LogicMark(LGMK) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents LogicMark, Inc.'s unaudited condensed financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, along with comprehensive notes detailing accounting policies, liquidity, equity transactions, and commitments for the periods ended June 30, 2022 Condensed Balance Sheets LogicMark, Inc.'s balance sheet shows a decrease in total assets from $30.12 million at December 31, 2021, to $28.57 million at June 30, 2022. Current assets decreased, primarily due to a reduction in cash and inventory. Total liabilities increased slightly, while total stockholders' equity decreased Condensed Balance Sheet Metrics | Metric | June 30, 2022 | December 31, 2021 | Change | | :----- | :------------ | :---------------- | :----- | | Total Assets | $28,568,568 | $30,123,383 | -$1,554,815 | | Total Current Assets | $12,858,984 | $14,439,765 | -$1,580,781 | | Cash | $11,144,085 | $12,044,415 | -$900,330 | | Inventory, net | $622,893 | $1,237,280 | -$614,387 | | Total Liabilities | $1,999,740 | $1,726,912 | +$272,828 | | Total Stockholders' Equity | $24,761,528 | $26,589,171 | -$1,827,643 | Condensed Statements of Operations For the six months ended June 30, 2022, LogicMark reported a net loss of $2.40 million, an improvement from a $4.78 million net loss in the prior year period. Revenue increased by 34% to $7.02 million, but operating expenses also rose significantly, leading to a higher operating loss Condensed Statements of Operations Metrics | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $3,367,692 | $2,782,575 | $7,018,380 | $5,221,256 | | Gross Profit | $2,003,106 | $1,707,697 | $4,206,489 | $3,156,991 | | Operating Loss | $(1,125,432) | $(211,672) | $(2,408,576) | $(994,561) | | Net Loss | $(1,112,273) | $(555,747) | $(2,395,417) | $(4,777,903) | | Net Loss Per Share - Basic and Diluted | $(0.13) | $(0.22) | $(0.27) | $(1.37) | - Net Loss Applicable to Common Stockholders for the six months ended June 30, 2022, was $(2,571,561), compared to $(6,948,704) for the same period in 2021, showing a significant reduction in loss[13] Condensed Statements of Changes in Equity LogicMark's total stockholders' equity decreased from $26.59 million at January 1, 2022, to $24.76 million at June 30, 2022, primarily due to the net loss incurred during the period and preferred stock dividends, partially offset by stock-based compensation and shares issued Condensed Statements of Changes in Equity Metrics | Metric | Balance - January 1, 2022 | Balance - June 30, 2022 | | :----- | :------------------------ | :---------------------- | | Total Stockholders' Equity | $26,589,171 | $24,761,528 | | Accumulated Deficit | $(78,656,861) | $(81,078,423) | | Additional Paid-in Capital | $104,725,115 | $105,318,990 | | Common Stock Shares Outstanding | 9,163,039 | 9,608,937 | - For the six months ended June 30, 2022, the company issued 445,898 shares as stock compensation and recorded $215,614 for stock options for services[16] - Preferred stock dividends for Series C and F totaled $(176,145) for the six months ended June 30, 2022[16] Condensed Statements of Cash Flows For the six months ended June 30, 2022, LogicMark used $453,489 in operating activities, a significant improvement from $1,773,223 used in the prior year. Investing activities used $446,984, primarily for equipment, website development, and product development, while financing activities used $150,000 for preferred stock dividends Cash Flow Activity (6 Months Ended June 30) | Cash Flow Activity (6 Months Ended June 30) | 2022 | 2021 | | :---------------------------------------- | :--- | :--- | | Net Cash Used in Operating Activities | $(453,489) | $(1,773,223) | | Net Cash Used by Investing Activities | $(446,984) | $- | | Net Cash (Used in) Provided by Financing Activities | $(150,000) | $628,734 | | Net Increase in Cash and Restricted Cash | $(1,050,473) | $(1,144,489) | | Cash and Restricted Cash - End of Period | $11,204,073 | $3,393,057 | - Investing activities in 2022 included $172,908 for equipment and website development and $269,268 for product development costs[21] - Financing activities in 2021 included $6,670,011 from common stock and warrant sales and $4,000,003 from Series E preferred stock issuance, offset by $10,031,250 in term loan repayment[21] Notes to Condensed Financial Statements The notes provide detailed information on the company's organization, liquidity, accounting policies, and specific financial statement line items. Key areas include the company's business activities, management's assessment of liquidity, significant accounting policies for revenue, inventory, and long-lived assets, and details on stockholders' equity, stock incentive plans, and commitments NOTE 1 - ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES - LogicMark, Inc. provides personal emergency response systems (PERS), health communications devices, and Internet of Things (IoT) technology for connected care[23] - The company's products enable care at home and independent aging, featuring two-way voice communication in medical alert pendants[23] - Products are sold through dealers, distributors, and directly to the United States Veterans Health Administration[23] NOTE 2 - LIQUIDITY AND MANAGEMENT PLANS - For the six months ended June 30, 2022, the company reported an operating loss of $2,408,576 and a net loss of $2,395,417[24] Liquidity and Management Plans Metrics | Metric (as of June 30, 2022) | Amount | | :--------------------------- | :----- | | Cash | $11,144,085 | | Stockholders' Equity | $24,761,528 | | Working Capital | $11,208,250 | - Management believes the company has sufficient capital to sustain operations for one year from the filing date, based on its cash position and projected cash flow[25] NOTE 3 - BASIS OF PRESENTATION - Unaudited condensed financial statements are prepared in accordance with U.S. GAAP and SEC interim reporting rules, reflecting all necessary adjustments[26] - Net loss per share and all share data for the three and six months ended June 30, 2021, have been retroactively adjusted for the October 2021 reverse stock split[27] NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section details the company's significant accounting policies, including the use of estimates, cash and restricted cash definitions, credit risk concentrations, revenue recognition methods (point-in-time for product sales), inventory valuation (lower of cost or net realizable value), and accounting for long-lived assets, goodwill, and other intangibles. It also covers policies for convertible instruments, derivative financial instruments, stock-based compensation, EPS calculation, and R&D costs USE OF ESTIMATES IN THE FINANCIAL STATEMENTS - Financial statements require management to make estimates and assumptions affecting reported amounts, including fair value of acquired assets, stock-based compensation, income taxes, doubtful accounts, long-lived assets, and inventories[30] CASH - The Company considers highly liquid securities with original maturities of three months or less as cash equivalents, carried at cost[31] - As of June 30, 2022, and December 31, 2021, the Company had no cash equivalents[31] RESTRICTED CASH Restricted Cash Metrics | Metric | June 30, 2022 | December 31, 2021 | | :----- | :------------ | :---------------- | | Restricted Cash | $59,988 | $210,131 | - Restricted cash includes amounts held by third-party credit card processors for potential customer refunds/disputes and collateral for company credit cards[32] CONCENTRATIONS OF CREDIT RISK - The Company's primary credit risk concentration is in cash, maintained in large, well-established U.S. financial institutions[34] - Cash balances may at times be uninsured or exceed FDIC insurance limits[34] REVENUE RECOGNITION - Revenue is derived from product sales to end customers or distributors, primarily through customer purchase orders[35] - Revenue is recognized at a point-in-time when control transfers to the customer, typically upon shipment or delivery, and when the company has a present right to payment[35] - For the six months ended June 30, 2022, and 2021, no sales were recognized over time[35] SALES TO DISTRIBUTORS AND RESELLERS - Sales to certain distributors and resellers allow limited rights of return, for which the Company maintains a reserve as a refund liability[36] - Reserves for price adjustments and returns are based on historical claims and return rates and were not material as of June 30, 2022, and December 31, 2021[36] SHIPPING AND HANDLING - Amounts billed to customers for shipping and handling are included in revenues[37] Freight Charges Incurred | Freight Charges Incurred | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Amount | $181,551 | $118,136 | $373,213 | $224,561 | ACCOUNTS RECEIVABLE - Accounts receivable primarily resulted from LogicMark product shipments to retailers with no return rights, subject to normal product defect warranties[38] Accounts Receivable Metrics | Metric | June 30, 2022 | December 31, 2021 | | :----- | :------------ | :---------------- | | Allowance for Doubtful Accounts | $3,209 | $5,411 | INVENTORY - Inventory is measured at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method[41][42] Inventory Metrics | Metric | June 30, 2022 | December 31, 2021 | | :----- | :------------ | :---------------- | | Finished Goods on Hand | $622,893 | $1,237,280 | | Prepayments for Inventory (included in prepaid expenses) | $599,112 | $559,938 | LONG-LIVED