UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
(Mark
One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
☒ For
the fiscal year ended December 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ___________ to ___________
Commission
file number: 001-36616
LogicMark,
Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware |
|
46-0678374 |
|
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
|
incorporation
or organization) |
Identification
No.) |
2801
Diode Lane
Louisville,
KY 40299
(Address
of principal executive offices)(Zip Code)
Registrant’s
telephone number, including area code: (502)
442-7911
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class: |
|
Trading symbol(s): |
|
Name
of each exchange on which registered: |
|
Common
Stock, par value $0.0001 per share |
|
LGMK
|
|
The
Nasdaq Stock Market LLC |
Securities
registered pursuant to Section 12(g) of the Act:
None
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically,
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any
amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
| Non-accelerated
filer |
☒ |
Smaller
reporting company |
☒ |
| |
|
Emerging
growth company |
☐ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the Common Stock held by
non-affiliates of the registrant, as of June 30, 2021, the last
business day of the second fiscal quarter, was approximately
$45,003,895 based on 5,331,189 shares of our Common Stock
outstanding on such date and a closing price of $8.899 per share.
Shares of Common Stock held by each director, each officer and each
person who owns 10% or more of the outstanding Common Stock have
been excluded from this calculation in that such persons may be
deemed to be affiliates. The determination of affiliate status is
not necessarily conclusive.
The registrant had 9,593,378 shares of its Common Stock outstanding
as of April 12, 2022.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K (this “Report”) contains
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Forward-looking statements discuss matters that
are not historical facts. Because they discuss future events or
conditions, forward-looking statements may include words such as
“anticipate,” “believe,” “estimate,” “intend,” “could,” “should,”
“would,” “may,” “seek,” “plan,” “might,” “will,” “expect,”
“predict,” “project,” “forecast,” “potential,” “continue,”
negatives thereof or similar expressions. These forward-looking
statements are found at various places throughout this Report and
include information concerning possible or assumed future results
of LogicMark, Inc.’s (“LogicMark”, the “Company”, “our”, “us” or
“we”) operations; business strategies; future cash flows; financing
plans; plans and objectives of management; any other statements
regarding future operations, future cash needs, business plans and
future financial results; and any other statements that are not
historical facts.
From
time to time, forward-looking statements also are included in our
other periodic reports on Forms 10-Q and 8-K, in our press
releases, in our presentations, on our website and in other
materials released to the public. Any or all of the forward-looking
statements included in this Report and in any other reports or
public statements made by us are not guarantees of future
performance and may turn out to be inaccurate. These
forward-looking statements represent our intentions, plans,
expectations, assumptions and beliefs about future events and are
subject to risks, uncertainties and other factors. Many of those
factors are outside of our control and could cause actual results
to differ materially from the results expressed or implied by those
forward-looking statements. In light of these risks, uncertainties
and assumptions, the events described in the forward-looking
statements might not occur or might occur to a different extent or
at a different time than we have described. You are cautioned not
to place undue reliance on these forward-looking statements, which
speak only as of the date of this Report. All subsequent written
and oral forward-looking statements concerning other matters
addressed in this Report and attributable to us or any person
acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this
Report.
Except
to the extent required by law, we undertake no obligation to update
or revise any forward-looking statements, whether as a result of
new information, future events, a change in events, conditions,
circumstances or assumptions underlying such statements, or
otherwise.
For
discussion of factors that we believe could cause our actual
results to differ materially from expected and historical results,
see “Item 1A - Risk Factors” below. These and other factors could
cause results to differ materially from those expressed in the
estimates made by the independent parties and by us.
PART
I
Item
1. Business
LogicMark, Inc. (NASDAQ: LGMK) (formerly known as Nxt-ID, Inc.)
(“LogicMark”, the “Company”, “we”, “us” or “our”) provides personal
emergency response systems (“PERS”), health communications devices,
and Internet of Things (“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. The
Company’s PERS devices incorporate two-way voice communication
technology directly in the medical alert pendant and provide
life-saving technology at a consumer-friendly price point aimed at
everyday consumers. The PERS technologies are sold through dealers
and distributors, as well as through the United States Veterans
Health Administration (the “VHA”).
The
Company was awarded a contract by the U.S. General Services
Administration that enables the Company to distribute its products
to federal, state, and local governments (the “GSA
Agreement”).
Healthcare
Overview
LogicMark
builds technology to check, manage and monitor a loved one’s health
and safety remotely. The Company is focused on modernizing remote
monitoring to help people stay safe and live independently longer.
We believe there are five trends driving the demand for better
remote monitoring systems:
|
1. |
The
“Silver Tsunami”. With 10,000 Baby Boomers turning 65 daily in
the U.S., there will be more older adults than children under 18
for the first time in the near future. With 72 million “Baby
Boomers” in the United States, they are not only the largest
generation but the wealthiest. Unlike older generations before
them, they are reliant and comfortable with technology. Most of
them expect to live independently in their current home or downsize
to a smaller home as they get older. |
| |
|
|
|
2. |
Shift
to At-Home Care. As it stands, the current healthcare system is
unprepared for the strain and is shifting much of the care elderly
patients used to receive at a hospital or medical facility to the
patient’s home. The rise of digital communication to support remote
care exploded during the COVID-19 pandemic. The need for connected
and remote monitoring devices is more necessary and in-demand than
ever. |
| |
|
|
|
3. |
Rise
of Data and IoT. Doctors and clinicians are asking for patients
to track more and more vital signs. Whether it’s how they are
reacting to medication or tracking blood sugars, patients and their
caregivers are participating in their healthcare in unprecedented
ways. Consumers are using data collected from connected devices
like never before. This data can be used to prevent health
emergencies as technology companies use machine learning (ML) /
artificial intelligence (“AI”) to learn patient patterns and alert
the patient and their care team to prevent emergencies. |
| |
|
|
|
4. |
Lack
of Healthcare Workers. It is estimated that 20% of healthcare
workers have quit during the COVID-19 pandemic. Many healthcare
workers who are currently working are suffering from burnout,
exhaustion and demoralization due to this pandemic. There are not
enough healthcare workers to support our entire population
throughout this pandemic, let alone enough to support our elderly
population. The responsibility of taking care of elderly family
members is increasingly falling on the family, and they need
help. |
| |
|
|
|
5. |
Rise
of the Care Economy. The term “Care Economy” refers to the
money people contribute to care for people until the end of their
lives; the Care Economy offsets the deficiencies within the
healthcare system and the desire to age in place. There has been
little innovation in the industry because the majority of PERS are
operated by home security companies. It is not their main line of
business, and they have little expertise in developing or launching
machine-learning algorithms or artificial intelligence. |
Together, we believe these trends have produced a large and growing
market opportunity for LogicMark. The Company enjoys a strong base
of business with the VHA and plans to expand to other government
services after being awarded the five-year GSA Agreement in July
2021.
The PERS Opportunity
PERS,
also known as a medical alert or medical alarm system, is designed
to indicate the presence of a threat that requires immediate
attention and then immediately contacts a trusted family member and
the emergency medical workforce. Unlike conventional alarm systems
which consist of a transmitter and are activated in the case of an
emergency, PERS transmits signals to an alarm monitoring medical
team, which then departs for the location where the alarm was
activated. These types of medical alarms are traditionally utilized
by the disabled, elderly or those living alone.
The PERS market is generally divided into direct-to-consumer
(“DTC”) and Healthcare Partner (“Healthcare”) customer channels.
With the advent of new technologies, demographic changes, and our
five previously stated trends in healthcare, an expanded
opportunity exists for LogicMark to provide at-home and on-the-go
health and safety solutions to both customer channels.
For
LogicMark, growing the Healthcare opportunity relies on partnering
with organizations such as government, Medicaid, hospitals,
insurance companies, managed care organizations, affiliates and
dealers. Partners can provide leads at no cost for new and
replacement customers, have significant buying power and can
provide collaboration on product research and
development.
Our
longstanding partnership with the VHA is a good example. LogicMark
has been selling PERS devices to the U.S. government for many
years. The signing of the GSA Agreement in 2021 further strengthens
our partnership with the government and expands our ability to
capture new sales. We envision a focus on growing the Healthcare
channel during 2022 given lower acquisition costs and higher
customer unit economics.
In
addition to the Healthcare channel, LogicMark also expects to grow
sales volume by establishing a DTC channel. It is estimated that
approximately 70% of PERS customers fall into the DTC category.
Family members regularly conduct research and purchase PERS devices
for their loved ones through online portals. The Company expects
traditionally higher customer acquisition costs to be balanced by
higher sales growth and lower sales cycles with an online DTC
channel.
With the growth in IoT devices, data driven solutions using AI and
ML are helping guide the growth of the PERS industry. In both the
Healthcare and DTC channels, product offerings can include 24/7
emergency response, fall detection, activity monitoring, medication
management, caregiver and patient portals, concierge services,
telehealth, vitals monitoring, and customer dashboards. These
product offerings are primarily delivered via mobile and home-base
equipment. LogicMark will also pursue research and development
partnerships to grow our product offering.
Our PERS Products
LogicMark produces a range of products within the PERS market as a
result of the Company’s 2016 acquisition of LogicMark, LLC, a
former wholly-owned subsidiary of the Company. The Company has
differentiated itself by offering “no monthly fee” products, which
only require a one-time purchase expense, instead of a recurring
monthly contract.
The “no monthly fee” products contact family, friends or 911
directly, eliminating the monthly fee from a monitoring center,
making it one of the most innovative, cost-effective options on the
market. LogicMark offers both traditional (i.e., landline), mPERS
(i.e., cell-based), and Internet (i.e., Wi-Fi-based) solutions. Our
no monthly fee products are sold primarily through the VHA.
|
PRODUCT |
FEATURES |
|
GUARDIAN
ALERT 911 PLUS
|
●
Two-way voice via pendant
●
911 direct-dial
●
No Wi-Fi or landline necessary
●
6-12 month rechargeable battery life
●
No monthly fee or service agreement
|
|
FREEDOM
ALERT
|
●
Two-way voice via pendant
●
Dial friends, family and caregivers
●
911 forwarding
●
Landline necessary
●
6-12 month battery standby
●
No monthly fee or service arrangement
|
|
GUARDIAN
ALERT 911
|
●
Two-way voice via pendant
●
911 direct-dial
●
Landline necessary
●
6-9 month battery standby
●
No monthly fee or service arrangement
|
|
CONNECTED
GUARDIAN
|
●
Two-way voice via pendant
●
Dial friends, family and caregivers
●
911 forwarding
●
No landline necessary
●
Wi-Fi and broadband internet connection necessary
●
6-9 month battery standby
●
No monthly fee
●
Planned for launch in late second quarter of 2022
|
LogicMark has offered monitored products in the past that were
exclusively sold to consumers by monitored product dealers and
distributors. LogicMark sold its devices to the dealers and
distributors, who in turn offered the monitoring component to their
consumers as part of their product and service offerings. The
dealer would own the device and then lease the PERS hardware to the
consumer. The dealers would charge the consumers a monthly
monitoring fee for the lease of the PERS equipment and associated
monitoring service. These products were monitored by a third-party
central station. Currently, the Company is only supporting dealers
that purchased LogicMark’s LifeSentry Monitored PERS.
|
PRODUCT |
FEATURES |
|
LifeSentry
|
●
Two-way voice via pendant
●
Connects to central station
●
Landline necessary
●
Water resistant
●
6-12 month rechargeable battery life
●
Monthly fee charged by the dealer
|
Industry Competition
LogicMark is focused on expanding its market position through both
the DTC and Healthcare channels. The Company enjoys a strong
business relationship with the VHA, through which it serves
veterans who suffer from chronic conditions that often require
emergency assistance. We believe that this relationship, coupled
with the GSA Agreement, gives LogicMark a solid foundation to grow
its Healthcare channel business.
Our strategic plan calls for expanding our business into the DTC
channel and growing our Healthcare channels in order to better
serve the expanding demand for at-home and on-the-go healthcare
solutions.
As
technology and innovation have improved, barriers to entry have
been lowered in the PERS sector. This has resulted in a highly
fragmented market with many competitors, mostly privately held, who
are solely dedicated to providing PERS. Other competitors, many of
which are large publicly traded, include PERS as one of several
business lines. In these instances, their PERS segments grow
through acquisitions or roll ups of smaller, private PERS
companies. Competition is also found from companies in the
healthcare, telecommunications and personal, home and commercial
security sectors.
Competitors
may have greater financial, technical, and personnel resources,
broader distribution networks, a larger portfolio of intellectual
property and customers. Success in acquiring new customers is
dependent on a variety of factors, including brand and reputation,
market visibility, service and product capabilities, quality,
price, and the ability to identify and sell to prospective
customers. Our approach is to grow our team and product
capabilities as well as key partnerships. These steps are expected
to help us benefit from the favorable trends and growing demand for
PERS in the DTC and Healthcare channels.
Our Care Economy and Business Strategy
2022 has been a rebuilding year for the Company after the COVID-19
restrictions in 2020 and 2021 led to VHA hospital and clinic
closures and their refocus away from patient long-term care to
dealing with the immediacy of COVID-19 infections. In 2021, the
Company also underwent a change in management conducted multiple
offerings to prepare us to build for the future. In 2022, we are
continuing our plan to build a foundation for future growth by
building a durable model, with a recurring revenue base to generate
significant cash flow, and by developing innovative software and
services solutions to expand into the broader Caring Economy. We
plan to invest in a number of new verticals, such as consumer,
pro-care / Healthcare, corporate benefits lines of business and
intend to expand further into our established government
business.
The number of Americans over the age of 65 make up more than 23% of
the US population (over 80 million people) and more than 90% of
those over 65 would like to age at home. We believe that our
existing PERS and medical alert systems provide this “silver
tsunami” of seniors seeking to continue living independently, stay
safe, comfortable, and content in their own home the ability to do
so. Our customers’ increasingly mobile and active lifestyles have
created new opportunities for us in the fast-growing market for
self-monitored products and mobile technology. We plan to continue
to grow our unmonitored PERS business, which for those who are on
low or fixed income and/or require long charge devices, is
potentially a life-saving product. However, we see strong
opportunities to build and expand our business into monitored
services. We plan to expand our cell-based (mPERS) product line to
provide a multi-layer safety support using CPaaS, LogicMark’s
Caring Platform as a Service, which allows us to integrate with
various third-party connected and wearable devices so that we can
serve our customers whether they are at home or on-the-go.
We plan to continue to expand our business into the “aging with
independence” market as well as expanding further into the Caring
Economy by providing enhanced products and services that make the
caring for loved ones easier. One in four millennials as well as
more than half of GenX are taking care of loved ones with very
little, but much needed, assistance. Further, as the in-home
professional care business continues to expand, we believe this is
an opportunity for LogicMark to extend its products and services to
meet the increasing needs of the growing Caring Economy. We intend
to do so by expanding the tools for caretakers to better manage
both the care of their elderly living independent lives, and to
provide mobile and personal safety to others in their care circle
so they too can feel safe on the go. We want our products and
services to be available for anyone with personal safety concerns,
including children or students who are navigating new environments
and social situations for the first time.
Our
Intellectual Property
Our
ability to compete effectively depends to a significant extent on
our ability to protect our proprietary information. We currently
rely and will continue to rely primarily on patents and trade
secret laws and confidentiality procedures to protect our
intellectual property rights. We have filed the following patent
applications, twenty-one of which have been awarded to
date:
METHOD
AND SYSTEM TO IMPROVE ACCURACY OF FALL DETECTION USING MULTI-SENSOR
FUSION
Filed
October 25, 2021
Application
Number 17/509,795
SYSTEM
AND METHOD FOR FALL DETECTION USING MULTIPLE SENSORS, INCLUDING
BAROMETRIC OR ATM
Filed
October 24, 2021
Application
Number 63/271,194
SYSTEM
AND METHOD FOR FALL DETECTION USING MULTIPLE SENSORS, INCLUDING
BAROMETRIC OR ATM
Filed
October 3, 2021
Application
Number 63/251,672
PREFERENCE-DRIVEN
ADVERTISING SYSTEMS AND METHODS
Filed
May 4, 2020
Application
Number 16/866,487
PREFERENCE
DRIVEN ADVERTISING SYSTEM AND METHOD
Filed
May 4, 2020
Application
Number 16/687,487
METHOD
AND SYSTEM TO REDUCE INFRASTRUCTURE COSTS WITH SIMPLIFIED INDOOR
LOCATION AND RELIABLE COMMUNICATIONS
Filed
November 11, 2019
Application
Number 16/679,494
SYSTEM
AND METHOD TO AUTHENTICATE ELECTRONICS USING
ELECTRONIC-METRICS
Filed
September 15, 2019
Patent
Number 10,841,301
COMPONENTS
FOR ENHANCING OR AUGMENTING WEARABLE ACCESSORIES BY ADDING
ELECTRONICS THERETO
Filed
August 22, 2019
Patent
Number 11,004,066
METHOD
TO LOCALLY VALIDATE IDENTITY WITHOUT PUTTING PRIVACY AT
RISK
Filed
May 6, 2019
Patent
Number 10,970,376
METHOD
AND SYSTEM TO IMPROVE ACCURACY OF FALL DETECTION USING MULTI-SENSOR
FUSION
Filed
December 17, 2018
Patent
Number 11,158,179
AN
EVENT DETECTOR FOR ISSUING A NOTIFICATION RESPONSIVE TO OCCURRENCE
OF AN EVENT
Filed
July 27, 2018
Patent
Number 11,024,142
THE
UN-PASSWORD: RISK AWARE END-TO-END MULTI-FACTOR AUTHENTICATION VIA
DYNAMIC PAIRING
Filed
July 2, 2018
Patent
Number 10,609,014
APPARATUS
AND METHOD FOR LOCATING AND UPDATING LOW-POWER WIRELESS
COMMUNICATION DEVICES
Filed
September 8, 2016
Patent
Number 9,900,737
METHODS
AND SYSTEMS RELATED TO MULTI-FACTOR, MULTIDIMENSIONAL,
MATHEMATICAL, HIDDEN AND MOTION SECURITY PINS
Filed
August 1, 2016
Patent
Number 10,565,569
PREFERENCE
DRIVEN ADVERTISING SYSTEM AND METHOD
Filed
July 15, 2016
Patent
Number 10,643,245
SYSTEM
AND METHOD TO AUTHENTICATE ELECTRONICS USING
ELECTRONIC-METRICS
Filed
July 5, 2016
Patent
Number 10,419,428
THE
UN-PASSWORD: RISK AWARE END-TO-END MULTI-FACTOR AUTHENTICATION VIA
DYNAMIC PAIRING
Filed
March 14, 2016
Patent
Number 10,015,154
COMPONENTS
FOR ENHANCING OR AUGMENTING WEARABLE ACCESSORIES BY ADDING
ELECTRONICS THERETO
Filed
September 2, 2015
Patent
Number 10,395,240
METHOD
TO LOCALLY VALIDATE IDENTITY WITHOUT PUTTING PRIVACY AT
RISK
Filed
September 1, 2015
Patent
Number 10,282,535
APPARATUS
AND METHOD FOR LOCATING AND UPDATING LOW-POWER WIRELESS
COMMUNICATION DEVICES
Canadian
Patent
Filed
August 11, 2015
Application
Number 2,900,180
APPARATUS
AND METHOD FOR LOCATING AND UPDATING LOW-POWER WIRELESS
COMMUNICATION DEVICES
Filed
August 24, 2014
Patent
Number 9,472,088
THE
UN-PASSWORD™: RISK AWARE END-TO-END MULTI-FACTOR AUTHENTICATION VIA
DYNAMIC PAIRING
Filed
March 17, 2014
Patent
Number 9,407,619
LIST-BASED
EMERGENCY CALLING DEVICE
Filed
March 11, 2009
Patent
Number 8,369,821
VOICE-EXTENDING
EMERGENCY RESPONSE SYSTEM
Filed
September 5, 2008
Patent
Number 8,121,588
FALL
DETECTION SYSTEM HAVING A FLOOR HEIGHT THRESHOLD AND A RESIDENT
HEIGHT DETECTION DEVICE
Filed
June 27, 2008
Patent
Number 7,893,844
WIRELESS
CENTRALIZED EMERGENCY SERVICES SYSTEM
Filed
January 15, 2008
Patent
Number 8,275,346
ALARM
SIGNALING DEVICE AND ALARM SYSTEM
Filed
February 2, 2005
Patent
Number 7,312,709
ALARM
SIGNALING DEVICE AND ALARM SYSTEM
Canadian
patent
Filed
August 1, 2003
Patent
Number 2,494,166
We
intend to enter into confidentiality agreements with all of our
consultants and maintain control over access to and distribution of
our technology, software and other proprietary information. The
steps that we have taken to protect our technology may be
inadequate to prevent others from using what we regard as our
technology to compete with us.
We do
not generally conduct exhaustive patent searches to determine
whether the technology used in our products infringes on the
patents that are held by third parties. In addition, product
development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent
applications pending, many of which are confidential when filed,
with regard to similar technologies.
We
may face claims by third parties that our products or technology
infringe their patents or other intellectual property rights in the
future. Any claim of infringement could cause us to incur
substantial costs defending against the claim, even if the claim is
invalid, and could distract the attention of our management. If any
of our products are found to violate third-party proprietary
rights, we may be required to pay substantial damages. In addition,
we may be required to re-engineer our products or seek to obtain
licenses from third parties to continue to offer our products. Any
efforts to re-engineer our products or obtain licenses on
commercially reasonable terms may not be successful, which would
prevent us from selling our products, and in any case, could
substantially increase our costs and have a material adverse effect
on our business, financial condition and results of
operations.
Corporate
Information
History
We were incorporated in the State of Delaware on February 8, 2012.
In 2016, we acquired LogicMark, LLC, which operated as a
wholly-owned subsidiary of the Company until December 30, 2021 when
it was merged into the Company (formerly known as Nxt-ID Inc.)
along with the Company’s other subsidiary, 3D-ID, LLC. Effective
February 28, 2022, the Company changed its name from Nxt-ID, Inc.
to LogicMark, Inc. The Company has realigned its business strategy
with that of its former LogicMark, LLC operating division, managing
contract manufacturing and distribution of non-monitored and
monitored PERS sold through the VHA, healthcare durable medical
equipment dealers and distributors and monitored security dealers
and distributors.
Our
principal executive office is located at 2801 Diode Lane,
Louisville, KY 40299, and our telephone number is (502)
519-2419.
Our
website address is logicmark.com. The information contained
therein or connected thereto shall not be deemed to be a part of or
incorporated into this Report.
Employees
As of April 12, 2022, we had a total of 19 full-time employees,
comprising 6 employees in product fulfillment, 1 employee in
product engineering, 1 employee in technology, 1 employee in
finance and administration, 8 employees in sales and customer
service. None of our employees are represented by a collective
bargaining agreement, nor have we experienced any work stoppage. We
consider our relations with our employees to be good. Our future
success depends on our continuing ability to attract and retain
highly qualified software engineers, product development managers,
sales and marketing professionals and senior management personnel.
In addition, we have fractional independent contractors whose
services we are using on an as-needed basis to assist us in all
areas.
Item
1A. Risk Factors
Our
business, financial condition and operating results are subject to
a number of risk factors, both those that are known to us and
identified below and others that may arise from time to time. These
risk factors could cause our actual results to differ materially
from those suggested by forward-looking statements in this Report
and elsewhere, and may adversely affect our business, financial
condition or operating results. If any of these risk factors should
occur, moreover, the trading price of our securities could decline,
and investors in our securities could lose all or part of their
investment in our securities. These risk factors should be
carefully considered in evaluating our prospects.
