UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
or
For the transition period from ______________ to ______________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2801 Diode Lane
Louisville, KY 40299
(Address of principal executive offices) (Zip Code)
(502) 442-7911
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
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 filed such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ |
| ☒ | 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 is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 9, 2021, there were
NXT-ID, INC.
FORM 10-Q
TABLE OF CONTENTS
September 30, 2021
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment: | ||||||||
| Equipment | ||||||||
| Furniture and fixtures | ||||||||
| Tooling and molds | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net of amortization of $ | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Series C Preferred Stock and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Term loan facility | ||||||||
| Other short-term debt | ||||||||
| Other current liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Series C Preferred Stock, par value $0.0001 per share: 2,000 shares designated; 200 shares issued and outstanding as | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, par value $ | ||||||||
| Common Stock, par value $0.001 per share: 100,000,000 shares authorized; 8,830,239 and 4,061,997 shares | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities, Series C Preferred Stock and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | |||||||
| Cost of goods sold | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| General and administrative | ||||||||
| Selling and marketing | ||||||||
| Research and development | ||||||||
| Total Operating Expenses | ||||||||
| Operating (Loss) Income | ( | ) | ||||||
| Other Income and (Expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Forgiveness of PPP loan and accrued interest | ||||||||
| Warrant modification expense | ( | ) | ||||||
| Total Other Expense, Net | ( | ) | ( | ) | ||||
| Loss before Income Taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Preferred stock dividends, including deemed dividend on redeemable Series E convertible preferred stock | ( | ) | ( | ) | ||||
| Net Loss applicable to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Share – Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding – Basic and Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| General and administrative | ||||||||
| Selling and marketing | ||||||||
| Research and development | ||||||||
| Total Operating Expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Other Income and (Expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total Other Expense, Net | ( | ) | ( | ) | ||||
| Loss before Income Taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Preferred stock dividends | ( | ) | ( | ) | ||||
| Net Loss applicable to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Share – Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding – Basic and Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – January 1, 2021 | ( | ) | ||||||||||||||||||||||||||
| Issuance of stock options for services | ||||||||||||||||||||||||||||
| Issuance of Series E preferred stock, net | ||||||||||||||||||||||||||||
| Conversion of Series E preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Deemed dividend related to beneficial conversion feature of Series E preferred stock | ( | ) | ||||||||||||||||||||||||||
| Issuance of Series F preferred stock, net | ||||||||||||||||||||||||||||
| Conversion of Series F preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Exercise of common stock purchase warrants for cash | ||||||||||||||||||||||||||||
| Exercise of common stock purchase warrants on a cashless basis | ( | ) | ||||||||||||||||||||||||||
| Warrant modification expense recorded in connection with the issuance of replacement warrants | - | |||||||||||||||||||||||||||
| Shares issued in connection with the management incentive plan for 2018 and 2019 | ||||||||||||||||||||||||||||
| Sale of common stock and warrants pursuant to a registration statement on Form S-1 | ||||||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued as stock compensation | ||||||||||||||||||||||||||||
| Common Stock issued for dividends | ( | ) | ||||||||||||||||||||||||||
| Series F Preferred Stock Dividends | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Series C Preferred stock dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance – September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – July 1, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of stock options for services | - | - | ||||||||||||||||||||||||||
| Issuance of Series F preferred stock, net | ||||||||||||||||||||||||||||
| Conversion of Series F preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Sale of common stock and warrants pursuant to a registration statement on Form S-1 | ||||||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued as stock compensation | ||||||||||||||||||||||||||||
| Common Stock issued for dividends | ( | ) | ||||||||||||||||||||||||||
| Series F Preferred Stock Dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| Series C Preferred stock dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance – September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of stock options for services | - | - | - | |||||||||||||||||||||||||
| Issuance of common stock and warrants for cash | - | |||||||||||||||||||||||||||
| Shares issued in connection with the management incentive plan for 2017 and 2018 | ||||||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance – September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – July 1, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of stock options for services | - | - | - | |||||||||||||||||||||||||
| Issuance of common stock and warrants for cash | ||||||||||||||||||||||||||||
