RISK
FACTORS
You
should carefully consider the risks described below together with all of the other information included in this prospectus
before making an investment decision with regard to our securities. The statements contained in or incorporated into this
prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the
following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the
trading price of our common stock could decline, and you may lose all or part of your investment.
Risks
Related to the Operations and Business of PositiveID
We
have a history of losses and expect to incur additional losses in the future. We are unable to predict the extent of future losses
or when we will become profitable
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For
the years ended December 31, 2015 and 2014, we experienced net losses of $11.4 million and $7.2 million, respectively, for the
three months ended June 30, 2016 and 2015, we experienced losses of $1.909 million and $2.933 million, respectively, for the six
months ended June 30, 2016 and 2015, we experienced net losses of $5.835 million and $6.794 million, respectively and our accumulated
deficit at June 30, 2016 was $149.996 million. For the years ended December 31, 2015 and 2014, we reported revenue of $2.9 million
and $0.9 million respectively. For the years ended December 31, 2015 and 2014 we reported gross profit from operations
of $2.605 million and $0.651 million respectively.
We
expect to continue to incur operating losses for the near future. Our ability in the future to achieve or sustain profitability
is based on a number of factors, many of which are beyond our control. Even if we achieve profitability in the future, we may
not be able to sustain profitability in subsequent periods.
We
have a history of losses and expect to incur additional losses in the future. We are unable to predict the extent of future losses
or when we will become profitable
.
For
the years ended December 31, 2015 and 2014, we experienced net losses of $11.4 million and $7.2 million, respectively and our
accumulated deficit at December 31, 2015 was $144.2 million. Until our ENG, Caregiver, Firefly and M-BAND businesses and products
are profitable on a combined basis, we do not anticipate generating significant operating profits. We have submitted, or are in
the process of submitting, bids on various potential new U.S. Government contracts; however, there can be no assurance that we
will be successful in obtaining any such new or other contracts.
We
expect to continue to incur operating losses for the near future. Our ability in the future to achieve or sustain profitability
is based on a number of factors, many of which are beyond our control. Even if we achieve profitability in the future, we may
not be able to sustain profitability in subsequent periods.
Our
financial statements indicate conditions exist that raise substantial doubt as to whether we will continue as a going concern.
Our
annual audited financial statements for the years ended December 31, 2015 and 2014 indicate conditions exist that raise substantial
doubt as to whether we will continue as a going concern. Our continuation as a going concern is dependent upon our ability to
obtain financing to fund the continued development of products, and working capital requirements. If we cannot continue as a going
concern, our stockholders may lose their entire investment.
Government
contracts and subcontracts are generally subject to a competitive bidding process that may affect our ability to win contract
awards or renewals in the future.
We
bid on government contracts through a formal competitive process in which we may have many competitors. If awarded, upon expiration,
these contracts may be subject, once again, to a competitive renewal process if applicable. We may not be successful in winning
contract awards or renewals in the future. Our failure to renew or replace existing contracts when they expire could have a material
adverse effect on our business, financial condition, or results of operations.
Contracts
and subcontracts with United States government agencies that we may be awarded will be subject to competition and will be awarded
on the basis of technical merit, personnel qualifications, experience, and price. Our business, financial condition, and results
of operations could be materially affected to the extent that U.S. government agencies believe our competitors offer a more attractive
combination of the foregoing factors. In addition, government demand and payment for our products may be affected by public sector
budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting demand for our products. In
particular, the, next generation BioWatch program is potentially a very large program, under which we intend to bid as a subcontractor
to The Boeing Company. Our success in this process is an important factor in our ability to increase stockholder value.
Compliance
with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
There
have been changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley
Act, and new regulations promulgated by the SEC. These new or changed laws, regulations and standards are subject to varying interpretations
in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and
higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with
evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and
a diversion of management time and attention from revenue-generating activities to compliance activities. Our board members and
executive officers could face an increased risk of personal liability in connection with the performance of their duties. As a
result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business.
If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory
or governing bodies, we could be subject to liability under applicable laws or our reputation may be harmed.
Changes
in the regulatory environment could adversely affect our business, financial condition or results of operations.
Our
operations are subject to varying degrees of regulation by the FDA, other federal, state and local regulatory agencies and legislative
bodies. Adverse decisions or new or amended regulations or mandates adopted by any of these regulatory or legislative bodies could
negatively impact our operations by, among other things, causing unexpected or changed capital investments, lost revenues, increased
costs of doing business, and could limit our ability to engage in certain sales or marketing activities.
We
depend on key personnel to manage our business effectively, and, if we are unable to hire, retain or motivate qualified personnel,
our ability to design, develop, market and sell our systems could be harmed.
Our
future success depends, in part, on certain key employees, including William J. Caragol, our Chairman of the Board and Chief Executive
Officer and Lyle Probst, our President, and on our ability to attract and retain highly skilled personnel. The loss of the services
of any of our key personnel may seriously harm our business, financial condition and results of operations. In addition, the inability
to attract or retain qualified personnel, or delays in hiring required personnel, particularly operations, finance, accounting,
sales and marketing personnel, may also seriously harm our business, financial condition and results of operations. Our ability
to attract and retain highly skilled personnel will be a critical factor in determining whether we will be successful in the future.
We
may be unable to make or successfully integrate acquisitions.
Our
business and growth strategies depend in large part on our ability to identify and acquire suitable companies. Delays or failures
in acquiring new companies would materially and adversely affect our planned growth.
Strategic
acquisitions, investments and alliances are intended to expand our ability to offer, high quality detection and diagnostic products
and services. If we are unsuccessful in our acquisitions, investments and alliances, we may be unable to grow our business significantly
or may record asset impairment charges in the future. The success of any acquisition, investment or alliance that we may undertake
in the future will depend on a number of factors, including:
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our
ability to identify suitable opportunities for acquisition, investment or alliance, if at all;
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our
ability to finance any future acquisition, investment or alliance on terms acceptable to us, if at all;
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whether
we are able to establish an acquisition, investment or alliance on terms that are satisfactory to us, if at all;
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the
strength of the other company’s underlying technology and ability to execute;
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intellectual
property and pending litigation related to these technologies;
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regulatory
approvals and reimbursement levels, if any, of the acquired products, if any; and
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our
ability to successfully integrate acquired companies and businesses with our existing business, including the ability to adequately
fund acquired in-process research and development projects.
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Any
potential future acquisitions we consummate will be dilutive, possibly substantially, to the equity ownership interests of our
shareholders since we intend to pay for such acquisitions by issuing shares of our common stock, and also may be dilutive to our
earnings per share, if any.
Our
acquisition strategy may not have the desired result, and notwithstanding effecting numerous acquisitions, we still may be unable
to achieve profitability or, if profitability should be achieved, to sustain it.
We
will continue to incur the expenses of complying with public company reporting requirements.
We
have an obligation to continue to comply with the applicable reporting requirements of the Securities and Exchange Act of 1934,
as amended (the “Exchange Act”), which includes the filing with the SEC of periodic reports, proxy statements and
other documents relating to our business, financial conditions and other matters, even though compliance with such reporting requirements
is economically burdensome at this time.
The
Company’s officers, directors and management hold preferred shares that give them voting control of the Company and they
may make decisions that you do not consider to be in the best interests of our stockholders.
From
September 30, 2013 through April 12, 2016 (the date our Annual Report on Form 10-K for the year ended December 31, 2015 was filed),
the Company issued 2,025 shares of Series I Preferred to the following seven officers, directors and management for management
and director compensation and payment of deferred obligations: our CEO, acting CFO and Chairman, William J. Caragol, our President,
Lyle L. Probst, our three non-employee directors, Jeffrey Cobb, Michael Krawitz, and Ned L. Siegel, as well as Allison Tomek,
our Senior Vice President of Corporate Development, and Kimothy Smith, our Chief Technology Advisor. Each share of Series I Preferred
had voting rights equivalent to 25 votes per common share equivalent. As a result, as of April 12, 2016, the Company’s officers
and directors had control of 81% of the Company’s voting shares. Mr. Caragol had control of 38.6% of the Company’s
voting shares. There exists an inherent conflict of interest in the board approval of the issuance of Series I Preferred Stock
to officers and directors of the Company, which granted themselves voting control over the Company.
On
July 25, 2016, the Board authorized a Certificate of Designations of Preferences, Rights and Limitations of Series II Convertible
Preferred Stock (the “Certificate”). The Certificate was filed with the State of Delaware Secretary of State on July
25, 2016. The Series II Preferred ranks: (a) senior with respect to dividends and right of liquidation with the common stock;
(b) pari passu with respect to dividends and right of liquidation with the Corporation’s Series I Preferred and Series J
Convertible Preferred Stock; and (c) junior to all existing and future indebtedness of the Company. The Series II Preferred has
a stated value per share of $1,000, subject to adjustment as provided in the Certificate (the “Stated Value”), and
a dividend rate of 6% per annum of the Stated Value. As with the Series I Preferred, the Series II Preferred has 25 votes per
common share equivalent. The Series II Preferred is subject to redemption (at Stated Value, plus any accrued, but unpaid dividends
(the “Liquidation Value”)) by the Company no later than three years after a Deemed Liquidation Event and at the Company’s
option after one year from the issuance date of the Series II Preferred, subject to a ten-day notice (to allow holder conversion).
The Series II Preferred is convertible at the option of a holder or if the closing price of the common stock exceeds 400% of the
Conversion Price for a period of twenty consecutive trading days, at the option of the Company. Conversion Price means a price
per share of the common stock equal to 100% of the lowest daily volume weighted average price of the common stock during the subsequent
12 months following the date the Series II Preferred was issued. On August 11, 2016, the Board of PositiveID agreed to exchange
2,025 shares of its Series I Preferred, which shares have a stated value of $2,261,800, held by its directors, officers and management,
namely, our CEO, acting CFO and Chairman, William J. Caragol, our President, Lyle L. Probst, and our three non-employee directors,
Jeffrey Cobb, Michael Krawitz, and Ned L. Siegel, as well as Allison Tomek, our Senior Vice President of Corporate Development,
and Kimothy Smith, our Chief Technology Advisor, for 2,262 shares of Series II Preferred (the “Exchange”). Pursuant
to the Exchange each existing holder of Series I Preferred exchanged their Series I Preferred shares for Series II Preferred shares
having equivalent stated value, maintaining the same voting rights as they had as holders of the Series I Preferred. Per the table
below and the table under the heading “Security Ownership of Certain Beneficial Owners and Management,” as of September
23, 2016, the Company’s officers and directors had control of 97.8% of the Company’s voting shares. Mr. Caragol had
control of 46.6% of the Company’s voting shares. Both the Series I Preferred and the Series II Preferred have a stated value
per share of $1,000, and a dividend rate of 6% per annum. All shares of Series I Preferred previously issued have become null
and void and any and all rights arising thereunder have been extinguished. The Series II Preferred will vest on January 1, 2019,
subject to acceleration in the event of conversion or redemption.
Name
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Position
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Preferred Series II Issued
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Common Shares Issuable Upon Conversion
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Total Votes
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William J. Caragol
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Chairman and Chief Executive Officer
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1,077
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35,881,933
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897,048,333
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Michael E. Krawitz
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Director
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169
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5,647,167
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141,179,167
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Jeffrey S. Cobb
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Director
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154
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5,139,333
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128,483,333
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Ned L. Siegel
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Director
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126
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4,201,767
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105,044,167
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Lyle Probst
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President
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456
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15,213,967
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380,349,167
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Allison F. Tomek
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SVP of Corporate Development
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166
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5,530,367
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138,259,167
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Kimothy Smith
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Chief Technology Advisor
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55
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1,825,567
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45,639,167
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Caragol Family Irrevocable Trust
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59
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1,953,233
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48,830,833
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Total
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2,262
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75,393,333
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1,884,833,333
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As
of September 23, 2016, our current directors and executive officers beneficially owned, in the aggregate, approximately 97.8%
of our outstanding voting securities, including 46.6% owned by our Chairman of the Board and Chief Executive Officer. As a result,
if some or all of them acted together, they would have the ability to exert substantial influence over the election of the Board
and the outcome of issues requiring approval by our stockholders. This concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company that may be favored by other stockholders. This could prevent transactions
in which stockholders might otherwise recover a premium for their shares over current market prices.
In
addition, our Board may, at any time, authorize the issuance of additional common or preferred stock without common stockholder
approval, subject only to the total number of authorized common and preferred shares set forth in our certificate of incorporation.
The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend
and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may
have a further dilutive effect. Since management has voting control over the Company, it also has the ability to approve any increase
in the amount of authorized shares of common or preferred stock thus, there are no limitations on management’s ability to
continue to make dilutive issuances of securities.
Risks
Related to Our Product Development Efforts
We
anticipate future losses and will require additional financing, and our failure to obtain additional financing when needed could
force us to delay, reduce or eliminate our product development programs or commercialization efforts.
We
anticipate future losses and therefore may be dependent on additional financing to execute our business plan. In particular, we
will require additional capital to continue to conduct the research and development and obtain regulatory clearances and approvals
necessary to bring our products to market and to establish effective marketing and sales capabilities for existing and future
products. Our operating plan may change, and we may need additional funds sooner than anticipated to meet our operational needs
and capital requirements for product development, clinical trials and commercialization. Additional funds may not be available
when we need them on terms that are acceptable to us, or at all. If adequate funds are not available on a timely basis, we may
terminate or delay the development of one or more of our products, or delay establishment of sales and marketing capabilities
or other activities necessary to commercialize our products.
Our
future capital requirements will depend on many factors, including: the research and development of our molecular diagnostic products,
the costs of expanding sales and marketing infrastructure and manufacturing operations; the number and types of future products
we develop and commercialize; the costs, timing and outcomes of regulatory reviews associated with our current and future product
candidates; the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual
property-related claims; and the extent and scope of our general and administrative expenses.
Our
industry changes rapidly as a result of technological and product developments, which may quickly render our product candidates
less desirable or even obsolete. If we are unable or unsuccessful in supplementing our product offerings, our revenue and operating
results may be materially adversely affected.
The
industry in which we operate is subject to rapid technological change. The introduction of new technologies in the market, including
the delay in the adoption of these technologies, as well as new alternatives for the delivery of products and services will continue
to have a profound effect on competitive conditions in this market. We may not be able to develop and introduce new products,
services and enhancements that respond to technological changes on a timely basis. If our product candidates are not accepted
by the market as anticipated, if at all, our business, operating results, and financial condition may be materially and adversely
affected.
Industry
and Business Risks Related to E-N-G Mobile Systems, Inc.
We
expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult
to predict our future performance.
Our
revenues and operating results could vary significantly from quarter to quarter and year-to-year because of a variety of factors,
many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be
meaningful. In addition to other risk factors discussed in this section, factors that may contribute to the variability of our
quarterly and annual results include:
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our
ability to accurately forecast revenues and appropriately plan our expenses;
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the
impact of worldwide economic conditions, including the resulting effect on consumer spending;
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our
ability to maintain an adequate rate of growth;
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our
ability to effectively manage our growth;
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our
ability to attract new customers;
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our
ability to successfully enter new markets and manage our expansion;
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the
effects of increased competition in our business;
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our
ability to keep pace with changes in technology and our competitors;
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our
ability to successfully manage any future acquisitions of businesses, solutions or technologies;
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the
success of our marketing efforts;
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interruptions
in service and any related impact on our reputation;
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the
attraction and retention of qualified employees and key personnel;
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our
ability to protect our intellectual property;
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costs
associated with defending intellectual property infringement and other claims;
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the
effects of natural or man-made catastrophic events;
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the
effectiveness of our internal controls; and
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changes
in government regulation affecting our business.
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As
a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications
of our future operating performance, and any unfavorable changes in these or other factors could have a material adverse effect
on our business, financial condition and results of operation.
We
may face strong competition from larger, established companies.
We
likely will face intense competition from other companies that provide the same or similar custom specialty vehicle manufacturing
and other services that compete with acquired businesses, virtually all of whom can be expected to have longer operating histories,
greater name recognition, larger installed customer bases and significantly more financial resources, R&D facilities and manufacturing
and marketing experience than we have. There can be no assurance that developments by our potential competitors will not render
our existing and future products or services obsolete. In addition, we expect to face competition from new entrants into the custom
specialty vehicle business. As the demand for products and services grows and new markets are exploited, we expect that competition
will become more intense, as current and future competitors begin to offer an increasing number of diversified products and services.
We may not have sufficient resources to maintain our research and development, marketing, sales and customer support efforts on
a competitive basis. Additionally, we may not be able to make the technological advances necessary to maintain a competitive advantage
with respect to our products and services. Increased competition could result in price reductions, fewer product orders, obsolete
technology and reduced operating margins, any of which could materially and adversely affect our business, financial condition
and results of operations.
Growth
may place significant demands on our management and our infrastructure.
We
plan for substantial growth in our business, and this growth would place significant demands on our management and our operational
and financial infrastructure. If our operations grow in size, scope and complexity, we will need to improve and upgrade our systems
and infrastructure to meet customer demand. The expansion of our systems and infrastructure will require us to commit substantial
financial, operational and technical resources in advance of an increase in the volume of business, with no assurance that the
volume of business will increase. Continued growth could also strain our ability to maintain reliable service levels for our customers
and meet their expected delivery schedules, develop and improve our operational, financial and management controls, enhance our
reporting systems and procedures and recruit, train and retain highly skilled personnel.
Managing
our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary
level of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.
Industry
and Business Risks Related to Thermomedics, Inc.
Cost
and quality issues might arise from our dependence on a third-party, sole source manufacturer.
We
currently buy our products from one third-party, sole source supplier who produces our products in its plant in Taiwan. Although
we have the right to engage other manufacturers, we have not done so. Accordingly, our reliance on this supplier involves certain
risks, including:
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The
cost of our products might increase, for reasons such as inflation and increases in the price of the precious metals, if any,
or other internal parts used to make them, which could cause our cost of goods to increase and reduce our gross margin and
profitability if any; and
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Poor
quality could adversely affect the reliability and reputation of our products.
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Any
of these uncertainties also could adversely affect our business reputation and otherwise impair our profitability and ability
to compete.
We
may not be able to compete effectively.
Our
competition includes Welch Allyn, Braun and Exergen, all of which market a line or lines of thermometers. Each competitor has
national distribution and a longer operating history than we do; and these brands have greater brand name recognition and significantly
greater financial, technical sales, marketing, distribution and research and development resources. We may be unable to compete
successfully against this competition.
Our
research and development may be unsuccessful; our next generation products may not be developed, or if developed may fail to win
commercial acceptance.
Our
business is characterized by extensive research and development, and rapid technological change. Developments by other companies
of new or improved products or technologies, especially of thermometers for use by consumers on pet dogs may make our products
or proposed products obsolete or less competitive and may negatively impact our net sales. We should, subject to having adequate
financial resources (which we currently do not possess), devote continued efforts and financial resources to develop or acquire
scientifically advanced technologies, apply our technologies cost-effectively across our product lines and markets and, attract
and retain skilled electrical engineering and other development personnel. If we fail to develop new products or enhance existing
products, it would have a material adverse effect on our business, financial condition and results of operations.
In
order to develop new products and improve current product offerings, we are focusing our research and development programs largely
on the development of next-generation models intended for the professional health care markets, principally with greater accuracy
than our current models. If we are unable to develop, launch these products as anticipated, and have them accepted commercially,
our ability to expand our market position may be materially adversely impacted. Further, we are investigating opportunities to
further expand our presence in, and diversify into, medical treatment technologies and other medical devices. Expanding our focus
beyond our current business would be expensive and time-consuming. There can be no assurance that we will be able to do so on
terms favorable to us, or that these opportunities will achieve commercial feasibility, obtain regulatory approval or gain market
acceptance. A delay in the development or approval of these technologies or our decision to reduce our investments my adversely
impact the contribution of these technologies to our future growth.
Product
shortages may arise if our contract manufacturer fails to comply with government regulations.
Medical
device manufacturers are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with
its Qualify System Regulation requirements, which require manufacturers of medical devices to adhere to certain regulations, including
testing, quality control and documentation procedures. In addition, the Federal Medical Device Reporting regulations require a
manufacturer to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused
or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious
injury. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through
period inspections by the FDA. Our manufacturer and supplier is International Standards Organization (“ISO”) certified,
but if it were to fail to adhere to quality system regulations or ISO requirements, this could delay production of our products
and lead to fines, difficulties in obtaining regulatory clearances, recalls, enforcement actions, including injunctive relief
or consent decrees, or other consequences, which could, in turn, have a material adverse effect on our financial condition and
results of operations.
Our
medical devices may not meet government regulations.
Our
products and development activities are subject to regulation by the FDA pursuant to the Federal Food, Drug and Cosmetic Act (“FDC
Act”), and, if we should sell our products abroad, by comparable agencies in foreign countries, and by other regulatory
agencies and governing bodies. Under the FDC Act, medical devices must receive FDA clearance or approval before they can be commercially
marketed in the U.S. The FDA is reviewing its clearance process in an effort to make it more rigorous, which may require additional
clinical data, if any, time and effort for product clearance. In addition, most major markets for medical devices outside the
U.S. require clearance, approval or compliance with certain standards before a product can be commercially marketed. The process
of obtaining marketing approval or clearance from the FDA for new products, or with respect to enhancements or modifications to
existing products, could:
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Take a significant
period of time;
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Require the expenditure
of substantial resources;
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Involve rigorous pre-clinical
and clinical testing, as well as increased post-market surveillance;
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Require changes to
products; and
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Result in limitations
on the indicated uses of products.
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Countries
around the world have adopted more stringent regulatory requirements that have added or are expected to add to the delays and
uncertainties associated with new product releases, as well as the clinical, if any, and regulatory costs of supporting those
releases. Even after products have received marketing approval or clearance, product approvals and clearances by the FDA can be
withdrawn due to failure to comply with regulatory standards or the occurrence unforeseen problems following initial approval.
There can be no assurance that we will receive the required clearances for new products or modifications to existing products
on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post-market study requirements.
In
addition, regulations regarding the development, manufacture and sale of medical devices are subject to future change. We cannot
predict what impact, if any, those changes might have on our business. Failure to comply with regulatory requirements could have
a material adverse effect on our business, financial condition and results of operations. Later discovery of previously unknown
problems with a product could result in fines, delays or suspensions of regulatory clearances, seizures or recalls of products,
physician advisories or other field actions, operating restrictions and/or criminal prosecution. We also may initiate field actions
as a result of our manufacturer’s failure to strictly comply with our internal quality policies. The failure to receive
product approval clearance on a timely basis, suspensions of regulatory clearances, seizures or recalls of products, physician
advisories or other field actions, or the withdrawal of product approval by the FDA, could have a material adverse effect on our
business, financial condition and results of operations.
Our
intellectual property may not be protectable.
The
medical device market in which we primarily participate is largely technology driven. Consumers historical move quickly to new
products and new technologies. As a result, intellectual property rights, particularly patents and trade secrets, play a significant
role in product development and differentiation. However, intellectual property litigation is inherently complex and unpredictable.
Furthermore, appellate courts can overturn lower court patent decisions.
We
face intellectual property risks that may negatively affect our brand names, reputation, revenues, and potential profitability.
In
our second-generation products we will be depending upon a variety of methods and techniques that we regard as proprietary trade
secrets. We are also dependent upon a variety of trademarks and designs to promote brand name development and recognition, and
we rely on a combination of trade secrets, patents, trademarks, and unfair competition and other intellectual property laws to
protect our rights to such intellectual property. However, to the extent that our products violate the proprietary right of others
we may be subject to damage awards or judgments prohibiting the use of our intellectual property. See, “Legal Proceedings,”
for a description of a pending legal proceeding seeking to invalidate one of our design patents. In addition, our rights in our
intellectual property, even if registered, may not be enforceable against any prior users of similar intellectual property. Furthermore,
if we lose or fail to enforce any of our proprietary rights, our brand names, reputation, revenues and potential profitability
may be negatively affected.
In
addition, competing parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and
geographies and to balance risk and exposure between the parties. In some cases, several competitors may be parties in the same
proceeding, or in a series of related proceedings, or litigate multiple features of a single class of devices. These forces frequently
drive settlement not only of individual cases, but also of a series of pending and potentially related and unrelated cases. In
addition, although monetary and injunctive relief is typically sought, remedies and restitution are generally not determined until
the conclusion of the trial court proceeding and can be modified on appeal. Accordingly, the outcomes of individual cases are
difficult to time, predict or quantify and are often dependent upon the outcomes of other cases in other geographies.
Patents
and other proprietary rights are and will continue to be essential to our business, and our ability to compete effectively with
other companies will be dependent upon the proprietary nature of our technologies. We rely upon trade secrets, know-how and continuing
technological innovations to develop, maintain and strengthen our competitive position. We pursue a policy of generally seeking
patent protection in the U.S. for patentable design or subject matter in our devices and attempt to review third-party patents
and patent applications to the extent publicly available in order to develop an effective patent strategy, avoid infringement
of third-party patents, identify licensing opportunities and monitor the patent claims of others. We own three U.S. design patents
and have one U.S. utility patent application pending. We are not a party to any license agreements pursuant to which patent rights
have been obtained or granted in consideration for cash, cross-licensing rights or royalty payments. No assurance can be made
that any pending or future patent application will result in the issuance of patents, or that any future patents issued to, or
licensed by, us will not be challenged or circumvented by our competitors. In addition, we may have to take legal action in the
future to protect our patents, if any, trade secrets or know-how or to assert them against claimed infringement by others. Any
legal action of that type could be costly and time consuming, and no assurances can be given that any lawsuit will be successful.
The
invalidation of key patent or proprietary rights that we may own, or an unsuccessful outcome in lawsuits to protect our intellectual
property, could have a material adverse effect on our business, financial position and results in operations.
Our
trademarks are valuable, and any inability to protect them could reduce the value of our products and brands.
Our
trademarks, trade secrets, and other intellectual property rights are important assets for us. Our trademarks “Thermomedics,”
“Babytemp,” “Temp4sure,” Tempmature,” “Elitemp”, “Caregiver”, and “TouchFree”
are registered with the U.S. Patent and Trademark Office. Protecting these intellectual property rights could be costly and time
consuming, and any unauthorized use of our intellectual property could make it more expensive for us to do business and which
also could harm our operating results.
Product
warranties and product liabilities could be costly.
We
typically warrant the workmanship and materials used in the products we sell. Failure of the products to operate properly or to
meet specifications may increase our costs by requiring replacement or monetary reimbursement to the end user. To the extent we
are unable to make a corresponding warranty claim against the manufacturer of the defective product, we would bear the loss associated
with such warranties. In the ordinary course of our business, we may be subject to product liability claims alleging that products
we sold failed or had adverse effects. We maintain liability insurance at a level which we believe to be adequate. A successful
claim in excess of the policy limits of the liability insurance could materially adversely affect our business. There can be no
assurance, however, that recourse against a manufacturer would be successful, or that our manufacturer maintains adequate insurance
or otherwise would be able to pay such liability.
Industry
and Business Risks Related to Our Legacy Healthcare Businesses
The
sale and license of our legacy healthcare products may not produce royalty streams.
In
2013, we licensed the assets related to our iglucose technology to Smart Glucose Meter and in 2015 we licensed our breath glucose
detection system and its underlying patent, which was granted in 2014. Pursuant to these agreements, we are due royalties based
on future product sales, if any. Should these businesses not generate significant revenues, we will not achieve royalty streams
from these sales and licenses.
Implantation
of our implantable microchip may be found to cause risks to a person’s health, which could adversely affect sales of our
systems that incorporate the implantable microchip
.
The
implantation of the VeriChip, which we sold to VeriTeQ, may be found, or be perceived, to cause risks to a person’s health.
Potential or perceived risks include adverse tissue reactions, migration of the microchip and infection from implantation. There
have been articles published asserting, despite numerous studies to the contrary, that the implanted microchip causes malignant
tumor formation in laboratory animals. If more people are implanted with our implantable microchip, it is possible that these
and other risks to health will manifest themselves. Actual or perceived risks to a person’s health associated with the microchip
implantation process could result in negative publicity could damage our business reputation, leading to loss in sales of our
other systems targeted at the healthcare market which would harm our business and negatively affect our prospects.
In
connection with its acquisition of the VeriChip business, VeriTeQ agreed to indemnify us for any liabilities relating to the implantable
microchip. Further, we are aware that VeriTeQ has sold the assets of the business to an unaffiliated third party who is using
it as an identification device inside of a cosmetic implant, which does not involve direct in vivo use in people. If VeriTeQ or
the buyer of the assets is unable to fulfill indemnity obligations, we could be responsible for payment of such liabilities, which
could have a material adverse impact on our financial condition.
Risks
Related to Our Common Stock
Future
sales of our common stock may depress the market price of our common stock and cause stockholders to experience dilution.
The
market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market,
including shares issuable on the conversion of convertible notes payable. We may seek additional capital through one or more additional
equity or convertible debt transactions in 2016; however, such transactions will be subject to market conditions and there can
be no assurance any such transaction will be completed.
Current
stockholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common
stock issued pursuant to convertible preferred stock and debt instruments.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership
interests of our present stockholders and the purchasers of our common stock offered hereby. We are currently authorized to issue
an aggregate of 3,900,000,000 shares of capital stock consisting of 3,895,000,000 shares of common stock and 5,000,000 shares
of preferred stock with preferences and rights to be determined by our Board. As of September 23, 2016, there are 42,150,411 shares
of our common stock, 2,262 shares of our Series II Convertible Preferred stock and 71 shares of our Series J Convertible Preferred
Stock outstanding. There are 1,419,717 shares of our common stock reserved for issuance pursuant to stock option agreements. We
also have 292,800 shares of our common stock issuable upon the exercise of outstanding warrants. We also have convertible notes
with approximate principal and accrued interest balances of $10,464,638 as of September 23, 2016. These notes and our Series II
Convertible Preferred stock are convertible into common stock in the future at prices determined at the time of conversion. The
Series II, Series J and convertible notes would convert into shares of common stock, based on the closing bid price of $0.031
on September 23, 2016, as follows:
|
|
Principal/
|
|
|
Common
Share Conversion
|
|
|
|
Liquidation
|
|
|
At
Current
|
|
|
At
25%
|
|
|
At
50%
|
|
|
At
75%
|
|
|
|
Value
|
|
|
Market
|
|
|
Discount
|
|
|
Discount
|
|
|
Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
II
|
|
$
|
2,262,000
|
|
|
|
72,967,742
|
|
|
|
97,290,323
|
|
|
|
145,935,484
|
|
|
|
291,870,968
|
(1)
|
Series
J
|
|
|
71,000
|
|
|
|
2,290,323
|
|
|
|
3,053,763
|
|
|
|
4,580,645
|
|
|
|
9,161,290
|
(2)
|
Convertible
Notes
|
|
|
7,487,432
|
|
|
|
367,410,433
|
|
|
|
322,040,098
|
|
|
|
483,060,148
|
|
|
|
966,120,295
|
(3)
|
|
|
$
|
9,820,432
|
|
|
|
442,668,498
|
|
|
|
422,384,184
|
|
|
|
633,576,277
|
|
|
|
1,267,152,553
|
|
|
(1)
|
Represents
liquidation value on 2,262 shares of Series II converted at the closing bid price of $0.031 on September 23, 2016 at discounts
of 25%, 50% and 75% from the closing price on September 23, 2016.
|
|
|
|
|
(2)
|
Represents
liquidation value on 71 shares of Series J converted at the closing bid price of $0.031 on September 23, 2016 at discounts
of 25%, 50% and 75% from the closing price on September 23, 2016.
|
|
|
|
|
(3)
|
The
convertible notes are convertible into common stock of the company at prices determined, in the future, at the time of conversion,
at discounts of between 25% and 40% of the market price or at the lesser of a fixed amount or discount to market. This table
includes common shares conversions at the closing bid price of $0.031 on September 23, 2016, and at discounts of 25%, 50%
and 75% from the closing bid price on September 23, 2016.
|
Any
future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and
could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger
pool of outstanding equity. As described above, we may need to raise additional capital through public or private offerings of
our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued
under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for
other business purposes. Our Board may at any time authorize the issuance of additional common or preferred stock without common
stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our certificate
of incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and
may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities,
which may have a further dilutive effect. Also, the future issuance of any such additional shares of common or preferred stock
or other securities may create downward pressure on the trading price of the common stock. There can be no assurance that any
such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then
traded.
We
do not anticipate declaring any cash dividends on our common stock.
In
July 2008 we declared, and in August 2008 we paid, a special cash dividend of $15.8 million on our capital stock. Any future determination
with respect to the payment of dividends will be at the discretion of the Board and will be dependent upon our financial condition,
results of operations, capital requirements, general business conditions, terms of financing arrangements and other factors that
our Board may deem relevant. In addition, our Certificates of Designation for shares of Series I and Series J Preferred Stock
prohibit the payment of cash dividends on our common stock while any such shares of preferred stock are outstanding.
Our
shares may be defined as “penny stock,” the rules imposed on the sale of the shares may affect your ability to resell
any shares you may purchase, if at all.
Shares
of our common stock may be defined as a “penny stock” under the Exchange Act, and rules of the SEC. The Exchange Act
and such penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our
securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly with spouse, or
in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker-dealer must
make a suitability determination for each purchaser and receive the purchaser’s written agreement prior to the sale. In
addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase
price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons,
and deliver certain disclosures required by the SEC. Consequently, the penny stock rules may affect the ability of broker-dealers
to make a market in or trade our common stock and may also affect your ability to resell any shares you may purchase in this offering
in the public markets.
