash equivalents, respectively.
RESTRICTED CASH
On March 31, 2022, and December 31, 2021, the Company had restricted cash of $210,118 and $210,131, respectively. Restricted cash includes amounts held back by the Company’s third-party credit card processor for potential customer refunds, claims, and disputes and held as collateral for company credit cards.
6
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains its cash balances in large well-established financial statements includeinstitutions located in the United States. At times, the Company’s cash balances may be uninsured or in deposit accounts of Nxt-ID and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.that exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits.
REVENUE RECOGNITION
The Company’s revenues consist of product sales to either end customers or distributors. The Company’s revenues are derived from contracts with customers, which are in most cases customer purchase orders. For each contract, the promise to distributors and itstransfer the control of the products, each of which is individually distinct, is considered to be the identified performance obligation. As part of the consideration promised in each contract, the Company evaluates the customer’s credit risk. Our contracts do not have any financing components, as payment terms are generally due Net-30 days after the invoice date. The Company’s products are almost always sold at fixed prices. In determining the transaction price, we evaluate whether the price is subject to any refunds, due to product returns or adjustments due to volume discounts, rebates, or price concessions to determine the net consideration we expect to be entitled to. The Company’s sales are recognized at a point-in-time under the core principle of recognizing revenue when control of the product transfers to the customer. Thecustomer, which generally occurs when the Company recognizes revenue when it ships or delivers the product from its fulfillment center to its customer,our customers, when theour customer accepts and has the legal title of the product,goods, and the Company has a present right to payment for such goods. Based on the product.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 nine months ended September 30,March 31, 2022, and 2021, and 2020, the Company had nonone of our sales were recognized over time. The Company invoices its customers at the same time that the Company’s performance obligation is satisfied. The Company generally receives customer orders with a specified delivery date and orders typically fluctuate from month-to-month based on customer demand and general business conditions.
The Company offers standard product warranty coverage which provides assurance thatSALES TO DISTRIBUTORS AND RESELLERS
Sales to certain distributors and resellers are made under terms allowing limited rights of return of the Company’s products will conformheld in their inventory or upon sale to their end customers. The Company maintains a reserve for unprocessed and estimated future price adjustments claims and returns as a refund liability. The reserve is recorded as a reduction to revenue in the contractually agreed-upon specificationssame 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 limited period fromreduction in revenue with a corresponding reduction to cost of sales for the dateestimated cost of shipment. The Company’s warranty liabilities and related expense have not been material andinventory that is expected to be returned. These reserves were not material inupon the accompanying condensed consolidated financial statements asadoption of September 30, 2021Topic 606 on January 1, 2018, nor were they material on the Condensed Balance Sheets on March 31, 2022, and December 31, 2020,2021.
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 the cost of goods sold, and were $191,662 and $106,425, respectively, for the three and nine months ended September 30, 2021March 31, 2022, and 2020.2021.
ACCOUNTS RECEIVABLE
For the three months ended March 31, 2022, and 2021, the Company’s revenues primarily included shipments of the LogicMark products. The terms and conditions of these sales provided certain customers with trade credit terms. In addition, these sales were made to the retailers with no rights of return and are subject to the normal warranties offered to the ultimate consumer for product defects.
Accounts receivable isare stated at net realizable value. The Company regularly reviews accounts receivable balances and adjusts the receivable reserves as necessary whenever events or circumstances indicate the carrying value may not be recoverable. At September 30, 2021On March 31, 2022, and December 31, 2020,2021, the Company had an allowance for doubtful accounts of $74,025$7,014 and $126,733,$5,411, respectively.
7
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
The Company measures inventory at the lower of cost or net realizable value, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
The Company performs regular reviews of inventory quantities on hand and evaluates the realizable value of its inventories. The Company adjusts the carrying value of the inventory as necessary with estimated valuation reserves for excess, obsolete, and slow-moving inventory by comparing the individual inventory parts to forecasted product demand or production requirements. The inventory is valued at the lower of cost or net realizable value with cost determined using the first-in, first-out method. As of September 30,March 31, 2022, inventory was comprised of $876,084 in finished goods on hand. As of December 31, 2021, inventory was comprised of $113,956 in raw materials and $798,933$1,237,280 in finished goods on hand. Inventory at December 31, 2020 was comprised of $199,523 in raw materials and $567,828 in finished goods on hand. These amounts reflect an aggregate reserve for obsolete inventory of approximately $274,000. The Company is required to prepay for certain inventory with certain vendors until credit terms can be established. As of September 30, 2021March 31, 2022, and December 31, 2020, the Company had prepaid2021, $542,931 and $559,938 respectively, of prepayments made for inventory of $380,350 and $332,475, respectively. These prepayments were made primarily for finished goods inventory, and prepaid inventory isare included in prepaid expenses and other current assets on the condensed consolidated balance sheets.sheet. An allowance for obsolete inventory amounted to $24,868 on March 31,2022 and December 31, 2021.
LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, and other intangibles are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. When indicators exist, the Company tests for the impairment of the definite-lived assets based on the undiscounted future cash flow the assets are expected to generate over their remaining useful lives, compared to the carrying value of the assets. If the carrying amount of the assets is determined not to be recoverable, a write-down to fair value is recorded. Management estimates future cash flows using assumptions about expected future operating performance. Management’s estimates of future cash flows may differ from actual cash flow due to, among other things, technological changes, economic conditions, or changes to the Company’s business operations.
PROPERTY AND EQUIPMENT
Property and equipment consisting of equipment, furniture and fixtures, and tooling and molds are stated at cost. The costs of additions and improvements are generally capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful life of the respective asset as follows:
| Equipment | 5 years |
| Furniture and fixtures | 3 to 5 years |
| Tooling and molds | 2 to 3 years |
GOODWILL
Goodwill is reviewed annually in the fourth quarter, or when circumstances indicate that an impairment may have occurred. The Company first performs a qualitative assessment of goodwill impairment, which considers factors such as market conditions, performance compared to forecast, business outlook, and unusual events. If the qualitative assessment indicates a possible goodwill impairment, goodwill is then quantitatively tested for impairment. The Company may elect to bypass the qualitative assessment and proceed directly to the quantitative test. If a quantitative goodwill impairment test is required, the fair value is determined using a variety of assumptions including estimated future cash flows using applicable discount rates (income approach) and comparisons to other similar companies (market approach).
8
Nxt-ID,LogicMark Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INTANGIBLE ASSETS
At September 30,The Company’s intangible assets are related to the acquisition of LogicMark and are included in other intangible assets in the Company’s balance sheet on March 31, 2022, and December 31, 2021.
On March 31, 2022, Other intangible assets, net of amortization, are comprised of patents of $1,978,016; trademarks of $899,599; and customer relationships of $1,404,926. On December 31, 2021, the other intangible assets relating to the acquisition of LogicMark are comprised of patents of $2,166,931,$2,072,984; trademarks of $931,467,$915,619; and customer relationships of $1,570,268. At December 31, 2020, the other intangible assets relating to the acquisition of LogicMark are comprised of patents of $2,445,709; trademarks of $978,494; and customer relationships of $1,814,259.$1,488,044. The Company will continue amortizingamortizes these intangible assets using the straight-line method over their estimated useful lives which for the patents, trademarks, and customer relationships are 11 years;years, 20 years;years, and 10 years, respectively. During the nine and three months ended September 30,March 31, 2022, and 2021, and 2020, the Company hadrecorded amortization expense of $569,796$194,106 and $192,019, respectively, related to the LogicMark intangible assets.$187,845, respectively.
As of September 30, 2021,March 31, 2022, total amortization expense estimated for the remainder of fiscal year 20212022 is approximately $192,019,$567,709, and for each of the next five fiscal years, the total amortization expense is estimated to be as follows: 2022 - $761,815; 2023 - $761,815; 2024 - $761,815; 2025 - $761,815; and 2026 - $618,790.$618,790; and 2027- $272,235.
CONVERTIBLE INSTRUMENTS
The Company applies the accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies to separate conversion options from their host instruments and account for them as free-standing derivatives according to certain criteria. The criteria include circumstances in which (i) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative and the host contract is not re-measured at fair value under generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative would be considered a derivative. The derivative is subsequently marked to market at each reporting date based on the current fair value, with the changes in fair value reported in the results of operations.
Conversion options with variable settlement features such as provisions to adjust the conversion price upon subsequent issuances at exercise prices more favorable than that in the hybrid contract generally result in their separation from the host instrument.
