The Company generated an operating loss and net loss of
$1,283,145for the three months ended March 31, 2022. As of March 31, 2022, the Company had cash and stockholders' equity of $12,224,887and $25,847,828, respectively. As of March 31, 2022, the Company had working capital of $12,512,012compared to working capital on December 31, 2021, of $13,098,049. Given the Company's cash position on March 31, 2022, 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.
NOTE 3 – BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with
U.S.generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission(SEC) regarding interim financial reporting. In the opinion of management, the information herein reflects all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations, financial position, stockholders' equity, and cash flows. The results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Net loss per share and all share data for the three months ending March 31, 2021, 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 6.
Certain prior year amounts have been reclassified for consistency with the current year’s presentation. These expense reclassifications had no impact on reported results of operations.
LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 4 – SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
USE OF ESTIMATES IN 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.
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. On
March 31, 2022, and December 31, 2021, the Company had no cash equivalents, respectively.
March 31, 2022, and December 31, 2021, the Company had restricted cash of $210,118and $210,131, 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. 6 LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CREDIT RISK CONCENTRATIONS
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 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 the 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 three months ended
March 31, 2022, and 2021, 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 in 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 on the Condensed Balance Sheets on March 31, 2022, and December 31, 2021.
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 the cost of goods sold, and were
$191,662and $106,425, respectively, for the three months ended March 31, 2022, and 2021.
For the three months ended
March 31, 2022, and 2021, the Company's revenues primarily included shipments of the LogicMarkproducts. The terms and conditions of these sales provided 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 are 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. On March 31, 2022, and December 31, 2021, the Company had an allowance for doubtful accounts of $7,014and $5,411, respectively. 7 LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
March 31, 2022, inventory was comprised of $876,084in finished goods on hand. As of December 31, 2021, inventory was comprised of $1,237,280in finished goods on hand. The Company is required to prepay for certain inventory with certain vendors until credit terms can be established. As of March 31, 2022, and December 31, 2021, $542,931and $559,938respectively, of prepayments made for inventory are included in prepaid expenses and other current assets on the balance sheet. An allowance for obsolete inventory amounted to $24,868on March 31,2022and December 31, 2021.
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 equipment, furniture and fixtures, and tooling and molds are 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
Goodwillis 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). 8 LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INTANGIBLE ASSETS
The Company's intangible assets are related to the acquisition of
LogicMarkand are included in other intangible assets in the Company's balance sheet on March 31, 2022, and December 31, 2021. On March 31, 2022, Other intangible assets, net of amortization, are comprised of patents of $1,978,016; trademarks of $899,599; and customer relationships of $1,404,926. On 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. 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 three months ended March 31, 2022, and 2021, the Company recorded amortization expense of $194,106and $187,845, respectively. As of March 31, 2022, total amortization expense estimated for the remainder of fiscal year 2022 is $567,709, and for each of the next five fiscal years, the total amortization expense is estimated to be as follows: 2023 - $761,815; 2024 - $761,815; 2025 - $761,815; 2026 - $618,790; and 2027- $272,235.
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 the 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 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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not use derivatives to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all 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 net-cash settlement of the derivative could be required within 12 months of the balance sheet date. 9
LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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 common shares outstanding. Diluted loss per share includes the effect of diluted common stock equivalents. Potentially dilutive securities from the exercise of stock options to purchase 348,284 shares of common stock and warrants to purchase 4,295,380 shares of common stock as of
March 31, 2022, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. Potentially dilutive securities from the exercise of stock options to purchase 36,364 shares of common stock and warrants to purchase 937,813 shares of common stock as of March 31, 2021, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.
RESEARCH AND DEVELOPMENT
Research and development costs are expenditures on new market development and related engineering costs. In addition to internal resources, the Company utilizes functional consulting resources, third-party software, and hardware development firms. The Company expenses all research and development costs as incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting standards that have been issued or proposed by FASB (
Financial Accounting Standards Board) 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 financial statements upon adoption.
NOTE 5 – EXPENSES TO BE PROVIDED
Accrued expenses consist of the following items:
March 31, December 31, 20222021
Salaries, social charges and holidays
Merchant card fees
35,923 17,853 Professional fees 189,174 104,500 Management incentives 162,200 285,000 Lease liability 67,016 64,346 Dividends - Series C and F Preferred Stock 107,933 94,933
Other 124,868 228,424 Totals
$ 766,313 $ 849,28510 LogicMark Inc. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 6 – EQUITY
October 15, 2021, the Company announced that its 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, every 10 pre-split shares of common stock outstanding and every 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 88.3 million shares to approximately 8.8 million shares, and the number of outstanding Series C preferred shares was reduced from 2,000 shares to 200 shares. The reverse stock split did not affect the total number of shares of capital stock, including Series C Preferred Stock, that the company is authorized to issue.