ASSETS - Long-lived assets (property, equipment, other intangibles) are evaluated for impairment when circumstances indicate carrying value may not be recoverable, based on undiscounted future cash flows[43] PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, with additions capitalized and repairs expensed. Depreciation uses the straight-line method[44] Asset Type | Asset Type | Estimated Useful Life | | :--------- | :-------------------- | | Equipment | 5 years | | Furniture and fixtures | 3 to 5 years | | Website and other | 2 to 3 years | GOODWILL - Goodwill is reviewed annually in the fourth quarter or when impairment indicators exist, using a qualitative assessment followed by a quantitative test if necessary[45] OTHER INTANGIBLE ASSETS - Intangible assets relate to the acquisition of LogicMark, LLC, and include patents, trademarks, and customer relationships[47][48] Intangible Asset | Intangible Asset | June 30, 2022 (Net of Amortization) | December 31, 2021 | Estimated Useful Life | | :--------------- | :---------------------------------- | :---------------- | :-------------------- | | Patents | $1,887,784 | $2,072,984 | 11 years | | Trademarks | $883,579 | $915,619 | 20 years | | Customer Relationships | $1,321,808 | $1,488,044 | 10 years | - Amortization expense for the six months ended June 30, 2022, was $388,284, compared to $377,777 for the same period in 2021. Estimated total amortization expense for the remainder of fiscal year 2022 is $373,531, and for 2023-2025, it is estimated at $761,815 annually[48][49] CONVERTIBLE INSTRUMENTS - The Company applies accounting standards for derivatives and hedging to hybrid contracts with conversion options, separating conversion options from host instruments under specific criteria[50] - Debt discounts for intrinsic value of conversion options are amortized over the debt term or until conversion, included as interest expense[52] DERIVATIVE FINANCIAL INSTRUMENTS - The Company does not use derivatives for hedging but evaluates all financial instruments for derivative features[53] - Derivative financial instruments accounted for as liabilities are initially recorded at fair value and re-valued at each reporting date, with changes reported in operations[53] STOCK-BASED COMPENSATION - Share-based awards for employee services are accounted for at estimated grant date fair value, while equity instruments for non-employees are at fair value on the measurement date[55] - Stock-based compensation charges are amortized over the vesting period or as earned and recorded in the same operating expense component as cash payments[55] NET LOSS APPLICABLE TO COMMON SHAREHOLDERS PER SHARE - Basic net loss per share is computed using the weighted average number of common shares outstanding[57] - Potentially dilutive securities (stock options and warrants) were excluded from diluted net loss per share computation for both 2022 and 2021 as their inclusion would have been anti-dilutive[57] RESEARCH AND DEVELOPMENT AND PRODUCT DEVELOPMENT COSTS - Research and development costs are expensed as incurred until technological feasibility is established, after which development costs are capitalized[58] - For the six months ended June 30, 2022, the Company capitalized $269,268 in product development costs, with amortization to commence over three years[58] RECENT ACCOUNTING PRONOUNCEMENTS - Recent accounting standards not yet adopted are not expected to have a material impact on the Company's financial statements[59] NOTE 5 - ACCRUED EXPENSES Accrued Expense Category | Accrued Expense Category | June 30, 2022 | December 31, 2021 | | :----------------------- | :------------ | :---------------- | | Salaries, payroll taxes and vacation | $77,972 | $54,229 | | Merchant card fees | $20,044 | $17,853 | | Professional fees | $243,206 | $104,500 | | Management incentives | $312,200 | $285,000 | | Lease liability | $69,771 | $64,346 | | Dividends – Series C and F Preferred Stock | $46,735 | $94,933 | | Other | $92,295 | $228,424 | | Totals | $862,223 | $849,285 | NOTE 6 - STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK This section details changes in stockholders' equity and preferred stock, including the October 2021 reverse stock split, various equity offerings in 2021 (September, August, February), and a January 2021 warrant exchange. It also describes the Series C Redeemable Preferred Stock and summarizes warrant activity October 2021 Reverse stock split - On October 15, 2021, a 1-for-10 reverse stock split was approved for common stock and Series C Redeemable Preferred Stock[62] - The reverse split reduced outstanding common shares from approximately 88.3 million to 8.8 million and Series C preferred shares from 2,000 to 200[62] - Loss per share and all share