LogicMark(LGMK) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section covers unaudited financial statements, notes, and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents Nxt-ID, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and detailed explanatory notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates Condensed Consolidated Balance Sheet Highlights (Unaudited): | Metric | June 30, 2019 ($) | December 31, 2018 ($) | | :-------------------------------- | :------------ | :---------------- | | Total Current Assets | $3,628,594 | $3,397,728 | | Total Assets | $37,865,290 | $38,055,564 | | Total Current Liabilities | $6,587,022 | $5,144,260 | | Total Liabilities | $22,321,943 | $21,511,506 | | Total Stockholders' Equity | $13,736,047 | $14,736,758 | Condensed Consolidated Statements of Operations (Six Months Ended June 30, 2019 and 2018) This section details the company's financial performance over the six-month periods ended June 30, 2019 and 2018 Condensed Consolidated Statements of Operations (Six Months Ended June 30): | Metric | 2019 ($) | 2018 ($) | | :------------------------------------ | :----------- | :----------- | | Revenues | $8,668,521 | $8,715,045 | | Gross Profit | $6,569,554 | $6,312,154 | | Total Operating Expenses | $5,498,452 | $5,671,376 | | Operating Income | $1,071,102 | $640,778 | | Net Loss | $(4,655,674) | $(2,611,625) | | Net Loss applicable to Common Stockholders | $(4,755,674) | $(2,661,625) | | Net Loss Per Share – Basic and Diluted | $(0.17) | $(0.11) | Condensed Consolidated Statements of Operations (Three Months Ended June 30, 2019 and 2018) This section details the company's financial performance over the three-month periods ended June 30, 2019 and 2018 Condensed Consolidated Statements of Operations (Three Months Ended June 30): | Metric | 2019 ($) | 2018 ($) | | :------------------------------------ | :----------- | :----------- | | Revenues | $4,486,811 | $4,378,530 | | Gross Profit | $3,407,478 | $3,182,986 | | Total Operating Expenses | $2,844,027 | $2,736,691 | | Operating Income | $563,451 | $446,295 | | Net Loss | $(3,357,127) | $(998,812) | | Net Loss applicable to Common Stockholders | $(3,432,127) | $(1,023,812) | | Net Loss Per Share – Basic and Diluted | $(0.12) | $(0.04) | Condensed Consolidated Statements of Changes in Equity (Six Months Ended June 30, 2019) This section outlines the changes in the company's equity for the six months ended June 30, 2019 Changes in Equity (Six Months Ended June 30, 2019): | Item | Amount ($) | | :------------------------------------ | :----------- | | Balance - January 1, 2019 | $14,736,758 | | Issuance of common stock for services | $446,990 | | Issuance of common stock for cash, net of fees | $3,197,810 | | Shares issued for management incentive plan | $216,267 | | Fees incurred in connection with equity offerings | $(106,104) | | Net loss | $(4,655,674) | | Preferred stock dividends | $(100,000) | | Balance - June 30, 2019 | $13,736,047 | Condensed Consolidated Statements of Changes in Equity (Three Months Ended June 30, 2019) This section outlines the changes in the company's equity for the three months ended June 30, 2019 Changes in Equity (Three Months Ended June 30, 2019): | Item | Amount ($) | | :------------------------------------ | :----------- | | Balance – April 1, 2019 | $14,827,899 | | Issuance of common stock for services | $261,740 | | Issuance of common stock for cash, net of fees | $1,915,000 | | Shares issued for management incentive plan | $169,467 | | Fees incurred in connection with equity offerings | $(5,932) | | Net loss | $(3,357,127) | | Preferred stock dividends | $(75,000) | | Balance – June 30, 2019 | $13,736,047 | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, 2019 and 2018) This section presents the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30): | Cash Flow Activity | 2019 ($) | 2018 ($) | | :------------------------------------------------ | :------------ | :------------ | | Net Cash Provided by (Used in) Operating Activities of Continuing Operations | $668,661 | $(1,191,990) | | Net Cash Used in Investing Activities of Continuing Operations | $(161,434) | $(3,158,340) | | Net Cash Provided by Financing Activities of Continuing Operations | $1,489,122 | $2,901,066 | | Net Decrease in Cash and Restricted Cash | $(120,968) | $(3,849,615) | | Cash and Restricted Cash – End of Period | $1,493,673 | $1,827,171 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1 – Organization and Basis of Presentation This note describes the company's business, subsidiaries, and the basis for financial statement preparation - Nxt-ID, Inc. operates as a security technology company, developing proprietary hardware and software security systems and applications for security, healthcare, financial technology, and IoT markets. Key subsidiaries include LogicMark (personal emergency response systems) and Fit Pay (payment, credential management, authentication for IoT)[30][31] - The company reclassified its financial technology business (Fit Pay) to discontinued operations