UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A
(Amendment No. 1)

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): December 4, 2015

 

POSITIVEID CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   001-33297   06-1637809
(State or Other Jurisdiction
of Incorporation)
  (Commission
File Number)
  (IRS Employer
Identification Number)

 

1690 South Congress Avenue, Suite 201

Delray Beach, Florida 33445

(Address of principal executive offices) (zip code)

 

(561) 805-8000

(Registrant’s telephone number, including area code)

 

 

 

 

(Former Name or Former Address if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 
 

 

Cautionary Note on Forward-Looking Statements

 

This Current Report on Form 8-K/A (this “Report”) and any related statements of representatives and partners of the Company contain, or may contain, among other things, certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with respect to the Company’s plans, objectives, projections, expectations and intentions and other statements identified by words such as “projects,” “may,” “will,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” or similar expressions. These statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission (the “SEC”). Actual results may differ significantly from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company’s control). The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

EXPLANATORY NOTE

 

On December 7, 2015, PositiveID Corporation (“PositiveID” or “Company”), filed a Current Report on Form 8-K under Items 1.01 and 3.02 (the “Initial Report”) to report that it had entered into several agreements related to its acquisition of all of the outstanding common stock of Thermomedics, Inc. (“Thermo”). One of those agreements was a Management Services and Control Agreement, dated December 4, 2015 (the “Control Agreement”), between the Company, Thermo, and Sanomedics, Inc. (“Sanomedics”), whereby PositiveID was appointed the manager of Thermo. In a separate agreement the Company entered into a First Amendment to the original Stock Purchase Agreement (the “Amendment”) with Sanomedics, which was entered into on October 21, 2015 (the “Stock Purchase Agreement”). The terms of the Stock Purchase Agreement were disclosed in that certain Current Report on Form 8-K filed by the Company on October 21, 2015. The original Stock Purchase Agreement as modified by the Amendment defines the agreed upon terms of the Company’s acquisition of all of the common stock of Thermo from Sanomedics. The Initial Report did not include disclosure under Item 2.01 that the acquisition of all of the outstanding common stock of Thermo was completed by operation of the Stock Purchase Agreement, Amendment and Control Agreement. This Current Report on Form 8-K/A amends the Initial Report to add disclosure under Item 2.01.

 

As a result of the Company assuming control of Thermo on December 4, 2015, it determined, pursuant to ASC 805-10-25-6, that December 4, 2015 was the acquisition date of Thermo for accounting purposes. In compliance with parts (a) and (b) of Item 9.01 of the Initial Report, the Company is filing the required financial information by amendment, as permitted by Item 9.01(a)(4) and 9.01(b)(2) to Form 8-K. This Current Report on Form 8-K/A amends Items 9.01(a) and 9.01(b) of the Initial Report to provide the required financial information.

 

The Initial Report otherwise remains the same and the Items therein are hereby incorporated by reference into this Current Report on Form 8-K/A.

 

Item 2.01. Completion of Acquisition or Disposition of Assets.

 

By operation of the Stock Purchase Agreement, Amendment and Control Agreement, the Company determined that, for accounting purposes, its acquisition of all of the outstanding common stock of Thermo was completed on December 4, 2015, which is the date the Amendment and Control Agreement were entered into by the parties.

 

The information provided in Items 1.01 and 3.02 of the Initial Report related to the aforementioned Stock Purchase Agreement, Amendment and Control Agreement is incorporated by reference into this Item 2.01.

 

The financial statements and pro forma financial information provided in Item 9.01 to this Current Report on Form 8-K are incorporated herein by reference into this Item 2.01.

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial statements of businesses acquired

 

The audited financial statements of Thermo as of and for the years ended December 31, 2014 and 2013, and the notes related thereto are attached hereto as Exhibit 99.1 and are incorporated herein by reference.

 

The unaudited financial statements of Thermo as of September 30, 2015 and for the nine months ended September 30, 2015 and 2014, and the notes related thereto are attached hereto as Exhibit 99.2 and are incorporated herein by reference.

 

(b) Pro forma financial information

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2015 has been prepared to present the Company’s financial position as if the acquisition of Thermo had occurred on September 30, 2015. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014 and the nine months ended September 30, 2015 have been prepared to present the Company’s results of operations as if the acquisition of Thermo had occurred on January 1, 2014 and January 1, 2015, respectively. The unaudited condensed combined pro forma financial information is attached hereto as Exhibit 99.3 and is incorporated herein by reference.

 

(c) Exhibits

 

Exhibit No.   Description
     
99.1   Financial statements of Thermomedics, Inc. as of and for the years ended December 31, 2014 and 2013
99.2   Unaudited financial statements of Thermomedics, Inc. as of September 30, 2015 and for the nine months ended September 30, 2015 and 2014
99.3   Unaudited pro forma condensed combined financial information

 

2
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  POSITIVEID CORPORATION
     
Date: February 19, 2016 By: /s/ William J. Caragol
  Name: William J. Caragol
  Title: Chief Executive Officer

 

3
 

 

 



 

Exhibit 99.1

 

THERMOMEDICS, INC.

 

Financial Statements

 

For the Years Ended

December 31, 2014 and 2013

 

INDEX TO FINANCIAL STATEMENTS

 

   Page
Report of Independent Registered Public Accounting Firm  2
    
Balance Sheets as of December 31, 2014 and 2013  3
    
Statements of Operations for the years ended December 31, 2014 and 2013  4
    
Statements of Changes in Stockholder’s Deficit for the years ended December 31, 2014 and 2013  5
    
Statements of Cash Flow for the years ended December 31, 2014 and 2013  6
    
Notes to the Financial Statements  7

 

1
 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Stockholders of

Thermomedics, Inc.

 

We have audited the accompanying balance sheets of Thermomedics, Inc. at December 31, 2014 and 2013, and the related statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Thermomedics, Inc. as of December 31, 2014 and 2013 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has net losses or nominal net income and cash used in operating activities in 2014 and has a working capital deficit, stockholders’ deficit and an accumulated deficit at December 31, 2014. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regards to these matters is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Salberg & Company, P.A.

 

SALBERG & COMPANY, P.A.

Boca Raton, Florida

February 19, 2016

 

 

 

 

2295 NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431-7328

Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920

www.salbergco.com ● info@salbergco.com

Member National Association of Certified Valuation Analysts Registered with the PCAOB

Member CPA Connect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality

 

2
 

 

Thermomedics, Inc.

Balance Sheets

 

   December 31, 2014   December 31, 2013 
Assets          
Current Assets          
Cash  $94,949   $5,908 
Accounts receivable, net   241,967    19,026 
Due from officer   -    7,998 
Inventories   28,140    40,560 
Total Current Assets   365,056    73,492 
           
Fixed assets, net   7,470    6,061 
Patents, net   11,836    16,816 
Total Assets  $384,362   $96,369 
Liabilities and Stockholders’ Deficit          
Current Liabilities          
Accounts payable  $210,675   $155,657 
Accrued expenses and other liabilities   8,730    47,230 
Due to officer and his affiliate   -    95,882 
Due to parent   2,623,828    2,312,844 
Due to affiliate   6,000    - 
Total Liabilities   2,849,233    2,611,613 
           
Commitments and contingencies (Note 6)          
           
Stockholders’ Deficit          
Common stock, no par value: 1,500 shares authorized, 1,500 and 1,500 issued and outstanding as of December 31, 2014 and 2013, respectively.   -    - 
Accumulated deficit   (2,464,871)   (2,515,244)
Total Stockholders’ Deficit   (2,464,871)   (2,515,244)
Total Liabilities and Stockholders’ Deficit  $384,362   $96,369 

 

See accompanying notes to financial statements

 

3
 

 

Thermomedics, Inc.