Earnings per share and all share data for the three months ended
September 15, 2021, the Company sold an aggregate of (i) 2,788,750 shares of common stock, par value of $0.0001per share, and (ii) accompanying warrants to purchase up to an aggregate of 2,788,750 shares of Common Stock, at an exercise price of $4.95per share, both of which include the underwriter's full over-allotment option to purchase an additional 363,750 shares of common stock. 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(SEC) under the Securities Act of 1933, as amended (Securities Act), which became effective on September 14, 2021. The 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 Company's certificate of incorporation to affect 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 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 the lower of (i) the closing price per share of the Common Stock immediately before the 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 outlined 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 $3.956per share, The reverse stock split and the exercise price were retroactively reported in accordance with ASC 260-10-55-12, Restatement of EPS Data. On the Closing Date, the Company received gross proceeds of approximately $12.5 million, before deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the Offering primarily for new product development, marketing, working capital, and liability reduction purposes. August 2021Offering On August 13, 2021, the Company entered into a securities purchase agreement with institutional accredited investors providing for an aggregate investment of $4,000,000for the issuance by the Company of (i) 1,333,333 shares of Series F Convertible Preferred Stock, par value $0.0001per share, of the Company (the Series F Preferred Stock) convertible into shares of common stock, par value $0.0001per share, of the Company that is issuable upon conversion of shares of Series F Preferred Stock; (ii) warrants, with a term of five and a half years exercisable after February 16, 2022, to purchase an aggregate of up to 666,667 shares of Common Stock at an exercise price of $7.80per share. The securities 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. The Company used the net proceeds from this offering for working capital and liability reduction purposes. In the three months ended September 30, 2021, 1,160,000 shares of Series F preferred stock were 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 was adjusted to $4.95per share and was retroactively reported in accordance with ASC 260-10-55-12, Restatement of EPS Data. 11 LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 6 – EQUITY (CONTINUED)
February 2021Offering On February 2, 2021, the Company closed a registered direct offering and concurrent private placement pursuant to which the Company issued (i) an aggregate of 1,476,016 shares of Series E preferred stock, convertible into up to 295,203 shares of common stock, (ii) common stock purchase warrants to purchase up to 100,000 shares of common stock at an exercise price of $12.30per share, which were exercisable immediately and had a term of five years, and (iii) common stock purchase warrants to purchase up to 195,203 shares of common stock at an exercise price of $12.30per share with a term of five and one-half years first exercisable nine months after issuance, for gross proceeds of $4,000,003, 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 $1,480,801from the beneficial conversion feature associated with the issuance of the Series E convertible preferred
stock and warrants.
January 2021Warrant exchange On January 8, 2021, the Company entered into a Warrant Amendment and Exercise Agreement (the "Amendment") with holders (the "Holder") of a common stock purchase warrant, dated April 4, 2019, previously issued by the Company (the "Original Warrant"). In consideration for each exercise of the Original Warrant within 45 calendar days of the Amendment, in addition to the issuance of the Warrant shares, the Company agreed to deliver a new warrant to purchase shares of the Company's common stock equal to the number of Original Warrants that the Holder exercised, at an exercise price of $15.25per share, which represents the average Nasdaq Official Closing Price of the common stock for the five trading days immediately preceding the date of the Amendment (the "New Warrants"). The Investor held Original Warrants exercisable for up to 246,913 shares of common stock, subsequently exercised 50,000 Original Warrants within the 45 days, and received 50,000 New Warrants in addition to the Warrant shares. The Investor may continue to exercise the Original Warrants after 45 calendar days of the Amendment, but will not receive New Warrants for the exercise. Series C Preferred Stock In May 2017, the Company authorized Series C Preferred Stock. Holders of Series C Preferred Stock are entitled to receive dividends of 15% per year, payable in cash. For the three months ended March 31, 2022, and 2021, the Company recorded Series C Preferred Stock dividends of $75,000in each period. The Series C Preferred Stock may be redeemed by the Company at the Company's option in cash at any time, in whole or in part, upon payment of the stated value of the Series C Preferred Stock and unpaid dividends. If a "fundamental change" occurs, the Series C Preferred Stock shall be immediately redeemed in cash equal to the stated value of the Series C Preferred Stock, and unpaid dividends. A fundamental change includes but is not limited to any change in the ownership of at least fifty percent of the voting stock; liquidation or dissolution, or the common stock ceases to be listed on the market upon which it currently trades. The holders of the Series C Preferred Stock are entitled to vote on any matter submitted to the stockholders of the Company for a vote. One share of Series C Preferred Stock carries the same voting rights as one share of common stock. Redeemable equity security is to be classified as temporary equity if it is conditionally redeemable upon the occurrence of an event that is not solely within the control of the issuer. Upon the determination that such events are probable, the equity security would be classified as a liability. Given the Series C Preferred Stock contains a fundamental change provision, the security is considered conditionally redeemable. Therefore, the Company has classified the Series C Preferred Stock as temporary equity in the balance sheets on March 31, 2022, and December 31, 2021, until such time that events occur that indicate otherwise. 12 LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 6 – EQUITY (CONTINUED)
There was no warrant activity during the three months ended
March 31, 2022. The following table summarizes the Company's warrants outstanding and exercisable on March 31, 2022, and December 31, 2021: Weighted Weighted Average Average Remaining Aggregate Number of Exercise Life Intrinsic Warrants Price In Years Value Outstanding and Exercisable at January 1, 2021 1,569,007 $ 13.304.1 $ 10,850,158Issued 3,897,534 $ 5.264.77 - Exercised (1,002,307 ) $ 9.07- - Cancelled (168,854 ) $ 38.32- - Outstanding and Exercisable at December 31, 2021 4,295,380 $ 6.024.59 - Outstanding and Exercisable at March 31, 2022 4,295,380 $ 6.024.52 -
NOTE 7 – SHARE INCENTIVE PLANS
2017 Stock Incentive Plan On
August 24, 2017, the Company's stockholders approved the 2017 Stock Incentive Plan (2017 SIP). The aggregate maximum number of shares of common stock that may be issued under the 2017 SIP is limited to 10% of the outstanding shares of common stock, calculated on the first business day of each fiscal year. Under the 2017 SIP, options that are forfeited or terminated, settled in cash in lieu of shares of common stock, or settled in a manner such that shares are not issued, will again immediately become available to be issued. If shares of common stock are withheld from payment of an award to satisfy tax obligations concerning the award, those shares of common stock will be treated as shares that have been issued under the 2017 SIP and will not again be available for issuance.
