Gino Pereira - President & Chief Executive Officer Vincent Miceli - Vice President & Chief Financial Officer Michael Orlando - Chief Operating Officer & President of Fit Pay, Inc. Stanley Washington - Chief Revenue Officer & President of Healthcare.

Brian Kinstlinger - Alliance Global Partners Kris Tuttle - SoundView Technology Group.

Good day, ladies and gentlemen, and welcome to the NXT-ID Quarterly Investor Update Webcast. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I’d now like to turn the conference over to Gino Pereira, Chief Executive Officer. Sir, you may begin..

Thank you very much. Good morning. Thank you, everyone, for joining our call today to discuss NXT-ID’s audited financial and operational results for the three months ended March 31, 2018 and a general update on the progress of our business.

So during this morning’s call, we’ll be making forward-looking statements which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections and future performance and the assumptions underlying such statements.

Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our – that we’ll be talked about today and in our – in the 10-Q that was published earlier – late last night.

Please recognize that except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place any undue reliance on such statements.

With me on the call today is Vin Miceli, our Chief Financial Officer; and Michael Orlando, our Chief Operating Officer and President of FitPay, our payments division; and Stanley Washington, Chief Revenue Officer and Head of our Healthcare division.

I’ll begin the call, then turn the call over to Vin for a review of our financial results, then to Mike and Stan for an update on the payments and healthcare, respectively. We’ll then take few questions from analysts on the call. So the first quarter of this year is really best characterized as steady progress for us, I think.

On an absolute revenue basis, we were down compared with the same period in 2017, but gross profit was approximately the same, and revenues in Q1 2018 were about 10% up on those of Q4 of 2017. Expenses for the – for Q1 2018 were only higher compared to the same period last year in 2017, due to the additional expenses from the FitPay merger.

So our expenses were really well controlled over the last year.

And in terms of things that we achieved in the payment side, Garmin launched a second Smartwatch going with FitPay Payment technology forward, and we continue to make development progress on Flip Crypto conversion product, as well as the new payment platform for new customers, and Mike will go into that into more detail, I’m sure.

And in healthcare, LogicMark continued to outperform, which it stand almost every month since we acquired the company about two years ago. In Q1, we also started to gather market feedback for our plan for wider distribution the tests in a major big box store, as well as direct marketing through in commercials.

So these valuable tests will shape the way in which we bring LogicMark’s products, which are already very successful in the current target market to a much wider customer base. So we’re steadily working our plan, and I think we’re on track to achieve our goal for 2018 and beyond, so let’s say, brief summary of the quarter.

And I will now pass it on to Vin Miceli to talk about financials in a bit more detail. Thank you..

Thank you, Gino. Again, Vin Miceli, Chief Financial Officer of the company. I’d like to summarize the quarterly – the first quarter results, as compared to the first quarter of 2017. So revenues came in for Q1 2018 slightly below $5 million, as compared to about $6.7 million in the comparable 2017 quarter.

The primary reason for the reduction there was, we had a shortfall in flye card, shipments to WorldVentures, which we anticipated and as you all know, we disclosed in our annual report for 2017.

So that shortfall was partially offset by increased revenues at the LogicMark level, the revenues were up slightly on an over – quarter-over-quarter basis and also was partially offset by the contribution of revenues from FitPay.

At the gross profit level, gross profit remained flat at about $3.5 million in both the first quarter of 2018 versus the first quarter 2017. In terms of our operating expenses, the operating expenses, as Gino pointed out earlier, were up fairly significantly.

They were up about $1.8 million on a quarter-over-quarter basis, mainly due to the layering on of the FitPay overhead and the amortization of the intangibles that essentially came out of the acquisition of FitPay.

So in terms of our operating profit – loss, if you will, we actually lost about $700,000 in Q1 2018 versus $1.1 million gross profit in the comparable 2017 quarter. Interest expense was down considerably in the first quarter of 2018, mainly due to lower average debt levels on a quarter-over-quarter basis.