The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The debt discounts under these arrangements are amortized over the earlier of (i) the term of the related debt using the straight-line method which approximates the interest rate method or (ii) conversion of the debt. The amortization of debt discount is included as interest expense included in other income and expenses in the statements of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not use derivatives to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Derivative financial instruments accounted for as liabilities are initially recorded at fair value and then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivatives, the Company uses the Black-Scholes or binomial option valuation model to value the derivatives at inception and on subsequent valuation dates. The Company accounts for conversion features that are embedded within the Company’s convertible notes payable that do not have fixed settlement provisions as a separate derivative. In addition, warrants issued by the Company that do not have fixed settlement provisions are also treated as derivatives. The classification of derivatives, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative could be required within 12 months of the balance sheet date.
9
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. The Company accounts for equity instruments issued to non-employees at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instrument vests or becomes non-forfeitable. Non-employee stock-basedStock-based compensation charges are amortized over the vesting period or as earned. Stock-based compensation is recorded in the same component of operating expenses as if it were paid in cash. The Company generally issues new shares of common stock to satisfy conversion and warrant exercises.
NET LOSS PER SHARE
Basic loss per share was computed using the weighted average number of shares of common stockshares outstanding. Diluted loss per share includes the effect of diluted common stock equivalents. Potentially dilutive securities from the exercise of stock options to purchase 40,858348,284 shares of common stock and warrants to purchase 4,393,2304,295,380 shares of common stock as of September 30, 2021March 31, 2022, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. As of September 30, 2020, potentiallyPotentially dilutive securities from the exercise of stock options to purchase 31,02736,364 shares of common stock and warrants to purchase 1,230,293937,813 shares of common stock as of March 31, 2021, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.
Net loss per share forRESEARCH AND DEVELOPMENT
Research and development costs are expenditures on new market development and related engineering costs. In addition to internal resources, the nineCompany utilizes functional consulting resources, third-party software, and three months ended September 30, 2021hardware development firms. The Company expenses all research and 2020 have been retroactively adjusted to reflect the reverse stock split that occurred in October 2021, in accordance with ASC 260-10-55-12, Restatement of EPS Data. See Note 7.development costs as incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting standards that have been issued or proposed by the FASB (Financial Accounting Standards Board) or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Salaries, payroll taxes and vacation | $ | 79,199 | $ | 54,229 | ||||
| Merchant card fees | 35,923 | 17,853 | ||||||
| Professional fees | 189,174 | 104,500 | ||||||
| Management incentives | 162,200 | 285,000 | ||||||
| Lease liability | 67,016 | 64,346 | ||||||
| Dividends – Series C and F Preferred Stock | 107,933 | 94,933 | ||||||
| Other | 124,868 | 228,424 | ||||||
| Totals | $ | 766,313 | $ | 849,285 | ||||
10
Nxt-ID,LogicMark Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – DEBT REFINANCINGS
On May 3, 2019, LogicMark, completed the closing of a $16,500,000 senior secured term loan with the lenders thereto and CrowdOut Capital, LLC, as administrative agent. The Company used the proceeds from the term loan to repay LogicMark’s existing term loan facility with Sagard Holdings Manager LP and to pay other costs related to the refinancing. The original maturity date of the term loan was May 3, 2022 and required the Company to make minimum principal payments over the three-year term amortized over 96 months.
During the nine months ended September 30, 2021, the Company made scheduled principal repayments totaling $1,031,250. Pursuant to an amendment to the loan agreement, LogicMark made a $5,000,000 voluntary principal prepayment and paid a prepayment premium of $125,000 The prepayment premium is included in interest expense for the nine months ended September 30, 2021 in the condensed consolidated statement of operations. In addition, the maturity date of the term loan was extended to March 22, 2023. The Company also made voluntary prepayments of the term loan with CrowdOut Capital LLC in May and June 2021 of $3,000,000 and $1,000,000, and fully paid off the loan in July 2021 with a voluntary payment of $1,064,627 with cash primarily provided by the issuance of equity securities and warrant exercises.
The Company incurred $412,500 in original issue discount for closing related fees charged by the Lender. During the nine and three months ended September 30, 2021, the Company amortized $137,855 and $26,616, respectively of the original issue discount which is included in interest expense in the condensed consolidated statement of operations. At September 30, 2021 the balance of the original issue discount was fully amortized. The Company also incurred $1,831,989 in deferred debt issue costs related to the term loan. During the nine and three months ended September 30, 2021, the Company amortized $713,119 and $118,205, respectively of the deferred debt issue costs which is included in interest expense in the condensed consolidated statement of operations. At September 30, 2021 the balance of deferred debt issuance costs was fully amortized.
The Company also has an exit fee of $1,072,500 due to CrowdOut Capital by December 1, 2021. The liability for the exit fee is included in other current liabilities in the Company’s condensed consolidated balance sheet. On November 1, 2021, the Company paid the exit fee off in its entirety.
Paycheck Protection Program
On May 6 and May 8, 2020, Nxt-ID Inc. and LogicMark, LLC, a wholly owned subsidiary of the Company (the “Borrowers”), received loans (the “Loans”) from Bank of America, NA in the aggregate amount of $346,390, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act, which was enacted on March 27, 2020.
The Loans, which were in the form of PPP promissory notes and agreements, dated May 1, 2020 (the “Note Agreements”), were to mature on May 6 and May 8, 2022, and bear interest at a rate of 1.00% fixed per annum, payable monthly commencing on November 6 and November 8, 2020, The Loans may be prepaid by the Borrowers at any time prior to maturity with no prepayment penalties. The Borrowers used the proceeds from the Loans for payroll, payroll taxes, and group healthcare benefits. Under the terms of the Note Agreements, certain amounts of the Loans may be forgiven if they are used for qualifying expenses, as described in the Note Agreements.
On March 2, 2021, the Company’s wholly-owned subsidiary, LogicMark, LLC received notification from the Small Business Administration that repayment of its loan in the amount of $301,390 plus accrued interest of $2,320 had been forgiven. On May 20, 2021, the Company received notification that repayment of its loan in the amount of $45,000 plus accrued interest of $466 had been forgiven. The income resulting from the forgiveness of both of the PPP loans and the related accrued interest is included in other income in the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2021.
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 –6 - STOCKHOLDERS’ EQUITY
October 2021 Reverse stock split
On October 15, 2021, the Company announced that its shareholders had approved a reverse split of its common stock and Series C Preferred at a ratio of 1 for 10. As a result of the reverse split, every 10 pre-split shares of common stock outstanding and every 10 pre-split shares of Series C 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 common shares was reduced from approximately 88.3 million shares to approximately 8.8 million shares, and the number of outstanding Series C preferred shares was reduced from 2,000 shares to 200 shares. The reverse stock split did not affect the total number of shares of capital stock, including Series C Preferred Stock, that the company is authorized to issue.
Earnings per share and all share data for the three months ended March 31, 2021, have been retroactively adjusted to reflect the reverse stock split in accordance with ASC 260-10-55-12, Restatement of EPS Data.
September 2021 Offering
On September 15, 2021, the Company sold an aggregate of (i) 2,788,750 shares of common stock, par value $0.001of $0.0001 per share, (the “Common Stock”), which includes 363,750 shares of Common Stock issued upon the exercise of the underwriters’ over-allotment option (the “Shares”) and (ii) accompanying warrants to purchase up to an aggregate of 2,788,750 shares of Common Stock, at an exercise price of $4.95 per share, subject to certain adjustments,both of which includes additional warrants issued uponinclude the exercise of the underwriter’s full over-allotment option to purchase up to an additional 363,750 shares of common stock (the “Warrants”), at a combined public offering price of $4.95 per Share and accompanying Warrant. The Company granted the underwriters a 45-day option to purchase up to 363,750 additional Shares and additional Warrants to purchase up to an additional 363,750 shares of Common Stock, which the underwriters exercised, in full, at closing.stock.
The Shares and the Warrants were offered and sold to the public pursuant to the Company’s registration statement on Form S-1, as amended (File No. 333-259105), filed by the Company with the Securities and Exchange Commission (the “SEC”)(SEC) under the Securities Act of 1933, as amended (the “Securities Act”)(Securities Act), which became effective on September 14, 2021.
The Warrants arewere not immediately exercisable, as the Company did not have a sufficient number of shares of Common Stock to reserve for issuance pursuant tofor the Warrants until the date (the “Initial Exercise Date”) that the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to effectaffect a reverse stock split of the shares of Common Stock so that there were a sufficient number of shares of Common Stock for issuance upon exercise of the Warrants. The Warrants became exercisable on the Initial Exercise Date (the effective date of the reverse stock split) and will terminate on the date that is five years after the Initial Exercise Date. The exercise price of the Warrants is subject to customary adjustments for stock dividends, stock splits and other subdivisions, combinations, and re-classifications, and will bewas reset on the date of the Company’s reverse stock split to the lower of (i) the closing price per share of the Common Stock immediately prior to suchbefore the reverse stock split, giving effect to the reverse stock split and (ii) the exercise price then in effect. The Warrants are also exercisable on a cashless basis under certain circumstances, any time after the Initial Exercise Date, pursuant to the formula set forthoutlined in the Warrants. On October 15, 2021, after shareholder and Board approval of the reverse stock split, the exercise price for the Warrants was adjusted to $3.956 per share, The reverse stock split and is beingthe exercise price were retroactively reported in accordance with ASC 260-10-55-12, Restatement of EPS Data. See Note 7.