Statements of Operations

 

   For the Years Ended 
   December 31, 
   2014   2013 
Sales  $677,243   $255,186 
Cost of goods sold   130,553    53,609 
Gross profit   546,690    201,577 
Operating expenses          
General and administrative   480,785    291,746 
Research and development   1,961    111,500 
Depreciation and amortization   13,571    7,566 
Impairment of patents   -    15,000 
Total operating expenses   496,317    425,812 
Income (Loss) from operations   50,373    (224,235)
           
Income tax provision   -    - 
           
Net income (loss)  $50,373   $(224,235)

 

See accompanying notes to financial statements

 

4
 

 

Thermomedics, Inc.

Statement of Changes in Stockholders’ Deficit

For the Years Ended December 31, 2014 and 2013

 

           Total 
   Common Stock   Accumulated   Stockholders’ 
   Shares   Amount   Deficit   Deficit 
Balance December 31, 2012   1,500    -   $(2,291,009)  $(2,291,009)
Net loss for the year ended December 31, 2013   -    -    (224,235)   (224,235)
Balance December 31, 2013   1,500    -    (2,515,244)   (2,515,244)
Net loss for the year ended December 31, 2014   -    -    50,373    50,373 
Balance December 31, 2014   1,500    -   $(2,464,871)  $(2,464,871)

 

See accompanying notes to financial statements

 

5
 

 

Thermomedics, Inc.

Statements of Cash Flows

 

   For the Year Ended 
   December 31, 
   2014   2013 
CASH FLOWS FROM OPERATING ACTIVITIES          
           
Net income (loss)  $50,373   $(224,235)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
           
Depreciation and amortization   13,571    7,566 
           
Bad debt   2,462    - 
           
Impairment of patents   -    15,000 
           
Changes in operating assets and liabilities:          
           
(Increase) in accounts receivable   (225,403)   (16,183)
           
Decrease (increase) in inventories   12,420    (40,570)
           
(Increase) decrease in due from officer   7,998    (7,998)
           
Increase accounts payable   55,018    28,848 
           
(Decrease) increase in accrued expenses   (38,500)   35,235
           
Increase in due to affiliate   -    21,808 
           
Net Cash Used In Operating Activities   (122,061)   (180,529)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
           
Acquisition of fixed asset   (10,000)   - 
           
Net Cash Used In Investing Activities   (10,000)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
           
Bank overdraft repayment   -    (1,137)
           
Proceeds from affiliate loans   6,000    45,074 
           
Proceeds from parent   215,102    115,337 
           
Net Cash Provided By Financing Activities   221,102    159,274 
           
Net increase (decrease) in cash   89,041    (21,255)
           
Cash - Beginning of year   5,908    27,163 
           
Cash - End of year  $94,949   $5,908 
           
Supplementary disclosure of non-cash financing activities:          
           
Liabilities assumed by parent  $95,882   $- 

 

See accompanying notes to financial statements

 

6
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

Thermomedics, Inc. is incorporated in the state of Nevada. The Company designs, develops, markets and distributes non-contact infrared thermometers principally for healthcare providers. Throughout 2014 and 2013, the Company was a wholly-owned subsidiary of Sanomedics, Inc. (“Sanomedics”).

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, 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. Actual results could differ from those estimates. Use of estimates includes the following: 1) allowance for doubtful accounts, 2) inventories valuation, 3) estimated useful lives of property, equipment and intangible assets, 4) loss and other contingencies 5) product warranty liabilities and 6) estimates related to deferred tax assets.

 

Cash

 

For purposes of reporting cash flows, the Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2014 and 2013, the Company had no cash equivalents.

 

Revenue Recognition

 

Revenue from sales of the Company’s products is recorded when risk of loss have passed to the buyer and criteria for revenue recognition discussed below is met. The Company sells its products primarily to distributors and resellers upon receipt of a written order. The Company has a limited return policy for defective items that requires that they give the Company notice within 30 days after receipt of the product, however such risk is passed to the manufacturer and therefore, the Company recognizes revenue at the time of delivery.

 

Concentration of Credit Risk

 

Financial instruments which subject the Company to concentrations of credit risk include cash and accounts receivable. At times throughout the year, the Company might maintain bank balances that may exceed Federal Deposit Insurance Corporation (FDIC) insured limits. Periodically, the Company evaluates the credit worthiness of the financial institution and, has not experienced any losses in such accounts. The Company extends credit based on an evaluation of the customer’s financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.

 

Revenue and Accounts Receivable Concentrations

 

During the years ended December 31, 2014 and 2013, the Company earned revenue from its three largest customers of 35%, 34% and 28%, and 41%, 29% and 28%, respectively. As of December 31, 2014, the Company had accounts receivable from its two largest customers of 54% and 43%. As of December 31, 2013, the Company had accounts receivable from its three largest customers of 39%, 37% and 24%.

 

Accounts Receivable

 

Accounts receivable represents amounts due from the Company’s customers. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management utilizes a specific customer identification methodology. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company’s allowance for doubtful accounts was $12,000 and $0 at December 31, 2014 and 2013, respectively.

 

Inventories

 

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. The stated cost is comprised of finished goods of non-contact thermometers. Reserves, if necessary, are recorded to reduce inventory to market value based on assumptions about consumer demand, current inventory levels and product life cycles for the various inventory items. These assumptions are evaluated quarterly and are based on the Company’s business plan and from feedback from customers and the product development team; however, as the Company has a fairly limited operating history, estimates can vary significantly. As of December 31, 2014 and 2013, inventory reserves were not material.

 

7
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

Reserves for Warranty

 

The Company records a reserve at the time product revenue is recorded based on historical rates. The reserve is reviewed during the year and is adjusted, if appropriate, to reflect new product offerings or changes in experience. Actual warranty claims are tracked by product line. The warranty reserve was not material during either year ended.

 

Fixed Assets

 

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is generally 5 to 7 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income or expense.

 

The Company will periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

 

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2014 and 2013 were $4,250 and $20,701, respectively.

 

Shipping and Handling

 

Costs incurred by the Company for shipping and handling are included in costs of goods sold. Shipping and handling costs for the years ended December 31, 2014 and 2013 were $16,339 and $16,676, respectively.

 

Income Taxes

 

The Company accounts for income taxes under ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period, which includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. This first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

 

During the years ended December 31, 2014 and 2013 the Company filed its tax returns as a part of the Sanomedics, Inc. consolidated group. The Company uses the separate return method for recording its tax account balances.

 

Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company’s evaluation was performed for the tax years ended December 31, 2014 and 2013. The Company does not expect any changes in its unrecognized tax benefits in the next year.

 

The Company’s policy for recording interest and penalties related to unrecognized tax benefits is to record such expenses as a component of current income tax expense. As of December 31, 2014 and 2013, the Company has no accrued interest or penalties related to uncertain tax positions.

 

8
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

Legal Expenses

 

All legal costs for litigation matters are charged to expense as incurred.

 

Research and Development Expense

 

Costs related to research and development, which primarily consists of salaries and benefits and consulting are charged to expense as incurred.

 

Patents

 

We capitalize external cost, such as filing fees and associated attorney fees, incurred to obtain issued patents and patent license rights. We expense cost associated with maintaining and defending patents subsequent to their issuance in the period incurred. We amortize capitalized patent cost for internally generated patents on a straight-line basis over ten years, which represents the estimate useful lives of the patents. We assess the potential impairment to all capitalized net patent cost when events or changes in circumstances indicate that the carrying amount of our patent portfolio may not be recoverable. As of December 31, 2014 and 2013 patent costs, net of amortization of $22,937 and $17,957, respectively, totaled $11,836 and $16,816, respectively. The Company incurred amortization expense of $4,980 for the years ended December 31, 2014 and 2013 related to these patents. Future amortization is expected to be $4,980 in 2015 and 2016 and $1,876 in 2017.