due to a planned spin-off, which was later withdrawn. A non-binding letter of intent for a potential sale of Fit Pay (excluding certain assets) was entered into on August 6, 2019[32] Note 2 – Liquidity And Management Plans This note discusses the company's liquidity position and management's plans to address financial sustainability - The company generated operating income of $1,071,102 but incurred a net loss from continuing operations of $2,465,134 for the six months ended June 30, 2019, raising substantial doubt about its ability to sustain operations for at least one year[35] - As of June 30, 2019, the company had a working capital deficiency of $2,976,398 and stockholders' equity of $13,736,047. Management believes current cash and projected cash flow will be sufficient for the next twelve months, but may need additional financing[35] Cash and Restricted Cash (June 30): | Metric | 2019 ($) | 2018 ($) | | :---------------- | :----------- | :----------- | | Cash | $1,303,172 | $1,313,305 | | Restricted cash | $190,501 | $513,866 | Note 3 – Summary Of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements - Revenue is recognized at a point-in-time when control of the product transfers to the customer, typically upon shipment or delivery and acceptance[41] - The company adopted ASU 2016-02, 'Leases (Topic 842)', on January 1, 2019, recognizing Right-of-Use (ROU) assets of approximately $267,516 and related lease liabilities of $269,820, with no material impact on income or cash flow statements for the six months ended June 30, 2019[56] Other Intangible Assets (LogicMark Acquisition): | Asset Type | June 30, 2019 ($) | December 31, 2018 ($) | | :-------------------- | :------------ | :---------------- | | Patents | $3,006,328 | $3,191,159 | | Trademarks | $1,073,066 | $1,104,246 | | Customer relationships | $2,304,921 | $2,466,687 | | Total Amortization Expense (6 months) | $377,777 | $377,777 | | Total Amortization Expense (3 months) | $189,932 | $189,932 | Note 4 – Discontinued Operations This note details the financial results and reclassification of the company's discontinued financial technology business - The financial technology product line (Fit Pay subsidiary and related IP) was reclassified as discontinued operations[59] Financial Results of Discontinued Operations (Six Months Ended June 30): | Metric | 2019 ($) | 2018 ($) | | :------------------------ | :----------- | :----------- | | Net sales | $454,062 | $1,399,268 | | Gross profit | $332,186 | $671,550 | | Loss from discontinued operations | $(2,190,540) | $(1,869,839) | Financial Results of Discontinued Operations (Three Months Ended June 30): | Metric | 2019 ($) | 2018 ($) | | :------------------------ | :----------- | :----------- | | Net sales | $232,586 | $805,175 | | Gross profit | $173,691 | $339,589 | | Loss from discontinued operations | $(1,184,966) | $(933,881) | Note 5 – Debt refinancings This note explains the company's recent debt refinancing activities and their financial impact - On May 3, 2019, LogicMark completed a $16,500,000 senior secured term loan with CrowdOut Capital LLC, using proceeds to repay the existing $16,000,000 term loan with Sagard Holdings Manager LP[64] - The new term loan matures on May 3, 2021, bears interest at LIBOR plus 11.0% (approx. 13.40% as of June 30, 2019), and incurred $412,500 in original issue discount and $1,831,989 in deferred debt issue costs (including a $1,072,500 exit fee)[64] - A loss on extinguishment of debt of $2,343,879 was incurred due to the refinancing, including write-offs of unamortized costs and a yield maintenance premium/prepayment penalty to Sagard[65] Note 6 – Stockholders' Equity This note provides details on changes in stockholders' equity, including stock issuances and warrants - During the six months ended June 30, 2019, the company received $3,197,810 in net proceeds from the sale of 3,553,363 common shares under an At-the-Market Offering with A.G.P./Alliance Global Partners[69] - The company issued 247,805 common shares (fair value $200,000) to non-employee directors under the 2013 Long-Term Stock Incentive Plan and 289,216 common shares (fair value $216,267) to non-executive employees under the 2017 and 2018 management incentive plan[71][73] - As of June 30, 2019, there were 7,206,584 outstanding warrants to purchase common stock with a weighted average exercise price of $3.76 and a remaining life of 3.73 years[75] Note 7 – Commitments and Contingencies This note discloses the company's lease obligations, debt maturities, and potential contingent liabilities - The company leases office space and a fulfillment center, classified as operating leases, with terms generally between 3 and 5 years. Total operating lease cost for the six months ended June 30, 2019, was $83,216[79][82] Future Minimum Undiscounted Lease Payments (as of June 30, 2019): | Year Ending December 31, | Amount ($) | | :------------------------------------------ | :------- | | 2019 (remainder) | $84,682 | | 2020 | $88,827 | | 2021 | $23,279 | | 2022 | $18,186 | | 2023 | $12,124 | | Total future minimum lease payments | $227,098 | | Less imputed interest | $(26,605) | | Total present value of future minimum lease payments | $200,493 | Debt Maturity Schedule: | Year | Amount ($) | | :---------------- | :----------- | | 2019 (remainder) | $965,855 | | 2020 | $2,275,461 | | 2021 | $2,222,220 | | 2022 | $11,343,750 | | Total debt | $16,807,286 | Note 8 – Subsequent Events This note reports significant events that occurred after the balance sheet date, impacting the company's operations - On July 23, 2019, the company received a default notice from CrowdOut Capital for failing to spin off the Fintech business by July 2, 2019. This default was waived on July 25, 2019, after Fit Pay's assets were included as collateral and Fit Pay became a guarantor of the term debt facility[89] - PartX withdrew its Form 10 registration statement for the spin-off on August 19, 2019, due to an inability to secure sufficient investment. The company entered into a non-binding letter of intent for a potential sale of its FitPay subsidiary (excluding certain assets) on August 6, 2019[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section offers management's analysis of financial condition, operational results, liquidity, and capital resources for the reported periods Overview This section provides a high-level summary of the company's business and recent strategic developments - Nxt-ID, Inc. is a security technology company focused on hardware and software security systems for healthcare, financial technology, and IoT markets through its subsidiaries LogicMark and Fit Pay[94][95] - The planned spin-off of the financial technology business (Fit Pay) was withdrawn due to insufficient investment, leading to a non-binding letter of intent for its potential sale. A default notice from CrowdOut Capital related to the spin-off failure was subsequently waived[96][97] Healthcare This section details the company's healthcare segment, focusing on LogicMark's products and market strategy - LogicMark drives the company's healthcare initiatives, focusing on personal emergency response systems (PERS) and serving the VA, healthcare dealers, and security dealers. The business is experiencing steady growth, with 2018 achieving its highest annual revenue[99] - Strategic plans include expanding LogicMark into other healthcare verticals, retail, and enterprise channels, leveraging trends like increased connectivity, TeleHealth growth, and rising healthcare costs[99] Payments and Financial Technology This section describes Fit Pay's platform, its payment capabilities, and market expansion initiatives - Fit Pay's proprietary platform enables contactless payment capabilities for smart devices, connecting manufacturers to major payment card networks and issuing banks globally. It powers Garmin Pay™ and SwatchPAY - The Garmin Pay™ network has expanded significantly, now including over 280 issuing banks in 34 countries, up from 60 banks in 8 countries at year-end 2017[104] - Fit Pay is a technology partner for Visa's Token Service for credential-on-file (COF) token requestors, expanding its addressable market for platform services by tokenizing sensitive payment information for enhanced security and seamless updates[107][108] Results of Operations This section analyzes the company's revenue, gross profit, operating expenses, and net loss for the periods presented Revenue from Continuing Operations: | Period | 2019 ($) | 2018 ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Six Months Ended June 30 | $8,668,521 | $8,715,045 | -0.53% | | Three Months Ended June 30 | $4,486,811 | $4,378,530 | +2.47% | Gross Profit from Continuing Operations: | Period | 2019 ($) | 2018 ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Six Months Ended June 30 | $6,569,554 | $6,312,154 | +4.08% | | Three Months Ended June 30 | $3,407,478 | $3,182,986 | +7.05% | Operating Income from Continuing Operations: | Period | 2019 ($) | 2018 ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Six Months Ended June 30 | $1,071,102 | $640,778 | +67.16% | | Three Months Ended June 30 | $563,451 | $446,295 | +26.25% | Net Loss from Continuing Operations: | Period | 2019 ($) | 2018 ($) | Change (%) | | :-------------------- | :------------ | :----------- | :--------- | | Six Months Ended June 30 | $(2,465,134) | $(741,786) | +232.32% | | Three Months Ended June 30 | $(2,172,161) | $(64,931) | +3245.29% | - The increase in gross profit is primarily due to a favorable shift in product sales mix towards higher-priced mobile products, partially offsetting decreased commercial sales volume in LogicMark[112] - The significant increase in net loss from continuing operations for both periods is largely attributable to a $2,343,879 loss on extinguishment of debt in 2019, compared to $68,213 in 2018[118][119] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and ability to meet its financial obligations - As of June 30, 2019, the company had cash of $1,303,172 and a working capital deficiency of $2,976,398 for continuing operations, raising substantial