NOTE 2 - LIQUIDITY AND MANAGEMENT PLANS
The Company generated an operating loss and net loss of $1,283,145
for the three months ended March 31, 2022. As of March 31, 2022, the Company had cash and stockholders’ equity of $12,224,887 and
$25,847,828, respectively. As of March 31, 2022, the Company had working capital of $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 financial
statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations
of the Securities and Exchange Commission (SEC) regarding interim financial reporting. In the opinion of management, the information herein
reflects all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement
of results of operations, financial position, stockholders’ equity, and cash flows. The results for the interim periods presented
are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction
with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021.
Net loss per share and all share data for the
three months ending March 31, 2021, 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 6.
Certain prior year amounts have been reclassified
for consistency with the current year’s presentation. These reclassifications of expenses had no effect on the reported results
of operations.
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity
with generally accepted accounting principles in the United States (U.S. GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. The Company’s management evaluates these
significant estimates and assumptions, including those related to the fair value of acquired assets and liabilities, stock-based compensation,
income taxes, allowance for doubtful accounts, long-lived assets, and inventories, and other matters that affect the financial statements
and disclosures. Actual results could differ from those estimates.
CASH
The Company considers all highly liquid securities
with an original maturity date of three months or less when purchased to be cash equivalents. Due to their short-term nature, cash equivalents
are carried at cost, which approximates fair value. On 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.
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 institutions located in the United States. At times, the Company’s cash balances may be uninsured or in deposit accounts
that exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits.
REVENUE RECOGNITION
The Company’s revenues consist of product
sales 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 transfer 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 transfers to the customer, which generally occurs when the Company ships
or delivers the product from its fulfillment center to our customers, when our customer accepts and has the legal title of the goods,
and the Company has a present right to payment for such goods. Based on the respective contract terms, most of our contract revenues are
recognized either (i) upon shipment based on free on board (FOB) shipping point, or (ii) when the product arrives at its destination.
For the three months ended March 31, 2022, and 2021, none of our sales were recognized over time.
SALES TO DISTRIBUTORS AND RESELLERS
Sales to certain distributors and resellers are made under terms allowing
limited rights of return of the Company’s products held in their inventory or upon sale to their end customers. The Company maintains
a reserve for unprocessed and estimated future price adjustments claims and returns as a refund liability. The reserve is recorded as
a reduction to revenue in the same period that the related revenue is recorded and is calculated based on an analysis of historical claims
and returns over a period of time to appropriately account for current pricing and business trends. Similarly, sales returns and allowances
are recorded based on historical return rates, as a reduction in revenue with a corresponding reduction to cost of sales for the estimated
cost of inventory that is expected to be returned. These reserves were not material upon the adoption of Topic 606 on January 1, 2018,
nor were they material on the Condensed Balance Sheets on March 31, 2022, and December 31, 2021.
SHIPPING AND HANDLING
Amounts billed to customers for shipping and handling
are included in revenues. The related freight charges incurred by the Company are included in the cost of goods sold, and were $191,662
and $106,425, respectively, for the three months ended March 31, 2022, and 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 are 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. On March 31, 2022, and December 31, 2021, the Company had an allowance
for doubtful accounts of $7,014 and $5,411, respectively.
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 March 31, 2022, inventory was comprised of $876,084 in finished goods on hand. As of December 31, 2021, inventory
was comprised of $1,237,280 in finished goods on hand. The Company is required to prepay for certain inventory with certain vendors until
credit terms can be established. As of March 31, 2022, and December 31, 2021, $542,931 and $559,938 respectively, of prepayments made
for inventory are included in prepaid expenses and other current assets on the balance 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).
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INTANGIBLE ASSETS
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 are comprised of patents of $2,072,984; trademarks of $915,619; and customer relationships of $1,488,044.
The Company amortizes these intangible assets using the straight-line method over their estimated useful lives which for the patents,
trademarks, and customer relationships are 11 years, 20 years, and 10 years, respectively. During the three months ended March 31, 2022,
and 2021, the Company recorded amortization expense of $194,106 and $187,845, respectively.
As of March 31, 2022, total amortization expense estimated for the
remainder of fiscal year 2022 is $567,709, and for each of the next five fiscal years, the total amortization expense is estimated to
be as follows: 2023 - $761,815; 2024 - $761,815; 2025 - $761,815; 2026 - $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.
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. Stock-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 common shares outstanding. Diluted loss per share includes the effect of diluted common stock equivalents. Potentially
dilutive securities from the exercise of stock options to purchase 348,284 shares of common stock and warrants to purchase 4,295,380 shares
of common stock as of March 31, 2022, were excluded from the computation of diluted net loss per share because the effect of their inclusion
would have been anti-dilutive. Potentially dilutive securities from the exercise of stock options to purchase 36,364 shares of common
stock and warrants to purchase 937,813 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.
