March 25, 2013
CORRESP
Gregory Dundas, Esq.
Attorney-Advisor
Securities and Exchange Commission
Division of Corporation Finance
100 F Street NE
Washington, D.C. 20549
Re: NXT-ID, Inc. Registration Statement on Form S-1 Filed January 31, 2013
as amended February 4, 2013 File No. 333-186331
Dear Mr. Dundas:
This letter responds to the staff’s comment letter dated February 25, 2103 relating to the above-captioned confidential registration statement. For your convenience, we have restated the Staff’s comment and have provided the Company’s response below such comment.
General
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1.
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We note that you have had no revenues to date and nominal assets. Please advise whether your company should be considered a shell company. If you believe you are not a shell company, please explain how your operations to date have been more than nominal. See definition of "shell company" in Rule 405 of Regulation C. If you conclude that you are a shell company, please revise your disclosure accordingly. For example, discuss the unavailability of Rule 144 until one year following exit from shell company status.
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We do not believe that we should be considered a shell company. Although Rule 144(i)(1) defines a shell company as a Company that has no or nominal operations; and either (1) no or nominal assets; (2) assets consisting solely of cash and cash equivalents; or (3) assets consisting of any amount of cash and cash equivalents and nominal other assets, we respectfully suggest, as described in further detail below, that such definition was not intended to include an early stage company.
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Nominal Operations
The
definition of a shell company under Rule 144 (i)(1) does not include an early stage company for which products are developed,
available for sale, and revenues have been generated. Further, footnote 172 to SEC Release No. 33-8869 (the release accompanying the
final amendments to Rule 144) provides that the amendments, which among other things were intended to exclude the
availability of Rule 144 to securities of a shell company, were not intended to capture a “’startup
company,’ or, in other words, a company with a limited operating history, in the definition of a reporting or
non-reporting shell company.” Footnote 172 also provided that the exclusion of a “start-up company” is
based on the belief that “such a company does not meet the condition of having ‘no or nominal
operations.’” Such footnote was intended to address certain concerns brought forth by several
commenters to Release No. 33-8869 (defining a “shell company”) who indicated that the definition of a shell
company set forth above would capture virtually every company during its start-up phase and therefore too broad.
In
support of such argument, please note that the Company (including its predecessor and now subsidiary 3D-ID) was formed in
February 2011 and from inception through the first three quarters of 2012, the principals of the Company dedicated a
significant amount of time and funds to support the development of the core technology, identifying uses of the core
technology, and acquiring licensed technologies necessary to support the planned business operations of the
Company. The Company has also entered into agreements with vendors to supply key components to the Company’s
offering, including having entered into a contract manufacturing agreement with Identita Technologies, Inc. (a Toronto,
Ontario based company) to develop the reprogrammable credit card and supply manufacturing samples for the Wocket™. The
agreement, which is being filed as an exhibit to the Amendment #2, represents a $150,000 commitment by the Company in
furtherance of development of one of its products, consistent with Footnote 172.
Additionally,
in its latest financial statements, in the last quarter of 2012, the Company has emerged from development stage status with the
initial sale of its 3D access control and security products in the approximate amount of $250,000 and has plans to expand distribution
of these products in the United States and abroad.
No or Nominal Assets; assets consisting solely of cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets.
As
of December 31, 2012, the Company had assets consisting of both cash and fixed assets in the aggregate amount of $135,820 and
$1,883, respectively. In addition, the Company has earned revenues of approximately $250,000 from the initial sale one of
its products in November, 2012, which is reflected in the consolidated financial statements of the Company for the year
ended December 31, 2012. However, despite the fact that the Company had assets consisting mostly of cash, the
Company believes that its expanding operations are controlling for purposes of this analysis rather that the amount of cash
on its balance sheet. We also note that the Company has received a loan of $150,000 from
Connecticut Innovations (a state agency - http://ctinnovations.com/AboutUs.aspx). While this is not intended to state that
Connecticut Innovations has endorsed the Company, its operations, and prospects, we respectfully suggest that Connecticut
Innovations is not in the practice of financing shell companies. Since inception, the Company has also made
the following material developments to its products: a) Updated the software that was licensed from Technest and Geometrix
to remove bugs and modified it to operate on the latest operating systems, b) Designed and manufactured a new 3D
camera utilizing the latest megapixel sensors to capture 3D data and, c) Completed the engineering design specification for
the Wocket™ and moved into prototyping phase.