Risks
Relating to our Business
We are uncertain of our ability to generate sufficient revenue and
profitability in the future.
We
continue to develop and refine our business model, but we can
provide no assurance that we will be able to generate a sufficient
amount of revenue, from our business in order to achieve
profitability. It is not possible for us to predict at this time
the potential success of our business. The revenue and income
potential of our proposed business and operations are currently
unknown. If we cannot continue as a viable entity, you may lose
some or all of your investment in our Company.
The Company generated an operating loss of $7,547,456 and a net
loss of $11,707,889 for the year ended December 31, 2021, compared
to an operating loss and a net loss of $586,078 and $2,864,984 as
of December 31, 2020, respectively. As of December 31, 2021, the
Company had cash and stockholders’ equity of $12,044,415 and
$26,589,171, respectively, compared to cash and stockholders’
equity of $4,387,416 and $9,159,211 as of December 31, 2020,
respectively. At December 31, 2021, the Company had working capital
of $13,098,049, compared to a working capital deficit as of
December 31, 2020 of $578,795. We cannot provide any assurance that
we will be able to raise additional cash from equity financings,
secure debt financing, and/or generate revenue from the sales of
our products. If we are unable to secure additional capital, we may
be required to curtail our research and development initiatives and
take additional measures to reduce costs in order to conserve our
cash in amounts sufficient to sustain operations and meet our
obligations.
Our business, financial condition and results of operations may be
adversely affected by the COVID-19 pandemic, other pandemics,
epidemics or other adverse public health
developments.
The
pandemic resulting from COVID-19 has caused many governments to
implement quarantines and significant restrictions on travel, and
to advise that people remain at home where possible and avoid
crowds. This has caused much business disruption and uncertainty in
the financial markets. Since the onset of the COVID-19 pandemic,
our distributors and/or the VHA have, for various extended periods,
significantly reduced orders for our products. Continuing effects
of COVID-19, or other pandemics, epidemics or other adverse public
health developments, may in all likelihood, extend these reduced
product orders and continue the inability of our distributors
and/or the VHA to pay us for orders for an undeterminable period of
time. Delays and disruptions, such as difficulty obtaining
components and temporary suspension of operations, have resulted in
our existing inventory levels not being sufficient, and our
business, financial condition and results of operations have been
materially and adversely affected as a result of the COVID-19
pandemic. In the event that such material business disruptions
continue, this will, in all likelihood, have a material adverse
impact on our business and we may be forced to write-down or
write-off assets, restructure our operations or incur impairment or
other charges that could result in losses. Even though these
charges may be non-cash items and may not have an immediate impact
on our liquidity, the fact that we report charges of this nature
could contribute to negative market perceptions about us or our
securities. As a result of COVID-19 or future adverse public health
developments, we have been and may also continue to be impacted by
shutdowns, employee illness and other community response measures
meant to prevent the spread of COVID-19, all of which has and may
continue to negatively impact our business, financial condition and
results of operations. Further, if we are regularly unable to meet
our obligations to deliver our products to distributors and/or the
VHA, they may decide to terminate or reduce their distribution
arrangements with us and our business could be adversely affected.
Accordingly, our securityholders could suffer a reduction in the
value of our securities that they hold if the trading price of our
Common Stock is adversely impacted due to such market perceptions.
The extent to which COVID-19 will continue to impact our results
will depend on future developments, which are highly uncertain and
will include emerging information concerning the severity of
COVID-19 and the actions taken by governments and private
businesses to attempt to contain such virus.
Significant disruptions of information technology systems or
security breaches could materially adversely affect our
business.
We
are increasingly dependent upon information technology systems,
infrastructure and data to operate our business. In the ordinary
course of business, we collect, store and transmit large amounts of
confidential information (including, among other things, trade
secrets or other intellectual property, proprietary business
information and personal information). It is critical that we do so
in a secure manner to maintain the confidentiality and integrity of
such confidential information. We also have outsourced elements of
our operations to third parties, and as a result, we manage a
number of third-party vendors who may or could have access to our
confidential information. Attacks on information technology systems
are increasing in their frequency, levels of persistence,
sophistication and intensity, and they are being conducted by
increasingly sophisticated and organized groups and individuals
with a wide range of motives and expertise. The size and complexity
of our information technology systems, and those of third-party
vendors with whom we contract, and the large amounts of
confidential information stored on those systems, make such systems
vulnerable to service interruptions or to security breaches from
inadvertent or intentional actions by our employees, third-party
vendors, and/or business partners, or from cyber-attacks by
malicious third parties. Cyber-attacks could include the deployment
of harmful malware, ransomware, denial-of-service attacks, social
engineering and other means to affect service reliability and
threaten the confidentiality, integrity and availability of
information.
Significant
disruptions of our information technology systems, or those of our
third-party vendors, or security breaches could materially
adversely affect our business operations and/or result in the loss,
misappropriation and/or unauthorized access, use or disclosure of,
or the prevention of access to, confidential information,
including, among other things, trade secrets or other intellectual
property, proprietary business information and personal
information, and could result in financial, legal, business and
reputational harm to us. The Company continually assesses these
threats and makes investments to increase internal protection,
detection, and response capabilities, as well as ensure the
Company’s third-party providers have required capabilities and
controls, to address this risk.
Any failure or perceived failure by us or any third-party
collaborators, service providers, contractors or consultants to
comply with our privacy, confidentiality, data security or similar
obligations to third parties, or any data security incidents or
other security breaches that result in the unauthorized access,
release or transfer of sensitive information, including personally
identifiable information, may result in governmental
investigations, enforcement actions, regulatory fines, litigation
or public statements against us, could cause third parties to lose
trust in us or could result in claims by third parties asserting
that we have breached our privacy, confidentiality, data security
or similar obligations, any of which could have a material adverse
effect on our reputation, business, financial condition or results
of operations. Moreover, data security incidents and other security
breaches can be difficult to detect, and any delay in identifying
them may lead to increased harm. To date, the Company has not
experienced any material impact to the business or operations
resulting from information or cybersecurity attacks; however,
because of the frequently changing attack techniques, along with
the increased volume and sophistication of the attacks, there is
the potential for the Company to be adversely impacted. While we
have implemented data security measures intended to protect our
information technology systems and infrastructure, there can be no
assurance that such measures will successfully prevent service
interruptions or data security incidents. The Company maintains
cybersecurity insurance in the event of an information security or
cyber incident; however, the coverage may not be sufficient to
cover all financial losses.
Defects or disruptions in our products or services could diminish
demand for such products or services and subject us to substantial
liability.
As
our products and services are complex and incorporate a variety of
hardware, proprietary software and third-party software, such
products or services may have errors or defects that could result
in unanticipated downtime for our subscribers and harm to our
reputation and our business. Cloud services frequently contain
undetected errors when first introduced or when new versions or
enhancements are released. We have from time to time found defects
in, and experienced disruptions to, our products and services and
new defects or disruptions may occur in the future. Such defects
could also create vulnerabilities that could inadvertently permit
access to protected customer data. However, any defect or
disruption in our products or services in the future could
materially affect our business, reputation or financial
results.
Our supply chains in Hong Kong subject us to risks and
uncertainties relating to the laws and regulations of China and the
changes in relations between the United States and
China.
Under
its current leadership, the government of China has been pursuing
economic reform policies, including by encouraging foreign trade
and investment. However, there is no assurance that the Chinese
government will continue to pursue such policies, that such
policies will be successfully implemented, that such policies will
not be significantly altered, or that such policies will be
beneficial to our supply chains in China. China’s system of laws
can be unpredictable, especially with respect to foreign investment
and foreign trade. The United States government has called for
substantial changes to foreign trade policy with China and has
raised (as well as has proposed to further raise in the future),
tariffs on several Chinese goods. China has retaliated with
increased tariffs on United States goods. Moreover, China’s
legislature has adopted a national security law to substantially
change the way Hong Kong has been governed since the territory was
handed over by the United Kingdom to China in 1997. This law
increases the power of the central government in Beijing over Hong
Kong, limits the civil liberties of residents of Hong Kong and
could restrict the ability of businesses in Hong Kong to continue
to conduct business or to continue to conduct business as
previously conducted. The U.S. State Department has indicated that
the United States no longer considers Hong Kong to have significant
autonomy from China and former presidential administration
implemented an executive order revoking Hong Kong’s preferential
trade status. The United States currently imposes the same tariffs
and other trade restrictions on exports from Hong Kong that it
places on goods from mainland China. Any further changes in United
States trade policy could trigger retaliatory actions by affected
countries, including China, resulting in trade wars. Any changes in
United States and China relations may have a material adverse
effect on our supply chains in China which could materially harm
our business and financial condition.
The recent COVID-19 outbreak in Hong Kong, and China’s policy of a
full shutdown of the economy where COVID-9 strikes, may lead to
both short-term and medium-term challenges to our supply chain,
both in terms of cost and availability.
If we fail to keep pace with changing industry technology and
consumer preferences, we will be at a competitive
disadvantage.
The
industry segments in which we are operating evolve rapidly and are
characterized by continuous change, including rapid product
evolution and rapidly changing industry standards and
end-user/consumer preferences. In order to continue to compete
effectively in these markets, we need to respond quickly to
technological changes and to understand their impact on our
customers’ preferences. It may take significant time and resources
to respond to these technological changes. If we are unable to do
so on a timely basis or within reasonable cost parameters, or if we
are unable to appropriately and timely train our employees to
operate any of these new systems, our business may suffer.
Moreover, developments by others may render our technologies and
intended products noncompetitive or obsolete, or we may be unable
to keep pace with technological developments or other market
factors. If any of our competitors implement new technologies
before we are able to implement them, those competitors may be able
to provide more effective products than ours. Any delay or failure
in the introduction of new or enhanced products could have a
material adverse effect on our business, results of operations and
financial condition. Furthermore, our inability to keep pace with
changing industry technology and consumer preferences may cause our
inventory to become obsolete at a rate faster than anticipated,
which may result in our taking goodwill impairment charges in past
or future acquisitions that negatively impact our results of
operations. We also may not achieve the benefits that we anticipate
from any new system or technology and a failure to do so could
result in higher than anticipated costs or could impair our
operating results.
If we cannot obtain additional capital required to finance our
research and development efforts and sales and marketing efforts,
our business may suffer and our securityholders may lose the value
of their investment in the Company.
We
may require additional funds to further execute our business plan
and expand our business. If we are unable to obtain additional
capital when needed, we may have to restructure our business or
delay or abandon our development and expansion plans. We will have
ongoing capital needs as we expand our business. If we raise
additional funds through the sale of equity or convertible
securities, our securityholders’ ownership percentage of our Common
Stock will be reduced. In addition, these transactions may dilute
the value of our Common Stock. We may have to issue securities that
have rights, preferences and privileges senior to our Common Stock.
The terms of any additional indebtedness may include restrictive
financial and operating covenants that would limit our ability to
compete and expand. There can be no assurance that we will be able
to obtain the additional financing we may need to fund our
business, or that such financing will be available on terms
acceptable to us
We face intense competition in our market, especially from larger,
well-established companies, and we may lack sufficient financial or
other resources to maintain or improve our competitive
position.
A
number of other companies engage in the business of developing
applications for PERS. The market for such products is intensely
competitive, and we expect competition to increase in the future
from established competitors and new market entrants. Our current
competitors include both emerging or developmental stage companies
as well as larger companies. Many of our existing competitors have,
and some of our potential competitors could have, substantial
competitive advantages such as:
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Greater
name recognition and longer operating histories; |
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Larger
sales and marketing budgets and resources; |
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Broader
distribution and established relationships with distribution
partners and end-customers; |
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Greater
customer support resources; |
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Greater
resources to make acquisitions; |
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Larger
and more mature intellectual property portfolios; and |
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Substantially
greater financial, technical, and other resources. |
In
addition, some of our larger competitors have substantially broader
product offerings and leverage their relationships based on other
products or incorporate functionality into existing products to
gain business in a manner that discourages users from purchasing
our products, including through selling at zero or negative
margins, product bundling, or closed technology platforms.
Conditions in our market could change rapidly and significantly as
a result of technological advancements, partnering by our
competitors or continuing market consolidation. New start-up
companies that innovate and large competitors that are making
significant investments in research and development may invent
similar or superior products and technologies that compete with our
products and technology. Our current and potential competitors may
also establish cooperative relationships among themselves or with
third parties that may further enhance their resources.
Our markets are subject to technological change and our success
depends on our ability to develop and introduce new
products.
Each
of the governmental and commercial markets for our products is
characterized by:
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Changing
customer needs; |
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Frequent
new product introductions and enhancements; |
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Increased
integration with other functions; and |
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Our
success will be dependent in part on the design and development of
new products. To develop new products and designs for our target
markets, we must develop, gain access to and use leading
technologies in a cost-effective and timely manner and continue to
expand our technical and design expertise. The product development
process is time-consuming and costly, and there can be no assurance
that product development will be successfully completed, that
necessary regulatory clearances or approvals will be granted on a
timely basis, or at all, or that the potential products will
achieve market acceptance. Our failure to develop, obtain necessary
regulatory clearances or approvals for, or successfully market,
potential new products could have a material adverse effect on our
business, financial condition and results of operations.
Claims by others that we infringe on their intellectual property
rights could increase our expenses and delay the development of our
business. As a result, our business and financial condition could
be materially harmed.
Our
industries are characterized by the existence of a large number of
patents as well as frequent claims and related litigation regarding
patent and other intellectual property rights. We cannot be certain
that our products do not and will not infringe on issued patents,
patents that may be issued in the future, or other intellectual
property rights of others.
We do
not have the resources to conduct exhaustive patent searches to
determine whether the technology used in our products infringe on
patents held by third parties. In addition, product development is
inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications
pending, many of which are confidential when filed.
We
may face claims by third parties that our products or technology
infringe on their patents or other intellectual property rights.
Any claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and
could distract our management. If any of our products are found to
violate third-party proprietary rights, we may be required to pay
substantial damages. In addition, we may be required to re-engineer
our products or obtain licenses from third parties to continue to
offer our products. Any efforts to re-engineer our products or
obtain licenses on commercially reasonable terms may not be
successful, which would prevent us from selling our products, and,
in any case, could substantially increase our costs and have a
material adverse effect on our business, financial condition and
results of operations.
We may not be able to protect our intellectual property rights
adequately.
Our ability to compete for government contracts is affected, in
part, by our ability to protect our intellectual property rights.
We rely on a combination of patents, trademarks, copyrights, trade
secrets, confidentiality procedures and non-disclosure and
licensing arrangements to protect our intellectual property rights.
Despite these efforts, we cannot be certain that the steps we take
to protect our proprietary information will be adequate to prevent
misappropriation of our technology or protect that proprietary
information. The validity and breadth of claims in technology
patents involve complex legal and factual questions and, therefore,
may be highly uncertain. Nor can we assure you that, if challenged,
our patents will be found to be valid or enforceable, or that the
patents of others will not have an adverse effect on our ability to
do business. In addition, the enforcement of laws protecting
intellectual property may be inadequate to protect our technology
and proprietary information.
We
may not have the resources to assert or protect our rights to our
patents and other intellectual property. Any litigation or
proceedings relating to our intellectual property, whether or not
meritorious, will be costly and may divert the efforts and
attention of our management and technical personnel.
We
also rely on other unpatented proprietary technology, trade secrets
and know-how and no assurance can be given that others will not
independently develop substantially equivalent proprietary
technology, techniques or processes, that such technology or
know-how will not be disclosed or that we can meaningfully protect
our rights to such unpatented proprietary technology, trade
secrets, or know-how. To date, we have not entered into any
non-disclosure agreements with our employees. Although we intend to
enter into non-disclosure agreements with all of our consultants,
there can be no assurance that such non-disclosure agreements will
provide adequate protection for our trade secrets or other
proprietary know-how.
Our success will depend, in part, on our ability to obtain new
patents.
Our
success will depend, in part, on our ability to obtain patent and
trade secret protection for proprietary technology that we
currently possess or that we may develop in the future. No
assurance can be given that any pending or future patent
applications will be issued to us as patents, that the scope of any
patent protection obtained will be sufficient to exclude
competitors or provide competitive advantages to us, that any of
our patents will be held valid if subsequently challenged or that
others will not claim rights in or ownership of the patents and
other proprietary rights held by us.
Furthermore,
there can be no assurance that our competitors have not or will not
independently develop technology, processes or products that are
substantially similar or superior to ours, or that they will not
duplicate any of our products or design around any patents issued
or that may be issued in the future to us. In addition, whether or
not patents are issued to us, others may hold or receive patents
which contain claims having a scope that covers products or
processes developed by us.
We
may not have the resources to adequately defend any patent
infringement litigation or proceedings. Any such litigation or
proceedings, whether or not determined in our favor or settled by
us, is costly and may divert the efforts and attention of our
management and technical personnel. In addition, we may be required
to obtain licenses to patents or proprietary rights from third
parties. There can be no assurance that such licenses will be
available on acceptable terms if at all. If we do not obtain
required licenses, we could encounter delays in product development
or find that the development, manufacture or sale of products
requiring such licenses could be foreclosed. Accordingly,
challenges to our intellectual property, whether or not ultimately
successful, could have a material adverse effect on our business
and results of operations.
Our future success depends on the continued service of management,
engineering and sales and marketing personnel and our ability to
identify, hire and retain additional personnel.
Our
success depends, to a significant extent, upon the efforts and
abilities of members of senior management. We have not entered into
employment agreements with most of our key employees, which we
believe presents a greater risk of losing some of these key
employees, than if we had employment agreements with them. The loss
of the services of one or more of our senior management or other
key employees could adversely affect our business. There is intense
competition for qualified employees in our industry, particularly
for highly skilled design, applications, engineering and
salespeople. We may not be able to continue to attract and retain
developers, managers, or other qualified personnel necessary for
the development of our business or to replace qualified individuals
who may leave us at any time in the future. Our anticipated growth
is expected to place increased demands on our resources and will
likely require the addition of new management and engineering staff
as well as the development of additional expertise by existing
management employees. If we lose the services of or fail to recruit
engineers or other technical and management personnel, our business
could be materially harmed.
Our business, financial condition and results of operations
may be adversely affected if we are unsuccessful in our current
litigation with certain stockholders of Fit Pay, Inc.
On February 24, 2020, Michael J. Orlando (“Orlando”), as purported
shareholder representative (the “Shareholder Representative”), and
other former stockholders of Fit Pay, Inc. (collectively, the
“Plaintiffs”) filed a lawsuit in the United States District Court
for the Southern District of New York against the Company, CrowdOut
Capital, LLC (“CrowdOut”) and Garmin International, Inc.
(“Garmin”). Plaintiff’s Second Amended Complaint, dated July 30,
2020 (the “Complaint”), alleges that the Company breached certain
contractual obligations under a merger agreement, dated May 23,
2017, between Fit Pay, Inc. and the Company, regarding certain
future, contingent earnout payments. The Complaint sought
unspecified monetary damages from the defendants. In an Amended
Answer and Counterclaim filed September 9, 2020, the Company denied
all liability and sought, inter alia, damages caused by Orlando’s
alleged wrongdoing. On October 15, 2020, the court authorized the
Company to make a motion for summary judgment and stayed all
discovery pending resolution of, among other things, that motion.
On March 31, 2022, the court granted the Company’s motion of
summary judgment and also dismissed the Company’s counterclaims,
thus concluding the litigation.
The requirements of being a public company may strain our resources
and divert management’s attention.
As a
public company, we are subject to the reporting requirements of the
Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act), the Dodd-Frank Wall Street Reform and Consumer Protection Act
and other applicable securities rules and regulations. The Exchange
Act requires, among other things, that we file annual and current
reports with the SEC with respect to our business and operating
results. Compliance with these rules and regulations increases our
legal and financial compliance costs, makes some activities more
difficult, time-consuming, or costly, and increases demand on our
systems and resources.
As a
result of disclosure of information in this Report and in filings
required of a public company, our business and financial condition
is more visible, which we believe may result in threatened or
actual litigation, including by competitors and other third
parties. If such claims are successful, our business and operating
results could be harmed, and even if the claims do not result in
litigation or are resolved in our favor, these claims, and the time
and resources necessary to resolve them, could divert resources of
our management and harm our business and operating
results.
Periods of rapid growth and expansion could place a significant
strain on our resources, including our employee base, which could
negatively impact our operating results.
We may experience periods of rapid growth and expansion, which may
place a significant strain and demands on our management, our
operational and financial resources, customer operations, research
and development, sales and marketing, administrative, and other
resources. To manage our possible future growth effectively, we
will be required to continue to improve our management, operational
and financial systems. Future growth would also require us to
successfully hire, train, motivate and manage our employees. In
addition, our continued growth and the evolution of our business
plan will require significant additional management, technical and
administrative resources. If we are unable to manage our growth
successfully, we may not be able to effectively manage the growth
and evolution of our current business and our operating results
could suffer.
We depend on contract manufacturers, and our production and
products could be harmed if they are unable to meet our volume and
quality requirements and alternative sources are not
available.
We
rely on contract manufacturers to provide manufacturing services
for our products. If such services by any contract manufacturer
become unavailable, we would be required to identify and enter into
an agreement with a new contract manufacturer or take such
manufacturing in-house. The loss of any of our contract
manufacturers could significantly disrupt production as well as
increase the cost of production, thereby increasing the prices of
our products. These changes could have a material adverse effect on
our business and results of operations.
We are presently a small company with too limited resources and
personnel to establish a comprehensive system of internal controls.
If we fail to maintain an effective system of internal controls, we
would not be able to accurately report our financial results on a
timely basis or prevent fraud. As a result, current and potential
stockholders could lose confidence in our financial reporting,
which would harm our business and the trading price of our Common
Stock.
Effective internal controls are necessary for us to provide
reliable financial reports and effectively prevent fraud. If we
cannot provide reliable financial reports or prevent fraud, our
brand and operating results would be harmed. We may in the future
discover areas of our internal controls that need improvement. For
example, because of size and limited resources, our external
auditors have determined that we lack the personnel and
infrastructure necessary to properly carry out an independent audit
function. Although we believe that we have adequate internal
controls for a company with our size and resources, we are not
certain that the measures that we have in place will ensure that we
implement and maintain adequate controls over our financial
processes and reporting in the future. Any failure to implement
required new or improved controls, or difficulties encountered in
their implementation, would harm our operating results or cause us
to fail to meet our reporting obligations. Inferior internal
controls would also cause investors to lose confidence in our
reported financial information, which would have a negative effect
on our company and the trading price of our Common
Stock.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with U.S.
generally accepted accounting principles. A material weakness is a
deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of annual or interim
financial statements will not be prevented or detected on a timely
basis.
As of
December 31, 2021, we had identified certain matters that
constituted material weaknesses in our internal controls over
financial reporting. See Item 9A of this Report for further
discussion on our internal controls. As a result, current and
potential stockholders could lose confidence in our financial
reporting, which would harm our business and the trading price of
our Common Stock.
Due to recent disruption in the financial markets, our business,
liquidity and financial results could be materially adversely
affected.
Recent
disruption in the financial markets, particularly the volatility of
the stock market and the scarcity of capital available to smaller
businesses, could adversely affect us, primarily through limiting
our access to capital and disrupting our clients’ businesses. In
addition, continuation or worsening of general market conditions in
economies important to our businesses may adversely affect our
clients’ level of spending and ability to obtain financing, leading
to us being unable to generate the levels of sales that we require.
Current and continued disruption of financial markets could have a
material adverse effect on our business, financial condition,
results of operations and future prospects.