| Fees incurred in connection with equity offerings | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred stock dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance – September 30, 2020 | - | $ | - | 3,500,995 | $ | 3,501 | $ | 70,560,348 | $ | (63,111,997 | ) | $ | 7,451,852 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Nxt-ID, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Stock based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of deferred debt issuance costs | ||||||||
| Non-cash charge for modification of warrant terms | ||||||||
| Forgiveness of PPP loans and accrued interest | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Total Adjustments | ||||||||
| Net Cash (Used in) Provided by Operating Activities | ( | ) | ||||||
| Net Cash Used in Investing Activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Term loan repayment | ( | ) | ( | ) | ||||
| Proceeds received in connection with issuance of Series E preferred stock, net | ||||||||
| Proceeds received in connection with issuance of Series F preferred stock, net | ||||||||
| Proceeds received in connection with issuance of common stock, net | ||||||||
| Proceeds from exercise of common stock warrants | ||||||||
| Payment of closing related fees | ( | ) | ( | ) | ||||
| Proceeds from PPP loan | ||||||||
| Proceeds from sale of common stock and warrants | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase in Cash and Restricted Cash | ||||||||
| Cash and Restricted Cash – Beginning of Period | ||||||||
| Cash and Restricted Cash – End of Period | ||||||||
| $ | $ | |||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| Non-cash financing activities: | ||||||||
| Accrued fees incurred in connection with equity offerings | $ | $ | ||||||
| Common Stock issued in connection with management incentive plans | $ | $ | ||||||
| Accrued Preferred Stock dividends | $ | $ | ||||||
| Common stock issued for dividends | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
Nxt-ID, Inc. (“Nxt-ID” or the “Company”) was incorporated in the State of Delaware on February 8, 2012. The Company provides personal emergency response systems (PERS), health communications devices and IoT technology. The Company evaluates the performance of its business on, among other things, profit and loss from operations.
The Company’s wholly-owned subsidiary, LogicMark, LLC (“LogicMark”), 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, distributors, and monitored security dealers and distributors.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as of September 30, 2021, and for the nine and three months ended September 30, 2021 and 2020 have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC and on the same basis as the Company prepares its annual audited consolidated financial statements. The unaudited condensed consolidated balance sheet as of September 30, 2021 and the condensed consolidated statements of operations and changes in equity for the nine and three months ended September 30, 2021 and September 30, 2020 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and September 30, 2020 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the nine and three months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, or for any future interim period. The condensed consolidated balance sheet at December 31, 2020 has been derived from audited consolidated financial statements. However, it does not include all of the information and notes required by U.S. GAAP for complete consolidated financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2020 and the notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on April 15, 2021.
Net loss per share and all share data for the nine and three months ended September 30, 2021 and 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 7.
NOTE 2 – LIQUIDITY
The Company generated an operating loss of $
The Company used cash of $
As described in Note 6, the coronavirus could continue to significantly impact the Company’s business, which would potentially require the Company to raise funds to assist with its working capital needs.
9
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of condensed consolidated financial statements in conformity with 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 condensed consolidated 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, stockbased compensation, derivative instruments, income taxes, accounts receivable, inventories, right-of-use assets and other matters that affect the condensed consolidated financial statements and disclosures. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of Nxt-ID and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company’s revenues consist of product sales to either end customers or to distributors and its sales are recognized at a point-in-time under the core principle of recognizing revenue when control of the product transfers to the customer. The Company recognizes revenue when it ships or delivers the product from its fulfillment center to its customer, when the customer accepts and has legal title of the product, and the Company has a present right to payment for the product. For the three and nine months ended September 30, 2021 and 2020, the Company had no sales recognized over time. The Company invoices its customers at the same time that the Company’s performance obligation is satisfied. The Company generally receives customer orders with a specified delivery date and orders typically fluctuate from month-to-month based on customer demand and general business conditions.
The Company offers standard product warranty coverage which provides assurance that the Company’s products will conform to the contractually agreed-upon specifications for a limited period from the date of shipment. The Company’s warranty liabilities and related expense have not been material and were not material in the accompanying condensed consolidated financial statements as of September 30, 2021 and December 31, 2020, and for the three and nine months ended September 30, 2021 and 2020.