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No
other major assets are necessary for the Company’s operations at this time. As such, the Company believes that it
should not be deemed a shell company because it does not fit the definition of a company with “no or nominal
operations.”
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2.
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We note that you are registering the resale of nearly all of your outstanding shares held by non-affiliates. Based on the large percentage of non-affiliate shares being registered, it appears that you may be conducting an indirect primary offering in which the selling stockholders are acting as conduits for the company to create a trading market in the company's securities. Because you are not eligible to conduct a primary offering on Form S-3, you are not eligible to conduct a primary at-the-market offering under Rule 415(a)(4). Therefore, please revise the offering by the selling stockholders to fix the price of the shares being resold for the duration of the offering. Also, revise to disclose throughout the prospectus that the selling stockholders are deemed to be underwriters in connection with their resales (and not merely that they may be deemed underwriters).
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The disclosure has been modified accordingly.
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3.
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Please supplementally provide us with any written materials that you or anyone authorized to do so on your behalf provides in reliance on Section 5(d) of the Securities Act to potential investors that are qualified institutional buyers or institutional accredited investors. Similarly, please supplementally provide us with any research reports about you that are published or distributed in reliance upon Section 2(a)(3) of the Securities Act of 1933 added by Section 105(a) of the Jumpstart Our Business Startups Act by any broker or dealer that is participating or will participate in your offering.
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As of the date of this correspondence the only materials provided to institutional accredited investors have been the preliminary prospectus. The Company has neither published nor distributed any research reports in reliance on Section 2(a)(3) of the Securities Act as added by Section 105(a) of the JOBS Act. As of the date of this correspondence, no broker or dealer has been selected to participate in the Company’s offering.
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4.
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Provide us with copies of any reports, tests and industry analysis that you cite or upon which you rely. Please mark these sources carefully to enable us to easily identify what material was used in the document and where it was used.
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Please see marked copies of the responsive documents, attached to this correspondence as Appendix 1, which are marked to the corresponding page in the prospectus where the citations are disclosed.
Prospectus Cover Page
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5.
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Please revise to clarify that there is no minimum amount of common stock that must be sold by the company, and that the proceeds from the offering will not be placed in escrow but will be immediately available for use by the company.
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The disclosure has been modified accordingly.
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6.
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Please disclose the duration of the offering, including any extension periods.
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The disclosure has been modified accordingly.
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7.
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Please state clearly that all the proceeds from the sale of the selling stockholders' shares will accrue to the selling stockholders and not to the company.
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These clarifications have been made throughout the document.
Corporate Background and Business Overview, page 8
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8.
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Please revise to clarify the terms "interoperability gap" and "insecure remote services."
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We
have rewritten the disclosure for ease of understanding and to disclose the Company’s method for improving mobile
security as follows (please see page 1):
Currently most mobile devices continue to be protected simply by questions that a user asks, and PIN numbers. This security methodology is easily duplicated on another device, and can be easily spoofed or hacked. NXT-ID’s biometric security paradigm is Dynamic Pairing Codes (DPC). DPC represent a new, proprietary method to secure users, devices, accounts, locations and servers over any communication media by sharing key identifiers, including biometric-enabled identifiers, between end-points by passing dynamic pairing codes (random numbers) between end-points to establish sessions and/or transactions without exposing identifiers or keys.
The term interoperability gap referred to the fact that currently security on mobile devices are specific to a single device whereas dynamic pairing codes can be used between devices. Insecure remote services referred to currently widely used PIN codes and passwords as an easily hack-able method of gaining access to a device or information.
Risks Relating to our Common Stock and this Offering, page 23
If
you are not an institutional investor, you may only purchase securities...., page 24
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9.
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Clarify whether this risk factor is directed at purchasers of common stock from the selling stockholders. Presumably, the company will only offer to institutional investors in states where the offering has not been registered.