We
may seek or need to raise additional funds. Our ability to obtain
financing for general corporate and commercial purposes or
acquisitions depends on operating and financial performance and is
also subject to prevailing economic conditions and to financial,
business and other factors beyond our control. We face the risk
that we may not be able to access various capital sources,
including investors, lenders or suppliers. The global credit
markets and the financial services industry are experiencing a
period of unprecedented turmoil characterized by the bankruptcy,
failure or sale of various financial institutions. An unprecedented
level of intervention from the U.S. and other governments has been
seen. As a result of such disruption, our ability to raise capital
may be severely restricted and the cost of raising capital through
such markets or privately may increase significantly at a time when
we would like, or need, to do so. Failure to access the equity or
credit markets from any of these sources could have a material
adverse effect on our business, financial condition, results of
operations, and future prospects. Any of these events could have an
impact on our flexibility to fund our business operations, make
capital expenditures, pursue additional expansion or acquisition
opportunities, or make another discretionary use of cash and could
adversely impact our financial results.
The
uncertainty caused by the COVID-19 pandemic has also caused greater
volatility in the financial markets. A change or disruption in the
global financial markets for any reason, including the COVID-19
pandemic or other adverse public health developments, may cause
consumers, businesses and governments to defer purchases in
response to tighter credit, decreased cash availability and
declining consumer confidence. Accordingly, demand for our products
could decrease and differ materially from current expectations.
Further, some of our customers may require substantial financing in
order to fund their operations and make purchases from us. The
inability of these customers to obtain sufficient credit to finance
purchases of our products and meet their payment obligations to us
or possible insolvencies of our customers could result in decreased
customer demand, an impaired ability for us to collect on
outstanding accounts receivable, significant delays in accounts
receivable payments, and significant write-offs of accounts
receivable, each of which could adversely impact our financial
results.
Risks
Related to Our Products
Our products and technologies may not be accepted by the intended
commercial consumers of our products, which could harm our future
financial performance.
There can be no assurance that our PERS will achieve wide
acceptance by commercial consumers of such healthcare products,
and/or market acceptance generally. The degree of market acceptance
for products and services based on our technology will also depend
upon a number of factors, including the receipt and timing of
regulatory approvals, if any, and the establishment and
demonstration of the ability of our proposed device to provide the
level of confidence and independence in an efficient manner and at
a reasonable cost. Our failure to develop a commercial product to
compete successfully with existing medical technologies could
delay, limit or prevent market acceptance. Moreover, the market for
new PERS is largely undeveloped, and we believe that the overall
demand for such response systems technology will depend
significantly upon public perception of the need for such a level
of assistance. There can be no assurance that the public will
believe that our products are necessary or that the medical
industry will actively pursue our technology as a means to solve
such issues. Long-term market acceptance of our products and
services will depend, in part, on the capabilities, operating
features and price of our products and technologies as compared to
those of other available products and services. As a result, there
can be no assurance that currently available products, or products
under development for commercialization, will be able to achieve
market penetration, revenue growth or profitability.
Our PERS may become obsolete if we do not effectively respond
to rapid technological change on a timely basis.
The
medical and two-way voice communication industries are
characterized by rapid technological change, frequent new product
innovations, changes in customer requirements and expectations and
evolving industry standards. If we are unable to keep pace with
these changes, our business may be harmed. Products using new
technologies, or emerging industry standards, could make our
technologies less attractive. In addition, we may face unforeseen
problems when developing our products, which could harm our
business. Furthermore, our competitors may have access to
technologies not available to us, which may enable them to produce
products of greater interest to consumers or at a more competitive
cost.
Our business model is evolving. Because of the evolving nature of
healthcare technology, it is difficult to predict the size of this
specialized market, the rate at which the market for our PERS will
grow or be accepted, if at all, or whether other healthcare
technologies will render our applications less competitive or
obsolete. If the market for our healthcare products fails to
develop or grows slower than anticipated, we would be significantly
and materially adversely affected.
If our products and services do not achieve market acceptance, we
may never have significant revenues or any
profits.
If we
are unable to operate our business as contemplated by our business
model or if the assumptions underlying our business model prove to
be unfounded, we could fail to achieve our revenue and earnings
goals within the time we have projected, or at all, which would
have a detrimental effect on our business. As a result, the value
of any investment in our Company could be significantly reduced or
completely lost.
We may fail to create new products, provide new services and enter
new markets, which would have an adverse effect on our operations,
financial condition and prospects.
Our
future success depends in part on our ability to develop and market
our technology other than those currently intended. If we fail in
these goals, our business strategy and ability to generate revenues
and cash flow would be significantly impaired. We intend to expend
significant resources to develop new technology, but the successful
development of new technology cannot be predicted, and we cannot
guarantee we will succeed in these goals.
Our products may have defects, which could damage our reputation,
decrease market acceptance of our products, cause us to lose
customers and revenue and result in costly litigation or
liability.
Our
products may contain defects for many reasons, including defective
design or manufacture, defective material or software
interoperability issues. Products as complex as those we offer,
frequently develop or contain undetected defects or errors. Despite
testing defects or errors may arise in our existing or new
products, which could result in loss of revenue, market share,
failure to achieve market acceptance, diversion of development
resources, injury to our reputation and increased service and
maintenance cost. Defects or errors in our products and solutions
might discourage customers from purchasing future products. Often,
these defects are not detected until after the products have been
shipped. If any of our products contain defects or perceived
defects or have reliability, quality or compatibility problems or
perceived problems, our reputation might be damaged significantly,
we could lose or experience a delay in market acceptance of the
affected product or products and we may be unable to retain
existing customers or attract new customers. In addition, these
defects could interrupt or delay sales. In the event of an actual
or perceived defect or other problem, we may need to invest
significant capital, technical, managerial and other resources to
investigate and correct the potential defect or problem and
potentially divert these resources from other development efforts.
If we are unable to provide a solution to the potential defect or
problem that is acceptable to our customers, we may be required to
incur substantial product recall, repair and replacement and even
litigation costs. These costs could have a material adverse effect
on our business and operating results.
We
provide warranties on certain product sales and allowances for
estimated warranty costs are recorded during the period of sale.
The determination of such allowances requires us to make estimates
of product return rates and expected costs to repair or to replace
the products under warranty. We will establish warranty reserves
based on our best estimates of warranty costs for each product line
combined with liability estimates based on the prior twelve months’
sales activities. If actual return rates and/or repair and
replacement costs differ significantly from our estimates,
adjustments to recognize additional cost of sales may be required
in future periods. In addition, because our customers rely on
secure authentication and identification of cardholders to prevent
unauthorized access to programs, PCs, networks, or facilities, a
malfunction of or design defect in its products (or even a
perceived defect) could result in legal or warranty claims against
us for damages resulting from security breaches. If such claims are
adversely decided against us, the potential liability could be
substantial and have a material adverse effect on our business and
operating results. Furthermore, the possible publicity associated
with any such claim, whether or not decided against us, could
adversely affect our reputation. In addition, a well-publicized
security breach involving smart card-based or other security
systems could adversely affect the market’s perception of products
like ours in general, or our products in particular, regardless of
whether the breach is attributable to our products. Any of the
foregoing events could cause demand for our products to decline,
which would cause its business and operating results to
suffer.
Risks
Related to our Securities
The market price for our Common Stock is particularly volatile
given our status as a relatively unknown company with a small and
thinly traded public float, and lack of profits, which could lead
to wide fluctuations in the price of our Common
Stock.
The
market for our Common Stock is characterized by significant price
volatility when compared to the securities of larger, more
established companies that have large public floats, and we expect
that the price of our Common Stock will continue to be more
volatile than the securities of such larger, more established
companies for the indefinite future. The volatility in the price of
our Common Stock is attributable to a number of factors. First, as
noted above, our Common Stock is, compared to the securities of
such larger, more established companies, sporadically and thinly
traded. The price of our Common Stock could, for example, decline
precipitously in the event that a large number of shares of our
Common Stock is sold on the market without commensurate demand.
Secondly, we are a speculative or “risky” investment due to our
lack of profits to date. As a consequence of this enhanced risk,
more risk-adverse investors may, under the fear of losing all or
most of their investment in the event of negative news or lack of
progress, be more inclined to sell their shares of Common Stock on
the market more quickly and at greater discounts than would be the
case with the securities of a larger, more established company that
has a large public float. Many of these factors are beyond our
control and may decrease the market price of our Common Stock
regardless of our operating performance.
Because of volatility in the stock market in general, the market
price of our Common Stock will also likely be
volatile.
The
stock market in general, and the market for stocks of healthcare
technology companies in particular, has been highly volatile. As a
result, the market price of our Common Stock is likely to be
volatile, and investors in our Common Stock may experience a
decrease, which could be substantial, in the value of their shares
of Common Stock or the loss of their entire investment for a number
of reasons, including reasons unrelated to our operating
performance or prospects. The market price of our Common Stock
could be subject to wide fluctuations in response to a broad and
diverse range of factors, including those described elsewhere in
this Report, including this “Risk Factors” section, and the
following:
|
|
● |
Recent
price volatility and any known risks of investing in our Common
Stock under these circumstances; |
|
|
● |
The
market price of our Common Stock prior to the recent price
volatility; |
|
|
● |
Any
recent change in financial condition or results of operations, such
as in earnings, revenues or other measure of company value that is
consistent with the recent change in the prices of our Common
Stock; and |
|
|
● |
Risk
factors addressing the recent extreme volatility in stock price,
the effects of a potential “short squeeze” due to a sudden increase
in demand for our Common Stock as a result of current investor
exuberance associated with healthcare- or technology-related
stocks, to the extent that the Company expects to conduct
additional offerings in the future to fund its operations or
provide liquidity, the dilutive impact of those offerings on
investors that receive shares of our Common Stock in connection
with those offerings at a significantly higher price. |
If and when a larger trading market for our Common Stock develops,
the market price of our Common Stock is still likely to be highly
volatile and subject to wide fluctuations, and you may be unable to
resell your shares of Common Stock at or above the price at which
you acquired them.
The
market price of our Common Stock may be highly volatile and could
be subject to wide fluctuations in response to a number of factors
that are beyond our control, including, but not limited
to:
|
● |
Variations
in our revenues and operating expenses; |
|
● |
Actual
or anticipated changes in the estimates of our operating results or
changes in stock market analyst recommendations regarding our
Common Stock, other comparable companies or our industry
generally; |
|
● |
Market
conditions in our industry, the industries of our customers and the
economy as a whole; |
|
● |
Actual
or expected changes in our growth rates or our competitors’ growth
rates; |
|
● |
Developments
in the financial markets and worldwide or regional
economies; |
|
● |
Announcements
of innovations or new products or services by us or our
competitors; |
|
● |
Announcements
by the government relating to regulations that govern our
industry; |
|
● |
Sales
of our Common Stock or other securities by us or in the open
market; |
|
● |
Changes
in the market valuations of other comparable companies;
and |
|
● |
Other
events or factors, many of which are beyond our control, including
those resulting from such events, or the prospect of such events,
including war, terrorism and other international conflicts, public
health issues including health epidemics or pandemics, such as the
recent outbreak of COVID-19, and natural disasters such as fire,
hurricanes, earthquakes, tornados or other adverse weather and
climate conditions, whether occurring in the United States or
elsewhere, could disrupt our operations, disrupt the operations of
our suppliers or result in political or economic
instability. |
In
addition, if the market for technology and/or healthcare stocks or
the stock market in general experiences loss of investor
confidence, the trading price of our Common Stock could decline for
reasons unrelated to our business, financial condition or operating
results. The trading price of our Common Stock might also decline
in reaction to events that affect other companies in our industry,
even if these events do not directly affect us. Each of these
factors, among others, could harm the value of your investment in
our Common Stock. In the past, following periods of volatility in
the market, securities class-action litigation has often been
instituted against companies. Such litigation, if instituted
against us, could result in substantial costs and diversion of
management’s attention and resources, which could materially and
adversely affect our business, operating results and financial
condition.
If we are not able to comply with the applicable continued listing
requirements or standards of the Nasdaq Capital Market, our Common
Stock could be delisted from such exchange.
Our
Common Stock is currently listed on the Nasdaq Capital Market. In
order to maintain that listing, we must satisfy minimum financial
and other continued listing requirements and standards, including
those regarding director independence and independent committee
requirements, minimum stockholders’ equity, minimum share price,
and certain corporate governance requirements.
Until
recently, we had not been in compliance with Nasdaq Listing Rule
5550(a)(2) (the “Minimum Bid Price Requirement”) for the continued
listing of our Common Stock on the Nasdaq Capital Market, which
requires our listed Common Stock to maintain a minimum bid price of
$1.00 per share. On November 3, 2021, we received a letter from the
Nasdaq Stock Market LLC acknowledging that we had regained
compliance with the Minimum Bid Price Requirement, as a result of
our ability to meet a set of conditions set forth by the Nasdaq
Stock Market LLC after we had previously fallen out of compliance
with such rule. However, there can be no assurances that we will be
able to remain in compliance with the Nasdaq Stock Market LLC’s
listing standards or if we do later fail to comply with such
standards, that we will subsequently regain compliance with such
listing standards. If we are unable to maintain compliance with
these Nasdaq requirements, our Common Stock will be delisted from
the Nasdaq Capital Market. Further, in the event that our Common
Stock is delisted from the Nasdaq Capital Market due to our failure
to continue to comply with such standards, and our Common Stock is
not eligible for quotation on another market or exchange, trading
of our Common Stock could be conducted in the over-the-counter
market or on an electronic bulletin board established for unlisted
securities such as the Pink Sheets or the OTC Bulletin Board. In
such event, it could become more difficult to dispose of, or obtain
accurate price quotations for, our Common Stock, and it would
likely be more difficult to obtain coverage by securities analysts
and the news media, which could cause the price of our Common Stock
to decline further. Also, it may be difficult for us to raise
additional capital if we are not listed on the Nasdaq Capital
Market or another national exchange.
In the event that our Common Stock is delisted from the Nasdaq
Capital Market, U.S. broker-dealers may be discouraged from
effecting transactions in shares of our Common Stock because they
may be considered penny stocks and thus be subject to the penny
stock rules.
The
SEC has adopted a number of rules to regulate “penny stock” that
restricts transactions involving stock which is deemed to be penny
stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4,
15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules
may have the effect of reducing the liquidity of penny stocks.
“Penny stocks” generally are equity securities with a price of less
than $5.00 per share (other than securities registered on certain
national securities exchanges or quoted on the Nasdaq Capital
Market if current price and volume information with respect to
transactions in such securities is provided by the exchange or
system). Our shares of Common Stock have in the past constituted,
and may again in the future constitute, “penny stock” within the
meaning of the rules. The additional sales practice and disclosure
requirements imposed upon U.S. broker-dealers may discourage such
broker-dealers from effecting transactions in shares of our Common
Stock, which could severely limit the market liquidity of such
shares of Common Stock and impede their sale in the secondary
market.
A
U.S. broker-dealer selling a penny stock to anyone other than an
established customer or “accredited investor” (generally, an
individual with a net worth in excess of $1,000,000 or an annual
income exceeding $200,000, or $300,000 together with his or her
spouse) must make a special suitability determination for the
purchaser and must receive the purchaser’s written consent to the
transaction prior to sale, unless the broker-dealer or the
transaction is otherwise exempt. In addition, the “penny stock”
regulations require the U.S. broker-dealer to deliver, prior to any
transaction involving a “penny stock”, a disclosure schedule
prepared in accordance with SEC standards relating to the “penny
stock” market, unless the broker-dealer or the transaction is
otherwise exempt. A U.S. broker-dealer is also required to disclose
commissions payable to the U.S. broker-dealer and the registered
representative and current quotations for the securities. Finally,
a U.S. broker-dealer is required to submit monthly statements
disclosing recent price information with respect to the “penny
stock” held in a customer’s account and information with respect to
the limited market in “penny stocks”.
Stockholders
should be aware that, according to the SEC, the market for “penny
stocks” has suffered in recent years from patterns of fraud and
abuse. Such patterns include: (i) control of the market for the
security by one or a few broker-dealers that are often related to
the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and
misleading press releases; (iii) “boiler room” practices involving
high-pressure sales tactics and unrealistic price projections by
inexperienced salespersons; (iv) excessive and undisclosed bid-ask
differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, resulting in investor losses. Our management is aware of the
abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical
limitations to prevent the described patterns from being
established with respect to our securities.
Substantial future sales of shares of our Common Stock could cause
the market price of our Common Stock to decline.
We
expect that significant additional capital will be needed in the
near future to continue our planned operations. Sales of a
substantial number of shares of our Common Stock in the public
market, or the perception that these sales might occur, could
depress the market price of our Common Stock and could impair our
ability to raise capital through the sale of additional equity
securities. We are unable to predict the effect that such sales may
have on the prevailing market price of our Common Stock.
We may seek to raise additional funds, finance acquisitions or
develop strategic relationships by issuing securities that would
dilute the ownership of the Common Stock. Depending on the terms
available to us, if these activities result in significant
dilution, it may negatively impact the trading price of our shares
of Common Stock.
The
issuance of material amounts of Common Stock by us would cause our
existing stockholders to experience significant dilution in their
investment in us. We have financed our operations, and we expect to
continue to finance our operations, acquisitions, if any, and the
development of strategic relationships by issuing equity and/or
convertible securities, which could significantly reduce the
percentage ownership of our existing stockholders. Further, any
additional financing that we secure may require the granting of
rights, preferences or privileges senior to, or pari passu with,
those of our Common Stock. Additionally, we may acquire other
technologies or finance strategic alliances by issuing our equity
or equity-linked securities, which may result in additional
dilution. Any issuances by us of equity securities may be at or
below the prevailing market price of our Common Stock and in any
event may have a dilutive impact on the ownership interest of
existing stockholders, which could cause the market price of our
Common Stock to decline. We may also raise additional funds through
the incurrence of debt or the issuance or sale of other securities
or instruments senior to our shares of Common Stock. The holders of
any securities or instruments that we may issue may have rights
superior to the rights of our existing stockholders. If we
experience dilution from issuance of additional securities and we
grant superior rights to new securities over such stockholders, it
may negatively impact the trading price of our shares of Common
Stock. In addition, if we obtain additional financing involving the
issuance of equity securities or securities convertible into equity
securities, our existing stockholders’ investment would be further
diluted. Such dilution could cause the market price of our Common
Stock to decline, which could impair our ability to raise
additional financing.
We do not anticipate paying dividends in the foreseeable future;
you should not expect dividends if you hold shares of our Common
Stock.
The
payment of dividends on our Common Stock will depend on earnings,
financial condition and other business and economic factors
affecting us at such time as our board of directors (“Board”) may
consider relevant. If we do not pay dividends, our Common Stock may
be less valuable because a return on your investment will only
occur if our stock price appreciates.
Subject
to the payment of dividends on our shares of Series C Preferred
Stock and Series F Preferred Stock, we currently intend to retain
our future earnings to support operations and to finance expansion
and, therefore, we do not anticipate paying any cash dividends on
our capital stock in the foreseeable future.
We could issue “blank check” preferred stock without stockholder
approval with the effect of diluting then current stockholder
interests and impairing their voting rights; and provisions in our
charter documents could discourage a takeover that stockholders may
consider favorable.
Our
Certificate of Incorporation authorizes the issuance of up to
10,000,000 shares of “blank check” preferred stock with
designations, rights and preferences as may be determined from time
to time by our Board. Our Board is empowered, without stockholder
approval, to issue a series of preferred stock with dividend,
liquidation, conversion, voting or other rights which could dilute
the interest of, or impair the voting power of, our common
stockholders. The issuance of a series of preferred stock could be
used as a method of discouraging, delaying or preventing a change
in control of the Company. For example, it would be possible for
our Board to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change
control of the Company. The Series C Preferred Stock currently
ranks senior to the Common Stock and our Series F Preferred Stock,
and any class or series of capital stock created after the Series C
Preferred Stock and has a special preference upon the liquidation
of the Company. The Series F Preferred Stock currently ranks senior
to the Common Stock and any class or series of capital stock
created after the Series F Preferred Stock and has a special
preference upon the liquidation of the Company. For further
information regarding our shares of (i) Series C Preferred Stock,
please refer to the Certificate of Designation filed as an exhibit
to, and the disclosure contained in, the Series C Certificate of
Designations filed as an exhibit to, and the disclosure contained
in, our Current Report on Form 8-K filed with the SEC on May 30,
2017 and (ii) Series F Preferred Stock, please refer to the Form of
Series F Certificate of Designation filed as an exhibit to, and the
disclosure contained in, our Current Report on Form 8-K filed with
the SEC on August 17, 2021.
Financial Industry Regulatory Authority, Inc. (“FINRA”) sales
practice requirements may limit a stockholder’s ability to buy and
sell our Common Stock.
FINRA
has adopted rules that require that in recommending an investment
to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior
to recommending speculative low-priced securities to their
non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is
a high probability that speculative low-priced securities will not
be suitable for certain customers. FINRA requirements will likely
make it more difficult for broker-dealers to recommend that their
customers buy our Common Stock, which may have the effect of
reducing the level of trading activity in our Common Stock. As a
result, fewer broker-dealers may be willing to make a market in our
Common Stock, reducing a stockholder’s ability to resell shares of
our Common Stock.
Item
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
Our
principal executive offices are located at 2801 Diode Lane,
Louisville, Kentucky 40299. On June 15, 2020, we entered into a new
five-year and two-month lease agreement for office and warehouse
space at the Louisville, Kentucky facility. The current monthly
rent for the space is $6,200 and this lease agreement expires in
August 2025.
Item
3. Legal Proceedings
On February 24, 2020, the Plaintiffs filed a lawsuit in the United
States District Court for the Southern District of New York against
the Company, CrowdOut and Garmin. The Complaint alleges that the
Company breached certain contractual obligations under a merger
agreement, dated May 23, 2017, between Fit Pay, Inc. and the
Company, regarding certain future, contingent earnout payments. The
Complaint sought unspecified monetary damages from the defendants.
In an Amended Answer and Counterclaim filed September 9, 2020, the
Company denied all liability and sought, inter alia, damages caused
by Orlando’s alleged wrongdoing. On October 15, 2020, the court
authorized the Company to make a motion for summary judgment and
stayed all discovery pending resolution of, among other things,
that motion. On March 31, 2022, the court granted the Company’s
motion of summary judgment and also dismissed the Company’s
counterclaims, thus concluding the litigation.
From
time to time, the Company may be involved in various claims and
legal actions arising in the ordinary course of its 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, threatened
against or affecting the Company in which an adverse decision could
have a material adverse effect upon the Company’s business,
operating results, or financial condition.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Market
Information
Our
Common Stock trades on the Nasdaq Capital Market under the symbol
“LGMK.”
As of April 12, 2022, there were approximately 85 holders of record
of our Common Stock. This number does not include shares of Common
Stock held by brokerage clearing houses, depositories or others in
unregistered form.
Dividends
We have never declared or paid dividends on our Common Stock, and
our Board does not intend to declare or pay any dividends on our
Common Stock in the foreseeable future. Our earnings are expected
to be retained for use in expanding our business. The declaration
and payment in the future of any cash or stock dividends on our
Common Stock will be at the discretion of our Board and will depend
upon a variety of factors, including our future earnings, capital
requirements, financial condition and such other factors as our
Board may consider to be relevant from time to time.
Securities
Authorized For Issuance under Equity Compensation
Plans
Reference
is made to “Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters—Securities
Authorized for Issuance under Equity Compensation Plans” for
the information required by this item.
Recent
Sales of Unregistered Securities
None.
Item
6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
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 and Series C
Preferred Stock, which became effective on October 15, 2021.
