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): May 11, 2016
VERITEQ
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
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000-26020
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43-1641533
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(State
or other jurisdiction
of
incorporation)
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(Commission
File
Number)
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(I.R.S.
Employer
Identification
No.)
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6560
W Rogers Circle
Suite
19, Boca Raton, Florida
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33487
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: 954-574-9720
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(Former
name or former address, if changed since last report.)
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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:
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☐
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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☐
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13a-4(c))
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Explanatory
Note:
On
May 11, 2016, VeriTeQ Corporation (the “Company”) filed a Current Report on Form 8-K (the “Original
8-K”) disclosing, among other things, the closing of the Reverse Merger (as defined in the Original 8-K) with Brace
Shop, LLC. The sole purpose of this Form 8-K/A is to supplement the Original 8-K by adding thereto the Company’s
unaudited consolidated financial statements for the quarter ended March 31, 2016, and accompanying analysis. Exhibits 99.1,
99.2, 99.3 and 99.4 to this Form 8-K/A provide the Company’s unaudited consolidated financial statements for the
quarter ended March 31, 2016, and related notes thereto.
Item
2.01 of the Original 8-K is supplemented by inserting the following at the end of the section entitled “Management’s
Discussion and Analysis of Financial Condition and Plan of Operations”:
“MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
(QUARTER
ENDED MARCH 31, 2016)
This
Quarterly Report included in this current report on Form 8-K contains forward-looking statements within the meaning of the federal
securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate
by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,”
“we believe,” “management believes” and similar language. Except for the historical information contained
herein, the matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and elsewhere in this current report are forward-looking statements that involve risks and uncertainties. The
factors listed in the section captioned “Risk Factors,” as well as any cautionary language in this annual report,
provide examples of risks, uncertainties and events that may cause our actual results to differ materially from those projected.
Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the
date of this current report.
Brace
Shop operates as an expanding online retailer of orthopedic braces and supports for the various extremity categories such as knee,
ankle, back, wrist, shoulder, elbow, foot and neck; physical therapy and rehabilitation equipment such as hot and cold therapy,
electric simulation, medical tables and ambulatory devices. Operating for over 15 years, Brace Shop distributes their products
worldwide to a variety of industries including healthcare professionals, hospitals and clinics, government institutions, school
sport teams and to the general public. Braceshop Real Estate Holdings, was formed as a Florida limited liability company on April
12, 2012 and is an affiliate of Brace Shop. Brace Shop and Braceshop Real Estate Holdings are under common control and Brace Shop
Real Estate Holdings is considered a variable interest entity for the purpose of the consolidated financial statements.
At
the closing of the Reverse Merger, Scott Silverman resigned as Chairman of our Board of Directors, Shawn Wooden resigned as a
member of the Board of Directors and we elected Mrs. Lynne Shapiro as a member of the Board of Directors.
As
a result of the Reverse Merger and the change in business and operations of our company from a public “shell” company
to a company engaged in the business of providing orthopedic braces, a discussion of the past financial results of our company
is not pertinent, and under generally accepted accounting principles in the United States the historical financial results of
Brace Shop, the accounting acquirer, prior to the Reverse Merger are considered the historical financial results of our company.
The Reverse Merger was accounted for as a recapitalization effected by a Reverse Merger, wherein Brace Shop is considered the
acquirer for accounting and financial reporting purposes.
The
following discussion highlights the results of operations of Brace Shop and its affiliate Braceshop Real Estate Holdings and the
principal factors that have affected its financial condition as well as its liquidity and capital resources for the periods described,
and provides information that management believes is relevant for an assessment and understanding of the financial condition and
results of operations presented herein. The following discussion and analysis is based on the audited and unaudited consolidated
financial statements contained in this Current Report, which have been prepared in accordance with generally accepted accounting
principles in the United States. You should read the discussion and analysis together with such financial statements and the related
notes thereto.
Basis
of Presentation
The
unaudited consolidated financial statements for the three months ended March 31, 2016 and 2015 include a summary of our significant
accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments
necessary to present fairly the consolidated results of operations for such periods have been included in these unaudited consolidated
financial statements. All such adjustments are of a normal recurring nature.