data for prior periods were retroactively adjusted to reflect the reverse stock split[63] September 2021 Offering - On September 15, 2021, the Company sold 2,788,750 shares of common stock and accompanying warrants to purchase up to 2,788,750 shares at an exercise price of $4.95 per share[64] - Warrants became exercisable on October 15, 2021 (effective date of reverse stock split), with the exercise price adjusted to $3.956 per share[66] - Gross proceeds from the offering were approximately $12.5 million, intended for new product development, marketing, working capital, and liability reduction[67] August 2021 Offering - On August 13, 2021, the Company issued 1,333,333 shares of Series F Convertible Preferred Stock and warrants to purchase up to 666,667 shares of Common Stock at an exercise price of $7.80 per share, for an aggregate investment of $4,000,000[68] - The exercise price for the warrants was adjusted to $4.95 per share after the reverse stock split on October 15, 2021[68] - Series F Preferred Stock dividends for the six months ended June 30, 2022, totaled $26,145[68] February 2021 Offering - On February 2, 2021, the Company issued 1,476,016 shares of Series E preferred stock (convertible into 295,203 common shares) and common stock purchase warrants for gross proceeds of $4,000,003[71] - In February 2021, 1,476,016 shares of Series E preferred stock were converted into 295,203 shares of common stock[71] - A deemed dividend of $1,480,801 was recorded from the beneficial conversion feature of the Series E convertible preferred stock and warrants[71] January 2021 Warrant exchange - On January 8, 2021, the Company entered into an agreement to issue new warrants (New Warrants) to holders who exercised Original Warrants within 45 days[72][73] - The exercise price for the New Warrants was $15.25 per share[73] Series C Redeemable Preferred Stock - Holders of Series C Redeemable Preferred Stock are entitled to 15% annual cash dividends[74] - For the six months ended June 30, 2022, Series C Redeemable Preferred Stock dividends totaled $150,000[74] - The stock is classified as temporary equity due to a fundamental change provision that makes it conditionally redeemable[77] Warrants - There was no warrant activity during the six months ended June 30, 2022[79] Warrants Summary | Metric | June 30, 2022 | December 31, 2021 | | :----- | :------------ | :---------------- | | Number of Warrants Outstanding and Exercisable | 4,295,380 | 4,295,380 | | Weighted Average Exercise Price | $6.02 | $6.02 | | Weighted Average Remaining Life In Years | 4.27 | 4.59 | | Aggregate Intrinsic Value | $0.00 | $- | NOTE 7 - STOCK INCENTIVE PLANS This section outlines the company's stock incentive plans, including the 2017 Stock Incentive Plan and the 2013 Long-Term Stock Incentive Plan, detailing the maximum shares issuable, award types, and stock-based compensation expense 2017 Stock Incentive Plan - The 2017 SIP limits shares issued to 10% of outstanding common stock on the first business day of each fiscal year[80] - Forfeited or cash-settled options become available for re-issuance, but shares withheld for tax obligations are treated as issued[80] - During Q1 2022, 430,339 shares were issued to employees (fair value $1,331,870); in Q2 2022, 15,559 shares were issued to non-employees (fair value $17,582)[81] 2013 Long-Term Stock Incentive Plan - The LTIP limits shares issued to 10% of common shares outstanding on the first business day of any fiscal year[82] - During Q1 2022, 237,500 stock options were issued to employees (exercise price $3.36), and 27,276 fully vested options were granted to Board directors (exercise price $2.20)[83] - In Q2 2022, 22,101 stock options were granted to Advisory Board members[83] Stock-based Compensation Expense - Total stock-based compensation expense for the six months ended June 30, 2022, was $743,919[84] NOTE 8 - COMMITMENTS AND CONTINGENCIES This section addresses legal matters and the company's lease commitments for office space and equipment, detailing the accounting treatment for operating leases, including the calculation of right-of-use assets and lease liabilities LEGAL MATTERS - The Company may be involved in various claims and legal actions in the ordinary course of business[86] - No pending or threatened legal proceedings are expected to have a material adverse effect on the business, operating results, financial condition, or cash flows[86] COMMITMENTS - The Company leases office space and equipment, classified as operating leases, with terms expiring at various dates[87] - Operating lease liabilities are recorded based on the present value of future lease payments, using the incremental borrowing rate as the discount rate[87][88] Lease Payments (Year Ending