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 and 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 VHA. The Company enjoys a strong base of
business with the VHA and plans to expand to other government
services after being awarded the five-year GSA Agreement in
2021.
Recent
Developments of the Company
Name
Change
Effective February 28, 2022, the Company changed its name to
LogicMark, Inc. pursuant to an amendment to its Certificate of
Incorporation, filed with the Secretary of State of the State of
Delaware on February 28, 2022.
Appointment of Chief Financial Officer and Amendment
Agreement
Effective February 15, 2022, the Board appointed Mark Archer as the
Company’s Chief Financial Officer. In connection with the
appointment, the Company and FLG Partners, LLC (“FLG Partners”), of
which Mr. Archer is a partner, entered into an amendment, effective
as of July 15, 2021 (the “Amendment”), pursuant to which the
Company agreed to amend the fee payable to FLG Partners to $10,000
per week, to permit Mr. Archer to separately invoice the Company
$2,000 per month, payable to Mr. Archer only and to issue 129,384
restricted shares of Common Stock to Mr. Archer and 6,810 to FLG
Partners; a quarter of each issuance will vest on July 15, 2022,
with subsequent vesting at 6.25% for each three-month period
thereafter.
Appointment
of Directors
On February 21, 2022, the Board appointed Sherice R. Torres as a
director and on March 15, 2022, the Board appointed John Pettitt as
a director, increasing the Board membership to seven.
Results
of Operations
Year ended December 31, 2021 compared with the year ended December
31, 2020.
Revenue,
Cost of Revenue, and Gross Profit
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
| Revenue |
|
$ |
10,022,115 |
|
|
$ |
11,442,803 |
|
|
$ |
(1,420,688 |
) |
|
|
-12 |
% |
|
Cost of Goods Sold |
|
|
4,341,611 |
|
|
|
3,766,555 |
|
|
|
575,056 |
|
|
|
15 |
% |
| Gross
Profit |
|
$ |
5,680,504 |
|
|
$ |
7,676,248 |
|
|
$ |
(1,996,744 |
) |
|
|
|
|
| Profit
Margin |
|
|
57 |
% |
|
|
67 |
% |
|
|
|
|
|
|
|
|
We experienced a 12% decrease in revenue for the year ended
December 31, 2021, as compared to the year ended December 31, 2020.
The primary driver of this decrease is related to the continued
effects of the COVID-19 pandemic. The COVID-19 restrictions in 2020
and 2021 led to hospital and clinic closures and their refocus away
from patient long-term care to dealing with the immediacy of
COVID-19 infections. In 2022, we expect the smaller clinics from
which we derive much of our revenue to shift their focus back to
quality-of-life support and to continue to expand their
relationship with us. In 2022, we intend to build a durable
business model, a recurring revenue base to generate significant
cash flow, to invest in efficient growth and to develop innovative
software and services solutions to expand into the broader Caring
Economy. We are investing in a number of new verticals in the
consumer, pro-care/Healthcare, corporate benefits lines of business
and intend to expand further into our established government line
of business.
In addition to the decrease in revenue, profit margin also
decreased. This change was due to the upgrade from 3G to more
costly 4G technology in late 2020 and an increased cost of freight
to move products from Asia to our fulfillment center in Louisville,
KY resulting from our change from shipping cargo by container ship
to shipping by air. The decision to change shipping methods was due
to delays at U.S. ports causing products to arrive later than
needed. In addition, we wrote down inventory in the third quarter
totaling $314,000. The impacts of the Company’s revenue decline and
additional costs, ultimately led to the decrease in profit
margin.
Operating
Expenses
|
Operating Expenses |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
| General and
administrative |
|
$ |
6,703,106 |
|
|
$ |
5,280,951 |
|
|
$ |
1,422,155 |
|
|
|
27 |
% |
| Selling and marketing |
|
|
1,238,195 |
|
|
|
1,872,441 |
|
|
|
(634,246 |
) |
|
|
-34 |
% |
| Research and development |
|
|
765,659 |
|
|
|
1,108,934 |
|
|
|
(343,275 |
) |
|
|
-31 |
% |
| Goodwill
Impairment |
|
|
4,521,000 |
|
|
|
- |
|
|
|
4,521,000 |
|
|
|
- |
|
| Total
Expenses |
|
$ |
13,227,960 |
|
|
$ |
8,262,326 |
|
|
$ |
4,965,634 |
|
|
|
60 |
% |
As mentioned above, we made a series of strategic business
decisions in 2021 to deal with the continued impacts of the
COVID-19 pandemic. We also underwent a change in management, as
well as personnel changes to support renewed efforts in product
development and selling and marketing, and completed a series of
financings to help prepare for the future.
General
and Administrative
In
2021, we made investments to strengthen our capital and corporate
structure. The changes we made to our corporate structure drove the
increase in general and administrative costs for the
year.
Upon the termination of our former CEO and CFO, Vincent Miceli, we
hired Chia-Lin Simmons as CEO and Mark Archer as our interim CFO.
We also hired regional accounting firm Armanino LLP to provide
accounting and SEC reporting support. As part of our October 2021
one-for-ten stock split, we incurred legal, proxy solicitation and
shareholder communication costs to ensure sufficient shareholders
participated in the vote. In addition to these costs, the Company
incurred $0.3 million in severance costs for Mr. Miceli. The total
increase in general and administrative expenses related to these
activities was approximately $2.4 million. These increased costs
were partially offset by lower legal expenses compared to the prior
year and the closure of our offices and warehouses in Connecticut
and Florida.
Selling
and Marketing
Given the limitations placed on the Company by the COVID-19
pandemic, and the reduction of sales opportunities with the VHA
hospitals and clinic, the Company curtailed its sales and marketing
activity in 2021. In addition, with the focus on corporate
transactions in the last half of 2021, sales and marketing
activities will not begin to ramp us again until 2022.
Research and Development
Beginning with the termination of the Company’s Chief Technology
Officer in the Spring of 2021 and a change in focus on new product
development initiated by the Ms. Simmons in July 2021, research and
development costs were down year-over-year. We expect research and
development costs to exceed historical levels beginning in 2022 as
the Company ramps up new product development.
Goodwill Impairment
The Company performed a goodwill impairment analysis in 2021 and
determined that the carrying value of its goodwill exceeded its
fair value by approximately $4,521,000. As a result, the Company
recorded a non-cash, impairment charge to write down goodwill by
that amount. Management believes the Company continues to have
significant strategic value after the changes and financings in
2021, despite the write-off of goodwill caused by the current
economic environment.
As of
December 31, 2020, the Company determined that there were no
indicators present to suggest that it was more likely than not that
the fair value of goodwill was less than the carrying amount. The
Company will continue to monitor its goodwill on a quarterly basis
for indicators of impairment including, but not limited to, further
declines in the stock price. Accordingly, there may be further
impairments.
Provision
for Income Taxes
The provision for income taxes for the year ended December 31, 2021
totaled a tax expense of $204,269, or (1.77)% of the loss before
income taxes, which differed from the tax benefit at the 21%
statutory rate of $2,421,578 primarily due to the valuation
allowances on the Company’s deferred tax assets, as it is more
likely than not that the Company’s deferred tax assets will not be
realized. The provision for income taxes for the year ended
December 31, 2020, totaled a tax expense of $24,886, or (0.88)% of
the loss before income taxes, which differed from the tax benefit
at the 21% statutory rate of $596,421, primarily due to the
valuation allowance on the Company’s deferred tax assets, as it is
more likely than not that the Company’s deferred tax assets will
not be realized.
Other
Income and Expenses
|
Other Income & Expenses |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
| Interest Expense |
|
$ |
(1,423,611 |
) |
|
$ |
(2,254,020 |
) |
|
$ |
830,409 |
|
|
|
-37 |
% |
| Forgiveness of PPP loan and accrued
interest |
|
|
349,176 |
|
|
|
- |
|
|
|
349,176 |
|
|
|
- |
|
| Warrant
modification expense |
|
|
(2,881,729 |
) |
|
|
- |
|
|
|
(2,881,729 |
) |
|
|
- |
|
|
Total Expenses |
|
$ |
(3,956,164 |
) |
|
$ |
(2,254,020 |
) |
|
$ |
(1,702,144 |
) |
|
|
76 |
% |
The interest expense on our CrowdOut loan decreased for the year
ended December 31, 2021 compared to 2020 due to the termination of
and final payments on the loan in 2021. In 2021, we also received
full forgiveness of our Paycheck Protection Program (“PPP”) loan
under the Coronavirus Aid, Relief, and Economic Security Act
(the “CARES Act”). Finally, we recorded warrant modification
expense in 2021 resulting from the issuance of replacement warrants
that were exercised in January and February.
Liquidity
and Capital Resources
Sources
of Liquidity
The Company generated an operating loss of $7,547,456 and a net
loss of $11,707,889 for the year ended December 31, 2021. As of
December 31, 2021, the Company had cash and stockholders’ equity of
$12,044,415 and $26,589,171. At December 31, 2021, the Company had
working capital of $13,098,049 compared to a working capital
deficit as of December 31, 2020 of $578,795. During the year ended
December 31, 2021, the Company received net proceeds of $26,669,788
from the issuance of Common Stock, warrants and preferred stock,
and the exercise of Common Stock purchase warrants.
Given our cash position at December 31, 2021 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 year ended December 31, 2021, net cash used in operating
activities was $5,913,920. During the year ended December 31, 2020,
net cash used in operating activities was $312,959.
In the Fall of 2021, we paid down a significant amount of
out-of-term accounts payable, and incurred additional one-time
costs associated with corporate activities and the potential Nasdaq
delisting.
Cash
Used in Investing Activities
During the years ended December 31, 2021 and 2020, we did not use
cash in investing activities.
Cash
Provided by Financing Activities
|
Cash flows from Financing Activities |
|
2021 |
|
|
2020 |
|
| Proceeds from sale of
common stock and exercise of warrants |
|
$ |
18,669,786 |
|
|
$ |
3,144,387 |
|
| Proceeds received in connection
with issuance of preferred stock, net |
|
|
8,000,002 |
|
|
|
2,000,000 |
|
| Term loan repayment |
|
|
(11,095,877 |
) |
|
|
(2,212,500 |
) |
| Proceeds from PPP loan |
|
|
- |
|
|
|
346,390 |
|
| Fees paid in connection with equity
offerings |
|
|
(570,492 |
) |
|
|
(65,152 |
) |
| Preferred stock dividends |
|
|
(300,000 |
) |
|
|
(100,000 |
) |
| CrowdOut
exit fee |
|
|
(1,072,500 |
) |
|
|
- |
|
| Net
Cash Provided by Financing Activities |
|
$ |
13,630,919 |
|
|
$ |
3,113,125 |
|
In 2021, we completed a Preferred Series E offering, Preferred
Series F offering, a registered public offering and received
proceeds from the exercise of Common Stock warrants. Additionally,
we paid back our term loan prior to its maturity date and were
required to pay an exit fee of $1.1 million that was included in
the initial agreement. Finally, we received full forgiveness from
the Small Business Administration (“SBA”) for our PPP loan.
Financings
September 2021 Offering
On September 15, 2021, the Company closed an underwritten public
offering (the “September Offering”) pursuant to which the Company
issued an aggregate of (i) 2,788,750 shares of Common Stock,
including 363,750 shares of Common Stock issued upon the full
exercise of the underwriters’ over-allotment option 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,
subject to certain adjustments, including warrants issued upon the
full exercise of the underwriter’s over-allotment option to
purchase up to an additional 363,750 shares of Common Stock, at a
combined public offering price of $4.50 per share and accompanying
warrant. The September Offering resulted in gross proceeds,
inclusive of proceeds from the full exercise of the over-allotment
option, of approximately $12.5 million, before deducting
underwriting discounts and commissions of 7% of the gross proceeds
(or 3.5% of the gross proceeds in the case of certain identified
investors) and estimated offering expenses.
Such 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
Certificate of Incorporation to effect a reverse stock split of the
shares of Common Stock so that there were a sufficient number of
authorized 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 $3.956 per share. The warrants are also
exercisable on a cashless basis under certain circumstances, any
time after the Initial Exercise Date, pursuant to the formula set
forth in the warrants. The reverse stock split and exercise price
was retroactively reported in accordance with ASC 260-10-55-12,
Restatement of EPS Data.
August 2021 Offering
On August 13, 2021, the Company closed a private placement offering
on August 16, 2021 (the “August Offering”), which was conducted
pursuant to a securities purchase agreement, dated as of August 13,
2021, whereby the Company issued (i) an aggregate of 1,333,333
shares of Series F Preferred Stock and (ii) warrants exercisable
for up to 666,667 shares of Common Stock at an exercise price of
$7.80 per share, subject to customary adjustments thereunder, which
are exercisable six months from the date of issuance and have terms
of five and a half years. The August Offering resulted in gross
proceeds to the Company of approximately $4 million, before
deducting any offering expenses. The Company used the net proceeds
from this offering for working capital and liability reduction
purposes. As of the year ended December 31, 2021, 1,160,000 shares
of Series F preferred stock have been 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 issued in the August Offering was adjusted to $4.95 per
share, and was retroactively reported in accordance with ASC
260-10-55-12, Restatement of EPS Data.
February 2021 Offering
On February 2, 2021, the Company closed concurrent registered
direct and private placement offerings (collectively, the “February
Offering”) pursuant to a securities purchase agreement, dated as of
January 29, 2021, in which the Company issued to certain
institutional investors an aggregate of 1,476,016 shares of Series
E Preferred Stock and Common Stock purchase warrants exercisable
for an aggregate of 295,203 shares of Common Stock. Such warrants
were exercisable at an exercise price of $12.30 per share, subject
to customary adjustments thereunder, which were exercisable
immediately upon issuance and had five-year terms. The February
Offering resulted in gross proceeds to the Company of approximately
$4 million, 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 Agreement”) with a warrant
holder with respect to a common stock purchase warrant, dated April
4, 2019, previously issued by the Company to such holder (the
“Original Warrant”). In consideration for each exercise of the
Original Warrant that occurred within 45 calendar days of the date
of the Amendment Agreement, in addition to the issuance of shares
of Common Stock upon such exercise, the Company agreed to deliver
to such holder a new warrant to purchase a number of shares of
Common Stock equal to the number of shares of Common Stock issued
upon such holder’s exercise of the Original Warrant, at an exercise
price of $15.25 per share (the “New Warrant”). Such holder held an
Original Warrant exercisable for up to 246,914 shares of Common
Stock and fully exercised such warrant, resulting in aggregate
proceeds to the Company of $3,765,432 and the issuance of New
Warrants exercisable for an equivalent number of shares of Common
Stock.
In 2020, we completed a Series D preferred stock offering, received
proceeds from the exercise of Common Stock warrants, and made the
scheduled payments on our term loan. Additionally, we received
funds from the PPP loan.
COVID-19 Considerations on Our Business and
Operations
Like most 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 December 31, 2021, we have experienced
decreases in demand from certain key customers, primarily our VHA
clinics.
Given that our products are sold through a variety of distribution
channels, including VHA hospitals and clinics we expect our sales
will experience continued volatility as a result of the changing
focus at those locations, away from care management to COVID-19
treatment. We believe this change in focus has significantly
impacted the demand for our products, and we are not certain how
quickly demand may improve over time as the impacts of the COVID-19
pandemic may go through additional phases of varying severity and
duration.
To
date, travel restrictions and border closures have not materially
impacted our ability to obtain inventory or deliver products or
services to customers. Travel restrictions impacting people can
restrain our ability to assist our customers and distributors as
well as impact our ability to develop new distribution channels,
but at present we do not expect these restrictions on personal
travel to be material to our business operations or financial
results. We have taken steps to restrain and monitor our operating
expenses and therefore we do not expect any such impacts to
materially change the relationship between costs and
revenues.
Like
most companies, we have taken a range of actions with respect to
how we operate to assure we comply with government restrictions and
guidelines as well as best practices to protect the health and
well-being of our employees and our ability to continue operating
our business effectively. To date, we have been able to operate our
business effectively using these measures and to maintain internal
controls as documented and posted. We also have not experienced
challenges in maintaining business continuity and do not expect to
incur material expenditures to do so. However, the impacts of
COVID-19 and efforts to mitigate the same have remained
unpredictable and it remains possible that challenges may arise in
the future.
The
actions we have taken so far during the pandemic include, but are
not limited to:
|
● |
Requiring
all employees who can work from home to work from home; |
|
● |
Increasing
our IT networking capability to best assure employees can work
effectively outside the office; |
|
● |
For
employees who must perform essential functions in one of our
offices: |
|
○ |
Having
employees maintain a distance of at least six feet from other
employees whenever possible; |
|
○ |
Requiring
all employees to be fully vaccinated. |
|
○ |
Having
employees stay segregated from other employees in the office with
whom they require no interaction; and |
|
○ |
Requiring
employees to wear masks while they are in the office whenever
possible. |
On May 6, 2020 and May 8, 2020, we received loans from Bank of
America, NA totaling $346,390, pursuant to the PPP under the CARES
Act. Under the terms of the PPP, loans and accrued interest are
forgivable after twenty-four weeks as long as we used the loan
proceeds for eligible purposes, including payroll, benefits, rent
and utilities, and maintain our payroll levels. The amount of loan
forgiveness will be reduced if we terminate employees or reduce
salaries during the eight-week period. As of December 31, 2021, we
used the entirety of the loan proceeds for purposes consistent with
the PPP.
On March 2, 2021, the Company received notification from the SBA
that repayment of its loan under the PPP in the amount of $301,390
plus accrued interest of $2,320 had been forgiven. On May 20, 2021,
the Company received notification from the SBA that repayment of
its loan under the PPP in the amount of $45,000 plus accrued
interest of $466 had been forgiven. The income resulting from the
forgiveness of both PPP loans and the related accrued interest is
included in other income in the Company’s statement of operations
for the year ended December 31, 2021.
Business Outlook
Our
future financial performance depends, in large part, on conditions
in the markets that we serve and on conditions in the U.S. in
general. During the years ended December 31, 2020 and December 31,
2021, the impact of the COVID-19 pandemic significantly affected
our results of operations as we experienced meaningful reductions
in customer demand for our products and services. During this
period, the Company continued to identify and assess risks and
modify operating plans following guidance from national, state and
local governmental and health authorities. Although we continued to
experience minimal supply chain disruption, customer demand was
noticeably weaker. During this time period, we took several
proactive measures to protect the Company’s balance sheet and
strengthen its liquidity position, including making additional cost
reductions through selected headcount reductions, discretionary
spending reductions, corporate travel suspension, and service
provider and other expense reductions.
In 2022, we expect the smaller clinics from which we derive much of
our revenue to shift their focus back to quality-of-life support
and to continue to expand their relationship with us. In 2022, we
intend to build a durable business model, a recurring revenue base
to generate significant cash flow, to invest in efficient growth
and to develop innovative software and services solutions to expand
into the broader Caring Economy. We are investing in a number of
new verticals in the consumer, pro-care/Healthcare, corporate
benefits lines of business and intend to expand further into our
established government line of business.
Looking forward, as the Company accelerates new product
development, additional costs will be incurred in product
development engineering, sales and marketing. As we fill the
product pipeline, expenses will be incurred before sales of these
new products are realized.
Impact
of Inflation
We believe that our business has not been affected to a significant
degree by inflationary trends during the past two fiscal years.
However, the recent spike in the domestic inflation rate may
increase our cost of fulfillment through higher labor and shipping
costs, as well as our operating and overhead expenses. Should
inflation become a factor in the worldwide economy, it may increase
the cost of purchasing products from our contract manufacturers in
Asia, as well as the cost of certain raw materials, component parts
and labor used in the production of our products. We have generally
been able to maintain our profit margins through productivity and
efficiency improvements, and cost reduction programs, avoiding the
need to take price increases for many years, although it may be
necessary to increase our prices in 2022.
Off
Balance Sheet Arrangements
We do
not have any relationships with entities or financial partnerships,
such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose
of facilitating 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 Estimates
Use of Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual
results may differ from these estimates. Items subject to such
estimates and assumptions could include: the carrying amount and
estimated useful lives of long-lived assets; assumptions used in
the preparation of the goodwill impairment test; the valuation
allowance for credit losses; the fair value of financial
instruments; contingent considerations arising from business
combinations; income tax recoverability of deferred tax assets, and
provisions, among others.
Valuation and Goodwill Impairment
Goodwill represents the excess of consideration paid over the net
assets acquired. The Company conducts an annual impairment test of
goodwill in the fourth quarter, and in between evaluates if events
or circumstances indicate whether fair value may be less than its
carrying value. If an initial assessment indicates it is more
likely than not goodwill may be impaired, it is evaluated by
comparing estimated fair value to carrying value. An impairment
charge would be recorded for the amount by which the carrying value
exceeds estimated fair value. Estimated fair values are developed
primarily under an income approach that discounts estimated future
cash flows using risk-adjusted interest rates, as well as earnings
multiples or other techniques as warranted. Estimating short-term
revenue growth and the discount rates used to determine the fair
value requires management judgement and estimation of
uncertainties.
Critical
Accounting Policies
The
following discussion and analysis of financial condition and
results of operations is based upon our financial statements, which
have been prepared in conformity with accounting principles
generally accepted in the U.S. Certain accounting policies and
estimates are particularly important to the understanding of our
financial position and results of operations and require the
application of significant judgment by our management or can be
materially affected by changes from period to period in economic
factors or conditions that are outside of our control. As a result,
they are subject to an inherent degree of uncertainty. In applying
these policies, our management uses their judgment to determine the
appropriate assumptions to be used in the determination of certain
estimates. Those estimates are based on our historical operations,
our future business plans and projected financial results, our
observance of trends in the industry and information available from
other outside sources, as appropriate. Please see Note 4 to our
financial statements for a more complete description of our
significant accounting policies.
Revenue
Recognition
The Company’s revenues consist of product sales to either end
customers or to 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 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 years ended December 31, 2020 and 2021,
none of our sales were recognized over time.
Inventory.
The Company performs regular reviews of inventory quantities on
hand and evaluates the realizable value of its inventories. The
Company will adjust the carrying value of the inventory as
necessary with the 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.
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 bifurcate
conversion options from their host instruments and account for them
as free-standing derivative financial instruments according to
certain criteria. The criteria includes circumstances in which (i)
the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (ii) the hybrid
instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under
otherwise applicable 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 instrument would be considered a derivative instrument.
The derivative is subsequently marked to market at each reporting
date based on current fair value, with the changes in fair value
reported in the results of operations.
Conversion
options that contain variable settlement features such as
provisions to adjust the conversion price upon subsequent issuances
of equity or equity linked securities at exercise prices more
favorable than that featured in the hybrid contract generally
result in their bifurcation from the host instrument.
The
Company accounts for convertible debt instruments when the Company
has determined that the embedded conversion options should not be
bifurcated from their host instruments in accordance with ASC
470-20 “Debt with Conversion and Other Options”. 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. Debt discounts
under these arrangements are amortized over the term of the related
debt.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk.
We
are not required to provide the information required by this Item
7A as we are a smaller reporting company.
Item
8. Financial Statements and Supplementary Data.
The
Company’s financial statements, notes to the financial statements,
and the reports of the Company’s independent registered accountants
required to be filed in response to this Item 8 begin on page F-1
of this Report.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we are required to perform an evaluation of our disclosure
controls and procedures, as such term is defined in Rule 13a-15(e)
under the Exchange Act, as of December 31, 2021. Management has not
completed such evaluation under the 2013 COSO framework, but
concluded, based on the material weaknesses in our internal
controls over financial reporting described below, that our
disclosure controls and procedures were not effective as of
December 31, 2021 to provide reasonable assurance that information
required to be disclosed by us in reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and
is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosures. Specifically, we had difficulty in accounting for
complex accounting transactions due to an insufficient number of
accounting personnel with experience in that area and limited
segregation of duties within our accounting and financial reporting
functions.