Results
of Operations
Three
Months Ended March 31, 2016 compared to the three months ended March 31, 2015
The
following table sets forth our revenues, expenses and net loss for the three months ended March 31, 2016 and 2015. The financial
information below is derived from our unaudited consolidated financial statements included as an exhibit to this Current Report.
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For the Three
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For the Three
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Ended
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Ended
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March 31,
2016
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March 31,
2015
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Revenue
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Retail Sales
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$
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1,683,624
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$
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1,698,752
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Total Revenue
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$
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1,683,624
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$
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1,698,752
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Cost of Retail Sales
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$
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(1,079,936
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)
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$
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(1,104,380
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)
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Gross Profit
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$
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603,688
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$
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594,372
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Operating Expenses:
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General and Administrative
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$
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138,784
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$
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62,808
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Marketing and Promotion
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$
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347,871
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$
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345,694
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Payroll Expenses
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$
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231,539
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$
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173,776
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Credit Card Processing
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$
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57,684
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$
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60,791
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Total Operating Expenses
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$
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775,878
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$
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643,069
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Loss from Operations
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$
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(172,190
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)
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$
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(48,697
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)
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Other Income and Expense:
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Other Expense
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$
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(147,059
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)
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-
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Sublease Income
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$
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5,862
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$
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1,125
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Gain on Extinguishment of Debt
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8,963
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-
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Interest Expense
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$
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(205,555
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)
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$
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(12,328
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Total Other Income and Expense
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$
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(337,789
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$
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(11,203
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Net Loss
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$
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(509,979
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$
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(59,900
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Revenues
The
Company’s revenues were $1,683,624 and $1,698,752 for the three months ending March 31, 2016 and 2015, respectively. This
decrease was primarily due to a decline in Amazon sales.
Cost
of Revenue
Our
cost of revenue decreased by $24,444, or 2%, during the three months ending March 31, 2016, to $1,079,936, from $1,104,380 in
cost of goods sold for the three months ended March 31, 2015. The decrease in cost of goods sold was directly related to the decline
in sales resulting in lower product costs and shipping costs.
Operating
Expenses
Total
operating expenses were $775,878 and $643,069 for the three months ending March 31, 2016 and 2015, respectively. This increase
is primarily due to the Company incurring higher professional fees related to the Reverse Merger and higher payroll expenses in
2016.
Loss
from Operations
We
reported a loss from operations of $172,190 for the three months ended March 31, 2016, as compared to a loss from operations of
$48,697 for the three months ended March 31, 2015, which represents an increase of $123,493, or 254%, for the three months ended
March 31, 2016.
Other
Income (Expenses)
Total
other expenses, net of other income, were $337,789 for the three months ended March 31, 2016, compared to $11,203 for the three
months ended March 31, 2015. Other expense was $147,059 for the three months ended March 31, 2016, as compared to total other
expense of $0 for the three months ended March 31, 2015, which is primarily attributable to effectuating the Reverse Merger. Pursuant
to the Stock Purchase Agreement, a portion of the purchase price payable by VeriTeQ was financed by the sale of a senior secured
convertible promissory note in the principal amount of $147,059 by VeriTeQ Corporation to a third party and then advanced to Mrs.
Lynne Shapiro. Brace Shop signed a Security Agreement securing the VeriTeQ promissory note with certain Brace Shop, LLC assets.
The Security Agreement created an indirect guarantee of the debt of a third party under FASB Accounting Standards Codification
(“ASC”) 460. Per ASC 460 the indirect guarantee of the promissory note was recorded on the unaudited consolidated
financial statements of Brace Shop at its estimated fair value of $147,059. The Company repaid notes payable in the three months
ended March 31, 2016 and received a discount for the prepayment resulting in a gain on extinguishment of debt of $8,963. Interest
expense increased approximately by $193,227 or 1,567% due to the Company increasing its line of credit and notes payable in 2016
resulting in higher interest expense. Sublease income was $5,862 for the three months ended March 31, 2016, compared to $1,125
for the three months ended March 31, 2015.