As you know, we had delevered roughly $3 million of the revolver borrowings, and so we have the benefit of that – or we incurred the benefit of that reduction in debt. We also had all of the convertible exchange notes converted. And so we saved a considerable amount of interested – interest on the note discount.

So in terms of net loss came in around $1.6 million for the quarter versus $750,000 last quarter. Moving over to our balance sheet. We ended the quarter with $4.4 million in cash and had favorable working capital somewhere in the neighborhood of $800,000, which was encouraging.

In terms of our debt, debt levels remained relatively flat from year-end, no material changes either way in our long-term liabilities. And our overall equity ended the quarter at $18.2 million and we were at $19.1 million at the end of the year. So that’s a brief summary of what’s transpired on Q1. And with that, I’ll turn it back over to Gino..

Hello?.

Sorry. We’ll now turn it back to Mike Orlando, our Chief Operating Officer and President of FitPay and he will give us a summary of what’s been happening in the payments division..

Visa, Master Card, and Discover. In addition to that, the service for Garmin Pay continues to grow. We’ve added up to 15 new countries worldwide and over 150 banks that are supporting our service and that – those banks continue onboard to our platform essentially on a weekly basis.

As Gino mentioned in his opening remarks, in February, Garmin announced its second Smartwatch we give the Forerunner 465, which now includes Garmin Pay. The service is now available on two of their newest smartwatch lines, which are the vivoactive 3 in the Forerunner 465.

I think what’s significant about the addition of the Forerunner 465 is a very runner specific watch and it brings, not only our paid capabilities, but onboard music, so boosts athletes and even casual owners that are dedicated to their sport.

They now have a single device that they can leave the home and take the music payments and all the tracking capabilities with them without having to bring their smartphone on the run with them.

In addition to that, we’re also continuing to expand the capabilities of the FitPay Platform overall, and we’re in the process of integrating to cryptocurrency exchanges, the new banking partners to allow those capabilities on to the platform.

We announced late last year and continue to develop the Flip product, which is a new contactless payment device that will allow Bitcoin holders to use the value of their currency to make purchases in USD at unions of retail locations around the world. The new device, as I mentioned, leverages our platform.

And as we develop those innovations with the new exchange and the issuing partner, we expect those products to ship later this quarter. And then lastly, I think, for us, these milestones represent the three building blocks of our business that are critical to our growth strategy.

The first is obviously the expansion of our capabilities with not only the networks, but also the cryptocurrency enablement adding new devices and new device partners to build on the number of the wallets deployment. And also as we continue to build on the card networking issuers, new users around the world have access to our platform.

And with that, I’ll turn it back to Gino..

Thanks very much, Mike. And now finally to Stanley Washington, who is our Chief Revenue Officer and the Head of our Healthcare division. Thanks, Stan..

All right. Thank you, Gino, and good morning, everyone. LogicMark continued its strong momentum coming out of last year and has really been moving consistently and strongly into 2018. Revenue for first quarter is up 9.5% year-over-year with our gross margin up for the quarter over 2017 by 3.6%.

Our performance in the government and commercial channels continues to be very strong on across all of our products.

And we have been really successful in the first quarter in launching our and finalizing our technology roadmap, which has allowed us to start the development of the next generation of non-monitored no monthly fee wide based products for in-home and commercial applications.

This is a platform, which will also be able to be expanded into the monitored channel as well. We continued our retail pilot into first quarter of this year as well and we are – have good expectation of additional retail channels into the second quarter.

As Gino mentioned, we also launched our 10-day direct response media pilot and had really good response rate, and we look forward to further testing and refinement into the second quarter.

Overall, this continues our path on healthcare into further leveraging the aged population, driving more connectivity through our products and opportunities into this particular segment, and really looking to open new channels and areas of growth through telehealth and other very unique platforms within healthcare. I’ll turn this back over to Gino.

Thank you..

Okay. Thanks very much, Stan. And I think, with that, we can turn it over to take some questions from analysts. Thank you..

Thank you. [Operator Instructions] Our first question comes from Brian Kinstlinger with Alliance Global. Your line is open..