On the Closing Date, the Company received gross proceeds inclusive of proceeds from the full exercise of the over-allotment option, of approximately $12.5 million, before deducting underwriting discounts and commissions of 7% of the gross proceeds (or 3.5% of the gross proceeds in the case of certain identified existing investors) and estimated Offeringoffering expenses. The Company intends to use the net proceeds from the Offering primarily for new product development, marketing, working capital, and liability reduction purposes.
August 2021 Offering
On August 13, 2021, the Company entered into a securities purchase agreement (the Purchase Agreement) with institutional accredited investors (the Investors) providing for an aggregate investment of $4,000,000 by the Investors for the issuance by the Company to them of (i) 1,333,333 shares of Series F Convertible Preferred Stock, par value $0.0001 per share, of the Company (the Series F Preferred Stock) convertible into shares of common stock, par value $0.001$0.0001 per share, of the Company (the Common Stock) that areis issuable from time to time upon conversion of such shares of Series F Preferred Stock (the Conversion Shares);Stock; (ii) warrants, with a term of five and a half (5.5) years exercisable after February 16, 2022, to purchase an aggregate of up to 666,667 shares of Common Stock (the Warrant Shares) at an exercise price of $7.80 per share. The securities were issued to the investors were exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder, based on representations made by the investors, their prior relationship with the Company, and the absence of any general solicitation. The Company used the net proceeds from this offering for working capital and liability reduction purposes. In the quarterthree months ended September 30, 2021, 1,160,000 shares of Series F preferred stock were converted into 656,604 shares of common stock. On October 15, 2021, after shareholder and Board approval of the reverse stock split, the exercise price for the Warrants was adjusted to $4.95 per share and is beingwas retroactively reported in accordance with ASC 260-10-55-12, Restatement of EPS Data. See Note 7.
11
Nxt-ID,LogicMark Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – STOCKHOLDERS’ EQUITY (CONTINUED)
February 2021 Offering
On February 2, 2021, the Company closed a registered direct offering and concurrent private placement pursuant to which the Company issued (i) an aggregate of 1,476,016 shares of Series E preferred stock, convertible into an aggregate of up to 295,203 shares of common stock, (ii) common stock purchase warrants to purchase up to an aggregate of 100,000 shares of common stock at an exercise price of $12.30 per share, subject to customary adjustments thereunder, which were exercisable immediately upon issuance and havehad a term of five years, and (iii) common stock purchase warrants to purchase up to an aggregate of 195,203 shares of common stock at an exercise price of $12.30 per share with a term of five and one-half (5.5) years first exercisable nine (6) months after issuance, subject to customary adjustments thereunder, for gross proceeds of $4,000,003, before deducting any offering expenses. The Company used the net proceeds from this offering for working capital and liability reduction purposes including additional term debt repayment.purposes. In February 2021, 1,476,016 shares of Series E preferred stock were converted into 295,203 shares of common stock. Also in February 2021, the Company recorded a deemed dividend of $1,480,801 from the beneficial conversion feature associated with the issuance of the Series E convertible preferred stock and warrants.
December 2020 OfferingJanuary 2021 Warrant exchange
On December 18, 2020,January 8, 2021, the Company closedentered into a registered direct offering pursuant to which the Company issued (i) an aggregateWarrant Amendment and Exercise Agreement (the “Amendment”) with holders (the “Holder”) of 1,515,151 shares of Series D preferred stock, convertible into an aggregate of up to 303,030 shares of common stock, (ii)a common stock purchase warrants to purchase up to an aggregate of 100,000 shares of common stock at an exercise price of $4.90 per share, subject to customary adjustments thereunder, which were exercisable immediately upon issuance and have a term of five years, and (iii) common stock purchase warrants to purchase up to an aggregate of 505,060 shares of common stock at an exercise price of $4.90 per share with a term of five and one-half (5.5) years first exercisable nine (6) months after issuance, subject to customary adjustments thereunder, for gross proceeds of $2,000,000, before deducting any offering expenses. The Company used the net proceeds from this offering for working capital, new product initiatives and other general corporate purposes. On December 21, 2020, 1,515,151 shares of Series D preferred stock were converted into 303,030 shares of common stock. During the year ended December 31, 2020,warrant, dated April 4, 2019, previously issued by the Company recorded a deemed dividend(the “Original Warrant”).
In consideration for each exercise of $758,922 from the beneficial conversion feature associated withOriginal Warrant within 45 calendar days of the Amendment, in addition to the issuance of the Series D convertible preferred stock and warrants.
July 2020 Offering
On July 14, 2020,Warrant shares, the Company closedagreed to deliver a registered direct offering of (i) an aggregate of 377,851new warrant to purchase shares of the Company’s common stock par value $0.001 per share; (ii) pre-funded warrantsequal to purchase up to an aggregatethe number of 73,497 shares of Common StockOriginal Warrants that the Holder exercised, at an exercise price of $0.01 $0.10$15.25 per share, subject to customary adjustments thereunder; (iii) registered warrants, with a termwhich represents the average Nasdaq Official Closing Price of the common stock for the five (5) yearstrading days immediately preceding the date of the Amendment (the “New Warrants”). The Investor held Original Warrants exercisable immediately upon issuance, to purchase an aggregate offor up to 157,972246,913 shares of Common Stock (at ancommon stock, subsequently exercised 50,000 Original Warrants within the 45 days, and received 50,000 New Warrants in addition to the Warrant shares. The Investor may continue to exercise pricethe Original Warrants after 45 calendar days of $5.00 per share, subject to customary adjustments thereunder; and (iv) unregistered warrants, with a term of five and one-half (5.5) years first exercisable nine (6) months after issuance, to purchase an aggregate of up to 375,000 shares of Common Stock at an exercise price of $6.50 per share, subject to customary adjustments thereunder,the Amendment, but will not receive New Warrants for gross proceeds of $1,864,528, before deducting any offering expenses. The Company used the net proceeds from this Offering for working capital, new product initiatives and other general corporate purposes.exercise.
On July 28, 2020,Series C Preferred Stock
In May 2017, the Company received proceedsauthorized Series C Preferred Stock. Holders of $7,350Series C Preferred Stock are entitled to receive dividends of 15% per year, payable in connection withcash. For the exercisethree months ended March 31, 2022, and 2021, the Company recorded Series C Preferred Stock dividends of 734,965 pre-funded warrants$75,000 in each period.
The Series C Preferred Stock may be redeemed by the Company 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 Preferred Stock and unpaid dividends. If a “fundamental change” occurs, the Series C Preferred Stock shall be immediately redeemed in cash equal to purchasethe stated value of the Series C Preferred Stock, and unpaid dividends. A fundamental change includes but is not limited to any change in the ownership of at least fifty percent of the voting stock; liquidation or dissolution, or the common stock atceases to be listed on the market upon which it currently trades.
The holders of the Series C Preferred Stock are entitled to vote on any matter submitted to the stockholders of the Company for a vote. One share of Series C Preferred Stock carries the same voting rights as one share of common stock.
Redeemable equity security is to be classified as temporary equity if it is conditionally redeemable upon the occurrence of an exercise priceevent that is not solely within the control of $0.10. .the issuer. Upon the determination that such events are probable, the equity security would be classified as a liability. Given the Series C Preferred Stock contains a fundamental change provision, the security is considered conditionally redeemable. Therefore, the Company has classified the Series C Preferred Stock as temporary equity in the balance sheets on March 31, 2022, and December 31, 2021, until such time that events occur that indicate otherwise.