December 31) | Lease Payments (Year Ending December 31) | Amount | | :--------------------------------------- | :----- | | 2022 (excluding six months ended June 30, 2022) | $47,093 | | 2023 | $89,724 | | 2024 | $80,000 | | 2025 | $54,400 | | Total future minimum lease payments | $271,217 | | Less imputed interest | $(48,073) | | Total present value of future minimum lease payments | $223,144 | Lease-Related Account Balances (as of June 30, 2022) | Lease-Related Account Balances (as of June 30, 2022) | Amount | | :------------------------------------------------- | :----- | | Operating lease right-of-use assets | $216,345 | | Other accrued expenses (current portion of lease liability) | $69,771 | | Other long-term liabilities (non-current portion of lease liability) | $153,373 | | Weighted Average Remaining Lease Term | 2.99 years | | Weighted Average Discount Rate | 12.89% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on LogicMark's financial performance and condition for the six months ended June 30, 2022. It covers an overview of the business, ESG initiatives, detailed analysis of revenues, costs, operating expenses, and other income/expenses. It also discusses liquidity, capital resources, the impact of COVID-19 and inflation, and critical accounting policies Overview - LogicMark, Inc. provides PERS, health communications devices, and IoT technology for connected care, enabling independent living and remote monitoring[96] - The company's PERS devices feature two-way voice communication and are sold through dealers, distributors, and the Veterans Health Administration (VA)[96] - LogicMark plans to expand to other government services after being awarded a five-year General Services Administration agreement in 2021[96] Environmental, Social and Governance ("ESG") LogicMark has structured its ESG efforts around financial/policy reviews, diversity and equity, and operational efficiency. This includes remediating Nasdaq delisting concerns, promoting diversity in hiring and board membership, and implementing initiatives to reduce waste and improve supply chain sustainability Financial/Policy Reviews and Audits - The Company successfully remediated potential delisting from Nasdaq and is committed to ongoing adherence to governance guidelines[97] Diversity and Equity - The company's core business of providing PERS devices to veterans, the elderly, and loved ones aligns with social responsibility goals by serving basic needs for safety and independent aging[98] - Over 500,000 PERS devices have been deployed, mostly to U.S. veterans, with staff handling approximately 150 calls from veterans daily[99] - The company has added new key female and minority employees and another female Board member, and plans to examine diversity practices and labor standards across its supplier base[100] Operational Efficiency - The Company has closed offices to streamline operations and reduce costs, and is working to reduce paper waste and marketing collateral by 50%[101] - Plans include conducting an energy and resources evaluation, exploring new packaging and recycling programs, and reviewing supply chain channels and CO2 offset programs[102] Results of Operations LogicMark experienced significant revenue growth for the three and six months ended June 30, 2022, driven by VA sales and 4G device replacements. However, gross profit margin slightly decreased due to product mix and higher shipping costs. Operating expenses increased across direct operating costs, selling and marketing, and general and administrative, while R&D costs decreased Revenue, Cost of Revenue, and Gross Profit Revenue, Cost of Revenue, and Gross Profit Metrics | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $3,367,692 | $2,782,575 | $7,018,380 | $5,221,256 | | Revenue Growth (YoY) | 21% | - | 34% | - | | Gross Profit | $2,003,106 | $1,707,697 | $4,206,489 | $3,156,991 | | Gross Profit Margin | 59% | 61% | 60% | 60% | - Revenue increases were driven by improved sales to VA hospitals/clinics and replacement sales of 4G Guardian Alert 911Plus devices due to the 3G service sunsetting[104] - The decrease in gross profit margin for the three and six months ended June 30, 2022, was due to a shift in product mix towards lower-margin Guardian Alert 911 Plus units and higher shipping costs[105] Operating Expenses Operating expenses increased significantly for both the three and six months ended June 30, 2022, compared to the prior year. This was primarily due to higher warranty replacement costs, increased selling and marketing investments (including new hires and investor relations), and elevated general and administrative expenses from new resources, insurance, and public company costs. Research and development costs, however, decreased in