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This
risk factor has been clarified to be directed at purchasers of the Units. (please see pages 23 and 24)
Use of Proceeds, page 28
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10.
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Please disclose the use of proceeds if the company receives 25%, 50%, or 75% of the shares being offered are sold.
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The
following disclosure is being added to the Use of Proceeds Section (please see page 17):
We estimate that we will receive net proceeds of $934,444 from the sale of $1,000,000 of Units being offered at an assumed public offering price of $1.00 per Unit after deducting $65,556 for expenses associated with this offering. The net proceeds received do not include the exercise of any of the warrants that are issued as a part of the Units. If we engage broker-dealers to assist us in selling Units pursuant to this prospectus, we will incur additional costs associated with this offering. The two tables provided immediately below assume that we raise the maximum amounts called for under the offering. The first table assumes that we are able to sell all the Units without the assistance of a broker dealer and the second table assumes that all Units are sold with broker dealer participation and that such brokers receive a commission of $0.10 per Unit sold. Assuming such facts, we intend to use the net proceeds of the offering as follows:
Assuming No Broker Dealer Participation:
| Application of Net Proceeds | Percentage of Net Proceeds | |||||||
| Sales and customer relations(1) | $ | 150,000 | 16% | |||||
| Marketing(2) | 150,000 | 16% | ||||||
| Technology, Research, and Product Development(3) | 300,000 | 32% | ||||||
| Working capital and general corporate purposes(4) | 334,444 | 36% | ||||||
| Total | $ | 934,444 | 100.0% | |||||
(1) Includes the hiring of additional sales personnel.
(2) Includes expenditures associated with social networking and promotion.
(3) Consists of costs anticipated to be incurred in connection with the development of the MobileBio™ products.
(4) Working capital and general corporate purposes include amounts required to pay officers' salaries and incentive bonuses, professional fees, ongoing public reporting costs, office-related expenses and other corporate expenses including interest, payment of short-term notes and overhead. See “Risk Factors - Our management team will have immediate and broad discretion over the use of the net proceeds from this offering and we may use the net proceeds in ways with which you disagree.”
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Assuming Broker Dealer Participation:
| Application of Net Proceeds | Percentage of Net Proceeds | |||||||
| Sales and customer relations(1) | $ | 130,000 | 16% | |||||
| Marketing(2) | 120,000 | 14% | ||||||
| Technology, Research, and Product Development(3) | 280,000 | 34% | ||||||
| Working capital and general corporate purposes(4) | 304,444 | 36% | ||||||
| Total | $ | 834,444 | (5) | 100.0% | ||||
(1) Includes the hiring of additional sales personnel.
(2) Includes expenditures associated with social networking and promotion.
(3) Consists of costs anticipated to be incurred in connection with the development of the MobileBioTM products.
(4) Working capital and general corporate purposes include amounts required to pay officers' salaries and incentive bonuses, professional fees, ongoing public reporting costs, office-related expenses and other corporate expenses including interest, payment of short-term notes and overhead. See “Risk Factors - Our management team will have immediate and broad discretion over the use of the net proceeds from this offering and we may use the net proceeds in ways with which you disagree.”
(5) Net proceeds assume $100,000 of commissions to Broker.
Assuming No Broker Dealer Participation and proceeds of $750,000:
| Application of Net Proceeds | Percentage of Net Proceeds | |||||||
| Sales and customer relations(1) | $ | 100,000 | 15% | |||||
| Marketing(2) | 100,000 | 15% | ||||||
| Technology, Research, and Product Development(3) | 250,000 | 37% | ||||||
| Working capital and general corporate purposes(4) | 234,444 | 33% | ||||||
| Total(5) | $ | 684,444 | 100.0% | |||||
(1) Includes the hiring of additional sales personnel.
(2) Includes expenditures associated with social networking and promotion.
(3) Consists of costs anticipated to be incurred in connection with the development of the MobileBio™ products.
(4) Working capital and general corporate purposes include amounts required to pay officers' salaries and incentive bonuses, professional fees, ongoing public reporting costs, office-related expenses and other corporate expenses including interest, payment of short-term notes and overhead.