Hi, good morning, guys..

Good morning, Brian..

So can you remind us what the revenue run rate for low – LogicMark was when you acquired them? And then maybe what they’ve generated revenue in 2017 and the growth rate in 2018, that seems to be one of the big drivers right now for you, so just kind of want to lay that out?.

We can kind of talk in percentages. We don’t actually split out. We have – we haven’t split out, I believe, revenues….

Yes, 10-K [indiscernible].

Yes, sector by specifically. But the revenue has – in roundabout terms – has probably in the last two years has probably grown about 30%, I would say..

In aggregate?.

Yes..

That compounded, right, in aggregate?.

Yes, yes..

And then are you able to discuss, I mean, I think, it’s a big part of the business right now.

Are you able to discuss what’s the kind of gross margin in that businesses versus the payments business?.

We don’t specifically discuss it. But our gross margins are – there’s actually some variability even within payments and themselves – itself and variability within healthcare itself, right, depending on – it’s very kind of customer, it’s customer dependent and platform dependent.

So, what you see on the financial statements is kind of a blend of all of them, obviously, probably a little heavy weighted towards LogicMark. But we have some – so, for instance, on the payment side, the WorldVentures deliveries, although we haven’t delivered what as many as we delivered last year to them, that’s a very small margin product for us.

So at the end of the year, we’re layering on FitPay’s additional revenues and LogicMark is performing well, and the gross profit is pretty much the same as it was a year ago even though revenues were down pretty much. So it does jump around a little bit..

It does. What I would add here is, I mean, you can simply take the consolidated results and you can see that the gross margin or the gross profit margin on a consolidated basis approximate 70%.

So when you take all of the businesses combined, the gross profit is still in that 70% range, which is quite handsome for the combined – the company on a combined basis without getting into the details by company..

Okay.

And then maybe – I know you can’t do it quantitatively, but qualitatively, can you discuss Garmin and maybe Garmin Pay activation? And when might you think that activation start to pick up? Is it the second launch? Is it going to take sometime to try to gauge what you guys are thinking there?.

Yes. So, Gino often addressed it, if you like – well, it’s Michael Orlando..

Hey..

one, add new devices like the Forerunner and then others that make them down the road later this year. But also and as importantly, more banks grow on to our platform will be in the markets in which they sell.

So throughout Europe and Asia, which is where we’ve seen a lot of the growth in the first quarter, you’re seeing those markets slide up and where they have a strong presence and we’re seeing the growth in activations there as well..

Yes. And then – thank you. And this is a follow-up, I probably asked this last quarter.

But what’s going on with Garmin with the publicity of you working with them? What’s going on with other OEMs coming to you to partner to create payments on other devices?.

Yes. So that activity continues to grow. I think, we are – a lot of input and and inquiries in projects inflate with both branded watches, and I would say, they’re in two categories.

So in the Smartwatch category and smart device category, but then I think, which is probably even more interesting in kind of the traditional watch market that are looking to add features and capabilities that some small watches have.

So some of the things that small watches have, they want to bring into a traditional watch and payments being a key component of that.

And we’re seeing quite a bit of activity in that market and we expect to have some of those new devices or watches, if you will, launched in later this year with some integration projects or some large, what I would say, traditional watch and fashion brands that will have payment capabilities in their new lines later this year..

And can you remind us what competition is? I mean, who else is even trying to do that and who has the capabilities to go into these OEMs and try to compete with you?.

Yes. So there’s – the way that contactless payments or token at contactless payments get enabled on a device with two different models. There’s particular element, which is our methodology, which is a hardware on play where that’s secured and then there’s a software on play.

The software piece has predominantly done in the smartphone, Brian, because of the amount of processing power. So you see that in Samsung Pay and Android Pay as an example.

On the secured element, we’re the first in remain only integrated, what they call, token request or token service provider for Visa and MasterCard and Discover, that can enable us on other device OEMs. And so, in that particular area, to date, we’re the only service available.