12
Nxt-ID,
LogicMark Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2013 Long-Term Stock Incentive PlanNOTE 6 - STOCKHOLDERS’ EQUITY (CONTINUED)
Warrants
On January 4, 2013, a majority ofThere was no warrant activity during the three months ended March 31, 2022. The following table summarizes the Company’s stockholders approved by written consent the Company’s 2013 Long-Term Stock Incentive Plan (“LTIP”). The maximum aggregate number of shares of common stock that may be issued under the LTIP, including stock awards, stock issued to directors for servingwarrants outstanding and exercisable on the Company’s board of directors,March 31, 2022, and stock appreciation rights, is limited to 10% of the shares of common stock outstanding on the first business or trading day of any fiscal year. At January 1, 2021, a maximum of 406,200 shares of common stock may be issued. As of September 30, 2021, 333,627 shares had been granted, leaving 72,573 available.December 31, 2021:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Life | Intrinsic | |||||||||||||
| Warrants | Price | In Years | Value | |||||||||||||
| Outstanding and Exercisable at January 1, 2021 | 1,569,007 | $ | 13.30 | 4.1 | $ | 10,850,158 | ||||||||||
| Issued | 3,897,534 | $ | 5.26 | 4.77 | - | |||||||||||
| Exercised | (1,002,307 | ) | $ | 9.07 | - | - | ||||||||||
| Cancelled | (168,854 | ) | $ | 38.32 | - | - | ||||||||||
| Outstanding and Exercisable at December 31, 2021 | 4,295,380 | $ | 6.02 | 4.59 | - | |||||||||||
| Outstanding and Exercisable at March 31, 2022 | 4,295,380 | $ | 6.02 | 4.52 | - | |||||||||||
During the nine months ended September 30, 2021, the Company issued an aggregate of 40,858 stock options to purchase shares of common stock under the LTIP to four (4) non-employee directors for serving on the Company’s board. The weighted average exercise price of these stock options is approximately $5.90 and stock options were fully vested at the issuance date. The aggregate fair value of the stock options issued to the directors was $80,000.
NOTE 7 - STOCK INCENTIVE PLANS
2017 Stock Incentive Plan
On August 24, 2017, a majority of the Company’s stockholders approved at the 2017 Annual Stockholders’ Meeting the 2017 Stock Incentive Plan (“2017 SIP”)(2017 SIP). The aggregate maximum number of shares of common stock (including shares underlying options) that may be issued under the 2017 SIP pursuant to awards of restricted shares or options will beis limited to 10% of the outstanding shares of common stock, which calculation shall be madecalculated on the first (1st) business day of each new fiscal year; provided that for fiscal year 2017, 150,000 shares of common stock may be delivered to participants under the 2017 SIP. Thereafter, the 10% provision shall govern the 2017 SIP. The number of shares of common stock that are the subject of awards underyear. Under the 2017 SIP, whichoptions that are forfeited or terminated, are settled in cash in lieu of shares of common stock, or are settled in a manner such that all or some of such shares covered by an award are not issued, to a participant or are exchanged for awards that do not involve shares of common stock will again immediately become available to be issued pursuant to awards granted under the 2017 SIP.issued. If shares of common stock are withheld from payment of an award to satisfy tax obligations with respect toconcerning 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 under the 2017 SIP.issuance.
In addition, duringDuring the ninequarter ended March 31, 2022, the Company issued 430,339 shares of common stock vesting over periods ranging from 30 to 48 months with an aggregate fair value of $1,331,870 to certain employees as inducement and incentive grants. As of March 31, 2022, the unrecognized compensation cost related to non-vested stock options is $1,087,407. During the three months ended September 30,March 31, 2021, the Company issued 13,283 shares of common stock with an aggregate fair value of $80,456 to certain employees related to the Company’s 2019, 2018, and 20192017 management incentive plans.plan. The expense for the three months ended March 31, 2022, and 2021 was $244,463 and $0 respectively.
2013 Long-Term Stock Incentive Plan
On January 4, 2013, the Company’s stockholders approved the Company’s Long-Term Stock Incentive Plan (LTIP). The maximum number of shares of common stock that may be issued under the LTIP, including stock awards, stock issued to the Company’s Board, and stock appreciation rights, are limited to 10% of the common shares outstanding on the first business day of any fiscal year.
During the ninethree months ended September 30, 2021,March 31, 2022, the Company accrued $150,000issued 237,500 stock options vesting over four years to employees with an exercise price of management$3.36 and employee bonus expense. The Company has typically paidan option for 12,500 shares with a substantial portionstrike price of the bonus accrual with shares$2.20 and a total expense of common stock.
Warrants
On January 8, 2021, the Company entered into a Warrant Amendment and Exercise Agreement (the “Amendment Agreement”) with holders (the “Holder”) of a common$325,336. In addition, 27,276 fully vested stock purchase warrant, dated April 4, 2019, previously issued by the Companyoptions were granted to the Holder (the “Original Warrant”).
In consideration for each exercise of the Original Warrant that occurs within 45 calendar days of the date of the Amendment Agreement, in addition to the issuance of the Warrant Shares (as defined in the Original Warrant) on or prior to the Warrant Share Delivery Date (as defined in the Original Warrant), the Company has agreed to deliver to the Investor a new warrant to purchase a number of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), equal to the number of Original Warrants that the Holder has exercised pursuant to the terms of the Original Warrant,six non-employee Board directors at an exercise price of $15,25 per share, which represents the average Nasdaq Official Closing Price$2.20. The aggregate fair value of the Common Stock (as reflectedshares issued to the directors was $60,000, which includes the total expense. On March 31, 2021, the Company issued an aggregate of 2,837 stock options to purchase shares of common stock under the LTIP to four (4) non-employee directors for serving on Nasdaq.com) for the five trading days immediately precedingCompany’s board. The exercise price of these stock options is $14.10 and stock options were fully vested at the dateissuance date. The aggregate fair value of the Amendment Agreement (the “New Warrants”). The Investor originally held Original Warrants exercisable for upstock options issued to 246,914 shares of Common Stock, and, therefore, could receive up to an equivalent number of New Warrants. Under the terms and conditions ofdirectors was $40,000, which includes the Warrant Amendment and Exercise Agreement, the Investor could continue to exercise the Original Warrants after 45 calendar days of the date of the Amendment Agreement, but the Investor would not receive any New Warrants in consideration for the exercise of any Original Warrants exercised thereafter.total expense.
The Amendment Agreement contains customary representations, warranties and covenants by each of the Company and the Investor.
13
Nxt-ID,LogicMark Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On January 29, 2021 and February 8, 2021, the Investor exercised 500,000 and 1,969,136, respectively of the Original Warrants. The New Warrants issued, are exercisable for up to the original expiration dates of the Original Warrants, which is April 4, 2024. The exercise price and number of shares issuable upon exercise of the New Warrants are subject to traditional adjustment for stock splits, combinations, recapitalization events and certain dilutive issuances. The New Warrants are required to be exercised for cash; however, if during the term of the New Warrants there is not an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering the resale of the shares of Common Stock issuable upon exercise of the New Warrants, then the New Warrants may be exercised on a cashless (net exercise) basis pursuant to the formula provided in the New Warrants.
The Company used the proceeds from the exercise of the Original Warrants for working capital purposes, new product development efforts and to reduce its term debt outstanding.
The Company recorded a warrant modification expense of $2,881,729 for the nine months ended September 30, 2021 resulting from the issuance of 246,914 replacement warrants with an exercise price of $15.25 for warrants that were exercised in January and February 2021.
As of September 30, 2021, the Company had outstanding warrants to purchase an aggregate of 4,393,230 shares of common stock with a weighted average exercise price and remaining life of $6.88 and 4.8 years, respectively. During the nine months ended September 30, 2021, 86,072 warrants expired. At September 30, 2021, the warrants had no intrinsic value.
During the nine months ended September 30, 2021, warrants exercised on a cashless basis were converted into 423,933 shares of common stock.
NOTE 6 –8 - COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
On February 24, 2020, Michael J. Orlando, as shareholder representative (the “Shareholder Representative”), and the other stockholders of Fit Pay, Inc. (collectively, the “Fit Pay Shareholders”), filed a lawsuit in the United States District Court for the Southern District of New York against the Company, CrowdOut Capital, LLC, and Garmin International, Inc. (the “Complaint”). See Orlando v. Nxt-ID, Inc. No. 20-cv-1604 (S.D.N.Y.). The Complaint alleges that the Company has breached certain contractual obligations under a merger agreement, dated May 23, 2017, between Fit Pay, Inc. and the Company, regarding certain future, contingent earnout payments allegedly that could be owed to the Fit Pay Shareholders from future revenues. The Complaint seeks unspecified monetary damages from the defendants. The Company believes that these claims are without merit and is vigorously defending the action. On May 12, 2020, the Company filed an answer and counterclaims alleging, among other things, fraud and breach of fiduciary duty of the Shareholder Representative as well as arguing that the Shareholder Representative should be estopped from pursuing these claims. The Company has moved for summary judgment to have the lawsuit dismissed. The Company has been able to successfully stay discovery pending the court’s ruling on motions to dismiss by Garmin International, Inc. and CrowdOut Capital, LLC. In March 2021, following our successful application to stay all discovery, the court granted CrowdOut’s and Garmin’s separate motions to dismiss. Orlando’s claim against the Company still remains and the Company’s motion for summary judgment is still pending.