the current periods Direct Operating Cost Direct Operating Cost Metrics | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Direct operating cost | $336,544 | $255,859 | $810,987 | $500,528 | - Direct operating costs increased due to higher warranty replacement costs, as the company made a business decision to replace 3G products still under warranty with 4G units at no cost due to the 3G cellular network sunsetting[107] Selling and Marketing Selling and Marketing Metrics | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Selling and marketing | $275,011 | $89,781 | $464,216 | $169,904 | - Expenditures increased due to the addition of a senior sales leader, higher sales commissions, a senior marketing leader, a marketing associate, and new investor relations, public relations, and social media support organizations[108] Research and Development Research and Development Metrics | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development | $204,592 | $279,450 | $467,077 | $593,344 | - Research and development costs for both the three and six months ended June 30, 2022, were lower than the same periods last year, but the company expects an increase in engineering costs for new product development in future quarters[109] General and Administrative General and Administrative Metrics | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and administrative | $2,115,700 | $1,078,258 | $4,451,647 | $2,457,327 | - General and administrative expenses increased due to added resources for revenue growth and new product development, accounting/finance infrastructure, higher director and officer insurance, increased consultant fees, public company costs, and a higher accrual rate for management incentives[110] Other Income and Expenses Other Income and Expenses Summary | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest Income/(Expense) | $13,159 | $(389,541) | $13,159 | $(1,250,789) | | Forgiveness of Paycheck Protection Plan loan and accrued interest | $- | $45,466 | $- | $349,176 | | Warrant modification expense | $- | $- | $- | $(2,881,729) | | Total Other Expense, Net | $13,159 | $(344,075) | $13,159 | $(3,783,342) | Liquidity and Capital Resources LogicMark reported a net loss for the three and six months ended June 30, 2022, but believes it has sufficient capital for the next year based on its cash position and projected cash flow. The company may seek additional equity or debt financing to support its strategic plans. Cash flows from operations improved, while investing activities increased due to product development and equipment purchases. Financing activities primarily involved preferred stock dividends in 2022, contrasting with significant equity proceeds and loan repayments in 2021 Sources of Liquidity - The Company generated a net loss of $1,112,273 and $2,395,417 for the three and six months ended June 30, 2022, respectively[112] Sources of Liquidity Metrics | Metric (as of June 30, 2022) | Amount | | :--------------------------- | :----- | | Unrestricted Cash | $11,144,085 | | Stockholders' Equity | $24,761,528 | | Working Capital | $11,208,250 | - Management believes current capital is sufficient for operations for the next year, with potential for future equity or debt offerings to accelerate strategic plans[113] Cash Flows This section details the cash flow activities, showing a reduced cash outflow from operations in 2022 compared to 2021. Investing activities saw new expenditures in 2022 for equipment and product development. Financing activities in 2022 were primarily for preferred stock dividends, a shift from 2021 which included significant proceeds from equity sales and warrant exercises, offset by term loan repayments Cash Used in Operating Activities - Primary uses of operating cash include payments to vendors, salaries, and consulting/professional fees[114] Net Cash Used in Operating Activities | Metric (6 Months Ended June 30) | 2022 | 2021 | | :------------------------------ | :--- | :--- | | Net Cash Used in Operating Activities | $(453,489) | $(1,773,223) | Cash Used in Investing Activities Purchase of equipment and website development | Metric (6 Months Ended June 30) | 2022 | 2021 | | :------------------------------ | :--- | :--- | | Purchase of equipment and website development | $(172,908) | $- | | Product development costs | $(269,268) | $- | | Net Cash Used by Investing Activities | $(446,984) | $- | Cash Provided by Financing Activities Preferred Stock Dividends | Metric (6 Months Ended June 30) | 2022 | 2021 | | :------------------------------ | :--- | :--- | | Preferred Stock Dividends | $(150,000) | $- | | Net Cash (Used in) Provided by Financing Activities | $(150,000) | $628,734 | - In 2021, financing activities included $6,670,011 from