As
reported in our annual report on Form 10-K for the period ended
December 31, 2020, during the closing procedures associated with
our 2020 audit, management identified an employee theft event
involving a non-material amount of money for the fiscal year ended
December 31, 2020. Management determined that the incident was due
to a material weakness in its controls and procedures, specifically
as a result of the lack of segregation of duties due to the limited
number of employees performing certain administrative functions. In
order to remediate the material weakness and further strengthen the
controls, management initiated or enhanced certain receivables
handling procedures by strictly controlling access to incoming mail
and physical checks received by the Company. During the first
quarter of 2021, we hired a forensic auditor who evaluated our
transactions and determined that the incident was isolated. The
Company was made whole during the first quarter of 2021. In July
2021, we retained Mark Archer as our Interim Chief Financial
Officer, subsequently promoted to Chief Financial Officer, who has
over 40 years of financial and operational experience, including
assignments in technology and consumer products companies. In
August 2021, we retained Armanino LLP, a resigned accounting firm,
to function as our internal accounting department.
Additional
time is required to fully document our systems, implement control
procedures and test their operating effectiveness before we can
conclude that we have fully remediated our material
weaknesses.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rule 13a-15(f). Under the supervision and with the
participation of our management, including our principal executive
officer and principal financial officer, we are required to conduct
an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2021, based on the criteria
set forth in the report entitled Internal Control-Integrated
Framework published by the Committee of Sponsoring Organizations of
the Treadway Commission (2013), known as COSO. Management has not
completed an evaluation under the criteria set forth in Internal
Control-Integrated Framework, and as such our management concluded
that our internal control over financial reporting was not
effective as of December 31, 2021.
This
Report does not include an attestation report of the Company’s
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting firm as
we are neither an accelerated filer nor a large accelerated filer
and are not required to provide the report.
Limitations
of the Effectiveness of Internal Control
Our
management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls and
procedures will prevent all errors and all fraud. A control system,
no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
These inherent limitations include, but are not limited to, the
realities that judgments in decision making can be faulty and that
breakdowns can occur because of simple errors. Additionally,
controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls is
also based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and
not be detected.
Changes
in Internal Control over Financial Reporting
There
were no changes in the Company’s internal control over financial
reporting in the Company’s fourth quarter of the fiscal year ended
December 31, 2021, covered by this Report that have materially
affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Item
9B. Other Information
None.
Item
9C. Disclosure Regarding Foreign Jurisdictions That Prevent
Inspections
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
Our
executive officers and directors and their ages and positions are
as follows:
|
|
|
|
|
|
|
Date
First Elected or |
|
Name |
|
Age |
|
Position |
|
Appointed |
|
Chia-Lin
Simmons (2) |
|
49 |
|
Chief
Executive Officer and Director |
|
June
14, 2021 |
|
Mark
Archer |
|
65 |
|
Chief
Financial Officer |
|
February
15, 2022
(July 15, 2021 as Interim CFO) |
|
Major
General David R. Gust, USA, Ret |
|
78 |
|
Director |
|
June
25, 2012 |
|
Michael
J. D’Almada-Remedios, PhD |
|
58 |
|
Director |
|
September
26, 2013 |
|
Daniel
P. Sharkey |
|
65 |
|
Director
and Chairmen of the Board |
|
June
23, 2014
(November 14, 2021 as the Chairman of the Board) |
|
Robert
A. Curtis, Pharm.D. |
|
67 |
|
Director |
|
July
25, 2018 |
|
Sherice.
R Torres |
|
48 |
|
Director |
|
February
21, 2022 |
|
John
Pettitt |
|
59 |
|
Director |
|
March
18, 2022 |
Chia-Lin
Simmons, Chief Executive Officer and Director
Chia-Lin
Simmons has served as Chief Executive Officer and a director of the
Company since June 14, 2021. From 2016 to June 2021, Ms. Simmons
served as the CEO and co-founder of LookyLoo, Inc., an artificial
intelligence social commerce company. Ms. Simmons currently also
serves as a member of the Board of directors for Servco Pacific
Inc., a global automotive and consumer goods company with
businesses in mobility, automotive distribution and sales, and
entertainment, and for New Energy Nexus, an international
organization that supports clean energy entrepreneurs with funds,
accelerators and networks. From 2014 to 2016, Ms. Simmons served as
Head of Global Partner Marketing at Google Play, prior to which,
between 2010 and 2014, she served as VP of Marketing & Content
for Harman International. Ms. Simmons received her B.A. in
Communications, Magna cum Laude and Phi Beta Kappa, from the
University of California, San Diego in 1995. She also received her
M.B.A. from Cornell University in 2002, where she was a Park
Leadership Fellow, and her J.D. from George Mason University in
2005, and is currently a licensed attorney in the State of New
York. The Company believes that Ms. Simmons’ broad technology
industry expertise, her experience in product development and
launch, and her role as Chief Executive Officer give her the
qualifications and skills to serve as a member of the
Board.
Mark
Archer, Chief Financial Officer
Mark Archer has served as Interim Chief Financial Officer of the
Company since July 15, 2021, and as our permanent Chief Financial
Officer since February 15, 2022. Mr. Archer also serves as a
partner at FLG Partners, a Silicon Valley chief financial officer
services and Board advisory consultancy firm. Mr. Archer has over
40 years of financial and operational experience, including
assignments in high growth technology and consumer products
companies. Prior to joining FLG Partners in April 2021, from 2017
to 2020, Mr. Archer served as Executive Vice President and Chief
Financial Officer of Saxco International LLC, a private equity
owned middle market distributor of glass and other rigid packaging
solutions to the wine, beer and spirits industries. From 2016 to
2018, Mr. Archer served as President and Chief Executive Officer of
Swarm Technology LLC, a growth stage technology company selling
hardware and software services, based on Internet of Things
architecture, to the agricultural industry. Mr. Archer received
both his B.S. degree in Business Administration and an M.B.A. in
Finance from the University of Southern California, where he was a
Presidential Scholar.
Major
General David R. Gust, USA, Director
Major
General David R. Gust, USA, Ret., has served as a director of the
Company since June 25, 2012. General Gust presently does consulting
work for his own company, David R. Gust & Associates, LLC.
Between April 2007 and May 2009, General Gust was the President of
USfalcon, a privately held company working with the U.S. Defense
sector, primarily in information technology. Previously, General
Gust had served as the Manager for Federal Telecommunications for
Bechtel National, Inc. from November 2004 to March 2007. Prior to
that, he was the President and Chief Executive Officer of Technical
and Management Services Corporation from 2000 to 2004. General Gust
retired from the United States Army in 2000 after completing a
career of 34 years of service.
His
General Officer assignments included the Program Executive Officer,
Communications Systems (PEO-Comm Systems), Program Executive
Officer, Intelligence, Electronic Warfare and Sensors
(PEO-IEW&S) and at Army Materiel Command, as Deputy Chief of
Staff for Research, Development and Acquisition
(DCSRDA).
His
final assignment at the Army Materiel Command included serving as
the Chairman of the Source Selection Advisory Council for the
Tactical Unmanned Aerial Vehicle procurement and supervising
preparation of the acquisition procurement package for the Stryker
combat vehicle. General Gust received his B.S. in Electrical
Engineering from the University of Denver and Master’s Degrees in
Systems Management and National Security and Strategy from the
University of Southern California and the United States Naval War
College, respectively.
General
Gust brings to our Board of directors valuable business expertise,
particularly expertise in defense and homeland security market
segments, due to his significant experience as a director of
publicly held companies and his substantial experience gained as a
member of the US Armed Services.
Michael J. D’Almada-Remedios, PhD, Director
Michael
J. D’Almada-Remedios, PhD, has served as a director of the Company
since September 26, 2013. Dr. D’Almada-Remedios’ background
includes a successful track record for product innovation and
development, outsourcing, global platform integration,
massive-scale/hyper-growth operations, and building/developing
teams from 50 to over 500 people. His key accomplishments at each
company consistently show impressive gains in sales, profitability
and global expansion into new markets.
Dr.
D’Almada-Remedios has served as the President of On Demand iCars,
Inc, and Limos.com, a leading global professional transportation
network company, since 2018. From 2014 to 2018 he was the Chief
Executive Officer of Flye Inc., a Fin Tech and IoT subsidiary of
World Ventures Holdings, LLC, where he was also the Chief
Technology Officer. In 2014, Dr. D’Almada-Remedios was the Chief
Technology Officer of Swarm-Mobile, a software company. Between
January 2011 and September 2013, Dr. D’Almada-Remedios was the
Chief Information Officer for Arbonne International, a
billion-dollar global cosmetics company. From February 2009 to
December 2010, he was a Vice-President at Expedia, Inc. and was
responsible for all technologies, product development and technical
operations for hotels.com. Prior to February 2009, Dr.
D’Almada-Remedios was the Chief Technology Officer for Realtor.com
and Shopping.com, a subsidiary of eBay, Inc. At eBay he was a
member of the eBay Inc. Technology Board for eBay, PayPal and
Skype.
Earlier
in his career, he was Global Chief Information Officer for the
Travelocity group of companies and President and Chief Operating
Officer of Bluelight.com, a subsidiary of Kmart. Dr.
D’Almada-Remedios began his career as Vice President and Manager,
Systems Integration & Development at Wells Fargo Bank, Consumer
Banking Group.
Dr.
D’Almada-Remedios has a PhD in Computer Control and Fluid Dynamics
from the University of Nottingham in England and a B.Sc. in Physics
and Computer Science from Kings College, University of London in
England.
Dr. D’Almada-Remedios brings to our Board valuable business
experience, particularly expertise in eCommerce technology and
hyper growth companies.
Daniel
P. Sharkey, Director and Chairman of the Board
Daniel
P. Sharkey has served as a director of the Company since June 23,
2014, and as Chairman of the Board since November 14, 2021. Mr.
Sharkey’s background includes 37 years of broad experience with
finance and business development for technology companies. His key
accomplishments in his prior engagements focused on expanding
technology companies into new marketplaces and plotting and
implementing successful, long-term growth strategies. Between 2007
and 2014, Mr. Sharkey was Executive Vice President of Business
Development for ATMI, a publicly traded semiconductor company. Mr.
Sharkey originally joined ATMI as Chief Financial Officer in 1990.
ATMI was sold to Entegris in 2014 for $1.15 billion.
From
1987 to 1990, before joining ATMI, Mr. Sharkey was Vice President
of Finance for Adage, a publicly traded computer graphics
manufacturer. From 1983 to 1987, Mr. Sharkey served as Corporate
Controller for CGX Corporation, a venture capital backed, privately
held, computer graphics manufacturer that merged with Adage in
1987. Mr. Sharkey was a Certified Public Accountant for KPMG from
1978 to 1983.
Mr. Sharkey earned a Bachelor of Arts degree in Economics and
Accounting from the College of the Holy Cross in Worcester,
Massachusetts. Mr. Sharkey brings valuable experience in finance
and administration to our Board and serves as our audit committee
financial expert.
Robert
A. Curtis, Pharm.D., Director
Robert
A. Curtis, Pharm.D., has served as a director of the Company since
July 25, 2018. Dr. Curtis is a 35-year veteran in the biosciences
industry. Since 2012, Dr. Curtis has served as a consultant to
emerging technology companies in his role at Curtis Consulting
& Communications, LLC. From 2014 to 2016, he served as the
Executive Chairman and Director of the Trudeau Institute in Saranac
Lake, New York and prior to that position, he was Chief Executive
Officer (CEO) of the Regional Technology Development Corporation
from 2007 to 2012, a non-profit organization in Woods Hole,
Massachusetts, where he was responsible for identifying and
commercializing technology from the Marine Biological Laboratory
and the Woods Hole Oceanographic Institute. Prior to such roles,
Dr. Curtis has been a founder and CEO of several companies,
including HistoRx, Inc., a tissue proteomics company, Cape
Aquaculture Technologies, Inc., which developed enhanced
non-genetically modified fish, and Lion Pharmaceuticals/Phoenix
Drug Discovery LLC, which developed and commercialized
university-based technology from some of the leading biomedical
institutions in the world. He assisted in the founding of
Environmental Operating Solutions, Inc., which applied
denitrification technology to wastewater, and which was sold in
2017. He was a co-founder of and CEO of CombiChem, Inc., which was
sold to Dupont Pharmaceuticals, and served as founding President
and CEO of MetaMorphix, Inc., a joint venture between Genetics
Institute, Inc. and The Johns Hopkins School of Medicine. Prior to
these entrepreneurial endeavors, Dr. Curtis held senior management
positions at Pharmacopeia, Inc., Cambridge Neuroscience, Inc., and
Pfizer, Inc. He also served as Assistant Professor of Pharmacy
Practice at the University of Illinois Medical Center in Chicago.
He currently serves on the Board or as an advisor to a number of
private entrepreneurial companies and has served as judge for the
annual MIT $100K Business Plan Entrepreneurial Award. He is
Chairman of Fundraising for the Falmouth Commodores of the Cape Cod
Baseball League. Dr. Curtis holds a BS in Pharmacy from the
Massachusetts College of Pharmacy, a Pharm.D. from the University
of Missouri, and an MBA from Columbia University.
Dr.
Curtis’ significant experience in the biosciences, healthcare, and
technology sector as well as his operational background gives him
the qualifications and skills necessary to serve as a director of
our Company.
Sherice
R. Torres, Director
Sherice R. Torres has served as a director of the Company since
February 21, 2022. Since January 24, 2022, Ms. Torres has served as
Chief Marketing Officer for Circle Internet Financial, LLC
(“Circle”). Prior to her executive leadership role with Circle,
from November 2020 to January 2022, Ms. Torres served as the Chief
Marketing Officer for Novi, a fintech division of Meta (formerly
Facebook). In addition, Ms. Torres held several senior marketing
roles at Google from August 2014 to October 2020, focusing on
social responsibility, child and family products, Google Pay and
Google Shopping. From July 2000 to July 2014. Ms. Torres led teams
at Nickelodeon focusing on consumer products, strategic planning,
digital video and paid apps. Ms. Torres also has served as a
director of Advance Auto Parts since September 2021. Ms. Torres
started her career in change management with Deloitte Consulting.
Ms. Torres has nearly 30 years of marketing, brand management,
strategic planning and change management for companies like Google
and Meta. Ms. Torres is also a member of several non-profit
organizations focusing on advancing professional opportunities for
women and people of color. Ms. Torres has been recognized for her
leadership and community service by several organizations,
including the National Diversity Council, Black Enterprise Magazine
and Crain’s Business. Ms. Torres received an undergraduate degree
from Harvard University and an MBA in Marketing & Strategic
Planning from Stanford University. The Company believes that Ms.
Torres is qualified to serve on the Board based on her experience
serving on the Advance Auto Parts board and her deep experience in
marketing and strategic planning at some of Silicon Valley’s
premier technology companies.
John
Pettitt, Director
John Pettitt has served as a director of the Company since March
15, 2022. Since October 2017, Mr. Pettitt has served as senior
staff software engineer at Google LLC (“Google”), focusing on
software development and software engineering management. Prior to
his role at Google, Mr. Pettitt served as chief technology officer
at Relay Media Inc., a mobile content optimization company, where
he focused on software development for digital media, from 2015
until it was acquired by Google in October 2017. Mr. Pettitt has 39
years’ experience in communication and e-commerce. An internet
pioneer since 1983, Mr. Pettitt has been a founder and chief
technology officer of multiple successful companies, including:
Specialix PLC, a manufacturer of communications and networking
hardware, which was acquired by Pearl Systems; software.net, the
first internet app store and an e-commerce pioneer, currently known
as Beyond.com, which became a publicly traded company and was later
acquired by Digital River; CyberSource, a world-leading payments
and fraud detection company, which became a publicly traded company
and was later acquired by Visa; and Relay Media Inc. In addition,
Mr. Pettitt has been awarded multiple foundational patents relating
to e-commerce, fraud detection and content distribution and
management. We believe that Mr. Pettitt brings a deep technical
understanding of hardware and software, combined with a strong
entrepreneurial track record, which background gives him the
qualifications and skills necessary to serve as a director.
Board Committees
Our Board has an Audit Committee, a Compensation Committee and a
Corporate Governance and Nomination Committee. Each committee has a
charter, which is available on our website at
www.logicmark.com. Information contained on our website is
not incorporated herein by reference. Each of the Board committees
has the composition and responsibilities described below. As of
April 12, 2022, the members of such committees are:
Audit Committee – Daniel Sharkey*(1), David Gust, Robert
Curtis and John Pettitt
Compensation Committee – David Gust*, Daniel Sharkey, Robert
Curtis, Sherice Torres and John Pettitt
Corporate Governance and Nomination Committee – Robert Curtis*,
David Gust, Daniel Sharkey and Sherice Torres
|
* |
—
Indicates Committee Chair |
|
(1) |
—
Indicates Audit Committee Financial Expert |
Audit
Committee
We have an Audit Committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The members of our Audit Committee are Daniel
Sharkey, David Gust, Robert Curtis and John Pettitt. Messrs.
Sharkey and Pettitt, General Gust and Dr. Curtis are each
“independent” within the meaning of Rule 10A-3 under the Exchange
Act and the Marketplace Rules of Nasdaq (the “Nasdaq Rules”). Our
Board has determined that Mr. Sharkey shall serve as the “audit
committee financial expert”, as such term is defined in Item
407(d)(5) of Regulation S-K. In addition, Mr. Sharkey serves as
Chairman of the Audit Committee.
The
Audit Committee oversees our corporate accounting and financial
reporting process and oversees the audit of our financial
statements and the effectiveness of our internal control over
financial reporting. The responsibilities of the Audit Committee
include, among other matters:
|
● |
Selecting
and recommending to our Board the appointment of an independent
registered public accounting firm and overseeing the engagement of
such firm; |
|
● |
Approving
the fees to be paid to the independent registered public accounting
firm; |
|
● |
Helping
to ensure the independence of our independent registered public
accounting firm; |
|
● |
Overseeing
the integrity of our financial statements; |
|
● |
Preparing
an audit committee report as required by the SEC to be included in
our annual proxy statement; |
|
● |
Reviewing
major changes to our auditing and accounting principles and
practices as suggested by our Company’s independent registered
public accounting firm, internal auditors (if any) or
management; |
|
● |
Reviewing
and approving all related party transactions; and |
|
● |
Overseeing
our compliance with legal and regulatory requirements. |
The Audit Committee operates under a written charter adopted by our
Board that satisfies the applicable standards of Nasdaq.
Compensation
Committee
The members of our Compensation Committee are David Gust, Daniel
Sharkey, Robert Curtis, Sherice Torres, and John Pettitt. General
Gust, Messrs. Sharkey and Pettitt, Dr. Curtis and Ms. Torres are
“independent” within the meaning of the Nasdaq Rules. In addition,
each member of the Compensation Committee qualifies as a
“non-employee director” under Rule 16b-3 of the Exchange Act. The
Compensation Committee assists the Board in the discharge of its
responsibilities relating to the compensation of the members of the
Board and our executive officers. General Gust serves as Chairman
of the Compensation Committee.
The
Compensation Committee’s compensation-related responsibilities
include:
|
● |
Assisting
our Board in developing and evaluating potential candidates for
executive positions and overseeing the development of executive
succession plans; |
|
● |
Reviewing
and approving on an annual basis the corporate goals and objectives
with respect to compensation for our Chief Executive
Officer; |
|
● |
Reviewing,
approving and recommending to our Board on an annual basis the
evaluation process and compensation structure for our other
executive officers; |
|
● |
Providing
oversight of management’s decisions concerning the performance and
compensation of other company officers, employees, consultants and
advisors; |
|
● |
Reviewing
our incentive compensation and other stock-based plans and
recommending changes in such plans to our Board as needed, and
exercising all the authority of our Board with respect to the
administration of such plans; |
|
● |
Reviewing
and recommending to our Board the compensation of independent
directors, including incentive and equity-based compensation;
and |
|
● |
Selecting,
retaining and terminating such compensation consultants, outside
counsel and other advisors as it deems necessary or
appropriate. |
The Compensation Committee operates under a written charter adopted
by our Board that satisfies the applicable standards of Nasdaq.
Corporate
Governance and Nomination Committee
The members of the Corporate Governance and Nomination Committee
are Robert Curtis, David Gust, Daniel Sharkey and Sherice Torres.
Dr. Curtis, General Gust, Mr. Sharkey and Ms. Torres are
“independent” within the meaning of the Nasdaq Rules. In addition,
each member of the Corporate Governance and Nomination Committee
qualifies as a “non-employee director” under Rule 16b-3 of the
Exchange Act. One of the main purposes of the Corporate Governance
and Nomination Committee is to recommend to the Board nominees for
election as directors and persons to be elected to fill any
vacancies on the Board, develop and recommend a set of corporate
governance principles and oversee the performance of the Board. Dr.
Curtis serves as Chairman of the Corporate Governance and
Nomination Committee.
The Corporate Governance and Nomination Committee is responsible
for, among other objectives, making recommendations to the Board
regarding candidates for directorships; overseeing the evaluation
of the Board; reviewing developments in corporate governance
practices; developing a set of corporate governance guidelines; and
reviewing and recommending changes to the charters of other Board
committees. In addition, the Corporate Governance and Nomination
Committee is responsible for overseeing our corporate governance
guidelines and reporting and making recommendations to the Board
concerning corporate governance matters. The Corporate Governance
and Nomination Committee operates under a written charter adopted
by our Board that satisfies the applicable standards of Nasdaq.
Involvement
in Certain Legal Proceedings
To
the best of our knowledge, none of our current directors or
executive officers has, during the past ten years:
|
● |
Been
convicted in a criminal proceeding or been subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses); |
|
● |
Had
any bankruptcy petition filed by or against the business or
property of the person, or of any partnership, corporation or
business association of which he was a general partner or executive
officer, either at the time of the bankruptcy filing or within two
years prior to that time; |
|
● |
Been
subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction or federal or state authority, permanently or
temporarily enjoining, barring, suspending or otherwise limiting,
his involvement in any type of business, securities, futures,
commodities, investment, banking, savings and loan, or insurance
activities, or to be associated with persons engaged in any such
activity; |
|
● |
Been
found by a court of competent jurisdiction in a civil action or by
the SEC or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated; |
|
● |
Been
the subject of, or a party to, any federal or state judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated (not including any
settlement of a civil proceeding among private litigants), relating
to an alleged violation of any federal or state securities or
commodities law or regulation, any law or regulation respecting
financial institutions or insurance companies including, but not
limited to, a temporary or permanent injunction, order of
disgorgement or restitution, civil money penalty or temporary or
permanent cease-and-desist order, or removal or prohibition order,
or any law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or |
|
● |
Been
the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act),
any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act), or any equivalent exchange, association,
entity or organization that has disciplinary authority over its
members or persons associated with a member. |
Except
as may be set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors or
executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates
which are required to be disclosed pursuant to the rules and
regulations of the SEC.
Family
Relationships
There
are no relationships between any of the officers or directors of
the Company.
Director
Nomination Procedures
There
have been no material changes to the procedures by which security
holders may recommend nominees to our Board.