ACCOUNTS RECEIVABLE
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 September 30, 2021 and December 31, 2020, the Company had an allowance
for doubtful accounts of $
INVENTORY
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. As of September 30, 2021, inventory was comprised of $
10
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
OTHER INTANGIBLE ASSETS
At September 30, 2021, the other intangible assets
relating to the acquisition of LogicMark are comprised of patents of $
As of September 30, 2021, total amortization
expense estimated for the remainder of fiscal year 2021 is approximately $
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 at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instrument vests or becomes non-forfeitable. Non-employee stock-based compensation charges are amortized over the vesting period or as earned. Stock-based compensation is recorded in the same component of operating expenses as if it were paid in cash. The Company generally issues new shares of common stock to satisfy conversion and warrant exercises.
NET LOSS PER SHARE
Basic loss per share was computed using the weighted
average number of shares of common stock outstanding. Diluted loss per share includes the effect of diluted common stock equivalents.
Potentially dilutive securities from the exercise of stock options to purchase
Net loss per share for the nine and three months ended September 30, 2021 and 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 7.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
11
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – DEBT REFINANCINGS
On May 3, 2019, LogicMark, completed the closing
of a $
During the nine months ended September 30, 2021,
the Company made scheduled principal repayments totaling $
The Company incurred $
The Company also has an exit fee of $
Paycheck Protection Program
On May 6 and May 8, 2020, Nxt-ID Inc. and LogicMark,
LLC, a wholly owned subsidiary of the Company (the “Borrowers”), received loans (the “Loans”) from Bank of America,
NA in the aggregate amount of $
On March 2, 2021, the Company’s wholly-owned
subsidiary, LogicMark, LLC received notification from the Small Business Administration that repayment of its loan in the amount of $
12
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY
September 2021 Offering
On September 15, 2021,
The Shares and the Warrants were offered and sold to the public pursuant to the Company’s registration statement on Form S-1, as amended (File No. 333-259105), filed by the Company with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), which became effective on September 14, 2021.
The Warrants are not immediately exercisable,
as the Company did not have a sufficient number of shares of Common Stock to reserve for issuance pursuant to the Warrants until the date
(the “Initial Exercise Date”) that the Company’s stockholders approved an amendment to the Company’s certificate
of incorporation to effect a reverse stock split of the shares of Common Stock so that there were a sufficient number of 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 on the date that is 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 will be reset on the date of the Company’s reverse stock split to the lower of (i) the closing price per share of the Common
Stock immediately prior to such reverse stock split, giving effect to the reverse stock split and (ii) the exercise price then in effect.
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. On October 15, 2021, after shareholder and Board approval of the reverse stock split, the exercise
price for the Warrants was adjusted to $
On the Closing Date, the Company received gross
proceeds, inclusive of proceeds from the full exercise of the over-allotment option, of approximately $
August 2021 Offering
On August 13, 2021,
13
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 2021 Offering
On February 2, 2021, the Company closed a registered
direct offering pursuant to which the Company issued
December 2020 Offering
On December 18, 2020, the Company closed a registered
direct offering pursuant to which the Company issued
July 2020 Offering
On July 28, 2020, the Company received proceeds
of $
14
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2013 Long-Term Stock Incentive Plan
On January 4, 2013, a majority of the Company’s
stockholders approved by written consent the Company’s 2013 Long-Term Stock Incentive Plan (“LTIP”).
During the nine months ended September 30, 2021,
the Company issued an aggregate of
2017 Stock Incentive Plan
On August 24, 2017, a majority of the Company’s
stockholders approved at the 2017 Annual Stockholders’ Meeting the 2017 Stock Incentive Plan (“2017 SIP”).
In addition, during the nine months ended September
30, 2021, the Company issued
During the nine months ended September 30, 2021,
the Company accrued $
Warrants
On January 8, 2021, the Company entered into a Warrant Amendment and Exercise Agreement (the “Amendment Agreement”) with holders (the “Holder”) of a common stock purchase warrant, dated April 4, 2019, previously issued by the Company to the Holder (the “Original Warrant”).
In consideration for each exercise of the Original
Warrant that occurs within 45 calendar days of the date of the Amendment Agreement, in addition to the issuance of the Warrant Shares
(as defined in the Original Warrant) on or prior to the Warrant Share Delivery Date (as defined in the Original Warrant), the Company
has agreed to deliver to the Investor a new warrant to purchase a number of shares of the Company’s common stock, par value $
The Amendment Agreement contains customary representations, warranties and covenants by each of the Company and the Investor.