The
success and timing of development efforts, clinical trials, regulatory approvals, product introductions, collaboration and licensing
arrangements, any termination of development efforts and other material events could cause volatility in our stock price.
Since
our common stock is thinly traded, its trading price is likely to be highly volatile and could be subject to extreme fluctuations
in response to various factors, many of which are beyond our control, including (but not necessarily limited to):
|
●
|
success
or lack of success in being awarded, as a subcontractor to The Boeing Company, the next stage procurement related to the BioWatch
system;
|
|
|
|
|
●
|
success
or lack of success in being awarded research and development contracts with U.S. Government agencies, related to our Firefly
Dx product, or otherwise;
|
|
|
|
|
●
|
success
or lack of success being granted patents for its core biological diagnostic and detection technologies;
|
|
|
|
|
●
|
introduction
of competitive products into the market;
|
|
|
|
|
●
|
receipt
of payments of any royalty payments under the sale and licensing agreements related to our legacy healthcare products;
|
|
|
|
|
●
|
unfavorable
publicity regarding us or our products;
|
|
|
|
|
●
|
termination
of development efforts of any product under development or any development or collaboration agreement.
|
In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also significantly affect the market price
of our common stock.
GHS
will pay less than the then prevailing market price for our common stock.
Our
common stock to be issued to GHS pursuant to the Financing Agreement dated August 29, 2016 will pay eighty percent
(80%) off of the lowest volume-weighted average price of our common stock over the five consecutive trading days preceding the
date of the applicable Put Notice. If GHS sells the shares, the price of our common stock could decrease. If our stock price decreases,
GHS may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on
our stock price.
Your
ownership interest may be diluted and the value of our common stock may decline by exercising the put right pursuant to the Financing
Agreement.
Pursuant
to the Financing Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to GHS
at a discounted price. Because the put price is lower than the prevailing market price of our common stock, to the extent that
the put right is exercised, your ownership interest may be diluted.
We
may not have access to the full amount available under the Financing Agreement.
Our
ability to draw down funds and sell shares under the Financing Agreement requires that the registration statement of which this
prospectus forms a part be declared effective and continue to be effective. The registration statement of which this prospectus
forms a part registers the resale of 12,508,520 shares issuable under the Financing Agreement, and our ability to sell any remaining
shares issuable under the investment with GHS is subject to our ability to prepare and file one or more additional registration
statements registering the resale of these shares. These registration statements may be subject to review and comment by the SEC
staff and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness
of these registration statements cannot be assured. The effectiveness of these registration statements is a condition precedent
to our ability to sell all of the shares of our common stock to GHS pursuant to the Financing Agreement. Even if we are successful
in causing one or more registration statements registering the resale of some or all of the shares issuable under the Financing
Agreement to be declared effective by the SEC in a timely manner, we may not be able to sell the shares unless certain other conditions
are met. For example, we might have to increase the number of our authorized shares in order to issue the shares to GHS. Increasing
the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to draw down
any amounts under the Financing Agreement is subject to a number of conditions, there is no guarantee that we will be able to
draw down any portion or all of the proceeds of $7,000,000 under the investment with GHS.
Certain
restrictions on the extent of puts and the delivery of advance notices may have little, if any, effect on the adverse impact of
our issuance of shares in connection with the Financing Agreement, and as such, GHS may sell a large number of shares, resulting
in substantial dilution to the value of shares held by existing stockholders.
GHS
has agreed to refrain from holding an amount of shares which would result in GHS or its affiliates owning more than 9.99% of the
then outstanding shares of our common stock at any one time. These restrictions, however, do not prevent GHS from selling shares
of our common stock received in connection with a put, and then receiving additional shares of our common stock in connection
with a subsequent put. In this way, GHS could sell more than 9.99% of the outstanding common stock in a relatively short time
frame while never holding more than 9.99% at one time.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of:
PositiveID
Corporation
We
have audited the accompanying consolidated balance sheets of PositiveID Corporation and its Subsidiaries as of December 31, 2015
and 2014 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each
of the two years in the period ended December 31, 2015. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that
our audits provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of PositiveID Corporation and its Subsidiaries and controlled entity as of December 31, 2015 and 2014 and the
consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2015 in conformity
with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the Company reported a net loss, and used cash for operating activities of
approximately $11,404,000 and $4,507,000 respectively, in 2015. At December 31, 2015, the Company had a working capital deficiency,
stockholders’ deficit and accumulated deficit of approximately $10,694,000, $11,842,000 and $144,161,000 respectively. These
matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as
to these matters are also described in Note 1. The consolidated 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
April
11, 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
CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality
POSITIVEID
CORPORATION AND SUBSIDIARIES
Consolidated
Balance Sheets
(In
thousands, except share data)
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
173
|
|
|
$
|
145
|
|
Accounts
receivable, net
|
|
|
641
|
|
|
|
—
|
|
Inventories
,
net
|
|
|
1,768
|
|
|
|
—
|
|
Other
receivables
|
|
|
123
|
|
|
|
—
|
|
Prepaid
expenses and other current assets
|
|
|
243
|
|
|
|
5
|
|
Total
Current Assets
|
|
|
2,948
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Equipment,
net
|
|
|
163
|
|
|
|
3
|
|
Goodwill
|
|
|
817
|
|
|
|
510
|
|
Intangibles,
net
|
|
|
749
|
|
|
|
347
|
|
Other
assets
|
|
|
18
|
|
|
|
11
|
|
Total
Assets
|
|
$
|
4,695
|
|
|
$
|
1,021
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
248
|
|
|
$
|
127
|
|
Accrued
expenses and other current liabilities
|
|
|
950
|
|
|
|
693
|
|
Deferred
revenue
|
|
|
1,847
|
|
|
|
2,571
|
|
Notes
and loans payable, net of discounts
|
|
|
359
|
|
|
|
676
|
|
Short-term
convertible debt and accrued interest, net of discounts and premiums
|
|
|
2,128
|
|
|
|
1,527
|
|
Embedded
conversion option liability
|
|
|
7,786
|
|
|
|
2,152
|
|
Tax
contingency
|
|
|
201
|
|
|
|
480
|
|
Contingent
earn-out liability
|
|
|
123
|
|
|
|
—
|
|
Total
Current Liabilities
|
|
|
13,642
|
|
|
|
8,226
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities:
|
|
|
|
|
|
|
|
|
Loan
payable
|
|
|
31
|
|
|
|
—
|
|
Contingent
earn-out liability
|
|
|
184
|
|
|
|
—
|
|
Mandatorily
redeemable preferred stock, 2,500 shares authorized; $0.001 par value; Series I Preferred – 2,025 and 1,000 shares
issued and outstanding at December 31, 2015 and 2014, respectively; liquidation preference and redemption value of $2,196
and $1,065 at December 31, 2015 and 2014, respectively.
|
|
|
2,680
|
|
|
|
1,241
|
|
Total
Liabilities
|
|
|
16,537
|
|
|
|
9,467
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit:
|
|
|
|
|
|
|
|
|
Convertible
preferred stock, 5,000,000 shares authorized, $.01 par value; Series J Preferred – 125 and 0 shares issued and
outstanding at December 31, 2015 and 2014, respectively; liquidation preference of $125,000 and $0, at December
31, 2015 and 2014, respectively
|
|
|
1
|
|
|
|
—
|
|
Common
stock, 3,895,000,000 shares authorized, $.01 par value; 440,791,258 and 169,531,322 shares issued and outstanding at December
31, 2015 and 2014, respectively
|
|
|
4,408
|
|
|
|
1,695
|
|
Additional
paid-in capital
|
|
|
127,910
|
|
|
|
122,616
|
|
Accumulated
deficit
|
|
|
(144,161
|
)
|
|
|
(132,757
|
)
|
Total
Stockholders’ Deficit
|
|
|
(11,842
|
)
|
|
|
(8,446
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
$
|
4,695
|
|
|
$
|
1,021
|
|
See
accompanying notes to consolidated financial statements.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Operations
(In
thousands, except per share data)
|
|
Year
Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,940
|
|
|
$
|
945
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
335
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,605
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
5,611
|
|
|
|
4,313
|
|
Research
and development
|
|
|
1,420
|
|
|
|
588
|
|
Total
operating expenses
|
|
|
7,031
|
|
|
|
4,901
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(4,426
|
)
|
|
|
(4,250
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(4,719
|
)
|
|
|
(3,010
|
)
|
Change
in contingent earn-out liability
|
|
|
—
|
|
|
|
514
|
|
Change
in fair value of embedded conversion option liability
|
|
|
(2,427
|
)
|
|
|
(198
|
)
|
Loss
on extinguishment of debt
|
|
|
(233
|
)
|
|
|
(246
|
)
|
Other
income (expense)
|
|
|
401
|
|
|
|
(1
|
)
|
Total
other income (expense)
|
|
|
(6,978
|
)
|
|
|
(2,941
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss before income tax provision
|
|
|
(11,404
|
)
|
|
|
(7,191
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
|
(11,404
|
)
|
|
|
(7,191
|
)
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
(106
|
)
|
|
|
(89
|
)
|
Beneficial
conversion dividend on preferred stock
|
|
|
—
|
|
|
|
(943
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(11,510
|
)
|
|
$
|
(8,223
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share attributable to common stockholders – basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.09
|
)
|
Weighted
average shares outstanding – basic and diluted
|
|
|
306,245
|
|
|
|
96,602
|
|
See
accompanying notes to consolidated financial statements.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders’ Deficit
For
the Years Ended December 31, 2015 and 2014
(In
thousands)
|
|
Preferred
Shares
|
|
|
Common
Shares
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
600
|
|
|
$
|
—
|
|
|
|
45,425
|
|
|
$
|
454
|
|
|
$
|
119,256
|
|
|
$
|
(124,623
|
)
|
|
$
|
(4,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,191
|
)
|
|
|
(7,191
|
)
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
9,330
|
|
|
|
93
|
|
|
|
844
|
|
|
|
—
|
|
|
|
937
|
|
Issuance of Series F Preferred shares,
net of costs
|
|
|
450
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
350
|
|
|
|
—
|
|
|
|
350
|
|
Conversion of Series F Preferred shares
and accrued dividends payable
|
|
|
(1,050
|
)
|
|
|
—
|
|
|
|
44,084
|
|
|
|
441
|
|
|
|
(396
|
)
|
|
|
—
|
|
|
|
45
|
|
Beneficial conversion dividends for
Series F Preferred conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
943
|
|
|
|
(943
|
)
|
|
|
—
|
|
Common Stock issued pursuant to convertible
note conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
62,161
|
|
|
|
622
|
|
|
|
772
|
|
|
|
—
|
|
|
|
1,
394
|
|
Relative fair-value of warrant issued
with debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
|
|
—
|
|
|
|
70
|
|
Reclassification of premium upon debt
conversion and redemption
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
722
|
|
|
|
—
|
|
|
|
722
|
|
Reclassification of derivative liability
upon debt conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
207
|
|
|
|
—
|
|
|
|
207
|
|
Cashless exercise of warrants issued
related to financing agreements
|
|
|
—
|
|
|
|
—
|
|
|
|
8,531
|
|
|
|
85
|
|
|
|
(85
|
)
|
|
|
—
|
|
|
|
—
|
|
Reclassification of warrant liability
upon conversion of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
22
|
|
Preferred stock
dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(89
|
)
|
|
|
—
|
|
|
|
(89
|
)
|
Balance at December 31, 2014
|
|
|
—
|
|
|
$
|
—
|
|
|
|
169,532
|
|
|
$
|
1,695
|
|
|
$
|
122,616
|
|
|
$
|
(132,757
|
)
|
|
$
|
(8,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,404
|
)
|
|
|
(11,404
|
)
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
12,300
|
|
|
|
123
|
|
|
|
901
|
|
|
|
—
|
|
|
|
1,024
|
|
Issuance of Series J Preferred shares
|
|
|
125
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124
|
|
|
|
—
|
|
|
|
125
|
|
Common Stock issued pursuant to convertible
note conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
258,958
|
|
|
|
2,590
|
|
|
|
831
|
|
|
|
—
|
|
|
|
3,421
|
|
Reclassification of premium upon debt
conversion and redemption
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
421
|
|
|
|
—
|
|
|
|
421
|
|
Reclassification of derivative liability
upon debt conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,123
|
|
|
|
—
|
|
|
|
3,123
|
|
Preferred stock dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
—
|
|
|
|
(106
|
)
|
Balance at December 31, 2015
|
|
|
125
|
|
|
$
|
1
|
|
|
|
440,790
|
|
|
$
|
4,408
|
|
|
$
|
127,910
|
|
|
$
|
(144,161
|
)
|
|
$
|
(11,842
|
)
|
See
accompanying notes to consolidated financial statements.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(In
thousands)
|
|
Year
Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,404
|
)
|
|
$
|
(7,191
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
258
|
|
|
|
288
|
|
Stock-based
compensation
|
|
|
2,259
|
|
|
|
1,701
|
|
Allowance
on note receivable
|
|
|
140
|
|
|
|
60
|
|
Series
F preferred stock issued as penalty fee
|
|
|
—
|
|
|
|
250
|
|
Loss
on extinguishment of debt
|
|
|
233
|
|
|
|
246
|
|
Convertible
debt discounts and premium amortization
|
|
|
4,089
|
|
|
|
2,719
|
|
Gain
on sale of investment shares
|
|
|
(336
|
)
|
|
|
—
|
|
Note
issued as consideration for services
|
|
|
150
|
|
|
|
—
|
|
Change
in fair value of embedded conversion option liability
|
|
|
2,427
|
|
|
|
198
|
|
Decrease
in fair value of contingent earn-out liability
|
|
|
—
|
|
|
|
(514
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Account
receivable
|
|
|
(124
|
)
|
|
|
—
|
|
Prepaid
expenses
|
|
|
(135
|
)
|
|
|
(76
|
)
|
Inventory
|
|
|
128
|
|
|
|
—
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable and other accrued expense
|
|
|
(125
|
)
|
|
|
(321
|
)
|
Accrued
interest
|
|
|
629
|
|
|
|
—
|
|
Deferred
revenue
|
|
|
(2,696
|
)
|
|
|
71
|
|
Net
cash used in operating activities
|
|
|
(4,507
|
)
|
|
|
(2,569
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of Thermomedics, Inc.
|
|
|
(175
|
)
|
|
|
—
|
|
Acquisition
of E-N-G Mobile Systems, Inc.,net
|
|
|
(667
|
)
|
|
|
—
|
|
Proceeds
from sale of investment shares, net
|
|
|
336
|
|
|
|
—
|
|
Loan
under note receivable
|
|
|
(140
|
)
|
|
|
—
|
|
Purchase
of property & equipment
|
|
|
(3
|
)
|
|
|
(5
|
)
|
Net
cash used in investing activities
|
|
|
(649
|
)
|
|
|
(5
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuances of Series F Preferred Stock, net of fees
|
|
|
—
|
|
|
|
100
|
|
Proceeds
from convertible debt financing, net of fees
|
|
|
5,913
|
|
|
|
2,582
|
|
Principal
payments of short-term debt
|
|
|
(729
|
)
|
|
|
(128
|
)
|
Net
cash provided by financing activities
|
|
|
5,184
|
|
|
|
2,554
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
28
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
145
|
|
|
|
165
|
|
Cash
and cash equivalents, end of year
|
|
$
|
173
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
Supplementary
Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
13
|
|
|
$
|
—
|
|
Cash
paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash
financing and investing activities:
|
|
|
|
|
|
|
|
|
Preferred
dividends converted into common stock
|
|
$
|
—
|
|
|
$
|
45
|
|
Conversion
of promissory notes into common stock
|
|
$
|
3,842
|
|
|
$
|
1,394
|
|
Relative
fair value of warrants issued with debt
|
|
$
|
—
|
|
|
$
|
70
|
|
Reclassification
of embedded conversion option liability upon conversion of debt
|
|
$
|
3,123
|
|
|
$
|
207
|
|
Reclassification
of warrant liability upon exercise of warrants
|
|
$
|
—
|
|
|
$
|
22
|
|
Issuance
of shares for fee
|
|
$
|
—
|
|
|
$
|
409
|
|
Embedded
conversion option liability recorded as debt discount
|
|
$
|
6
,330
|
|
|
$
|
2,161
|
|
Promissory
note issued for prepaid services
|
|
$
|
150
|
|
|
$
|
—
|
|
Capital
lease financing
|
|
$
|
47
|
|
|
$
|
—
|
|
Stock
issued for prepaid services
|
|
$
|
186
|
|
|
$
|
—
|
|
Preferred
stock, notes payable and earn-out liability consideration recorded for business combinations
|
|
$
|
471
|
|
|
$
|
—
|
|
See
accompanying notes to consolidated financial statements.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
1.
Organization
PositiveID
Corporation, including its wholly-owned subsidiaries Microfluidic Systems (“PDI”) and E-N-G Mobile Systems, Inc. (“ENG”),
and Thermomedics, Inc. (“Thermomedics”), which the Company contractually controls (collectively, the “Company”
or “PositiveID”), develops molecular diagnostic systems for bio-threat detection and rapid medical testing; markets
the Caregiver® non-contact clinical thermometer; and manufactures specialty mobile labs and communication vehicles. The Company’s
fully automated pathogen detection systems and assays are designed to detect a range of biological threats. The Company’s
M-BAND (Microfluidic Bio-agent Autonomous Networked Detector) system is an airborne bio-threat detection system developed for
the homeland defense industry, to detect biological weapons of mass destruction. The Company is developing Firefly Dx, an automated
pathogen detection system for rapid diagnostics, both for clinical and point-of-need applications.
Authorized
Common Stock
As
of December 31, 2015, the Company was authorized to issue 3.9 billion shares of common stock. On April 30, 2015, the Company filed
the Sixth Amendment to the Second Amendment and Restated Certificate of Incorporation, as amended, with the State of Delaware
to increase the number of authorized common shares to 1.97 billion shares. On February 25, 2016, the Company filed the Seventh
Amendment to the Second Amendment and Restated Certificate of Incorporation, as amended, with the State of Delaware to increase
the number of authorized common shares to 3.9 billion shares. The change in authorized shares is retrospectively reflected
on the consolidated balance sheet.
Going
Concern
The
Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. As
of December 31, 2015, we had a working capital deficiency of approximately $10.7 million and a stockholders’ deficit of
approximately $11.8 million, compared to a working capital deficit of approximately $8.1 million and a stockholders’ deficit
of approximately $8.4 million as of December 31, 2014. The increase in the working capital deficit was primarily due to operating
losses for the period and capital raised through convertible debt financings.
We
have incurred operating losses prior to and since the merger that created PositiveID. The current 2015 operating losses are the
result of research and development expenditures, selling, general and administrative expenses related to our molecular diagnostics
and detection and Caregiver products. We expect our operating losses to continue through 2016. These conditions raise substantial
doubt about our ability to continue as a going concern.
Our
ability to continue as a going concern is dependent upon our ability to obtain financing to fund the continued development of
our products and to support working capital requirements. Until we are able to achieve operating profits, we will continue to
seek to access the capital markets. In 2014 and 2015, we raised approximately $2.7 and $5.9 million, respectively from the issuance
of convertible preferred stock and convertible debt.
The
Company intends to continue to access capital to provide funds to meet its working capital requirements for the near-term future.
In addition and if necessary, the Company could reduce and/or delay certain discretionary research, development and related activities
and costs. However, there can be no assurances that the Company will be able to negotiate additional sources of equity or credit
for its long-term capital needs. The Company’s inability to have continuous access to such financing at reasonable costs
could materially and adversely impact its financial condition, results of operations and cash flows, and result in significant
dilution to the Company’s existing stockholders. The Company’s consolidated financial statements do not include any
adjustments relating to recoverability of assets and classifications of assets and liabilities that might be necessary should
the Company be unable to continue as a going concern.
2.
Summary of Significant Accounting Policies
Principles
of Consolidations
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries of which all are inactive
except for PDI, Thermomedics and ENG. All significant intercompany balances and transactions have been eliminated in the
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates during the reported periods include valuation of assets acquired and liabilities assumed in
business combinations, allowance for doubtful accounts receivable, inventories valuation, valuation of goodwill and
intangible assets, valuation of loss and other contingencies, product warranty liabilities, valuation of derivatives, valuation
of beneficial conversion features, estimate of contingent earn-out liabilities, valuation of stock-based compensation and
an estimate of the deferred tax asset valuation allowance.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Cash
and Cash Equivalents
For
the purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at December 31, 2015 or
2014 respectively. The Company maintained its cash in various financial institutions during the years ended December
31, 2015 and 2014. Balances were insured up to Federal Deposit Insurance Corporation (“FDIC”) limits. At times, cash
deposits exceeded the federally insured limits. There were no cash deposits that exceeded the federally insured limits as of
December 31, 2015.
Accounts
receivable
Accounts
receivable are stated at their estimated net realizable value. The Company reviews its accounts to estimate losses resulting from
the inability of its customers to make required payments. Any required allowance is based on specific analysis of past due accounts
and also considers historical trends of write-offs. Past due status is based on how recently payments have been received from
customers. The Company’s collection experience has been favorable reflecting a limited number of customers. No allowance
was deemed necessary at December 31, 2015 and 2014.
Inventories
Inventory
for Thermomedics consists of finished goods of our Caregiver non-contact thermometers and inventory for ENG consists of standard
and manufactured frames and bodies of vehicles, and components of mobile units and is stated at lower of cost or market and
net realizable value on a first in first out basis. 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 periodically and are based on the Company’s business plan and from feedback from customers
and the product development team; however, estimates can vary significantly. As of December 31, 2015, 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 year ended.
Equipment
Equipment
is carried at cost less accumulated depreciation, computed using the straight-line method over the estimated useful lives. Leasehold
improvements are depreciated over the shorter of the lease term or useful life, software is depreciated over 5 years, and
equipment is depreciated over periods ranging from 1 to 8 years. Repairs and maintenance which do not extend the
useful life of the asset are charged to expense as incurred. Gains and losses on sales and retirements are reflected in the consolidated
statements of operations.
Equipment consists
of the following (in thousands):
|
|
Est. Useful Lives
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Computer and software
|
|
5 years
|
|
$
|
-
|
|
|
$
|
190
|
|
Furniture and equipment
|
|
3-5 years
|
|
|
83
|
|
|
|
312
|
|
Machinery and equipment
|
|
1-8 years
|
|
|
59
|
|
|
|
-
|
|
Autos
|
|
3 -5 years
|
|
|
35
|
|
|
|
-
|
|
Leasehold improvements
|
|
1-3 years
|
|
|
14
|
|
|
|
11
|
|
Total equipment
|
|
|
|
|
191
|
|
|
|
513
|
|
Less accumulated depreciation
|
|
|
|
|
(28
|
)
|
|
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
|
$
|
163
|
|
|
$
|
3
|
|
Depreciation expense for 2015 and 2014 was
$4,493 and $12,206, respectively.
Intangible
Assets and Goodwill
Intangible
assets are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful lives.
Customer contracts and relationships are being amortized over a period of 3 years, patents and other intellectual property are
being amortized over a period of 5 years, and non-compete agreements are being amortized over 2 years.
The
Company continually evaluates whether events or circumstances have occurred that indicate the remaining estimated useful lives
of its definite-lived intangible assets may warrant revision or that the remaining balance of such assets may not be recoverable.
The Company uses an estimate of the related undiscounted cash flows attributable to such asset over the remaining life of the
asset in measuring whether the asset is recoverable.
The
Company records goodwill as the excess of the purchase price over the fair values assigned to the net assets acquired in business
combinations. Goodwill is allocated to reporting units as of the acquisition date for the purpose of goodwill impairment testing.
The Company’s reporting units are those businesses for which discrete financial information. Goodwill of a reporting unit
is tested for impairment at year-end, or between testing dates if an impairment condition or event is determined to have occurred.
In
assessing potential impairment of the intangible assets recorded in connection with the PDI, ENG and Thermomedics acquisitions,
as of December 31, 2015, we considered the likelihood of future cash flows attributable to such assets. Based on our analysis,
we have concluded based on information currently available, that no impairment of the intangible assets exists as of December
31, 2015. The Company performed its annual impairment test of goodwill as of December 31, 2015. As a result of this annual test,
using the market capitalization method of valuation, it was determined that the goodwill balance as of December 31, 2015 was not
impaired.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, collectability of arrangement consideration is reasonably assured,
the arrangement fees are fixed or determinable and upon completion and delivery in accordance with the customer contract or purchase
order.
If
at the outset of an arrangement, the Company determines that collectability is not reasonably assured, revenue is deferred until
the earlier of when collectability becomes probable or the receipt of payment. If there is uncertainty as to the customer’s
acceptance of the Company’s deliverables, revenue is not recognized until the earlier of receipt of customer acceptance
or expiration of the acceptance period. If at the outset of an arrangement, the Company determines that the arrangement fee is
not fixed or determinable, revenue is deferred until the arrangement fee becomes estimable, assuming all other revenue recognition
criteria have been met.
To
date, the Company has generated revenue from three sources: (1) professional services (consulting & advisory), (2) technology
licensing, and (3) product sales
Specific
revenue recognition criteria for each source of revenue is as follows:
|
(1)
|
Revenues
for professional services, which are of short term duration, are recognized when services are provided,
|
|
|
|
|
(2)
|
Technology
license revenue is recognized upon the completion of all terms of that license. Payments received in advance of completion
of the license terms are recorded as deferred revenue.
|
|
|
|
|
(3)
|
Revenue
from sales of the Company’s products is recorded when risk of loss has passed to the buyer and criteria for revenue
recognition discussed above is met. Payments received in advance of delivery and revenue recognition are recorded as deferred
revenue.
|
If
these criteria are not met, the arrangement is accounted for as one unit of accounting which would result in revenue being recognized
ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered
element is delivered. If these criteria are met for each element and there is a relative selling price for all units of accounting
in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative
selling price.
Concentrations
Concentration of Deferred Revenue
For the years ended
December 31, 2015 and 2014, the Company had deferred revenue of 100% from product sale and 97% from the Boeing License Agreement,
respectively.
Concentration of Revenues
The Company recognized
the deferred revenue in conjunction with the Boeing License Agreement during the year ended December 31, 2015, which made up 91%
of total revenue in 2015; 99% of the revenue in the year ended December 31, 2014, was generated under a purchase order, from UTC
Aerospace Systems.
Concentration of Accounts Receivable
For the year ended December
31, 2015, the Company had accounts receivable of approximately $641,000 from product sales, of which 60% and 19% are from two
of the Company’s largest customers. The Company had no account receivable for year ended December 31, 2014.
Advertising Costs
Advertising costs are
expensed as incurred. Advertising costs for the years ended December 31, 2015 and 2014 were minimal and nil, respectively.
Shipping and Handling
Costs incurred by the
Company for freight in are included in costs of revenue. Freight in costs incurred for the year ended December 31, 2015 and 2014
were minimal and nil, respectively.
Legal Expenses
All legal costs for
litigation matters are charged to expense as incurred.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Convertible
Notes With Variable Conversion Options
The
Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal
and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock
at the time of conversion. The Company measures the fair value of the notes at the time of issuance, which is the result of the
share price discount at the time of conversion, and records the premium as accretion to interest expense to the date of first
conversion.
The
Company accounts for debt issuance cost paid to lenders, or on behalf of lenders, in accordance with ASC 470, Debt. The costs
associated with the issuance of debt are recorded as debt discount and amortized over the life of the underlying debt instrument.
Accounting
for Derivatives
The
Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components
of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that
under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability.
In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations
as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at
the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity
that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the
instrument on the reclassification date.
Fair
Value of Financial Instruments and Fair Value Measurements
The
Company measures its financial and non-financial assets and liabilities, as well as makes related disclosures, in accordance with
ASC Topic 820,
Fair Value Measurements and Disclosures
(“ASC Topic 820”). For certain of our financial instruments,
including cash, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due
to their short maturities. Amounts recorded for notes payable, net of discount, also approximate fair value because current interest
rates available to the Company for debt with similar terms and maturities are substantially the same.
ASC
Topic 820 provides guidance with respect to valuation techniques to be utilized in the determination of fair value of assets and
liabilities. Approaches include, (i) the market approach (comparable market prices), (ii) the income approach (present value of
future income or cash flow), and (iii) the cost approach (cost to replace the service capacity of an asset or replacement cost).
ASC Topic 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
|
Level
1:
|
Observable
inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
|
Level
2:
|
Inputs
other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
|
|
|
|
|
Level
3:
|
Unobservable
inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which
reflect those that a market participant would use.
|
Stock-Based
Compensation
Stock-based
compensation expenses are reflected in the Company’s consolidated statements of operations under selling, general and administrative
expenses and research and development expenses.
Compensation
expense for all stock-based employee and director compensation awards granted is based on the grant date fair value estimated
in accordance with the provisions of ASC Topic 718, Stock Compensation (“ASC Topic 718”). The Company recognizes these
compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term.
Vesting terms vary based on the individual grant terms.
The
Company estimates the fair value of stock-based compensation awards on the date of grant using the Black-Scholes-Merton (“BSM”)
option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions
and are freely transferable. In addition, option valuation models require the input of highly subjective assumptions including
the expected stock price volatility. The BSM option pricing model considers, among other factors, the expected term of the award
and the expected volatility of the Company’s stock price. Expected terms are calculated using the Simplified Method, volatility
is determined based on the Company’s historical stock price trends and the discount rate is based upon treasury rates with
instruments of similar expected terms. Warrants granted to non-employees are accounted for in accordance with the measurement
and recognition criteria of ASC Topic 505-50, Equity Based Payments to Non-Employees.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Income
Taxes
The
Company accounts for income taxes under the asset and liability approach for the financial accounting and reporting of income
taxes. Deferred taxes are recorded based upon the tax impact of items affecting financial reporting and tax filings in different
periods. A valuation allowance is provided against net deferred tax assets when the Company determines realization is not currently
judged to be more likely than not.
The
Company follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax
position for recognition purposes 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. Accordingly, the Company reports a liability for unrecognized
tax benefits resulting from the uncertain tax positions taken or expected to be taken on a tax return and recognizes interest
and penalties, if any, related to uncertain tax positions as interest expense. The Company does not have any uncertain tax positions
at December 31, 2015 and 2014.
Research
and Development Costs
The
principal objective of our research and development program is to develop high-value molecular diagnostic products such as M-BAND
and Firefly Dx. We focus our efforts on four main areas: 1) engineering efforts to extend the capabilities of our systems and
to develop new systems; 2) assay development efforts to design, optimize and produce specific tests that leverage the systems
and chemistry we have developed; 3) target discovery research to identify novel micro RNA targets to be used in the development
of future assays; 4) chemistry research to develop innovative and proprietary methods to design and synthesize oligonucleotide
primers, probes and dyes to optimize the speed, performance and ease-of-use of our assays. Research and development cost are expensed
as incurred. Total research and development expense was $1,420,000 and $588,000 for the years ended December 31, 2015 and 2014,
respectively.
Segments
The
Company follows the guidance of ASC 280-10 for “Disclosures about Segments of an Enterprise and Related Information.”
During 2015 and 2014, the Company only operated in one segment – diagnostics and detection; therefore, segment information
has not been presented.
Reclassifications
The
Company grouped $294,000 of costs reported in 2014 as Direct Labor into Cost of Revenues in 2015 to conform to the 2015 presentation.
New
Accounting Pronouncements
There
are no new accounting pronouncements during the year ended December 31, 2015 that affect the consolidated financial position of
the Company or the results of its’ operations. Accounting Standard Updates which are not effective until after December
31, 2015, including the pronouncements discussed below, are not expected to have a significant effect on the Company’s consolidated
financial position or results of its’ operations.
ASU
2014 – 09:
In
June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”.
The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue
resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters
into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition,
and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede
some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The
update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue
issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the
update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets
and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The
update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting
period. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial
condition.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
ASU
2014-12:
In
June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-12, “Compensation – Stock Compensation
(Topic 718); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period”. The amendments in this ASU apply to all reporting entities that grant their employees
share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved
after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved
after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in
Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities,
the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December
15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities.
Entities
may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b)
retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period
presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the
cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements
should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition
is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected
to have a material impact on our results of operations, cash flows or financial condition.
ASU
2014-15:
In
August 2014, the FASB” issued Accounting Standards Update 2014-15, “Presentation of Financial Statements - Going Concern
(Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This update
requires management of the Company to evaluate whether there is substantial doubt about the Company’s ability to continue
as a going concern. This update is effective for the annual period ending after December 15, 2016, and for annual and interim
periods thereafter. Early adoption is permitted. The Company does not expect this standard to have an impact on the Company’s
consolidated financial statements upon adoption.
ASU
2015-03:
In
April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03,“Simplifying the Presentation
of Debt Issuance Costs,” which changes the presentation of debt issuance costs in financial statements. Under this guidance
such costs would be presented as a direct deduction from the related debt liability rather than as an asset. This guidance is
effective for interim and annual reporting periods beginning after December 15, 2015. The Company does not expect this ASU to
have a material impact on its consolidated financial statements.
ASU
2015-08:
On
May 8, 2015, the FASB issued ASU 2015-08, “Business Combinations (Topic 805) Pushdown Accounting” which conforms the
FASB’s guidance on pushdown accounting with the SEC’s guidance. ASU 2015-08 is effective for annual periods beginning
after December 15, 2015. The Company does not expect this ASU to have a material impact on its consolidated financial statements.