Code
of Ethics
The
Board has adopted a Code of Business Ethics and Conduct (the “Code
of Conduct”) which constitutes a “code of ethics,” as defined by
applicable SEC rules and a “code of conduct,” as defined by
applicable rules of Nasdaq. We require all employees, directors and
officers, including our principal executive officer and principal
financial officer to adhere to the Code of Conduct in addressing
legal and ethical issues encountered in conducting their work. The
Code of Conduct requires that these individuals avoid conflicts of
interest, comply with all laws and other legal requirements,
conduct business in an honest and ethical manner and otherwise act
with integrity and in our best interest. The Code of Conduct
contains additional provisions that apply specifically to our Chief
Executive Officer, Chief Financial Officer and other finance
department personnel with respect to full and accurate reporting.
The Code of Conduct is available on our website at
www.logicmark.com. The Company will post any amendments to
the Code of Conduct, as well as any waivers that are required to be
disclosed by the rules of the SEC on such website. Information
contained on or that may be obtained from our website is not and
shall not be deemed to be a part of this Report.
Delinquent
Section 16(a) Reports
Under
the securities laws of the United States, our directors, executive
(and certain other) officers, and any persons holding ten percent
or more of our Common Stock must report on their ownership of the
Common Stock and any changes in that ownership to the SEC. Specific
due dates for these reports have been established. During the
fiscal year ended December 31, 2021, we believe the following
reports listed in the table below were required to be filed by such
persons pursuant to Section 16(a) and were not filed on a timely
basis:
|
Name |
|
Form |
|
Description |
| Daniel
P. Sharkey |
|
4 |
|
Four
(4) transactions were not reported on a timely basis (upon the
acquisition of stock options that were received as compensation for
the reporting person’s service as a member of the
Board). |
| |
|
4 |
|
One
(1) transaction was not reported on a timely basis (upon the
acquisition of stock options that were received as compensation for
the reporting person’s service as a member of the
Board). |
| Robert
A. Curtis |
|
4 |
|
Four
(4) transactions were not reported on a timely basis (upon the
acquisition of stock options that were received as compensation for
the reporting person’s service as a member of the
Board). |
| |
|
4 |
|
One
(1) transaction was not reported on a timely basis (upon the
acquisition of stock options that were received as compensation for
the reporting person’s service as a member of the
Board). |
| David
R. Gust |
|
4 |
|
Four
(4) transactions were not reported on a timely basis (upon the
acquisition of stock options that were received as compensation for
the reporting person’s service as a member of the
Board). |
| |
|
4 |
|
One
(1) transaction was not reported on a timely basis (upon the
acquisition of stock options that were received as compensation for
the reporting person’s service as a member of the
Board). |
| Michael
J. D’Almada- Remedios |
|
4 |
|
Ten
(10) transactions were not reported on a timely basis (upon the
acquisition of shares of common stock and stock options that were
received as compensation for the reporting person’s service as a
member of the Board) |
| Chia-Lin
Simmons |
|
4 |
|
One
(1) transaction was not reported on a timely basis (upon the
acquisition of shares of common stock issued as an inducement grant
in accordance with Nasdaq Rules). |
Item
11. Executive Compensation.
The disclosure relating to the shares of Common Stock under this
“Executive Compensation” section reflects the reverse stock split
of the Common Stock that was effected by the Company on October 15,
2021.
Summary
Compensation Table for Fiscal Years 2021 and 2020
The
following table sets forth all plan and non-plan compensation for
the last two fiscal years paid to individuals who served as the
Company’s principal executive officers and the Company’s two other
most highly compensated executive officers serving as executive
officers at the end of the last completed fiscal year, as required
by Item 402(m)(2) of Regulation S-K of the Securities Act. We refer
to these individuals collectively as our “named executive
officers.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonequity |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Deferred |
|
|
All |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Plan |
|
|
Compensation |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
|
Name
and Principal Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($)(4) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($)(5) |
|
|
($) |
|
|
Vincent
S. Miceli |
|
|
2021 |
|
|
|
374,028 |
|
|
|
50,000 |
|
|
|
375,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
27,290 |
|
|
|
826,318 |
|
Former
Chief Executive Officer,
Former Chief Financial Officer (1) |
|
|
2020 |
|
|
|
365,000 |
|
|
|
50,000 |
|
|
|
75,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
33,767 |
|
|
|
523,767 |
|
|
Chia-Lin
Simmons |
|
|
2021 |
|
|
|
243,308 |
|
|
|
50,000 |
|
|
|
3,571,897 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,865,205 |
|
|
Chief
Executive Officer (2) |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Mark
Archer |
|
|
2021 |
|
|
|
360,465 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
360,465 |
|
|
Chief
Financial Officer (3) |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1) |
Reflects
all compensation received by Mr. Miceli between January 1, 2021 and
July 10, 2021 when Mr. Miceli ceased serving as the Company’s Chief
Executive Officer and Chief Financial Officer, as well as all
compensation received by Mr. Miceli in connection with the Letter
Agreement (as defined below). Additional details regarding Mr.
Miceli’s compensation and departure from the Company are summarized
below under “Employment Agreements.” |
|
|
(2) |
Ms.
Simmons was appointed the Company’s Chief Executive Officer and
member of the Board on June 14, 2021. Ms. Simmons was granted
266,560 shares of restricted Common Stock that vest over four years
commencing October 15, 2021, with a quarter to vest on the
anniversary of the grant, and thereafter in quarterly amounts until
the entire award has vested, so long as Ms. Simmons remains in the
service of the Company. |
|
|
(3) |
Mr. Archer
served as the Company’s interim Chief Financial Officer from July
15, 2021 until February 15, 2022 when he was appointed the
Company’s permanent Chief Financial Officer. Salary reflects all
compensation received by FLG Partners between July 15, 2021 through
December 31, 2021 for Mr. Archer’s services as Interim Chief
Financial Officer pursuant to the FLG Agreement (as defined below)
from which Mr. Archer’s compensation for such services is derived.
Additional details regarding Mr. Archer’s compensation are
summarized below under “Employment Agreements.”
|
|
|
(4) |
Amounts
reported in this column reflect the grant date fair value of the
restricted stock award granted during the fiscal years ended
December 31, 2021 and 2020, as computed in accordance with
Financial Accounting Standards Board (“FASB”) ASC 718. |
|
|
(5) |
Other
compensation includes primarily employee-paid health
insurance. |
Employment
Agreements
Chia-Lin
Simmons
On
June 14, 2021, the Company entered into an employment agreement
with Chia-Lin Simmons (the “Simmons Agreement”), pursuant to which
she was appointed our Chief Executive Officer and a member of the
Board, effective June 14, 2021, in consideration for an annual cash
salary of $450,000 (“Base Salary”). The Simmons Agreement provides
for incentive bonuses as determined by the Board, a one-time
sign-on bonus of $50,000, and employee benefits, including health
and disability insurance, in accordance with the Company’s
policies, and remains in effect until her employment with the
Company is terminated.
Additionally,
pursuant to the Simmons Agreement and as a material inducement to
her acceptance of employment with the Company, the Company offered
Ms. Simmons a stock award of 266,560 shares of restricted Common
Stock. Such stock award was approved by the Board’s compensation
committee and the shares were issued in accordance with Nasdaq
Listing Rule 5635(c)(4) outside of our 2013 Long-Term Stock
Incentive Plan (“LTIP”) and our 2017 Stock Incentive Plan (“2017
SIP”), vesting over a four-year period commencing on October 15,
2021, with a quarter to vest on the anniversary of that date, and
thereafter in quarterly amounts until such award has fully vested,
so long as Ms. Simmons remains in the service of the
Company.
Pursuant to the Simmons Agreement, if Ms. Simmons is terminated for
any reason, she is entitled to receive standard company benefits
which include (i) a lump sum payment equal to the sum of her earned
but unpaid base salary through the date of termination, (ii) her
accrued but unused vacation days at the Base Salary in effect on
the date of her termination, and (iii) any other benefits or rights
she will have accrued or earned through the date of termination in
accordance with the terms of the Company employee benefit plans
(the “Accrued Benefits”). Additionally, if Ms. Simmons is
terminated due to a change in control (as defined in such
agreement), she will be entitled to twelve months of her
then-current Base Salary, payable in twelve equal monthly
installments, and coverage under any health insurance plan covering
her and her spouse, or reimbursement for the cost of any comparable
plan, for the lesser of twelve months after such termination, or
the remainder of the term of such agreement, as applicable.
Alternatively, if Ms. Simmons is terminated as a result of
non-extension of the Simmons Agreement, she is be entitled, in
addition to the Accrued Benefits, to six months of her then-current
Base Salary payable in six equal monthly installments, and coverage
under any health insurance plan covering her and her spouse, or
reimbursement for the cost of any comparable plan, for six months
after such termination.
Mark
Archer
Effective
July 15, 2021, the Board appointed Mr. Archer as Interim Chief
Financial Officer of the Company. In connection with the
appointment, the Company entered into an agreement, effective July
15, 2021, with FLG Partners (the “FLG Agreement”), of which Mr.
Archer is a partner, pursuant to which the Company agreed to pay
FLG Partners $500 per hour for its engagement of Mr. Archer’s
services as Interim Chief Financial Officer. The FLG Agreement also
requires the Company to indemnify Mr. Archer and FLG Partners in
connection with Mr. Archer’s services to the Company. The FLG
Agreement has an indefinite term and is terminable by the Company
or FLG Partners upon 60 days’ prior written notice.
Effective
February 15, 2022, the Board appointed Mr. Archer as our permanent
Chief Financial Officer. In connection with the appointment, the
Company and FLG Partners entered into an amendment to the FLG
Agreement, dated February 15, 2022 (the “Amendment”), pursuant to
which the Company agreed to amend the fee payable to FLG Partners
to $10,000 per week, to permit Mr. Archer to separately invoice the
Company for administrative charges of $2,000 per month, payable to
Mr. Archer only, and to the issuance of 129,384 restricted shares
of Common Stock to Mr. Archer and 6,810 restricted shares of Common
Stock to FLG Partners, a quarter of each such issuance to vest on
July 15, 2022, with subsequent vesting at 6.25% for each
three-month period thereafter. Mr. Archer did not receive any
securities of the Company in connection with the FLG Agreement or
the Amendment during the fiscal year ended December 31,
2021.
Vincent
S. Miceli
On January 8, 2021, we entered into an employment agreement with
Mr. Miceli (the “Miceli Agreement”), then serving as our Chief
Executive Officer and Chief Financial Officer, which became
effective January 1, 2021, and which continued until December 31,
2021 (the “Initial Term”).
Pursuant
to the Miceli Agreement, Mr. Miceli was to receive an annual base
salary of $365,000, and in the event that the Initial Term was
extended, Mr. Miceli was eligible to receive a cash bonus in an
amount and on such terms as determined by the Board in its sole
discretion. The Miceli Agreement also provided that Mr. Miceli
would be granted 400,000 shares of Common Stock under the LTIP or
the 2017 SIP.
On August 9, 2021, Mr. Miceli notified the Company of his decision
to resign from the Board and as Chairman of the Board, effective
immediately. In connection with his resignation, on August 9, 2021,
the Company and Mr. Miceli entered into a letter agreement,
effective August 1, 2021 (the “Letter Agreement”), pursuant to
which Mr. Miceli agreed to provide consulting services to the
Company for nine months in consideration for, among other things,
(i) semi-monthly cash payments of approximately $19,000, (ii) a
payout of his accrued but unused vacation pay, (iii) full
acceleration of the vesting terms of 50,000 shares of his
previously unvested Common Stock and (iv) payment of all medical
and dental premiums for him and his wife for six months. Pursuant
to the Letter Agreement, the Company and Mr. Miceli agreed that the
rights of both under the Miceli Agreement would terminate, except
for the confidentiality and non-competition provisions, which will
remain in full force and effect, provided that the non-competition
provisions will expire on April 30, 2022.
A brief description of the LTIP and the 2017 SIP is contained in
Note 10 of the Notes to the Financial Statements.
Other
Compensation
We
provide standard health insurance benefits to our executive
officers, on the same terms and conditions as provided to all other
eligible employees. We believe these benefits are consistent with
the broad-based employee benefits provided at the companies with
whom we compete for talent and therefore are important to
attracting and retaining qualified employees. Other than as
described above, there were no post-employment compensation,
pension or nonqualified deferred compensation benefits earned by
our named executive officers during the years ended December 31,
2021 and 2020. We do not have any retirement, pension or
profit-sharing programs for the benefit of our directors, officers
or other employees. The Board may recommend adoption of one or more
such programs in the future.
Outstanding
Equity Awards at 2021 Fiscal Year End
The
following table provides information relating to the vested and
unvested option and stock awards held by our named executive
officers as of December 31, 2021. Each award to each named
executive officer is shown separately, with a footnote describing
the award’s vesting schedule.
|
|
|
Option
Awards |
|
Stock
Awards |
|
|
Name |
|
Number
of
Securities
Underlying
Unexercised
Options
(# Exercisable) |
|
|
Number
of Securities
Underlying
Unexercised Option
(# Unexercisable) |
|
|
Equity
Incentive Plan
Awards: Number of
Securities Underlying
Unexercised
Unearned
Options (#) |
|
|
Option
Exercise
Price
($) |
|
|
Option
Expiration
Date |
|
|
Number
of Shares or
Units of Stock That
Have Not Vested (#)
(4) |
|
|
Market
Value of
Shares or Units of
Stock That Have Not
Vested ($) (5) |
|
|
Equity
Incentive Plan
Awards: Number of
Unearned Shares,
Units or Other Rights
That Have Not
Vested (#) |
|
|
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units Or Other
Rights That Have
Not Vested ($)
|
|
|
Chia-Lin
Simmons |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
266,560 |
|
|
|
3,571,897 |
|
|
|
- |
|
|
|
- |
|
|
Mark Archer |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Vincent
S. Miceli (1) (2) (3) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(1) |
On
September 3, 2021, Mr. Miceli received 50,000 shares of fully
vested Common Stock. |
|
|
(2) |
On
August 9, 2021, Mr. Miceli resigned from the Board and as the
chairman of the Board. In connection with the Letter Agreement, the
Company agreed to fully accelerate the vesting terms of 50,000
shares of previously unvested Common Stock held by Mr.
Miceli. |
|
|
(3) |
On
February 4, 2021, Mr. Miceli was granted 11,291 shares
of fully vested shares of Common Stock. |
|
(4) |
Ms.
Simmons was granted 266,560 shares of restricted Common Stock that
vest over four years commencing on October 15, 2021, with a quarter
to vest on the anniversary of the grant date, and thereafter in
quarterly amounts until the entire award has vested, so long as Ms.
Simmons remains in the service of the Company for such
quarter. |
|
|
(5)
|
Amounts
reflect the grant date fair value of such award granted, as
computed in accordance with FASB ASC 718. As required by SEC rules,
the amounts shown exclude the impact of estimated forfeitures
related to service-based vesting conditions. |
A brief description of the LTIP and the 2017 SIP, pursuant to which
such awards were granted to Mr. Miceli, is contained in Note 10 of
the Notes to the Financial Statements.
Director
Compensation for Fiscal Year 2021
During
the year ended December 31, 2021, each of our non-employee
directors earned $40,000 paid or to be paid in cash and $40,000 in
stock options for serving on our Board. Such compensation was paid
to each director in quarterly installments. The following table
reflects all compensation awarded to and earned by the Company’s
directors for the fiscal year ended December 31, 2021.
|
Name |
|
Fees
Earned
or Paid
In Cash
($) |
|
|
Stock
Awards
($) |
|
|
Stock
Option Awards
($)(1) |
|
|
Non-Equity
Incentive Plan Compensation
($) |
|
|
Nonqualified
Deferred Compensation Earnings
($) |
|
|
All
Other Compensation
($)(2) |
|
|
Total
($) |
|
|
Major
General David R. Gust, USA, Ret. |
|
|
40,000 |
|
|
|
- |
|
|
|
40,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,127 |
|
|
|
81,127 |
|
|
Michael
J. D’Almada- Remedios, PhD |
|
|
40,000 |
|
|
|
- |
|
|
|
40,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
80,000 |
|
|
Daniel
P. Sharkey |
|
|
40,000 |
|
|
|
- |
|
|
|
40,000 |
|
|
|
- |
|
|
|
- |
|
|
|
899 |
|
|
|
80,899 |
|
|
Robert
A. Curtis, Pharm.D. |
|
|
40,000 |
|
|
|
- |
|
|
|
40,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,611 |
|
|
|
81,611 |
|
|
(1) |
General
Gust, Dr. D’Almada-Remedios, Mr. Sharkey and Dr. Curtis each
received $40,000 in stock options, which are each exercisable for
up to 9,117 shares of Common Stock at an average price of
approximately $4.39 per share. |
|
(2) |
The
Company reimbursed General Gust, Mr. Sharkey and Dr. Curtis for
travel-related expenses. |
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The following table sets forth certain information regarding the
beneficial ownership of our capital stock as of April 12, 2022 by
(a) each person, or group of affiliated persons, who is known to us
to own beneficially 5% or more of our outstanding equity
securities; (b) each of our directors; (c) each of our named
executive officers; and (d) all of our named executive officers and
directors as a group. Except as otherwise indicated in the
footnotes below, we believe, based on the information provided to
us, that all persons listed below have sole voting power and
investment power with respect to their shares of Common Stock or
other equity securities that they beneficially own, subject to
community property laws where applicable.
For purposes of this table, a person or group of persons is deemed
to have “beneficial ownership” of any shares of Common Stock or
other equity securities of the Company that such person has the
right to acquire within sixty (60) days of April 12, 2022. For
purposes of computing the percentage of outstanding shares of our
Common Stock or other equity securities of the Company held by each
person or group of persons named above, any shares that such person
or persons has the right to acquire within sixty (60) days of April
12, 2022 is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership
of any other person. The inclusion herein of any shares of Common
Stock or other equity securities of the Company listed as
beneficially owned does not constitute an admission of beneficial
ownership. Unless otherwise identified, the address of our
directors and executive officers is c/o LogicMark, Inc., 2801 Diode
Lane, Louisville, KY, 40299.
| |
|
Shares
Beneficially Owned |
|
|
|
|
| |
|
Common
Stock |
|
|
Series C
Preferred Stock |
|
|
Series F
Preferred Stock |
|
|
% Total
Voting |
|
|
Name and
Address of Beneficial Owner |
|
Shares |
|
|
%(1) |
|
|
Shares |
|
|
% |
|
|
Shares |
|
|
% |
|
|
Power (2) |
|
| Non-Director or
Officer 5% Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Anson Investments
Master Fund LP (3) |
|
|
1,064,746 |
|
|
|
9.99 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9.99 |
% |
| Alpha Capital Anstalt
(4) |
|
|
988,200 |
|
|
|
9.34 |
% |
|
|
- |
|
|
|
- |
|
|
|
173,333 |
|
|
|
100 |
% |
|
|
8.92 |
% |
|
Giesecke+Devrient
Mobile Security America, Inc. (5) |
|
|
- |
|
|
|
* |
|
|
|
200 |
|
|
|
100 |
% |
|
|
- |
|
|
|
- |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Directors and
Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chia-Lin
Simmons (6)
Chief Executive Officer |
|
|
470,705 |
|
|
|
4.91 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4.91 |
% |
Mark
Archer (7)
Chief Financial Officer |
|
|
129,384 |
|
|
|
1.34 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1.34 |
% |
Vincent S.
Miceli
Former Chief Executive Officer
Former Chief Financial Officer
Former Director |
|
|
107,725 |
|
|
|
1.12 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1.12 |
% |
Major
General David R. Gust, USA, Ret
Director (8) |
|
|
44,160 |
|
|
|
* |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
* |
|
Michael J.
D’Almada-Remedios, PhD
Director (8) |
|
|
44,699 |
|
|
|
* |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
* |
|
Daniel P.
Sharkey
Director (8) |
|
|
43,660 |
|
|
|
* |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
* |
|
Robert A.
Curtis, Pharm.D.
Director (8) |
|
|
35,144 |
|
|
|
* |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
* |
|
Sherice R.
Torres
Director |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
John
Pettitt
Director |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Directors
and Executive Officers as a Group (9 persons) |
|
|
875,477 |
|
|
|
9.06 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9.06 |
% |
|
(1) |
Based on
9,593,378 shares of Common Stock issued and
outstanding as of April 12, 2022. Shares of Common Stock subject to
options, preferred stock or warrants currently exercisable or
exercisable within sixty days are considered outstanding for
purposes of computing the percentage of the holder of such options,
preferred stock or warrants; they are not considered outstanding
for purposes of computing the percentage of any other
stockholder.
|
|
(2) |
Percentage of total voting power represents
voting power with respect to all shares of Common Stock, Series C
Preferred Stock and Series F Preferred Stock. The holders of our
Common Stock and Series C Preferred Stock are entitled to one vote
per share. The holders of our Series F Preferred Stock vote on as
as-converted to Common Stock basis. |
|
(3) |
Beneficial ownership includes warrants
exercisable for up to an aggregate of 1,064,746 shares
of Common Stock. The warrants are subject to certain beneficial
ownership limitations, which provide that a holder of the warrants
will not have the right to exercise any portion thereof if the
holder, together with its affiliates, would beneficially own in
excess of 4.99% or 9.99%, as applicable, of the Common Stock
outstanding, provided that upon at least 61 days’ prior notice to
us, the holder may increase or decrease such limitation up to a
maximum of 9.99% of the shares of Common Stock outstanding.
Beneficial ownership excludes warrants exercisable into
676,233 shares of Common stock that are subject to the
limitations in such warrants. Anson Advisors Inc. (“AAI”) and Anson
Funds Management LP (“AFM”, and together with AAI, “Anson”) are the
co-investment advisers of Anson Investments Master Fund LP
(“AIMF”). Anson holds voting and dispositive power over the
securities held by AIMF. Bruce Winson is the managing member of
Anson Management GP LLC, which is the general partner of AFM. Moez
Kassam and Amin Nathoo are directors of AAI. Mr. Winson, Mr. Kassam
and Mr. Nathoo each disclaim beneficial ownership of these
securities except to the extent of their pecuniary interest
therein. The principal business address of the AIMF is Walkers
Corporate Limited, Cayman Corporate Centre, 27 Hospital Road,
George Town, Grand Cayman KY1-9008, Cayman Islands. |
|
(4) |
Beneficial ownership includes warrants
exercisable for up to an aggregate
of 988,200 shares of Common Stock and
173,333 shares of Series F Preferred Stock convertible into 115,556
shares of Common Stock. The warrants are subject to certain
beneficial ownership limitations, which provide that a holder of
the warrants will not have the right to exercise any portion
thereof if the holder, together with its affiliates, would
beneficially own in excess of 4.99% or 9.99%, as applicable, of the
Common Stock outstanding, provided that upon at least 61 days’
prior notice to us, the holder may increase or decrease such
limitation up to a maximum of 9.99% of the number of shares of
Common Stock outstanding. Konrad Ackermann has voting and
investment control over the securities held by Capital Anstalt. The
principal business address of Alpha Capital Anstalt is c/o
Lettstrasse 32, FL-9490 Vaduz, Furstentums,
Liechtenstein. |
|
(5) |
Giesecke & Devrient Mobile Security America,
Inc. (“G&D”) is the sole holder of our Series C Preferred Stock
and thus has 100% of the voting power of our outstanding shares of
Series C Preferred Stock, which have the same voting rights as our
shares of Common Stock (one vote per share). The address G&D is
45925 Horseshoe Drive, Dulles, VA 20166. |
|
(6) |
Represents (i) 266,560 shares of restricted stock
granted outside the LTIP and the 2017 SIP, which vest over a period
of 48 months, with one quarter on the anniversary of the grant and
1/36 each subsequent month until all shares have vested, so long as
Ms. Simmons remains in the service of the Company and (ii) 204,145
shares of restricted stock granted under the LTIP, which shares
vest over
a period of 3 years commencing on January 3, 2022, with 34,045
shares to vest on July 3, 2022, and thereafter, 17,010 shares to
vest on the first day of each subsequent quarter until the entire
award has vested, so long as Ms. Simmons remains in the service of
the Company for each such quarter. |
|
(7) |
Represents shares of restricted stock granted
outside the LTIP and the 2017 SIP, which vest over a period of 48
months, with one quarter on the anniversary of the grant and 1/36
each subsequent month until all shares have vested, so long as Mr.