RESEARCH AND DEVELOPMENT
Research and
development costs are expenditures on new market development and related engineering costs. In addition to internal resources, the
Company utilizes functional consulting resources, third-party software, and hardware development firms. The Company expenses all
research and development costs as incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting standards that have been issued
or proposed by 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 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 | |
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 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 of $0.0001 per share, and (ii) accompanying warrants to purchase up to an aggregate
of 2,788,750 shares of Common Stock, at an exercise price of $4.95 per share, both of which include the underwriter’s full over-allotment
option to purchase an additional 363,750 shares of common stock.
The Shares and the Warrants were offered and sold to the public pursuant
to the Company’s registration statement on Form S-1, as amended (File No. 333-259105), filed by the Company with the Securities
and Exchange Commission (SEC) under the Securities Act of 1933, as amended (Securities Act), which became effective on September 14, 2021.
The Warrants were not immediately exercisable,
as the Company did not have a sufficient number of shares of Common Stock to reserve for issuance for 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 affect 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 five years after the Initial Exercise Date. The exercise price of the Warrants is subject
to customary adjustments for stock dividends, stock splits and other subdivisions, combinations, and re-classifications, and was reset
on the date of the Company’s reverse stock split to the lower of (i) the closing price per share of the Common Stock immediately
before the reverse stock split, giving effect to the reverse stock split and (ii) the exercise price then in effect. The Warrants are
also exercisable on a cashless basis under certain circumstances, any time after the Initial Exercise Date, pursuant to the formula outlined
in the Warrants. On October 15, 2021, after shareholder and Board approval of the reverse stock split, the exercise price for the Warrants
was adjusted to $3.956 per share, The reverse stock split and the exercise price were retroactively reported in accordance with ASC 260-10-55-12,
Restatement of EPS Data.
On the Closing Date, the Company received gross
proceeds of approximately $12.5 million, before deducting underwriting discounts and commissions and estimated offering expenses. The
Company 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 with institutional accredited investors providing for an aggregate investment of $4,000,000 for the issuance
by the Company 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 $0.0001 per share, of the Company that is issuable upon conversion
of shares of Series F Preferred Stock; (ii) warrants, with a term of five and a half years exercisable after February 16, 2022, to purchase
an aggregate of up to 666,667 shares of Common Stock at an exercise price of $7.80 per share. The securities issued to the 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 three 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 was retroactively reported in accordance with ASC 260-10-55-12, Restatement of EPS Data.
LogicMark Inc.
NOTES TO CONDENSED 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 up to 295,203 shares of common stock, (ii) common stock purchase warrants to purchase up to 100,000
shares of common stock at an exercise price of $12.30 per share, which were exercisable immediately and had a term of five years, and
(iii) common stock purchase warrants to purchase up to 195,203 shares of common stock at an exercise price of $12.30 per share with a
term of five and one-half years first exercisable nine months after issuance, for gross proceeds of $4,000,003, before deducting any offering
expenses. The Company used the net proceeds from this offering for working capital and liability reduction purposes. In February 2021,
1,476,016 shares of Series E preferred stock were converted into 295,203 shares of common stock. Also in February 2021, the Company recorded
a deemed dividend of $1,480,801 from the beneficial conversion feature associated with the issuance of the Series E convertible preferred
stock and warrants.
January 2021 Warrant exchange
On January 8, 2021, the Company entered into a
Warrant Amendment and Exercise Agreement (the “Amendment”) with holders (the “Holder”) of a common stock purchase
warrant, dated April 4, 2019, previously issued by the Company (the “Original Warrant”).
In consideration for each exercise of the Original Warrant within 45
calendar days of the Amendment, in addition to the issuance of the Warrant shares, the Company agreed to deliver a new warrant to purchase
shares of the Company’s common stock equal to the number of Original Warrants that the Holder exercised, at an exercise price of
$15.25 per share, which represents the average Nasdaq Official Closing Price of the common stock for the five trading days immediately
preceding the date of the Amendment (the “New Warrants”). The Investor held Original Warrants exercisable for up to 246,913
shares of common stock, subsequently exercised 50,000 Original Warrants within the 45 days, and received 50,000 New Warrants in addition
to the Warrant shares. The Investor may continue to exercise the Original Warrants after 45 calendar days of the Amendment, but will not
receive New Warrants for the exercise.
Series C Preferred Stock
In May 2017, the Company authorized Series C Preferred
Stock. Holders of Series C Preferred Stock are entitled to receive dividends of 15% per year, payable in cash. For the three months ended
March 31, 2022, and 2021, the Company recorded Series C Preferred Stock dividends of $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 the 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 ceases 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 event that is not solely within the control of 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.