AUS
No. 2015-11:
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.
Loss
Per Common Share
The
Company presents basic income (loss) per common share and, if applicable, diluted income (loss) per share. Basic income (loss)
per common share is based on the weighted average number of common shares outstanding during the year and after preferred stock
dividend requirements. The calculation of diluted income (loss) per common share assumes that any dilutive convertible preferred
shares outstanding at the beginning of each year or the date issued were convertible at those dates, with preferred stock dividend
requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased
by shares issuable upon exercise of those stock options and warrants for which the average period market price exceeds the exercise
price, less shares that could have been purchased by the Company with related proceeds. Additionally, shares issued upon conversion
of convertible debt are included.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
The
following potentially dilutive equity securities outstanding as of December 31, 2015 and 2014 were not included in the computation
of dilutive loss per common share because the effect would have been anti-dilutive (in thousands):
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Common
shares issuable under:
|
|
|
|
|
|
|
|
|
Convertible
notes
|
|
|
546,524
|
|
|
|
84,784
|
|
Convertible
Series I Preferred Stock
|
|
|
70,490
|
|
|
|
38,078
|
|
Convertible
Series J Preferred Stock
|
|
|
5,814
|
|
|
|
—
|
|
Stock
options
|
|
|
24,596
|
|
|
|
2,856
|
|
Warrants
|
|
|
13,490
|
|
|
|
4,490
|
|
Unvested
restricted common stock
|
|
|
3,332
|
|
|
|
3,432
|
|
|
|
|
664,426
|
|
|
|
133,640
|
|
3.
Inventories
Inventories
consisted of the following:
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Finished
goods of non-contact thermometers
|
|
$
|
14,965
|
|
|
$
|
—
|
|
Materials
inventory
|
|
|
966,162
|
|
|
|
—
|
|
Mobile
vehicle inventory
|
|
|
787,318
|
|
|
|
—
|
|
|
|
$
|
1,768,445
|
|
|
$
|
—
|
|
4.
Acquisitions/Dispositions
Microfluidic
Acquisition
On
May 23, 2011, the Company acquired all of the outstanding capital stock of PDI in a transaction accounted for using the purchase
method of accounting (the “Acquisition”). Since PDI’s inception, its key personnel have had an important role
in developing technologies to automate the process of biological pathogen detection. PDI’s substantial portfolio of intellectual
property related to sample preparation and rapid medical testing applications is complementary to the Company’s portfolio
of virus detection and diabetes management products in development.
In
connection with the Acquisition, the Company was also required to make certain earn-out payments, which as of January 1, 2014
could total up to a maximum of $2,000,000 payable in shares of the Company’s common stock, upon certain conditions being
achieved in 2014 (the “Earn-Out Payment”). There was also opportunity for the PDI sellers to achieve Earn-Out Payments
in 2011 through 2013. Targets were not met in any of the years 2011 - 2014. The earn-out for 2014 was based on PDI achieving certain
earnings targets for the respective year, subject to a maximum Earn-Out Payment of $2,000,000. Additionally, approximately two-thirds
of the earn-out is capped at $8.00 per share. Further, the Company is prohibited from making any Earn-Out Payment until stockholder
approval is obtained if the aggregate number of shares to be issued exceeds 19.99% of the Company’s common stock outstanding
immediately prior to the closing. In the event the Company is unable to obtain any required stockholder approval, the Company
is obligated to pay the applicable Earn-Out Payment in cash to the sellers. The earn-out period expired in 2014 and no monies
are owed as of December 31, 2015.
The
original estimated purchase price of the Acquisition included the contingent earn-out consideration of approximately $750,000.
The fair value of the contingent consideration at each balance sheet date was estimated based upon the present value of the probability-weighted
expected future payouts under the earn-out arrangement. On October 31, 2011, the Company entered into an agreement with two of
the selling PDI shareholders pursuant to which the two individuals waived their right to any earn-out compensation for 2011 in
settlement of the closing working capital adjustment provisions of the purchase agreement. The two individuals, who had a combined
ownership interest in PDI of 68% also agreed to receive any future earn-out consideration at a price of no lower than $8 per share.
|
|
(In
thousands)
|
|
Contingent
Earn-Out Liability:
|
|
|
|
|
Balance of contingent earn-out
liability as of January 1, 2014
|
|
$
|
514
|
|
Change
in liability during 2014
|
|
|
(514
|
)
|
Balance of contingent
earn-out liability as of December 31, 2014
|
|
|
-
|
|
Themomedics
Acquisition
On
December 4, 2015, the Company entered into several agreements related to its acquisition of all of the outstanding common stock
of Thermomedics, Inc. (“Thermomedics”). One of those agreements was a Management Services and Control Agreement, dated
December 4, 2015 (the “Control Agreement”), between the Company, Thermomedics, and Sanomedics, Inc. (“Sanomedics”),
whereby PositiveID was appointed the manager of Thermomedics. 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 (“Purchase
Agreement”) was entered into on October 21, 2015, and defines the agreed upon terms of the Company’s acquisition
of all of the common stock of Thermomedics from Sanomedics. As a result of the Company assuming control of Thermomedics on December
4, 2015, it determined, pursuant to ASC 805-10-25-6, that December 4, 2015 was the acquisition date of Thermomedics for accounting
purposes.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
In
connection with the acquisition, additional earn-out payments of up to $750,000 for each of the fiscal years ending December 31,
2016 and 2017 may be earned by the Thermomedics if certain revenue thresholds are met as described in the Purchase Agreement.
Such earn-out payments, if any, will consist of 25% in cash, up to $187,000 and 75% and 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 Company
has recorded a contingent earn-out liability of $184,000, as a non-current liability, as reflected in the consolidated balance
sheet as of December 31, 2015.
The
estimated purchase price of the acquisition totaled $484,000, comprised of $175,000 in cash, Series J preferred stock consideration
of $125,000, 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.
On
December 4, 2015, the Board of Directors authorized and on December 7, 2015, the Company filed with the State of Delaware, a Certificate
of Designations of Preferences, Rights and Limitations of Series J Preferred Stock. The Series J Preferred Stock ranks; (a) senior
with respect to dividends and right of liquidation with the Company’s common stock (b) pari passu with respect to dividends
and right of liquidation with the Company’s Series I Convertible Preferred Stock; and (c) junior with respect to dividends
and right of liquidation to all existing and future indebtedness of the Company. Without the prior written consent of Holders
holding a majority of the outstanding shares of Series J Preferred Stock, the Company may not issue any Preferred Stock that is
senior to the Series J Preferred Stock in right of dividends and liquidation. At any time after the date of the issuance of shares
of Series J Preferred Stock, the Corporation will have the right, at the Corporation’s option, to redeem all or any portion
of the shares of Series J Preferred Stock at a price per share equal to 100% of the $1,000 per share stated value of the shares
being redeemed. Series J Preferred Stock is not entitled to dividends, interest and voting rights. The Series J Preferred Stock
is convertible into the Company’s common stock, at stated value, at a conversion price equal to 100% of the arithmetic average
of the VWAP of the common stock for the fifteen trading days prior to the six month anniversary of the Issuance Date.
The
Company acquired Thermomedics for a number of reasons including the quality of its Caregiver product, its prospects for sales
and profit growth, its management team strengths in sales and marketing FDA cleared medical devices, and their regulatory experience.
ENG
Mobile Systems Acquisition
On
December 24, 2015, the Company acquired all of the outstanding common stock of E-N-G Mobile Systems, Inc. (“ENG”)
from its sole shareholder (the “Seller”). Pursuant to the Purchase Agreement, as consideration at the time of closing
of the Acquisition, PositiveID paid the Seller $750,000 in cash and issued a convertible secured promissory note to the Seller
in the amount of $150,000. The Company has also entered into a two year consulting agreement with the Seller. The consulting
agreement was determined not to represent additional purchase price.
Additional
earn-out payments may be earned by ENG. Each Earn-Out Payment, if any, will be calculated at 5% of the revenue actually recognized
and realized from each of the contracts and purchase orders identified, with an earn-out value indicated for each on the signed
backlog schedule (the “Signed Backlog Schedule”) subsequent to Closing. For purposes of determining whether any earn-out
payments will be made and the amount of such payment, the term Signed Backlog Schedule means those signed contracts and purchase
orders in effect as of the date of Closing but under which the product is yet to be delivered and all or a portion of the revenue
is yet to be recognized as of Closing. The earn-out payments will be paid in cash within five business days following the date
the Company recognizes the revenue (including deposits held) and receives full payment from the applicable contract or purchase
order on the Signed Backlog Schedule. Earn-out payments will be made (i) prior to January 1, 2016, or (ii) later than March 15,
2017. The Earn-Out Payments shall be subject to adjustment finalization of the purchase accounting. The Company has recorded a
contingent earn-out liability of $123,000, as a current liability, as reflected in the consolidated balance sheet as of December
31, 2015.
The
estimated purchase price of the acquisition totaled $912,000, comprised of $750,000 in cash, a convertible seller note of $150,000
(“ENG Note”), the fair value of the contingent consideration estimated at approximately $123,000 net of an
estimated recovery based on the closing net worth of ENG, estimated at $111,000. 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.
The
Company acquired ENG for a number of reasons including the experience of its workforce, the quality and long history of its product
offerings, its prospects for sales and profit growth, and the Company’s ability to leverage its business relationships to
create new growth opportunities.
In
connection with the issuance of the ENG Note, the Company computed a premium of $50,000 as the note is considered a stock settled
debt under ASC 480, all of which was amortized immediately as a non-cash expense charged to interest expense.
Under
the acquisition method of accounting, the estimated purchase price of the acquisitions was allocated to net tangible and identifiable
intangible assets and liabilities of Thermomedics and ENG assumed 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.
|
|
Themomedics
|
|
|
ENG
|
|
Assets
acquired:
|
|
|
|
|
|
|
|
|
Net
tangible assets
|
|
$
|
35
|
|
|
$
|
2,584
|
|
Customer
contracts and relationships
|
|
|
240
|
|
|
|
238
|
|
Other
assets
|
|
|
12
|
|
|
|
7
|
|
Patents
and other intellectual property
|
|
|
178
|
|
|
|
-
|
|
Goodwill
|
|
|
108
|
|
|
|
200
|
|
|
|
|
573
|
|
|
|
3,029
|
|
Liabilities
acquired:
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
(89
|
)
|
|
|
(2,116
|
)
|
Long
term debt
|
|
|
-
|
|
|
|
(1
|
)
|
Total
estimated purchase price
|
|
$
|
484
|
|
|
$
|
912
|
|
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
The
Company has recorded a contingent earn-out liability for Thermomedics and ENG in aggregate total of $307,000, as of December 31,
2015.
|
|
|
(In
thousands)
|
|
Contingent
Earn-Out Liability:
|
|
|
|
|
Balance
of contingent earn-out liability as of December 31, 2014
|
|
$
|
-
|
|
Change
in liability during year ended December 31, 2015
|
|
|
307
|
|
Balance
of contingent earn-out liability as of December 31, 2015
|
|
$
|
307
|
|
The
results of operations of Thermomedics and ENG are included in the Company’s consolidated statement of operations from the
date of the acquisition of December 4, 2015 and December 24, 2015, respectively, including approximately $120,000 of net
loss and $30,000 of net income, respectively. The following supplemental unaudited pro forma information
assumes that these acquisitions had occurred as of January 1 for each period presented (in thousands except per share data):
|
|
Year
Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
8,323
|
|
|
$
|
4,124
|
|
Net
loss
|
|
$
|
(12,043
|
)
|
|
$
|
(7,561
|
)
|
Loss
per common share – basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
The
pro forma financial information is not necessarily indicative of the results that would have occurred if these acquisitions had
occurred on the dates indicated or that may result in the future.
Sale
of VeriChip Business to Former Related Party
In
a series of transactions between 2012 and 2014 PositiveID first licensed and subsequently sold all of the intellectual property
related to its VeriChip implantable microchip business to VeriTeQ Corporation, a business run by a former related party (CEO of
the Company through 2011). The final agreement in the series was the GlucoChip Agreement, dated October 20, 2014.
Pursuant
to the VeriTeQ agreements, the Company holds a Note that was received as payment for shared services payments that the Company
made on behalf of VeriTeQ during 2011 and 2012 which Note had an original value of $222,115. The note has been fully reserved
in all periods presented. The Company also holds a five year warrant dated November 13, 2013, with original terms entitling the
Company to purchase 300,000 shares of VeriTeQ common stock at a price of $2.84. Pursuant to the terms of the warrant, in particular
the full quantity and pricing reset provisions, the warrant had an original dollar value of $852,000 and can be exercised using
a cashless exercise feature.
Pursuant
to the GlucoChip Agreement, the Company transferred the intellectual property related to its GlucoChip development and agreed
to provide financial support to VeriTeQ, for a period of up to two years, in the form of convertible promissory notes. The Company
funded VeriTeQ $60,000 in 2014 and $140,000 less a $5,000 OID, as of the year ended December 31, 2015, VeriTeQ issued the Company
Convertible Promissory Notes in total principal amount of $200,000. These notes have been fully reserved in all periods presented.
The notes bear interest at the rate of 10% per annum; are due and payable twelve months from the effective date of the notes;
and may be converted by the Company at any time after 190 days of the date of closing into shares of VeriTeQ common stock at a
conversion price equal to a 40% discount of the average of the three lowest daily trading prices (as set forth in the notes) calculated
at the time of conversion. The notes also contains certain representations, warranties, covenants and events of default, and increases
in the amount of the principal and interest rates in the event of such defaults. Pursuant to the GlucoChip Agreement, the Company
agreed to provide VeriTeQ with continuing financial support through issuance of additional convertible promissory notes with similar
terms and conditions as the original note up to an additional amount of $205,000. The continuing financial support is not required
to be more frequent than every 100 days and may not be in excess of $50,000 in any individual note. As of December 31, 2015 the
Company had issued Notes with a principal value of $200,000 under the GlucoChip Agreement. As VeriTeQ is in default of its agreements
with the Company, there is no intention to provide any additional notes until such time as all defaults are cured.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
As
of December 31, 2015 the Company had outstanding convertible notes receivable from VeriTeQ of $465,388 which includes $43,273
of accrued interest receivable and $5,000 OID.
Pursuant
to the cashless exercise feature of the VeriTeQ warrant, the Company realized $335,600 of other income during the year
ended December 31, 2015. Proceeds from the cashless exercise of the VeriTeQ warrant was measured at fair value at the time of
the sale and reported as other income. As VeriTeQ is an early stage company, not yet fully capitalized, the Company plans to continue
to fully reserve all note receivable and warrant balances. If and when proceeds are realized in the future, gains will be recognized.
On
October 19, 2015, VeriTeQ received a default notice from its senior lender demanding repayment of approximately $2.1 million of
indebtedness, secured by substantially all of VeriTeQ’s assets, which VeriTeQ was unable to repay. VeriTeQ also received
a Notice of Disposition of Collateral advising the Company that the senior lender, acting as collateral agent, intended to sell
the assets at auction, which it did on November 4, 2015. VeriTeQ has ceased its business operations related to implantable medical
device identification. On November 25, 2015, VeriTeQ entered into a Stock Purchase Agreement with an unaffiliated company
whereby VeriTeQ agreed to acquire all of the issued and outstanding membership interests of that company. As of the date
of this filing, VeriTeQ’s acquisition of has not closed.
License
of iglucose
In
February 15, 2013, the Company entered into an agreement the (“SGMC Agreement”) with SGMC, Easy Check, Easy-Check
Medical Diagnostic Technologies Ltd., an Israeli company, and Benjamin Atkin, an individual (“Atkin”), pursuant to
which the Company licensed its
iglucose
™ technology to SGMC for up to $2 million based on potential future revenues
of glucose test strips sold by SGMC. These revenues will range between $0.0025 and $0.005 per strip. A person with diabetes who
tests three times per day will use over 1,000 strips per year.
Pursuant
to the SGMC Agreement, the Company granted SGMC an exclusive right and license to the intellectual property rights in the
iglucose
patent applications; a non-exclusive right and license to use and make a “white label” version of the
iglucose
websites; a non-exclusive right and license to use all documents relating to the
iglucose
510(k) application to the
Food and Drug Administration of the United States Government; and an exclusive right and license to the
iglucose
trademark.
The Company has also agreed to transfer to SGMC all right, title, and interest in the www.iglucose.com and www.iglucose.net domain
names.
In
consideration for the rights and licenses discussed above, and the transfer of the domain names, SGMC shall pay to the Company
the amount set forth below for each glucose test strip sold by SGMC and any sublicenses of SGMC for which results are posted by
SGMC via its communications servers (the “Consideration”):
|
(i)
|
$0.0025
per strip sold until SGMC has paid aggregate Consideration of $1,000,000; and
|
|
|
|
|
(ii)
|
$0.005
per strip sold thereafter until SGMC has paid aggregate Consideration of $2,000,000; provided, however, that the aggregate
Consideration payable by SGMC pursuant to the SGMC Agreement shall in no event exceed $2,000,000.
|
To
date, no royalties have been realized from this agreement.
5.
Intangible Assets
Intangible
assets consist of the following as of December 31, 2015 and 2014 (in thousands):
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer contracts and relationships
|
|
$
|
708
|
|
|
$
|
(234
|
)
|
|
$
|
474
|
|
|
$
|
230
|
|
|
$
|
(230
|
)
|
|
$
|
-
|
|
Patents and other intellectual property
|
|
|
1,401
|
|
|
|
(1,126
|
)
|
|
|
275
|
|
|
|
1,223
|
|
|
|
(876
|
)
|
|
|
347
|
|
Non-compete agreements
|
|
|
169
|
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
169
|
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
$
|
2,278
|
|
|
$
|
(1,529
|
)
|
|
$
|
749
|
|
|
$
|
1,622
|
|
|
$
|
(1,276
|
)
|
|
$
|
347
|
|
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Amortization
of intangible assets amounted to approximately $253,000 and $277,000 for the year ended December 31, 2015 and 2014 respectively.
Estimated future amortization expense is as follows (in thousands):
2016
|
|
|
255
|
|
2017
|
|
|
154
|
|
2018
|
|
|
154
|
|
2019
|
|
|
95
|
|
2020
|
|
|
91
|
|
|
|
$
|
749
|
|
6.
Deferred revenue
During
the course of business projects, the Company’s Subsidiary, ENG requires front end funding to acquire the
required materials and begin production. Customers are billed in advance of production to secure the necessary resources to
facilitate timely completion of the project. As of December 31, 2015, the Company had $1.8 million of deferred
revenue relating to its ENG subsidiary operations. Deferred revenue of $2.6 million at December 31, 2014 related primarily to
our Boeing contract (See Note 13).
7.
Accrued Expenses
Accrued
expenses and other current liabilities consisted of the following as of December 31, 2015 and 2014 (in thousands):
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Accrued
compensation
|
|
$
|
526
|
|
|
$
|
359
|
|
Other
|
|
|
424
|
|
|
|
334
|
|
|
|
$
|
950
|
|
|
$
|
693
|
|
8.
Equity and Debt Financing Agreements
Ironridge
Series F Preferred Stock Financings
Beginning
in July 2011, the Company entered into a series of financings with Ironridge involving the Company’s Series F convertible
preferred stock. Between July 2011 and December 31, 2014, a total of 3,150 Series F shares have been issued and fully converted
into a total of 60,104,701 shares of common stocks, as of the year ended December 31, 2014. No Series F shares
have been redeemed. As of December 31, 2015 and 2014, there are no shares of Series F outstanding.
At
December 31, 2013, there were 600 Series F shares outstanding.
During the year ended December 31, 2014, these 600 shares of Series F were converted into 22,992,056 shares of common stock.
The
Company had the option to buy back any shares of Series F at the liquidation value plus accrued dividends, without any premium.
The Company also agreed to file a Registration Statement covering the common shares underlying the Series F within 30 days of
closing and to use its best efforts to get the Registration Statement effective. As the Registration Statement was not effective
within 90 days of closing on January 10, 2014, the Company issued 150 shares of Series F to Ironridge as liquidated damages, for
which an expense in the amount of $150,000 has been recorded during the year ended December 31, 2014. On February 25, 2014, these
150 shares of Series F were converted into 3,398,389 shares of common stock.
On
February 27, 2014, the Company entered into a Stock Purchase Agreement with Ironridge. Pursuant to the agreement, the Company
agreed to issue 150 shares of Series F to Ironridge in exchange for $100,000. Additionally, the Company issued 50 shares of Series
F as commitment and documentation fees which were recorded at face value of $50,000, and in March 2014 issued an additional 100
shares of Series F as liquidated damages, for which an expense in the amount of $100,000 was recorded, in fulfillment of its obligations
under the agreement. During the year ended December 31, 2014, all of the 300 Series F shares were converted into 17,607,041 shares
of common stock.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
In
connection with the Series F conversions, the Company recorded beneficial conversion dividends totaling nil and $0.9 million during
years ended December 31, 2015 and 2014 which represents the excess of fair value of the Company’s common stock at the date
of issuance of the converted Series F Preferred Stock over the effective conversion rate, multiplied by the common shares issued
upon conversion. These charges are non-cash charges.
Certificate
of Designations for Series F Preferred Stock
On
July 27, 2011, the Company filed a Certificate of Designations of Preferences, Rights and Limitations of Series F Preferred Stock
with the Secretary of State of the State of Delaware. On December 19, 2013, the Certificate of Designations was amended. A summary
of the Certificate of Designations, as amended, is set forth below:
Dividends
and Other Distributions.
Commencing on the date of issuance of any such shares of Series F Preferred Stock, holders of Series
F Preferred Stock are entitled to receive dividends on each outstanding share of Series F Preferred Stock, which accrue in shares
of Series F Preferred Stock at a rate equal to 7.65% per annum from the date of issuance. Accrued dividends are payable upon redemption
of the Series F Preferred Stock.
Redemption
.
The Company may redeem the Series F Preferred Stock, for cash or by an offset against any outstanding note payable from Ironridge
Global to the Company that Ironridge Global issued, as follows. The Company may redeem any or all of the Series F Preferred Stock
at any time after the seventh anniversary of the issuance date at the redemption price per share equal to $1,000 per share of
Series F Preferred Stock, plus any accrued but unpaid dividends with respect to such shares of Series F Preferred Stock (the “Series
F Liquidation Value”). Prior to the seventh anniversary of the issuance of the Series F Preferred Stock, the Company may
redeem the shares at any time after six months from the issuance date at a make-whole price per share equal to the following with
respect to such redeemed Series F Preferred Stock: (i) 149.99% of the Series F Liquidation Value if redeemed prior to the first
anniversary of the issuance date, (ii) 141.6% of the Series F Liquidation Value if redeemed on or after the first anniversary
but prior to the second anniversary of the issuance date, (iii) 133.6% of the Series F Liquidation Value if redeemed on or after
the second anniversary but prior to the third anniversary of the issuance date, (iv) 126.1% of the Series F Liquidation Value
if redeemed on or after the third anniversary but prior to the fourth anniversary of the issuance date, (v) 119.0% of the Series
F Liquidation Value if redeemed on or after the fourth anniversary but prior to the fifth anniversary of the issuance date, (vi)
112.3% of the Series F Liquidation Value if redeemed on or after the fifth anniversary but prior to the sixth anniversary of the
issuance date, and (vii) 106.0% of the Series F Liquidation Value if redeemed on or after the sixth anniversary but prior to the
seventh anniversary of the issuance date.
In
addition, if the Company determines to liquidate, dissolve or wind-up its business, or engage in any deemed liquidation event,
it must redeem the Series F Preferred Stock at the applicable early redemption price set forth above.
Conversion.
The Series F Preferred Stock is convertible into shares of the Company’s common stock at the applicable Ironridge Entities
option or at the Company’s option at any time after six months from the date of issuance of the Series F Preferred Stock.
The fixed conversion price is equal to $0.50 per share which represented a premium of 32% over the closing bid price of the Company’s
common stock on the trading day immediately before the date the Company announced the entry into the Series F Agreement (the “Series
F Conversion Price”).
If
the Company or Ironridge elects to convert the Series F Preferred Stock into common stock and the closing bid price of the Company’s
common stock exceeds 150% of the Series F Conversion Price for any 20 consecutive trading days, the Company will issue that number
of shares of its common stock equal to the early redemption price set forth above multiplied by the number of shares subject to
conversion, divided by the Series F Conversion Price. If the Company elects to convert the Series F Preferred Stock into common
stock and the closing bid price of the Company’s common stock is less than 150% of the Series F Conversion Price, the Company
will issue an initial number of shares of its common stock equal to 130% of the early redemption price set forth above multiplied
by the number of shares subject to conversion, divided by the lower of (i) the Series F Conversion Price and (ii) 100% of the
closing bid price of a share of the Company’s common stock on the trading day immediately before the date of the conversion
notice.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
After
20 trading days, the Ironridge Entity shall return, or the Company shall issue, a number of conversion shares (the “Series
F Reconciling Conversion Shares”), so that the total number of conversion shares under the conversion notice equals the
early redemption price set forth above multiplied by the number of shares of subject to conversion, divided by the lower of (i)
the Series F Conversion Price and (ii) 85% of the average of the daily volume-weighted average prices of the Company’s common
stock for the lowest three is the twenty trading days following the Ironridge Entity’s receipt of the conversion notice.
However, if the trading price of the Company’s common stock during any one or more of the 20 trading days following the
Ironridge Entity’s receipt of the conversion notice falls below 70% of the closing bid price on the day prior to the date
the Company gives notice of its intent to convert, the Ironridge Entity will return the Series F Reconciling Conversion Shares
to the Company and the pro rata amount of the conversion notice will be deemed canceled.
The
Company cannot issue any shares of common stock upon conversion of the Series F Preferred Stock if it would result in an Ironridge
Entity being deemed to beneficially own, within the meaning of Section 13(d) of the Securities Exchange Act, more than 9.99% of
the total shares of common stock then outstanding. Furthermore, until stockholder approval is obtained or the holder obtains an
opinion of counsel reasonably satisfactory to the Company and its counsel that such approval is not required, both the holder
and the Company are prohibited from delivering a conversion notice if, as a result of such exercise, the aggregate number of shares
of common stock to be issued, when aggregated with any common stock issued to holder or any affiliate of holder under any other
agreements or arrangements between the Company and the holder or any applicable affiliate of the holder, such aggregate number
would, under NASDAQ Marketplace rules (or the rules of any other exchange where the common stock is listed), exceed the Cap Amount
(meaning 19.99% of the common stock outstanding on the date of the Series F Agreement). If delivery of a conversion notice is
prohibited by the preceding sentence because the Cap Amount would be exceeded, the Company must, upon the written request of the
holder, hold a meeting of its stockholders within sixty (60) days following such request, and use its best efforts to obtain the
approval of its stockholders for the transactions described herein.
Due
to the above variations in the conversion price, the beneficial conversion feature is considered contingent and not measurable
or recorded until the actual conversion dates. The beneficial conversion feature is recorded as a constructive dividend and was
nil and $0.9 million, respectively, during 2015 and 2014.
Convertible
Note Financings
Short-term
convertible debt for the years ended December 31, 2015 and 2014 are as follows (In thousands):
|
|
2015
|
|
|
2014
|
|
|
|
Notes
|
|
|
Accrued
Interest
|
|
|
Total
|
|
|
Notes
|
|
|
Accrued
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes with accrued interest accounted for as stock settled debt
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
534
|
|
|
$
|
47
|
|
|
$
|
581
|
|
Conversion
premiums
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
237
|
|
|
|
—
|
|
|
|
237
|
|
|
|
|
200
|
|
|
|
—
|
|
|
|
200
|
|
|
|
771
|
|
|
|
47
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes with
embedded derivatives
|
|
|
5,984
|
|
|
|
650
|
|
|
|
6,634
|
|
|
|
1,900
|
|
|
|
68
|
|
|
|
1,968
|
|
Derivative
discounts
|
|
|
(4,054
|
)
|
|
|
—
|
|
|
|
(4,054
|
)
|
|
|
(1,038
|
)
|
|
|
—
|
|
|
|
(1,038
|
)
|
|
|
|
1,930
|
|
|
|
650
|
|
|
|
2,580
|
|
|
|
862
|
|
|
|
68
|
|
|
|
930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
issue discounts and loan fee discounts
|
|
|
(652
|
)
|
|
|
—
|
|
|
|
(652
|
)
|
|
|
(221
|
)
|
|
|
—
|
|
|
|
(221
|
)
|
|
|
$
|
1,478
|
|
|
$
|
650
|
|
|
$
|
2,128
|
|
|
$
|
1,412
|
|
|
$
|
115
|
|
|
$
|
1,527
|
|
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
June 4, 2013, the Company borrowed $50,000 pursuant to a convertible note, in connection with which it issued the lender immediately
exercisable warrants to purchase 104,167 shares of common stock at an initial exercise price of $0.24 per share. The debt was
recorded at a discount in the amount of $23,684, representing the relative fair value of the warrants. The debt shall accrete
in value over its one year term to its face value of approximately $50,000. Additionally, a liability of $23,223 was recorded
as the fair value of the warrant as a result of a down round adjustment to the exercise price of the warrants. In connection with
the issuance of the $50,000 note there is a beneficial conversion feature of approximately $12,500, which will be amortized over
the one year term of the note. In 2013, $47,850 principal balance of the convertible note was converted into 2,600,000 shares
of common stock. In the year ended December 31, 2014, the remaining balance of the note principal and interest was fully converted
into 725,734 shares of common stock. All related debt discount and beneficial conversion feature were fully amortized in conjunction
with the conversion of the note. In the year ended December 31, 2014, the warrants were converted, on a cashless basis, into 1,508,848
shares of common stock.
On
July 3, 2013, the Company entered into a Securities Purchase Agreement for a new convertible promissory note (the “Purchase
Agreement”). Pursuant to the terms of the Purchase Agreement the investor committed to purchase an 8% Convertible Promissory
Note (the “Convertible Promissory Note”) in the principal amount of $78,500, with a maturity date of April 8, 2014,
convertible into shares of common stock, $0.01 par value per share, of the Company, upon the terms and subject to the limitations
and conditions set forth in such Convertible Promissory Note. Interest shall commence accruing on the date that the Note is issued
and shall be computed on the basis of a 365-day year and the actual number of days elapsed. The holder may convert the Convertible
Promissory Note into common shares of stock at a 42% discount to the price of common shares in the ten days prior to conversion.
In connection with the issuance of the Convertible Promissory Note, the Company recorded a premium of $56,845 which was amortized
over the life of the Note. In the year ended December 31, 2014, the outstanding principal and interest on the Convertible Promissory
Note was converted, into 5,790,072 shares of common stock.
On
December 13, 2013, the Company entered into a Securities Purchase Agreement for a new convertible promissory note (the “December
Purchase Agreement”). Pursuant to the terms of the December Purchase Agreement the investor committed to purchase an 8%
Convertible Promissory Note (the “December Convertible Promissory Note”) in the principal amount of $103,500, with
a maturity date of September 17, 2014, convertible into shares of common stock, $0.01 par value per share, of the Company (the
“Common Stock”), upon the terms and subject to the limitations and conditions set forth in such December Convertible
Promissory Note. Interest shall commence accruing on the date that such note is issued and shall be computed on the basis of a
365-day year and the actual number of days elapsed. The holder may convert the December Convertible Promissory Note into common
shares of stock at a 39% discount to the price of common shares in the ten days prior to conversion. In connection with the issuance
of the December Convertible Promissory Note, the Company computed a premium of $66,172 all of which was amortized and the outstanding
principal and interest on the December Convertible Promissory Note was converted, into 3,294,466 shares of common stock in the
year ended December 31, 2014.
On
January 24, 2014, the Company entered into a Securities Purchase Agreement for a convertible promissory note (the “January
Purchase Agreement”). Pursuant to the terms of the January Purchase Agreement the investor committed to purchase an 8% Convertible
Promissory Note (the “January Convertible Promissory Note”) in the principal amount of $78,500 with a maturity date
of October 28, 2014, convertible into shares Common Stock, upon the terms and subject to the limitations and conditions set forth
in such Convertible Promissory Note. Interest shall commence accruing on the date that such note is issued and shall be computed
on the basis of a 365-day year and the actual number of days elapsed. The holder may convert the January Convertible Promissory
Note into common shares of stock at a 39% discount to the price of common shares in the ten days prior to conversion. In connection
with the issuance of the January Convertible Promissory Note, the Company recorded a computed of $50,189 as the note is considered
stock settled debt under ASC 480, all of which was amortized and the outstanding principal and interest on the January Convertible
Promissory Note was converted, into 3,132,485 shares of common stock in the year ended December 31,2014.