In connection with the sale of Fit-Pay, Inc., Giesecke+Devrient Mobile Security America, Inc. (“GDMSAI”) identified a disagreement with the Company over calculation of dividends with respect to GDMSAI’s Series C Non-Convertible Voting Preferred Stock (the “Series C”) of the Company and on August 13, 2020, GDMSAI sued the Company in Delaware Chancery Court seeking, among other things, $540,000 of dividends that it believes are owed to it pursuant to the terms of the Series C. In March 2021, a Delaware Chancery granted GDMSAI summary judgment on the merits, holding that relevant dividend language required a perpetually paid dividend once the $50 million threshold had been achieved. On August 11, 2021, the Company entered into a settlement agreement whereby the Company would pay $540,000 of dividends plus $55,000 of pre-judgement interest, but no post-judgement interest. The settlement is payable in tranches ending in November 2021. This amount has been accrued on the accompanying balance sheet at September 30, 2021.
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of our business. Other 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 the 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.
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
COMMITMENTS
The Company leases office space and a fulfillment centerequipment, in the U.S., which areis classified as operating leases expiring at various dates. The Company determines if an arrangement qualifies as a lease at the lease inception. The Company adopted Topic 842 effective January 1, 2019. 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 leases,lease, which areis for office space and a fulfillment center, generally havewith a lease term between 3 andof 5 years.years in August 2025. The Company also leases a copier with a lease term of 5 years.years, ending August 2023. The Company’s leases are comprised of fixed lease payments and also include executory costs such as common area maintenance, as well as property insurance and property taxes. As a practical expedient under Topic 842, the Company has elected to account for the lease and non-lease components (insurance and property taxes) as a single lease component for its real estate leases. Lease payments, which may include lease components and non-lease components, and non-components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract. Any actual costs in excess ofover such amounts are expensed as incurred as variable lease cost.costs.
The Company’s lease agreements generally do not specify an implicit borrowing rate, and as such, the Company utilizesuses its incremental borrowing rate by lease term, in order 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 commensurate with the lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined based on the remaining lease term using available data as of that date.streams. The Company’s current lease agreement for its warehouse space located in Louisville, Kentucky expired on August 31, 2020. As a result, the Company entered into a new five-year lease agreement in SeptemberJune 2020 for a new warehouse space also located in Louisville, Kentucky. The monthly rent which commenced in September 2020 is $6,000$6,200 per month and increases approximately 3% annually thereafter. The ROU asset value added as a resultvalue-added because of this new lease agreement was $279,024. The Company’s ROU asset and lease liability accounts reflect the inclusion of this new lease agreement onin the Company’s condensed consolidated balance sheet as of September 30, 2021.March 31, 2022.
Certain of theThe Company’s lease agreements primarily related to real estate, include options for the Company to either renew (extend) or early terminate the lease. Leases with renewal options allow the Company to extend the lease term typically between 1 and 3 years. 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 but not limited to,the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that the Company would exercise suchthe option. In most cases, the Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company (andand thus not included in the Company’s ROU asset and lease liability) unless there is an economic, financial or business reason to do so.liability.
For the ninethree months ended September 30, 2021,March 31, 2022, the total operating lease cost was $923,762$24,558 and is recorded in cost of sales and selling, general and administrative expenses, dependent on the nature of the leased asset.expenses. The operating lease cost is recognized on a straight-line basis over the lease term. The following summarizes (i) the future minimum undiscounted lease payments under the non-cancelable lease for the remainder of 2021 as well as each of the next fivefour 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 leases,lease, (ii) a reconciliation of the undiscounted lease payments to the present value of the lease liabilities, recognized, and (iii) the lease-related account balances on the Company’s condensed consolidated balance sheet as of September 30, 2021:March 31, 2022:
Year Ended December 31,
| 2021 (excluding the nine months ended September 30, 2021) | $ | 23,146 | ||
| 2022 | 93,385 | |||
| 2023 | 89,724 | |||
| 2024 | 80,000 | |||
| 2025 | 54,400 | |||
| Total future minimum lease payments | $ | 340,655 | ||
| Less imputed interest | (72,077 | ) | ||
| Total present value of future minimum lease payments | $ | 268,578 |
As of September 30, 2021
| Operating lease right-of-use assets | $ | 263,578 | ||
| Other accrued expenses | $ | 61,760 | ||
| Other long-term liabilities | $ | 206,819 | ||
| $ | 268,579 | |||
| As of September 30, 2021 | ||||
| Weighted Average Remaining Lease Term | 3.54 years | |||
| Weighted Average Discount Rate | 12.80 | % |
| Year Ending December 31, | ||||
| 2022 (excluding the three months ended March 31, 2022) | $ | 70,239 | ||
| 2023 | 89,724 | |||
| 2024 | 80,000 | |||
| 2025 | 54,400 | |||
| Total future minimum lease payments | $ | 294,363 | ||
| Less imputed interest | (55,594 | ) | ||
| Total present value of future minimum lease payments | $ | 238,769 | ||
14
Nxt-ID,LogicMark Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Coronavirus – COVID-19
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Sales volumes and the related revenues for most of the Company’s products and services were significantly impacted during the latter portion of the first quarter and throughout the balance of 2020 as a result of the healthcare industry’s focus on COVID prevention and treatment, which impacted the markets we serve, in particular the VA hospitals and clinics. Sales of the Company’s products and services have continued to be impacted as various policies were implemented by federal, state and local governments in response to the COVID-19 pandemic, and the public remains wary of real or perceived opportunities for exposure to the virus. The Company believes the extent of the COVID-19 pandemic’s impact on its operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond the Company’s control and ability to forecast. Because of these uncertainties, the Company cannot estimate how long or to what extent the pandemic will impact its operations.
NOTE 7 – SUBSEQUENT EVENTS8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
| As of March 31, 2022 | ||||
| Operating lease right-of-use assets | $ | 232,569 | ||
| Other accrued expenses | $ | 67,016 | ||
| Other long-term liabilities | $ | 171,754 | ||
| $ | 238,770 | |||
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued.
Reverse stock split
On October 15, 2021, the Company announced that the shareholders had approved a reverse split of its common stock and Series C Preferred at a ratio of 1 for 10. As a result of the reverse split, each 10 pre-split shares of common stock outstanding and each 10 pre-split shares of Series C 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 common shares was reduced from approximately 88.3 million shares to approximately 8.8 million shares, and the number of outstanding Series C preferred shares was reduced from 2,000 shares to 200 shares. No fractional shares were issued as a result of the reverse stock split, all of which were rounded up to the nearest whole number. The reverse stock split did not affect the total number of shares of capital stock, including Series C Preferred Stock, that the company is authorized to issue.
Earnings per share and all share data for the nine and three months ended September 30, 2021 and 2020 have been retroactively adjusted to reflect the reverse stock split in accordance with ASC 260-10-55-12, Restatement of EPS Data.
Compliance with Nasdaq Listing Rule
On November 3, 2021, the Company received a letter from The Nasdaq Stock Market acknowledging that the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires the Company’s common stock listed on Nasdaq to maintain a minimum bid price of $1.00 per share, and that such common stock will remain listed on Nasdaq subject to the Company’s ongoing compliance with all Nasdaq listing rules.
Payment of senior debt obligation
On November 1, 2021, the Company’s wholly-owned subsidiary, LogicMark, LLC, made a $1.1 million payment to its senior lender, completely satisfying all of its financial obligations with that lender. As of November 1, 2021, the Company had no senior debt obligations.
| As of March 31, 2022 | |||
| Weighted Average Remaining Lease Term | 4.3 years | ||
| Weighted Average Discount Rate | 12.80 | % |
15
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 nine and three months ended September 30, 2021March 31, 2022, should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q for the quarterly report.period ended March 31, 2022 (this “Form 10-Q”). This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect toconcerning future events and areis subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date of this report.Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform to these statements to actual results.
All share and price per share information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section has been adjusted to reflect our one-for-ten reverse stock split of our outstanding common stock, par value $0.0001 per share (the “Common Stock”), and Series C Non-Convertible Voting Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”), which became effective on October 15, 2021. Expenses included in the results of operations for 2021 have been reclassified to conform to the 2022 presentation format.
Overview
LogicMark, Inc. (formerly known as Nxt-ID, Inc. (“Nxt-ID” or the “Company”) was incorporated in the State of Delaware on February 8, 2012. The Company provides personal emergency response systems (PERS),PERS, health communications devices, and IoT technology.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 providing life-saving technology at a consumer-friendly price point aimed at everyday consumers. The Company evaluatesis focused on modernizing remote monitoring to help people stay safe and live independently longer. The PERS technologies are sold through dealers and distributors, as well as through the performanceVeterans Health Administration (VA). The Company enjoys a strong base of its business on, amongwith the VA and plans to expand to other things, profit and loss from operations.government services after being awarded the five-year General Services Administration (GSA) Agreement in 2021.