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - STOCKHOLDERS’ EQUITY (CONTINUED)
Warrants
There was no warrant activity during the three months ended March 31,
2022. The following table summarizes the Company’s warrants outstanding and exercisable on March 31, 2022, and 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 | | |
| - | |
NOTE 7 - STOCK INCENTIVE PLANS
2017 Stock Incentive Plan
On August 24, 2017, the Company’s stockholders
approved the 2017 Stock Incentive Plan (2017 SIP). The aggregate maximum number of shares of common stock that may be issued under the
2017 SIP is limited to 10% of the outstanding shares of common stock, calculated on the first business day of each fiscal year. Under
the 2017 SIP, options that are forfeited or terminated, settled in cash in lieu of shares of common stock, or settled in a manner such
that shares are not issued, will again immediately become available to be issued. If shares of common stock are withheld from payment
of an award to satisfy tax obligations concerning the award, those shares of common stock will be treated as shares that have been issued
under the 2017 SIP and will not again be available for issuance.
During the quarter ended March 31, 2022, the Company
issued 430,339 shares of common stock vesting over periods ranging from 30 to 48 months with an aggregate fair value of $1,331,870 to
certain employees as inducement and incentive grants. As of March 31, 2022, the unrecognized compensation cost related to non-vested stock
options is $1,087,407. During the three months ended 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 2017 management incentive 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 three months ended March 31, 2022, the Company issued 237,500
stock options vesting over four years to employees with an exercise price of $3.36 and an option for 12,500 shares with a strike price
of $2.20 and a total expense of $325,336. In addition, 27,276 fully vested stock options were granted to six non-employee Board directors
at an exercise price of $2.20. The aggregate fair value of the shares 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 the Company’s board. The exercise price of these stock options is $14.10 and stock options
were fully vested at the issuance date. The aggregate fair value of the stock options issued to the directors was $40,000, which includes
the total expense.
LogicMark Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
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.
COMMITMENTS
The Company leases office space and equipment,
in the U.S., which is classified as operating leases expiring at various dates. The Company determines if an arrangement qualifies as
a lease at the lease inception. Operating lease liabilities are recorded based on the present value of the future lease payments over
the lease term, assessed as of the commencement date. The Company’s real estate lease, which is for office space and a fulfillment
center, with a lease term of 5 years in August 2025. The Company also leases a copier with a lease term of 5 years, ending August 2023.
The Company has elected to account for the lease and non-lease components (insurance and property taxes) as a single lease component for
its real estate leases. Lease payments, which include lease components and non-lease components, are included in the measurement of the
Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index
(fixed in substance) as stipulated in the lease contract. Any actual costs over such amounts are expensed as incurred as variable lease
costs.
The Company’s lease agreements generally
do not specify an implicit borrowing rate, and as such, the Company uses its incremental borrowing rate to calculate the present value
of the future lease payments. The discount rate represents a risk-adjusted rate on a secured basis and is the rate at which the Company
would borrow funds to satisfy the scheduled lease liability payment streams. The Company entered into a new five-year lease agreement
in June 2020 for a new warehouse space located in Louisville, Kentucky. The monthly rent which commenced in September 2020 is $6,200 per
month and increases approximately 3% annually thereafter. The ROU asset value-added because of this new lease agreement was $279,024.
The Company’s ROU asset and lease liability accounts reflect the inclusion of this lease in the Company’s balance sheet as
of March 31, 2022.
The Company’s lease agreements include options
for the Company to either renew or early terminate the lease. Renewal options are reviewed at lease commencement to determine if such
options are reasonably certain of being exercised, which could impact the lease term. When determining if a renewal option is reasonably
certain of being exercised, the Company considers several factors, including the significance of leasehold improvements on the property,
whether the asset is difficult to replace, or specific characteristics unique to the lease that would make it reasonably certain that
the Company would exercise the option. In most cases, the Company has concluded that renewal and early termination options are not reasonably
certain of being exercised by the Company and thus not included in the Company’s ROU asset and lease liability.