On
February 20, 2014, the Company borrowed $82,500 pursuant to a convertible note with an OID of $7,500 resulting in cash received
of $75,000. The debt matures twenty four months from the date funded, has a one-time 10% interest charge if not paid within 90
days, and is convertible at the option of the lender into shares of the Company’s common stock at the lesser of $0.042 per
share or 60% of the average of the two lowest closing bid prices in the 25 trading days prior to conversion. The note might be
accelerated if an event of default occurs under the terms of the note, including the Company’s failure to pay principal
and interest when due, certain bankruptcy events or if the Company is delinquent in its SEC filings. In connection with the issuance
of the notes, the Company recorded a debt discount of $75,000 which has been fully amortized and the outstanding principal and
interest of the Note was converted, into 4,756,739 shares of common stock in the year ended December 31, 2014. As the note conversion
includes a “lesser of” pricing provision, a derivative liability of $91,061 was recorded when the note was entered
into. The derivative liability was remeasured at each balance sheet date and was reclassified to equity on a pro-rata basis upon
conversion of the note.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
February 21, 2014, the Company entered into a financing arrangement pursuant to which it borrowed $100,000 in unsecured debt,
convertible at the discretion of the lender. The debt was issued at a 10% discount, matures on August 21, 2014, has an interest
rate of 10%, and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount
to the lowest closing bid price in the 20 trading days prior to conversion. In connection with the issuance of the note, the Company
computed a premium of $66,667 as the note is considered stock settled debt under ASC 480, all of which was accreted and charged
to interest expense in the year ended December 31, 2014. In the year ended December 31, 2014, the outstanding principal and interest
on the Convertible Promissory Note was converted, into 4,149,378 shares of common stock.
On
March 13, 2014, the Company borrowed two notes of $75,000, each from a separate lender with maturity dates of March 4, 2015. Under
each agreement the Company received $65,750, which was net of legal and due diligence fees. The notes bear interest at 8% per
annum and are convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the
lowest closing bid price in the 20 trading days prior to conversion. The notes might be accelerated if an event of default occurs
under the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy
events or if the Company is delinquent in its SEC filings. In conjunction with each note the Company also issued an additional
note, of identical terms, each for $75,000. The additional note was paid for by the issuance of a note payable from the lenders
to the Company. In the event that the original note is not repaid prior to six months from its issuance, the lender has the option
of converting the additional note into shares of the Company’s common stock at a 40% discount to lowest closing bid price
in the 20 trading days prior to conversion, subject to the notes payable to the Company having been paid in full. The additional
note payable has been netted with the related note receivable. In connection with the issuance of the notes, the Company computed
a premium of $100,000 as the debt is considered a stock settled debt under ASC 480, all of which was amortized during the year
ended December 31, 2014. As of December 31, 2014 the outstanding principal and interest was converted, into 16,386,485 shares
of common stock. On May 5, 2014 one of the $75,000 notes receivable due to the company was paid, for which the Company received
$65,750, net of fees. The Company computed a premium of $50,000 as the debt is considered a stock settled debt under ASC 480,
all of which was amortized during the year ended December 31, 2014. As of December 31, 2014 the outstanding principal and interest
was converted, into 4,117,795 shares of common stock. Concurrent with the repayment the Company and the lender entered into two
new convertible notes, for $75,000 each, on identical terms to the March 4, 2014 convertible notes. Each of these two notes was
paid for by the issuance of notes payable from the lenders to the Company, each for $75,000, on identical terms to the March 4,
2014 notes. These two new notes have been netted for presentation purposes. In connection with the payment of the note receivable
to the Company, the Company recorded a premium of $50,000 related to one of the additional notes that had been entered into on
March 4, 2014, all of which was amortized and the outstanding principal and interest was converted, into 4,166,386 shares of common
stock in the year ended December 31, 2014.
On
March 24, 2014, the Company borrowed $52,500 with a maturity date of March 19, 2015, pursuant to a financing agreement. Under
the agreement the Company received $46,000, which was net of legal and due diligence fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the lowest
closing bid price in the 20 trading days prior to conversion. The note might be accelerated if an event of default occurs under
the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events
or if the Company is delinquent in its SEC filings. In connection with the issuance of the notes, the Company recorded a premium
of $35,000 as the note is considered stock settled debt under ASC 480, all of which was accreted and charged to interest expense
and the outstanding principal and interest on the note was converted, into 3,043,515 shares of common stock in the year ended
December 31, 2014.
On
April 7, 2014, the Company borrowed $50,000 with a maturity date of April 4, 2015, pursuant to a financing agreement. Under the
agreement the Company received $44,000, which was net of legal and due diligence fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the price
of common shares in the twenty days prior to conversion. The note might be accelerated if an event of default occurs under the
terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events or
if the Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company computed a premium of
$33,333 as the note is considered stock settled debt under ASC 480, all of which was accreted and charged to interest expense
and the outstanding principal and interest on the note was converted, into 2,888,888 shares of common stock in the year ended
December 31, 2014.
On
April 14, 2014, the Company borrowed $63,000 with a maturity date of January 2, 2015, pursuant to a financing agreement. Under
the agreement the Company received $60,000, which was net of legal fees. The note bears interest at 8% per annum and is convertible
at the option of the lender into shares of the Company’s common stock at a 39% discount to the price of common shares in
the ten days prior to conversion. The note might be accelerated if an event of default occurs under the terms of the note, including
the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the Company is delinquent
in its SEC filings. In connection with the issuance of the note, the Company computed a premium of $40,279 as the note is considered
stock settled debt under ASC 480, all of which was accreted and charged to interest expense and the outstanding principal and
interest on the note was converted, into 3,102,713 shares of common stock in the year ended December 31, 2014.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
April 16, 2014, the Company borrowed $110,000 pursuant to a convertible note with an OID of $10,000 resulting in cash received
of $100,000. The debt matures twenty four months from the date funded, has a one-time 10% interest charge if not paid within 90
days, and is convertible at the option of the lender into shares of the Company’s common stock at the lesser of $0.042 per
share or 60% of the average of the two lowest closing bid prices in the 25 trading days prior to conversion. The note might be
accelerated if an event of default occurs under the terms of the note, including the Company’s failure to pay principal
and interest when due, certain bankruptcy events or if the Company is delinquent in its SEC filings. In connection with the issuance
of the notes, the Company recorded a debt discount of $139,997, which has been fully amortized and the outstanding principal and
interest of the Note was converted, into 6,910,704 shares of common stock in the year ended December 31, 2014. As the note conversion
includes a “lesser of” pricing provision, a derivative liability of $139,997 was recorded when the note was entered
into. The derivative liability was remeasured at each balance sheet date and was reclassified to equity on a pro-rata basis upon
conversion of the note.
On
April 25, 2014, the Company borrowed $50,000 with a maturity date of January 25, 2015, pursuant to a financing agreement. Under
the agreement the Company received $45,000, which was net of legal and due diligence fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the price
of common shares in the ten days prior to conversion. The note might be accelerated if an event of default occurs under the terms
of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the
Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company computed a premium of $33,333
as the note is considered stock settled debt under ASC 480, all of which was accreted and charged to interest expense and the
outstanding principal and interest on the note was converted, into 2,890,411 shares of common stock in the year ended December
31, 2014.
On
May 30, 2014, the Company borrowed $63,000 with a maturity date of February 27, 2015, pursuant to a financing agreement. Under
the agreement the Company received $60,000, which was net of legal fees. The note bears interest at 8% per annum and is convertible
at the option of the lender into shares of the Company’s common stock at a 39% discount to the price of common shares in
the ten days prior to conversion. The note might be accelerated if an event of default occurs under the terms of the note, including
the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the Company is delinquent
in its SEC filings. In connection with the issuance of the note, the Company computed a premium of $40,279 as the note is considered
stock settled debt under ASC 480, all of which was accreted and charged to interest expense and the Company exercised its right
to prepay the outstanding principal and interest for a total redemption amount of $87,536 in the year ended December 31, 2014.
On
June 18, 2014, the Company closed a financing agreement whereby the Company borrowed an aggregate principal amount of $247,500
with a 10% original note discount. The note has an interest rate of 10%, and is convertible at the option of the lender into shares
of the Company’s common stock at the lesser of (i) a 40% discount to the lowest closing bid price in the 20 trading days
prior to conversion or (ii) $0.075. The note might be accelerated if an event of default occurs under the terms of the note, including
the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the Company is delinquent
in its SEC filings. The first tranche was funded on June 18, 2014 with a principal amount of $55,000 and net proceeds of $50,000,
with a maturity date of June 17, 2016, pursuant to the convertible note. In connection with the issuance of the note, the Company
recorded a debt discount of $50,000 related to the derivative liability which was fully amortized as of June 30, 2015. As of June
30, 2015, the outstanding principal and interest of the note was fully converted into 4,425,894 shares of common stock. As the
note conversion includes a “lesser of” pricing provision, a derivative liability of $59,623 was recorded when the
note was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity upon
conversion of the note. The second tranche was funded on September 19, 2014, with a principal amount of $55,000 and net proceeds
of $50,000, with a maturity date of September 19, 2015, pursuant to a convertible note. In connection with the issuance of the
notes, the Company recorded a debt discount of $50,000 related to the derivative liability which was fully amortized as of June
30, 2015. As of June 30, 2015, the outstanding principal and interest on the notes was fully converted into 6,980,938 shares of
common stock. As the note conversion includes a “lesser of” pricing provision, a derivative liability of $59,623 was
recorded when the note was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified
to equity upon conversion of the note. The third tranche was funded on December 22, 2014, with a principal amount of $55,000 and
net proceeds of $50,000, with a maturity date of December 22, 2015, pursuant to a convertible note. The Company recorded a debt
discount of $50,000 related to the derivative liability which was fully amortized as of September 30, 2015. As of September 30,
2015, the outstanding principal and interest of the note was fully converted into 5,857,374 shares of common stock. As the note
conversion includes a “lesser of” pricing provision, a derivative liability of $62,118 was recorded when the note
was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity upon conversion
of the note. The fourth tranche was funded on January 13, 2016, with a principal amount of $82,500 and net proceeds of $75,000,
with a maturity date of January 13, 2018, pursuant to a convertible note. As the note conversion includes a “lesser of”
pricing provision, a derivative liability The Company will record a derivative liability and debt discount related to the derivative
liability.
On
June 19, 2014, the Company borrowed of $25,000, with a maturity date of June 17, 2015, pursuant to a financing agreement. Under
the agreement the Company received $22,000, which was net of legal and due diligence fees. The notes bear interest at 8% per annum
and are convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the lowest
closing bid price in the 20 trading days prior to conversion. The note might be accelerated if an event of default occurs under
the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events
or if the Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company computed a premium
of $16,667 as the note is considered stock settled debt under ASC 480, all of which was accreted and charged to interest expense
in the year ended and the Company exercised its right to prepay the outstanding principal and interest for a total redemption
amount of $35,956 in the year ended December 31, 2014.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
June 20, 2014, the Company borrowed $40,000 with a maturity date of June 17, 2015, pursuant to a financing agreement. Under the
agreement the Company received $36,000, which was net of legal and due diligence fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the lowest
closing bid price in the 20 trading days prior to conversion. The note might be accelerated if an event of default occurs under
the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events
or if the Company is delinquent in its SEC filings. In connection with the issuance of the notes, the Company computed a premium
of $26,667 as the note is considered stock settled debt under ASC 480, all of which was accreted and charged to interest expense
and the Company exercised its right to prepay the outstanding principal and interest for a total redemption amount of $57,517
in the year ended December 31, 2014.
On
July 3, 2014, the Company borrowed $115,000 with a maturity date of July 3, 2015, pursuant to a convertible note. Under the agreement
the Company received $100,000, which was net of legal and due diligence fees. The Note has an interest rate of 8%, and is convertible
at the option of the lender into shares of the Company’s common stock at the lesser of $0.06 per share or a 40% discount
of the lowest closing bid prices in the 15 trading days prior to conversion. The note might be accelerated if an event of default
occurs under the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy
events or if the Company is delinquent in its SEC filings. In connection with the issuance of the notes, the Company recorded
a debt discount of $58,571 relating to derivative liability which was fully amortized as of March 31, 2015. As of March 31, 2015,
the outstanding principal and interest on the note was fully converted into 8,248,677 shares of common stocks. In conjunction
with the Note, the Company granted the lender a warrant for 1,000,000 common shares at a strike price of $0.08. The warrant has
a life of three years and its relative fair value of $41,429 has been recorded as a debt discount and additional paid in capital
as of March 31, 2015. As the note conversion includes a “lesser of” pricing provision, a derivative liability of $59,623
was recorded when the note was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified
to equity upon conversion of the note.
On
July 7, 2014, the Company borrowed $53,000 with a maturity date of March 25, 2015, pursuant to a financing agreement. Under the
agreement the Company received $50,000, which was net of legal fees. The note bears interest at 8% per annum and is convertible
at the option of the lender into shares of the Company’s common stock at a 39% discount to the price of common shares in
the 10 days prior to conversion. The note might be accelerated if an event of default occurs under the terms of the note, including
the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the Company is delinquent
in its SEC filings. In connection with the issuance of the note, the Company computed a premium of $33,885 as the note is considered
stock settled debt under ASC 480, all of which was accreted and charged to interest expense in the year ended December 31, 2014.
As of June 30, 2015, the Company exercised its right to prepay the outstanding principal and interest for a total redemption amount
of $73,629 and recorded a loss on extinguishment of approximately $18,550.
On
July 9, 2014 and August 21, 2014 the Company borrowed from a lender, notes each amounting to $110,000, which matures twelve months
from the date of the respective notes, pursuant the agreement. Each debt was issued at a 10% original issue discount resulting
in net total proceeds of $180,000, net of legal fees. The notes bear an interest rate of 10%, and are convertible at the option
of the lender into shares of the Company’s common stock at a 40% discount to the lowest closing bid price during the 15
days prior to the election to conversion. The notes could have been accelerated if an event of default occurs under the terms
of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the
Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company computed a total premium of
$146,666 as the notes were considered stock settled debt under ASC 480. On December 30, 2014, the Lender and Dominion Capital
LLC entered into a purchase and assignment of these notes. Subsequent to the purchase and assignment, the note was amended by
the Company and the Purchaser, using the form of note identical to the notes used in the $4 Million Financing Agreement. The Company
issued a new note for $222,222 convertible at the lesser of a 37.5% discount to the common stock price on the date of the note
or a 37.5% discount to the price of our common stock price at the time of conversion. In conjunction with the purchase and assignment,
the Company and Purchaser entered into a new note with a principal value of $49,444 as compensation for Purchaser’s costs
related to the purchase and assignment. This $49,444 was expensed as a loss on debt extinguishment. In connection with the issuance
of the notes, the Company recorded a debt discount of $271,666 related to the embedded conversion option derivative liability
which was fully amortized as of June 30, 2015. As of September 30, 2015, the remaining outstanding principal and interest on the
notes was fully converted into 6,434,285 shares of common stock. As the note conversions includes a “lesser of” pricing
provision, a derivative liability of $289,701 was recorded when these notes were entered into. The derivative liability was re-measured
at each balance sheet date and was reclassified to equity upon conversion of the note.
On
July 17, 2014, the Company borrowed $115,000 with a maturity date of July 17, 2016, pursuant to a convertible note. The debt was
issued at a 10% original issue discount resulting in proceeds of $100,000, has an interest rate of 10%, and is convertible at
the option of the lender into shares of the Company’s common stock at the lesser of $0.06 per share or a 40% discount of
the lowest closing bid prices in the 20 trading days prior to conversion. The note might be accelerated if an event of default
occurs under the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy
events or if the Company is delinquent in its SEC filings. In connection with the issuance of the notes, the Company recorded
a debt discount of $100,000 related to the derivative liability which was fully was fully amortized as of June 30, 2015. On January
8, 2015, the Company exercised its right to prepay the outstanding principal and interest for a total redemption amount of $120,750.
As the note conversion includes a “lesser of” pricing provision, a derivative liability of $124,666 was recorded when
the note was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity
on a pro-rata basis upon redemption of the note.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
August 19, 2014, the Company borrowed $66,000 with a maturity date of August 15, 2015, pursuant to a convertible note. The debt
was issued at a 10% original issue discount resulting in proceeds of $54,500, net of legal fees. The Note has an interest rate
of 8%, and is convertible at the option of the lender into shares of the Company’s common stock at the lesser of $0.06 per
share or a 60% of the average of the three lowest closing bid prices 15 trading days prior to conversion. The note might be accelerated
if an event of default occurs under the terms of the note, including the Company’s failure to pay principal and interest
when due, certain bankruptcy events or if the Company is delinquent in its SEC filings. In connection with the issuance of the
notes, the Company recorded a debt discount of $54,500 related to the derivative liability which was fully amortized as of June
30, 2015. The outstanding principal and interest on the note was fully converted into 5,000,000 shares of common stock as of December
31, 2015. As the note conversion includes a “lesser of” pricing provision, a derivative liability of $71,548 was recorded
when the note was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity
on a pro-rata basis upon conversion of the note.
On
September 4, 2014, the Company borrowed $110,000 pursuant to a convertible note with an OID of $10,000 resulting in cash received
of $100,000. The debt matures twenty four months from the date funded, has a one-time 10% interest charge if not paid within 90
days, and is convertible at the option of the lender into shares of the Company’s common stock at the lesser of $0.042 per
share or 60% of the average of the two lowest closing bid prices in the 25 trading days prior to conversion. The note might be
accelerated if an event of default occurs under the terms of the note, including the Company’s failure to pay principal
and interest when due, certain bankruptcy events or if the Company is delinquent in its SEC filings. In connection with the issuance
of the notes, the Company recorded a debt discount of $100,000 which was fully amortized as of June 30, 2015. As of December 31,
2015, the outstanding principal and interest on the notes was fully converted into 9,195,341 shares of common stock. As the note
conversion includes a “lesser of” pricing provision, a derivative liability of $119,246 was recorded when the note
was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity on a pro-rata
basis upon conversion of the note.
On
September 11, 2014, the Company borrowed $75,000 pursuant to the back-end note in conjunction with the March 13, 2014 financing
agreement. The debt has an interest rate of 8% and the Company received proceeds of $67,750, net of fees, In the event that the
original note is not repaid prior to six months from its issuance, the lender has the option of converting the additional note
into shares of the Company’s common stock at a 40% discount to lowest closing bid price in the 20 trading days prior to
conversion, subject to the notes payable to the Company having been paid in full. In connection with the issuance of the note,
the Company computed a premium of $50,000 as the note is considered stock settled debt under ASC 480, all of which was accreted
and charged to interest expense and the outstanding principal and interest on the note was converted, into 1,006,575 shares of
common stock in the year ended December 31, 2014.
On
September 22, 2014, Company closed a Securities Purchase Agreement providing for the purchase of two Convertible Redeemable Notes
in the aggregate principal amount of $100,000. The two notes bear interest at the rate of 8% per annum; are due and payable on
September 15, 2015; and may be converted at the option of the lender into shares of Company common stock at a conversion price
equal to a 40% discount of the lowest closing bid price calculated at the time of conversion. The two notes also contain certain
representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rates
under the two Notes in the event of such defaults. The first note in the amount of $50,000 was funded on September 22, 2014, with
the Company receiving $45,000 of net proceeds, which was net of legal and due diligence fees. In connection with the issuance
of the first note, the Company computed a premium of $33,333 as the note is considered stock settled debt under ASC 480 which
had been fully amortized as of June 30, 2015. As of June 30, 2015, the outstanding principal and interest on the first note was
converted into 5,095,904 shares of common stock. The second note in the amount of $50,000 was initially paid for by the issuance
of an offsetting $50,000 secured note issued by the lender to the Company. The second note was funded on April 24, 2015, with
the Company receiving $45,000 of net proceeds, which was net of legal and due diligence fees. In connection with the issuance
of the second note, the Company computed a premium of $33,333 as the note is considered stock settled debt under ASC 480 which
was fully amortized during the as of June 30, 2015. As of December 31, 2015, the outstanding principal and interest of the second
note was fully converted into 5,210,553 shares of common stock.
On
September 22, 2014, the Company borrowed $54,750 with a maturity date of June 19, 2015, pursuant to a financing agreement. Under
the agreement the Company received $50,000, which was net of legal and due diligence fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the price
of common shares in the 10 days prior to conversion. The note might be accelerated if an event of default occurs under the terms
of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the
Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company computed a premium of $36,500
as the note is considered stock settled debt under ASC 480. On March 10, 2015, the Lender and Dominion Capital LLC entered into
a purchase and assignment of the note (see paragraph below), and the Company and Dominion amended the note, with the total amount
owed as of March 10, 2015 at $56,778, with terms and conditions identical to Purchaser’s notes pursuant to the $4 Million
Financing Agreement. Pursuant to the amendment the maturity date was extended to September 30, 2015. Additionally, on March 10,
2015, the Company and Purchaser entered into a $24,772 Senior Convertible, Redeemable Debenture of PositiveID Corporation, which
was issued without proceeds as consideration for the Purchaser’s expenses in conjunction with the purchase and assignment
with the Lender, including legal and transaction fees (see paragraph below). This amount was recorded as a loss on debt extinguishment.
As of March 31, 2015, the Company no longer has any outstanding debt owed to the Lender. The total recorded premium was accreted
and charged to interest expense upon the assignment of the convertible note.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
March 10, 2015, the Company issued a new note for $56,778 convertible at the lesser of a 37.5% discount to the common stock price
on the date of the note (which was $0.0153125) or a 37.5% discount to the price of our common stock price at the time of conversion.
In conjunction with the purchase and assignment, the Company and Purchaser entered into a new note with a principal value of $24,772
as compensation for Purchaser’s costs related to the purchase and assignment. This $24,772 was expensed as a loss on debt
extinguishment. In connection with the issuance of the note, the Company recorded a debt discount of $81,500 related to the embedded
conversion option derivative liability which was fully amortized and the outstanding principal and interest on the notes was fully
converted into 1,827,270 shares of common stock as of September 30, 2015. As the note conversions includes a “lesser of”
pricing provision, a derivative liability of $96,915 was recorded when these notes were entered into. The derivative liability
was re-measured at each balance sheet date and was reclassified to equity on a pro-rata basis upon conversion of the note.
On
September 24, 2014, the Company borrowed $75,000 pursuant to the back-end note in conjunction with the March 13, 2014 financing
agreement. The debt has an interest rate of 8% and the Company received proceeds of $67,750, net of fees, In the event that the
original note is not repaid prior to six months from its issuance, the lender has the option of converting the additional note
into shares of the Company’s common stock at a 40% discount to lowest closing bid price in the 20 trading days prior to
conversion, subject to the notes payable to the Company having been paid in full. In connection with the issuance of the note,
the Company computed a premium of $50,000 as the note is considered stock settled debt under ASC 480, all of which was accreted
and charged to interest expense in the year ended December 31, 2014. As of June 30, 2015, the outstanding principal and interest
on the note had been converted fully converted into 4,955,411 shares of common stock.
On
October 6, 2014, the Company borrowed $53,000 with a maturity date of June 1, 2015, pursuant to a financing agreement. Under the
agreement the Company received $50,000, which was net of legal fees. The note bears interest at 8% per annum and is convertible
at the option of the lender into shares of the Company’s common stock at a 39% discount to the price of common shares in
the 10 days prior to conversion. The note might be accelerated if an event of default occurs under the terms of the note, including
the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the Company is delinquent
in its SEC filings. In connection with the issuance of the note, the Company computed a premium of $33,885 as the note is considered
stock settled debt under ASC 480. As of June 30, 2015, the Company exercised its right to prepay the outstanding principal and
interest for a total redemption amount of $73,641. In addition, the remaining premium was accreted and charged to interest expense
upon redemption of the convertible note.
On
October 8, 2014, the Company borrowed $100,000 with a maturity date of March 30, 2015, pursuant to a financing agreement. Under
the agreement the Company received $85,500, which was net of legal fees of $7,000 and original issue discount of $7,500. The note
bears interest at 10% per annum and is convertible at the option of the lender into shares of the Company’s common stock
at a 40% discount to the price of common shares in the 10 days prior to conversion. The note might be accelerated if an event
of default occurs under the terms of the note, including the Company’s failure to pay principal and interest when due, certain
bankruptcy events or if the Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company
computed a premium of $66,667 as the note is considered stock settled debt under ASC 480, all of which was accreted and charged
to interest expense as of June 30, 2015. As of June 30, 2015, the outstanding principal and interest on the notes was fully converted
into 7,590,186 shares of common stock.
On
October 22, 2014, the Company borrowed $75,000 pursuant to the additional note in conjunction with the March 13, 2014 financing
agreement. The debt has an interest rate of 8% and the Company received proceeds of $65,750, net of fees. In the event that the
original note is not repaid prior to six months from its issuance, the lender has the option of converting the additional note
into shares of the Company’s common stock at a 40% discount to lowest closing bid price in the 20 trading days prior to
conversion, subject to the notes payable to the Company having been paid in full. In connection with the issuance of the note,
the Company computed a premium of $50,000 as the note is considered stock settled debt under ASC 480, all of which was accreted
and charged to interest expense in the year ended December 31, 2014. As of December 31, 2014, the outstanding principal and interest
on the note was converted, into 3,617,965 shares of common stock.
On
October 27, 2014, the Company borrowed $36,750 with a maturity date of October 21, 2015, pursuant to a financing agreement. Under
the agreement the Company received $33,250, which was net of legal and due diligence fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount to the lowest
closing bid price in the 20 trading days prior to conversion. The note might be accelerated if an event of default occurs under
the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events
or if the Company is delinquent in its SEC filings. In connection with the issuance of the notes, the Company recorded a premium
of $24,500 as the note is considered stock settled debt under ASC 480, all of which was accreted and charged to interest expense
as of June 30, 2015. As of June 30, 2015, the Company exercised its right to prepay the outstanding principal and interest for
a total redemption amount of $52,892. The Company recorded a loss on extinguishment of approximately $14,700.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
October 27, 2014, the Company borrowed $161,000 with a maturity date of October 27, 2015, pursuant to a financing agreement. Under
the agreement the Company received $150,000, which was net of an original issue discount of $11,000. The note bears interest at
8% per annum and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount
to the price of common shares in the 10 days prior to conversion. The note might be accelerated if an event of default occurs
under the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy
events or if the Company is delinquent in its SEC filings. In conjunction with the Note, the Company granted the lender a warrant
for 1,000,000 common shares at a strike price of $0.08. The warrant has a life of three years and its relative fair value of $33,404
has been recorded as a debt discount and additional paid in capital as of June 30, 2015. In connection with the issuance of the
note, the Company computed a premium of $107,333 as the note is considered stock settled debt under ASC 480. On April 6, 2015,
Dominion Capital LLC entered into a purchase and assignment of the note (see paragraph below), and the Company and Dominion amended
the note, with the total amount of $166,681, with terms and conditions identical to Purchaser’s notes pursuant to the $4
Million Financing Agreement. Pursuant to the amendment the maturity date was extended to October 24, 2015. Additionally, on April
6, 2015 the Company and Purchaser entered into an $88,319 Senior Convertible, Redeemable Debenture of the Company, which was issued
without proceeds as consideration for the Purchaser’s expenses in conjunction with the purchase and assignment with the
Lender, including legal and transaction fees. This amount was recorded as a loss on debt extinguishment. As of June 30, 2015,
the Company no longer has any outstanding debt owed to the Lender. The total recorded premium was accreted and charged to interest
expense upon the assignment of the convertible note.
On
April 6, 2015, the Company issued a new note for $166,681 convertible at the lesser of a 37.5% discount to the common stock price
on the date of the note (which was $0.0154) or a 37.5% discount to the price of our common stock price at the time of conversion.
In conjunction with the purchase and assignment, the Company and Purchaser entered into a new note with a principal value of $88,319
as compensation for Purchaser’s costs related to the purchase and assignment. This $88,319 was expensed as a loss on debt
extinguishment. In connection with the issuance of the notes, the Company recorded a debt discount of $255,000 related to the
embedded conversion option derivative liability which has been fully amortized as of December 31, 2015. As of December 31, 2015,
$161,000 of the principal and interest was converted into 15,975,309 shares of common stock. As of December 31, 215, the outstanding
principal and interest on the note was $22,121. As the note conversions includes a “lesser of” pricing provision,
a derivative liability of $305,904 was recorded when these notes were entered into. The derivative liability is re-measured at
each balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the note. The derivative liability balance
at December 31, 2015 was $6,669.
Dominion
Convertible Debt Financings
On
November 25, 2014, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated November
25, 2014 (the “Note I SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate subscription
amount of $4,000,000 (the “Purchase Price”). Pursuant to the Note I SPA, the Company shall issue a series of 4% Original
Issue Discount Senior Secured Convertible Promissory Notes (collectively, the “Note I”) to the Purchaser. The Purchase
Price will be paid in eight equal monthly payments of $500,000. Each individual Note will be issued upon payment and will be amortized
beginning six months after issuance, with amortization payments being 1/24
th
of the principal and accrued interest,
made in cash or common stock at the option of the Company, subject to certain conditions contained in the Note I SPA. The Company
also reimbursed the Purchaser $25,000 for expenses from the proceeds of the first tranche and the Purchaser’s counsel $25,000
from the first tranche.
On
August 14, 2015, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated August 14,
2015 (the “Note II SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate subscription amount
of $2,400,000 (the “Purchase Price”). Pursuant to the Note II SPA, the Company shall issue a series of 4% Original
Issue Discount Senior Secured Convertible Promissory Note (collectively, the “Note II”) to the Purchaser. The Purchase
Price will be paid in six equal monthly payments of $400,000. Each individual Note will be issued upon payment and will be amortized
beginning six months after issuance, with amortization payments being 1/24
th
of the principal and accrued interest,
made in cash or common stock at the option of the Company, subject to certain conditions contained in the Note II SPA. The Company
also reimbursed the Purchaser $20,000 for expenses from the proceeds of the first tranche and the Purchaser’s counsel $10,000
from the first tranche.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December
31, 2015 and 2014
The
aggregate principal amount of both Notes I and II are issued with a 4% original issue discount whereby the aggregate principal
amount of Notes I and II is $6,400,000 but the actual purchase price of Notes I and II is $6,144,000. Each of Notes I and II accrue
interest at a rate equal to 12% per annum and with maturity dates, depending on the date funded, between June 26, 2016 and June
15, 2017. Notes I and II are convertible any time after the issuance date of the notes. The Purchasers have the right to convert
the Notes I into shares of the Company’s common stock at a conversion price equal to 95% of the daily VWAP on the trading
day immediately prior to the closing of each tranche. The Purchasers have the right to convert the Notes II into shares of the
Company’s common stock at a conversion price equal to $0.028. Additionally, under certain conditions defined in Notes I
and II, the notes would be convertible into common stock at a price equal to 62.5% of the lowest VWAP during the 15 Trading Days
immediately prior to the applicable amortization date. In the event that there is an Event of Default or certain conditions are
not met, the conversion price will be adjusted to equal to 55% of the lowest VWAP during the thirty (30) Trading Days immediately
prior to the applicable Conversion Date. Note I and Note II can be prepaid at any time upon five days’ notice to the Holder
by paying an amount in cash equal to the outstanding principal and interest and a 120% premium.
As
of September 30, 2015, the Company had received all eight tranches under the Note I SPA ($500,000 in 2014 and $3,650,000 in 2015
which includes an additional $150,000 added to one of the agreed $500,000 monthly fundings as requested by the Company), with
maturity dates, depending on the date funded, between June 26, 2016 and December 29, 2016, pursuant to a convertible note. Under
the agreement the Company received $3,540,600, which was net of the $448,400 Purchaser’s expenses and legal fees and $166,000
which represents the 4% original issue discount. As of December 31, 2015, the Company has received, five and a half, of the six
tranches under the Note II SPA and the remaining amount on January 6, 2016, with a maturity dates of February 15, 2017 and June
30, 2017, pursuant to a convertible note. Under the agreement the Company received $1,966,000, which was net of Purchaser’s
expenses, legal fees of $227,000 and a 4% original issue discount of $91,250. The notes might be accelerated if an event of default
occurs under the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy
events or if the Company is delinquent in its SEC filings. In connection with the issuance of the Notes I and II, the Company
recorded a debt discount of $387,000 in 2014 and $5,116,600 during the year ended December 31, 2015, related to the embedded conversion
option derivative liability. The amortization expense related to that discount recorded was approximately $27,000 in 2014 and
$3,304,000 for the year ended December 31, 2015. During the year ended December 31, 2015, $1,357,000 of the outstanding principal
and interest on the notes was converted into 93,400,003 shares of common stock. As of December 31, 2015, the outstanding principal
and interest on the notes were $5,544,717. As the note conversion includes a “lesser of” pricing provision, a derivative
liability of $8,936,405 was recorded when the notes were entered into. The derivative liability is re-measured at each balance
sheet date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability balance for Notes
I and II at December 31, 2015 was $6,337,859.
On
December 22, 2015, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated December
22, 2015 (the “Note III SPA”) for an aggregate principal amount of $901,042 and subscription amount of $865,000,
net of OID (the “Purchase Price”). The Company also reimbursed the Purchaser $30,000 for legal fees and expenses
from the proceeds of the Note. Pursuant to the Note III SPA, the Company shall issue a 4% Original Issue Discount Senior Secured
Convertible Promissory Note (the “Note III”) to Dominion. Note III was issued upon payment and will be amortized beginning
six months after issuance, with amortization payments being 1/24th of the principal and accrued interest, made in cash or common
stock, on a semi-monthly basis, subject to certain conditions contained in the Note III SPA. The amortization payments will begin
to be due starting on the 15th day of the month immediately following the six-month anniversary of the Closing Date. The Company
received funding for Note III on December 24, 2015, net proceeds of $835,000 (net of the $30,000 of legal fees and expenses).