Net
Loss
Net
loss for the three months ended March 31, 2016 was $509,979 compared to a net loss of $59,900 for same period in 2015. The increase
was mainly attributable to an indirect guarantee expense, increased interest expense, increased professional fees and increased
payroll expenses.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. At March 31, 2016, we had a cash balance of $45,334. Our working capital deficit was $2,569,328 at
March 31, 2016.
We
reported a net decrease in cash for the three months ended March 31, 2016 of $23,835. While we currently have no material commitments
for capital expenditures, at March 31, 2016 we owed approximately $776,000 under mortgage notes payable, $349,000 under a line
of credit, $400,000 ($240,000, plus note premium of $160,000) under convertible notes payable and $371,500 under related party
loans and a note payable.
Our
net sales are not sufficient to fund our operating expenses. We will need to raise significant additional capital to fund our
operating expenses, pay our obligations, and grow our company. We reported a net loss of $509,979 during the three months ended
March 31, 2016. We do not anticipate we will be profitable in 2016. Therefore our operations will be dependent upon our ability
to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit
facilities, or other financing mechanisms. Even if we are able to raise the funds required, it is possible that we will incur
unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that
would force us to seek alternative financing. The inability to obtain additional capital may restrict our ability to grow and
may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely
be required to curtail our marketing and development plans and possibly cease our operations. Furthermore, we have debt obligations
which must be satisfied. If we are successful in securing additional working capital, we intend to increase our marketing efforts
to grow our revenues. We do not presently have any firm commitments for any additional capital and our financial condition as
well as the uncertainty in the capital markets may make our ability to secure this capital difficult. There are no assurances
that we will be able to continue our business, and we may be forced to cease operations in which event investors could lose their
entire investment in our company. Included in our Notes to the unaudited financial statements for the three months ended March
31, 2016 is a discussion regarding Going Concern.
Operating
activities
Net
cash flows used in operating activities for the three months ended March 31, 2016 amounted to $140,394 and was primarily attributable
to our net loss of $509,979 and gain on extinguishment of debt of $8,963, offset by depreciation of $7,139, accretion of premium
on convertible note payable of $160,000, amortization of debt discount of $33,071, amortization of deferred loan costs of $173
and changes in operating assets and liabilities of $178,165. Net cash flows used in operating activities for the three months
ended March 31, 2015 amounted to $244,459 and was primarily attributable to our net loss of $59,900, offset by depreciation of
$7,571, amortization of deferred loan costs of $174 and changes in operating assets and liabilities of $192,304.
Financing
activities
Net
cash flows provided by financing activities was $116,559 for the three months ended March 31, 2016. We received proceeds from
a convertible note payable of $240,000 and proceeds from related parties of $125,000. We made notes payable payments of $240,359
and mortgage note payments of $8,082. Net cash flows provided by financing activities was $342,691 for the three months ended
March 31, 2015. We received proceeds from a line of credit of $65,000 and proceeds from a note payable of $300,000. We made payments
to notes payable of $14,449 and mortgage note payments of $7,860.
Going
Concern Consideration
Our
operations and financial results are subject to numerous risks and uncertainties that could adversely affect our business, financial
condition and results of operations. We have incurred losses since our inception resulting in a member’s deficit of $2,550,200
as of March 31, 2016, and further losses are anticipated in the development of our business, raising substantial doubt about our
ability to continue as a going concern. The ability to continue as a going concern is dependent upon our generating profitable
operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from
normal business operations when they become due. Our future financial results are also uncertain due to a number of factors, some
of which are outside our control. These risk factors include, but are not limited to, our ability to raise additional funding
and the results of our proposed operations.
Contractual
Obligations
We
have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs,
cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates.
We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant
assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information
within the context of our consolidated financial position, results of operations, and cash flows.
The
following table summarizes our contractual obligations as of March 31, 2016, and the effect these obligations are expected to
have on our liquidity and cash flows in future periods.
