LogicMark(LGMK) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the company's unaudited financial statements, management's analysis, and related disclosures on market risk and internal controls Item 1. Condensed Financial Statements (Unaudited) This section presents the unaudited condensed balance sheets, statements of operations, equity changes, and cash flows for the reported periods Condensed Balance Sheets This section details the company's assets, liabilities, and stockholders' equity as of September 30, 2023, and December 31, 2022 Condensed Balance Sheet Highlights | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Total Assets | $25,152,199 | $25,641,124 | | Total Current Assets | $8,571,837 | $9,534,005 | | Cash and cash equivalents | $6,682,997 | $6,977,114 | | Inventory | $1,135,786 | $1,745,211 | | Total Liabilities | $2,317,102 | $2,853,805 | | Total Current Liabilities | $1,926,843 | $2,413,542 | | Total Stockholders' Equity | $21,027,797 | $20,980,019 | - Total Assets decreased by approximately $0.49 million from December 31, 2022, to September 30, 2023[10] - Total Liabilities decreased by approximately $0.54 million over the nine-month period[10] Condensed Statements of Operations This section summarizes revenues, expenses, and net loss for the three and nine months ended September 30, 2023 and 2022 Condensed Statements of Operations Highlights | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $2,367,227 | $2,751,570 | $7,503,940 | $9,769,951 | | Gross Profit | $1,597,271 | $1,704,366 | $5,059,539 | $5,909,775 | | Operating Loss | $(1,779,589) | $(2,138,105) | $(5,941,847) | $(4,546,683) | | Net Loss | $(1,444,476) | $(2,093,518) | $(5,545,795) | $(4,488,936) | | Net Loss Attributable to Common Stockholders Per Share - Basic and Diluted | $(1.10) | $(4.53) | $(4.73) | $(9.93) | - Revenue decreased by 14% for the three months and 23% for the nine months ended September 30, 2023, compared to the same periods in 2022[13] - Net Loss improved for the three months ended September 30, 2023, but worsened for the nine months ended September 30, 2023, compared to the prior year periods[13] Condensed Statements of Changes in Stockholders' Equity This section outlines the changes in stockholders' equity resulting from stock sales, compensation, dividends, and net loss Stockholders' Equity Changes (Nine Months Ended Sep 30, 2023) | Item | Amount | | :------------------------------------------ | :----------- | | Balance - January 1, 2023 | $20,980,019 | | Stock based compensation expense | $1,198,397 | | Sale of common stock and warrants | $5,211,428 | | Fees incurred with equity offerings | $(816,017) | | Series F Preferred stock converted to common stock | $(201,000) | | Series C Preferred stock dividends | $(225,000) | | Net loss | $(5,545,795) | | Balance - September 30, 2023 | $21,027,797 | - Total Stockholders' Equity increased slightly from $20,980,019 at January 1, 2023, to $21,027,797 at September 30, 2023, primarily driven by proceeds from the sale of common stock and warrants, offset by net loss and equity offering fees[14] Condensed Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities for the nine-month periods Condensed Statements of Cash Flows Highlights (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 | 2022 | | :-------------------------------------- | :----------- | :----------- | | Net Cash Used in Operating Activities | $(3,591,493) | $(1,910,660) | | Net Cash Used in Investing Activities | $(1,035,529) | $(730,394) | | Net Cash Provided by (Used in) Financing Activities | $4,332,905 | $(225,000) | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(294,117) | $(2,866,054) | | Cash, Cash Equivalents and Restricted Cash - End of Period | $6,742,985 | $9,388,492 | - Net cash provided by financing activities significantly increased in 2023 due to $5.2 million in proceeds from the sale of common stock and warrants[18] - Cash used in operating activities increased in 2023, while cash used in investing activities also increased, primarily due to product and software development costs[18] Notes to Condensed Financial Statements This section provides supplementary details on accounting policies, liquidity, equity, and other financial statement items NOTE 1 - ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES This note describes the company's business, products, sales channels, and recent reincorporation in Nevada - LogicMark, Inc. provides personal emergency response systems (PERS), health communications devices, and Internet of Things (IoT) technology, operating in one segment[20] - The company's products are sold direct-to-consumer, to retailers