Note III accrues interest at a rate equal to 12% per annum (interest is guaranteed for the first twelve months) and has a maturity
date of June 15, 2017. Note III is convertible any time after its issuance date and Dominion has the right to convert any or all
of Note III into shares of the Company’s common stock at a conversion price equal to $0.022 (which was a 7% premium to the
closing bid price of the Company’s common stock on December 21, 2015), subject to adjustment as described in Note III. Additionally,
under certain conditions defined in Note III, it may also be convertible into common stock at a price equal to 62.5% of the lowest
VWAP during the 15 Trading Days immediately prior to the applicable amortization date. In the event that there is an Event of
Default or certain conditions are not met, the conversion price will be adjusted to equal to 55% of the lowest VWAP during the
thirty (30) Trading Days immediately prior to the applicable Conversion Date. Note III can be prepaid at any time upon five days’
notice to the Dominion by paying an amount in cash equal to the outstanding principal and interest, and a 20% premium.
In
connection with the issuance of the Note III, the Company recorded a debt discount of $751,500 during the year ended December
31, 2015, related to the embedded conversion option derivative liability. The amortization expense related to that discount recorded
was approximately $9,000 for the year ended December 31, 2015. As of December 31, 2015, the outstanding principal and interest
on the notes were $906,112. As the note conversion includes a “lesser of” pricing provision, a derivative liability
of $1,267,800 was recorded when the notes were entered into. The derivative liability is re-measured at each balance sheet date
and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability balance for Note III at December
31, 2015 was $1,269,481.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December
31, 2015 and 2014
In
connection with the Company’s obligations under Notes I, II and III, the Company entered into a Security Agreement
with the Purchaser, pursuant to which the Company granted a lien on all assets of the Company, subject to existing security interests,
(the “Collateral”) for the benefit of the Purchaser, to secure the Company’s obligations under the Note. In
the event of a default as defined in Notes I, II and III, the Purchaser may, among other things, collect or take possession
of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.
Debenture
Financing
Effective
as of January 16, 2013, the Company entered into a Securities Purchase Agreement (the “TCA Purchase Agreement”) with
TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), pursuant to which TCA may purchase
from the Company up to $5,000,000 senior secured, convertible only upon default, redeemable debentures (the “Debentures”).
A $550,000 Debenture was purchased by TCA on January 16, 2013 (the “First Debenture”).
The
maturity date of the First Debenture was January 16, 2014, subject to adjustment (the “Maturity Date”). The First
Debenture bears interest at a rate of twelve percent (12%) per annum. The Company additionally pays a 7% premium on all scheduled
principal payments. The Company, at its option, may repay the principal, interest, fees and expenses due under the Debenture,
including a 7% redemption premium on the outstanding principal balance, and in full and for cash, at any time prior to the Maturity
Date, with three (3) business days advance written notice to the holder. At any time while the Debenture is outstanding, but only
upon the occurrence of an event of default under the TCA Purchase Agreement or any other transaction documents, the holder may
convert all or any portion of the outstanding principal, accrued and unpaid interest, redemption premium and any other sums due
and payable under the First Debenture or any other transaction document (such total amount, the “Conversion Amount”)
into shares of the Company’s common stock at a price equal to (i) the Conversion Amount divided by (ii) eighty-five (85%)
of the average daily volume weighted average price of the Company’s common stock during the five (5) trading days immediately
prior to the date of conversion. The Debenture also contains a provision whereby TCA may not own more than 4.99% of the Company’s
common stock at any one time.
As
consideration for entering into the TCA Purchase Agreement, the Company paid to TCA (i) a transaction advisory fee in the amount
of $22,000, (ii) a due diligence fee equal to $10,000, and (iii) document review and legal fees in the amount of $12,500.
As
further consideration, the Company agreed to issue to TCA that number of shares of the Company’s common stock that equals
$100,000 (the “Incentive Shares”). For purposes of determining the number of Incentive Shares issuable to TCA, the
Company’s common stock was valued at the volume weighted average price for the five (5) trading days immediately prior to
the date of the TCA Purchase Agreement, as reported by Bloomberg, and 191,388 shares were issued. It is the intention of the Company
and TCA that the value of the Incentive Shares shall equal $100,000. In the event the value of the Incentive Shares issued to
TCA does not equal $100,000 after a twelve month evaluation date, the TCA Purchase Agreement provides for an adjustment provision
allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA
to the Company’s treasury). At the end of the twelve month evaluation date on January 16, 2014, the value of the incentive
shares was $12,000 and consequently, the Company was obligated to issue to TCA, see further discussion below. Additionally, the
Company paid a broker fee consisting of $22,000 and 52,632 shares of its common stock for arranging this financing. Such fee was
recorded as a cost of capital, or reduction to stockholder’s equity.
In
connection with the TCA Purchase Agreement, the Company entered into a Security Agreement (the “TCA Security Agreement”)
with TCA. As security for the Company’s obligations to TCA under the Debentures, the TCA Purchase Agreement and any other
transaction document, the TCA Security Agreement grants to TCA a continuing, second priority security interest in all of the Company’s
assets and property, wheresoever located and whether now existing or hereafter arising or acquired. This security interest is
subordinate to the security interest of The Boeing Company (“Boeing”), who has a secured interest supporting that
certain Boeing License Agreement (defined below).
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December
31, 2015 and 2014
On
March 18, 2013, the Company entered into an Intercreditor and Non-Disturbance Agreement (the “Intercreditor Agreement”)
among PositiveID and PDI; VeriGreen Energy Corporation, Steel Vault Corporation, IFTH NY Sub, Inc., and IFTH NJ Sub, Inc. Boeing,
and TCA. The Intercreditor Agreement sets forth the agreement of Boeing and TCA as to their respective rights and obligations
with respect to the Boeing Collateral (as described below) and the TCA Collateral (as described below) and their understanding
relative to their respective positions in the Boeing Collateral and the TCA Collateral.
The
“Boeing Collateral” includes, among other things, all Intellectual Property Rights (as defined in the Intercreditor
Agreement) in the M-BAND Technology (as defined in the Intercreditor Agreement), including without limitation certain patents
and patent applications set forth in the Intercreditor Agreement. The TCA Collateral includes any and all property and assets
of PositiveID. The liens of Boeing on the Boeing Collateral are senior and prior in right to the liens of TCA on the Boeing Collateral
and such liens of TCA on the Boeing Collateral are junior and subordinate to the liens of Boeing on the Boeing Collateral.
On
August 21, 2013, the Company entered into a First Amendment to Securities Purchase Agreement (the “Amendment”) with
TCA. Pursuant to the Amendment, principal payments for July through October were deferred and the maturity date for the entire
first Debenture was extended to May 16, 2014 and in exchange for this principal holiday, the Company and TCA agreed to increase
the outstanding principal balance by $80,000. In connection with this Amendment, the Company accounted for this modification as
an extinguishment and recorded a charge to interest expense in the amount of $139,000 during the year ended December 31, 2013,
comprised of $59,000 relating to the write-off of unamortized debt discount and the $80,000.
Beginning
in January 2014, the Company was not current in its payments under the Debenture. On April 3, 2014 TCA sold its rights under the
TCA SPA, Debenture, Security Agreement and all related transaction documents to Ironridge, releasing the Company of all of its
obligations to TCA, including the obligation to issue the additional $88,000 incentive shares as discussed above. The sale price
paid from Ironridge to TCA was $425,000. Also on April 3, 2014, the Company and Ironridge amended the Debenture, setting the amount
owed as of April 3, 2014 at $425,000, extending the maturity date to April 2, 2015, lowering the interest rate to 3.4% and to
amend the formula for conversion of Debenture principal and interest into common shares of the Company. Pursuant to the amended
Debenture, Ironridge has the right, at any time, to request the conversion of principal and accrued interest into free trading
shares of common Stock of the Company at a price equal to: (i) the conversion amount; divided by (ii) an amount, equal to 85%
of the closing bid price of the Company’s common stock on April 3, 2014, not to exceed 85% of the average of the daily volume
weighted average prices of the Company’s common Stock for any five of the trading days from April 3, 2014 until the date that
the Debenture is paid or converted in full. There was no material gain or loss on this modification.
On
December 24, 2014, the Ironridge and Dominion Capital LLC entered into a purchase and assignment of the debenture, and the Company
and Dominion amended the Debenture, with the total amount owed as of December 24, 2014 at $434,592, making the note a demand note
with terms and conditions identical to Purchaser’s notes pursuant to the $4 Million Financing Agreement. Pursuant to the
amendment the maturity date was extended to May 31, 2015. Additionally, on December 24, 2014 the Company and Purchaser entered
into a $158,400 Senior Convertible, Redeemable Debenture of PositiveID Corporation, which was issued without proceeds as consideration
for the Purchaser’s expenses in conjunction with the purchase and assignment with Ironridge, including legal and transaction
fees. This amount was recorded as a loss on debt extinguishment. As of December 31, 2014, the Company no longer has any outstanding
debt owed to Ironridge.
In
connection with the issuance of the Debenture and the Note, the Company recorded a debt discount of $522,061 related to the embedded
conversion option derivative liability which has been fully amortized during the year ended December 31, 2015. The outstanding
principal and interest on the Debenture was fully converted into 6,775,018 shares of common stock as of December 31, 2015. As
the note conversion includes a “lesser of” pricing provision, a derivative liability of $571,387 was recorded when
the note was entered into. The derivative liability was remeasured at each balance sheet date and $466,035 was reclassified into
equity on a pro-rata basis upon conversion of the note.
Other
Financings
On
July 9, 2012, the Company issued a Secured Promissory Note (the “H&K Note”) in the principal amount of $849,510
to Holland & Knight LLP (“Holland & Knight”), its external legal counsel, in support of amounts due and owing
to Holland & Knight as of June 30, 2012. The H&K Note is non-interest bearing, and principal on the H&K Note is due
and payable as soon as practicably possible by the Company. The Company has agreed to remit payment against the H&K Note immediately
upon each occurrence of any of the following events: (a) completion of an acquisition or disposition of any of the Company’s
assets or stock or any of the Company’s subsidiaries’ assets or stock with gross proceeds in excess of $750,000, (b)
completion of any financing with gross proceeds in excess of $1,500,000, (c) receipt of any revenue in excess of $750,000 from
the licensing or development of any of the Company’s or the Company’s subsidiaries’ products, or (d) any liquidation
or reorganization of the Company’s assets or liabilities. The amount of payment to be remitted by the Company shall equal
one-third of the gross proceeds received by the Company upon each occurrence of any of the above events, until the principal is
repaid in full. If the Company receives $3,000,000 in gross proceeds in any one financing or licensing arrangement, the entire
principal balance shall be paid in full. The H&K Note was secured by substantially all of the Company’s assets pursuant
to a security agreement between the Company and Holland & Knight dated July 9, 2012. In conjunction with the TCA Purchase
Agreement and the Boeing License Agreement (defined below), Holland & Knight agreed to terminate its security interest. As
of December 31, 2015, the Company had repaid $510,072 of the H&K Note and the outstanding balance was $339,439.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
September 7, 2012, the Company issued a Secured Promissory Note (the “Caragol Note”) in the principal amount of $200,000
to William J. Caragol (“Caragol”), the Company’s chairman and chief executive officer, in connection with a
$200,000 loan to the Company by Caragol. The Caragol Note accrues interest at a rate of 5% per annum, and principal and interest
on the Caragol Note are due and payable on September 6, 2013. The Company agreed to accelerate the repayment of principal and
interest in the event that the Company raises at least $1,500,000 from any combination of equity sales, strategic agreements,
or other loans, with no prepayment penalty for any paydown prior to maturity. The Caragol Note was secured by a subordinated security
interest in substantially all of the assets of the Company pursuant to a Security Agreement between the Company and Caragol dated
September 7, 2012 (the “Caragol Security Agreement”). The Caragol Note may be accelerated if an event of default occurs
under the terms of the Caragol Note or the Caragol Security Agreement, or upon the insolvency, bankruptcy, or dissolution of the
Company. In December 2012, the Company paid $100,000 of the principal amount of the Caragol Note and all accrued interest owed
on the date of payment. In conjunction with the TCA Purchase Agreement and the Boeing License Agreement (defined below), Caragol
agreed to terminate his security interest, effective January 16, 2013. During the year ended December 31, 2015, the Company paid
the outstanding principal and interest on the Caragol Note and there was no outstanding balance on the Caragol note as of December
31, 2015.
Embedded
Conversion Option Derivatives
Due
to the conversion terms of certain promissory notes, the embedded conversion options met the criteria to be bifurcated and presented
as derivative liabilities. The Company calculated the estimated fair values of the liabilities for embedded conversion option
derivative instruments at the original note inception dates and as of December 31, 2015 and 2014 using the Black-Scholes
option pricing model using the share prices of the Company’s stock on the dates of valuation and using the following ranges
for volatility, expected term and the risk free interest rate at each respective valuation date, no dividend has been assumed
for any of the periods:
|
|
Note
Inception Date
|
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Volatility
|
|
|
195
- 374
|
%
|
|
|
217
|
%
|
|
|
235
|
%
|
Expected Term
|
|
|
0.4
- 1.50 years
|
|
|
|
0.03
- 1.46 years
|
|
|
|
0.03
- 1.40 years
|
|
Risk Free Interest Rate
|
|
|
0.21
- 2.0
|
%
|
|
|
0.65
|
%
|
|
|
0.12
- 2
|
%
|
The following
reflects the initial fair value on the note inception dates in 2015 and 2014 and changes in fair value through December
31:
|
|
2015
|
|
|
2014
|
|
Balance, January 1
|
|
$
|
2,151,502
|
|
|
$
|
-
|
|
Note inception date fair value allocated to
debt discount
|
|
|
6,329,600
|
|
|
|
2,160,700
|
|
Note inception date fair value allocated to
other expense
|
|
|
3,647,873
|
|
|
|
681,137
|
|
Reclassification of derivative liability to
equity upon debt conversion
|
|
|
(3,122,354
|
)
|
|
|
(207,608
|
)
|
Change in fair
value
|
|
|
(1,220,797
|
)
|
|
|
(482,727
|
)
|
Embedded conversion
option liability fair value
|
|
$
|
7,785,824
|
|
|
$
|
2,151,502
|
|
Fair
Value Measurements
We
currently measure and report at fair value the liability for embedded conversion option derivatives. The fair value liabilities
for price adjustable convertible debt instruments have been recorded as determined utilizing the BSM option pricing model as previously
discussed. The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as
of December 31, 2015 and 2014:
|
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Balance at December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of liability
for embedded conversion option derivative instruments
|
|
$
|
2,151,502
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,151,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of liability for embedded
conversion option derivative instruments
|
|
$
|
7,785,824
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,785,824
|
|
9.
Stockholders’ Deficit
Authorized
Common Stock
As
of December 31, 2015, the Company was authorized to issue 3.9 billion shares of common stock. On April 30, 2015, the Company filed
the Sixth Amendment to the Second Amendment and Restated Certificate of Incorporation, as amended, with the State of Delaware
to increase the number of authorized common shares to 1.97 billion shares. On February 25, 2016, the Company filed the Seventh
Amendment to the Second Amendment and Restated Certificate of Incorporation, as amended, with the State of Delaware to increase
the number of authorized common shares to 3.9 billion shares.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Stock
Option Plans
On
August 26, 2011, the Company’s stockholders approved and adopted the PositiveID Corporation 2011 Stock Incentive Plan (the
“2011 Plan”). The 2011 Plan provides for awards of incentive stock options, nonqualified stock options, restricted
stock awards, performance units, performance shares, SARs and other stock-based awards to employees and consultants. Under the
2011 Plan, up to 1 million shares of common stock may be granted pursuant to awards. As of December 31, 2015, approximately 0.3
million options and shares have been granted under the 2011 Plan, and approximately 0.7 million remaining shares may be granted
under the 2011 Plan. Awards to employees under the Company’s stock option plans generally vest over a two-year period, with
pro-rata vesting upon the anniversary of the grant. Awards of options have a maximum term of ten years and the Company generally
issues new shares upon exercise.
In
addition, as of December 31, 2015, 13.9 million warrants to purchase the Company’s common stock have been granted outside
of the Company’s plans, 13.5 million warrants which remain outstanding as of December 31, 2015. These warrants were granted
at exercise prices ranging from $0.02 to $22.0 per share, are fully vested and are exercisable for a period from five to seven
years.
On
November 10, 2009, the Company assumed all of Steel Vault Corporation’s (“Steel Vault”) obligations under the
SysComm International Corporation 2001 Flexible Stock Plan, as amended and restated, and each option outstanding thereunder, provided
that the obligation to issue shares of the Company’s common stock, as adjusted to reflect the exchange ratio set forth in
the merger with Steel Vault, was substituted for the obligation to issue shares of Steel Vault common stock. On November 10, 2009,
pursuant to the merger with Steel Vault, approximately 268,000 outstanding Steel Vault options were converted into 132,000 Company
options. These options were granted at exercise prices ranging from $9.0 to $50.0 per share, are fully vested and are exercisable
for a period up to ten years from the vesting date.
On
December 4, 2015, the Company’s Board of Directors approved and adopted the Thermomedics, Inc. 2015 Flexible Stock Plan
(“Thermomedics 2015 Plan”). The Thermomedics 2015 Plan provides for awards of incentive stock options, nonqualified
stock options, restricted stock awards, performance units, performance shares, SARs and other stock-based awards to employees
and consultants. Under the Thermomedics 2015 Plan, up to 5 million shares of common stock may be granted pursuant to awards. As
of December 31, 2015, no stock-based awards has been issued under the Thermomedics 2015 Plan.
A
summary of option activity under the Company’s option plans and outside of the Company’s option plan for the years
ended December 31, 2015 and 2014 is as follows (in thousands, except per share amounts):
|
|
2015
|
|
|
2014
|
|
|
|
Number
of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding on January
1
|
|
|
2,856
|
|
|
$
|
1.26
|
|
|
|
1,409
|
|
|
$
|
2.83
|
|
Granted
|
|
|
21,740
|
|
|
$
|
0.02
|
|
|
|
1,450
|
|
|
$
|
0.04
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
|
(3
|
)
|
|
$
|
136.13
|
|
Outstanding
at year end
|
|
|
24,596
|
|
|
$
|
0.17
|
|
|
|
2,856
|
|
|
$
|
1.26
|
|
Exercisable
at year end
|
|
|
4,206
|
|
|
$
|
0.87
|
|
|
|
2,756
|
|
|
$
|
1.31
|
|
Shares available
for grant within Company’s option plans at year end
|
|
|
1,280
|
|
|
|
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
Outstanding
Stock Options
|
|
|
Exercisable
Stock Options
|
|
Range
of
Exercise Prices
|
|
|
Shares
|
|
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
$
|
0.00
|
|
|
|
to
|
|
|
|
$9.00
|
|
|
|
24,547
|
|
|
|
8.97
|
|
|
$
|
0.06
|
|
|
|
4,157
|
|
|
$
|
0.23
|
|
$
|
9.25
|
|
|
|
to
|
|
|
|
$15.00
|
|
|
|
33
|
|
|
|
7.13
|
|
|
$
|
10.13
|
|
|
|
33
|
|
|
$
|
10.13
|
|
$
|
17.00
|
|
|
|
to
|
|
|
|
$49.75
|
|
|
|
2
|
|
|
|
7.3
|
|
|
$
|
41.13
|
|
|
|
2
|
|
|
$
|
41.13
|
|
$
|
73.13
|
|
|
|
to
|
|
|
|
$143.75
|
|
|
|
11
|
|
|
|
5.17
|
|
|
$
|
142.71
|
|
|
|
11
|
|
|
$
|
142.71
|
|
|
Above
$143.75
|
|
|
|
3
|
|
|
|
4.88
|
|
|
$
|
233.04
|
|
|
|
3
|
|
|
$
|
233.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,596
|
|
|
|
8.96
|
|
|
$
|
0.17
|
|
|
|
4,206
|
|
|
$
|
0.87
|
|
|
Vested
options
|
|
|
|
4,206
|
|
|
|
8.86
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
The
weighted average per share fair value of grants made in 2015 and 2014 under the Company’s incentive plans was $0.02 and
$0.04, respectively.
There
are inherent uncertainties in making estimates about forecasts of future operating results and identifying comparable companies
and transactions that may be indicative of the fair value of the Company’s securities. The Company believes that the estimates
of the fair value of its common stock options at each option grant date were reasonable under the circumstances.
The
Black-Scholes model, which the Company uses to determine compensation expense, requires the Company to make several key judgments
including:
|
●
|
the
value of the Company’s common stock;
|
|
|
|
|
●
|
the
expected life of issued stock options;
|
|
|
|
|
●
|
the
expected volatility of the Company’s stock price;
|
|
|
|
|
●
|
the
expected dividend yield to be realized over the life of the stock option; and
|
|
|
|
|
●
|
the
risk-free interest rate over the expected life of the stock options.
|
The
Company’s computation of the expected life of issued stock options was determined based on historical experience of similar
awards giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations about employees’
future length of service. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation
of volatility was based on the historical volatility of the Company’s common stock.
The
fair values of the options granted were estimated on the grant date using the Black-Scholes valuation model based on the following
weighted-average assumptions:
|
|
2015
|
|
|
2014
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
Expected stock price volatility
|
|
|
184 - 204
|
%
|
|
|
184 -188
|
%
|
Risk-free interest rate
|
|
|
1.39 – 1.74
|
%
|
|
|
1.65 - 1.74
|
%
|
Expected term (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
A
summary of restricted stock outstanding under the stockholder approved plans outstanding as of December 31, 2015 and 2014 and
changes during the years then ended is presented below (in thousands):
|
|
2015
|
|
|
2014
|
|
Unvested at beginning
of year
|
|
|
200
|
|
|
|
300
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(200
|
)
|
|
|
(100
|
)
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested at
end of year
|
|
|
—
|
|
|
|
200
|
|
Warrants
From
time to time the Company issues warrants both for compensatory purposes to consultants and advisors, and to financial institutions
in conjunction with financing activities.
Activity
related to warrants issued in conjunction with financing transactions for the year ended December 31, 2015 is as follows (in
thousands):
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at December 31, 2013
|
|
|
385
|
|
|
$
|
0.53
|
|
Granted
|
|
|
2,000
|
|
|
|
0.08
|
|
Exercised
|
|
|
(383
|
)
|
|
|
0.41
|
|
Expired
|
|
|
(2
|
)
|
|
|
22.00
|
|
Outstanding at December
31, 2014
|
|
|
2,000
|
|
|
$
|
0.08
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 31, 2015
|
|
|
2,000
|
|
|
$
|
0.08
|
|
Exercisable
at December 31, 2015
|
|
|
2,000
|
|
|
$
|
0.08
|
|
Weighted
average grant date fair value
|
|
|
|
|
|
$
|
0.08
|
|
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Activity
related to the warrants issued for compensatory purposes for the year ended December 31, 2015 is as follows (in thousands):
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at December 31, 2013
|
|
|
2,500
|
|
|
$
|
0.20
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(10
|
)
|
|
|
15.00
|
|
Outstanding at December
31, 2014
|
|
|
2,490
|
|
|
$
|
0.14
|
|
Granted
|
|
|
9,000
|
|
|
|
0.02
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 31, 2015
|
|
|
11,490
|
|
|
$
|
0.05
|
|
Exercisable
at December 31, 2015
|
|
|
8,450
|
|
|
$
|
0.04
|
|
Weighted
average grant date fair value
|
|
|
|
|
|
$
|
0.05
|
|
On
July 1, 2014, pursuant to a financing agreement, the Company issued immediately exercisable warrants to purchase 1,000,000 shares
of common stock at an initial exercise price of $0.08 per share and are exercisable for a period of four years from the vest date.
The warrants expire in 2017.
On
October 24, 2014, pursuant to a financing agreement, the Company issued immediately exercisable warrants to purchase 1,000,000
shares of common stock at an initial exercise price of $0.08 per share and are exercisable for a period of four years from the
vest date. The warrants expire in 2017.
On
October 1, 2015, pursuant to a consulting agreement with two advisors, the Company issued to each advisor, warrants to purchase
2,000,000 shares of common stock, of which 1,600,000 are immediately exercisable and 400,000 are exercisable upon completion of
services. The warrants have an initial exercise price of $0.028 per share and are exercisable for a period of five years from
the vest date. The warrants expire in 2020.
On
October 28, 2015, pursuant to a consulting agreement with an advisor, the Company issued immediately exercisable warrants to purchase
1,000,000 shares of common stock at an initial exercise price of $0.03 per share and are exercisable for a period of five years
from the vest date. The warrants expire in 2020.
On
October 1, 2015, pursuant to a consulting agreement with an advisor, the Company issued warrants to purchase 4,000,000 shares
of common stock, of which 2,000,000 are immediately exercisable and 2,000,000 are exercisable upon completion of services. The
warrants have an initial exercise price of $0.02 per share and are exercisable for a period of five years from the vest date.
The warrants expire in 2020.
Stock-Based
Compensation
Stock-based
compensation expense for awards granted to employees is recognized on a straight-line basis over the requisite service
period based on the grant-date fair value. Forfeitures are estimated at the time of grant and require the estimates to be revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company recorded compensation expense
related to stock options and restricted stock of approximately $492,000 and $1,701,000 for the years ended December 31, 2015 and
2014, respectively. The intrinsic value for all options outstanding was approximately nil as of December 31, 2015 and 2014.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
During
the year ended December 31, 2015, the Company issued an aggregate of 100,000 shares of restricted stock, outside of the approved
employee stock incentive plans, to employees valued between $0.03 per share, or an aggregate $3,000 based on quoted common stock
prices on the grant date and was fully expensed as of December 31, 2015. During the year ended December 31, 2014, the Company
issued an aggregate of 1,100,000 shares of restricted stock, outside of the approved employee stock incentive plans, to employees
valued between $0.026 and $0.075 per share, or an aggregate $77,600 based on quoted common stock prices on the grant dates, and
recorded related stock-based compensation of approximately $34,000 with the remainder to be recognized over the respective vesting
periods.
During
the year ended December 31, 2015, the Company issued, outside of the approved employee stock incentive plans, an aggregate of
12,200,000 shares of restricted stock to consultants and advisors valued between $0.0183 and $0.0394 per share and recorded related
stock-based compensation of approximately $278,000 for 2015 and 2014 vested amounts. During the year ended December 31, 2014,
the Company issued, outside of the approved employee stock incentive plans, an aggregate of 8,230,000 shares of restricted stock
to consultants and advisors valued between $0.02 and $0.10 per share and recorded related stock-based compensation of approximately
$423,000 for 2013 and 2014 vested amounts.
During
the year ended December 31, 2015, the Company issued, outside of the approved employee stock incentive plans, an aggregate of
18,090,000 options to directors and employees, an aggregate of 3,650,000 options to consultants and recorded related stock-based
compensation of approximately $113,000 for the year ended December 31, 2015. During the year ended December 31, 2014, the Company
issued, outside of the approved employee stock incentive plans, an aggregate of 1,200,000 options to employees, an aggregate of
250,000 options to consultants and recorded related stock-based compensation of approximately $49,000 for the year ended December
31, 2014.
Series
I Preferred Stock
On
September 30, 2013, the Board of Directors authorized and in November 2013, the Company filed with the State of Delaware, a Certificate
of Designations of Preferences, Rights and Limitations of Series I Preferred Stock (the “Certificate”). The Series
I Preferred Stock ranks junior to the Company’s Series F Preferred Stock and to all liabilities of the Company and is senior
to the Common Stock and any other preferred stock. The Series I Preferred Stock has a stated value per share of $1,000, a dividend
rate of 6% per annum, voting rights on an as-converted basis and a conversion price equal to the closing bid price of the Company’s
Common Stock on the date of issuance. The Series I Preferred Stock is required to be redeemed (at stated value, plus any accrued
dividends) by the Company after three years or any time after one year, the Company may at its option, redeem the shares subject
to a ten-day notice (to allow holder conversion). The Series I Preferred Stock is convertible into the Company’s Common
Stock, at stated value plus accrued dividends, at the closing bid price on September 30, 2013, any time at the option of the holder
and by the Company in the event that the Company’s closing stock price exceeds 400% of the conversion price for twenty consecutive
trading days. The Company has classified the Series I Preferred Stock as a liability in the consolidated balance sheet due to
the mandatory redemption feature. The Series I Preferred Stock has voting rights equal to the number of shares of Common Stock
that Series I Preferred Stock is convertible into, times twenty-five. The holders of Series I Preferred Stock will have voting
control in situations requiring shareholder vote.
On
September 30, 2013, the Company issued 413 shares of Series I Preferred Stock to settle $413,000 of accrued and unpaid compensation
to its Board of Directors and management (see Note 8), at a conversion price of $0.036, which was the closing bid price on September
30, 2013. The Series I Preferred Stock will vest on January 1, 2018, subject to acceleration in the event of conversion or redemption.
The Series I Preferred may also be converted into common shares in advance of their vesting, at the option of the holder, which
in turn accelerates the vesting.
On
November 5, 2013, the Company filed an Amended and Restated Certificate of Designation of Series I Preferred Stock (the “Amended
Certificate of Designation”). The Amended Certificate of Designation was filed to clarify and revise the mechanics of conversion
and certain conversion rights of the holders of Series I Preferred Stock. No other rights were modified or amended in the Amended
Certificate of Designation. On January 8, 2015, the Company filed an amendment to the Amended Certificate of Designation to increase
the authorized shares of Series I Convertible Preferred Stock from 1,000 shares to 2,500 shares. No other terms were modified
or amended in the Amended Certificate of Designation.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
On
December 31, 2013, the three independent directors were each granted 25 shares of Series I, as a component of their 2014 board
compensation. On January 14, 2014 an additional 512 shares of Series I were issued to the Company’s CEO, President and Senior
Vice President. Of these shares 381 were issued to the Company’s chief executive officer as follows: (i) 138 shares issued
for 2013 incentive compensation, (ii) 143 shares were issued for his agreement to amend his employment contract and reduce his
annual salary from the remainder of the term of the contract to $200,000, per annum, and (iii) 100 shares of Series I as a tax
equalization payment to compensate Mr. Caragol for taxes paid on unrealized stock compensation during prior years. All Series
I shares granted vest on January 1, 2018. The Series I Preferred may also be converted into common shares in advance of their
vesting, at the option of the holder, which in turn accelerates vesting. As such earlier, the Company recorded an expense, since
vesting is at the holder’s option in the amount of $688,000 in 2014 and $75,000 in 2013, representing the fair value of
the shares during the year ended December 31, 2014.
On
January 12, 2015, shares of Series I were issued as follows: (i) 50 shares of Series I were issued to each of three independent
board members as a component of their 2015 compensation (150 shares total), and (ii) 475 shares of Series I were issued to the
Company’s management as a component of their 2014 incentive compensation at a conversion price of $0.027, which was the
closing bid price on January 12, 2015. The Company recorded a total expense of $812,500 at the time of issuance, for the Series
I shares granted which will vest on January 1, 2018. The Series I Preferred may also be converted into common shares in advance
of their vesting, at the option of the holder, which in turn accelerates vesting.
On
December 22, 2015, shares of Series I were issued as follows: (i) 25 shares of Series I were issued to each of three independent
board members as a component of their 2016 compensation (75 shares total), and (ii) 325 shares of Series I were issued to the
Company’s management as a component of their 2015 incentive compensation at a conversion price of $0.0207, which was the
closing bid price on December 22, 2015. The Company recorded a total expense of $520,000 at the time of issuance, for the Series
I shares granted which will vest on January 1, 2018. The Series I Preferred may also be converted into common shares in advance
of their vesting, at the option of the holder, which in turn accelerates vesting.
10.
Income Taxes
The
Company accounts for income taxes under the asset and liability approach. Deferred taxes are recorded based upon the tax impact
of items affecting financial reporting and tax filings in different periods. A valuation allowance is provided against net deferred
tax assets where the Company determines realization is not currently judged to be more likely than not.
The
tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities
consist of the following (in thousands):
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax
assets (liabilities):
|
|
|
|
|
|
|
|
|
Accrued
expenses and reserves
|
|
$
|
411
|
|
|
$
|
273
|
|
Stock-based
compensation
|
|
|
1,529
|
|
|
|
990
|
|
Intangibles
|
|
|
(88
|
)
|
|
|
(14
|
)
|
Property
and equipment
|
|
|
1
|
|
|
|
4
|
|
Net
operating loss carryforwards
|
|
|
33,577
|
|
|
|
29,967
|
|
Gross deferred
tax assets
|
|
|
35,430
|
|
|
|
31,220
|
|
Valuation
allowance
|
|
|
(35,430
|
)
|
|
|
(31,220
|
)
|
Net
deferred taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The
valuation allowance for U.S. deferred tax assets increased by $4.2 million in 2015 due mainly to the generation of U.S. net operating
losses. As a result of the Company’s history of incurring operating losses a full valuation allowance against the net deferred
tax asset has been recorded at December 31, 2015 and 2014.
The
difference between the effective rate reflected in the provision for income taxes on loss before taxes and the amounts determined
by applying the applicable statutory U.S. tax rate are analyzed below:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Statutory
tax benefit
|
|
%
|
(34
|
)
|
|
%
|
(34
|
)
|
State income taxes,
net of federal effects
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Permanent items
|
|
|
—
|
|
|
|
(3
|
)
|
Other
|
|
|
1
|
|
|
|
—
|
|
Change
in deferred tax asset valuation allowance
|
|
|
37
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
%
|
—
|
|
|
%
|
—
|
|
As
of December 31, 2015, the Company had U.S. federal net operating loss carry forwards of approximately $91 million for income
tax purposes that expire in various amounts through 2035. The Company also has approximately $65 million of state net operating
loss carryforwards that expire in various amounts through 2035.