(5) After deducting $65,556 for expenses associated with this offering
Assuming No Broker Dealer Participation and proceeds of $500,000:
| Application of Net Proceeds | Percentage of Net Proceeds | |||||||
| Sales and customer relations | $ | – | 0% | |||||
| Marketing | – | 0% | ||||||
| Technology, Research, and Product Development(1) | 200,000 | 46% | ||||||
| Working capital and general corporate purposes(2) | 234,444 | 54% | ||||||
| Total (3) | $ | 434,444 | 100.0% | |||||
(1) Consists of costs anticipated to be incurred in connection with the development of the MobileBio™ products.
(2) Working capital and general corporate purposes include amounts required to pay officers' salaries, professional fees, ongoing public reporting costs, office-related expenses and other corporate expenses including interest, payment of short-term notes and overhead.
(3) After deducting $65,556 for expenses associated with this offering
Assuming No Broker Dealer Participation and proceeds of $250,000:
| Application of Net Proceeds | Percentage of Net Proceeds | |||||||
| Sales and customer relations | $ | – | 0% | |||||
| Marketing | – | 0% | ||||||
| Technology, Research, and Product Development(1) | 150,000 | 81% | ||||||
| Working capital and general corporate purposes(2) | 34,444 | 19% | ||||||
| Total (3) | $ | 184,444 | 100.0% | |||||
(1) Consists of costs anticipated to be incurred in connection with the development of the MobileBio™ products.
(2) Working capital and general corporate purposes include amounts required to pay officers' salaries, professional fees, ongoing public reporting costs, office-related expenses and other corporate expenses including interest, payment of short-term notes and overhead.
(3) After deducting $65,556 for expenses associated with this offering
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Pending use of the proceeds of this offering, we will invest the net proceeds of this offering in short-term, investment grade, interest-bearing instruments. We currently anticipate that, if we are successful in raising, net proceeds of at least $800,000, this offering, together with our available funds, will be sufficient to meet our anticipated needs for working capital and capital expenditures through at least 12 months following the closing of this offering.
The allocation of the net proceeds of this offering set forth above represents our best estimates based upon our current plans and assumptions regarding industry and general economic conditions and our future revenues and expenditures. If any of these factors change, it may be necessary or advisable for us to reallocate some of the proceeds within the above-described categories or to use portions for other purposes. Investors will be relying on the judgment of our management regarding application of the net proceeds of this offering.
In the event we engage a broker-dealer to distribute the Units being offered herein we will be required to file a post-effective amendment describing the change in the Plan of Distribution.
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11.
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Please confirm that if the company engages brokers to sell the Units in the offering it will a post-effective amendment to reflect the change in the plan of distribution.
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We
have amended the disclosure to confirm that we will file a post-effective amendment to this section. There is already
disclosure in the plan of distribution indicating the Company’s being required to file an amendment should it engage a
broker to sell the Units.
Plan of Operation, page 33
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12.
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You refer to "our existing 3D facial recognition products," which are being marketed to law enforcement agencies abroad. Please revise here, in the Prospectus Summary, and in the Business section to clarify what these products are and how they differ from other facial recognition products you plan to produce in the future.
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We
have added the following disclosure to the above-referenced sections: (please see page 23)
We intend to pursue access control markets for our existing 3D facial recognition technology products beginning with US Federal and State governmental agencies. These products, whose underlying technologies have been licensed by the Company, provide customers with the capability to enroll subjects in a 3D database and use that database for verification of identities. These products are primarily designed for access control, law enforcement and travel and immigration. To that end, we have engaged a consulting firm in Washington, DC to help introduce us to key decision makers in those markets. We also have a distributor in South America that has begun to sell these products to overseas law enforcement agencies.
In
parallel we will continue development of our MobileBio™ products which are designed to secure mobile devices for
individuals in contrast to our 3D facial recognition products which are primarily designed for secure access control and identification.
Our products are described more fully beginning on page 45.
Through the acquisition of 3D-ID LLC, the Company acquired the following 3D facial recognition products which we have begun to commercialize. These products are primarily designed for access control, law enforcement and travel and immigration in contrast to the MobileBio™ products which are designed for individual security on mobile devices
3D FaceMatch™ Biometric Identity Systems
The
ActiveID Biometric Identity System is a completely modular and field proven identity management platform providing fusion of
3D facial recognition, 2D facial recognition and optional fingerprint biometrics. Available as a standalone solution or
readily integrated into national scale systems for travel and immigration, access control and law enforcement, ActiveID
products feature patented FaceMatch® 3D
facial recognition.