 

Fair Value

 

FASB ASC 820, Fair Value Measurements and Disclosure s (“ASC 820”) establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories:

 

Level 1 Quoted market prices for identical assets or liabilities in active markets or observable inputs;

 

Level 2 Significant other observable inputs that can be corroborated by observable market data; and

 

Level 3 Significant unobservable inputs that cannot be corroborated by observable market data.

 

The carrying amounts of cash, accounts receivable, accounts payable, accrued expense payable and other liabilities approximate fair value because of the short-term nature of these items.

 

Recent Accounting Pronouncements

 

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is effective for public entities for annual reporting periods beginning after December 15, 2016. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on the financial statements and has not yet determined the method by which the Company will adopt the standard in 2018.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern—Disclosures of Uncertainties about an entity’s Ability to Continue as a Going Concern (“ASU 2014-15”) . ASU 2014-15 provides new guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards and to provide related footnote disclosures. This new guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The requirements of ASU 2014-15 are not expected to have a significant impact on the Company’s financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires an entity to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The accounting standard is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of this accounting standard.

 

9
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

NOTE 2 – LIQUIDITY AND GOING CONCERN

 

The financial statements have been prepared on a going concern basis, and do not reflect any adjustments related to the uncertainty surrounding the Company’s recurring losses, working capital deficiency or accumulated deficit.

 

During the years ended December 31, 2014 and 2013 the Company was a wholly-owned subsidiary of Sanomedics. All funding of working capital or operating deficits have been provided by Sanomedics. The Company has a working capital deficiency of $2.5 million at December 31, 2014, and has incurred operating losses since inception with the exception of a net income in 2014 and had incurred cash flow deficits from operations in 2014. These factors raise substantial doubt about its ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon it ability to successfully raise additional capital and achieve profitable operations. However, management cannot provide any assurances that the Company will be successful in completing this financing and accomplishing any of its plans. In December 2015 control of the Company was transferred, under contract, from Sanomedics, Inc. to PositiveID Corporation (see Note 8). PositiveID has communicated its intent to financially support the operations of the Company. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 – FIXED ASSETS, NET

 

Fixed assets, net consist of the following:

 

   December 31, 2014   December 31, 2013 
Furniture and equipment  $25,545   $15,545 
Less accumulated depreciation   (18,075)   (9,484)
   $7,470   $6,061 

 

Depreciation expense for the years ended December 31, 2014 and 2013, was $8,591 and $2,586; respectively.

 

NOTE 4 – EQUITY

 

Common Stock

 

At December 31, 2014 and 2013 the Company had 1,500 shares of common stock authorized, issued and outstanding. At December 31, 2014 and 2013 all of the outstanding common stock of the Company was owned by Sanomedics.

 

NOTE 5 – INCOME TAXES

 

As of December 31, 2014 and 2013, the income tax provision (benefit) consists of the following:

 

   2014   2013 
Federal:          
Current  $18,231   $(75,284)
Deferred   (213)   589 
State and local:          
Current   1,946    (8,038)
Deferred   (23)   63 
Change in valuation allowance   (19,942)   82,670 
Income tax provision (benefit)  $     

 

The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2014 and 2013 consist of the following:

 

   2014   2013 
         
Gross deferred tax assets:          
Net operating loss carryforwards  $870,528   $756,546 
Accrued salaries   990    564 
Total deferred tax assets   871,518    757,110 
Less: valuation allowance   (871,518)   (757,110)
Total Deferred Taxes  $-   $- 

 

10
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

As of December 31, 2014 and 2013, the provision (benefit) for income taxes using the U.S. statutory federal tax rate as compared to the Company’s effective tax rate is summarized as follows:

 

   2014   2013 
         
Federal statutory rate   (34.0)%   (34.0)%
State tax rate, net of Federal benefit   (3.6)%   (3.6)%
Other permanent differences   (6.4)%   1.3%
Change in: valuation allowance   44.1%   36.4%
Effective Rate   -%   -%

 

The Company has U.S. federal and state net operating loss carryovers (“NOL’s”) of approximately $2.3 million and $2.0 million at December 31, 2014 and 2013, respectively, which begin to expire in 2035. Section 382 of the Internal Revenue Code limits the amount of NOL’s available to offset future taxable income when a substantial change in ownership occurs. The Company has not prepared a Section 382 analysis therefore, the amount available to offset future taxable income may be limited as a result of the planned sale of the Company (see Note 8).

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore, established a full valuation allowance for the tax years ended December 31, 2014 and 2013.

 

The Company’s net operating loss and valuation allowance deferred tax assets are impacted by both the Company’s current tax position and the impact of being a member of the consolidated group of Sanomedics, Inc. At December 31, 2014 and 2013 no amount was due to or from the parent or affiliate related to the tax provision.

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

Exergen Litigation

 

On October 10, 2012, the Samomedics received a cease and desist demand letter from Exergen Corporation (“Exergen”), claiming that the Company infringed on certain patents relating to the Samomedics non-contact thermometers. On May 21, 2013 Exergen filed a complaint in the U.S. District Court of the District of Massachusetts against the Company and Thermomedics, Inc. On September 3, 2013, the Samomedics filed its answer to Exergens’ complaint and asserted counterclaims and affirmative defenses for non-infringement and invalidity of certain patents. On March 26, 2015, Exergen and Sanomedics filed a partial dismissal that removes Sanomedics previous product, the Talking Non-Contact Thermometer, from the lawsuit. Exergen’s claims against the Caregiver TouchFree Thermometer are ongoing. On September 15, 2015 the United States District Court – District of Massachusetts, entered an order granting the Sanomedics’s motion for judgement, ruling that that patents claims made by Exergen against the Company were invalid. Exergen has advised the court that it intends to appeal that summary judgment order. The Company will continue to vigorously defend its rights to market and sell the Caregiver thermometer. Management believes the Company will be successful in its defense.

 

Distributor and Supplier Agreements

 

Under certain agreements the Company may be subject to penalties if they are unable to supply products under its obligations. Since inception, the Company has never incurred any such penalties.

 

Parent Company Debt

 

Pursuant to the terms of several of the convertible notes payable entered into by the Company’s parent, the Company is jointly and severably liable. The Company’s parent has converted a portion of these notes into common shares of parent, without cash payment. As of December 31, 2014 the balance of notes that the Company was jointly and severably liable under was approximately $380,000. Through January 2016 there were a significant amount of note conversions bringing the balance down to approximately $50,000. The Company’s parent has confirmed its intent to repay the balance of the notes by converting into common shares of the parent. As such, the Company has not recorded any liability on its books for any of these notes.

 

11
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

NOTE 7 – RELATED PARTIES

 

As of December 31, 2014 and 2013 the Company had a debt owing to an affiliate (another subsidiary of Sanomedics, Inc.) of $6,000 and nil, respectively. As of December 31, 2014 and 2013 the Company had a debt owing to its parent company (Sanomedics, Inc.) of $2,623,828 and $2,312,844, respectively. As of December 31, 2014 and 2013 the Company had a debt owing to an affiliate of a former officer of its parent company and to his affiliate (Sanomedics, Inc.) of nil and $95,882, respectively. In 2014, the parent company assumed the liabilities of this officer and his affiliate and the balance of $95,882 is included in the due to parent in the Balance Sheet at December 31, 2014.

 

NOTE 8 – SUBSEQUENT EVENTS

 

On October 21, 2015, the Company and its parent, Sanomedics, Inc., entered into a Stock Purchase Agreement (“Purchase Agreement”) for the sale and purchase of Thermomedics, Inc., pursuant to which the Sanomedics has agreed to sell 100% of the stock ownership of Thermomedics to PositiveID Corporation, a Delaware corporation (the “Buyer”), (collectively the “Acquisition”).