15
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On January 29, 2021 and February 8, 2021, the
Investor exercised
The Company used the proceeds from the exercise of the Original Warrants for working capital purposes, new product development efforts and to reduce its term debt outstanding.
The Company recorded a warrant modification expense
of $
As of September 30, 2021, the Company had outstanding
warrants to purchase an aggregate of
During the nine months ended September 30, 2021,
warrants exercised on a cashless basis were converted into
NOTE 6 – COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
On February 24, 2020, Michael J. Orlando, as shareholder representative (the “Shareholder Representative”), and the other stockholders of Fit Pay, Inc. (collectively, the “Fit Pay Shareholders”), filed a lawsuit in the United States District Court for the Southern District of New York against the Company, CrowdOut Capital, LLC, and Garmin International, Inc. (the “Complaint”). See Orlando v. Nxt-ID, Inc. No. 20-cv-1604 (S.D.N.Y.). The Complaint alleges that the Company has 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 allegedly that could be owed to the Fit Pay Shareholders from future revenues. The Complaint seeks unspecified monetary damages from the defendants. The Company believes that these claims are without merit and is vigorously defending the action. On May 12, 2020, the Company filed an answer and counterclaims alleging, among other things, fraud and breach of fiduciary duty of the Shareholder Representative as well as arguing that the Shareholder Representative should be estopped from pursuing these claims. The Company has moved for summary judgment to have the lawsuit dismissed. The Company has been able to successfully stay discovery pending the court’s ruling on motions to dismiss by Garmin International, Inc. and CrowdOut Capital, LLC. In March 2021, following our successful application to stay all discovery, the court granted CrowdOut’s and Garmin’s separate motions to dismiss. Orlando’s claim against the Company still remains and the Company’s motion for summary judgment is still pending.
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of our 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 or any of our subsidiaries, threatened against or affecting our company, or any of our subsidiaries in which an adverse decision could have a material adverse effect upon our business, operating results, or financial condition.
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Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
COMMITMENTS
The Company leases office space and a fulfillment
center in the U.S., which are classified as operating leases expiring at various dates. The Company determines if an arrangement qualifies
as a lease at the lease inception. The Company adopted Topic 842 effective January 1, 2019. Operating lease liabilities are recorded based
on the present value of the future lease payments over the lease term, assessed as of the commencement date.
The Company’s lease agreements generally
do not specify an implicit borrowing rate, and as such, the Company utilizes its incremental borrowing rate by lease term, in order to
calculate the present value of the future lease payments. The discount rate represents a risk-adjusted rate on a secured basis, and is
the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease
term. On January 1, 2019, the discount rate used on existing leases at adoption was determined based on the remaining lease term using
available data as of that date. The Company’s current lease agreement for its warehouse space located in Louisville, Kentucky expired
on August 31, 2020. As a result, the Company entered into a new five-year lease agreement in September 2020 for new warehouse space also
located in Louisville, Kentucky. The monthly rent which commenced in September 2020 is $
Certain of the Company’s lease agreements,
primarily related to real estate, include options for the Company to either renew (extend) or early terminate the lease.
For the nine months ended September 30, 2021,
total operating lease cost was $
Year Ended December 31,
| 2021 (excluding the nine months ended September 30, 2021) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total future minimum lease payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total present value of future minimum lease payments | $ |
As of September 30, 2021
| Operating lease right-of-use assets | $ | |||
| Other accrued expenses | $ | |||
| Other long-term liabilities | $ | |||
| $ | ||||
| As of September 30, 2021 | ||||
| Weighted Average Remaining Lease Term | ||||
| Weighted Average Discount Rate | % |
17
Nxt-ID, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Coronavirus – COVID-19
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Sales volumes and the related revenues for most of the Company’s products and services were significantly impacted during the latter portion of the first quarter and throughout the balance of 2020 as a result of the healthcare industry’s focus on COVID prevention and treatment, which impacted the markets we serve, in particular the VA hospitals and clinics. Sales of the Company’s products and services have continued to be impacted as various policies were implemented by federal, state and local governments in response to the COVID-19 pandemic, and the public remains wary of real or perceived opportunities for exposure to the virus. The Company believes the extent of the COVID-19 pandemic’s impact on its operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond the Company’s control and ability to forecast. Because of these uncertainties, the Company cannot estimate how long or to what extent the pandemic will impact its operations.