doubt about its ability to continue as a going concern[122][126][127] Net Cash Flow from Continuing Operations (Six Months Ended June 30): | Activity | 2019 ($) | 2018 ($) | | :-------------------- | :----------- | :------------ | | Operating Activities | $668,661 | $(1,191,990) | | Investing Activities | $(161,434) | $(3,158,340) | | Financing Activities | $1,489,122 | $2,901,066 | - Net cash provided by financing activities in 2019 was primarily from $3,197,810 in common stock sales and $14,670,579 from the CrowdOut Capital refinancing, partially offset by $16,000,000 repayment of the Sagard term loan[125] Impact of Inflation This section assesses the historical and projected impact of inflation on the company's business and profit margins - The company believes its business has not been significantly affected by inflation in the past three years and expects to maintain profit margins through productivity improvements and cost reduction programs for the remainder of fiscal year 2019[131] Off Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements that could affect the company's financial position - The company does not have relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements, nor does it have undisclosed borrowings or synthetic leases, thus not materially exposed to related risks[132] Recent Accounting Pronouncements This section refers to disclosures regarding recently adopted and evaluated accounting standards - Refer to Note 3 for details on recent accounting pronouncements, including the adoption of ASU 2016-02 (Leases) and evaluation of ASU 2018-13 (Fair Value Measurements)[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Nxt-ID, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company[135] Item 4. Controls and Procedures This section evaluates the effectiveness of disclosure controls and internal controls over financial reporting, noting material weaknesses Disclosure Controls and Procedures This section details the assessment of disclosure controls and identifies material weaknesses in internal financial reporting controls - Management concluded that disclosure controls and procedures were not effective as of June 30, 2019, due to material weaknesses in internal controls over financial reporting[136] - Material weaknesses include difficulty in accounting for complex transactions due to insufficient experienced accounting personnel and limited segregation of duties. An assistant controller has been hired to address this, but more time is needed for remediation[137] Changes in Internal Controls This section reports on any material changes to internal control over financial reporting during the period - There were no changes in the company's internal control over financial reporting during the three months ended June 30, 2019, that materially affected or are reasonably likely to materially affect internal control over financial reporting[138] Limitations of the Effectiveness of Controls This section acknowledges the inherent limitations of internal controls, which provide reasonable but not absolute assurance - Management acknowledges that internal controls provide only reasonable, not absolute, assurance and can be circumvented by faulty judgment, simple errors, individual acts, collusion, or management override[139] PART II. OTHER INFORMATION This section includes information on legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings No pending or threatened legal actions are expected to have a material adverse effect on the company's business, operating results, or financial condition - No pending or threatened legal actions are expected to have a material adverse effect on the company's business, operating results, or financial condition[142] Item 1A. Risk Factors The company is not required to provide risk factor disclosures as it qualifies as a smaller reporting company - The company is not required to provide risk factor disclosures as it qualifies as a smaller reporting company[143] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[144] Item 3. Defaults upon Senior Securities No defaults upon senior securities to report - No defaults upon senior securities to report[145] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[146] Item 5. Other Information No material changes to procedures for security holders to recommend Board nominees - No material changes to procedures for security holders to recommend Board nominees[147] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, certifications, and XBRL documents - Exhibits include the LogicMark, LLC Senior Secured Credit Agreement, Security Agreement, Securities Pledge Agreement, Intellectual Property Security Agreement, Guaranty, and certifications (302 and 906) for principal executive and financial officers, along with XBRL documents[148] Signatures This section contains the official signatures of the company's principal executive and financial officers - The report was signed by Gino M. Pereira, Chief Executive Officer, and Vincent S. Miceli, Principal Financial Officer, on August 19, 2019[152]