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 |
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 |
Exhibit
99.1
THERMOMEDICS,
INC.
Financial
Statements
For
the Years Ended
December
31, 2014 and 2013
INDEX
TO FINANCIAL STATEMENTS
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
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
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
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
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
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.
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.
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.
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 | |
$ | - | | |
$ | - | |
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.
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.
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.
Exhibit
99.2
THERMOMEDICS,
INC.
Financial
Statements (Unaudited)
For
the Nine Months Ended
September
30, 2015 and 2014
INDEX
TO FINANCIAL STATEMENTS
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
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
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
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.
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.
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.
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.
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.
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. |