and distributors, and to the United States Veterans Health Administration[20] - LogicMark reincorporated in the State of Nevada on June 1, 2023[20] NOTE 2 - LIQUIDITY AND MANAGEMENT PLANS This note addresses the company's financial condition, operating losses, and management's plans to ensure sufficient capital Liquidity Overview | Metric | Sep 30, 2023 | Dec 31, 2022 | | :---------------------- | :----------- | :----------- | | Operating Loss (9M) | $(5.9) million | N/A | | Net Loss (9M) | $(5.5) million | N/A | | Cash and Cash Equivalents | $6.7 million | $7.0 million | | Working Capital | $6.6 million | $7.1 million | - Management believes the company has sufficient capital to sustain operations for one year from the filing date, with potential for future equity or debt offerings to support strategic plans[22] NOTE 3 - BASIS OF PRESENTATION This note explains the preparation of financial statements in accordance with U.S. GAAP and adjustments for a reverse stock split - The unaudited condensed financial statements are prepared in accordance with U.S. GAAP and SEC interim reporting rules[23] - LogicMark, Inc. reincorporated from Delaware to Nevada on June 1, 2023[24] - Net loss per share and all share data for prior periods have been retroactively adjusted to reflect a 1-for-20 reverse stock split on April 21, 2023[27] NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details key accounting policies for revenue recognition, inventory valuation, and research and development costs - Revenue is recognized at a point-in-time, generally upon shipment or delivery, with the majority of contracts being prepaid, especially with the United States Veterans Health Administration[33] - Inventory is measured at the lower of cost or net realizable value using the first-in, first-out (FIFO) method, with regular reviews for excess, obsolete, and slow-moving items[40] - Research and development costs are expensed as incurred until technological feasibility is established, after which development costs are capitalized[54] NOTE 5 - ACCRUED EXPENSES This note provides a breakdown of accrued expenses, including salaries, management incentives, and inventory in transit Accrued Expenses | Category | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Salaries, payroll taxes and vacation | $238,453 | $114,030 | | Management incentives | $453,799 | $519,800 | | Inventory in transit | $160,881 | $812,970 | | Totals | $1,211,005 | $1,740,490 | - Total accrued expenses decreased from $1.74 million at December 31, 2022, to $1.21 million at September 30, 2023, primarily due to a significant reduction in inventory in transit[56] NOTE 6 - STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK This note describes changes in equity, including a reverse stock split, a public offering, and preferred stock dividends - The company completed a 1-for-20 reverse stock split on April 21, 2023, affecting common stock and Series C Redeemable Preferred Stock[60] - A registered public offering in January 2023 generated approximately $5.2 million in gross proceeds from the issuance of common stock and warrants[62] - Series C Redeemable Preferred Stock holders are entitled to 15% annual cash dividends, with $75,000 recorded for the three months and $225,000 for the nine months ended September 30, 2023[64] NOTE 7 - STOCK INCENTIVE PLANS This note details the company's stock incentive plans, authorized shares, and stock-based compensation expenses - The 2023 Stock Incentive Plan was approved on March 7, 2023, authorizing up to 68,723 shares for fiscal 2023, and thereafter 15% of outstanding common shares[70] - Total stock-based compensation expense was $0.4 million for the three months and $1.2 million for the nine months ended September 30, 2023[81] - The 2017 Stock Incentive Plan was terminated, and the 2013 Long-Term Stock Incentive Plan expired in January 2023[73][78] NOTE 8 - COMMITMENTS AND CONTINGENCIES This note discloses information on legal proceedings and future minimum lease payment commitments - The company is not currently involved in any legal proceedings that would have a material adverse effect on its business[83] - Operating lease costs for the three and nine months ended September 30, 2023, were $25.4 thousand and $76.2 thousand, respectively[88] Future Minimum Undiscounted Lease Payments | Year Ending December 31, | Amount | | :----------------------- | :------- | | 2023 (remainder) | $19,800 | | 2024 | $80,000 | | 2025 | $54,400 | | Total | $154,200 | NOTE 9 – SUBSEQUENT EVENTS This note confirms that no significant events occurred after the balance sheet date that would require disclosure or adjustment - Management evaluated subsequent events through November 9, 2023, and found no events requiring recognition, adjustment, or disclosure in the condensed financial statements[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 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, strategic focus, and recent corporate actions - LogicMark, Inc. specializes in Personal Emergency Response Systems (PERS), health communications devices, and Internet of Things (IoT) technology for connected care[95] - The company aims to modernize remote monitoring to support independent living and has a strong business relationship with the United States Veterans Health Administration (VHA), with plans for further government expansion[95] - The company reincorporated in Nevada on June 1, 2023, and effected a 1-for-20 reverse stock split on April 21, 2023[96][97] Results of Operations This section analyzes the company's operational performance, including revenue, gross profit, and operating expenses Revenue, Cost of Goods Sold, and Gross Profit This section analyzes changes in revenue and gross profit, highlighting an improved margin despite lower sales Revenue and Gross Profit Performance | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $2,367,227 | $2,751,570 | $7,503,940 | $9,769,951 | | Gross Profit | $1,597,271 | $1,704,366 | $5,059,539 | $5,909,775 | | Gross Profit Margin | 67% | 62% | 67% | 60% | - Revenue decreased by 14% for the three months and 23% for the nine months ended September 30, 2023, primarily due to one-time sales of 4G replacement units in the prior year[100] - Gross profit margin improved to 67% for both the three and nine months ended September 30, 2023, driven by better supply chain management and lower fulfillment costs[101] Operating Expenses This section details the fluctuations in various operating expense categories compared to the prior year Operating Expenses (YoY Change) | Expense Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Direct operating cost | $266,746 (↓ $0.1M) | $345,972 | $841,974 (↓ $0.3M) | $1,156,959 | | Advertising costs | $57,195 (↓ $0.01M) | $68,170 | $190,588 (↑ $0.1M) | $68,170 | | Selling and Marketing | $636,643 (↑ $0.4M) | $264,528 | $1,620,109 (↑ $0.9M) | $728,746 | | Research and development | $242,697 (↓ $0.1M) | $374,842 | $806,851 (↓ $35K) | $841,917 | | General and administrative | $1,901,516 (↓ $0.7M) | $2,575,105 | $6,759,135 (↓ $0.3M) | $7,025,674 | - Direct operating costs decreased due to reduced warranty claims related to the 3G cellular sunsetting[103] - Selling and marketing expenses increased significantly due to additional sales personnel and related expenses[105] - Research and development expenses decreased as new PERS hardware and software solutions near release in Q4'23[106] Other Income This section explains the significant increase in other income, driven by interest and an IRS refund Other Income Performance | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest income | $88,975 | $44,587 | $149,914 | $57,747 | | Other Income | $246,138 | $- | $246,138 | $- | | Total Other Income | $335,113 | $44,587 | $396,052 | $57,747 | - Total other income significantly increased for both periods in 2023, driven by higher interest income from cash balances and a $246,138 refund from the IRS related to an Employee Retention Credit[108] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term obligations through its available capital Sources of Liquidity This section outlines the company's current liquidity position and sources of capital, including a recent public offering Liquidity Position | Metric | Sep 30, 2023 | | :---------------------- | :----------- | | Operating Loss (3M) | $(1.8) million | | Net Loss (3M) | $(1.4) million | | Operating Loss (9M) | $(5.9) million | | Net Loss (9M) | $(5.5) million | | Cash and Cash Equivalents | $6.7 million | | Working Capital | $6.6 million | - The company received $5.2 million in proceeds from a registered public offering of common stock and warrants during the nine months ended September 30, 2023[109] - Management projects sufficient capital for operations for the next twelve months but may seek additional equity or debt funding to accelerate strategic plans[110] Cash Flows This section analyzes the primary drivers of cash flow changes from operating, investing, and financing activities Cash Flow Activities (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 | 2022 | | :-------------------------------------- | :----------- | :----------- | | Net Cash Used in Operating Activities | $(3,591,493) | $(1,910,660) | | Net Cash Used in Investing Activities | $(1,035,529) | $(730,394) | | Net Cash