NOTE 7 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued.
Reverse stock split
On October 15, 2021, the Company announced that the shareholders had
approved a reverse split of its common stock and Series C Preferred at a ratio of 1 for 10. As a result of the reverse split, each 10
pre-split shares of common stock outstanding and each 10 pre-split shares of Series C Preferred stock outstanding were automatically exchanged
for one new share of each without any action on the part of the holders. The number of outstanding common shares was reduced from approximately
Earnings per share and all share data for the nine and three months ended September 30, 2021 and 2020 have been retroactively adjusted to reflect the reverse stock split in accordance with ASC 260-10-55-12, Restatement of EPS Data.
Compliance with Nasdaq Listing Rule
On November 3, 2021,
Payment of senior debt obligation
On November 1, 2021, the Company’s wholly-owned subsidiary, LogicMark,
LLC, made a $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the nine and three months ended September 30, 2021 should be read together with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.
Overview
Nxt-ID, Inc. (“Nxt-ID” or the “Company”) was incorporated in the State of Delaware on February 8, 2012. The Company provides personal emergency response systems (PERS), health communications devices and IoT technology. The Company evaluates the performance of its business on, among other things, profit and loss from operations.
Our wholly-owned subsidiary, LogicMark, manufactures and distributes non-monitored and monitored personal emergency response systems sold through the United States Department of Veterans Affairs (the “VA”), healthcare durable medical equipment dealers and distributors and monitored security dealers and distributors.
Healthcare
Overview
With respect to the healthcare market, our business initiatives are driven by LogicMark, which serves a market that enables two-way communication, medical device connectivity and patient data tracking of key vitals through sensors, biometrics, and security to make home health care a reality. There are four (4) major trends driving this market: (1) an increased desire for connectivity; specifically, a greater desire for connected devices by people over 60 years of age who now represent the fastest growing demographic for social media; (2) the growth of “TeleHealth”, which is the means by which telecommunications technologies are meeting the increased need for health systems to better distribute doctor care across a wider range of health facilities, making it easier to treat and diagnose patients; (3) rising healthcare costs – as healthcare spending continues to outpace the economy, the need to reduce hospital readmissions, increase staffing efficiency and improve patient engagement remain the highest priorities; and (4) the critical shortage of labor in the home healthcare industry, creating an increased need for technology to improve communication to home healthcare agencies by their clients. Together, these trends have produced a large and growing market for us to serve. LogicMark has built a successful business on emergency communications in healthcare. We have a strong business relationship with the VA today, serving veterans who suffer from chronic conditions that often require emergency assistance. Our strategic plan calls for expanding LogicMark’s business into other healthcare verticals as well as retail and enterprise channels in order to better serve the expanding demand for connected and remote healthcare solutions.
Home healthcare is an emerging area for LogicMark. The long-term trend toward more home-based healthcare is a shift that is being driven by demographics (an aging population) and basic economics. People also value autonomy and privacy which are important factors in determining which solutions will suit the market. Consumers are beginning to enjoy the benefits of smart home technologies and online digital assistants.
Results of Operations
Comparison of nine and three months ended September 30, 2021 and September 30, 2020
Revenue. Our revenues for the nine and three months ended September 30, 2021 were $7,604,286 and $2,383,029, respectively, compared to $8,866,205 and $2,639,193 respectively, for the nine and three months ended September 30, 2020. The decrease in our revenue for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is primarily attributable to LogicMark’s decreased sales volume resulting from the COVID-19 pandemic. The decrease in our revenue for the three months ended September 30, 2021 compared to 2020 is also primarily attributable to the impact of the COVID-19 pandemic.
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Cost of Revenue and Gross Profit. Our gross profit for the nine and three months ended September 30, 2021 was $4,638,109 and $1,267,459 respectively, compared to a gross profit of $6,488,057 and $1,878,228 respectively, for the nine and three months ended September 30, 2020. The decrease in gross profit for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is primarily attributable to LogicMark’s decreased sales volume as well as to the higher product cost of inventory purchased for resale. Gross profit and profit margins declined in 2021 for both the nine month and three month periods partially because higher cost of inventory purchased for resale and in the three months ended September 30, 2021, the addition of a reserve for obsolete inventory.