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Total
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Less than 1 year
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1-3 Years
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4-5 Years
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5 Years+
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Contractual Obligations:
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Line of credit
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$
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349,000
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349,000
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—
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—
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—
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Convertible notes payable
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$
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400,000
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266,667
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133,333
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—
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—
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Related party loans payable
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$
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121,500
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121,500
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—
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—
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—
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Related party note payable
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$
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250,000
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250,000
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—
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—
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—
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Mortgage payable
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$
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780,762
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38,048
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106,712
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77,680
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558,322
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Total Contractual Obligations:
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$
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1,901,262
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1,025,215
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240,045
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77,929
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558,322
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Off
Balance Sheet Arrangements
As
of the date of this Current Report, we had no off-balance sheet arrangements. We are not aware of any material transactions that
are not disclosed in our consolidated financial statements.
Significant
Accounting Policies and Critical Accounting Estimates
The
methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that
we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective
judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical
accounting estimates include:
Use
of Estimates -
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimated.
Accounts
Receivable -
The Company extends thirty-day credit terms to certain customers based on credit worthiness of medical supply
companies, hospitals, military, government institutions and schools. Management reviews any accounts receivable balances over
thirty days. Account balances that are deemed to be uncollectible are charged to the bad debt expense after all means of collection
have been exhausted and the potential for recovery is considered remote. The accounts receivable balance is comprised mostly of
internet sales due to merchant account timing differences.
Inventories
-
Inventories, consisting of finished goods, are stated at the lower of cost and net realizable value utilizing the first-in,
first-out method.
Property
and Equipment
- Property and equipment and building and building improvements are carried at cost. The cost of
repairs and maintenance is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company
examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that
their recorded value may not be recoverable. Depreciation is calculated on a straight-line basis over the estimated useful life
of the assets. Building improvements are amortized on a straight-line basis over the building depreciable period.
Internal
Use Software -
Costs incurred to develop internal-use software during the preliminary project stage are expensed as incurred.
Internal-use software development costs are capitalized during the application development stage, which is after: (i) the preliminary
project stage is completed; and (ii) management authorizes and commits to funding the project and it is probable the project will
be completed and used to perform the function intended. Capitalization ceases at the point the software project is substantially
complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized
if it is probable that those expenditures will result in additional functionality. Amortization is provided for on a straight-line
basis over the expected useful life of five years of the internal-use software development costs and related upgrades and enhancements.
When existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software
is ready for its intended use.
Impairment
of Long-Lived Assets -
Long-Lived Assets of the Company are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15,
“Impairment
or Disposal of Long-Lived Assets”
. The Company recognizes an impairment loss when the sum of expected undiscounted future
cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value.
Revenue
Recognition and Sales
- The Company follows the guidance of the FASB ASC 605-10-S99 “Revenue Recognition
Overall – SEC Materials”. The Company records revenue when persuasive evidence of an arrangement exists, product delivery
has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The Company
derives revenue from online orders from customers and direct sales via purchase orders to a variety of industries and enterprises
including healthcare professionals, hospitals and clinics, government institutions, and school sports teams. The Company recognizes
revenue upon shipment of its products.
Recently
Enacted Accounting Standards
For
a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects,
if any, on our consolidated financial statements, see “Note 1: Recent Accounting Pronouncements” in the unaudited
pro form consolidated financial statements for the quarter ended March 31, 2016, filed with this Current Report.
Quantitative
and Qualitative Disclosures About Market Risk
We
are not required to provide quantitative and qualitative disclosures about market risk because we are a smaller reporting company.”
Item
9.01 Financial Statements and Exhibits
The
following are filed as exhibits to this report:
Exhibit No.
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Description
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99.1
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Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015
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99.2
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Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (Unaudited)
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99.3
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Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (Unaudited)
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99.4
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Notes to Unaudited Consolidated Financial Statements
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Date:
August 9, 2016
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VeriTeQ
Corporation
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By:
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/s/
Kenneth Shapiro
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Name:
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Kenneth
Shapiro
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Title:
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Chief
Executive Officer
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8