Archer remains in the service of the Company. In addition, FLG
Partners, of which Mr. Archer is a partner, was granted 6,810
restricted shares of Common Stock. This grant will vest one quarter
on July 15, 2022, with subsequent vesting at 6.25% for each
three-month period thereafter. Mr. Archer disclaims
beneficial ownership of such shares of Common Stock granted to FLG
Partners. |
|
(8) |
Includes stock options to purchase up to 17,499
shares of Common Stock at an average exercise price of $7.07 per
share. |
Securities
Authorized for Issuance under Equity Compensation
Plans
|
Plan
Category |
|
Number
of Securities to Be Issued upon Exercise of Outstanding
Options, Warrants and Rights |
|
|
Weighted
Average Exercise Price of Outstanding Options, Warrants and
Rights |
|
|
Number
of Securities Remaining Available for Future Issuance under the
Plan (excluding securities reflected in column (a)) (3) |
|
|
|
|
|
(a) |
|
|
|
(b) |
|
|
|
(c) |
|
|
Equity
compensation plans approved by security holders (1) |
|
|
- |
|
|
|
- |
|
|
|
406,199 |
|
|
Equity
compensation plans approved by security holders (2) |
|
|
- |
|
|
|
- |
|
|
|
406,199 |
|
|
Equity
compensation plans not approved by security holders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
812,398 |
|
|
(1) |
Represents
the shares of Common Stock authorized for issuance under the LTIP,
which was approved by the Company’s stockholders on January 4,
2013. The maximum aggregate number of shares of Common Stock that
may be issued under the LTIP, including stock options, stock
awards, such as stock issued to our Board of directors for serving
on our Board of directors, and stock appreciation rights, is
limited to 10% of the shares of Common Stock outstanding on the
first trading day of any fiscal year, or 1,201,715 shares of Common
Stock for the fiscal year ending December 31, 2021. |
|
(2) |
Represents
the shares of Common Stock authorized for issuance under the 2017
SIP, which was approved by the Company’s stockholders on August 24,
2017. The maximum aggregate number of shares of Common Stock that
may be issued under the 2017 SIP (including shares underlying
options) is limited to 10% of the shares of Common Stock
outstanding on the first trading day of any fiscal year, or
4,061,997 shares of Common Stock for the fiscal year ending
December 31, 2021. |
|
(3) |
As of
January 1, 2021. |
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Transactions
with Related Parties
Other
than as described below, except compensation arrangements, since
the past two fiscal years, there have been no transactions, whether
directly or indirectly, between us and any of the Company’s
officers, directors, beneficial owners of more than 5% of
outstanding shares of Common Stock or outstanding shares of a class
of voting preferred stock, or their family members, that exceeded
the lesser of (i) $120,000 or (ii) one percent (1%) of the average
of the Company’s total assets at year-end for the last two fiscal
years.
On December 18, 2020, the Company closed concurrent registered
direct and private placement offerings (collectively, the “December
Offering”) whereby the Company issued to Anson Investments Master
Fund LP (“Anson”) and Alpha Capital Anstalt (“Alpha”) in a
registered direct offering (i) an aggregate of 1,515,151 shares of
Series D Convertible Preferred Stock, par value $0.0001 per share,
of the Company (the “Series D Preferred Stock”), convertible into
an aggregate of up to 303,030 shares of Common Stock, and (ii)
warrants exercisable for up to 100,000 shares of Common Stock (the
“December Registered Direct Warrants”) at an exercise price of
$4.90 per share, subject to customary adjustments thereunder, which
were exercisable immediately upon issuance and have five year
terms. Such registered direct offering closed concurrently with the
closing of a private placement transaction, pursuant to which the
Company issued to such investors warrants to purchase up to an
aggregate of 505,060 shares of Common Stock at an exercise price of
$4.90 per share, subject to customary adjustments thereunder, which
were initially exercisable for five and one-half years commencing
six months after their issuance date and which were subsequently
modified to be immediately exercisable for five years commencing on
their issuance date. The holders of such shares of Series D
Preferred Stock had the right to vote with shares of Common Stock,
on an as-converted to Common Stock basis, with respect to all
matters on which the holders of Common Stock are entitled to vote,
subject to any applicable beneficial ownership limitations. On
February 1, 2021, the Company filed a certificate with the
Secretary of State of the State of Delaware eliminating and
canceling all designations, rights, preferences and limitations of
the Series D Preferred Stock, and all shares of Series D Preferred
Stock resumed the status of authorized but unissued shares of
preferred stock of the Company. The December Offering resulted in
gross proceeds of $2 million, before deducting any offering
expenses, and such investors participated equally with respect to
the consideration paid and the number of securities received
pursuant to the December Offering.
On January 8, 2021, the Company entered into a warrant amendment
and exercise agreement (the “Amendment Agreement”) with Anson with
respect to a Common Stock purchase warrant, dated April 4, 2019,
previously issued by the Company to Anson (the “Original Warrant”).
In consideration for each exercise of the Original Warrant that
occurred within 45 calendar days of the date of the Amendment
Agreement, in addition to the issuance of shares of Common Stock
upon such exercise, the Company agreed to deliver to Anson a new
warrant to purchase a number of shares of Common Stock equal to the
number of shares of Common Stock issued upon Anson’s exercise of
the Original Warrant, at an exercise price of $15.25 per share (the
“New Warrant”). Anson held an Original Warrant exercisable for up
to 246,914 shares of Common Stock and fully exercised such warrant,
resulting in aggregate proceeds to the Company of $3,765,432 the
issuance of New Warrants exercisable for an equivalent number of
shares of Common Stock.
On February 2, 2021, the Company closed concurrent registered
direct and private placement offerings (collectively, the “February
Offering”) pursuant to a securities purchase agreement, dated as of
January 29, 2021, in which the Company issued to Anson and Alpha an
aggregate of 1,476,016 shares of Series E Preferred Stock and
Common Stock purchase warrants exercisable for an aggregate of
295,203 shares of Common Stock. Such warrants were exercisable at
an exercise price of $12.30 per share, subject to customary
adjustments thereunder, which were exercisable immediately upon
issuance and had five-year terms. The holders of such shares of
Series E Preferred Stock had the right to vote with shares of
Common Stock, on an as-converted to Common Stock basis, with
respect to all matters on which the holders of Common Stock are
entitled to vote, subject to any applicable beneficial ownership
limitations. On August 16, 2021, the Company filed a certificate
with the Secretary of State of the State of Delaware eliminating
and canceling all designations, rights, preferences and limitations
of the Series E Preferred Stock, and all shares of Series E
Preferred Stock resumed the status of authorized but unissued
shares of preferred stock of the Company. The February Offering
resulted in gross proceeds to the Company of approximately $4
million, before deducting any offering expenses, and such investors
participated equally with respect to the consideration paid and the
number of securities received pursuant to the February
Offering.
Effective August 11, 2021, the Company entered into a settlement
agreement (the “Settlement Agreement”) with GDMSAI, the holder of
all outstanding shares of Series C Preferred Stock, to settle an
ongoing dispute between the parties (the “Dispute”) with regard to
the payment of dividends under the Company’s Series C Certificate
of Designations. Pursuant to the Settlement Agreement, the Company
agreed to pay $540,000 of dividends plus $55,000 of pre-judgement
interest, but no post-judgement interest. The settlement was
payable in tranches and the final payment was made by the Company
to such holder in November 2021.
On August 16, 2021, the Company closed a private placement offering
on August 16, 2021 (the “August Offering”), which was conducted
pursuant to a securities purchase agreement, dated as of August 13,
2021, whereby the Company issued to Anson, Alpha and 3i, LP in a
private placement offering (i) an aggregate of 1,333,333 shares of
Series F Preferred Stock and (ii) warrants exercisable for up to
666,667 shares of Common Stock at an exercise price of $0.78 per
share, subject to customary adjustments thereunder, which are
exercisable six months from the date of issuance and have terms of
five and a half years. In connection with the August Offering,
Anson received 666,666 shares of Series F Preferred Stock and
warrants exercisable for up to 333,333 shares of Common Stock in
consideration for approximately $2 million, each of Alpha and 3i,
LP received approximately equivalent allocations of the remaining
shares of Series F Preferred Stock and warrants issuable pursuant
to such offering in consideration for approximately $1 million
each. The holders of such shares of Series F Preferred Stock had
the right to vote with shares of Common Stock, on an as-converted
to Common Stock basis, with respect to all matters on which the
holders of Common Stock are entitled to vote, subject to any
applicable beneficial ownership limitations. The August Offering
resulted in gross proceeds to the Company of approximately $4
million, before deducting any offering expenses.
On September 15, 2021, the Company closed an underwritten public
offering (the “September Offering”) pursuant to which the Company
issued an aggregate of (i) 2,788,750 shares of Common Stock,
including 363,750 shares of Common Stock issued upon the full
exercise of the underwriters’ over-allotment option 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,
subject to certain adjustments, including warrants issued upon the
full exercise of the underwriter’s over-allotment option to
purchase up to an additional 363,750 shares of Common Stock, at a
combined public offering price of $4.50 per share and accompanying
warrant. The September Offering resulted in gross proceeds,
inclusive of proceeds from the full exercise of the over-allotment
option, of approximately $12.5 million, before deducting
underwriting discounts and commissions of 7% of the gross proceeds
(or 3.5% of the gross proceeds in the case of certain identified
investors) and estimated offering expenses. The investors in the
September Offering included, among others, Anson, Alpha, 3i, LP and
Armistice Capital Master Fund, Ltd., which had interests in such
offering equal to approximately 30%, 17%, 8% and 16%
respectively.
Director
Independence
As the Company’s Common Stock is listed on the Nasdaq Capital
Market, the Company’s determination of independence of its
directors is made using the definition of “independent director”
contained in Rule 5605(a)(2) of the Nasdaq Rules. The Board
determines whether directors have a direct or indirect material
relationship with us. In making independence determinations for the
Company’s directors, the Board observes criteria set forth by the
Nasdaq Rules and reviews whether a director has a relationship with
the Company that would impair such director’s independence. Based
on this review, our Board has determined that General Gust, Mr.
Sharkey, Dr. Curtis, Mr. Pettitt and Ms. Torres currently qualify
as independent directors under the Nasdaq Rules. Our Board has
concluded that none of these directors possessed or currently
possesses any relationship that could impair his, her or their
judgment in connection with his, her or their duties and
responsibilities as a director or that could otherwise be a direct
or indirect material relationship under applicable Nasdaq
Rules.
Item
14. Principal Accountant Fees and Services.
Audit
Fees
The
Company engaged Marcum LLP as the Company’s independent registered
public accounting firm. The aggregate audit fees to be billed for
professional services rendered for the review of our financial
statements for the three quarters and the audit for the year ended
December 31, 2021, are expected to be approximately $146,000. The
aggregate audit fees billed for professional services rendered for
the review of our financial statements for the three quarters
reviews and the audit for the year ended December 31, 2020 were
approximately $165,000.
Audit
Related Fees
The
Company incurred additional fees of $67,800 rendered by our
principal financial accountant for the S-1, S-3 and comfort letter
for the year ended December 31, 2021. There were no fees for audit
related services for the year ended December 31, 2020.
Tax
Fees
For
the Company’s fiscal years ended December 31, 2021 and 2020, Marcum
LLP did not provide any professional services for tax compliance,
tax advice, and tax planning.
All
Other Fees
The Company did not incur any other fees related to services
rendered by our principal accountants for the fiscal years ended
December 31, 2021 and 2020.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
Our
Audit Committee pre-approves all audit and non-audit services
provided by the independent auditors prior to the engagement of the
independent auditors with respect to such services. The chairman of
our Audit Committee has been delegated the authority by such
committee to pre-approve interim services by the independent
auditors other than the annual audit. The chairman of our Audit
Committee must report all such pre-approvals to the entire Audit
Committee at the next committee meeting.
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
|
(a) |
The
following documents are filed as part of this Report: |
|
|
(1) |
Financial
Statements: |
The
audited balance sheets of the Company as of December 31, 2021 and
December 31, 2020, the related statements of operations, changes in
stockholders’ equity and cash flows for the years then ended, the
footnotes thereto, and the report of Marcum LLP, an independent
registered public accounting firm, are filed herewith.
None. Financial statement schedules have been omitted because they
are either not applicable or the required information is included
in the financial statements or notes thereto.
The exhibits listed in the accompanying index to exhibits are filed
with this Report or incorporated by reference into this Item
15(a)(3) as part of this Report.
|
(b) |
The
following are exhibits to this Report and, if incorporated by
reference, we have indicated the document previously filed with the
SEC in which the exhibit was included. |
Certain
of the agreements filed as exhibits to this Report contain
representations and warranties by the parties to the agreements
that have been made solely for the benefit of such parties. These
representations and warranties:
|
|
● |
May
have been qualified by disclosures that were made to the other
parties in connection with the negotiation of the agreements, which
disclosures are not necessarily reflected in the
agreements; |
|
|
● |
May
apply standards of materiality that differ from those of a
reasonable investor; and |
|
|
● |
Were
made only as of specified dates contained in the agreements and are
subject to subsequent developments and changed
circumstances. |
Accordingly,
these representations and warranties may not describe the actual
state of affairs as of the date that these representations and
warranties were made or at any other time. Investors should not
rely on them as statements of fact.
|
Exhibit No. |
|
Description of
Exhibit |
| 2.1 |
|
Agreement and Plan of Merger, dated
as of May 19, 2017, by and among the Company, Fit Merger Sub, Inc.,
Fit Pay, Inc. and Michael Orlando (7) |
| 3.1(i)(a) |
|
Certificate of Incorporation, as
amended (1) |
| 3.1(i)(b) |
|
Certificate of Amendment to
Certificate of Incorporation (6) |
| 3.1(i)(c) |
|
Certificate of Amendment to
Certificate of Incorporation (26) |
| 3.1(i)(d) |
|
Certificate of Amendment to
Certificate of Incorporation (27) |
| 3.1(i)(e) |
|
Certificate of Designations of Series A Convertible Preferred Stock
(3) |
| 3.1(i)(f) |
|
Amendment of Certificate of
Designations of Series A Convertible Preferred Stock
(4) |
| 3.1(i)(g) |
|
Second Certificate of Amendment of
Designations of Series A Convertible Preferred Stock
(5) |
| 3.1(i)(h) |
|
Certificate of Designations for
Series B Convertible Preferred Stock (5) |
| 3.1(i)(i) |
|
Certificate of Designations for
Series C Non-Convertible Preferred Stock (7) |
| 3.1(i)(j) |
|
Certificate of Amendment to the
Certificate of Designations of Series C Non-Convertible Voting
Preferred Stock (26) |
| 3.1(i)(k) |
|
Certificate of Designations for
Series D Convertible Preferred Stock (14) |
| 3.1(i)(l) |
|
Amended and Restated Certificate of
Designations for Series D Convertible Preferred Stock
(14) |
| 3.1(i)(m) |
|
Form of Elimination of Amended and
Restated Certificate of Designations for Series D Convertible
Preferred Stock (15) |
| 3.1(i)(n) |
|
Certificate of Designations for
Series E Convertible Preferred Stock (15) |
| 3.1(i)(o) |
|
Elimination of Certificate of
Designations for Series E Convertible Preferred Stock
(24) |
| 3.1(i)(p) |
|
Form of Certificate of Designations,
Preferences and Rights of Series F Convertible Preferred Stock
(23) |
| 3.1(ii) |
|
By-laws (1) |
| 4.1* |
|
Description of the Registrant’s
Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934 |
| 4.2 |
|
Form of Pre-Funded Warrant for July
2017 Public Offering (8) |
| 4.3 |
|
Form of Purchase Warrant for July
2017 Private Placement (8) |
| 4.4 |
|
Form of July 2017 Exchange Note
(9) |
| 4.5 |
|
Form of Warrant for July 2017
Exchange (9) |
| 4.6 |
|
Form of Warrant for November 2017
Private Placement (10) |
| 4.7 |
|
Form of Warrant to Sagard Credit
Partners, LP (11) |
| 4.8 |
|
Form of September 2018 New Warrant
(13) |
| 4.9 |
|
Form of Warrant Amendment and Exercise Agreement
(13) |
| 4.10 |
|
Form of Pre-Funded Warrant for July
2020 Private Placement (16) |
| 4.11 |
|
Form of Registered Warrant for July
2020 Private Placement (16) |
| 4.12 |
|
Form of Unregistered Warrant for July
2020 Private Placement (16) |
| 4.13 |
|
Form of Registered Warrant for
December 2020 Private Placement (14) |
| 4.14 |
|
Form of Unregistered Warrant for
December 2020 Private Placement (14) |
| 4.15 |
|
Form of New Warrant
(17) |
| 4.16* |
|
Form of Series F Convertible
Preferred Stock Certificate |
| 4.17 |
|
Form of Registered Warrant for
February 2021 Private Placement (15) |
| 4.18 |
|
Form of Unregistered Warrant for
February 2021 Private Placement (15) |
| 4.19 |
|
Form of Unregistered Warrant for
August 2021 Private Placement (23) |
| 4.20 |
|
Form of Warrant for September 2021
Public Offering (25) |
| 10.1† |
|
2013 Long Term Incentive Plan
(1) |
| 10.2† |
|
Forms of Agreement Under 2013 Long
Term Incentive Plan (1) |
| 10.3† |
|
2017 Stock Incentive Plan
(12) |
| 10.4 |
|
Form of Securities Purchase Agreement
for July 2020 Offering (16) |
| 10.5 |
|
Form of Securities Purchase Agreement
for December 2020 Offering (14) |
| 10.6 |
|
Form of Warrant Amendment and
Exercise Agreement, dated January 8, 2021 (17) |
| 10.7 |
|
Form of Securities Purchase Agreement
for February 2021 Offering (15) |
| 10.8 |
|
Form of Securities Purchase Agreement
for August 2021 Private Placement (23) |
| 10.9 |
|
Form of Voting Agreement by and
between the Company and certain investors in the September 2021
Public Offering (25) |
| 10.10 |
|
Lease Agreement, dated June 2, 2020,
by and between LogicMark LLC and Moorman Properties, LLC
(19) |
| 10.11 |
|
Settlement Agreement, dated August
11, 2021, by and between the Company and Giesecke+Devrient Mobile
Security America, Inc. (21) |
| 10.12† |
|
Employment Agreement, dated as of
January 8, 2021, by and between the Company and Vincent S. Miceli
(18) |
| 10.13 |
|
Letter Agreement, effective as of
August 1, 2021, by and between the Company and Vincent S. Miceli.
(22) |
| 10.14† |
|
Employment Agreement, dated as of
June 8, 2021, by and between the Company and Chai-Lin Simmons
(20) |
| 10.15 |
|
Agreement, dated as of July 15, 2021,
by and between the Company and FLG Partners, LLC
(22) |
| 10.16* |
|
First Amendment to Agreement,
dated as of February 15, 2022, by and between the Company and FLG
Partners, LLC |
| 14.1 |
|
Code of Ethics (2) |
| 23.1* |
|
Consent of Marcum
LLP |
| 31.1* |
|
Certification of Principal
Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
| 31.2* |
|
Certification of Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
| 32.1* |
|
Certification of Principal
Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
| 32.2* |
|
Certification of Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
| 101.INS |
|
Inline XBRL Instance
Document. |
| 101.SCH |
|
Inline XBRL Taxonomy Extension
Schema Document. |
| 101.CAL |
|
Inline XBRL Taxonomy Extension
Calculation Linkbase Document. |
| 101.DEF |
|
Inline XBRL Taxonomy Extension
Definition Linkbase Document. |
| 101.LAB |
|
Inline XBRL Taxonomy Extension
Label Linkbase Document. |
| 101.PRE |
|
Inline XBRL Taxonomy Extension
Presentation Linkbase Document. |
| 104 |
|
Cover Page Interactive Data File.
(formatted as Inline XBRL and contained in Exhibit
101). |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are
being furnished and not filed.
| * |
Filed
or furnished herewith, as applicable. |
| † |
Management contract or compensatory plan or
arrangement. |
| (1) |
Filed
as an Exhibit to the Company’s Registration Statement on Form S-1
(File No. 333-186331) with the SEC on January 31, 2013. |
| (2) |
Filed
as an Exhibit to the Company’s Annual Report on Form 10-K with the
SEC on February 25, 2014. |
| (3) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on April 12, 2016. |
| (4) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on July 7, 2016. |
| (5) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on July 27, 2016. |
| (6) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on September 12, 2016. |
| (7) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on May 30, 2017. |
| (8) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on July 10, 2017. |
| (9) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on July 20, 2017. |
| (10) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on November 9, 2017. |
| (11) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on May 30, 2018. |
| (12) |
Filed
as an Exhibit to the Company’s Registration Statement on Form S-1
(File No. 333-226116) with the SEC on July 10, 2018. |
| (13) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on September 20, 2018. |
| (14) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on December 18, 2020. |
| (15) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on February 1, 2021. |
| (16) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K/A with
the SEC on July 13, 2020. |
| (17) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on January 8, 2021. |
| (18) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on January 14, 2021. |
| (19) |
Filed
as an Exhibit to the Company’s Annual Report on Form 10-K with the
SEC on April 15, 2021. |
| (20) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on June 17, 2021. |
| (21) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on August 13, 2021. |
| (22) |
Filed
as an Exhibit to the Company’s Quarterly Report on Form 10-Q with
the SEC on August 16, 2021. |
| (23) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on August 17, 2021. |
| (24) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on August 20, 2021. |
| (25) |
Filed
as an Exhibit to the Company’s Registration Statement on Form S-1/A
(File No. 333-259105) with the SEC on September 14,
2021. |
| (26) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on October 15, 2021. |
| (27) |
Filed
as an Exhibit to the Company’s Current Report on Form 8-K with the
SEC on March 2, 2022. |
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
| |
|
LogicMark,
Inc. |
| |
|
|
| Date: |
April 15, 2022 |
By: |
/s/ Chia-Lin Simmons |
| |
|
|
Chia-Lin Simmons |
| |
|
|
Chief
Executive Officer |
| |
|
|
(Principal Executive Officer) |
| Date: |
April 15, 2022 |
By: |
/s/ Mark Archer |
| |
|
|
Mark
Archer |
| |
|
|
Chief
Financial Officer |
| |
|
|
(Principal Financial Officer and
Principal Accounting Officer)
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
| Date: |
April
15, 2022 |
By: |
/s/
Chia-Lin Simmons |
| |
|
|
Chia-Lin
Simmons |
| |
|
|
Director |
| |
|
|
|
| Date: |
April
15, 2022 |
By: |
/s/
Major General David. R. Gust. USA, Ret |
| |
|
|
Major
General David. R. Gust. USA, Ret |
| |
|
|
Director |
| |
|
|
|
| Date: |
April
15, 2022 |
By: |
/s/
Michael J. D’Almada-Remedios, PhD |
| |
|
|
Michael
J. D’Almada-Remedios, PhD |
| |
|
|
Director |
| |
|
|
|
| Date: |
April
15, 2022 |
By: |
/s/
Daniel P. Sharkey |
| |
|
|
Daniel
P. Sharkey |
| |
|
|
Director |
| |
|
|
|
| Date: |
April
15, 2022 |
By: |
/s/
Robert A. Curtis, Pharm D. |
| |
|
|
Robert
A. Curtis, Pharm D. |
| |
|
|
Director |
| |
|
|
|
| Date: |
April
15, 2022 |
By: |
/s/ Sherice
R. Torres |
| |
|
|
Sherice
R. Torres |
| |
|
|
Director |
| |
|
|
|
| Date: |
April
15, 2022 |
By: |
/s/
John Pettitt |
| |
|
|
John
Pettitt |
| |
|
|
Director |
LogicMark,
Inc.