Operating Expenses. Operating expenses for the nine months ended September 30, 2021 totaled $6,129,554 and consisted of research and development expenses of $719,515, selling and marketing expenses of $1,661,340 and general and administrative expenses of $3,748,699. The research and development expenses related primarily to salaries and consulting services of $676,722. Selling and marketing expenses consisted primarily of salaries and consulting services of $351,354 amortization of intangibles of $569,796, freight charges of $374,484, merchant processing fees of $161,934, and sales commissions of $168,233. General and administrative expenses consisted of salaries and consulting services of $968,141, accrued management and employee incentives of $150,000, legal, audit and accounting fees of $899,993 and insurance of $531,907. Also included in general and administrative expenses is $288,000 in non-cash stock compensation expense to management and board members.
Operating expenses for the nine months ended September 30, 2020 totaled $6,078,402 and consisted of research and development expenses of $757,221, selling and marketing expenses of $1,865,626 and general and administrative expenses of $3,455,555. The research and development expenses related primarily to salaries and consulting services of $669,892. Selling and marketing expenses consisted primarily of salaries and consulting services of $396,286, amortization of intangibles of $569,796, freight charges of $412,883, merchant processing fees of $190,727, and sales commissions of $180,870. General and administrative expenses consisted of salaries and consulting services of $661,042, accrued management and employee incentives of $120,000, legal, audit and accounting fees of $1,430,182 and insurance of $351,429.
Operating expenses for the three months ended September 30, 2021 totaled $1,764,342 and consisted of research and development expenses of $202,949, selling and marketing expenses of $482,563 and general and administrative expenses of $1,078,830. The research and development expenses related primarily to salaries and consulting services of $215,609. Selling and marketing expenses consisted primarily of salaries and consulting services of $68,531, amortization of intangibles of $192,019, freight charges of $149,923, merchant processing fees of $52,803, and sales commissions of $54,860. General and administrative expenses consisted of salaries and consulting services of $550,963, accrued management and employee incentives of $50,000, legal, audit and accounting fees of $369,913 and insurance of $254,090.
Operating expenses for the three months ended September 30, 2020 totaled $2,404,653 and consisted of research and development expenses of $257,832, selling and marketing expenses of $577,085 and general and administrative expenses of $1,569,736. The research and development expenses related primarily to salaries and consulting services of $233,547. Selling and marketing expenses consisted primarily of salaries and consulting services of $106,770, amortization of intangibles of $192,019, freight charges of $141,522, merchant processing fees of $55,385, and sales commissions of $56,604. General and administrative expenses consisted of salaries and consulting services of $206,085, accrued management and employee incentives of $40,000, legal, audit and accounting fees of $864,793 and insurance of $125,514.
Net Loss. The net loss for the nine months ended September 30, 2021 was $5,419,609 compared to a net loss of $1,307,906 for the nine months ended September 30, 2020. The net loss for the nine months ended September 30, 2021 was primarily attributable to the operating loss of $1,491,445, interest expense of $1,395,611 and warrant modification expense of $2,881,729 which was partially offset by PPP loan forgiveness of $349,176. The net loss for the nine months ended September 30, 2020 was $1,307,906 and was primarily attributable to the operating profit of $409,655 which was offset by interest expense of $1,717,561.
The net loss for the three months ended September 30, 2021 was $641,704 compared to a net loss of $1,078,341 for the three months ended September 30, 2020. The net loss for the three months ended September 30, 2021 was primarily attributable to the operating loss of $496,883 and interest expense of $144,821. The net loss for the three months ended September 30, 2020 was primarily attributable to the operating loss of $526,425 and interest expense of $551,996.
Liquidity and Capital Resources
Sources of Liquidity
We generated an operating loss of $1,491,445 and incurred a net loss of $5,419,609 for the nine months ended September 30, 2021. As of September 30, 2021, we had cash and stockholders’ equity of $16,046,625 and $32,417,889, respectively. At September 30, 2021, we had working capital of $14,020,301.
The Company used cash of $3,290,319 in operations in the first nine months of 2021, which includes a one-time $1.1 million payout of substantially past due accounts payable. The Company believes the cash balance of $16.0 million is sufficient to sustain operations for the next 12 months.