 

Pursuant to the Purchase Agreement, as consideration at time of closing, the Buyer will pay Sanomedics Seven Hundred Fifty Thousand Dollars ($750,000) (the “Aggregate Purchase Price”) in the form of Two Hundred Fifty Thousand Dollars ($250,000) in cash and Five Hundred Thousand Dollars ($500,000) in the form of 500 shares of Series J Convertible Preferred Stock (the “Preferred Stock”) of the Buyer, subject to the adjustment of $29,000 for Thermomedics’ working capital deficit and $25,000 for legal fees of the Buyer, as detailed in the Purchase Agreement. In connection with the Acquisition, additional earn-out payments of up to Seven Hundred Fifty Thousand Dollars ($750,000) for each of the fiscal years ending December 31, 2016 and 2017 may be earned by the Company if certain revenue thresholds are met as described in the Purchase Agreement. Such earn-out payments, if any, will consist of twenty five percent (25%) in cash (up to One Hundred Eighty Seven Thousand Dollars ($187,000) and seventy five percent (75%) in shares of preferred stock of the Buyer (up to 563 shares of Preferred Stock) for each of the fiscal years ending December 31, 2016 and 2017, respectively.

 

The parties have made customary representations and warranties in the Purchase Agreement and agreed to certain covenants, including the authority to enter into the Purchase Agreement, the organization of each of the parties and the lack of conflict with any organizational documents, agreements or rules. These representations and warranties were made as of specific dates and may be subject to important qualifications, limitations and supplemental information agreed to in negotiating the terms of the Purchase Agreements.

 

On December 4, 2015, the Company, Sanomedics, and PositiveID entered into a First Amendment to the Stock Purchase Agreement (the “Amendment”). Also on December 4, 2015 the Company, Sanomedics and PositiveID entered into a Management Services and Control Agreement (the “Control Agreement”), whereby PositiveID was appointed at the manager of Thermomedics.

 

First Amendment to SPA

 

Per the terms of the Amendment, as consideration at the time of closing of the Acquisition, PositiveID will pay the Seller Three Hundred Seventy Five Thousand Dollars ($375,000) (the “Aggregate Purchase Price”) in the form of Two Hundred Fifty Thousand Dollars ($250,000) in cash less PositiveID’s professional services expenses of Twenty Five Thousand Dollars ($25,000) (the “Cash Purchase Price”) and One Hundred Twenty Five Thousand Dollars ($125,000) in the form of 125 shares (the “Stock Purchase Price”) of Series J Convertible Preferred Stock (the “Preferred Stock”) of PositiveID, subject to adjustment of $50,000 for the Company’s working capital deficit. In connection with the execution of the Amendment, the Control Agreement, the Thermomedics Security Agreement and Sanomedics Security Agreement (each as defined and described below), PositiveID advanced to Sanomedics a net payment of One Hundred And Seventy Five Thousand Dollars ($175,000) (the “Cash Purchase Price Payment”). The closing of the transaction contemplated by the Purchase Agreement, as amended, is expected to occur in the first half of 2016 pending the satisfaction by Seller of certain closing conditions.

 

Except as otherwise modified by the Amendment, the terms of the Purchase Agreement remain in effect and unchanged.

 

Control Agreement

 

Under the terms of the Control Agreement, as the manager, PositiveID will have the sole responsibility for all strategic, operational and financial decisions, will be fully responsible for the financial obligations of Thermomedics, and will be empowered to commit Thermomedics with full authority of Thermomedics’ officers and the Thermomedics Board. PositiveID will also benefit from any and all revenue generated by Thermomedics. As of the execution of the Amendment and the Control Agreement, the sole Thermomedics board members and officers are William J. Caragol, PositiveID’s Chairman and CEO and Allison F. Tomek, the PositiveID’s Senior Vice President.

 

Further, under the Control Agreement, PositiveID agreed to advance (i) cash to Thermomedics or directly pay Thermomedics’ expenses on an as needed basis as determined by PositiveID in its role as manager and (ii) the Cash Purchase Price Payment (the “Advances”). All Advances accrue interest at a simple interest rate of 5% unless an “event of default” (as defined below) has occurred in which cash the interest rate is 18%, compounded daily.

 

12
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

Positive ID is not entitled to any compensation under the Control Agreement. However, in an event of default Sanomedics and Thermomedics must pay PositiveID the amount of any cash Advances made, plus interest and a termination fee of $250,000. For purposes of the Control Agreement, an “event of default” means the failure of the transactions contemplated by the Purchase Agreement to close by February 16, 2016. In the event that such transactions close within 20 days of such date, an event of default will be deemed not to occur. Further, an event of default will not be considered to have occurred if the Seller has taken all necessary steps under the Purchase Agreement to close and PositiveID elects not to close such transactions.

 

Security Agreements with Seller and Thermomedics

 

Under the terms of the Control Agreement and in connection with the Advances made by PositiveID to Sanomedics and Thermomedics: (1) Thermomedics and PositiveID entered into a Security Agreement pursuant to which Thermomedics granted PositiveID a first priority security interest in all of the assets of Thermomedics (the “Thermomedics Security Agreement”) and (2) Sanomedics and PositiveID entered into a Security Agreement pursuant to which Sanomedics agreed to grant a first priority security interest in all of the shares of Thermomedics that the Sanomedics owns and that represent full ownership of Thermomedics (the “Sanomedics Security Agreement”).

 

Management has evaluated the subsequent events through February 19, 2016, the date at which the financial statements were available for issuance.

 

13
 



 

Exhibit 99.2

 

THERMOMEDICS, INC.

 

Financial Statements (Unaudited)

 

For the Nine Months Ended

September 30, 2015 and 2014

 

INDEX TO FINANCIAL STATEMENTS

 

   Page
Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014  2
    
Statements of Operations (unaudited) for the nine months ended September 30, 2015 and 2014  3
    
Statements of Cash Flow (unaudited) for the nine months ended September 30, 2015 and 2014  4
    
Notes to the Financial Statements (unaudited)  5

 

1
 

 

Thermomedics, Inc.

Balance Sheets

 

   September 30, 2015   December 31, 2014 
    (unaudited)      
Assets          
Current Assets          
Cash  $9,808   $94,949 
Accounts receivable, net   8,502    241,967 
Inventories   31,187    28,140 
Total Current Assets   49,497    365,056 
           
Fixed assets, net   9,755    7,470 
Patents, net   5,836    11,836 
Total Assets  $65,088   $384,362 
Liabilities and Stockholders’ Deficit          
Current Liabilities          
Accounts payable  $64,403   $210,675 
Accrued expense payable and other liabilities   1,000    8,730 
Due to parent   2,463,150    2,623,828 
Due to affiliate   -    6,000 
Total Liabilities   2,528,553    2,849,233 
           
Commitments and contingencies (Note 5)          
           
Stockholders’ Deficit          
Common stock, no par value: 1,500 shares authorized, 1,500 and 1,500 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.   -    - 
Accumulated deficit   (2,463,465)   (2,464,871)
Total Stockholders’ Deficit   (2,463,465)   (2,464,871)
Total Liabilities and Stockholders’ Deficit  $65,088   $384,362 

 

See accompanying unaudited notes to financial statements

 

2
 

 

Thermomedics, Inc.

Statements of Operations
(Unaudited)

 

   For the Nine Months Ended 
   September 30, 
   2015   2014 
Sales  $414,866   $278,536 
Cost of goods sold   65,964    49,700 
Gross profit   348,902    228,836 
Operating expenses          
General and administrative   333,925    342,522 
Research and development   -    2,453 
Depreciation and amortization   13,571    5,697 
Total operating expenses   347,496    367,903 
Income (loss) from operations   1,406    (121,836)
           
Income tax provision   -    - 
           
Net income (loss)  $1,406   $(121,836)

 

See accompanying unaudited notes to financial statements

 

3
 

 

Thermomedics, Inc.