Environmental, Social and Governance (ESG)
In June 2021, Chia-Lin Simmons was appointed Chief Executive Officer and a member of the Board of Directors. Ms. Simmons and the Board set out to recognize our ESG responsibilities and create the highest standards for both social and shareholder endeavors. We have structured our ESG efforts around three main themes:
Financial/Policy Reviews & Audits
To protect shareholder interest, the company immediately set about remediating its potential delisting from the NASDAQ stock market. While the process extended over many months, compliance was successfully regained. Ongoing adherence to Nasdaq’s governance guidelines is required to remain listed and the Company is using its best efforts to do so.
Diversity & Equity
Making products that serve the neediest and most vulnerable is an example of how our social and shareholder responsibility goals align. The Company believes that its core business of providing PERS devices to veterans, the elderly, and our loved ones plays a vital role in making our world more equitable. We believe safety, security, and the desire to gracefully age at home are basic needs. Offering differing price points for our products also meets the needs of persons in varying socioeconomic situations.
More than 500,000 of our PERS devices have been deployed, the vast majority to U.S. veterans. Our staff has the privilege of serving as ambassadors in the marketplace, taking an average of 150 calls from veterans each day. While many of our employees work remotely, volunteerism is encouraged in the communities where we reside.
Our wholly-owned subsidiary, LogicMark, manufacturesCEO has been a champion of diversity and distributes non-monitoredinclusion throughout her career. In addition to several new key female and monitored personal emergency response systems sold throughminority employees, we have added a female Board member to the United States Department of Veterans Affairs (the “VA”), healthcare durable medical equipment dealersteam. We will also begin looking at Company diversity and distributorsinclusion practices and monitored security dealers and distributors.examine labor standards across our supplier base.
HealthcareOperational Efficiency
OverviewBuilding a sustainable enterprise is a priority for the Company. As a result, we have closed offices to streamline operations. We have begun to reduce paper waste throughout the Company and are working toward a goal of decreasing the amount of marketing collateral and printed materials included with each device by 50%.
With respect
We expect to conduct an energy and resources evaluation to determine if increased efficiencies are possible. In addition, we are exploring new packaging and recycling programs for our Company and customers. Expansion and improvement of domestic and international supply chain channels, and a CO2 offset program are all under review to ensure we meet customer demand and that suppliers adhere to recommended codes of conduct.
To fulfill our responsibilities and to discharge our duty, these guidelines are subject to modification as the healthcare market, our business initiatives are driven by LogicMark, which serves a market that enables two-way communication, medical device connectivityBoard of Directors deems appropriate and patient data tracking of key vitals through sensors, biometrics, and security to make home health care a reality. There are four (4) major trends driving this market: (1) an increased desire for connectivity; specifically, a greater desire for connected devices by people over 60 years of age who now represent the fastest growing demographic for social media; (2) the growth of “TeleHealth”, which is the means by which telecommunications technologies are meeting the increased need for health systems to better distribute doctor care across a wider range of health facilities, making it easier to treat and diagnose patients; (3) rising healthcare costs – as healthcare spending continues to outpace the economy, the need to reduce hospital readmissions, increase staffing efficiency and improve patient engagement remain the highest priorities; and (4) the critical shortage of labor in the home healthcare industry, creating an increased need for technology to improve communication to home healthcare agenciesbest interests of the Company and our shareholders or as required by their clients. Together, these trends have produced a largeapplicable laws and growing market for us to serve. LogicMark has built a successful business on emergency communications in healthcare. We have a strong business relationship with the VA today, serving veterans who suffer from chronic conditions that often require emergency assistance. Our strategic plan calls for expanding LogicMark’s business into other healthcare verticals as well as retail and enterprise channels in order to better serve the expanding demand for connected and remote healthcare solutions.regulations.
Home healthcare is an emerging area for LogicMark. The long-term trend toward more home-based healthcare is a 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.
16
Recent Developments of the Company
Transition of Directors
On February 21, 2022, the Board appointed Sherice R. Torres as a director and on March 18, 2022, the Board appointed John Pettit as a director, increasing the Board members to seven. On April 29, 2022, David R. Gust resigned from the Board of Directors and joined the Company’s Advisory Board and on May 5, 2022, Michael J. Almada-Remedios resigned from the Board of Directors and joined the Company’s Advisory Board.
Results of Operations
Comparison of nine and threeThree months ended September 30, 2021 and September 30, 2020
Revenue. Our revenues for the nine and three months ended September 30, 2021 were $7,604,286 and $2,383,029, respectively,March 31, 2022, compared to $8,866,205 and $2,639,193 respectively, for the nine and three months ended September 30, 2020. The decrease in our revenue for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is primarily attributable to LogicMark’s decreased sales volume resulting from the COVID-19 pandemic. The decrease in our revenue forwith the three months ended September 30,March 31, 2021 compared to 2020 is also primarily attributable to the impact of the COVID-19 pandemic..
Revenue, Cost of Revenue, and Gross Profit. ProfitOur gross profit for
| For the three months ending | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | 3,650,689 | $ | 2,438,682 | $ | 1,212,007 | 50 | % | ||||||||
| Cost of Goods Sold | 1,447,305 | 989,388 | 457,917 | 46 | % | |||||||||||
| Gross Profit | $ | 2,203,384 | $ | 1,449,294 | $ | 754,090 | ||||||||||
| Profit Margin | 60 | % | 59 | % | ||||||||||||
We experienced a 50% increase in revenue in the nine and three months ended September 30, 2021 was $4,638,109 and $1,267,459 respectively,quarter ending March 31, 2022, compared to the quarter ending March 31, 2021. Sales increases were driven by improvements in sales to the VA hospitals and clinics and from replacement sales of 4G Guardian Alert 911Plus devices to our out-of-warranty customers holding the 3G version of the same device. Due to the sunsetting of the 3G service by the nation’s cellular network providers, our customers’ 3G units no longer work in areas of the country not being supported by 3G service.
Gross profit increased by 46% in the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021, and profit margin increased from 59% to 60%. This increase in margin was a gross profitresult of $6,488,057lower inbound freight costs.
Operating Expenses
| For the three months ending | ||||||||||||||||
| March 31, | ||||||||||||||||
| Operating Expenses | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Direct operating cost | $ | 474,442 | $ | 244,669 | $ | 229,773 | 94 | % | ||||||||
| Selling and marketing | 189,207 | 80,123 | 109,084 | 136 | % | |||||||||||
| Research and development | 262,484 | 313,896 | (51,412 | ) | -16 | % | ||||||||||
| General and administrative | 2,335,949 | 1,379,071 | 956,878 | 69 | % | |||||||||||
| Other expense | 30,084 | 10,568 | 19,516 | 185 | % | |||||||||||
| Depreciation and amortization | 194,363 | 203,857 | (9,494 | ) | -5 | % | ||||||||||
| Total Expenses | $ | 3,486,529 | $ | 2,232,184 | $ | 1,254,345 | 56 | % | ||||||||
Direct Operating Costs
Direct operating costs increased in the quarter ended March 31, 2022, compared to the same quarter last year as a result of increased warranty replacement cost. While the sunsetting of the 3G cellular network did not trigger a warranty claim as our products continued to work where 3G cell service was available, the Company decided to replace all our customers’ 3G products still under warranty with new 4G units at no cost to our customers.
Selling and $1,878,228 respectively, forMarketing
Expenditures in sales and marketing in the ninequarter ended March 31, 2022, exceeded the same quarter last year due to the addition of a senior sales leader and three monthshigher sales commissions paid on the increase in sales. An increase in marketing costs in the current period was due to the addition of a senior marketing leader and a marketing associate.
Research and Development
Research and development costs in the quarter ended September 30, 2020. The decreaseMarch 31, 2022, were less than the same quarter last year. As we strive to accelerate the pace of new product development in gross profit for the nine months ended September 30, 2021future quarters, we expect to continue to see an increase in engineering costs devoted to new product development as compared to the nine months ended September 30, 2020previous year periods.
General and Administrative
Beginning in the first quarter of 2022, we added resources to our organization to drive revenue growth and new product development. As much as feasible, this is primarily attributablebeing accomplished with temporary, experienced fractional consultants to LogicMark’s decreased sales volume as well asminimize permanent expense while also taking advantage of their deep expertise and ability to execute quickly. Compared to the first quarter of last year, G&A expenses increased due to higher product cost of inventory purchased for resale. Gross profitD&O insurance costs, higher non-cash stock compensation costs, and profit margins declined in 2021 for both the nine month and three month periods partially because higher cost of inventory purchased for resale andcosts in the three months ended September 30, 2021, the addition ofFinance area, partially offset by a reservelower accrual rate for obsolete inventory.management incentives.