Provided by (Used in) Financing Activities | $4,332,905 | $(225,000) | - Cash used in operating activities increased to $3.6 million in 2023, primarily for vendor payments, salaries, and professional fees[111] - Cash used in investing activities increased to $1.0 million in 2023, mainly due to increased investments in product and software development[112] - Financing activities provided $4.3 million in cash in 2023, a significant shift from cash used in 2022, driven by the $5.2 million equity offering[113] Impact of Inflation This section discusses the modest impact of inflation on the company and its strategies for maintaining profit margins - The company has been modestly impacted by inflationary trends but anticipates potential increases in fulfillment, labor, shipping, operating, and overhead costs in fiscal year 2024[114] - Profit margins have been maintained through higher productivity, improved supply chain management, efficiency gains, and cost reduction programs[114] Off-Balance Sheet Arrangements This section confirms the company has no off-balance sheet arrangements that could materially affect its financial position - The company has no off-balance sheet arrangements, undisclosed borrowings, or synthetic leases[115] Critical Accounting Policies This section states that there have been no significant changes to the critical accounting policies disclosed in the 2022 Annual Report - There were no significant changes to the company's critical accounting policies and estimates during the three and nine months ended September 30, 2023, compared to those disclosed in the 2022 Annual Report on Form 10-K[116] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide market risk disclosures as it qualifies as a smaller reporting company - LogicMark, Inc. is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[117] Item 4. Controls and Procedures Management concludes disclosure controls were ineffective due to material weaknesses and outlines ongoing remediation efforts Evaluation of Disclosure Controls and Procedures This section reports management's conclusion that disclosure controls were not effective due to material weaknesses - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023[118] - Material weaknesses include difficulty accounting for complex transactions due to insufficient experienced accounting personnel and limited segregation of duties[118][119] - Remediation efforts are underway, including completing the 2013 COSO framework assessment and implementing/testing control procedures[119] Changes in Internal Control over Financial Reporting This section states that no material changes were made to internal controls during the reporting period - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023[120] Limitations of the Effectiveness of Internal Control This section describes the inherent limitations of any control system, which can only provide reasonable assurance - Control systems provide only reasonable, not absolute, assurance and are subject to inherent limitations such as faulty judgment, simple errors, circumvention by individuals, or management override[121] PART II. OTHER INFORMATION This part contains other required disclosures, including legal proceedings, risk factors, and exhibits filed with the report Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not involved in any legal proceedings that are expected to have a material adverse effect on its business[123] Item 1A. Risk Factors The company is not required to provide risk factor disclosures as a smaller reporting company - LogicMark, Inc. is exempt from providing risk factor disclosures as it is a smaller reporting company[124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the current reporting period - This item is not applicable[125] Item 3. Defaults upon Senior Securities The company reports no defaults upon senior securities during this period - There were no defaults upon senior securities[126] Item 4. Mine Safety Disclosures This item is not applicable as the company is not engaged in mining operations - This item is not applicable[127] Item 5. Other Information The company reports no other information requiring disclosure under this item - No other information was reported under this item[128] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[129] - Inline XBRL Instance Document and Taxonomy Extension documents are also filed as exhibits[129] Signatures This section provides the official signatures of the company's executive officers, dated November 9, 2023 - The report was signed by Chia-Lin Simmons, Chief Executive Officer, and Mark Archer, Chief Financial Officer, on November 9, 2023[133]