Statements of Cash Flows
(Unaudited)

 

   For the Year Ended 
   September 30, 
   2015   2014 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
           
Net income (loss)  $1,406   $(121,836)
           
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
           
Depreciation and amortization   15,886    5,697 
           
Bad debt expense recovery   (1,152)   - 
           
Changes in operating assets and liabilities:          
           
Decrease (increase) in accounts receivable   234,617    (11,760)
           
Decrease (increase) in inventories   (3,047)   33,851 
           
(Increase) in other current asset   -    (10,000)
           
Increase (decrease) accounts payable   (146,272)   9,657 
           
Increase (decrease) in accrued payable and other liabilities   (7,730)   (25,841)
           
Net Cash provided by (Used In) Operating Activities   93,708    (120,232)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
           
Acquisition of fixed asset   -    (10,000)
           
Net Cash Used In Investing Activities   -    (10,000)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
           
(Payments to) and proceeds from parent   (178,849)   232,385 
           
Payments to officer and his affiliate   -    (95,882)
           
Net Cash Provided By (Used In) Financing Activities   (178,849)   136,503 
           
Net increase (decrease) in cash   (85,141)   6,271 
           
Cash - Beginning of period   94,949    5,908 
           
Cash - End of period  $9,809   $12,179 
           
Supplementary disclosure of non-cash investing and financing activities:          
           
Liabilities assumed by parent  $6,000   $- 
           
Transfer of fixed asset from parent  $12,171   $- 

 

See accompanying unaudited notes to financial statements

 

4
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2015

 

NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

Thermomedics, Inc. is incorporated in the state of Nevada. The Company designs, develops, markets and distributes non-contact infrared thermometers principally for healthcare providers. Through all periods presented the Company was a wholly-owned subsidiary of Sanomedics, Inc.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, 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. Actual results could differ from those estimates. Use of estimates includes the following: 1) allowance for doubtful accounts, 2) inventories valuation, 3) estimated useful lives of property, equipment and intangible assets, 4) loss and other contingencies 5) product warranty liabilities and 6) estimates related to deferred tax assets.

 

Cash

 

For purposes of reporting cash flows, the Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. As of September 30, 2015 and 2014, the Company had no cash equivalents.

 

Revenue Recognition

 

Revenue from sales of the Company’s products is recorded when title and risk of loss have passed to the buyer and criteria for revenue recognition is met. The Company sells its products to individual consumers and resellers upon receipt of a written order. The Company has a limited return policy for defective items that requires that they give the Company notice within 30 days after receipt of the product, however such risk is passed to the manufacturer and therefore, the Company recognizes revenue at the time of delivery without providing any reserve.

 

Concentration of Credit Risk

 

Financial instruments which subject the Company to concentrations of credit risk include cash and accounts receivable. At times throughout the year, the Company might maintain bank balances that may exceed Federal Deposit Insurance Corporation (FDIC) insured limits. Periodically, the Company evaluates the credit worthiness of the financial institution and, has not experienced any losses in such accounts. The Company extends credit based on an evaluation of the customer’s financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.

Revenue Concentration

 

The Company earned revenue from two of its largest customer of 60% and 36% during the nine months ended September 30, 2015 and from its three largest customers of 61%, 19% and 19% during the nine months ended September 30, 2014.

 

Account Receivable Concentration

 

The Company had accounts receivable from its two largest customers of 55% and 24% as of September 30, 2015 and 54% and 43% as of December 31, 2014.

 

Accounts Receivable

 

Accounts receivable represents amounts due from the Company’s customers. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management utilizes a specific customer identification methodology. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company’s allowance for doubtful accounts was $1,000 and $12,000 at September 30, 2015 and December 31, 2014, respectively.

 

5
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2015

 

Inventories

 

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. The stated cost is comprised of finished goods of non-invasive thermometers. Reserves, if necessary, are recorded to reduce inventory to market value based on assumptions about consumer demand, current inventory levels and product life cycles for the various inventory items. These assumptions are evaluated quarterly and are based on the Company’s business plan and from feedback from customers and the product development team; however, as the Company has a fairly limited operating history, estimates can vary significantly. As of September 30, 2015 and December 31, 2014, inventory reserves were not material.

 

Reserves for Warranty

 

The Company records a reserve at the time product revenue is recorded based on historical rates. The reserve is reviewed during the year and is adjusted, if appropriate, to reflect new product offerings or changes in experience. Actual warranty claims are tracked by product line. The warranty reserve was not material during either period ended.

 

Fixed Assets

 

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is generally 5 to 7 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income or expense.

 

The Company will periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

 

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising costs for the nine months ended September 30, 2015 and 2014 were $27,118 and $4,772, respectively.

 

Shipping and Handling

 

Costs incurred by the Company for shipping and handling are included in costs of goods sold. Shipping and handling costs for the nine months ended September 30, 2015 and 2014 were $6,800 and $5,200, respectively.

 

Income Taxes

 

The Company accounts for income taxes under ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period, which includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. This first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

 

The Company files its tax returns as a part of the Sanomedics, Inc. consolidated group. The Company uses the separate return method for recording its tax account balances.

 

The Company’s policy for recording interest and penalties related to unrecognized tax benefits is to record such expenses as a component of current income tax expense. As of December 31, 2014 and September 30, 2015, the Company has no accrued interest or penalties related to uncertain tax positions.

 

6
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2015

 

Legal Expenses

 

All legal costs for litigation matters are charged to expense as incurred.

 

Research and Development Expense

 

Costs related to research and development, which primarily consists of salaries and benefits and consulting are charged to expense as incurred.

 

Patents

 

We capitalize external cost, such as filing fees and associated attorney fees, incurred to obtain issued patents and patent license rights. We expense cost associated with maintaining and defending patents subsequent to their issuance in the period incurred. We amortize capitalized patent cost for internally generated patents on a straight-line basis over ten years, which represents the estimate useful lives of the patents. We assess the potential impairment to all capitalized net patent cost when events or changes in circumstances indicate that the carrying amount of our patent portfolio may not be recoverable. As of September 30, 2015 and December 31, 2014 patent costs, net of amortization of $5,836 and $11,836, respectively, respectively. The Company incurred amortization expense of $6,000 and $3,700 for the nine months ended September 30, 2015 and 2014, respectively, related to these patents.

 

Fair Value

 

FASB ASC 820, Fair Value Measurements and Disclosure s (“ASC 820”) establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories:

 

Level 1 Quoted market prices for identical assets or liabilities in active markets or observable inputs;

 

Level 2 Significant other observable inputs that can be corroborated by observable market data; and

 

Level 3 Significant unobservable inputs that cannot be corroborated by observable market data.

 

The carrying amounts of cash, accounts receivable, accrued salaries payable, accounts payable and other liabilities, and accrued interest payable approximate fair value because of the short-term nature of these items.

 

NOTE 2 – LIQUIDITY AND GOING CONCERN

 

The financial statements have been prepared on a going concern basis, and do not reflect any adjustments related to the uncertainty surrounding the Company’s recurring losses, working capital deficiency or accumulated deficit.

 

During the nine months ended September 30, 2015 and for the years ended December 31, 2014 and 2013 the Company was a wholly-owned subsidiary of Sanomedics. All funding of working capital or operating deficits have been provided by Sanomedics. The Company has a working capital deficiency of $2.5 million at September 30, 2015, and has incurred operating losses or nominal net income and cash flow deficits from operations since inception. These factors raise substantial doubt about its ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon it ability to successfully raise additional capital and achieve profitable operations. However, management cannot provide any assurances that the Company will be successful in completing this financing and accomplishing any of its plans. In December 2015 control of the Company was transferred, under contract, from Sanomedics, Inc. to PositiveID Corporation (see Note 7). PositiveID has communicated its intent to financially support the operations of the Company. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 – FIXED ASSETS, NET

 

Fixed assets, net consist of the following:

 

   September 30, 2015    December 31, 2014  
Furniture and equipment  $37,751   $25,544 
Less accumulated depreciation   (27,961)   (18,075)
   $9,755   $7,470 

 

Depreciation expense for the nine months ended September 30, 2015 and 2014, was $9,886 and $1,962; respectively.