Based
upon the change of ownership rules under IRC Section 382, the Company had a change of ownership in December 2007 exceeding the
50% limitation threshold imposed by IRC Section 382. The Company experienced subsequent changes in ownership during 2008 through
2015 as a result of the Company issuing common shares which could potentially result in additional changes of ownership under
IRC Section 382. As a result the Company’s future utilization of its net operating loss carryforwards will be significantly
limited as to the amount of use in any particular year, and consequently may be subject to expiration.
The
Company files consolidated tax returns in the United States federal jurisdiction and in the various states in which it does business.
In general, the Company is no longer subject to U.S. federal or state income tax examinations for years before December 31,
2012.
In
July 2008, the Company completed the sale of all of the outstanding capital stock of Xmark to Stanley. In January 2010, Stanley
received a notice from the Canadian Revenue Agency (“CRA”) that the CRA would be performing a review of Xmark’s
Canadian tax returns for the periods 2005 through 2008. This review covers all periods that the Company owned Xmark.
In February 2011, and as revised on November 9, 2011, Stanley received a notice from the CRA that the CRA completed its review
of the Xmark returns and was questioning certain deductions attributable to allocations from related companies on the tax returns
under review. In November and December 2011, the CRA and the Ministry of Revenue of the Province of Ontario issued notices of
reassessment confirming the proposed adjustments. The total amount of the income tax reassessments for the 2006-2008 tax years,
including both provincial and federal reassessments, plus interest, was approximately $1.4 million.
On
January 20, 2012, the Company received an indemnification claim notice from Stanley related to the matter. The Company did
not agree with the position taken by the CRA, and filed a formal appeal related to the matter on March 8, 2012. In addition, on
March 28, 2012, Stanley received assessments for withholding taxes on deemed dividend payments in respect of the disallowed management
fee totaling approximately $0.2 million, for which we filed a formal appeal on June 7, 2012. In October 2012, the Company submitted
a Competent Authority filing to the U.S. IRS seeking relief in the matter. In connection with the filing of the appeals, Stanley
was required to remit an upfront payment of a portion of the tax reassessment totaling approximately $950,000. The Company also
filed a formal appeal related to the withholding tax assessments, pursuant to which Stanley was required to remit an additional
upfront payment of approximately $220,000. Pursuant to a letter agreement dated March 7, 2012, the Company has agreed to repay
Stanley for the upfront payments, plus interest at the rate of five percent per annum.
On February 28, 2014, the
Company received final notice from the CRA. The Company determined that it will not further appeal the decision in the final notice
and reached a settlement with the CRA, resulting in a partial refund of Stanley’s upfront payment. As of December 31, 2015,
the Company had made payments to Stanley of $645,777, Stanley had received a refund of $129,520 and the remaining liability to
be paid to Stanley is approximately $201,000, as reflected on the accompanying consolidated balance sheet as “Tax Contingency”.
11.
Commitments and Contingencies
Lease
Commitments
The
Company leases certain office space under non-cancelable operating leases, including the Company’s corporate offices in
Delray Beach, Florida under a lease scheduled to expire in October 18, 2018, lab and office space in Pleasanton, California a
lease scheduled to expire in September 30, 2018 and office and manufacturing space in Concord, California which is currently on
a month-to-month commitment. Rent expense under operating leases totaled approximately $136,000 and $101,000 for the years ended
December 31, 2015 and 2014, respectively.
Other
Commitments
Pursuant
to the GlucoChip Agreement (see Note 4), the Company also agreed to provide financial support to VeriTeQ, for a period of up to
two years, in the form of convertible promissory notes. In 2014, the Company funded VeriTeQ $60,000 and an additional $140,000
less $5,000 OID during 2015. VeriTeQ issued the Company a Convertible Promissory Note in the total principal amount of $200,000
as of December 31, 2015. As VeriTeQ is in default of its agreements with the Company, there is no intention to provide any additional
funding to VeriTeQ, under the GlucoChip Agreement or otherwise.
Exergen
Litigation
On
October 10, 2012, the Thermomedics and its former parent company, Sanomedics (together “Sano”) received a cease and
desist demand letter from Exergen Corporation (“Exergen”), claiming that the Company infringed on certain patents
relating to the Sano’s non-contact thermometers. On May 21, 2013, Exergen filed a complaint in the U.S. District Court of
the District of Massachusetts against Sano. On September 3, 2013, the Sano 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
Sano filed a partial dismissal that removes Sano’s 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 Sano’s motion for summary judgement, ruling that
that patents claims made by Exergen against Sano were invalid. Exergen has advised the court that it intends to appeal that summary
judgment order. The Company has assumed responsibility to defend these claims will continue to vigorously defend its rights to
market and sell the Caregiver thermometer. Management believes the Company will be successful in its defense.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
Other
Legal Proceedings
The
Company is a party to certain legal actions, as either plaintiff or defendant, arising in the ordinary course of business, none
of which is expected to have a material adverse effect on the Company’s business, financial condition or results of operations.
However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental
investigations, legal and administrative cases and proceedings, whether civil or criminal, settlements, judgments and investigations,
claims or charges in any such matters, and developments or assertions by or against the Company relating to the Company or to
the Company’s intellectual property rights and intellectual property licenses could have a material adverse effect on the
Company’s business, financial condition and operating results.
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.
12.
Employment Contracts and Stock Compensation
On
December 6, 2011, the Compensation Committee approved a First Amendment to Employment and Non-Compete Agreement (the “First
Caragol Amendment”) between the Company and Mr. Caragol in connection with Mr. Caragol’s assumption of the position
of Chairman of the Board of the Company effective December 6, 2011. The First Caragol Amendment amends the Employment and Non-Compete
Agreement dated November 11, 2010, between the Company and Mr. Caragol and provides for, among other things, the elimination of
any future guaranteed raises and bonuses, other than a 2011 bonus of $375,000 to be paid beginning January 1, 2012 in twelve (12)
equal monthly payments. This bonus was not paid during 2012 and on January 8, 2013, $300,000 of such bonus was converted into
738,916 shares of our restricted common stock, which vest on January 1, 2016. The remaining $75,000 was paid through the issuance
of Series I Preferred Stock (see below). The First Caragol Amendment obligates the Company to grant to Mr. Caragol an aggregate
of 0.5 million shares of restricted stock over a four-year period as follows: (i) 100,000 shares upon execution of the First Caragol
Amendment, which shall vest on January 1, 2014, (ii) 100,000 shares on January 1, 2012, which shall vest on January 1, 2015, (iii)
100,000 shares on January 1, 2013, which shall vest on January 1, 2015, (iv) 100,000 shares on January 1, 2014, which shall vest
on January 1, 2016, and (v) 100,000 shares on January 1, 2015, which shall vest on January 1, 2016. Stock compensation expense
related to the restricted share grants totaled approximately $103,000 and $101,000 for the year ended December 31, 2015 and 2014,
respectively. On January 14, 2014, Mr. Caragol’s agreement was further amended, lowering his salary to $200,000 per annum
through the remaining term of the agreement in exchange for the issuance of 143 shares of Series I Preferred Stock.
The
term of Mr. Caragol’s employment agreement ended on December 31, 2015. On April 8, 2016, the Company entered into
employment contracts with both Mr. Caragol and Mr. Probst, effective January 1, 2016. The terms of Mr. Caragol’s employment
contract include a three-year term and a salary of $275,000, with $75,000 of that salary deferred until such time as the Company’s
working capital is sufficient to fund such payments. Mr Caragol’s salary will automatically adjust to $350,000 at the time
that PositiveID’s common stock is listed on a national exchange. Mr. Caragol is eligible for annual bonuses and was granted
25,000,000 stock options, which vest; (i) 8,500,000 on January 1, 2017; (ii) 8,250,000 on January 1, 2018; (iii) 8,250,000 on
January 1, 2019. Mr. Caragol is also entitled to the use of a Company car and related expenses and an unaccountable expense allowance
of $25,000. The terms of Mr. Probst’s employment contract include a three-year term and a salary of $200,000. Mr Probst’s
salary will automatically adjust to $250,000 at the time that PositiveID’s common stock is listed on a national exchange.
Mr. Probst is eligible for annual bonuses and was granted 15,000,000 stock options, which vest; (i) 5,100,000 on January 1, 2017;
(ii) 4,950,000 on January 1, 2018; (iii) 4,950,000 on January 1, 2019.
If
either Mr. Caragol or Mr. Probst’s employment is terminated prior to the expiration of the term of his employment agreement,
certain significant payments become due. The amount of such payments depends on the nature of the termination. In addition, the
employment agreement contains a change of control provision that provides for the payment of 2.0 times and 2.95 times in the case
of Mr. Probst and Mr. Caragol, respectively of the then current base salary and the same multipliers of the highest bonus paid
to the execuctive during the three calendar years immediately prior to the change of control. Any outstanding stock options or
restricted shares held by the executive as of the date of his termination or a change of control become vested and exercisable
as of such date, and remain exercisable during the remaining life of the option. The employment agreement also contains non-compete
and confidentiality provisions which are effective from the date of employment through two years from the date the employment
agreement is terminated.
On
September 28, 2012, the employment of Bryan D. Happ, our Chief Financial Officer terminated. In connection with the termination
of Happ’s Employment and Non-Compete Agreement dated September 30, 2011, we and Mr. Happ entered into a Separation Agreement
and General Release, or the Separation Agreement, on September 28, 2012. Pursuant to the Separation Agreement, Mr. Happ was due
to receive payments totaling $404,423, or the Compensation, consisting of past-due accrued and unpaid salary and bonus amounts
plus termination compensation. Of the Compensation, $100,000 was paid with 200,000 shares of our restricted common stock (such
shares not issued under a stockholder approved plan) and $304,423 was to be paid in cash. As of December 31, 2015, we have paid
$231,223 of the cash balance to Mr. Happ and the remaining outstanding amount accrued as of December 31, 2015 was approximately
$73,200.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2015 and 2014
13.
Agreements with The Boeing Company
On
December 20, 2012, the Company entered into a Sole and Exclusive License Agreement (the “Boeing License Agreement”),
a Teaming Agreement (“Teaming Agreement”), and a Security Agreement (“Boeing Security Agreement”) with
The Boeing Company (“Boeing”).
The
Boeing License Agreement provides Boeing the exclusive license to manufacture and sell PositiveID’s M-BAND airborne bio-threat
detector for the DHS’s BioWatch next generation opportunity, as well as other opportunities (government or commercial) that
may arise in the North American market. As consideration for entering into the Boeing License Agreement, Boeing agreed to pay
a license fee of $2.5 million (the “Boeing License Fee”) to the Company in three installments, which were paid in
full during 2012 and 2013.
At
the time of entering into the Boeing Teaming and License Agreements we evaluated the Boeing license revenue recognition and concluded
that all elements necessary to complete the earnings process were complete as of the date of receipt of the $2.5 million of license
fees, with the exception of the completion of the terms of the Teaming Agreement, which is a delivery requirement under the License
Agreement. The Teaming Agreement, as extended, expired in August 2015, and as such the $2.5 million license fee previously received
recorded as deferred revenue was recognized during the year ended December 31, 2015.
Pursuant
to the Boeing Security Agreement, the Company granted Boeing a security interest in all its assets, including the licensed products
and intellectual property rights (as defined in Boeing License Agreement), to secure the Company’s performance under the
Boeing License Agreement.
14.
Subsequent events
On
January 28, 2016, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated January 28,
2016 (the “Note IV SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate principal amount
of $2,187,500 and subscription amount of $2,100,000 (the “Purchase Price”), net of OID. Pursuant to the Note
IV SPA, the Company shall issue a series of 4% Original Issue Discount Senior Secured Convertible Promissory Notes (collectively,
the “Note IV”) to the Purchaser. The Purchase Price is scheduled to be paid in six equal monthly tranches of
$350,000, subject to the discretion of the Purchaser. Each individual Note will be issued upon payment and will be amortized
beginning six months after issuance, with amortization payments being 1/24th of the principal and accrued interest, made in cash
or common stock at the option of the Company, on a semi-monthly basis, subject to certain conditions and limitations contained
in the Note IV SPA. The amortization payments will begin on the 15th day of the month immediately following the six-month anniversary
of the Closing Date. The Company also reimbursed the Purchaser $30,000 for legal fees and transaction expenses from the proceeds
of the first tranche. The use of proceeds from this financing is intended for general working capital. The Company received the
first tranche on January 9, 2016.
In
connection with the Company’s obligations under Note IV, the Company entered into a Security Agreement with the Purchaser,
pursuant to which the Company granted a lien on all assets of the Company, subject to existing security interests, (the “Collateral”)
for the benefit of the Purchaser, to secure the Company’s obligations under the Note. In the event of a default as defined
in Note IV, the Purchaser may, among other things, collect or take possession of the Collateral, proceed with the foreclosure
of the security interest in the Collateral or sell, lease or dispose of the Collateral.
On
March 9, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the
purchase of two Convertible Redeemable Notes in the aggregate principal amount of $270,400 (the “Notes”), with
the first note being in the amount of $135,200 (“Note I”) and the second note being in the amount of $135,200
(“Note II”). Note I was funded on March 11, 2016, with a maturity date of March 9, 2017, pursuant to Note I, the
Company received $125,000 of net proceeds, net of original issue discount of $5,200 and legal fees of $5,000. Note II was
initially paid for by the issuance of an offsetting $130,000 secured note issued by the Lender to the Company (“Secured
Note”). The Notes bear an interest rate of 12%; and may be at any time after 180 days of the date of closing converted
into shares of Company common stock convertible at the lesser of a 37.5% discount to the common stock price on the date of
the note (which was $0.028) or a 37.5% discount to the price of our common stock price at the time of conversion. The Notes
also contain certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Notes in the event of such defaults. As the note conversions includes a “lesser
of” pricing provision, a derivative liability will be recorded by the Company.
On
March 16, 2016, the Company borrowed $53,000 with a maturity date of on December 18, 2016, pursuant to a financing agreement.
Under the agreement the Company received $50,000, which was net of $3,000 legal fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 35% discount to the price
of common shares in the ten days prior to conversion. The note might be accelerated if an event of default occurs under the terms
of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the
Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company will record a premium as the
note is considered stock settled debt under ASC 480.
On
April 1, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the
purchase of two Convertible Redeemable Notes in the aggregate principal amount of $270,400 (the “Notes”), with
the first note being in the amount of $135,200 (“Note I”) and the second note being in the amount of $135,200
(“Note II”).Note I was funded on April, 2016, with a maturity date of April 1, 2017, pursuant to Note I, the
Company received $125,000 of net proceeds, net of original issue discount of $5,200 and legal fees of $5,000. Note II was
initially paid for by the issuance of an offsetting $130,000 secured note issued by the Lender to the Company (“Secured
Note”). The Notes bear an interest rate of 12%; and may be at any time after 180 days of the date of closing converted
into shares of Company common stock convertible at the lesser of a 37.5% discount to the common stock price on the date of
the note (which was $0.028) or a 37.5% discount to the price of our common stock price at the time of conversion. The Notes
also contain certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Notes in the event of such defaults. As the note conversions includes a “lesser
of” pricing provision, a derivative liability will be recorded by the Company.
On April 7, 2016, the
Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase of a Convertible
Redeemable Note in the aggregate principal amount of $58,000, with a maturity date of April 7, 2018, pursuant to note, the Company
will receive $50,000 of net proceeds, net of original issue discount and legal fees. The note bears an interest
rate of 5%; and is convertible at variable conversion price at a 37% discount to the common shares price on the date of the note,
as described in the note. The note also contains certain representations, warranties, covenants and events of default, and
increases in the amount of the principal and interest rates under the Notes in the event of such defaults. In connection with
the issuance of the note, the Company will record a premium as the note is considered stock settled debt under ASC 480.
The Company, subsequent
to year end, issued 55.1 million shares of common stock for the conversion of notes with a principal value of approximately
$560,000 (see Note 8).
The Company, subsequent
to year end, issued 3.4 million shares of common stock which vest immediately and with grant date fair value of $51,403,
pursuant to the consulting agreements. The value will be amortized over the service periods.
The
Company issued, subsequent to year end, to executive management, 40 million options to purchase shares of Company common
stock, with an exercise price of $0.02, pursuant to the option agreements (see Note 12). The fair value of the options granted
were estimated on the grant date using the Black-Scholes valuation model and has a grant date fair value of $79,737.
The Company, subsequent
to year end, issued to an employee and consultant, 1.3 million options to purchase shares of Company common stocks,
with an exercise price of $0.018 which vest immediately, pursuant to the option agreements. The fair value of the options granted
were estimated on the grant date using the Black-Scholes valuation model and has a grant date fair value of $22,855.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(In
thousands, except share data)
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
192
|
|
|
$
|
173
|
|
Accounts receivable
|
|
|
280
|
|
|
|
641
|
|
Inventories, net
|
|
|
658
|
|
|
|
1,768
|
|
Other receivables
|
|
|
38
|
|
|
|
123
|
|
Prepaid
expenses and other current assets
|
|
|
129
|
|
|
|
243
|
|
Total Current Assets
|
|
|
1,297
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
153
|
|
|
|
163
|
|
Goodwill
|
|
|
817
|
|
|
|
817
|
|
Intangibles, net
|
|
|
570
|
|
|
|
749
|
|
Other assets
|
|
|
19
|
|
|
|
18
|
|
Total Assets
|
|
$
|
2,856
|
|
|
$
|
4,695
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
306
|
|
|
$
|
248
|
|
Accrued expenses
and other current liabilities
|
|
|
917
|
|
|
|
950
|
|
Deferred revenue
|
|
|
230
|
|
|
|
1,847
|
|
Notes and loans
payable, net of discounts
|
|
|
439
|
|
|
|
359
|
|
Short-term convertible
debt and accrued interest, net of discounts and premiums
|
|
|
4,062
|
|
|
|
2,128
|
|
Embedded conversion
option liability
|
|
|
7,150
|
|
|
|
7,786
|
|
Tax contingency
|
|
|
143
|
|
|
|
201
|
|
Contingent
earn-out liability
|
|
|
9
|
|
|
|
123
|
|
Total Current Liabilities
|
|
|
13,256
|
|
|
|
13,642
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities:
|
|
|
|
|
|
|
|
|
Loan payable
|
|
|
20
|
|
|
|
31
|
|
Contingent earn-out
liability
|
|
|
184
|
|
|
|
184
|
|
Mandatorily
redeemable preferred stock, 2,500 shares authorized; $0.001 par value; Series I Preferred – 2,025 and 2,025 shares issued
and outstanding at June 30, 2016 and December 31, 2015, respectively; liquidation preference and redemption value of $2,215
and $2,196 at June 30, 2016 and December 31, 2015, respectively.
|
|
|
2,746
|
|
|
|
2,680
|
|
Total Liabilities
|
|
|
16,206
|
|
|
|
16,537
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note
7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
Convertible preferred
stock, 5,000,000 shares authorized, $0.01 par value; Series J Preferred – 125 and 125 shares issued and outstanding
at June 30, 2016 and December 31, 2015, respectively; liquidation preference of $125,000 and $125,000, at June 30, 2016 and
December 31, 2015, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, 3,895,000,000
shares authorized, $.01 par value; 16,944,874 and 8,815,825 shares issued and outstanding at June 30, 2016 and December 31,
2015, respectively
|
|
|
169
|
|
|
|
88
|
|
Additional paid-in
capital
|
|
|
136,477
|
|
|
|
132,231
|
|
Accumulated
deficit
|
|
|
(149,996
|
)
|
|
|
(144,161
|
)
|
Total Stockholders’
Deficit
|
|
|
(13,350
|
)
|
|
|
(11,842
|
)
|
Total Liabilities
and Stockholders’ Deficit
|
|
$
|
2,856
|
|
|
$
|
4,695
|
|
See
accompanying unaudited notes to unaudited condensed consolidated financial statements.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations
(In
thousands, except share and per share data)
(Unaudited)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
$
|
1,848
|
|
|
$
|
51
|
|
|
$
|
3,512
|
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
1,212
|
|
|
|
46
|
|
|
|
2,347
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
636
|
|
|
|
5
|
|
|
|
1,165
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and administrative
|
|
|
1,787
|
|
|
|
1,122
|
|
|
|
3,587
|
|
|
|
2,911
|
|
Research
and development
|
|
|
101
|
|
|
|
243
|
|
|
|
222
|
|
|
|
539
|
|
Total operating
expenses
|
|
|
1,888
|
|
|
|
1,365
|
|
|
|
3,809
|
|
|
|
3,450
|
|
Operating loss
|
|
|
(1,252
|
)
|
|
|
(1,360
|
)
|
|
|
(2,644
|
)
|
|
|
(3,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,948
|
)
|
|
|
(1,177
|
)
|
|
|
(3,589
|
)
|
|
|
(2,302
|
)
|
Change in fair value of embedded conversion
option liability
|
|
|
1,284
|
|
|
|
(481
|
)
|
|
|
347
|
|
|
|
(1,177
|
)
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
(129
|
)
|
|
|
—
|
|
|
|
(233
|
)
|
Other income
(expense), net
|
|
|
7
|
|
|
|
214
|
|
|
|
51
|
|
|
|
334
|
|
Total other expense,
net
|
|
|
(657
|
)
|
|
|
(1,573
|
)
|
|
|
(3,191
|
)
|
|
|
(3,378
|
)
|
Net loss
|
|
|
(1,909
|
)
|
|
|
(2,933
|
)
|
|
|
(5,835
|
)
|
|
|
(6,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(33
|
)
|
|
|
(24
|
)
|
|
|
(66
|
)
|
|
|
(47
|
)
|
Beneficial conversion
on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss attributable
to common stockholders
|
|
$
|
(1,942
|
)
|
|
$
|
(2,957
|
)
|
|
$
|
(5,901
|
)
|
|
$
|
(6,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share attributable to common stockholders – basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.54
|
)
|
|
$
|
(1.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – basic and diluted
|
|
|
12,473,397
|
|
|
|
5,294,906
|
|
|
|
10,887,308
|
|
|
|
4,643,935
|
|
See
accompanying unaudited notes to unaudited condensed consolidated financial statements.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statement of Changes in Stockholders’ Deficit
For
the Six Months Ended June 30, 2016
(In
thousands, except share data)
(Unaudited)
|
|
Preferred
Shares
|
|
|
Common
Shares
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance at December 31, 2015
|
|
|
125
|
|
|
$
|
—
|
|
|
|
8,815,825
|
|
|
$
|
88
|
|
|
$
|
132,231
|
|
|
$
|
(144,161
|
)
|
|
$
|
(11,842
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,835
|
)
|
|
|
(5,835
|
)
|
Common Stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
228,700
|
|
|
|
2
|
|
|
|
112
|
|
|
|
—
|
|
|
|
114
|
|
Vested shares returned
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,316
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
489
|
|
|
|
—
|
|
|
|
489
|
|
Common Stock issued pursuant to convertible
note conversions
|
|
|
—
|
|
|
|
—
|
|
|
|
7,901,665
|
|
|
|
79
|
|
|
|
1,835
|
|
|
|
—
|
|
|
|
1,914
|
|
Reclassification of derivative liability
upon debt conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,876
|
|
|
|
—
|
|
|
|
1,876
|
|
Preferred stock
dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(66
|
)
|
|
|
—
|
|
|
|
(66
|
)
|
Balance at June 30, 2016
|
|
|
125
|
|
|
$
|
—
|
|
|
|
16,944,874
|
|
|
$
|
169
|
|
|
$
|
136,477
|
|
|
$
|
(149,996
|
)
|
|
$
|
(13,350
|
)
|
See
accompanying unaudited notes to unaudited condensed consolidated financial statements.
POSITIVEID
CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
Six
Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,835
|
)
|
|
$
|
(6,794
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
200
|
|
|
|
125
|
|
Stock-based
compensation
|
|
|
603
|
|
|
|
1,182
|
|
Convertible
debt discounts and premium amortization
|
|
|
3,253
|
|
|
|
2,023
|
|
Loss
on extinguishment of debt
|
|
|
—
|
|
|
|
233
|
|
Change
in fair value of embedded conversion option liability
|
|
|
(347
|
)
|
|
|
1,177
|
|
Change
in contingent earn-out
|
|
|
27
|
|
|
|
—
|
|
Gain
on sale of investment shares
|
|
|
—
|
|
|
|
(319
|
)
|
Allowance
for collection of note receivable
|
|
|
—
|
|
|
|
110
|
|
Note
issued as consideration for services
|
|
|
103
|
|
|
|
67
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
(increase) in prepaid expenses and other current assets
|
|
|
448
|
|
|
|
(7
|
)
|
Decrease
in inventory
|
|
|
1,111
|
|
|
|
—
|
|
Increase
(decrease) in accounts payable and other accrued expense
|
|
|
25
|
|
|
|
(189
|
)
|
Increase
in accrued interest
|
|
|
270
|
|
|
|
279
|
|
Decrease
in deferred revenue
|
|
|
(1,618
|
)
|
|
|
(71
|
)
|
Decrease
in tax contingency
|
|
|
(58
|
)
|
|
|
(134
|
)
|
Net
cash used in operating activities
|
|
|
(1,818
|
)
|
|
|
(2,318
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of investment shares, net
|
|
|
—
|
|
|
|
319
|
|
Cash
loaned for note receivable
|
|
|
—
|
|
|
|
(110
|
)
|
Purchase
of property and equipment
|
|
|
(11
|
)
|
|
|
(4
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(11
|
)
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from debt financing, net of fees
|
|
|
1,944
|
|
|
|
3,197
|
|
Payments
on short-term debt
|
|
|
(96
|
)
|
|
|
(557
|
)
|
Net
cash provided by financing activities
|
|
|
1,848
|
|
|
|
2,640
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
19
|
|
|
|
527
|
|
Cash
and cash equivalents, beginning of period
|
|
|
173
|
|
|
|
145
|
|
Cash
and cash equivalents, end of period
|
|
$
|
192
|
|
|
$
|
672
|
|
Supplementary
Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
27
|
|
|
$
|
35
|
|
Cash
paid for income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash
financing and investing activities:
|
|
|
|
|
|
|
|
|
Conversion
of promissory notes into common stock
|
|
$
|
1,914
|
|
|
$
|
1,781
|
|
Stock
issued for prepaid services
|
|
$
|
107
|
|
|
$
|
156
|
|
Reclassification
of embedded conversion option liability upon conversion of debt
|
|
$
|
1,876
|
|
|
$
|
1,240
|
|
Premium
recorded on debt
|
|
$
|
247
|
|
|
$
|
—
|
|
Reclassification
of stock settled debt premium to equity upon conversion of debt
|
|
$
|
—
|
|
|
$
|
421
|
|
Discounts
recorded for loan fees and original issue discount
|
|
$
|
453
|
|
|
$
|
496
|
|
Embedded
conversion option liability recorded as debt discount
|
|
$
|
1,587
|
|
|
$
|
3,615
|
|
See
accompanying unaudited notes to unaudited condensed consolidated financial statements.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
1.
Organization and Basis of Presentation
PositiveID
Corporation, including its wholly-owned subsidiaries PositiveID Diagnostics Inc. (f/k/a Microfluidic Systems) (“PDI”)
and E-N-G Mobile Systems, Inc. (“ENG”), and Thermomedics, Inc. (“Thermomedics”), which the Company contractually
controls (collectively, the “Company” or “PositiveID”), develops molecular diagnostic systems for bio-threat
detection and rapid medical testing; manufactures specialty mobile labs and communication vehicles; and markets the Caregiver®
non-contact clinical thermometer. The Company is currently developing Firefly Dx, an automated pathogen detection system for rapid
diagnostics, both for clinical and point-of-need applications.
Authorized
Common Stock
As
of June 30, 2016, the Company was authorized to issue 3.895 billion shares of common stock. On February 25, 2016, the Company
filed the Seventh Amendment to the Second Amended and Restated Certificate of Incorporation, as amended, with the State of Delaware
to increase the number of authorized common shares to 3.895 billion shares, from 1.97 billion shares. On June 27, 2016, the Company’s
Board of Directors approved a reverse stock split in the ratio of 1-for-50 and the Company filed the Eighth Certificate of Amendment
to its Second Amended and Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware
to affect the reverse stock split. The reverse split only affected outstanding common stock and the number of authorized shares
was not adjusted. On July 5, 2016, the reverse stock split became effective. All share amounts in our historical financial statements
have been adjusted to reflect the 1-for-50 reverse stock split (see Note 10).
Going
Concern
The
Company’s unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern.
As of June 30, 2016, we had a working capital deficiency of approximately $12 million and a stockholders’ deficit of approximately
$13.4 million, compared to a working capital deficit of approximately $10.7 million and a stockholders’ deficit of approximately
$11.8 million as of December 31, 2015. The increase in the working capital deficit was primarily due to operating losses for the
period and capital raised through convertible debt financings that was spent on operations.
We
have incurred operating losses prior to and since the merger that created PositiveID. The operating losses during 2015 and for
the three and six months ending June 30, 2016 are the result of research and development expenditures, selling, general and administrative
expenses related to our molecular diagnostics and Caregiver® products. We expect our operating losses to continue through
2016. These conditions raise substantial doubt about our ability to continue as a going concern.
Our
ability to continue as a going concern is dependent upon our ability to obtain financing to fund the continued development of
our products and to support working capital requirements. Until we are able to achieve operating profits, we will continue to
seek to access the capital markets. In 2015 and for the first six months of 2016, we raised approximately $5.9 and $1.9 million,
respectively from the issuance of convertible debt.
The
Company intends to continue to access capital to provide funds to meet its working capital requirements for the near-term future.
In addition, and if necessary, the Company could reduce and/or delay certain discretionary research, development and related activities
and costs. However, there can be no assurances that the Company will be able to negotiate additional sources of equity or credit
for its long-term capital needs. The Company’s inability to have continuous access to such financing at reasonable costs
could materially and adversely impact its financial condition, results of operations and cash flows, and result in significant
dilution to the Company’s existing stockholders. The Company’s consolidated financial statements do not include any
adjustments relating to recoverability of assets and classifications of assets and liabilities that might be necessary should
the Company be unable to continue as a going concern.
Basis
of Presentation
The
accompanying condensed consolidated balance sheet as of December 31, 2015 has been derived from the Company’s audited financial
statements included in its Annual Report on Form 10-K for the year ended December 31, 2015. The accompanying unaudited condensed
consolidated financial statements for the three and six months ended June 30, 2016 and 2015 have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules
and regulations of the Securities Exchange Commission (“SEC”). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of
the Company’s management, all adjustments (including normal recurring adjustments) necessary for a fair presentation for
the periods presented have been reflected as required by Regulation S-X, Rule 10-01.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
The
unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2016 are not necessarily
indicative of the results that may be expected for the entire year. These statements should be read in conjunction with the consolidated
financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2015.
New
Accounting Pronouncements
There
are no new accounting pronouncements during the six months ended June 30, 2016 that affect the consolidated financial position
of the Company or the results of its operations. Accounting Standard Updates which are not effective until after June 30, 2016,
including the pronouncements discussed below, are not expected to have a significant effect on the Company’s consolidated
financial position or results of its’ operations.
ASU
2016-12:
In
May 2016, FASB issued Accounting Standards Update (“ASU”), 2016-12— Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical Expedients. The amendments in this Update affect the guidance in Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (Topic 606
)
, which is not yet effective. The effective date and transition
requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and
any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective
Date, defers the effective date of Update 2014-09 by one year.
ASU
2016-10:
In
April 2016, FASB issued Accounting Standards Update (“ASU”), 2016-10—Revenue from Contracts with Customers (Topic
606): Identifying Performance Obligations and Licensing. The amendments in this Update affect the guidance in Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition
requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and
any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year to annual reporting periods beginning
after December 15, 2017. This updated guidance is not expected to have a material impact on our results of operations, cash flows
or financial condition.
ASU
2016-09:
In
March 2016, FASB issued Accounting Standards Update (“ASU”), 2016-09— “Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting”. For public business entities, the amendments are
effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other
entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual
periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. If an entity
early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. This updated
guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
ASU
2016-02:
In
February 2016, FASB issued Accounting Standards Update (“ASU”), 2016-02— “Leases (Topic 842), Section
A—Leases: Amendments to the FASB Accounting Standards Codification®; Section B—Conforming Amendments Related to
Leases: Amendments to the FASB Accounting Standards Codification®; Section C—Background Information and Basis for Conclusions”.
Effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of
the following:
|
1.
|
A
public business entity
|
|
|
|
|
2.
|
A
not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on
an exchange or an over-the-counter market
|
|
|
|
|
3.
|
An
employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC).
|
For
all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020. Early application of the amendments in this Update is permitted
for all entities. This updated guidance is not expected to have a material impact on our results of operations, cash flows or
financial condition.
AUS
2015-11:
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.
ASU
2014-15:
In
August 2014, the FASB” issued Accounting Standards Update 2014-15, “Presentation of Financial Statements - Going Concern
(Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This update
requires management of the Company to evaluate whether there is substantial doubt about the Company’s ability to continue
as a going concern. This update is effective for the annual period ending after December 15, 2016, and for annual and interim
periods thereafter. Early adoption is permitted. The Company does not expect this standard to have an impact on the Company’s
consolidated financial statements upon adoption.
ASU
2014-09:
In
June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”.