There are other larger companies like Gemalto and over through that are looking of potentially adding this and doing some things. But we think that we’ve got quite a bit of lead time ahead of them.

And also as we develop the network of banks and the simplicity of our integration, the cost of our integration have a lot of advantages working with these companies versus some of these bigger guys that are just really slow to move and not as flexible and nimble as we built our company around..

Great, thanks. And last question I have is I have written about it a ton, because you’ve been able to really make some press releases, as well as Garmin’s website.

But as you’re building out the payments ecosystem, can you talk about how far along you are you think in getting the banks to approve your technology? And maybe, I don’t know if you can do this, but maybe can you talk about how many of the top 10 issuing banks have approved your technology?.

Yes. So I think we made good progress. So the banks come on Board in two different ways. They either follow the solidified path that we created with the networks, or do some other testing and some other business in terms of services that we have to agree to themselves. In a case and this is mostly based outside the U.S.

We’re looking first to opt into some new terms and services. And those new terms and services, meaning, contracts, are predominantly centered around data privacy because of the data privacy rules that are more stringent in Europe and making sure that we’re compliant with those data privacy rules.

And so we’re heading to opt in to some agreements with those banks to cover ourself on that. In the U.S., we’ve got the top 10 issuing banks, whereas seven – so eight of the top 10 and we’re about to announce in the next three weeks or launch in the next three weeks.

The top three banks literally drives additional activations, so we’re making really good progress there..

Wow, even I do had follow on, great. Thanks for taking my questions..

Sure..

Thank you. [Operator Instructions] Our next question comes from Kris Tuttle with SoundView. Your line is open..

Hi, thanks for taking my question. Since we’re on FitPay right now, can you – I know you can’t break out the Garmin revenue explicitly.

But can you confirm that the monthly revenues that you’re seeing from the Garmin relationship is going up each month, as the market matures?.

Mike, do you want to [Multiple Speakers] Yes, please..

Yes, absolutely..

Yes. I mean, we love more specific numbers about your experience with activations and device use.

So we’d love to hear that today, but if not, it’s something that we’d love to hear going forward, I think?.

Yes, I think the – in terms of the growth, the – we’ve seen kind of two things. One, the type of user that Garmin attracts is more feature intuitive. And the user flow to add Garmin Pay was also developed in a way that it really made it easy for them to activate their wallet when they bought their new device.

And so with those two things, we’re seeing higher rate of activation than it has been seen by other devices in the market. So if you compare it to some of the other pays out there, comparatively we’re seeing higher activations, so obviously, we believe we’re seeing higher activations.

At the same time, as I mentioned at the Forerunner 645, because that’s dedicated to a specific category of athlete, the runner. And one of the big drivers for them is having all the capabilities to do their run without taking their phones under their bulky phone.

And with the payments and music all in, the single – the really high-tech running device, though that engagement would affect category of users really high. Now those devices are a bit more expensive. I think, the base model for the Forerunner 645 starts at 399.

And so, the category of consumer that’s buying – so it’s not a mass market watch, but the percentage of activation – activated users for us has been – we’re really pleased with. Let me leave it at that..

Okay.

And can you give us some – an update on the Flip? Can you talk about pre-orders or any early testing or when that did actually get a card fixing in the quarter?.

Yes. So Flip is coming along really well. We’ve – the first prototypes have been delivered and are in test. We’ve been diligently working on the platform integrations necessary. So we needed to do two key things on the platform to enable Flip to exist in the marketplace.

The first one is to partner with and integrate to cryptocurrency exchange to allow for folks with their Bitcoin wallets to connect to our wallet make that exchange happen. And so that integration work both from, I said, like from business side and from techno side has been in slate and is nearly complete.

And then we also had that and connect to making a relationship here in the U.S. for the funding in USD, and so separate from our other banking relationship that we already had in place. And so those technical pieces were – and are even step known and these known things that we’re doing.

But they also require a bit of a new compliance and diligence work that we had to go through. So that’s been a bit slower that we anticipated, but we’re nearly through that process and still expect to have the first shipments go out the door by the end of the quarter..