 

7
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2015

 

NOTE 4 – EQUITY – COMMON STOCK

 

At September 30, 2015 the Company had 1,500 shares of common stock authorized, issued and outstanding. At September 30, 2015 all of the outstanding common stock of the Company was owned by Sanomedics.

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.

 

Exergen Litigation

 

On October 10, 2012, the Company received a cease and desist demand letter from Exergen Corporation (“Exergen”), claiming that the Company infringed on certain patents relating to the Company’s non-contact thermometers. On May 21, 2013 Exergen filed a complaint in the U.S. District Court of the District of Massachusetts against the Company and Thermomedics, Inc. ( its’ wholly owned subsidiary). On September 3, 2013, the Company filed its answer to Exergens’ complaint and asserted counterclaims and affirmative defenses for non-infringement and invalidity of certain patents. On March 26, 2015, Exergen and Sanomedics filed a partial dismissal that removes Sanomedics previous product, the Talking Non-Contact Thermometer, from the lawsuit. Exergen’s claims against the Caregiver TouchFree Thermometer are ongoing. On September 15, 2015 the United States District Court – District of Massachusetts, entered an order granting the Company’s motion for judgement, ruling that that patents claims made by Exergen against the Company were invalid. Exergen has advised the court that it intends to appeal that summary judgment order. The Company will continue to vigorously defend its rights to market and sell the Caregiver thermometer. Management believes it will prevail and cannot estimate any potential range of loss.

 

Distributor and Supplier Agreements

 

Under certain agreements the Company may be subject to penalties if they are unable to supply products under its obligations. Since inception, the Company has never incurred any such penalties.

 

Parent Company Debt

 

Pursuant to the terms of several of the convertible notes payable entered into by the Company’s parent, the Company is jointly and severably liable. The Company’s parent has converted a portion of these notes into common shares of parent, without cash payment. As of December 31, 2014 the balance of notes that the Company was jointly and severably liable under was approximately $380,000. Through January 2016 there were a significant amount of note conversions bringing the balance down to approximately $50,000. The Company’s parent has confirmed its intent to repay the balance of the notes by converting into common shares of the parent. As such, the Company has not recorded any liability on its books for any of these notes.

 

NOTE 6 – RELATED PARTIES

 

As of nine months September 30, 2015 and December 31, 2014 the Company had a debt owing to an affiliate (another subsidiary of Sanomedics, Inc.) of nil and $6,000, respectively. As of nine months September 30, 2015 and December 31, 2014 the Company had a debt owing to its parent company (Sanomedics, Inc.) of $2,463,150 and $2,623,828, respectively.

 

8
 

 

THERMOMEDICS, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2015

 

NOTE 7 – SUBSEQUENT EVENTS

 

On October 21, 2015, the Company and its parent, Sanomedics, Inc., entered into a Stock Purchase Agreement (“Purchase Agreement”) for the sale and purchase of Thermomedics, Inc., pursuant to which the Sanomedics has agreed to sell 100% of the stock ownership of Thermomedics to PositiveID Corporation, a Delaware corporation (the “Buyer”), (collectively the “Acquisition”).

 

Pursuant to the Purchase Agreement, as consideration at time of closing, the Buyer will pay Sanomedics Seven Hundred Fifty Thousand Dollars ($750,000) (the “Aggregate Purchase Price “) in the form of Two Hundred Fifty Thousand Dollars ($250,000) in cash and Five Hundred Thousand Dollars ($500,000) in the form of 500 shares of Series J Convertible Preferred Stock (the “Preferred Stock”) of the Buyer, subject to the adjustment of $29,000 for Thermomedics’ working capital deficit and $25,000 for legal fees of the Buyer, as detailed in the Purchase Agreement. In connection with the Acquisition, additional earn-out payments of up to Seven Hundred Fifty Thousand Dollars ($750,000) for each of the fiscal years ending December 31, 2016 and 2017 may be earned by the Company if certain revenue thresholds are met as described in the Purchase Agreement. Such earn-out payments, if any, will consist of twenty five percent (25%) in cash (up to One Hundred Eighty Seven Thousand Dollars ($187,000) and seventy five percent (75%) in shares of preferred stock of the Buyer (up to 563 shares of Preferred Stock) for each of the fiscal years ending December 31, 2016 and 2017, respectively.

 

The parties have made customary representations and warranties in the Purchase Agreement and agreed to certain covenants, including the authority to enter into the Purchase Agreement, the organization of each of the parties and the lack of conflict with any organizational documents, agreements or rules. These representations and warranties were made as of specific dates and may be subject to important qualifications, limitations and supplemental information agreed to in negotiating the terms of the Purchase Agreements.

 

On December 4, 2015, the Company, Sanomedics, and PositiveID entered into a First Amendment to the Stock Purchase Agreement (the “Amendment”). Also on December 4, 2015 the Company, Sanomedics and PositiveID entered into a Management Services and Control Agreement (the “Control Agreement”), whereby PositiveID was appointed at the manager of Thermomedics.

 

First Amendment to SPA

 

Per the terms of the Amendment, as consideration at the time of closing of the Acquisition, PositiveID will pay the Seller Three Hundred Seventy Five Thousand Dollars ($375,000) (the “Aggregate Purchase Price”) in the form of Two Hundred Fifty Thousand Dollars ($250,000) in cash less PositiveID’s professional services expenses of Twenty Five Thousand Dollars ($25,000) (the “Cash Purchase Price”) and One Hundred Twenty Five Thousand Dollars ($125,000) in the form of 125 shares (the “Stock Purchase Price”) of Series J Convertible Preferred Stock (the “Preferred Stock”) of PositiveID, subject to adjustment of $50,000 for the Company’s working capital deficit. In connection with the execution of the Amendment, the Control Agreement, the Thermomedics Security Agreement and Sanomedics Security Agreement (each as defined and described below), PositiveID advanced to Sanomedics a net payment of One Hundred And Seventy Five Thousand Dollars ($175,000) (the “Cash Purchase Price Payment”). The closing of the transaction contemplated by the Purchase Agreement, as amended, is expected to occur in the first half of 2016 pending the satisfaction by Seller of certain closing conditions.

 

Except as otherwise modified by the Amendment, the terms of the Purchase Agreement remain in effect and unchanged.

 

Control Agreement

 

Under the terms of the Control Agreement, as the manager, PositiveID will have the sole responsibility for all strategic, operational and financial decisions, will be fully responsible for the financial obligations of Thermomedics, and will be empowered to commit Thermomedics with full authority of Thermomedics’ officers and the Thermomedics Board. PositiveID will also benefit from any and all revenue generated by Thermomedics. As of the execution of the Amendment and the Control Agreement, the sole Thermomedics board members and officers are William J. Caragol, PositiveID’s Chairman and CEO and Allison F. Tomek, the PositiveID’s Senior Vice President.

 

Further, under the Control Agreement, PositiveID agreed to advance (i) cash to Thermomedics or directly pay Thermomedics’ expenses on an as needed basis as determined by PositiveID in its role as manager and (ii) the Cash Purchase Price Payment (the “Advances”). All Advances accrue interest at a simple interest rate of 5% unless an “event of default” (as defined below) has occurred in which cash the interest rate is 18%, compounded daily.

 

Positive ID is not entitled to any compensation under the Control Agreement. However, in an event of default Sanomedics and Thermomedics must pay PositiveID the amount of any cash Advances made, plus interest and a termination fee of $250,000. For purposes of the Control Agreement, an “event of default” means the failure of the transactions contemplated by the Purchase Agreement to close by February 16, 2016. In the event that such transactions close within 20 days of such date, an event of default will be deemed not to occur. Further, an event of default will not be considered to have occurred if the Seller has taken all necessary steps under the Purchase Agreement to close and PositiveID elects not to close such transactions.