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Cash Generated by Operating Activities. Our primary ongoing uses of operating cash relate to payments to subcontractors, vendors, and employees for product, research and development, salaries and related expenses and professional fees. Our vendors and subcontractors generally provide us with net 30 trade payment terms. During the nine months ended September 30, 2021, net cash used in operating activities totaled $3,290,319 which was comprised of a net loss of $5,419,609, positive non-cash adjustments to reconcile net loss to net cash used in operating activities of $4,270,531, and unfavorable changes in operating assets and liabilities of $2,141,239, as compared to net cash provided by operating activities of $15,643 for the nine months ended September 30, 2020, which was comprised of a net loss of $1,307,906, positive non-cash adjustments to reconcile net loss to net cash used in operating activities of $1,235,432, and changes in operating assets and liabilities of positive $88,117.
Cash Used in Investing Activities. During the nine months ended September 30, 2021 and September 30, 2020, we did use any net cash in investing activities.
Cash Provided by Financing Activities. During the nine months ended September 30, 2021, net cash provided by financing activities totaled $14,984,5281 and was primarily related to the proceeds from the sale of common stock and warrants of $11,834,722, the exercise of common stock warrants of $6,670,494, and the proceeds received in connection with the issuance of Series E and F preferred stock of $8,000,002. The funds from these were partially used for the term loan repayment of $11,095,877 and fees paid in connection with the equity offerings of $424,813. During the nine months ended September 30, 2020, net cash provided by financing activities totaled $489,639 and was related to proceeds received in connected with issuance of common stock of $1,864,528, and loan proceeds of $346,390 received under the Paycheck Protection Program under the Corona Virus Aid, Relief and Economic Security Act all of which was partially offset by repayments of $1,696,875 and fees of $24,404 paid in connection with equity offerings.
Potential Impacts of COVID-19 on Our Business and Operations
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Sales volumes and the related revenues for most of our products and services were significantly impacted during the latter portion of the first quarter and throughout the balance of 2020 and now well into 2021 as a result of the healthcare industry’s focus on COVID prevention and treatment, which impacted the markets we serve, in particular the VA hospital and clinics. Sales of our products and services have continued to be impacted as various policies were implemented by federal, state and local governments in response to the COVID-19 pandemic, the public remains wary of real or perceived opportunities for exposure to the virus. We believe the extent of the COVID-19 pandemic’s impact on our operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast. Because of the current nationwide prevalence of the new COVID-19 Delta variant, we cannot estimate how long or to what extent the pandemic will impact our operations.
In light of broader macro-economic risks and already known impacts on certain industries that use our products and services, during 2020 we took targeted steps to lower our operating expenses because of the COVID-19 pandemic. We continue to monitor the impacts of COVID-19 on our operations closely and this situation could change based on a significant number of factors that are not entirely within our control and are discussed in this and other sections of this report on Form 10-Q. We do not expect there to be material changes to our assets on our balance sheet or our ability to timely account for those assets.
To date, supply chain issues, travel restrictions and border closures have not materially impacted our ability to obtain inventory or manufacture or deliver products or services to customers; however, they have impacted our ability to develop new markets and visit certain facilities, particularly VA hospital. We have taken steps to restrain and monitor our operating expenses and continue to monitor the trends in our business and broader economy to ensure that we properly track any material changes to the relationship between costs and revenues.
Impact of Inflation
We believe that our business has not been affected to a significant degree by inflationary trends during the past three years. However, inflation is still a factor in the worldwide economy and 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. It also may increase our operating expenses, manufacturing overhead expenses and the cost to acquire or replace fixed assets. We have generally been able to maintain or improve our profit margins through productivity and efficiency improvements, cost reduction programs and to a lesser extent, price increases, and we expect to be able to do the same during the remainder of fiscal year 2021. As such, we do not believe that inflation will have a significant impact on our business during the remainder of fiscal year 2021.
Off Balance Sheet Arrangements
We do not have any relationships with unconsolidated 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.
Recent Accounting Pronouncements
See Note 3 to our condensed consolidated financial statements for the nine months ended September 30, 2021, included elsewhere in this document.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are not required to provide the information required by this Item since we are a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 4. Controls and Procedures
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 September 30, 2021. Management has not completed such evaluation 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 September 30, 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, 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 to function as our internal accounting department and an individual at Armanino with over 30 years of public company financial reporting experience as our Interim Corporate Controller.