Okay.

And then what kind of – are you actively promoting the Flip, or what’s the pre-order actually looks like?.

Yes. So the pre-order activity has been steady. We’ve – we run out of the gate with some advertising and we’re doing some initial marketing and continue to drive in that and we’re looking for the right buttons to push. So we do some advertising on [dual flex] [ph] exchanges now and trying to develop that.

We haven’t spend a whole lot of marketing funds during the period just because of the cost of device and the timeframe in which it would ship. Typically, people tend to shy away from that.

I think what’s more importantly is, as we’ve been doing the marketing campaigns, the interest list has continued to grow pretty significantly, meaning, that people are telling us, hey, we’re ready to go, let me know and I’m ready to buy.

And so we expect once we get closer to actual deliveries that what you more aggressive outreach to both that list and also ramp up the advertising and marketing to drive more sales of the door.

I think the other thing that we should mention is that, we’re talking to distribution partners and branding partners for us to help get to broader bases of consumers in the Bitcoin and cryptocurrency community..

Okay. All right. Thanks..

Yes. So we want to go around on our own, right? We want to find partners to help drive more mass adoption for us..

Yes, it makes sense. Let me – one last question on FitPay. I mean, you guys are at a very unique position in terms of the hardware and tokenization. Mike, I believe, Garmin is going well. And my question is, like what is that other – I know you’re working with some other watch companies.

But do you have any visibility on how other variable devices that have partnered with you, or are going to partner with you are doing in this area? Are they going to begin to be material for you this year?.

Yes, we believe so towards the third and fourth quarter. We’ll launch a couple of new device partners towards the end of the second quarter, but those will be really small pilots and in defined markets in Europe for the most part. And so for the next – this third quarter largely it’s Garmin and some other projects that we have in flight.

But then that ramp on on-boarding will start to happen towards the later-half of the year..

Okay, thanks. That’s clear. A couple of questions on the LogicMark side of the business. You guys talked about pilots that you’re doing, and I know that you had some earlier pilots that ran at issues with weather in the Southeast and things like that.

What is – what are you guys looking for in the pilot? And are they – when can we – when do you expect to go from these pilots to actual stocking and selling through some of these big box retailers?.

I think I can take that..

Yes, please go ahead..

This is Gino speaking, thank you. Yes, so we – as you know, we’ve been really working – built on the pilots coming out of 2017. We had one in particular with a very large retailer, and it really was an opportunity for us, I think, to learn a lot about positioning of the product, particularly to the direct consumer.

Right now, we’re the dominant player in non-monitored base. And our goal is to really leverage that and to hopefully accelerate LogicMark’s overall growth a bit by driving these additional panels. So I thought, we picked up some really good learnings.

The pilots well – making that as well as it probably could have been as a result of some of the other challenges and other factors that were in place. But it did give us, I think, a significant amount of confidence and looking to continue and to move forward with other retail partners.

So we’re actually in the process of pushing pretty aggressively to other large big box players. And I think that you’ll see and then hopefully, we’ll be able to report in the second quarter a – at least, one or additional partners that will be able to be in a more expanded on pilot program that will lead to a large on a fulfillment and roll out.

So I think that – this is sort of, I think, our overall growth strategy and an area of focus that we’re really putting a lot of fundamental behind..

Okay. And then we talked, I think, last quarter about the opportunities for LogicMark. You mentioned here that the technology roadmap and the potential for new products, which I think, we all agree, this market is fertile ground for.

When do you anticipate having some sort of – are you going to have some sort of launch event, or is there a industry conference, or when do you think we’ll see the fruits of sort of the technology roadmap and product – new product opportunity kind of hit the public?.

Yes, really great question. Definitely, we feel lot of opportunity, particularly in the telehealth space.

And as part of this technology roadmap that we’ve put in place, we’re developing currently product opportunities to go directly into that particular area as low as to leverage what we’re already doing in the non-monitored space with some of the key verticals that we currently have.

