LogicMark(LGMK) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides Nxt-ID, Inc.'s unaudited condensed consolidated financial information, including financial statements, management's discussion, market risk disclosures, and controls and procedures Financial Statements This section presents Nxt-ID, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, reflecting a net loss and significant capital structure changes Condensed Consolidated Balance Sheets As of September 30, 2021, total assets increased to $38.4 million driven by cash, while total liabilities decreased to $4.2 million due to debt repayment, significantly boosting stockholders' equity to $32.4 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $16,046,625 | $4,387,416 | | Total Current Assets | $17,981,808 | $5,894,169 | | Total Assets | $38,393,515 | $26,948,287 | | Liabilities & Equity | | | | Total Current Liabilities | $3,961,507 | $6,472,966 | | Total Liabilities | $4,168,326 | $15,981,778 | | Total Stockholders' Equity | $32,417,889 | $9,159,209 | Condensed Consolidated Statements of Operations The company reported a $5.4 million net loss for the nine months ended September 30, 2021, primarily due to lower revenues, decreased gross profit, and a $2.9 million warrant modification expense, despite a reduced $0.64 million net loss in Q3 2021 Nine Months Ended September 30, (Unaudited) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $7,604,286 | $8,866,205 | | Gross Profit | $4,638,109 | $6,488,057 | | Operating (Loss) Income | ($1,491,445) | $409,655 | | Net Loss | ($5,419,609) | ($1,307,906) | | Net Loss Per Share | ($1.43) | ($0.44) | Three Months Ended September 30, (Unaudited) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $2,383,029 | $2,639,193 | | Gross Profit | $1,267,459 | $1,878,228 | | Operating Loss | ($496,883) | ($526,425) | | Net Loss | ($641,704) | ($1,078,341) | | Net Loss Per Share | ($0.12) | ($0.32) | Condensed Consolidated Statements of Changes in Equity Stockholders' equity significantly increased from $9.2 million to $32.4 million by September 30, 2021, primarily driven by multiple equity financing activities, including preferred stock, common stock, and warrant issuances and exercises - Total stockholders' equity grew from $9,159,209 on January 1, 2021, to $32,417,889 on September 30, 2021[17][18] - Key financing activities in the first nine months of 2021 included issuance of Series E and F preferred stock (net proceeds of approximately $8.0 million), sale of common stock and warrants (approximately $11.8 million), and exercise of common stock purchase warrants for cash (approximately $6.7 million)[17] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, operating activities used $3.3 million cash, offset by $15.0 million from financing activities, including $11.1 million in term loan repayments, resulting in a $11.7 million net cash increase and a $16.2 million end-of-period balance Cash Flow Summary for the Nine Months Ended September 30, (Unaudited) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | ($3,290,319) | $15,643 | | Net Cash Used in Investing Activities | $0 | $0 | | 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 – End of Period | $16,231,755 | $2,242,662 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies and significant events, including the company's PERS business, $16.0 million liquidity, full term loan repayment, 2021 equity offerings, legal proceedings, COVID-19 impact, and a subsequent 1-for-10 reverse stock split - The company's principal business involves providing personal emergency response systems (PERS), health communications devices, and IoT technology through its wholly-owned subsidiary, LogicMark, LLC[31][32] - The company believes its cash balance of $16.0 million as of September 30, 2021, is sufficient to sustain operations for at least the next 12 months[36] - In July 2021, the company fully paid off its senior secured term loan with CrowdOut Capital LLC, primarily using cash from equity issuances and warrant exercises[55] - The company settled a lawsuit with GDMSAI regarding preferred stock dividends, agreeing to pay $540,000 plus $55,000 in interest[87] - Subsequent to the quarter end, on October 15, 2021, the company executed a 1-for-10 reverse stock split of its common and Series C Preferred stock[99] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the revenue decline and $5.4 million net loss for the first nine months of 2021 to COVID-19 impacts and a warrant modification expense, while liquidity significantly improved through financing activities and debt repayment, with $16.0 million cash deemed sufficient for 12 months Revenue and Gross Profit Comparison (YoY) | Period | Revenue 2021 | Revenue 2020 | Gross Profit 2021 | Gross Profit 2020 | | :--- | :--- | :--- | :--- | :--- | | Nine Months Ended Sep 30 | $7,604,286 | $8,866,205 | $4,638,109 | $6,488,057 | | Three Months Ended Sep 30 | $2,383,029 | $2,639,193 | $1,267,459 | $1,878,228 | - The net loss for the nine months ended September 30, 2021, was primarily due to an operating loss of $1.5 million, interest expense of $1.4 million, and a warrant modification expense of $2.9 million, partially offset by $0.35 million in PPP loan forgiveness[115] - The company used $3.3 million in cash from operations in the first nine months of 2021 but believes its cash balance of $16.0 million is sufficient to sustain operations for the next 12 months[118] - Sales volumes and revenues continue to be impacted by the COVID-19 pandemic, particularly affecting sales to VA hospitals and clinics[123] 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 - As a smaller reporting company, Nxt-ID, Inc. is not required to provide quantitative and qualitative disclosures about market risk[130] Controls and Procedures As of September 30, 2021, disclosure controls and procedures were deemed ineffective due to material weaknesses, including insufficient accounting personnel and lack of segregation of duties, with remediation efforts including hiring an Interim CFO and retaining Armanino LLP - Disclosure controls and procedures were deemed not effective as of September 30, 2021[131] - The ineffectiveness was due to material weaknesses, specifically an insufficient number of accounting personnel with experience in complex transactions and limited segregation of duties[131] - Remediation efforts include retaining Mark Archer as Interim CFO in July 2021 and Armanino LLP to function as the internal accounting department in August 2021[132][134] PART II. OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, and exhibits Legal Proceedings The company is involved in a lawsuit with former Fit Pay, Inc. shareholders regarding an alleged merger agreement breach and settled a dispute with GDMSAI over preferred stock dividends for $540,000 plus $55,000 interest - A lawsuit filed by former Fit Pay, Inc. shareholders alleges breach of contract regarding contingent earnout payments, which the company believes are without merit and is vigorously defending[137] - A lawsuit from GDMSAI over Series C preferred stock dividends was settled on August 11, 2021, with the company agreeing to pay $540,000 in dividends plus $55,000 in interest, which has been accrued on the balance sheet[138] Risk Factors As a smaller reporting company, Nxt-ID, Inc. is not required to provide risk factor disclosures - The company is not required to provide risk factor disclosures as it qualifies as a smaller reporting company[139] Unregistered Sales of Equity Securities and Use of Proceeds On August 13, 2021, the company raised $4.0 million through a private placement to institutional investors, issuing Series F Convertible Preferred Stock and common stock warrants, exempt from registration under Regulation D - On August 13, 2021, the company raised $4,000,000 through a private placement to institutional investors, issuing 1,333,333 shares of Series F Convertible Preferred Stock and warrants to purchase 666,667 shares of Common Stock[140] - The securities were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D[140] Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[141] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[142] Other Information The company reported no other information for this item - No other information was reported for this item[143] Exhibits This section lists the exhibits filed with the 10-Q report, including officer certifications under Sarbanes-Oxley Sections 302 and 906, and Inline XBRL data files - The exhibits filed with the report include Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as various Inline XBRL documents[145]