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Operating Expenses. Operating expenses for the nine months ended September 30, 2021 totaled $6,129,554Other Income and consisted of research and development expenses of $719,515, selling and marketing expenses of $1,661,340 and general and administrative expenses of $3,748,699. The research and development expenses related primarily to salaries and consulting services of $676,722. Selling and marketing expenses consisted primarily of salaries and consulting services of $351,354 amortization of intangibles of $569,796, freight charges of $374,484, merchant processing fees of $161,934, and sales commissions of $168,233. General and administrative expenses consisted of salaries and consulting services of $968,141, accrued management and employee incentives of $150,000, legal, audit and accounting fees of $899,993 and insurance of $531,907. Also included in general and administrative expenses is $288,000 in non-cash stock compensation expense to management and board members.Expenses
Operating expenses for the nine months ended September 30, 2020 totaled $6,078,402 and consisted of research and development expenses of $757,221, selling and marketing expenses of $1,865,626 and general and administrative expenses of $3,455,555. The research and development expenses related primarily to salaries and consulting services of $669,892. Selling and marketing expenses consisted primarily of salaries and consulting services of $396,286, amortization of intangibles of $569,796, freight charges of $412,883, merchant processing fees of $190,727, and sales commissions of $180,870. General and administrative expenses consisted of salaries and consulting services of $661,042, accrued management and employee incentives of $120,000, legal, audit and accounting fees of $1,430,182 and insurance of $351,429.
Operating expenses for the three months ended September 30, 2021 totaled $1,764,342 and consisted of research and development expenses of $202,949, selling and marketing expenses of $482,563 and general and administrative expenses of $1,078,830. The research and development expenses related primarily to salaries and consulting services of $215,609. Selling and marketing expenses consisted primarily of salaries and consulting services of $68,531, amortization of intangibles of $192,019, freight charges of $149,923, merchant processing fees of $52,803, and sales commissions of $54,860. General and administrative expenses consisted of salaries and consulting services of $550,963, accrued management and employee incentives of $50,000, legal, audit and accounting fees of $369,913 and insurance of $254,090.
Operating expenses for the three months ended September 30, 2020 totaled $2,404,653 and consisted of research and development expenses of $257,832, selling and marketing expenses of $577,085 and general and administrative expenses of $1,569,736. The research and development expenses related primarily to salaries and consulting services of $233,547. Selling and marketing expenses consisted primarily of salaries and consulting services of $106,770, amortization of intangibles of $192,019, freight charges of $141,522, merchant processing fees of $55,385, and sales commissions of $56,604. General and administrative expenses consisted of salaries and consulting services of $206,085, accrued management and employee incentives of $40,000, legal, audit and accounting fees of $864,793 and insurance of $125,514.
Net Loss. The net loss for the nine months ended September 30, 2021 was $5,419,609 compared to a net loss of $1,307,906 for the nine months ended September 30, 2020. The net loss for the nine months ended September 30, 2021 was primarily attributable to the operating loss of $1,491,445, interest expense of $1,395,611 and warrant modification expense of $2,881,729 which was partially offset by PPP loan forgiveness of $349,176. The net loss for the nine months ended September 30, 2020 was $1,307,906 and was primarily attributable to the operating profit of $409,655 which was offset by interest expense of $1,717,561.
The net loss for the three months ended September 30, 2021 was $641,704 compared to a net loss of $1,078,341 for the three months ended September 30, 2020. The net loss for the three months ended September 30, 2021 was primarily attributable to the operating loss of $496,883 and interest expense of $144,821. The net loss for the three months ended September 30, 2020 was primarily attributable to the operating loss of $526,425 and interest expense of $551,996.
| For the three months ending | ||||||||||||||||
| March 31, | ||||||||||||||||
| Other Income & Expenses | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Interest Expense | $ | - | $ | (861,248 | ) | $ | 861,248 | -100 | % | |||||||
| Forgiveness of Paycheck Protection Plan loan and accrued interest | - | 303,710 | (303,710 | ) | 100 | % | ||||||||||
| Warrant modification expense | - | (2,881,729 | ) | 2,881,729 | -100 | % | ||||||||||
| Total Expenses | $ | - | $ | (3,439,267 | ) | $ | 3,439,267 | -100 | % | |||||||
Liquidity and Capital Resources
Sources of Liquidity
WeThe Company generated an operating loss of $1,491,445 and incurred a net loss of $5,419,609$1,283,145 for the ninethree months ended September 30, 2021.March 31, 2022. As of September 30, 2021, weMarch 31, 2022, the Company had cash and stockholders’ equity of $16,046,625$12,224,887 and $32,417,889,$25,847,828, respectively. At September 30, 2021, weOn March 31, 2022, the Company had working capital of $14,020,301.$12,512,012.
The Company usedGiven our cash of $3,290,319 inposition on March 31, 2022, and our projected cash flow from operations, in the first nine months of 2021, which includes a one-time $1.1 million payout of substantially past due accounts payable. The Company believes the cash balance of $16.0 million iswe believe we will have sufficient capital to sustain operations for the next 12 months.year. We may also 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 Generated byUsed in Operating Activities. Activities
Our primary ongoing uses of operating cash relate to payments to subcontractors, vendors, and employees 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 net 30normal trade payment terms.terms (net 30). During the ninethree months ended September 30,March 31, 2022, net cash provided by operating activities amounted to $292,447. During the three months ended March 31, 2021, net cash used in operating activities totaled $3,290,319 which was comprised of a net loss of $5,419,609, positive non-cash adjustmentsamounted to reconcile net loss to net cash used in operating activities of $4,270,531, and unfavorable changes in operating assets and liabilities of $2,141,239, as compared to net cash provided by operating activities of $15,643 for the nine months ended September 30, 2020, which was comprised of a net loss of $1,307,906, positive non-cash adjustments to reconcile net loss to net cash used in operating activities of $1,235,432, and changes in operating assets and liabilities of positive $88,117.$1,002,766.
Cash Used in Investing Activities. Activities
During the ninethree months ended September 30,March 31, 2022, we purchased $36,988 in equipment, and during the three months ended March 2021, and September 30, 2020, we did not use any net cash in investing activities.
Cash Provided by Financing Activities. Activities
| Cash flows from Financing Activities | 2022 | 2021 | ||||||
| Proceeds from sale of common stock and exercise of warrants | - | $ | 6,670,494 | |||||
| Proceeds received in connection with issuance of preferred stock, net | - | 4,000,003 | ||||||
| Term loan repayment | - | (5,515,625 | ) | |||||
| Fees paid in connection with equity offerings | - | (23,698 | ) | |||||
| Preferred Stock Dividends | (75,000 | ) | ||||||
| Net Cash (Used in) Provided by Financing Activities | $ | (75,000 | ) | $ | 5,131,174 | |||
During the ninethree months ended September 30,March 31, 2022, we paid cash dividends of $75,000 to our holders of Series C Preferred Stock. During the three months ended March 31, 2021, net cash provided by financing activities totaled $14,984,5281$5,131,174 and was primarily related to the proceeds received from the salewarrant exercises for shares of common stock and warrants of $11,834,722, the exercise of common stock warrants ofCommon Stock totaling $6,670,494 and the proceeds received in connection withfrom the issuance of shares of our Series E and F preferred stockConvertible Preferred Stock, par value $0.0001 per share, to investors in consideration for an aggregate of $8,000,002. The funds from these were partially used for the term loan repayment of $11,095,877 and fees paid in connection with the equity offerings of $424,813. During the nine months ended September 30, 2020, net cash provided by financing activities totaled $489,639 and was related to proceeds received in connected with issuance of common stock of $1,864,528, and loan proceeds of $346,390 received under the Paycheck Protection Program under the Corona Virus Aid, Relief and Economic Security Act$4,000,003, all of which was partially offset by term loan repayments of $1,696,875totaling $5,515,625 and fees of $24,404 paid in connection with equity offerings.offerings of $23,698.
Potential Impacts of COVID-19 Considerations on Our Business and Operations
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Sales volumes and the related revenues for most of our products and services were significantly impacted during the latter portion of the first quarter and throughout the balance of 2020 and now well into 2021 as a result of the healthcare industry’s focus on COVID prevention and treatment, which impacted the markets we serve, in particular the VA hospital and clinics. Sales of our products and services have continued to be impacted as various policies were implemented by federal, state and local governments in response toLike many US-based businesses, the COVID-19 pandemic, and efforts to deal with it began to impact our business in March 2020. During the public remains wary of real or perceived opportunities for exposure toperiod April 1, 2020, through January 31, 2022, we experienced decreases in demand from certain key customers, primarily our VA clinics. As the virus. We believe the extentadverse effects of the COVID-19 pandemic’s impact on our operating results and financial condition has been and will continuepandemic began to be driven by many factors, most of which are beyond our control and abilityease in February 2022, we have begun to forecast. Because of the current nationwide prevalence of the new COVID-19 Delta variant, we cannot estimate how long or to what extent the pandemic will impact our operations.experience an increase in sales.