I think that we’re on pace and we’re in the process now of lining up and building out our pilot opportunities in that particular area, doing a bit more testing and ensuring we have a good delivery of our infrastructure and also our ability to deliver the technology release in a very strong way.

And so I think that you’ll be able to see as we get into Q2, Q3 a real roll out of this particular initiative forum. Our goal is, we have best things we put it in place in 2018, and I think that we’re moving pretty consistently down that path.

So we haven’t finalized our overall roll out strategy, but I think that you’ll see evidence of it in the coming quarters..

Okay, thanks. And then two kind of corporate questions or a couple anyway. I see that accounts receivable slightly declined, which is nice.

Are we – you guys anticipate showing sequential improvements in accounts receivable going forward?.

I’d – Vince, do you want to take that or….

Shall I?.

Yes. I mean, I think it’s a function of how well we perform at a revenue line prospectively. I think that this slight decline – I mean, it’s roughly $150,000 down on a – from year-end. So I really don’t know that that’s ultra significant at this point. But I mean, to me, it’ll bounce back as revenues continue to grow prospectively..

Okay. And then on the balance sheet, can you update us on – you provided the quarter ending cash figure.

Can you update us on the debt refinancing, the higher interest that you wanted to refinance, and also where your current cash balance is?.

This is Gino, I’ll take that. So our – the debt refinancing is going well. So we hope to be able to announce something very shortly about that and we’re pleased with where we’re – it looks like we’re going to be ending up.

And the cash balance basically, we had a significant milestone come up in the – in that the last payment for the LogicMark announce came up, and so that was paid out of our cash balance. So our cash balance is – it’s probably in the 2 million-ish mark for the moment.

But we’re comfortable where we for now and we have some other – some other things in place. But – so – but what was good was that, we now no longer have a situation, where we have any big lump sum milestone payments or anything else coming up in the future. So all of that is now behind us.

LogicMark is 100% paid for as such, and so that – so we’re happy with that..

Okay, okay. One other question on the operating expenses. So you guys now actually have an R&D budget, which is great.

Can you give a little more color on how that, like how many people are in R&D and like what the split is between the FitPay and payments area in the LogicMark in terms of where your R&D investments are going now?.

So I’ll let Mike take that one as Chief Operating Officer. He has a lot of insights on the R&D department..

Okay, sure. So with – so if you look at R&D in two ways, so it’s co-engineering work. And what we do telling and then also research into new project developments and new products, that Stan mentioned, new projects on the healthcare side, LogicMark side then also new product and projects that we’re working on in the payments group.

But the day-to-day work is the engineering work that goes into serve both businesses and what we did coming out of 2017 was combined all those engineering resources under one group that we’re – as you mentioned, is now our R&D division. And so the way that we develop, the teams are shared based on project priority.

So at any given time, those teams are working on projects that are working, enabling and benefiting the Payments business and Healthcare business. And so we’ve got initiatives going on at both in parallel.

I’d say that because of the large portion of those engineering resources that came from FitPay and around the Payments division, those products were in plate.

It’s probably a 70-30 split right now between the Payments division and Healthcare that as we add people in roll of those projects, we’re going to dedicate more resources to serve both businesses equally..

Okay, that makes sense.

And where the bulk of those people located?.

So the split between Boulder, Colorado, which is where we had started and then Melbourne, Florida..

Okay. All right. That’s all I have for now, guys. Thanks a lot..

Okay. Thanks very much, Kris..

Thank you. And I’m currently showing no further questions at this time. I’d like to turn the call back over to Gino Pereira for closing remarks..

Great. Thank you so much. So I think a steady quarter for us, not – nothing spectacular that jumps out, but very steady grinding away quarter.

We’re making progress towards one of our goals, very excited for the balance of the year, particularly the second-half of the year, as I think us you’ll see some of the fruition on the things that we’re working at. And so far, I think, we’re on track to achieve out the goals and budgets that we have set for ourselves.

So pleased with that, and thank you very much for being on the call. I know we overran a little bit. So, all of us sign off now. Thanks, again..

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day..