The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue
resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters
into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition,
and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede
some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The
update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue
issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the
update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets
and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The
update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting
period. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial
condition.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries of which all
are inactive except for PDI and ENG. Additionally, the Company consolidates the accounts of Thermomedics, Inc., which it contractually
controls. All intercompany balances and transactions have been eliminated in the consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates during the reported periods include valuation of assets acquired and liabilities assumed in business
combinations, allowance for doubtful accounts receivable, inventories valuation, valuation of goodwill and intangible assets,
valuation of loss and other contingencies, product warranty liabilities, valuation of derivatives, valuation of beneficial conversion
features, estimate of contingent earn-out liabilities, valuation of stock-based compensation and an estimate of the deferred tax
asset valuation allowance.
Cash
and Cash Equivalents
For
the purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at June 30, 2016 or December
31, 2015, respectively. The Company maintained its cash in various financial institutions during the year ended December 31, 2015
and as of June 30, 2016. Balances were insured up to Federal Deposit Insurance Corporation (“FDIC”) limits. At times,
cash deposits exceeded the federally insured limits however, the Company has not incurred any losses to date. There were no cash
deposits that exceeded the federally insured limits as of June 30, 2016.
Accounts
receivable
Accounts
receivable are stated at their estimated net realizable value. The Company reviews its accounts to estimate losses resulting from
the inability of its customers to make required payments. Any required allowance is based on specific analysis of past due accounts
and also considers historical trends of write-offs. Past due status is based on how recently payments have been received from
customers. The Company’s collection experience has been favorable reflecting a limited number of customers. No allowance
was deemed necessary at June 30, 2016 and December 31, 2015.
Inventories
Inventory
consists of finished goods of our Caregiver® non-contact thermometers, and in our Mobile Lab Segment consists of standard
and manufactured frames and bodies of vehicles, components of mobile units and other materials and is stated at lower of cost
or market and net realizable value on a first in first out basis. 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 periodically and are based on the Company’s business plan and from feedback from
customers and the product development team; however, estimates can vary significantly. As of June 30, 2016 and December 31, 2015,
inventory reserves were not material.
Inventories
consisted of the following (in thousands):
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Finished goods of Caregiver®
non-contact thermometers
|
|
$
|
58
|
|
|
$
|
15
|
|
Materials inventory
|
|
|
534
|
|
|
|
966
|
|
Mobile vehicle
inventory
|
|
|
66
|
|
|
|
787
|
|
|
|
$
|
658
|
|
|
$
|
1,768
|
|
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
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.
Equipment
Equipment
is carried at cost less accumulated depreciation, computed using the straight-line method over the estimated useful lives. Leasehold
improvements are depreciated over the shorter of the lease term or useful life, software is depreciated over 5 years, and equipment
is depreciated over periods ranging from 1 to 8 years. Repairs and maintenance which do not extend the useful life of the asset
are charged to expense as incurred. Gains and losses on sales and retirements are reflected in the consolidated statements of
operations.
Depreciation
expense for the three months ended June 30, 2016 and 2015 was approximately $12,000 and $500, respectively, and $21,000 and $1,400
for six months ended June 30, 2016 and 2015, respectively.
Intangible
Assets and Goodwill
Intangible
assets are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful lives.
Customer contracts and relationships are being amortized over a period of 3 years, patents and other intellectual property are
being amortized over a period of 5 years, and non-compete agreements are being amortized over 2 years.
The
Company continually evaluates whether events or circumstances have occurred that indicate the remaining estimated useful lives
of its definite-lived intangible assets may warrant revision or that the remaining balance of such assets may not be recoverable.
The Company uses an estimate of the related undiscounted cash flows attributable to such asset over the remaining life of the
asset in measuring whether the asset is recoverable.
The
Company records goodwill as the excess of the purchase price over the fair values assigned to the net assets acquired in business
combinations. Goodwill is allocated to reporting units as of the acquisition date for the purpose of goodwill impairment testing.
The Company’s reporting units are those businesses for which discrete financial information is prepared. Goodwill of a reporting
unit is tested for impairment at year-end, or between testing dates if an impairment condition or event is determined to have
occurred.
In
assessing potential impairment of the intangible assets recorded in connection with the PID, ENG and Thermomedics acquisitions,
as of June 30, 2016, we considered the likelihood of future cash flows attributable to such assets. Based on our analysis, we
have concluded based on information currently available, that no impairment of the intangible assets exists as of June 30, 2016.
The Company performed its annual impairment test of goodwill as of December 31, 2015. As a result of this annual test, using the
market capitalization method of valuation, it was determined that the goodwill balance as of December 31, 2015 was not impaired.
Amortization
expense for the three months ended June 30, 2016 and 2015 were $79,000 and $31,000, respectively and $179,000 and $62,000 for
six months ended June 30, 2016 and 2015, respectively.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, collectability of arrangement consideration is reasonably assured,
the arrangement fees are fixed or determinable and upon completion and delivery in accordance with the customer contract or purchase
order.
If
at the outset of an arrangement, the Company determines that collectability is not reasonably assured, revenue is deferred until
the earlier of when collectability becomes probable or the receipt of payment. If there is uncertainty as to the customer’s
acceptance of the Company’s deliverables, revenue is not recognized until the earlier of receipt of customer acceptance
or expiration of the acceptance period. If at the outset of an arrangement, the Company determines that the arrangement fee is
not fixed or determinable, revenue is deferred until the arrangement fee becomes estimable, assuming all other revenue recognition
criteria have been met.
To
date, the Company has generated revenue from three sources: (1) professional services (consulting & advisory), (2) technology
licensing, and (3) product sales.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
Specific
revenue recognition criteria for each source of revenue is as follows:
|
(1)
|
Revenues
for professional services, which are of short term duration, are recognized when services are provided,
|
|
|
|
|
(2)
|
Technology
license revenue is recognized upon the completion of all terms of that license. Payments received in advance of completion
of the license terms are recorded as deferred revenue.
|
|
|
|
|
(3)
|
Revenue
from sales of the Company’s products is recorded when risk of loss has passed to the buyer and criteria for revenue
recognition discussed above is met. Payments received in advance of delivery and revenue recognition are recorded as deferred
revenue.
|
If
these criteria are not met, the arrangement is accounted for as one unit of accounting which would result in revenue being recognized
ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered
element is delivered. If these criteria are met for each element and there is a relative selling price for all units of accounting
in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative
selling price.
Concentrations
Concentration
of Deferred Revenue
At
June 30, 2016, the Company had deferred revenue of approximately $0.2 million of which 15%, 17% and 19% were from the Company’s
three largest customers. As of December 31, 2015, the Company had deferred revenue of approximately $1.8 million of which 21%,
22% and 38% were from the Company’s three largest customers.
Concentration
of Revenues
During
the three months ended June 30, 2016, the Company had revenue of approximately $1.8 million of which 22%, 22% and 44% were from
the Company’s three largest customers. During the six months ended June 30, 2016, the Company had revenue of approximately
$3.5 million of which 11%, 18% and 22% were from the Company’s three largest customers.
Concentration
of Accounts Receivable
As
of June 30, 2016, the Company had accounts receivable of approximately $280,000 of which 13%, 14% and 25% were from three of the
Company’s largest customers. As of December 31, 2015, the Company had accounts receivable of approximately $641,000 of which
60% and 19% were from two of the Company’s largest customers.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs for the three and six months ended June 30, 2016 and 2015 were not significant.
Shipping
and Handling
Costs
incurred by the Company for freight in are included in costs of revenue. Freight in costs incurred for the three and six months
ended June 30, 2016 and 2015 were not significant.
Legal
Expenses
All
legal costs for litigation matters are charged to expense as incurred.
Convertible
Notes With Variable Conversion Options
The
Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal
and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock
at the time of conversion. The Company measures the fair value of the notes at the time of issuance, which is the result of the
share price discount at the time of conversion, and records the premium as accretion to interest expense to the date of first
conversion.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
The
Company accounts for debt issuance cost paid to lenders, or on behalf of lenders, in accordance with ASC 470, Debt. The costs
associated with the issuance of debt are recorded as debt discount and amortized over the life of the underlying debt instrument.
Accounting
for Derivatives
The
Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components
of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under
certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability.
In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations
as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at
the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity
that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the
instrument on the reclassification date.
Fair
Value of Financial Instruments and Fair Value Measurements
The
Company measures its financial and non-financial assets and liabilities, as well as makes related disclosures, in accordance with
ASC Topic 820,
Fair Value Measurements and Disclosures
(“ASC Topic 820”). For certain of our financial instruments,
including cash, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due
to their short maturities. Amounts recorded for notes payable, net of discount, also approximate fair value because current interest
rates available to the Company for debt with similar terms and maturities are substantially the same.
ASC
Topic 820 provides guidance with respect to valuation techniques to be utilized in the determination of fair value of assets and
liabilities. Approaches include, (i) the market approach (comparable market prices), (ii) the income approach (present value of
future income or cash flow), and (iii) the cost approach (cost to replace the service capacity of an asset or replacement cost).
ASC Topic 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
|
Level
1:
|
Observable
inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
|
Level
2:
|
Inputs
other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
|
|
|
|
|
Level
3:
|
Unobservable
inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which
reflect those that a market participant would use.
|
Stock-Based
Compensation
Stock-based
compensation expenses are reflected in the Company’s consolidated statements of operations under selling, general and administrative
expenses and research and development expenses.
Compensation
expense for all stock-based employee and director compensation awards granted is based on the grant date fair value estimated
in accordance with the provisions of ASC Topic 718, Stock Compensation (“ASC Topic 718”). The Company recognizes these
compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term.
Vesting terms vary based on the individual grant terms.
The
Company estimates the fair value of stock-based compensation awards on the date of grant using the Black-Scholes-Merton (“BSM”)
option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions
and are freely transferable. In addition, option valuation models require the input of highly subjective assumptions including
the expected stock price volatility. The BSM option pricing model considers, among other factors, the expected term of the award
and the expected volatility of the Company’s stock price. Expected terms are calculated using the Simplified Method, volatility
is determined based on the Company’s historical stock price trends and the discount rate is based upon treasury rates with
instruments of similar expected terms. Warrants granted to non-employees are accounted for in accordance with the measurement
and recognition criteria of ASC Topic 505-50, Equity Based Payments to Non-Employees.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
Loss
per Common Share
The
Company presents basic income (loss) per common share and, if applicable, diluted income (loss) per share. Basic income (loss)
per common share is based on the weighted average number of common shares outstanding during the year and after preferred stock
dividend requirements. The calculation of diluted income (loss) per common share assumes that any dilutive convertible preferred
shares outstanding at the beginning of each year or the date issued were convertible at those dates, with preferred stock dividend
requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased
by shares issuable upon exercise of those stock options and warrants for which the average period market price exceeds the exercise
price, less shares that could have been purchased by the Company with related proceeds. Additionally, shares issued upon conversion
of convertible debt are included.
The
following potentially dilutive equity securities outstanding as of June 30, 2016 and as of December 31, 2015 were not included
in the computation of dilutive loss per common share because the effect would have been anti-dilutive (in thousands):
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Common shares issuable under:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
46,174
|
|
|
|
10,930
|
|
Convertible Series I Preferred Stock
|
|
|
1,897
|
|
|
|
1,410
|
|
Convertible Series J Preferred Stock
|
|
|
510
|
|
|
|
116
|
|
Stock options
|
|
|
1,523
|
|
|
|
492
|
|
Warrants
|
|
|
293
|
|
|
|
270
|
|
Unvested restricted
common stock
|
|
|
45
|
|
|
|
67
|
|
|
|
|
50,442
|
|
|
|
13,285
|
|
Segments
The
Company follows the guidance of ASC 280-10 for “Disclosures about Segments of an Enterprise and Related Information.”
During 2015, the Company only operated in one segment – Diagnostics and Detection. Beginning January 1, 2016, the Company
operates in three business segments: Molecular Diagnostics, Medical Devices and Mobile Labs (see Note 9).
Reclassifications
The
Company grouped $46,000 and $148,000 costs reported for the three and six months ended June 30, 2015, respectively as Direct Labor
into Cost of Revenues in 2016 to conform to the 2016 presentation.
3.
Acquisitions/Dispositions
ENG
Mobile Systems Acquisition
On
December 24, 2015, the Company acquired all of the outstanding common stock of E-N-G Mobile Systems, Inc. (“ENG”)
from its sole shareholder (the “Seller”). Pursuant to the Purchase Agreement, as consideration at the time of closing
of the Acquisition, PositiveID paid the Seller $750,000 in cash and issued a convertible secured promissory note to the Seller
in the amount of $150,000. The Company has also entered into a two-year consulting agreement with the Seller. The consulting agreement
was determined not to represent additional purchase price.
Additional
earn-out payments may be earned by ENG. Each Earn-Out Payment, if any, will be calculated at 5% of the revenue actually recognized
and realized from each of the contracts and purchase orders identified, with an earn-out value indicated for each on the signed
backlog schedule (the “Signed Backlog Schedule”) subsequent to Closing. For purposes of determining whether any earn-out
payments will be made and the amount of such payment, the term Signed Backlog Schedule means those signed contracts and purchase
orders in effect as of the date of Closing but under which the product is yet to be delivered and all or a portion of the revenue
is yet to be recognized as of Closing. The earn-out payments will be paid in cash within five business days following the date
the Company recognizes the revenue (including deposits held) and receives full payment from the applicable contract or purchase
order on the Signed Backlog Schedule. The Earn-Out Payments are subject to adjustment finalization of the purchase accounting.
The Company recorded a contingent earn-out liability of approximately $123,000, as a current liability, as reflected in the consolidated
balance sheet as of December 31, 2015. During the six months ended June 30, 2016, the Company paid the seller of ENG earn-out
consideration of $17,924, and on July 29, 2016 the Company and the seller of ENG agreed to finalize the net asset balance and
Earn Out Payment with a final payment of $21,131. As a result, the Company recorded an additional expense of $27,300 as of June
30, 2016.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
The
estimated purchase price of the acquisition totaled $912,000, comprised of $750,000 in cash, a convertible seller note of $150,000
(“ENG Note”), the fair value of the contingent consideration estimated at approximately $123,000 net of an estimated
recovery based on the closing net worth of ENG, estimated at $111,000, as of December 31, 2015. The fair value of the contingent
consideration was estimated based upon the present value of the expected future payouts of the contingent consideration and was
subject to change upon the finalization of the purchase accounting which occurred during the three months ended June 30, 2016
as stated in the prior paragraph.
The
Company acquired ENG for a number of reasons including the experience of its workforce, the quality and long history of its product
offerings, its prospects for sales and profit growth, and the Company’s ability to leverage its business relationships to
create new growth opportunities.
In
connection with the issuance of the ENG Note, the Company computed a premium of $50,000 as the note is considered a stock settled
debt under ASC 480, all of which was amortized immediately as a non-cash expense charged to interest expense (see Note 4). The
principal amount and premium are included in short-term convertible debt in the accompanying unaudited balance sheet.
Thermomedics
Acquisition
On
December 4, 2015, the Company entered into several agreements related to its acquisition of all of the outstanding common stock
of Thermomedics, Inc. (“Thermomedics”). One of those agreements was a Management Services and Control Agreement, dated
December 4, 2015 (the “Control Agreement”), between the Company, Thermomedics, and Sanomedics, Inc. (“Sanomedics”),
whereby PositiveID was appointed the manager of Thermomedics. 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 (“Purchase
Agreement”) was entered into on October 21, 2015, and defines the agreed upon terms of the Company’s acquisition of
all of the common stock of Thermomedics from Sanomedics. As a result of the Company assuming control of Thermomedics on December
4, 2015, it determined, pursuant to ASC 805-10-25-6, that December 4, 2015 was the acquisition date of Thermomedics for accounting
purposes.
In
connection with the acquisition, additional earn-out payments of up to $750,000 for each of the fiscal years ending December 31,
2016 and 2017 may be earned by the Thermomedics if certain revenue thresholds are met as described in the Purchase Agreement.
Such earn-out payments, if any, will consist of 25% in cash, up to $187,000 and 75% and 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 Company
has recorded a contingent earn-out liability of $184,000, as a non-current liability, as reflected in the consolidated balance
sheet as of June 30, 2016 and December 31, 2015.
The
estimated purchase price of the acquisition totaled $484,000, comprised of $175,000 in cash, Series J preferred stock consideration
of $125,000, 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.
On
December 4, 2015, the Board of Directors authorized and on December 7, 2015, the Company filed with the State of Delaware, a Certificate
of Designations of Preferences, Rights and Limitations of Series J Preferred Stock. The Series J Preferred Stock ranks; (a) senior
with respect to dividends and right of liquidation with the Company’s common stock (b) pari passu with respect to dividends
and right of liquidation with the Company’s Series I Convertible Preferred Stock; and (c) junior with respect to dividends
and right of liquidation to all existing and future indebtedness of the Company. Without the prior written consent of Holders
holding a majority of the outstanding shares of Series J Preferred Stock, the Company may not issue any Preferred Stock that is
senior to the Series J Preferred Stock in right of dividends and liquidation. At any time after the date of the issuance of shares
of Series J Preferred Stock, the Corporation will have the right, at the Corporation’s option, to redeem all or any portion
of the shares of Series J Preferred Stock at a price per share equal to 100% of the $1,000 per share stated value of the shares
being redeemed. Series J Preferred Stock is not entitled to dividends, interest and voting rights. The Series J Preferred Stock
is convertible into the Company’s common stock, at stated value, at a conversion price equal to 100% of the arithmetic average
of the VWAP of the common stock for the fifteen trading days prior to the six-month anniversary of the Issuance Date.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
The
Company acquired Thermomedics for a number of reasons including the quality of its Caregiver® product, its prospects for sales
and profit growth, its management team strengths in sales and marketing FDA cleared medical devices, and their regulatory experience.
The
Company is in the process of coordinating the final closing of the Thermomedics transaction with Sanomedics. Sanomedics is currently
a dormant company, which is delaying the process. The Company believes it will be able to complete the final closing during the
third quarter of 2016.
Under
the acquisition method of accounting, the estimated purchase price of the acquisitions was allocated to net tangible and identifiable
intangible assets and liabilities of Thermomedics and ENG assumed 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.
|
|
Thermomedics
|
|
|
ENG
|
|
Assets acquired:
|
|
|
|
|
|
|
|
|
Net
tangible assets
|
|
$
|
35
|
|
|
$
|
2,584
|
|
Customer contracts
and relationships
|
|
|
240
|
|
|
|
238
|
|
Other assets
|
|
|
12
|
|
|
|
7
|
|
Patents and other
intellectual property
|
|
|
178
|
|
|
|
-
|
|
Goodwill
|
|
|
108
|
|
|
|
200
|
|
|
|
|
573
|
|
|
|
3,029
|
|
Liabilities acquired:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(89
|
)
|
|
|
(2,116
|
)
|
Long
term debt
|
|
|
-
|
|
|
|
(1
|
)
|
Total estimated
purchase price
|
|
$
|
484
|
|
|
$
|
912
|
|
The
Company has recorded a contingent earn-out liability for Thermomedics and ENG in aggregate total of $193,000, as of June 30, 2016.
Contingent Earn-Out
Liability (In thousands):
|
|
|
|
|
Balance of contingent earn-out liability as
of December 31, 2015
|
|
$
|
307
|
|
Payment during the six months ended June 30, 2016
|
|
|
(30
|
)
|
Change in FV
of liability during the six months ended June 30, 2016
|
|
|
(88
|
)
|
Balance of contingent earn-out
liability as of June 30, 2016
|
|
$
|
193
|
|
The
following supplemental unaudited pro forma information assumes that these acquisitions had occurred as of January 1, for the six
months ended June 30, 2015 (in thousands except per share data):
|
|
For
Six Months Ended
June 30, 2015
|
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
2,890
|
|
Net loss
|
|
$
|
(6,470
|
)
|
Loss per common
share – basic and diluted
|
|
$
|
(0.00
|
)
|
The
unaudited pro forma financial information is not necessarily indicative of the results that would have occurred if these acquisitions
had occurred on the dates indicated or that may result in the future.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
Sale
and License of VeriChip and GlucoChip Businesses
In
a series of transactions between 2012 and 2014 PositiveID first licensed and subsequently sold all of the intellectual property
related to its VeriChip and GlucoChip implantable microchip business to VeriTeQ Corporation, a business run by a former related
party (CEO of the Company through 2011). The final agreement in the series was the GlucoChip Agreement, dated October 20, 2014.
Between 2014 and 2015 the Company also advanced funds to VeriTeQ pursuant to the GlucoChip Agreement. As a result of these agreements,
we hold a warrant and convertible notes in VeriTeQ as described below.
The
Company holds a five-year warrant dated November 13, 2013, with original terms entitling the Company to purchase 300,000 shares
of VeriTeQ common stock at a price of $2.84. Pursuant to the terms of the warrant, in particular the full quantity and pricing
reset provisions, the warrant had an original dollar value of $852,000 and can be exercised using a cashless exercise feature.
As of June 30, 2016 and December 31, 2015, the warrant had remaining dollar value of $728,827. As of June 30, 2016 the Company
had outstanding convertible notes receivable from VeriTeQ of $781,635 which includes default principal and interest. Pursuant
to the warrant the Company realized $319,000 of other income during the six months ended June 30, 2015.
On
October 19, 2015, VeriTeQ received a default notice from its senior lender demanding repayment of approximately $2.1 million of
indebtedness, secured by substantially all of VeriTeQ’s assets, which VeriTeQ was unable to repay. VeriTeQ also received
a Notice of Disposition of Collateral advising the Company that the senior lender, acting as collateral agent, intended to sell
the assets at auction, which it did on November 4, 2015. VeriTeQ has ceased its business operations related to implantable medical
device identification. On November 25, 2015, VeriTeQ entered into a Stock Purchase Agreement with an unaffiliated company whereby
VeriTeQ agreed to acquire all of the issued and outstanding membership interests of that company. During the six months ended
June 30, 2016 the Company did not have an opportunity to sell any of its holdings in VeriTeQ. On May 6, 2016 VeriTeQ completed
the closing pursuant to the November 25, 2015 Stock Purchase agreement.
As
VeriTeQ is an early stage company, not yet fully capitalized, the Company plans to continue to fully reserve all note receivable
and warrant balances. If and when proceeds are realized in the future, gains will be recognized.
4.
Equity and Debt Financing Agreements
Convertible
Note Financings
Short-term
convertible debt as of June 30, 2016 is as follows (In thousands):
|
|
Notes
|
|
|
Accrued
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes with accrued
interest accounted for as stock settled debt
|
|
$
|
494
|
|
|
$
|
11
|
|
|
$
|
505
|
|
Conversion premiums
|
|
|
247
|
|
|
|
—
|
|
|
|
247
|
|
|
|
|
741
|
|
|
|
11
|
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes with embedded derivatives
|
|
|
6,029
|
|
|
|
787
|
|
|
|
6,816
|
|
Derivative discounts
|
|
|
(3,053
|
)
|
|
|
—
|
|
|
|
(3,053
|
)
|
|
|
|
2,976
|
|
|
|
787
|
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original issue
discounts and loan fee discounts
|
|
|
(453
|
)
|
|
|
—
|
|
|
|
(453
|
)
|
|
|
$
|
3,264
|
|
|
$
|
798
|
|
|
$
|
4,062
|
|
Dominion
Convertible Debt Financings
On
November 25, 2014, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated November
25, 2014 (the “Note I SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate subscription
amount of $4,000,000 (the “Purchase Price”). Pursuant to the Note I SPA, the Company issued a series of 4% Original
Issue Discount Senior Secured Convertible Promissory Notes (collectively, the “Note I”) to the Purchaser. The Purchase
Price will be paid in eight equal monthly payments of $500,000. Each individual Note was issued upon payment and will be amortized
beginning six months after issuance, with amortization payments being 1/24
th
of the principal and accrued interest,
made in cash or common stock at the option of the Company, subject to certain conditions contained in the Note I SPA. The Company
also reimbursed the Purchaser $25,000 for expenses from the proceeds of the first tranche and the Purchaser’s counsel $25,000
from the first tranche.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
On
August 14, 2015, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated August 14,
2015 (the “Note II SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate subscription amount
of $2,400,000 (the “Purchase Price”). Pursuant to the Note II SPA, the Company issued a series of 4% Original Issue
Discount Senior Secured Convertible Promissory Note (collectively, the “Note II”) to the Purchaser. The Purchase Price
was paid in six equal monthly payments of $400,000. Each individual Note was issued upon payment and is amortized beginning six
months after issuance, with amortization payments being 1/24
th
of the principal and accrued interest, made in cash
or common stock at the option of the Company, subject to certain conditions contained in the Note II SPA. The Company also reimbursed
the Purchaser $20,000 for expenses from the proceeds of the first tranche and the Purchaser’s counsel $10,000 from the first
tranche.
The
aggregate principal amount of both Notes I and II are issued with a 4% original issue discount whereby the aggregate principal
amount of Notes I and II is $6,400,000 but the actual purchase price of Notes I and II is $6,144,000. Each of Notes I and II accrue
interest at a rate equal to 12% per annum and with maturity dates, depending on the date funded, between June 26, 2016 and June
30, 2017. Notes I and II are convertible any time after the issuance date of the notes. The Purchasers have the right to convert
Note I into shares of the Company’s common stock at a conversion price equal to 95% of the daily VWAP on the trading day
immediately prior to the closing of each tranche. The Purchasers have the right to convert Note II into shares of the Company’s
common stock at a conversion price equal to $1.40. Additionally, under certain conditions defined in Notes I and II, the notes
would be convertible into common stock at a price equal to 62.5% of the lowest VWAP during the 15 Trading Days immediately prior
to the applicable amortization date. In the event that there is an Event of Default or certain conditions are not met, the conversion
price will be adjusted to equal to 55% of the lowest VWAP during the thirty (30) Trading Days immediately prior to the applicable
Conversion Date. Notes I and II can be prepaid at any time upon five days’ notice to the Holder by paying an amount in cash
equal to the outstanding principal and interest and a 120% premium.
During
2015, the Company had received all eight tranches under the Note I SPA ($500,000 principal in 2014 and $3,650,000 principal in
2015 which includes an additional $150,000 added to one of the agreed $500,000 monthly funding as requested by the Company), with
maturity dates, depending on the date funded, between June 26, 2016 and December 29, 2016, pursuant to a convertible note. Under
the agreement the Company received $3,540,600, which was net of the $448,400 Purchaser’s expenses and legal fees and $166,000
which represents the 4% original issue discount. As of June 30, 2016, the Company has received, all six tranches under the Note
II SPA ($2,281,250 in principal in 2015 and $208,333 in 2016) with maturity dates of February 15, 2017 and June 30, 2017, pursuant
to a convertible note. Under the agreement the Company received $2,143,000, which was net of Purchaser’s expenses, legal
fees of $247,000 and a 4% original issue discount of $99,583. The notes might be accelerated if an event of default occurs under
the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events
or if the Company is delinquent in its SEC filings. In connection with the issuance of Notes I and II, the Company recorded a
debt discount of $387,000 in 2014, $5,116,600 in 2015 and $180,000 during the three months ended March 31, 2016, totaling to $5,683,600
of debt discount recorded, related to the embedded conversion option derivative liability. The amortization expense related to
that discount recorded was approximately $3,331,000 through 2015 and $1,033,000 during the six months ended June 30, 2016. During
the quarter ended June 30, 2016, $1,022,605 of the outstanding principal and interest on Notes I and II was converted into 6,622,381
shares of common stock. As of June 30, 2016, the outstanding principal and interest on Notes I and II were $4,280,528. As the
note conversion includes a “lesser of” pricing provision, a derivative liability of $8,936,405 was recorded when Notes
I and II were entered into. The derivative liability is re-measured at each balance sheet date and reclassified to equity on a
pro-rata basis upon conversion of the note, the derivative liability balance for Notes I and II at June 30, 2016 was $4,254,398.
On
December 22, 2015, in order to finance the acquisition of ENG, the Company closed a financing transaction by entering into a Securities
Purchase Agreement dated December 22, 2015 (the “Note III SPA”) for an aggregate principal amount of $904,042 and
subscription amount of $865,000, net of OID (the “Purchase Price”). The Company also reimbursed the Purchaser $30,000
for legal fees and expenses from the proceeds of the Note. Pursuant to the Note III SPA, the Company shall issue a 4% Original
Issue Discount Senior Secured Convertible Promissory Note (the “Note III”) to Dominion. Note III was issued upon payment
and will be amortized beginning six months after issuance, with amortization payments being 1/24th of the principal and accrued
interest, made in cash or common stock, on a semi-monthly basis, subject to certain conditions contained in the Note III SPA.
The amortization payments will begin to be due starting on the 15th day of the month immediately following the six-month anniversary
of the Closing Date. The Company received funding for Note III on December 24, 2015, net proceeds of $751,500 (net of the $152,542
of legal fees, expenses and OID). Note III accrues interest at a rate equal to 12% per annum (interest is guaranteed for the first
twelve months) and has a maturity date of June 15, 2017. Note III is convertible any time after its issuance date and Dominion
has the right to convert any or all of Note III into shares of the Company’s common stock at a conversion price equal to
$1.10, subject to adjustment as described in Note III. Additionally, under certain conditions defined in Note III, it may also
be convertible into common stock at a price equal to 62.5% of the lowest VWAP during the 15 Trading Days immediately prior to
the applicable amortization date. In the event that there is an Event of Default or certain conditions are not met, the conversion
price will be adjusted to equal to 55% of the lowest VWAP during the thirty (30) Trading Days immediately prior to the applicable
Conversion Date. Note III can be prepaid at any time upon five days’ notice to the Dominion by paying an amount in cash
equal to the outstanding principal and interest, and a 20% premium. In connection with the issuance of the Note III, the Company
recorded a debt discount of $751,500 when Note III was entered into, related to the embedded conversion option derivative liability.
The amortization expense related to that discount recorded was approximately $154,000 for six months ended June 30, 2016. As of
June 30, 2016, the outstanding principal and interest on Note III was $960,216. As the note conversion includes a “lesser
of” pricing provision, a derivative liability of $1,267,800 was recorded when Note III was entered into. The derivative
liability is re-measured at each balance sheet date, the derivative liability balance for Note III at June 30, 2016 was $1,112,192.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
On
January 28, 2016, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated January 28,
2016 (the “Note IV SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate principal amount
of $2,187,500 and subscription amount of $2,100,000 (the “Purchase Price”), net of OID. Pursuant to the Note IV SPA,
the Company shall issue a series of 4% Original Issue Discount Senior Secured Convertible Promissory Notes (collectively, the
“Note IV”) to the Purchaser. The Purchase Price is scheduled to be paid in six equal monthly tranches of $350,000,
subject to the discretion of the Purchaser. Each individual Note will be issued upon payment and will be amortized beginning six
months after issuance, with amortization payments being 1/24th of the principal and accrued interest, made in cash or common stock
at the option of the Company, on a semi-monthly basis, subject to certain conditions and limitations contained in the Note IV
SPA. The amortization payments will begin on the 15th day of the month immediately following the six-month anniversary of the
Closing Date. The Company also reimbursed the Purchaser $20,000 for expenses from the proceeds of the first tranche and the Purchaser’s
counsel $10,000 from the first tranche. As of six months ended June 30, 2016, the Company has received a total of $437,178 net
proceeds under Note IV (net of the $83,655 of legal fees, expenses and OID). Note IV accrues interest at a rate equal to 12% per
annum (interest is guaranteed for the first twelve months) and has a maturity dates between July 15, 2017 and December 21, 2017.
Note IV is convertible any time after its issuance date and Dominion has the right to convert any or all of Note IV into shares
of the Company’s common stock at a conversion price equal to $1.10 subject to adjustment as described in Note IV. Additionally,
under certain conditions defined in Note IV, it may also be convertible into common stock at a price equal to 62.5% of the lowest
VWAP during the 15 Trading Days immediately prior to the applicable amortization date. In the event that there is an Event of
Default or certain conditions are not met, the conversion price will be adjusted to equal to 55% of the lowest VWAP during the
thirty (30) Trading Days immediately prior to the applicable Conversion Date. Note IV can be prepaid at any time upon five days’
notice to the Dominion by paying an amount in cash equal to the outstanding principal and interest, and a 20% premium. Subsequent
to the funding of the first tranche the Purchaser and the Company agreed to delay further tranches, until such time as the Purchaser
and Company mutually agree, both as to timing and amount. In connection with the issuances of Note IV, the Company recorded a
debt discount of $437,178 when the notes were entered into, related to the embedded conversion option derivative liability. The
amortization expense related to that discount recorded was approximately $94,000 for the six months ended June 30, 2016. As of
June 30, 2016, the outstanding principal and interest on Note IV was $541,142. As the note conversion includes a “lesser
of” pricing provision, a derivative liability of $507,252 was recorded when Note IV was entered into. The derivative liability
is re-measured at each balance sheet date, the derivative liability balance for Note IV at June 30, 2016 was $654,055.