 

Security Agreements with Seller and Thermomedics

 

Under the terms of the Control Agreement and in connection with the Advances made by PositiveID to Sanomedics and Thermomedics: (1) Thermomedics and PositiveID entered into a Security Agreement pursuant to which Thermomedics granted PositiveID a first priority security interest in all of the assets of Thermomedics (the “Thermomedics Security Agreement”) and (2) Sanomedics and PositiveID entered into a Security Agreement pursuant to which Sanomedics agreed to grant a first priority security interest in all of the shares of Thermomedics that the Sanomedics owns and that represent full ownership of Thermomedics (the “Sanomedics Security Agreement”).

 

Management has evaluated the subsequent events through February 19, 2016 the date at which the financial statements were available for issuance.

 

9
 

 



 

Exhibit 99.3

 

THERMOMEDICS, INC.

Unaudited Pro Forma Condensed Combined Financial Information

 

Basis of Pro Forma Presentation

 

On October 21, 2015, PositiveID Corporation (“PositiveID” or the “Buyer”) entered into a Stock Purchase Agreement (“Purchase Agreement”) for the purchase of all of the outstanding common stock of Thermomedics, Inc. (the “Company”), from Sanomedics, Inc. (“Sanomedics”) (collectively, the “Acquisition”). On December 4, 2015, the PositiveID, Sanomedics, and the Company entered into a First Amendment to the Stock Purchase Agreement (the “Amendment”). Also on December 4, 2015 the PositiveID, Sanomedics and the Company entered into a Management Services and Control Agreement (the “Control Agreement”), whereby PositiveID was appointed at the manager of Thermomedics.

 

Pursuant to the Purchase Agreement, as amended, as consideration at the time of closing of the Acquisition, PositiveID will pay the Seller Three Hundred Seventy Five Thousand Dollars ($375,000) (the “Aggregate Purchase Price”) in the form of Two Hundred Fifty Thousand Dollars ($250,000) in cash less PositiveID’s professional services expenses of Twenty Five Thousand Dollars ($25,000) (the “Cash Purchase Price”) and One Hundred Twenty Five Thousand Dollars ($125,000) in the form of 125 shares (the “Stock Purchase Price”) of Series J Convertible Preferred Stock (the “Preferred Stock”) of PositiveID, subject to adjustment of the cash component of closing consideration of $50,000 for the Company’s working capital deficit. In connection with the execution of the Amendment, the Control Agreement, the Thermomedics Security Agreement and Sanomedics Security Agreement, PositiveID advanced to Sanomedics a net payment of One Hundred And Seventy Five Thousand Dollars ($175,000) (the “Cash Purchase Price Payment”). The closing of the transaction contemplated by the Purchase Agreement, as amended, is expected to occur in the first half of 2016 pending the satisfaction by Seller of certain closing conditions. In connection with the Acquisition, additional earn-out payments of up to Seven Hundred Fifty Thousand Dollars ($750,000) for each of the fiscal years ending December 31, 2016 and 2017 may be earned by Sanomedics if certain revenue thresholds are met by the Company as described in the Purchase Agreement. Such earn-out payments, if any, will consist of twenty five percent (25%) in cash (up to One Hundred Eighty Seven Thousand Dollars ($187,000) and seventy five percent (75%) in shares of preferred stock of the Buyer (up to 563 shares of Preferred Stock) for each of the fiscal years ending December 31, 2016 and 2017, respectively.

 

As a result of the Company’s assuming control of Thermo on December 4, 2015 it determined, pursuant to ASC 805-10-25-6, that December 4, 2015 was the acquisition date of Thermo for accounting purposes.

 

Under the acquisition method of accounting the total estimated purchase price as described in Note 1 to this unaudited pro forma condensed combined financial information was allocated to the net tangible and intangible assets of Thermomedics acquired and liabilities assumed in connection with the Acquisition based on their estimated fair values. The estimated fair values of certain assets and liabilities have been estimated by management and are subject to change upon the finalization of the fair value assessments.

 

The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are directly attributable to the acquisition, factually supportable, and, with respect to the statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not purport to be indicative of the financial position or results of operations of PositiveID that would have been reported had the Acquisition been completed as of the dates or for such periods presented, nor is it intended to project PositiveID’s future financial position or results of operations. The unaudited pro forma condensed combined financial information and the accompanying notes should be read together with PositiveID’s audited consolidated financial statements and accompanying notes for the year ended December 31, 2014, Management’s Discussion and Analysis included in PositiveID’s Annual Report on Form 10-K for the year ended December 31, 2014, and Thermomedic’s audited financial statements and accompanying notes for the year ended December 31, 2014 included in Exhibit 99.1 of this Current Report.

 

The unaudited pro forma condensed combined financial information as of and for the nine months ended September 30, 2015 has been prepared from PositiveID’s unaudited condensed consolidated financial statements included in PositiveID’s Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2015, and from the unaudited financial statements of Thermomedics as of and for the nine months ended September 30, 2015 included in Exhibit 99.2 of this Current Report.

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2015 has been prepared to present PositiveID’s financial position as if the Acquisition had occurred on September 30, 2015. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014 and for the nine months ended September 30, 2015 have been prepared to present PositiveID’s results of operations as if the Acquisition had occurred on January 1, 2014 and January 1, 2015, respectively.

 

The pro forma adjustments are based on preliminary estimates, available information and certain assumptions, which may be revised as additional information becomes available. The unaudited pro forma condensed combined financial information does not reflect any adjustments for nonrecurring items or anticipated synergies resulting from the Acquisition.

 

   
 

 

PositiveID Corporation

Pro Forma Unaudited Condensed Combined Balance Sheet

As of September 30, 2015

(in thousands)

 

   POSITIVEID
CORPORATION
 HISTORICAL
   THERMOMEDICS,
INC.
 HISTORICAL
   PRO FORMA
ADJUSTMENTS
   PRO
FORMA
COMBINED
 
                 
Assets                    
Current assets:                    
Cash and cash equivalents  $319   $10   $(185)(a)(c)  $144 
Accounts receivable, net   -    8    1(a)   9 
Inventory   -    31    (15)(a)   16 
Prepaid expenses and other   39    -    -    39 
Total current assets   358    49    (199)   208 
Property and equipment, net   3    10    (2)(a)   11 
Goodwill   510    -    513(a)(d)   1,023 
Intangibles   164    -    200(e)   364 
Other assets   11    6    (6)(a)   11 
Total assets  $1,046   $65   $506   $1,617 
                     
Liabilities and Stockholders’ Equity                    
Current Liabilities:                    
Accounts payable  $118   $64   $(32)(a)  $150 
Accrued expenses   879    1    116(a)(f)   996 
Notes payable   429    -    -    429 
Due to parent   -    2,463    (2,463)(b)   - 
Short-term convertible debt and accrued interest, net of discounts and premiums   1,488    -    75(c)   1,563 
Embedded conversion option liability   5,823    -    -    5,823 
Total current liabilities   8,737    2,528    (2,304)   8,961 
Long-term liabilities                    
Contingent purchase price   -    -    184(g)   184 
Mandatorily redeemable preferred stock, Series I   2,132    -    -    2,132 
Total liabilities   10,869    2,528    (2,120)   11,277 
                     
Stockholders’ equity (deficit):                    
Preferred stock, Series J   -    -    163(c)   163 
Common stock   3,766    -    -    3,766 
Additional paid – in capital   126,054    -    -    126,054 
Accumulated deficit   (139,643)   (2,463)   2,463(b)   (139,643)
Total stockholders’ equity (deficit)   (9,823)   (2,463)   2,626    (9,660)
Total liabilities and stockholders’ equity  $1,046   $65   $506   $1,617 

 

The accompanying notes are an integral part of this pro forma financial information.