During the quarter ended
March 31, 2022, the Company issued 430,339 shares of common stock vesting over periods ranging from 30 to 48 months with an aggregate fair value of $1,331,870to certain employees as inducement and incentive grants. As of March 31, 2022, the unrecognized compensation cost related to non-vested stock options is $1,087,407. During the three months ended March 31, 2021, the Company issued 13,283 shares of common stock with an aggregate fair value of $80,456to certain employees related to the Company's 2019, 2018, and 2017 management incentive plan. The expense for the three months ended March 31, 2022, and 2021 was $244,463and $0respectively.
Long-term equity incentive plan 2013
January 4, 2013, the Company's stockholders approved the Company's Long-Term Stock Incentive Plan (LTIP). The maximum number of shares of common stock that may be issued under the LTIP, including stock awards, stock issued to the Company's Board, and stock appreciation rights, are limited to 10% of the common shares outstanding on the first business day of any fiscal year. During the three months ended March 31, 2022, the Company issued 237,500 stock options vesting over four years to employees with an exercise price of $3.36and an option for 12,500 shares with a strike price of $2.20and a total expense of $325,336. In addition, 27,276 fully vested stock options were granted to six non-employee Board directors at an exercise price of $2.20. The aggregate fair value of the shares issued to the directors was $60,000, which includes the total expense. On March 31, 2021, the Company issued an aggregate of 2,837 stock options to purchase shares of common stock under the LTIP to four (4) non-employee directors for serving on the Company's board. The exercise price of these stock options is $14.10and stock options were fully vested at the issuance date. The aggregate fair value of the stock options issued to the directors was $40,000, which includes the total expense. 13 LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 8 – COMMITMENTS AND CONTINGENCIES
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. COMMITMENTS The Company leases office space and equipment, in the
U.S., which is classified as operating leases expiring at various dates. The Company determines if an arrangement qualifies as a lease at the lease inception. 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 real estate lease, which is for office space and a fulfillment center, with a lease term of 5 years in August 2025. The Company also leases a copier with a lease term of 5 years, ending August 2023. The Company has elected to account for the lease and non-lease components (insurance and property taxes) as a single lease component for its real estate leases. Lease payments, which include lease components and non-lease components, are included in the measurement of the Company's lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract. Any actual costs over such amounts are expensed as incurred as variable lease costs. The Company's lease agreements generally do not specify an implicit borrowing rate, and as such, the Company uses its incremental borrowing rate 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. The Company entered into a new five-year lease agreement in June 2020for a new warehouse space located in Louisville, Kentucky. The monthly rent which commenced in September 2020is $6,200per month and increases approximately 3% annually thereafter. The ROU asset value-added because of this new lease agreement was $279,024. The Company's ROU asset and lease liability accounts reflect the inclusion of this lease in the Company's balance sheet as of March 31, 2022. The Company's lease agreements include options for the Company to either renew or early terminate the lease. Renewal options are reviewed at lease commencement to determine if such options are reasonably certain of being exercised, which could impact the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including the significance of leasehold improvements on the property, whether the asset is difficult to replace, or specific characteristics unique to the lease that would make it reasonably certain that the Company would exercise the option. In most cases, the Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company and thus not included in the Company's ROU asset and lease liability. For the three months ended March 31, 2022, the total operating lease cost was $24,558and is recorded in general and administrative expenses. The operating lease cost is recognized on a straight-line basis over the lease term. The following summarizes (i) the future minimum undiscounted lease payments under the non-cancelable lease for each of the next four years and thereafter, incorporating the practical expedient to account for lease and non-lease components as a single lease component for our existing real estate lease, (ii) a reconciliation of the undiscounted lease payments to the present value of the lease liabilities, and (iii) the lease-related account balances on the Company's balance sheet as of March 31, 2022:
End of the year
2022 (excluding the three-month period ended
89,724 2024 80,000 2025 54,400 Total future minimum lease payments
$ 294,363Less imputed interest (55,594 )
Total present value of future minimum lease payments
LogicMark Inc.NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
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