common stock/warrant sales and $4,000,003 from Series E preferred stock, offset by $10,031,250 in term loan repayments[117] COVID-19 Considerations on Our Business and Operations - Demand from key customers, particularly VA clinics, decreased between April 2020 and January 2022 due to the COVID-19 pandemic, but sales began to increase in February 2022 as effects eased[118] - The Company has managed supply chain constraints by air freighting products and sourcing integrated circuits, but remains concerned about potential impacts from Asian government policies and future component pricing[119] Impact of Inflation - While not materially impacted by inflation in 2021, the Company expects increased operating, fulfillment, and overhead expenses in 2022 and beyond due to inflationary trends[120] - Management plans to mitigate cost increases through productivity improvements, efficiency programs, and potential product price increases[120] Off-Balance Sheet Arrangements - The Company has no relationships with unconsolidated entities or financial partnerships that would facilitate off-balance sheet arrangements[121] - There are no undisclosed borrowings or debt, and the Company is not materially exposed to financing, liquidity, market, or credit risk from such arrangements[121] Critical Accounting Policies - There were no significant changes to critical accounting policies and estimates during the six months ended June 30, 2022, from those disclosed in the Annual Report on Form 10-K for December 31, 2021[122] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, LogicMark is not required to provide the information typically required by this Item - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[124] Item 4. Controls and Procedures Management concluded that LogicMark's disclosure controls and procedures were not effective as of June 30, 2022, due to identified material weaknesses in internal controls over financial reporting. These weaknesses include incomplete staffing, documentation, and control implementation, issues with tax provision calculations, accounting software migration errors, and limited accounting personnel leading to difficulties with complex transactions and segregation of duties. No changes in internal controls materially affected financial reporting during the period Evaluation of Disclosure Controls and Procedures - Management concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal controls over financial reporting[125] - Identified material weaknesses include: incomplete staffing, documentation, and control implementation; incorrect tax provision related to prior years; lack of proper controls during accounting software migration; and limited accounting personnel leading to difficulties with complex transactions and limited segregation of duties[126][128] Changes in Internal Controls - No changes in the Company's internal control over financial reporting occurred during the six months ended June 30, 2022, that materially affected or are reasonably likely to materially affect internal control over financial reporting[127] Limitations of the Effectiveness of Controls - Management acknowledges that control systems provide only reasonable, not absolute, assurance and cannot prevent all errors or fraud due to inherent limitations like faulty judgments, simple errors, circumvention by individuals or collusion, and management override[128] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently a party to any legal proceedings that, if determined adversely, would have a material adverse effect on its business, operating results, financial condition, or cash flows - The Company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business or financial condition[130] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors were disclosed compared to the Annual Report on Form 10-K for the year ended December 31, 2021[131] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report[132] Item 3. Defaults upon Senior Securities There were no defaults upon senior securities to report during the period - No defaults upon senior securities to report[133] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[134] Item 5. Other Information There is no other information to report under this item - No other information to report[135] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[137] - Inline XBRL Instance Document and Taxonomy Extension Documents are also filed as exhibits[137] Signatures The report is duly signed on behalf of LogicMark, Inc. by its Chief Executive Officer, Chia-Lin Simmons, and Chief Financial Officer, Mark Archer, on August 12, 2022 - The report was signed by Chia-Lin Simmons, Chief Executive Officer, and Mark Archer, Chief Financial Officer, on August 12, 2022[143]