CONTENTS
Report
of Independent Registered Public Accounting Firm
To
the Shareholders and Board of Directors of
LogicMark,
Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of LogicMark, Inc.
(the “Company”) as of December 31, 2021 and 2020, the related
statements of operations, changes in stockholders’ equity
and cash flows for each of the two years in the period ended
December 31, 2021, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the
results of its operations and its cash flows for each of the two
years in the period ended December 31, 2021, in conformity with
accounting principles generally accepted in the United States of
America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical
Audit Matters
The
critical audit matters communicated are matters arising from the
current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined that
there are no critical audit matters.
/s/ Marcum LLP
Marcum
LLP
We
have served as the Company’s auditor since 2016.
Costa
Mesa, CA
April 15, 2022
LogicMark,
Inc.
BALANCE
SHEETS
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| Assets |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
| Cash |
|
$ |
12,044,415 |
|
|
$ |
4,387,416 |
|
| Restricted cash |
|
|
210,131 |
|
|
|
150,130 |
|
| Accounts receivable, net |
|
|
98,749 |
|
|
|
133,719 |
|
| Inventory, net |
|
|
1,237,280 |
|
|
|
767,351 |
|
| Prepaid
expenses and other current assets |
|
|
849,190 |
|
|
|
455,553 |
|
| Total
Current Assets |
|
|
14,439,765 |
|
|
|
5,894,169 |
|
| |
|
|
|
|
|
|
|
|
| Property and
equipment: |
|
|
|
|
|
|
|
|
| Equipment |
|
|
410,444 |
|
|
|
554,130 |
|
| Furniture and fixtures |
|
|
35,761 |
|
|
|
68,126 |
|
| Tooling and
molds |
|
|
9,427 |
|
|
|
304,089 |
|
| |
|
|
455,632 |
|
|
|
926,345 |
|
| Accumulated
depreciation |
|
|
(455,632 |
) |
|
|
(897,137 |
) |
| Property and equipment, net |
|
|
-
|
|
|
|
29,208 |
|
| Right-of-use assets |
|
|
248,309 |
|
|
|
306,786 |
|
| Goodwill |
|
|
10,958,662 |
|
|
|
15,479,662 |
|
|
Other intangible assets, net of accumulated amortization of
$3,366,105 and $2,604,290, respectively |
|
|
4,476,647 |
|
|
|
5,238,462 |
|
| |
|
|
|
|
|
|
|
|
| Total
Assets |
|
$ |
30,123,383 |
|
|
$ |
26,948,287 |
|
| |
|
|
|
|
|
|
|
|
| Liabilities,
Series C Preferred Stock and Stockholders’ Equity |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
Liabilities |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
492,431 |
|
|
$ |
2,748,814 |
|
| Accrued expenses |
|
|
849,285 |
|
|
|
1,315,260 |
|
| Short-term debt |
|
|
-
|
|
|
|
346,390 |
|
| Term loan
facility - current |
|
|
-
|
|
|
|
2,062,500 |
|
| Total
Current Liabilities |
|
|
1,341,716 |
|
|
|
6,472,964 |
|
| |
|
|
|
|
|
|
|
|
|
Term loan facility, net of debt discount of $137,855 and deferred
debt issuance costs of $713,119 |
|
|
-
|
|
|
|
8,182,403 |
|
| Other long-term
liabilities |
|
|
385,196 |
|
|
|
1,326,409 |
|
| Total
Liabilities |
|
|
1,726,912 |
|
|
|
15,981,776 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and
Contingencies |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Series C Preferred
Stock |
|
|
|
|
|
|
|
|
|
Series C Preferred Stock, par value $0.0001 per share: 2,000 shares
designated; 200 shares issued and outstanding as of December 31,
2021 and 2020 |
|
|
1,807,300 |
|
|
|
1,807,300 |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’
Equity |
|
|
|
|
|
|
|
|
| Preferred Stock, par value $0.0001 per share: 10,000,000 shares
authorized |
|
|
-
|
|
|
|
-
|
|
|
Series F Preferred Stock, par value $0.0001 per
share: 1,333,333 shares designated; 173,333 shares issued and
outstanding as of December 31, 2021, aggregate liquidation
preference of $520,000 as of December 31, 2021
|
|
|
520,000 |
|
|
|
-
|
|
| Common Stock, par
value $0.0001 per share: 100,000,000 shares authorized; 9,163,039
and 4,061,997 issued and outstanding as of December 31, 2021 and
2020 |
|
|
917 |
|
|
|
407 |
|
| Additional paid-in capital |
|
|
104,725,115 |
|
|
|
74,586,801 |
|
| Accumulated
deficit |
|
|
(78,656,861 |
) |
|
|
(65,427,997 |
) |
| |
|
|
|
|
|
|
|
|
| Total
Stockholders’ Equity |
|
|
26,589,171 |
|
|
|
9,159,211 |
|
| |
|
|
|
|
|
|
|
|
| Total
Liabilities, Series C Preferred Stock and Stockholders’ Equity |
|
$ |
30,123,383 |
|
|
$ |
26,948,287 |
|
The
accompanying notes are an integral part of these financial
statements.
LogicMark,
Inc.
STATEMENTS OF OPERATIONS
| |
|
For
the Years Ended |
|
| |
|
December
31, |
|
| |
|
2021 |
|
|
2020 |
|
| Revenues |
|
$ |
10,022,115 |
|
|
$ |
11,442,803 |
|
| Costs
of goods sold |
|
|
4,341,611 |
|
|
|
3,766,555 |
|
| Gross
Profit |
|
|
5,680,504 |
|
|
|
7,676,248 |
|
| |
|
|
|
|
|
|
|
|
| Operating
Expenses |
|
|
|
|
|
|
|
|
| General
and administrative |
|
|
6,703,106 |
|
|
|
5,280,951 |
|
| Selling
and marketing |
|
|
1,238,195 |
|
|
|
1,872,441 |
|
| Research
and development |
|
|
765,659 |
|
|
|
1,108,934 |
|
| Goodwill
impairment |
|
|
4,521,000 |
|
|
|
-
|
|
| Total
Operating Expenses |
|
|
13,227,960 |
|
|
|
8,262,326 |
|
| |
|
|
|
|
|
|
|
|
| Operating
Loss |
|
|
(7,547,456 |
) |
|
|
(586,078 |
) |
| |
|
|
|
|
|
|
|
|
| Other
Income and (Expense) |
|
|
|
|
|
|
|
|
| Interest
expense |
|
|
(1,423,611 |
) |
|
|
(2,254,020 |
) |
| Forgiveness
of PPP loan and accrued interest |
|
|
349,176 |
|
|
|
-
|
|
| Warrant
modification expense |
|
|
(2,881,729 |
) |
|
|
-
|
|
| Total
Other Expense, Net |
|
|
(3,956,164 |
) |
|
|
(2,254,020 |
) |
| |
|
|
|
|
|
|
|
|
| Loss
before Income Taxes |
|
|
(11,503,620 |
) |
|
|
(2,840,098 |
) |
| Income
tax (expense) benefit |
|
|
(204,269 |
) |
|
|
(24,886 |
) |
| Net
Loss |
|
|
(11,707,889 |
) |
|
|
(2,864,984 |
) |
|
Preferred
stock dividends, including deemed dividend on Series E convertible
preferred stock in 2021 and Series D convertible preferred stock in
2020 |
|
|
(2,341,391 |
) |
|
|
(858,922 |
) |
| |
|
|
|
|
|
|
|
|
| Net
Loss Applicable to Common Stockholders |
|
|
(14,049,280 |
) |
|
|
(3,723,906 |
) |
| |
|
|
|
|
|
|
|
|
| Net
Loss Per Share - Basic and Diluted |
|
|
(2.23 |
) |
|
|
(1.14 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted
Average Number of Common Shares Outstanding - Basic and
Diluted |
|
|
6,307,907 |
|
|
|
3,258,953 |
|
The
accompanying notes are an integral part of these financial
statements.
LogicMark,
Inc.
CHANGES
IN STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
| |
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|
Balance - January 1, 2020 |
|
|
-
|
|
|
|
-
|
|
|
|
3,004,885 |
|
|
$ |
301 |
|
|
$ |
68,518,379 |
|
|
$
|
(61,804,091 |
) |
|
$
|
6,714,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series D preferred stock, net |
|
|
1,515,152 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series D preferred stock to common stock |
|
|
(1,515,152 |
) |
|
|
(2,000,000 |
) |
|
|
303,030 |
|
|
|
30 |
|
|
|
1,999,970 |
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend related to beneficial conversion feature of Series
D preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
758,922 |
|
|
|
(758,922 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants for cash |
|
|
|
|
|
|
|
|
|
|
451,348 |
|
|
|
45 |
|
|
|
1,864,483 |
|
|
|
|
|
|
|
1,864,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock purchase warrants for cash |
|
|
|
|
|
|
|
|
|
|
257,972 |
|
|
|
26 |
|
|
|
1,279,833 |
|
|
|
|
|
|
|
1,279,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in connection with the management incentive plan for
2017, 2018 and 2019 |
|
|
|
|
|
|
|
|
|
|
44,762 |
|
|
|
5 |
|
|
|
200,790 |
|
|
|
|
|
|
|
200,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees incurred in connection with equity offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,576 |
) |
|
|
|
|
|
|
(95,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C preferred stock dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
) |
|
|
|
|
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,864,984
|
) |
|
|
(2,864,984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2020 |
|
|
-
|
|
|
|
-
|
|
|
|
4,061,997 |
|
|
|
407 |
|
|
|
74,586,801 |
|
|
|
(65,427,997 |
) |
|
|
9,159,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock and stock options for services |
|
|
|
|
|
|
|
|
|
|
266,560 |
|
|
|
27 |
|
|
|
648,930 |
|
|
|
|
|
|
|
648,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series E preferred stock, net |
|
|
1,476,016 |
|
|
|
4,000,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series E preferred stock to common stock |
|
|
(1,476,016 |
) |
|
|
(4,000,003 |
) |
|
|
295,203 |
|
|
|
29 |
|
|
|
3,999,974 |
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend related to beneficial conversion feature of Series
E preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,480,801 |
|
|
|
(1,480,801 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series F preferred stock, net |
|
|
1,333,333 |
|
|
|
3,999,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,999,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series F preferred stock to common stock |
|
|
(1,160,000 |
) |
|
|
(3,479,999 |
) |
|
|
656,604 |
|
|
|
66 |
|
|
|
3,479,933 |
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock purchase warrants for cash |
|
|
|
|
|
|
|
|
|
|
578,374 |
|
|
|
58 |
|
|
|
6,835,007 |
|
|
|
|
|
|
|
6,835,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock purchase warrants on a cashless basis |
|
|
|
|
|
|
|
|
|
|
423,933 |
|
|
|
42 |
|
|
|
(42 |
) |
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant modification expense recorded in connection with the
issuance of replacement warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,881,729 |
|
|
|
|
|
|
|
2,881,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in connection with the management incentive plan for
2018 and 2019 |
|
|
|
|
|
|
|
|
|
|
13,283 |
|
|
|
1 |
|
|
|
80,455 |
|
|
|
|
|
|
|
80,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock and warrants pursuant to a registration
statement on Form S-1 |
|
|
|
|
|
|
|
|
|
|
2,788,750 |
|
|
|
279 |
|
|
|
11,834,443 |
|
|
|
|
|
|
|
11,834,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees incurred in connection with equity offerings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(570,492 |
) |
|
|
|
|
|
|
(570,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional shares issued in the 1-for-10 stock split |
|
|
|
|
|
|
|
|
|
|
24,640 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares
issued as stock compensation |
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
5 |
|
|
|
287,995 |
|
|
|
|
|
|
|
288,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for dividends |
|
|
|
|
|
|
|
|
|
|
3,695 |
|
|
|
0 |
|
|
|
19,584 |
|
|
|
(19,584 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series F preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,590 |
) |
|
|
(20,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(840,000
|
) |
|
|
|
|
|
|
(840,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,707,889
|
) |
|
|
(11,707,889 |
) |
|
Balance - December 31, 2021 |
|
|
173,333 |
|
|
$ |
520,000 |
|
|
|
9,163,039 |
|
|
$ |
917 |
|
|
$ |
104,725,115 |
|
|
$ |
(78,656,861 |
) |
|
$ |
26,589,171 |
|
The
accompanying notes are an integral part of these financial
statements.
LogicMark,
Inc.
STATEMENTS
OF CASH FLOWS
| |
|
For
the Years Ended |
|
| |
|
December
31, |
|
| |
|
2021 |
|
|
2020 |
|
| Cash
Flows from Operating Activities |
|
|
|
|
|
|
| Net
loss |
|
$ |
(11,707,889 |
) |
|
$ |
(2,864,984 |
) |
| Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
| Depreciation |
|
|
29,208 |
|
|
|
65,847 |
|
| Stock
based compensation |
|
|
936,957 |
|
|
|
160,000 |
|
| Amortization
of debt discount |
|
|
137,855 |
|
|
|
106,215 |
|
| Amortization
of intangible assets |
|
|
761,815 |
|
|
|
761,815 |
|
| Amortization
of deferred debt issuance costs |
|
|
713,119 |
|
|
|
549,446 |
|
| Non-cash
charge for modification of warrant terms |
|
|
2,881,729 |
|
|
|
-
|
|
| Goodwill
impairment |
|
|
4,521,000 |
|
|
|
-
|
|
| Forgiveness
of PPP loans and accrued interest |
|
|
(349,176 |
) |
|
|
-
|
|
| Deferred
taxes |
|
|
195,576 |
|
|
|
-
|
|
| Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
34,970 |
|
|
|
(95,193 |
) |
| Inventory |
|
|
(469,929 |
) |
|
|
535,928 |
|
| Prepaid
expenses and other current assets |
|
|
(393,638 |
) |
|
|
(170,058 |
) |
| Accounts
payable |
|
|
(2,256,383 |
) |
|
|
658,245 |
|
| Accrued
expenses |
|
|
(949,135 |
) |
|
|
(20,220 |
) |
| Total
Adjustments |
|
|
5,793,969 |
|
|
|
2,552,025 |
|
| Net
Cash Used in Operating Activities |
|
|
(5,913,920 |
) |
|
|
(312,959 |
) |
| |
|
|
|
|
|
|
|
|
| Net
Cash Provided by Investing Activities |
|
|
-
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
| Cash
flows from Financing Activities |
|
|
|
|
|
|
|
|
| Proceeds
from sale of common stock and warrants |
|
|
11,834,722 |
|
|
|
1,279,859 |
|
| Proceeds
from exercise of common stock warrants |
|
|
6,835,065 |
|
|
|
1,864,528 |
|
| Proceeds
received in connection with issuance of Series D preferred stock,
net |
|
|
-
|
|
|
|
2,000,000 |
|
| Proceeds
received in connection with issuance of Series E preferred stock,
net |
|
|
4,000,003 |
|
|
|
-
|
|
| Proceeds
received in connection with issuance of Series F preferred stock,
net |
|
|
3,999,999 |
|
|
|
-
|
|
| Term
loan repayment |
|
|
(11,095,877 |
) |
|
|
(2,212,500 |
) |
| Proceeds
from PPP loan |
|
|
-
|
|
|
|
346,390 |
|
| Fees
paid in connection with equity offerings |
|
|
(570,492 |
) |
|
|
(65,152 |
) |
| Preferred
stock dividends |
|
|
(300,000 |
) |
|
|
(100,000 |
) |
| Termination
fee upon early payment of term loan |
|
|
(1,072,500 |
) |
|
|
-
|
|
| Net
Cash Provided by Financing Activities |
|
|
13,630,920 |
|
|
|
3,113,125 |
|
| Net
Increase in Cash and Restricted Cash |
|
|
7,717,000 |
|
|
|
2,800,166 |
|
| Cash
and Restricted Cash - Beginning of Year |
|
|
4,537,546 |
|
|
|
1,737,380 |
|
| Cash
and Restricted Cash - End of Year |
|
$ |
12,254,546 |
|
|
$ |
4,537,546 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
| Cash
paid during the periods for: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
617,336 |
|
|
$ |
1,619,151 |
|
| Taxes |
|
$ |
93,313 |
|
|
$ |
10,014 |
|
| Non-cash
investing and financing activities: |
|
|
|
|
|
|
|
|
| Accrued
fees incurred in connection with equity offerings |
|
$ |
- |
|
|
$ |
30,424 |
|
| Accrued
preferred stock dividends |
|
$ |
94,933 |
|
|
$ |
25,000 |
|
| Common
stock issued in connection with management incentive
plans |
|
$ |
80,456 |
|
|
$ |
200,794 |
|
| Common
stock issued for dividends |
|
$ |
19,584 |
|
|
|
-
|
|
| Issuance
of common stock in connection with conversion of Series D preferred
stock |
|
|
-
|
|
|
$ |
2,000,000 |
|
| Conversion
of Series E preferred stock to common stock |
|
$ |
4,000,003 |
|
|
|
- |
|
| Conversion
of Series F preferred stock to common stock |
|
$ |
3,479,999 |
|
|
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
LogicMark,
Inc.
NOTES
TO FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
LogicMark, Inc. (“LogicMark” or the “Company”), formerly called
Nxt-ID, Inc., was incorporated in the State of Delaware on February
8, 2012. LogicMark operates its business in one segment and
provides personal emergency response systems (PERS), health
communications devices, and IoT technology that creates a connected
care platform. The Company’s devices give people the ability to
receive care at home and confidence to age independently. LogicMark
revolutionized the PERS industry by incorporating two-way voice
communication technology directly in the medical alert pendant and
providing life-saving technology at a price point everyday
consumers could afford. The PERS technologies are sold through
dealers and distributors, as well as to the United States Veterans
Health Administration.
The
Company manufactures and distributes non-monitored and monitored
personal emergency response systems sold through the United States
Department of Veterans Affairs, healthcare durable medical
equipment dealers and distributors and monitored security dealers
and distributors.
On December 30, 2021, the Company’s two operating subsidiaries,
LogicMark LLC and 3D-ID LLC, were merged into Nxt-ID, Inc. and the
separate legal existences of LogicMark LLC and 3D-ID LLC ceased. On
February 28, 2022, the name of the Company was changed to
LogicMark, Inc.
NOTE
2 - LIQUIDITY AND MANAGEMENT PLANS
The Company generated an operating loss of $7,547,456 and a net
loss of $11,707,889 for the year ended December 31, 2021. As of
December 31, 2021, the Company had cash and stockholders’ equity of
$12,044,415 and $26,589,171, respectively. At December 31, 2021,
the Company had a working capital of $13,098,049 compared to a
working capital deficiency as of December 31, 2020 of $578,795.
During the year ended December 31, 2021, the Company received
proceeds of $26,669,788 from the issuance of common stock and
warrants, and the exercise of common stock purchase warrants.
Given
the Company’s cash position at December 31, 2021 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. The Company may also raise funds
through equity or debt offerings to accelerate the execution of its
long-term strategic plan to develop and commercialize its core
products and to fulfill its product development
commitments.
NOTE
3 – BASIS OF PRESENTATION
Net
loss per share and all share data for the year December 31, 2020
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 9.
Certain
prior year amounts have been reclassified to conform to the current
year presentation.
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. At December 31,
2021 and 2020, the Company had no cash equivalents.
LogicMark,
Inc.
NOTES
TO FINANCIAL STATEMENTS
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RESTRICTED CASH
At
December 31, 2021 and 2020, the Company had restricted cash of
$210,131 and $150,130, 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. Cash and restricted
cash, as presented on the statements of cash flows, consists of
$12,044,415 and $210,131 as of December 31, 2021, respectively, and
$4,387,416 and $150,130 as of December 31, 2020.
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 to 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 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
contracts 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 years ended December 31, 2021
and 2020, 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 to 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 in the balance sheet at December 31, 2021 and
2020.
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 cost of goods sold and were $492,566 and $524,481,
respectively, for the years ended December 31, 2021 and
2020.
LogicMark,
Inc.
NOTES
TO FINANCIAL STATEMENTS
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ACCOUNTS RECEIVABLE
For
the years ended December 31, 2021 and 2020, the Company’s revenues
primarily included shipments of the LogicMark products. The
terms and conditions of these sales provide 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 is 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. At December 31, 2021 and
2020, the Company had an allowance for doubtful accounts of $5,411
and $126,733, respectively.
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
December 31, 2021, inventory was comprised of $1,237,280 in
finished goods on hand. In addition, during 2021 we wrote down
inventory totaling $314,000. As of December 31, 2020 inventory was
comprised of $199,523 in raw materials and $567,828 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 December 31, 2021 and 2020, $559,938 and
$332,475 respectively, of prepayments made for inventory is
included in prepaid expenses and other current assets on the
balance sheet.
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 furniture, fixtures and tooling is
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 |
LogicMark,
Inc.
NOTES
TO FINANCIAL STATEMENTS
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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).
As part of the annual evaluation of goodwill in 2021, the Company
determined that it is more likely than not that the carrying value
of goodwill exceeded its fair value, and therefore an impairment
write-down was required. During the year ended December 31, 2021,
the Company wrote down the carrying value of goodwill by
$4,521,000. See Note 5.
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 at December 31, 2021 and 2020.
At
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. At December 31, 2020, the other
intangible assets are comprised of patents of $2,445,709;
trademarks of $978,494; and customer relationships of $1,814,259.
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 years ended December
31, 2021 and 2020, the Company had amortization expense of $761,815
each year.
Amortization expense estimated for each of the next five fiscal
years, 2022 through 2026, is expected to be approximately $762,000
per year for the first four years, $619,000 for the fifth year, and
fully amortized in 2036.
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
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 of 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.
LogicMark,
Inc.
NOTES
TO FINANCIAL STATEMENTS
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The
Company does not use derivatives to hedge exposures to cash flow,
market or foreign currency risks. The Company evaluates all of its
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 or
not net-cash settlement of the derivative could be required within
12 months of the balance sheet date.
INCOME TAXES
The
Company uses the asset and liability method of accounting for
income taxes. Income tax expense is recognized for the amount of:
(i) taxes payable or refundable for the current year and (ii)
deferred tax consequences of temporary differences resulting from
matters that have been recognized in an entity’s financial
statements or tax returns. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
the results of operations in the period that includes the enactment
date. A valuation allowance is provided to reduce the deferred tax
assets reported if based on the weight of the available positive
and negative evidence, it is more likely than not some portion or
all of the deferred tax assets will not be realized.
ASC
Topic 740-10-30 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. ASC Topic
740-10-40 provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure,
and transition. The Company will classify as income tax expense any
interest and penalties. The Company has no material uncertain tax
positions for any of the reporting periods presented. Generally,
the tax authorities may examine tax returns for three years from
the date of filing. The Company has filed all of its tax returns
for all prior periods through December 31, 2020.
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