A complete ActiveID solution includes: 1) one or more Enrollment Systems including integrated lighting for
high-quality mug shot or passport imagery; 2) databases containing enrolled 3D facial templates, 2D images,
application-tailored personal data, and optional fingerprints; and 3) one or more Verifier and/or Identifier stations to
determine identities. Duplicate ID/imposter searches can be performed at any step.
Except
for the Biometric Camera hardware, all products consist of software running on industry-standard encrypted networks,
databases, and computers. All software is easily customized to support specific process needs, and several pre-configured
solutions are available including prisoner management, facility access control, and fused face/fingerprint
verification
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3D SketchArtist™
3D SketchArtist™ is a 3D software face composite sketch tool that makes sketching a face simple, fast, and realistic. Using patented 3D morphing technology, law enforcement professionals can now sketch an accurate composite with 3D life-like features. 3D SketchArtist ™ transforms ordinary sketches into rapidly evolving mock-ups that can be modified with a simple click of the mouse. Facial features, poses, expressions, and even lighting can be modified to reflect a witness description in mere seconds. 3D SketchArtist™ is user-friendly so that anyone can use it to render accurate composites of a suspect, quickly and easily. What once could only be performed by professional sketch artists can now be performed with minimal training.
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13.
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Please provide a more robust plan of operation, disclosing the expected funding you will need to proceed with your business plan across all your planned product lines and the expected time frame for implementing your plan. For example, we note that you have disclosed that your initial funding was sufficient to produce a working prototype of the Wocket but should also provide the estimated funding necessary to commercialize this product in 2013.
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We have amended the Plan of Operation with the following disclosure:
We
anticipate that it will take a further $150,000 in development expenditure to ready the product for manufacturing and
a further $200,000 for initial product sales and marketing. We anticipate launching the Wocket™ in the fourth quarter
of 2013. There can be no assurance that we will raise adequate capital to bring this product to market. We do not
anticipate completing development work on our other MobileBio™ products until late 2014 at a further development cost
of approximately $150,000. While not the primary focus of our first phase of our business plan, the Company’s 3D facial
recognition products for access control, law enforcement and travel and immigration are largely developed and are available
for sale. Our initial sales and marketing requirement to promote these products is approximately $100,000. If we cannot raise
funds as and when we need them we may be required to severely curtail, or even to cease, our operations resulting in a
potential loss to investors.
Liquidity and Capital Resources, page 36
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14.
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Please revise to clarify your reference to "an isolated sale of one of [our] products." Clarify whether this refers to sales abroad of your 3D facial recognition products or something else.
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The
following disclosure has been added: (please see page 25)
During the year ended December 31, 2012 the Company received $250,000 in connection with an initial sale of its 3D facial recognition access control and identification products
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Concurrent Offering, page 40
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15.
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This section appears to be included here in error. Please delete or revise it to clarify. It is not clear what is meant by a concurrent offering, or why the disclosure appears to refer to a separate registration statement and public offering.
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We
have revised this section (please see page 28).
State Securities Laws, page 42
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16.
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We note that you plan to register, or seek an exemption registration, for your securities in "only certain states." Tell us how the selling stockholders will be advised as to where they are permitted to sell their shares.
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We
have added the following disclosure (please see page 14):
Blue sky laws may limit your ability to sell your shares. If the state laws are not followed, you will not be able to sell your shares and you may loose your investment
State Blue Sky laws may limit resale of the Shares. The holders of our shares of common stock and persons who desire to purchase them in any trading market that might develop in the future should be aware that there may be significant state law restrictions upon the ability of investors to resell our shares. Accordingly, even if we are successful in having the Shares available for quoting on the OTCBB, investors should consider any secondary market for the Company’s securities to be limited. We intend to seek coverage and publication of information regarding the Company in an accepted publication which permits a “manual exemption”. This manual exemption permits a security to be distributed in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer’s balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Furthermore, the manual exemption is a non issuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities. Most of the accepted manuals are those published in Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment Service, and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they recognize securities manuals’ but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont and Wisconsin.