In light of broader macro-economic risks and already known impacts on certain industries that use our products and services, during 2020 we took targeted steps to lower our operating expenses because of the COVID-19 pandemic. We continue to monitor the impacts of COVID-19 on our operations closely and this situation could change based on a significant number of factors that are not entirely within our control and are discussed in this and other sections of this report on Form 10-Q. We do not expect there to be material changes to our assets on our balance sheet or our ability to timely account for those assets.
To date, supply chain issues, travel restrictions and border closuressupply chain constraints have not materially impacted our ability to obtain inventory or manufacture or deliver products or services to customers;customers. We are concerned about, however, they have impactedthe current elevated level of COVID-19 infections in Asia and the Chinese government shutting down major cities and ports. In the future, this may impact our ability to develop new marketsboth source product and visit certain facilities, particularly VA hospital. We have taken steps to restrain and monitor our operating expenses and continue to monitor the trends in our business and broader economy to ensure that we properly track any material changesit delivered to the relationship between costs and revenues.United States.
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Impact of Inflation
We believe that our business haswas not been affected to a significant degreematerially impacted by inflationary pressures during 2021 but given inflationary trends seen so far in 2022, we believe we will face increased costs in operating, fulfillment, and overhead expenses during the past three years. However, inflation is still a factor in the worldwide economy and may increase the costyear. We plan to mitigate part of purchasing products from our contract manufacturers in Asia, as well as the cost of certain raw materials, component parts and labor used in the production of our products. It also may increase our operating expenses, manufacturing overhead expenses and the cost to acquire or replace fixed assets. We have generally been able to maintain or improve our profit marginsthese increases through productivity and efficiency improvements, and cost reduction programs andprograms. We may also need to a lesser extent,take price increases and we expect to be able to do the same during the remainder of fiscal year 2021. As such, we do not believe that inflation will have a significant impact on our business during the remainder of fiscal year 2021.products.
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.
RecentCritical Accounting PronouncementsPolicies
See Note 3There were no significant changes to our condensed consolidated financial statementscritical accounting policies and estimates during the three months ended March 31, 2022, from those disclosed in our Annual Report on Form 10-K for the nine monthsyear ended September 30, 2021, included elsewhere in this document.December 31, 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are not required to provide the information required by this Item sinceas we are a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we are 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, as of September 30, 2021.March 31, 2022. Management has not completed such evaluation but concluded, based on the material weaknesses in our internal controls over financial reporting described below, that our disclosure controls and procedures were not effective as of September 30, 2021March 31, 2022 to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Specifically, we have historically had difficulty in accounting for complex accounting transactions due to an insufficient number of accounting personnel with experience in that area and limited segregation of duties within our accounting and financial reporting functions.
As reported in our annual report on Form 10-K forWe noted the period ended December 31, 2020, during the closing procedures associated with our 2020 audit, management identified an employee theft event involving a non-material amount of money for the fiscal year ended December 31, 2020. Management determinedfollowing deficiencies that the incident was duewe believe to abe material weakness in its controls and procedures, specifically as a result of the lack of segregation of duties due to the limited number of employees performing certain administrative functions. In order to remediate the material weakness and further strengthen the controls, management initiated or enhanced certain receivables handling procedures by strictly controlling access to incoming mail and physical checks received by the Company. During the first quarter of 2021, we hired a forensic auditor who evaluated our transactions and determined that the incident was isolated. The Company was made whole during the first quarter of 2021. In July 2021, we retained Mark Archer as our Interim Chief Financial Officer, who has over 40 years of financial and operational experience, including assignments in technology and consumer products companies. In August 2021, we retained Armanino LLP to function as our internal accounting department and an individual at Armanino with over 30 years of public company financial reporting experience as our Interim Corporate Controller.weaknesses:
| - | As of December 31, 2021, management had not completed an assessment of the Company’s internal controls over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Management has concluded that, during the first three months of 2022, its internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP. |
| - | After the end of 2021, the Company determined that the tax provision related to prior years, prepared by the Company’s tax advisors, was incorrect resulting in a non-cash adjustment to increase deferred tax liabilities and an offset to income tax expense. |
| - | The Company changed accounting software for one of its subsidiaries in 2021 and did not have proper controls in place to ensure the accounting data was transferred over completely and accurately. |
| - | Due to a limited number of accounting personnel, the Company has historically had difficulty accounting for complex transactions and has limited segregation of duties within the accounting department. |
Additional time is required to complete our staffing, fully document our systems, implement control procedures, and test their operating effectiveness before we can conclude that we have fully remediated our material weaknesses.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred during the ninethree months ended September 30, 2021March 31, 2022, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, except that, in July 2021, we retained Mark Archer as our Interim Chief Financial Officer and in August 2021 we retained Armanino LLP to function as our accounting department and an individual at Armanino to function as Interim Corporate Controller. Mr. Archer succeeded Vincent S. Miceli, who resigned his officer positions of the Company.reporting.
Limitations of the Effectiveness of Controls
Our management, including our Chief Executive Officer and interim 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.
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PARTPart II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 24, 2020, Michael J. Orlando, as shareholder representative (the “Shareholder Representative”), and the other stockholders of Fit Pay, Inc. (collectively, the “Fit Pay Shareholders”), filed a lawsuit in the United States District Court for the Southern District of New York against the Company, CrowdOut Capital, LLC, and Garmin International, Inc. (the “Complaint”). See Orlando v. Nxt-ID, Inc. No. 20-cv-1604 (S.D.N.Y.). The Complaint alleges that the Company has breached certain contractual obligations under a merger agreement, dated May 23, 2017, between Fit Pay, Inc. and the Company, regarding certain future, contingent earnout payments allegedly that could be owed to the Fit Pay Shareholders from future revenues. The Complaint seeks unspecified monetary damages from the defendants. The Company believes that these claims are without merit and is vigorously defending the action. On May 12, 2020, the Company filed an answer and counterclaims alleging, among other things, fraud and breach of fiduciary duty of the Shareholder Representative as well as arguing that the Shareholder Representative should be estopped from pursuing these claims. The Company has moved for summary judgment to have the lawsuit dismissed. The Company has been able to successfully stay discovery pending the court’s ruling on motions to dismiss by Garmin International, Inc. and CrowdOut Capital, LLC. In March 2021, following our successful application to stay all discovery, the court granted CrowdOut’s and Garmin’s separate motions to dismiss. Orlando’s claim against the Company still remains and the Company’s motion for summary judgment is still pending.
In connection with the sale of Fit-Pay, Inc., Giesecke+Devrient Mobile Security America, Inc. (“GDMSAI”) identified a disagreement with the Company over calculation of dividends with respect to GDMSAI’s Series C Non-Convertible Voting Preferred Stock (the “Series C”) of the Company and on August 13, 2020 GDMSAI sued the Company in Delaware Chancery Court seeking, among other things, $440,000 of dividends that it believes are owed to it pursuant to the terms of the Series C. In March 2021, a Delaware Chancery granted GDMSAI summary judgment on the merits, holding that relevant dividend language required a perpetually paid dividend once the $50 million threshold had been achieved. On August 11, 2021, the Company entered into a settlement agreement whereby the Company would pay $540,000 of dividends plus $55,000 of pre-judgement interest, but no post-judgement interest. The settlement is payable in tranches ending in November 2021. This amount has been accrued on the accompanying balance sheet at September 30, 2021
From time to time, the Companywe may be involved in variousbecome subject to legal proceedings, claims, and legal actionsor litigation arising in the ordinary course of our business. Other thanWe are not presently a party to any other legal proceedings that in 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 the Company or anyopinion of our subsidiaries, threatened againstmanagement, if determined adversely to us, would individually 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 13, 2021, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with institutional accredited investors (the “Investors”) providing for an aggregate investment of $4,000,000 by the Investors for the issuance by the Company to them of (i) 1,333,333 shares of Series F Convertible Preferred Stock, par value $0.0001 per share, of the Company (the “Series F Preferred Stock”) convertible into shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”) that are issuable from time to time upon conversion of such shares of Series F Preferred Stock (the “Conversion Shares”); (ii) warrants, with a term of five and a half (5.5) years exercisable on February 16, 2022, to purchase an aggregate of up to 666,667 shares of Common Stock (the “Warrant Shares”) at an initial exercise price of $4.95 per share. The securities were issued to the investors were exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder, based on representations made by the investors, their prior relationship with the Company, and the absence of any general solicitation.None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
NoneNone.
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Item 6. Exhibits
| Exhibit | ||
| Number | Description | |
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
| * | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ||
| Date: | By: | /s/ Chia-Lin Simmons |
| Chia-Lin Simmons | ||
| Chief Executive Officer | ||
| (Duly Authorized Officer and | ||
| Principal Executive Officer) | ||
| Date: | By: | /s/ Mark Archer |
| Mark Archer | ||
| (Duly Authorized Officer and | ||
| Principal Financial and Accounting Officer) |
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