Additional time is required to complete our staffing, fully document our systems, implement control procedures and test their operating effectiveness before we can conclude that we have fully remediated our material weaknesses.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred during the nine months ended September 30, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, except that, in July 2021, we retained Mark Archer as our Interim Chief Financial Officer and in August 2021 we retained Armanino LLP to function as our accounting department and an individual at Armanino to function as Interim Corporate Controller. Mr. Archer succeeded Vincent S. Miceli, who resigned his officer positions of the Company.
Limitations of the Effectiveness of Controls
Our management, including our Chief Executive Officer and interim 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 24, 2020, Michael J. Orlando, as shareholder representative (the “Shareholder Representative”), and the other stockholders of Fit Pay, Inc. (collectively, the “Fit Pay Shareholders”), filed a lawsuit in the United States District Court for the Southern District of New York against the Company, CrowdOut Capital, LLC, and Garmin International, Inc. (the “Complaint”). See Orlando v. Nxt-ID, Inc. No. 20-cv-1604 (S.D.N.Y.). The Complaint alleges that the Company has 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 allegedly that could be owed to the Fit Pay Shareholders from future revenues. The Complaint seeks unspecified monetary damages from the defendants. The Company believes that these claims are without merit and is vigorously defending the action. On May 12, 2020, the Company filed an answer and counterclaims alleging, among other things, fraud and breach of fiduciary duty of the Shareholder Representative as well as arguing that the Shareholder Representative should be estopped from pursuing these claims. The Company has moved for summary judgment to have the lawsuit dismissed. The Company has been able to successfully stay discovery pending the court’s ruling on motions to dismiss by Garmin International, Inc. and CrowdOut Capital, LLC. In March 2021, following our successful application to stay all discovery, the court granted CrowdOut’s and Garmin’s separate motions to dismiss. Orlando’s claim against the Company still remains and the Company’s motion for summary judgment is still pending.
In connection with the sale of Fit-Pay, Inc., Giesecke+Devrient Mobile Security America, Inc. (“GDMSAI”) identified a disagreement with the Company over calculation of dividends with respect to GDMSAI’s Series C Non-Convertible Voting Preferred Stock (the “Series C”) of the Company and on August 13, 2020 GDMSAI sued the Company in Delaware Chancery Court seeking, among other things, $440,000 of dividends that it believes are owed to it pursuant to the terms of the Series C. In March 2021, a Delaware Chancery granted GDMSAI summary judgment on the merits, holding that relevant dividend language required a perpetually paid dividend once the $50 million threshold had been achieved. On August 11, 2021, the Company entered into a settlement agreement whereby the Company would pay $540,000 of dividends plus $55,000 of pre-judgement interest, but no post-judgement interest. The settlement is payable in tranches ending in November 2021. This amount has been accrued on the accompanying balance sheet at September 30, 2021
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of our 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 or any of our subsidiaries, threatened against or affecting our company, or any of our subsidiaries in which an adverse decision could have a material adverse effect upon our business, operating results, or financial condition.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 13, 2021, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with institutional accredited investors (the “Investors”) providing for an aggregate investment of $4,000,000 by the Investors for the issuance by the Company to them of (i) 1,333,333 shares of Series F Convertible Preferred Stock, par value $0.0001 per share, of the Company (the “Series F Preferred Stock”) convertible into shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”) that are issuable from time to time upon conversion of such shares of Series F Preferred Stock (the “Conversion Shares”); (ii) warrants, with a term of five and a half (5.5) years exercisable on February 16, 2022, to purchase an aggregate of up to 666,667 shares of Common Stock (the “Warrant Shares”) at an initial exercise price of $4.95 per share. The securities were issued to the investors were exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder, based on representations made by the investors, their prior relationship with the Company, and the absence of any general solicitation.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
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Item 6. Exhibits
| Exhibit Number | Description | |
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial Officer 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 |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
| * | Filed herewith. |
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SIGNATURES
Pursuant to the requirements 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.
Nxt-ID, Inc. | ||
| Date: November 15, 2021 | By: | /s/ Chia-Lin Simmons |
| Chia-Lin Simmons | ||
| Chief Executive Officer | ||
| (Duly Authorized Officer and | ||
| Principal Executive Officer) | ||
| Date: November 15, 2021 | By: | /s/ Mark Archer |
| Mark Archer | ||
| Interim Chief Financial Officer | ||
| (Duly Authorized Officer and | ||
| Principal Financial Officer) |
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