***
In addition, upon the effectiveness of the registration statement and subsequent acceptance from S&P, the Company plans to announce its publication in the Daily News Section of Standard Corporation Records. This will enable brokerage firms to determine on behalf of the selling stockholders where the shares may be effected for resale.
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Business, page 44
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17.
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We note your use of pictures that are not reflective of actual products or prototypes. If retained, please provide more detail as to how these design drawings are reflective of your actual products under development.
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We
have either deleted the prior pictures or replaced them with actual product or prototype photographs (please see
page 32).
Our Corporate History, page 46
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18.
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Please revise to identify the founders of the company.
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The
disclosure has been revised accordingly (please see page 34).
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19.
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We note that you have licensed your technology from AccelPath, Inc. (formerly Technest Holdings, Inc.). We also note from Section 6.2 of the Agreement between the parties that the licensing agreement may be terminated if either party becomes insolvent or declares bankruptcy. We also note that AccelPath, Inc.'s recent audited financial statements include a going concern audit opinion. You should consider including an additional risk factor highlighting the risk that the company may lose the right to commercialize its underlying technology if AccelPath declares bankruptcy or is ruled insolvent.
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We have added the following risk factor:
We rely on a third party for licenses relating to a critical component of our technology. The failure of such licensor would materially and adversely affect our business and product offerings.
We
currently license technology for a critical component of our current product offerings from a third party. The third party’s
independent registered public accounting firm included an explanatory paragraph in its audit report as it relates to the third
party’s ability to continue as a going concern in its recent financial statement. In the event that our licensor were to
fail, it could impact our license arrangement and impede our ability to further commercialize our technology. In the event we
were to lose our license or our license were to be renegotiated as a result of our licensor’s failure, our ability to manage
our business would suffer and it would significantly harm our business, operating results and financial condition.
Our Industry, page 47
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20.
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Expand this section to clarify the nexus between your planned array of products and mobile electronic purchases. For example, explain whether your products will have to be incorporated into smartphones and/or the register or terminal at the point of sale. Provide an explanation on how facial recognition technology will be incorporated into third party products.
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The
Following disclosure has been added (please see page 34):
We believe that our MobileBio™ cell phone facial recognition opportunity, once developed, will address a worldwide market of smart phones sales, which is estimated at 400 Million units per year and is growing at an average annual rate of 55%. We anticipate partnering with application providers on smartphones that have an interest in additional security for their particular application by using 3D facial recognition on their smartphone to gain access to a particular application; for example touchless payment applications, banking applications and securities trading applications. There are new technologies, such as Near Field Communications (NFC) and other similar approaches that offer smart phone users the ability to use their smart phone as an “Electronic Wallet”. NFC lets consumers pay for goods and services on the go, through their mobile phones, simply by touching or passing them over another NFC-equipped device such as a register or terminal. The funds themselves are transferred from the user’s credit card account stored through the mobile phone.
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Today, credit cards are responsible for more than $2.5 trillion in transactions a year and are accepted at more than 24 million locations in more than 200 countries and territories. It is estimated that there are 10,000 payment card transactions made every second around the world.
However, many credit card holders either do not possess a smartphone or will be reluctant to use their smartphone for mobile payments due to a variety of reasons including:
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•
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Limited battery life
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•
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Dependency on wireless network coverage
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•
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Well publicized security threats
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Rather than depend on a smart phone, NXT-ID business plan is to develop a next generation electronic wallet. We believe that this constitute unique technology because it takes a very different approach relative to the current offerings: instead of replacing the wallet, our aim is to improve it. We believe that our wocket™ will reduce the number of cards to be carried in a consumer’s wallet while supporting virtually every payment method currently available at Point-of-Sale (POS) at retailers around the world including magnetic stripe, EMV/NFC and barcode all within a secure biometric vault.
Our Competition, page 49
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21.
