10-Q/A: Logiq Inc. Restates Quarterly Financials After Accounting Errors, Reports Mixed Results

Sentiment:

Quarterly Report 3 May 2024 4:40 PM

Logiq Inc. has filed an amended quarterly report to restate its financials due to errors in accounting for a spin-off and reverse acquisition, while also reporting a decrease in revenue and a net loss for the quarter ended September 30, 2023.

Capital raiseThe company may need to raise additional capital in the future if cash flows from operations are insufficient.The company may consider a revolving line of credit, selling additional equity or debt securities, or obtaining expanded credit facilities.

Worse than expectedThe company's revenue and gross profit decreased significantly compared to the same periods in the previous year.The company's net loss, while improved, still indicates poor financial performance.The restatement of financials due to accounting errors is a significant negative indicator.

Summary

Logiq Inc. has restated its financial statements for the quarter ended September 30, 2023, due to errors in the accounting treatment of the spin-off of its AppLogiq/CreateApp business to GoLogiq Inc. and a related reverse acquisition.
The company determined that GoLogiq Inc. was the accounting acquirer in the AppLogiq/CreateApp business acquisition, which was incorrectly treated as a reverse merger instead of a capital transaction.
This restatement resulted in the reversal of previously recorded goodwill and intangible assets, and a corresponding impairment loss on December 31, 2022.
For the three months ended September 30, 2023, Logiq reported service revenue of $3,265,674, a decrease from $4,100,373 in the same period of 2022.
The company's gross profit for the quarter was $57,968, significantly down from $1,307,874 in the prior year.
Logiq incurred a net loss of $3,934,443 for the quarter, compared to a net loss of $7,694,799 in the same quarter of the previous year.
For the nine months ended September 30, 2023, the company's service revenue was $11,663,762, a decrease from $17,155,733 in the same period of 2022.
The net loss for the nine months ended September 30, 2023, was $19,948,158, compared to a net loss of $18,136,164 in the same period of 2022.
The company's cash and cash equivalents decreased to $392,853 as of September 30, 2023, from $472,206 at the end of 2022.

Sentiment

Score: 3

Explanation: The document reveals significant accounting issues requiring a restatement, coupled with declining revenue and gross profit, and a net loss. While there is a slight improvement in the net loss, the overall financial health and internal control weaknesses raise serious concerns.

Positives

The net loss for the three months ended September 30, 2023, improved to $3,934,443 from $7,694,799 in the same period of 2022.
The net loss for the nine months ended September 30, 2023, was $19,948,158, a slight improvement from $18,136,164 in the same period of 2022.
The company has taken steps to correct accounting errors and restate its financials.

Negatives

Service revenue decreased for both the three and nine months ended September 30, 2023, compared to the same periods in 2022.
Gross profit significantly decreased for both the three and nine months ended September 30, 2023, compared to the same periods in 2022.
The company experienced a decrease in cash and cash equivalents.

Risks

The company's internal controls over financial reporting were deemed ineffective as of December 31, 2022, due to material weaknesses.
There is a risk that the company may not be able to remediate these material weaknesses in a timely manner.
The company relies on cloud-based hosting, and disruption or termination of this relationship could adversely affect operating results.
The company's operations in South East Asia are being disrupted by the continuing impact of the Covid-19 pandemic.
The company may need to raise additional capital in the future, and there is no assurance that such financing will be available on acceptable terms.

Future Outlook

The company estimates that its available cash and cash generated from operations will be sufficient to satisfy capital expenditures for up to 12 months, but may need to raise additional capital in the future.

Industry Context

The restatement and financial results reflect challenges in the technology sector, particularly for companies undergoing significant structural changes like spin-offs and acquisitions. The company's performance is also impacted by the ongoing effects of the COVID-19 pandemic on its operations in South East Asia.

Comparison to Industry Standards

The company's decrease in revenue and gross profit is concerning when compared to industry standards, especially for companies in the digital marketing and e-commerce solutions space.
Companies like HubSpot, Salesforce, and Adobe, which are leaders in the digital marketing and SaaS space, have shown consistent revenue growth and profitability, unlike Logiq's current performance.
The restatement of financials due to accounting errors is also a significant deviation from industry best practices, where companies are expected to have robust internal controls and accurate financial reporting.
The company's reliance on external financing and the potential need for additional capital raises also puts it at a disadvantage compared to more established and profitable competitors.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Internal Control Weakness	The company identified material weaknesses in its internal control over financial reporting, including a lack of adequate policies and procedures in the internal audit function, insufficient accounting staff, and lack of segregation of duties.	2022-12-31	The material weaknesses resulted in the restatement of the company's financial statements for the year ended December 31, 2022, and the company's previously issued financial statements for the year ended December 31, 2022, should no longer be relied upon.

Stakeholder Impact

Shareholders are impacted by the restatement of financials and the decrease in revenue and gross profit.
Employees may be affected by the company's financial challenges and potential restructuring.
Customers may be impacted by any changes in the company's operations or service offerings.
Creditors may be concerned about the company's ability to meet its financial obligations.

Next Steps

The company will continue to evaluate its capital expenditure needs.
Management will provide further necessary oversight on and training for accounting and finance personnel.
Management will perform a thorough review of the processes and procedures used in the Company's SEC reporting compliance.

Key Dates

Date	Description
2020-01-08	Logiq completed the acquisition of substantially all of the assets of Push Holdings, Inc.
2020-02-25	The Company filed a certificate of amendment to effect a reverse stock split.
2020-11-02	Logiq completed the acquisition of Fixel AI Inc.
2021-03-29	Logiq completed the acquisition of Rebel AI, Inc.
2021-12-15	Logiq entered into agreements with GoLogiq, Inc. to transfer its AppLogiq business.
2022-01-27	Logiq completed the transfer of its AppLogiq business to GoLogiq.
2022-03-31	Logiq acquired certain customer contractual agreements of Battle Bridge Labs, LLC.
2022-07-27	Logiq completed the Distribution and Spin Off of GoLogiq.
2022-09-09	Logiq and DLQ entered into a Merger Agreement with Abri SPAC I, Inc.
2023-02-28	The value of the CreateApp platform was revalued to $11,800,000.
2023-03-16	Logiq and Ionic mutually agreed to terminate the Purchase Agreement and Registration Rights Agreement.
2023-04-25	Logiq consummated the transactions contemplated by the Share Exchange Agreement with Park Place Payments Inc.
2023-05-01	Logiq and DLQ amended the Merger Agreement to remove the requirement that Abri have at least $5,000,001 of net tangible assets.
2023-06-08	Logiq and DLQ amended the Merger Agreement to include listing on Nasdaq Global Market and waive a default.
2023-07-20	Logiq, DLQ, Abri and Merger Sub entered into the Third Amendment to the Merger Agreement.
2023-09-08	An aggregate of $5,000,000 of DLQ Notes converted into shares of common stock of DLQ.
2023-09-30	End of the quarterly period for the financial statements being restated.
2023-10-23	Logiq held a special meeting of its stockholders to authorize the Merger Agreement and a reverse stock split.
2023-11-02	The Business Combination, including the Merger, was completed.
2023-11-10	Date of the share count for the company.
2023-11-14	Original Form 10-Q was filed with the SEC.
2024-05-01	Logiq disclosed the restatement of its previously issued audited consolidated financial statements.
2024-05-03	Date of the amended 10-Q/A filing.

Keywords

restatement, financial statements, reverse acquisition, spin-off, intangible assets, goodwill, impairment, revenue, net loss, DataLogiq, internal controls, accounting errors

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