For the three months ended March 31, 2022, the
total operating lease cost was $24,558 and is recorded in general and administrative expenses. The operating lease cost is recognized
on a straight-line basis over the lease term. The following summarizes (i) the future minimum undiscounted lease payments under the non-cancelable
lease for each of the next four years and thereafter, incorporating the practical expedient to account for lease and non-lease components
as a single lease component for our existing real estate lease, (ii) a reconciliation of the undiscounted lease payments to the present
value of the lease liabilities, and (iii) the lease-related account balances on the Company’s balance sheet as of March 31, 2022:
| 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 | |
LogicMark
Inc.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - 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 | |
| As of March 31, 2022 | |
|
|
| | |
|
|
| Weighted Average Remaining Lease Term | |
4.3 years |
|
| Weighted Average Discount Rate | |
12.80 |
% |
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 three months ended March 31, 2022, should be read together with our condensed financial
statements and related notes included elsewhere in this Quarterly Report on Form 10-Q for the quarterly 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 concerning future events and is 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 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.) provides PERS, health
communications devices, and IoT technology that creates a connected care platform. The Company’s devices provide people with the
ability to receive care at home and age independently and to check, manage and monitor a loved one’s health and safety remotely.
The Company’s PERS devices incorporate two-way voice communication technology directly in the medical alert pendant providing life-saving
technology at a consumer-friendly price point aimed at everyday consumers. The Company is focused on modernizing remote monitoring to
help people stay safe and live independently longer. The PERS technologies are sold through dealers and distributors, as well as through
the Veterans Health Administration (VA). The Company enjoys a strong base of business with the VA and plans to expand to other 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 CEO has been a champion of diversity and inclusion
throughout her career. In addition to several new key female and minority employees, we have added a female Board member to the team.
We will also begin looking at Company diversity and inclusion practices and examine labor standards across our supplier base.
Operational Efficiency
Building 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%.
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 Board of Directors deems appropriate and in the best interests of the Company
and our shareholders or as required by applicable laws and regulations.
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
Three months ended March 31, 2022, compared with the three months
ended March 31, 2021.
Revenue, Cost of Revenue, and Gross Profit
| | |
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 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 result of lower 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 Marketing
Expenditures in sales and marketing in the quarter
ended March 31, 2022, exceeded the same quarter last year due to the addition of a senior sales leader and higher 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 March 31, 2022,
were less than the same quarter last year. As we strive to accelerate the pace of new product development in future quarters, we expect
to continue to see an increase in engineering costs devoted to new product development as compared to the previous year periods.
General and Administrative
Beginning in the first quarter of 2022, we added
resources to our organization to drive revenue growth and new product development. As much as feasible, this is being accomplished with
temporary, experienced fractional consultants to minimize 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 D&O insurance costs, higher
non-cash stock compensation costs, and higher costs in the Finance area, partially offset by a lower accrual rate for management incentives.
Other Income and Expenses
| | |
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
The Company generated a net loss of $1,283,145 for the three months
ended March 31, 2022. As of March 31, 2022, the Company had cash and stockholders’ equity of $12,224,887 and $25,847,828, respectively.
On March 31, 2022, the Company had working capital of $12,512,012.
Given our cash position on March 31, 2022, and
our projected cash flow from operations, we believe we will have sufficient capital to sustain operations for the next 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 Used in Operating Activities
Our primary ongoing uses of operating cash relate to payments to vendors,
salaries and related expenses for our employees, and consulting and professional fees. Our vendors and consultants generally provide us
with normal trade payment terms (net 30). During the three months ended 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 amounted to $1,002,766.
Cash Used in Investing Activities
During the three months ended March 31, 2022,
we purchased $36,988 in equipment, and during the three months ended March 2021, we did not use cash in investing activities.
Cash Provided by Financing 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 three months ended 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 $5,131,174 and was primarily related to the proceeds received from warrant exercises for shares of Common Stock totaling $6,670,494
and from the issuance of shares of our Series E Convertible Preferred Stock, par value $0.0001 per share, to investors in consideration
for an aggregate of $4,000,003, all of which was partially offset by term loan repayments totaling $5,515,625 and fees paid in connection
with equity offerings of $23,698.
COVID-19 Considerations on Our Business and Operations
Like many US-based businesses, the COVID-19 pandemic,
and efforts to deal with it began to impact our business in March 2020. During the period April 1, 2020, through January 31, 2022, we
experienced decreases in demand from certain key customers, primarily our VA clinics. As the adverse effects of the COVID-19 pandemic
began to ease in February 2022, we have begun to experience an increase in sales.
To date, travel restrictions and supply chain
constraints have not materially impacted our ability to obtain inventory or deliver products or services to customers. We are concerned
about, however, the 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 both source product and have it delivered to the United States.
Impact of Inflation
We believe that our business was not
materially impacted by inflationary pressures during 2021 but given inflationary trends seen so far in 2022, we believe we will face
increased costs in operating, fulfillment, and overhead expenses during the year. We plan to mitigate part of these increases
through productivity and efficiency improvements, and cost reduction programs. We may also need to take price increases on our
products.
Off-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 to 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.
Critical Accounting Policies
There were no significant changes to our critical 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 year ended
December 31, 2021.