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Please revise to explain more clearly how your products will differ from those of your competitors. You refer to your MobileBio technology as the "key to differentiating our solutions," with respect to such things as "innovative local and cloud-based biometric services, wide interoperability and flexibility and other "unique features." Explain what the practical impact or advantage of such features is for your expected buyers.
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We
have added the following disclosure (please see page 36):
We believe that our MobileBio™ technology that we are developing is the key to differentiating our solutions to the end user by providing what we maintain is a true end-to-end security offering using our patent-pending dynamic pairing codes that dynamically utilize identifiers that uniquely identify the user, device, manufacturer, account, location, and session or transaction, the combination of which changes periodically in real-time among all points along the communication path so that communication and data is protected 100% of the time. The biosensors that we are developing are intended to integrate with multiple devices, apps, users, operating systems, firmware, remote services and virtually any “entities” so that intercommunications with all entities, local or remote, are protected.
Employment Agreements, page 55
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22.
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Under the terms of Mr. Pereira's employment agreement, it appears that a significant increase in Mr. Pereira's base salary would be based in large part on the sale of the shares of this offering. Because his receipt of a significant portion of his salary would be contingent on his success in selling the issuer's securities, it seems that, under paragraph (a)(2) of Rule 3a4-1, he could not rely on Rule 3a4-1's safe harbor from being considered a broker. If you claim that Mr. Pereira would not be acting as a broker under the proposed arrangement despite his apparent inability to rely on the Rule 3a4-1 safe harbor, please provide facts and legal analysis to support your claim.
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The purpose of tying the increase in Mr. Pereira’s salary to capital raised was not as a commission or contingent payment on the success of selling the Issuer’s securities, but instead as a trigger at a time when the Company was to have been on stronger financial footing. This was deemed by the Company’s sole independent director to be preferable to accruing a higher salary until the Company had the financial ability to pay such salary. The Company and Mr. Pereira have amended his employment agreement to reflect the increase of salary based on the production of a working prototype of the Wocket. It is the Company’s belief that such a milestone will be significant enough to justify his taking full compensation under his employment agreement as the Company will be in a position to begin commercializing the product with minimal development risk. A revised employment agreement is being filed with this amendment and the disclosure throughout the document has been modified accordingly.
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23.
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Please revise to clarify whether "public listing" refers here to being listed on a national exchange or merely being quoted in the over-the-counter markets.
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We have clarified the public listing reference to refer to the OTC Bulletin Board.
Age of Financial Statements
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24.
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Please update the financial statements and other financial information to include the year ended December 31, 2012 as required by Rule 8-08 of Regulation S-X.
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This amendment includes financial statements for the year ended December 31, 2012.
NXT-ID Consolidated Balance Sheet, page F-13
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25.
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Disclose the nature of the transactions that resulted in the receipt of customer deposits.
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(Please
see page F-2) All customer deposits were related to the initial sale of the 3D facial recognition access control and
identification products in November 2012 and were required due to the customized nature of this order. As the sale was
delivered in November 2012 there were no customer deposits outstanding as of December 31, 2012.
Note 1 Organization, Page F-17
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26.
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We note that you accounted for the acquisition of 3D-ID as a transaction between entities under common control since there was similar ownership. Please disclose the nature and amount of consideration issued to acquire the membership interests of 3D-ID. Provide us with a schedule showing the amount of each owner's interest in 3D-ID and NXT-ID before the transaction and in the combined company. Also identify any related family members in the groups and describe the nature of the relationship.
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(Please
see page F-6) The only two shareholders of 3D-ID were Messrs. Pereira and Tunnell. The acquisition of 3D-ID by Nxt-ID did
not change the relative ownership percentages of each’s equity holdings. There were no family members
who were owners either at the time of 3D-ID’s founding by Messrs. Pereira and Tunnell or at the acquisition.
Messrs. Pereira and Tunnell contributed $10,000 to acquire their membership interests in 3D-ID. Nxt-ID acquired 100% of
the membership interests of 3D-ID in exchange for 20,000,000 of its common stock.
Should you have any questions, please do not hesitate to contact the undersigned at (203) 242-3076.
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Very truly yours,
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By:
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/s/ Gino Pereira | |
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Gino Pereira
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Chief Executive Officer
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cc: David E. Danovitch, Esq.
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