 

   
 

 

PositiveID Corporation

Pro Forma Unaudited Condensed Combined Statement of Operations

For The Nine Months Ended September 30, 2015

(in thousands)

 

   POSITIVEID
CORPORATION
HISTORICAL
   THERMOMEDICS,
INC.
HISTORICAL
   PRO FORMA
ADJUSTMENTS
   PRO
FORMA
COMBINED
 
                 
Revenue  $2,682   $415   $-   $3,097 
Cost of sales   148    66    -    214 
Gross profit   2,534    349    -    2,883 
Operating expenses:                    
General and administrative   3,730    347    90(h)(i)   4,167 
Research and development   992    -    -    992 
Total operating expenses   4,722    347    90    5,159 
Operating income (loss)   (2,188)   2    (90)   (2,276)
Other (income)/expense                    
Interest expense   (3,389)   -    -    (3,389)
Change in fair value of embedded conversion option liability   (1,446)   -    -    (1,446)
Loss on extinguishment of debt   (233)   -    -    (233)
Other income (expense), net   370    -    -    370 
Total interest and other income (expense), net   (4,698)   -    -    (4,698)
Net income (loss)  $(6,886)  $2   $(90)  $(6,974)
Loss per common share - basic and diluted:  $(0.03)            $(0.03)
Shares used in computing net loss per share - basic and diluted   271,531         -    271,531 

 

The accompanying notes are an integral part of this pro forma financial information.

 

   
 

 

PositiveID Corporation

Pro Forma Unaudited Condensed Combined Statement of Operations

For The Year Ended December 31, 2014

(thousands)

 

   POSITIVEID
CORPORATION
HISTORICAL
   THERMOMEDICS,
INC.
HISTORICAL
   PRO FORMA
ADJUSTMENTS
   PRO
FORMA
COMBINED
 
                 
Revenue  $945   $677   $-   $1,622 
Cost of sales   294    131    -    425 
Gross profit   651    546    -    1,197 
Operating expenses:                    
General and administrative   4,313    494    100(h)(i)   4,907 
Research and development   588    2    -    590 
Total operating expenses   4,901    496    100    5,497 
Operating income (loss)   (4,250)   50    (100)   (4,300)
Other (income) expense                  - 
Interest expense   (3,010)   -    -    (3,010)
Changes in contingent earn-out liability   514    -    -    514 
Change in fair value of embedded conversion option liability   (198)   -    -    (198)
Loss on extinguishment of debt   (246)   -    -    (246)
Other income (expense)   (1)   -    -    (1)
Total costs and expenses   (2,941)   -    -    (2,941)
Net income (loss) before provision for income taxes   (7,191)   50    -    (7,241)
Provision for income taxes   -    -    -    - 
Net loss  $(7,191)  $50   $(100)  $(7,241)
Net loss per common share  $(0.07)            $(0.07)
Shares used in computing net loss per share - basic and diluted   96,602         -(k)   96,602 

 

The accompanying notes are an integral part of this pro forma financial information.

 

   
 

 

PositiveID Corporation

Notes to Pro Forma Condensed Combined Financial Information

(Unaudited)

 

Note 1. Acquisition of Thermomedics, Inc.

 

On December 4, 2015, PositiveID Corporation (“PositiveID” or “Company”) entered into several agreements related to its acquisition of all of the outstanding common stock of Thermomedics, Inc. (“Thermo”). One of those agreements was a Management Services and Control Agreement, dated December 4, 2015 (the “Control Agreement”), between the Company, Thermo, and Sanomedics, Inc. (“Sanomedics”), whereby PositiveID was appointed the manager of Thermo. In a separate agreement the Company entered into a First Amendment to the Stock Purchase Agreement (the “Amendment”) with Sanomedics. The original Stock Purchase Agreement was entered into on October 21, 2015 (the “Stock Purchase Agreement”), and defines the agreed upon terms of the Company’s acquisition of all of the common stock of Thermo from Sanomedics. As a result of the Company assuming control of Thermo on December 4, 2015, it determined, pursuant to ASC 805-10-25-6, that December 4, 2015 was the acquisition date of Thermo for accounting purposes.

 

Per the terms of the Amendment, as consideration at the time of closing of the Acquisition, PositiveID will pay the Seller Three Hundred Seventy Five Thousand Dollars ($375,000) (the “Aggregate Purchase Price”) in the form of Two Hundred Fifty Thousand Dollars ($250,000) in cash less PositiveID’s professional services expenses of Twenty Five Thousand Dollars ($25,000) (the “Cash Purchase Price”) and One Hundred Twenty Five Thousand Dollars ($125,000) in the form of 125 shares (the “Stock Purchase Price”) of Series J Convertible Preferred Stock (the “Preferred Stock”) of PositiveID, subject to adjustment of the cash component of closing consideration of $50,000 for Thermo’s working capital deficit. In connection with the execution of the Amendment, the Control Agreement, the Thermomedics Security Agreement and Sanomedics Security Agreement (each as defined and described below), PositiveID advanced to Sanomedics a net payment of One Hundred And Seventy Five Thousand Dollars ($175,000) (the “Cash Purchase Price Payment”). The closing of the transaction contemplated by the Purchase Agreement, as amended, is expected to occur in the first half of 2016 pending the satisfaction by Seller of certain closing conditions. In connection with the acquisition, additional earn-out payments of up to Seven Hundred Fifty Thousand Dollars ($750,000) for each of the fiscal years ending December 31, 2016 and 2017 may be earned by the Seller if certain revenue thresholds are met by Thermo as described in the Purchase Agreement. Such earn-out payments, if any, will consist of twenty five percent (25%) in cash (up to One Hundred Eighty Seven Thousand Dollars ($187,000) and seventy five percent (75%) in shares of preferred stock of the Company (up to 563 shares of Preferred Stock) for each of the fiscal years ending December 31, 2016 and 2017, respectively.

 

The estimated purchase price of the acquisition totaled $657,000, comprised of $175,000 in cash, preferred stock consideration of $163,000, a convertible note payable of $75,000 to the former President of Thermo, transaction costs of $60,000, and the fair value of the contingent consideration estimated at approximately $184,000. The fair value of the contingent consideration was estimated based upon the present value of the expected future payouts of the contingent consideration and is subject to change upon the finalization of the purchase accounting.

 

Under the acquisition method of accounting, the estimated purchase price of the Acquisition was allocated to Thermo’s net tangible and identifiable intangible assets and liabilities assumed based on their estimated fair values as of the date of the completion of the Acquisition, as described in the introduction to this unaudited pro forma condensed combined financial information, as follows:

 

Assets Acquired:     
Accounts receivable, net  $9,498 
Inventory   15,922 
Property and equipment, net   8,075 
Customer relationships   200,000 
Goodwill   512,329 
    745,824 
Liabilities assumed:     
Accounts payable   31,741 
Accrued expenses   57,083 
    88,824 
Total estimated purchase price  $657,000 

 

   
 

 

Note 2. Pro Forma Adjustments

 

The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:

 

  (a) To record the entry necessary to adjust the tangible assets and liabilities of Thermomedics, Inc. to their estimated fair values at the time of the acquisition.
     
  (b) To eliminate the due to parent balance from Thermomedics, Inc. to Sanomedics, Inc. pursuant to the Purchase Agreement.
     
  (c) To record the purchase price of $175,000 in cash, preferred stock consideration valued at $163,000, and a convertible note payable of $75,000 to the former President of Thermo.
     
  (d) To reflect the preliminary estimate of goodwill to be recorded in connection with the Acquisition.
     
  (e) To reflect the preliminary estimate of the fair value of amortizable intangible assets acquired, consisting of customer relationships, primarily distributor agreements.
     
  (f) To record the professional fees payable, estimated at $60,000, in connection with the Acquisition.
     
  (g) To record a liability for the estimated fair value of the contingent consideration.
     
  (h) To expense the direct costs of the acquisition comprised of legal, due diligence, and accounting services of $60,000.
     
  (i) To record amortization of customer lists over an estimated 5-year useful life.