Pursuant
to the Company’s obligations under Notes I, II, III and IV, the Company entered into a Security Agreement with the Purchaser,
pursuant to which the Company granted a lien on all assets of the Company, subject to existing security interests, (the “Collateral”)
for the benefit of the Purchaser, to secure the Company’s obligations under the Note. In the event of a default as defined
in Notes I, II, III and IV, the Purchaser may, among other things, collect or take possession of the Collateral, proceed with
the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
Other
Convertible Debt Financing
On
June 18, 2014, the Company closed a financing agreement whereby the Company borrowed an aggregate principal amount of $247,500
with a 10% original note discount. The note has an interest rate of 10%, and is convertible at the option of the lender into shares
of the Company’s common stock at the lesser of (i) a 40% discount to the lowest closing bid price in the 20 trading days
prior to conversion or (ii) $3.75. The note might be accelerated if an event of default occurs under the terms of the note, including
the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the Company is delinquent
in its SEC filings. The first tranche was funded on June 18, 2014 with a principal amount of $55,000 and net proceeds of $50,000,
with a maturity date of June 17, 2016, pursuant to the convertible note. In connection with the issuance of the note, the Company
recorded a debt discount of $50,000 related to the derivative liability which was fully amortized as of June 30, 2015. As of June
30, 2015, the outstanding principal and interest of the note was fully converted into 488,518 shares of common stock. As the note
conversion includes a “lesser of” pricing provision, a derivative liability of $59,623 was recorded when the note
was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity upon conversion
of the note. The second tranche was funded on September 19, 2014, with a principal amount of $55,000 and net proceeds of $50,000,
with a maturity date of September 19, 2015, pursuant to a convertible note. In connection with the issuance of the notes, the
Company recorded a debt discount of $50,000 related to the derivative liability which was fully amortized as of June 30, 2015.
As of June 30, 2015, the outstanding principal and interest on the notes was fully converted into 139,619 shares of common stock.
As the note conversion includes a “lesser of” pricing provision, a derivative liability of $59,623 was recorded when
the note was entered into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity
upon conversion of the note. The third tranche was funded on December 22, 2014, with a principal amount of $55,000 and net proceeds
of $50,000, with a maturity date of December 22, 2015, pursuant to a convertible note. The Company recorded a debt discount of
$50,000 related to the derivative liability which was fully amortized as of September 30, 2015. As of September 30, 2015, the
outstanding principal and interest of the note was fully converted into 117,147 shares of common stock. As the note conversion
includes a “lesser of” pricing provision, a derivative liability of $62,118 was recorded when the note was entered
into. The derivative liability was re-measured at each balance sheet date and was reclassified to equity upon conversion of the
note. The fourth tranche was funded on January 13, 2016, with a principal amount of $82,500 and net proceeds of $75,000, with
a maturity date of January 13, 2018, pursuant to a convertible note. In connection with the issuance of the note, the Company
recorded a debt discount of $75,000, related to the embedded conversion option derivative liability. The amortization expense
related to that discount recorded was approximately $17,000 for the six months ended June 30, 2016. As of June 30, 2016, the outstanding
principal and interest on the note was $86,320. As the note conversion includes a “lesser of” pricing provision, a
derivative liability of $122,263 was recorded when the note was entered into. The derivative liability is re-measured at each
balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability balance
for note at June 30, 2016 was $111,450.
On
October 27, 2014, the Company borrowed $161,000 with a maturity date of October 27, 2015, pursuant to a financing agreement. Under
the agreement the Company received $150,000, which was net of an original issue discount of $11,000. The note bears interest at
8% per annum and is convertible at the option of the lender into shares of the Company’s common stock at a 40% discount
to the price of common shares in the 10 days prior to conversion. The note might be accelerated if an event of default occurs
under the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy
events or if the Company is delinquent in its SEC filings. In conjunction with the Note, the Company granted the lender a warrant
for 20,000 common shares at a strike price of $4.0. The warrant has a life of three years and its relative fair value of $33,404
has been recorded as a debt discount and additional paid in capital as of June 30, 2015. In connection with the issuance of the
note, the Company computed a premium of $107,333 as the note is considered stock settled debt under ASC 480. On April 6, 2015,
Dominion Capital LLC entered into a purchase and assignment of the note (see paragraph below), and the Company and Dominion amended
the note, with the total amount of $166,681, with terms and conditions identical to Purchaser’s notes pursuant to the $4
Million Financing Agreement. Pursuant to the amendment the maturity date was extended to October 24, 2015. Additionally, on April
6, 2015, the Company and Purchaser entered into an $88,319 Senior Convertible, Redeemable Debenture of the Company, which was
issued without proceeds as consideration for the Purchaser’s expenses in conjunction with the purchase and assignment with
the Lender, including legal and transaction fees. This amount was recorded as a loss on debt extinguishment. As of June 30, 2015,
the Company no longer has any outstanding debt owed to the Lender. The total recorded premium was accreted and charged to interest
expense upon the assignment of the convertible note.
On
April 6, 2015, the Company issued a new note for $166,681 convertible at the lesser of a 37.5% discount to the common stock price
on the date of the note (which was $0.77) or a 37.5% discount to the price of our common stock price at the time of conversion.
In conjunction with the purchase and assignment, the Company and Purchaser entered into a new note with a principal value of $88,319
as compensation for Purchaser’s costs related to the purchase and assignment. This $88,319 was expensed as a loss on debt
extinguishment. In connection with the issuance of the notes, the Company recorded a debt discount of $255,000 related to the
embedded conversion option derivative liability which has been fully amortized as of December 31, 2015. As of the quarter ended
June 30, 2016, the outstanding principal and interest of the note was fully converted into 636,490 shares of common stock. As
of June 30, 2016, the note has no outstanding balance. As the note conversions includes a “lesser of” pricing provision,
a derivative liability of $305,904 was recorded when these notes were entered into. The derivative liability is re-measured at
each balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the notes. The recorded derivative liability
balance was reclassified to equity upon conversion of the note and has zero balance as of June 30, 2016.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
On
March 9, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $270,400 (the “Notes”), with the first note
being in the amount of $135,200 (“Note I”) and the second note being in the amount of $135,200 (“Note II”)
with a maturity date of March 9, 2017. Pursuant to Note I, the Company received $125,000 of proceeds, net of original issue discount
of $5,200 and legal fees of $5,000. Note II was initially paid for by the issuance of an offsetting $130,000 secured note issued
by the Lender to the Company (“Secured Note”). The Notes bear an interest rate of 12%; and may be at any time after
180 days of the date of closing converted into shares of Company common stock convertible at the lesser of a 37.5% discount to
the common stock price on the date of the note (which was $1.40) or a 37.5% discount to the price of our common stock price at
the time of conversion. The Notes also contain certain representations, warranties, covenants and events of default, and increases
in the amount of the principal and interest rates under the Notes in the event of such defaults. In connection with the issuance
of Note I, the Company recorded a debt discount of $125,000, related to the embedded conversion option derivative liability. The
amortization expense related to that discount recorded was approximately $37,000 for the six months ended June 30, 2016. As of
June 30, 2016, the outstanding principal and interest on Note I was $140,223. As the note conversion includes a “lesser
of” pricing provision, a derivative liability of $178,453 was recorded when Note I was entered into. The derivative liability
is re-measured at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative
liability balance for Note I at June 30, 2016 was $148,233.
On
March 16, 2016, the Company borrowed $53,000 with a maturity date of on December 18, 2016, pursuant to a financing agreement.
Under the agreement the Company received $50,000 of proceeds, net of $3,000 legal fees. The note bears interest at 8% per annum
and is convertible at the option of the lender into shares of the Company’s common stock at a 35% discount to the price
of common shares in the ten days prior to conversion. The note might be accelerated if an event of default occurs under the terms
of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the
Company is delinquent in its SEC filings. In connection with the issuance of the note, the Company recorded a premium of $28,538
as the note is considered stock settled debt under ASC 480, which was fully accreted as of quarter ended June 30, 2016. As of
June 30, 2016, the outstanding principal and interest on the note was $54,174.
On
April 1, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $270,400 (the “Notes”), with the first note
being in the amount of $135,200 (“Note I”) and the second note being in the amount of $135,200 (“Note II”).Note
I was funded on April 1, 2016, with a maturity date of April 1, 2017, pursuant to Note I, the Company received $125,000 of net
proceeds, net of original issue discount of $5,200 and legal fees of $5,000. Note II was initially paid for by the issuance of
an offsetting $130,000 secured note issued by the Lender to the Company (“Secured Note”). The Notes bear an interest
rate of 12%; and may be at any time after 180 days of the date of closing converted into shares of Company common stock convertible
at the lesser of a 37.5% discount to the common stock price on the date of the note (which was $1.40) or a 37.5% discount to the
price of our common stock price at the time of conversion. In connection with the issuance of Note I, the Company recorded a debt
discount of $125,000, related to the embedded conversion option derivative liability. The amortization expense related to that
discount recorded was approximately $31,000 for the quarter ended June 30, 2016. As of June 30, 2016, the outstanding principal
and interest on Note I was $139,200. As the note conversion includes a “lesser of” pricing provision, a derivative
liability of $174,903 was recorded when Note I was entered into. The derivative liability is re-measured at each balance sheet
date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability balance for Note I at
June 30, 2016 was $150,554.
On
April 12, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of a Convertible Redeemable Note in the aggregate principal amount of $58,000, with a maturity date of April 7, 2017, pursuant
to note, the Company will receive $50,000 of net proceeds, net of original issue discount and legal fees. The note bears an interest
rate of 5%; and is convertible at variable conversion price at a 37% discount to the common shares price on the date of the note
or at a 47% discount if the lowest trading price equal to or is lower than $0.25, as described in the note. The note also contains
certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest
rates under the Note in the event of such defaults. In connection with the issuance of note, the Company recorded a debt discount
of $50,000, related to the embedded conversion option derivative liability. The amortization expense related to that discount
recorded was approximately $11,000 for the quarter ended June 30, 2016. As of June 30, 2016, the outstanding principal and interest
on note was $58,628. As the note conversion includes a “lesser of” pricing provision, a derivative liability of $73,505
was recorded when the note was entered into. The derivative liability is re-measured at each balance sheet date and reclassified
to equity on a pro-rata basis upon conversion of the note, the derivative liability balance for Note I at June 30, 2016 was $63,417.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
On
April 18, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $143,000 (the “Notes”), with the first note
being in the amount of $71,500 (“Note I”) and the second note being in the amount of $71,500 (“Note II”).Note
I was funded on April 18, 2016, with a maturity date of April 18, 2017, pursuant to Note I, the Company received $55,000 of net
proceeds, net of original issue discount of $6,500 and legal fees of $10,000. Note II was initially paid for by the issuance of
an offsetting $65,000 secured note issued by the Lender to the Company (“Secured Note”). The Notes bear an interest
rate of 10%; and maybe converted into shares of Company common stock, convertible at variable conversion price at a 38% discount
of the average of the three lowest closing bid price of the common stock for the 20 trading days prior to conversion. The Notes
also contain certain representations, warranties, covenants and events of default, and increases in the amount of the principal
and interest rates under the Notes in the event of such defaults. In connection with the issuance of the note, the Company recorded
a premium of $42,900 as the note is considered stock settled debt under ASC 480, which was fully accreted as of quarter ended
June 30, 2016. As of June 30, 2016, the outstanding principal and interest on the note was $73,288.
On
April 18, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $126,000 (the “Notes”), with the first note
being in the amount of $63,000 (“Note I”) and the second note being in the amount of $63,000 (“Note II”).Note
I was funded on April 20, 2016, with a maturity date of April 19, 2017, pursuant to Note I, the Company received $57,000 of net
proceeds, net of original issue discount of $3,000 and legal fees of $3,000. Note II was initially paid for by the issuance of
an offsetting $60,000 secured note issued by the Lender to the Company (“Secured Note”). The Notes bear an interest
rate of 10%; and maybe converted into shares of Company common stock, convertible at variable conversion price at a 35% discount
of the lowest closing bid price of the common stock for the 15 trading days prior to conversion. The Notes also contain certain
representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rates
under the Notes in the event of such defaults. In connection with the issuance of the note, the Company recorded a premium of
$33,923 as the note is considered stock settled debt under ASC 480, which was fully accreted as of quarter ended June 30, 2016.
As of June 30, 2016, the outstanding principal and interest on the note was $64,575.
On
April 28, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $437,500 (the “Notes”), with the first note
being in the amount of $218,750 (“Note I”) and the second note being in the amount of $218,750 (“Note II”).Note
I was funded on April 28, 2016, with a maturity date of April 27, 2017, pursuant to Note I, the Company received $190,000 of net
proceeds, net of original issue discount of $8,750 and legal fees of $20,000. Note II was initially paid for by the issuance of
an offsetting $210,000 secured note issued by the Lender to the Company (“Secured Note”). The Notes bear an interest
rate of 12%; and may be at any time after 180 days of the date of closing converted into shares of Company common stock convertible
at the lesser of a 37.5% discount to the common stock price on the date of the note (which was $1.40) or a 37.5% discount to the
price of our common stock price at the time of conversion. In connection with the issuance of Note I, the Company recorded a debt
discount of $190,000, related to the embedded conversion option derivative liability. The amortization expense related to that
discount recorded was approximately $33,000 for the quarter ended June 30, 2016. As of June 30, 2016, the outstanding principal
and interest on Note I was $223,281. As the note conversion includes a “lesser of” pricing provision, a derivative
liability of $276,783 was recorded when Note I was entered into. The derivative liability is re-measured at each balance sheet
date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability balance for Note I at
June 30, 2016 was $247,455.
On
May 4, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $126,000 (the “Notes”), with the first note
being in the amount of $63,000 (“Note I”) and the second note being in the amount of $63,000 (“Note II”).Note
I was funded on May 4, 2016, with a maturity date of May 4, 2017, pursuant to Note I, the Company received $57,000 of net proceeds,
net of original issue discount of $3,000 and legal fees of $3,000. Note II was initially paid for by the issuance of an offsetting
$60,000 secured note issued by the Lender to the Company (“Secured Note”). The Notes bear an interest rate of 10%;
and maybe converted into shares of Company common stock, convertible at variable conversion price at a 37.5% discount of the lowest
closing bid price of the common stock for the 15 trading days prior to conversion. The Notes also contain certain representations,
warranties, covenants and events of default, and increases in the amount of the principal and interest rates under the Notes in
the event of such defaults. In connection with the issuance of the note, the Company recorded a premium of $37,800 as the note
is considered stock settled debt under ASC 480 which was fully accreted as of quarter ended June 30, 2016. As of June 30, 2016,
the outstanding principal and interest on the note was $64,050.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
On
May 17, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of a Convertible Redeemable Notes with the principal amount of $55,000 (the “Note”). The Note was funded on May 19,
2016, with a maturity date of May 17, 2017, pursuant to Note, the Company received $49,500 of net proceeds, net of $5,500 legal
fees. The Note bear an interest rate of 10%; and maybe converted into shares of Company common stock, convertible at variable
conversion price at a 35% discount of the lowest closing bid price of the common stock for the 20 trading days prior to conversion.
The Notes also contain certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Notes in the event of such defaults. In connection with the issuance of the note, the Company
recorded a premium of $29,615 as the note is considered stock settled debt under ASC 480, which was fully accreted as of quarter
ended June 30, 2016. As of June 30, 2016, the outstanding principal and interest on the note was $55,917.
On
June 3, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $624,000 (the “Notes”), with the first note
being in the amount of $312,000 (“Note I”) and the second note being in the amount of $312,000 (“Note II”).
Note I was funded on June 3, 2016, with a maturity date of June 2, 2017, pursuant to Note I, the Company received $285,000 of
net proceeds, net of original issue discount of $12,000 and legal fees of $15,000. Note II was initially paid for by the issuance
of an offsetting $300,000 secured note issued by the Lender to the Company (“Secured Note”). The Notes bear an interest
rate of 12%; and may be at any time after 180 days of the date of closing converted into shares of Company common stock convertible
at the lesser of a 35% discount to the common stock price on the date of the note (which was $1.10) or a 35% discount to the price
of our common stock price at the time of conversion. The Notes also contain certain representations, warranties, covenants and
events of default, and increases in the amount of the principal and interest rates under the Notes in the event of such defaults.
In connection with the issuance of Note I, the Company recorded a debt discount of $285,000, related to the embedded conversion
option derivative liability. The amortization expense related to that discount recorded was approximately $21,000 for the quarter
ended June 30, 2016. As of June 30, 2016, the outstanding principal and interest on Note I was $314,770. As the note conversion
includes a “lesser of” pricing provision, a derivative liability of $374,144 was recorded when Note I was entered
into. The derivative liability is re-measured at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion
of the note, the derivative liability balance for Note I at June 30, 2016 was $342,194.
On
June 22, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $143,000 (the “Notes”), with the first note
being in the amount of $71,500 (“Note I”) and the second note being in the amount of $71,500 (“Note II”).
Note I was funded on June 22, 2016, with a maturity date of June 17, 2017, pursuant to Note I, the Company received $57,000 of
net proceeds, net of original issue discount of $6,500 and legal fees of $8,000. Note II was initially paid for by the issuance
of an offsetting $65,000 secured note issued by the Lender to the Company (“Secured Note”). The Notes bear an interest
rate of 10%; and is convertible into shares of Company common stock at the lesser of a 37.5% discount to the common stock price
on the date of the note (which was $1.10) or a 37.5% discount to the price of our common stock price at the time of conversion.
The Notes also contain certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Notes in the event of such defaults. In connection with the issuance of Note I, the Company
recorded a debt discount of $57,000, related to the embedded conversion option derivative liability. The amortization expense
related to that discount recorded was approximately $1,200 for the quarter ended June 30, 2016. As of June 30, 2016, the outstanding
principal and interest on Note I was $71,657. As the note conversion includes a “lesser of” pricing provision, a derivative
liability of $72,607 was recorded when Note I was entered into. The derivative liability is re-measured at each balance sheet
date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability balance for Note I at
June 30, 2016 was $66,269.
Other
Financings
On
July 9, 2012, the Company issued a Secured Promissory Note (the “H&K Note”) in the principal amount of $849,510
to Holland & Knight LLP (“Holland & Knight”), its external legal counsel, in support of amounts due and owing
to Holland & Knight as of June 30, 2012. The H&K Note is non-interest bearing, and principal on the H&K Note is due
and payable as soon as practicably possible by the Company. The Company has agreed to remit payment against the H&K Note immediately
upon each occurrence of any of the following events: (a) completion of an acquisition or disposition of any of the Company’s
assets or stock or any of the Company’s subsidiaries’ assets or stock with gross proceeds in excess of $750,000, (b)
completion of any financing with gross proceeds in excess of $1,500,000, (c) receipt of any revenue in excess of $750,000 from
the licensing or development of any of the Company’s or the Company’s subsidiaries’ products, or (d) any liquidation
or reorganization of the Company’s assets or liabilities. The amount of payment to be remitted by the Company shall equal
one-third of the gross proceeds received by the Company upon each occurrence of any of the above events, until the principal is
repaid in full. If the Company receives $3,000,000 in gross proceeds in any one financing or licensing arrangement, the entire
principal balance shall be paid in full. The H&K Note was secured by substantially all of the Company’s assets pursuant
to a security agreement between the Company and Holland & Knight dated July 9, 2012. In conjunction with the TCA Purchase
Agreement and the Boeing License Agreement (defined below), Holland & Knight agreed to terminate its security interest. As
of June 30, 2016, the Company had repaid $547,743 of the H&K Note and the outstanding balance was $301,769 which is included
in notes payable on the consolidated balance sheet.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
On
November 1, 2015, the Company issued a convertible note (the “Note”) to a consultant, in the principal amount of $62,500
with maturity date of November 1, 2017 and bears an interest of 10% per annum, pursuant to a consulting agreement. In connection
with the issuance of Note, the Company recorded a debt discount of $62,500, related to the embedded conversion option derivative
liability. During the six months ended June 30, 2016, the outstanding principal and interest on Note was converted into 309,541
shares of common stock. As the note conversion includes a “lesser of” pricing provision, a derivative liability of
$76,987 was recorded when the Note was entered into. The derivative liability is re-measured at each balance sheet date and reclassified
to equity on a pro-rata basis upon conversion of the note. As of June 30, 2016, the note has no outstanding balance and the derivative
liability recorded was reclassified to equity upon conversion.
On
March 16, 2016, the Company entered into a factoring agreement with a lender for $105,000 to fund working capital. The Company
also paid $3,150 of origination fees. The agreement requires daily repayments of $862 for an eight-month term, with the total
amount repaid of $144,900. As of June 30, 2016, the Company has repaid a total amount of $68,827 of the outstanding balance of
this and the following note. On June 7, 2016, the Company entered into a second factoring agreement with a lender for $51,000
to fund working capital. The Company also paid $1,020 of origination fees. The agreement requires daily repayments of $419 for
an eight-month term, with the total amount to be repaid $70,380.
On
May 2, 2016 PositiveID Corporation (the “Company”), through its wholly owned subsidiary, E-N-G Mobile Systems, Inc.
(“ENG”) entered into a revolving line of credit (the “Line”) with California Bank of Commerce (“CBC”).
The terms of the Line allow ENG to borrow against its accounts receivable and inventory to manage its project based working capital
requirements. The $350,000 Line has a maturity date of May 5, 2017 and borrowings under the Line bear interest at the Wall Street
Journal Prime Rate plus 1.5% (currently 5.0%). The Company has provided a guaranty of the Line to CBC. The Line also contains
certain representations, warranties, covenants and events of default, including the requirement to maintain specified financial
ratios. ENG currently meets all such ratios. Breaches of any of these terms could limit ENG’s ability to borrow under the
Line and result in increases in the interest rate under the Line. There was no amount outstanding as of June 30, 2016 and $40,000
was drawn subsequent to the quarter ended June 30, 2016.
During
the quarter ended June 30, 2016, the Company issued two separate convertible notes (the “Notes”) to a consultant,
each note in the principal amount of $20,000 for an aggregate principal amount of $40,000 with maturity dates between April 27,
2017 and May 27, 2017, pursuant to a consulting agreement. The Notes bear interest at 8% per annum and are convertible at a 37.5%
discount to lowest closing bid price in the 15 trading days prior to conversion. In connection with the issuance of the Notes,
the Company recorded a total premium of $24,000 as the notes are considered stock settled debt under ASC 480, which was fully
accreted as of quarter ended June 30, 2016. As of June 30, 2016, the outstanding principal and interest of the Notes was $40,400.
Embedded
Conversion Option Derivatives
Due
to the conversion terms of certain promissory notes, the embedded conversion options met the criteria to be bifurcated and presented
as derivative liabilities. The Company calculated the estimated fair values of the liabilities for embedded conversion option
derivative instruments at the original note inception dates and as of June 30, 2016 using the Black-Scholes option pricing model
using the share prices of the Company’s stock on the dates of valuation and using the following ranges for volatility, expected
term and the risk free interest rate at each respective valuation date, no dividend has been assumed for any of the periods:
|
|
Note
Inception Date
|
|
|
June
30, 2016
|
|
Volatility
|
|
|
188
- 374
|
%
|
|
|
186
|
%
|
Expected Term
|
|
|
0.4
– 2.0 years
|
|
|
|
0.01
– 1.5 years
|
|
Risk Free Interest Rate
|
|
|
0.12
- 2
|
%
|
|
|
0.45
|
%
|
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
The
following reflects the initial fair value on the note inception dates and changes in fair value through June 30, 2016:
Embedded conversion option liability fair
value as of December 31, 2015
|
|
$
|
7,786
|
|
Note inception date fair value allocated
to debt discount
|
|
|
1,587
|
|
Note inception date fair value allocated
to other expense
|
|
|
772
|
|
Reclassification of derivative liability
to equity upon debt conversion
|
|
|
(1,876
|
)
|
Change in fair value during six
months ended June 30, 2016
|
|
|
(1,119
|
)
|
Embedded conversion option liability
fair value as of June 30, 2016
|
|
$
|
7,150
|
|
Fair
Value Measurements
We
currently measure and report at fair value the liability for embedded conversion option derivatives. The fair value liabilities
for price adjustable convertible debt instruments have been recorded as determined utilizing the BSM option pricing model as previously
discussed. The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as
of June 30, 2016:
|
|
Balance
at
June
30, 2016
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of liability
for embedded conversion option derivative instruments
|
|
$
|
7,150
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,150
|
|
5.
Stockholder’s Deficit
On
August 26, 2011, the Company’s stockholders approved and adopted the PositiveID Corporation 2011 Stock Incentive Plan (the
“2011 Plan”). The 2011 Plan provides for awards of incentive stock options, nonqualified stock options, restricted
stock awards, performance units, performance shares, SARs and other stock-based awards to employees and consultants. Under the
2011 Plan, up to 1 million shares of common stock may be granted pursuant to awards.
On
June 27, 2016, the Company’s Board of Directors approved a reverse stock split in the ratio of 1-for-50 and the Company
filed the Eighth Certificate of Amendment to its Second Amended and Restated Certificate of Incorporation, as amended, with the
Secretary of State of the State of Delaware to affect the reverse stock split. The reverse split only affected outstanding common
stock and the number of authorized shares was not adjusted. On July 5, 2016, the reverse stock split became effective. All share
amounts in our historical financial statements have been adjusted to reflect the 1-for-50 reverse stock split (see Note 10).
A
summary of option activity under the Company’s stock incentive plans as of June 30, 2016, and changes during the six months
ended is presented below (in thousands, except per share amounts):
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Outstanding at December 31, 2015
|
|
|
492
|
|
|
$
|
8.50
|
|
Granted
|
|
|
928
|
|
|
$
|
1.22
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at June 30, 2016
|
|
|
1,420
|
|
|
$
|
3.48
|
|
Exercisable at June 30, 2016
|
|
|
111
|
|
|
$
|
33.03
|
|
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
The
Black-Scholes model, which the Company uses to determine compensation expense, requires the Company to make several key judgments
including:
|
●
|
the
value of the Company’s common stock;
|
|
|
|
|
●
|
the
expected life of issued stock options;
|
|
|
|
|
●
|
the
expected volatility of the Company’s stock price;
|
|
|
|
|
●
|
the
expected dividend yield to be realized over the life of the stock option; and
|
|
|
|
|
●
|
the
risk-free interest rate over the expected life of the stock options.
|
The
Company’s computation of the expected life of issued stock options was determined based on historical experience of similar
awards giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations about employees’
future length of service. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation
of volatility was based on the historical volatility of the Company’s common stock.
All
restricted stock outstanding under the Company’s stock incentive plans vested in 2015 and there are no restricted stock
outstanding under the Company’s stock incentive plans as of June 30, 2016.
Additionally,
the Company has 44,649 unvested restricted shares outstanding, not issued under stock incentive plans, which have been issued
to employees, directors, and consultants. These restricted shares vest on January 1, 2018.
During
the quarter ended March 31, 2016, 1,316 vested shares of the Company’s common stock was returned by a former affiliate.
The
Company issued 228,700 shares, with a grant date fair value of approximately $107,000, to consultants for services rendered during
the six months ended June 30, 2016.
During
the six months ended June 30, 2016, 7.9 million shares were issued in connection with conversion of convertible promissory notes
(see Note 4).
During
the six months ended June 30, 2016, 928,000 options have been granted outside of the Company’s plans of which 800,000 options
were issued to executive management (see Note 8), 16,000 options to an employee and 112,000 million options to consultants, pursuant
to the agreements. These options have vesting periods between 0 to 4 years and a total grant date fair value of $848,929 of which
$28,709 were immediately expensed and the remaining will be expense over the vesting period of the options.
As
of June 30, 2016, 294,028 warrants to purchase the Company’s common stock have been granted outside of the Company’s
plans, which remain outstanding as of June 30, 2016. These warrants were granted at exercise prices ranging from $0.75 to $37.5
per share, 238,028 warrants are fully vested and 56,000 warrants will vest upon completion of services. These warrants exercisable
for a period from five to seven years. Included in the 294,028 outstanding warrants are 23,000 warrants with a grant date fair
value of $21,175, issued as compensation for professional services during the six months ended June 30, 2016.
The
Company recorded an expense related to stock options, restricted stock issued, and issuance of Series I Preferred to employees
and advisors of approximately $0.4 million and $0.2 million for the three months ended June 30, 2016 and 2015, respectively and
approximately $0.2 million and $1.2 million for the six months ended June 30, 2016 and 2015, respectively.
As
of June 30, 2016, the Company had approximately $0.7 million of unamortized compensation related to stock option and restricted
share grants. This compensation are being amortized as an operating expense over the remainder of 2016 through 2019.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
As
of June 30, 2016, 0.3 million options were issued under the Thermomedics 2015 plan to employees and consultant. These options
had a grant date fair value of $109,600 and will be expensed over the 1 year vesting period of the options.
Series
I Preferred Stock
As
of June 30, 2016 and December 31, 2015, the Company had 2,500 shares of Series I Preferred Stock authorized and 2,025 issued and
outstanding. There were no issuances of Series I Preferred Stock during the six months ended June 30, 2016. The Series I Preferred
Stock is mandatorily redeemable and has a stated value per share of $1,000, a dividend rate of 6% per annum, voting rights on
an as-converted basis and a conversion price equal to the closing bid price of the Company’s common stock on the date of
issuance. The Series I Preferred Stock is required to be redeemed (at stated value, plus any accrued dividends) by the Company
after three years or any time after one year, the Company may at its option, redeem the shares subject to a 10-day notice (to
allow holder conversion). The Series I Preferred Stock is convertible into the Company’s common stock, at stated value plus
accrued dividends, at the closing bid price on the day issued, any time at the option of the holder and by the Company in the
event that the Company’s closing stock price exceeds 400% of the conversion price for 20 consecutive trading days. The Company
has classified the Series I Preferred Stock as a liability in the unaudited condensed consolidated balance sheet due to the mandatory
redemption feature. The Series I Preferred Stock has voting rights equal to the number of shares of Common Stock that Series I
Preferred Stock is convertible into, times twenty-five. The holders of Series I Preferred Stock, which are held entirely by the
Board of Directors and management of the Company has voting control in situations requiring shareholder vote. On August 11, 2016
the Company entered into exchange agreements with all of the Series I holders exchanging Series II Preferred shares with an identical
face value (See Note 10).
6.
Taxes
The
Company had an effective tax rate of nil for the three and six months ended June 30, 2016 and 2015. The Company incurred losses
before taxes for the three and six months ended June 30, 2016 and 2015. However, it has not recorded a tax benefit for the resulting
net operating loss carryforwards, as the Company has determined that a full valuation allowance against its net deferred tax assets
was appropriate based primarily on its historical operating results.
In
July 2008, the Company completed the sale of all of the outstanding capital stock of Xmark to Stanley. In January 2010, Stanley
received a notice from the Canadian Revenue Agency (“CRA”) that the CRA would be performing a review of Xmark’s
Canadian tax returns for the periods 2005 through 2008. This review covers all periods that the Company owned Xmark. The review
performed by CRA resulted in an assessment of approximately $1.4 million, in 2011.
On
January 20, 2012, the Company received an indemnification claim notice from Stanley related to the matter. The Company did not
agree with the position taken by the CRA, and filed a formal appeal related to the matter on March 8, 2012. In addition, on March
28, 2012, Stanley received assessments for withholding taxes on deemed dividend payments in respect of the disallowed management
fee totaling approximately $0.2 million, for which we filed a formal appeal on June 7, 2012. In October 2012, the Company submitted
a Competent Authority filing to the U.S. IRS seeking relief in the matter. In connection with the filing of the appeals, Stanley
was required to remit an upfront payment of a portion of the tax reassessment totaling approximately $950,000. The Company has
also filed a formal appeal related to the withholding tax assessments, pursuant to which Stanley was required to remit an additional
upfront payment of approximately $220,000. Pursuant to a letter agreement dated March 7, 2012, the Company has agreed to repay
Stanley for the upfront payments, plus interest at the rate of five percent per annum. To the extent that the Company and Stanley
reach a successful resolution of the matter, or any part of the matter, through the appeals process, the upfront payment (or a
portion thereof) will be returned to Stanley or the Company as applicable. As of June 30, 2016, the Company had made payments
to Stanley of $665,777 and Stanley had received refund from the CRA of 129,520. Based on management’s estimate, including
reconciling to Stanley’s accounts, the Company has a recorded tax contingency liability of $143,000 in the accompanying
unaudited condensed consolidated financial statements as of June 30, 2016.
7.
Commitments and Contingencies
Lease
Commitments
The
Company leases certain office space under non-cancelable operating leases, including the Company’s corporate offices in
Delray Beach, Florida under a lease scheduled to expire in October 18, 2018, lab and office space in Pleasanton, California a
lease scheduled to expire in September 30, 2018 and office and manufacturing space in Concord, California which is currently on
a month-to-month commitment. Rent expense under operating leases totaled approximately $121,000 and $45,000 for the six months
ended June 30, 2016 and 2015, respectively.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
Exergen
Litigation
On
October 10, 2012, Thermomedics and its former parent company, Sanomedics (together “Sano”), received a cease and desist
demand letter from Exergen Corporation (“Exergen”), claiming that Sano infringed on certain Exergen patents relating
to Sano’s non-contact thermometers. On May 21, 2013, Exergen filed a complaint in the U.S. District Court of the District
of Massachusetts against Sano. On September 3, 2013, Sano filed its answer to Exergen’s complaint and asserted counterclaims
and affirmative defenses for non-infringement and invalidity of certain patents. On March 26, 2015, Exergen and Sano filed a partial
dismissal that removes Sano’s previous product, the Talking Non-Contact Thermometer, from the lawsuit. On September 15,
2015, the United States District Court – District of Massachusetts, entered an order granting Sano’s motion for summary
judgment, ruling that the patent claims made by Exergen against Sano were invalid. On June 22, 2016, the U.S. Court of Appeals
affirmed the United States District Court – District of Massachusetts’ summary judgment decision in favor of Thermomedics
that the patent claims asserted against Thermomedics by Exergen are invalid. The Company has assumed responsibility to defend
these claims and will continue to vigorously defend its rights to market and sell the Caregiver® thermometer. Management believes
the Company will be successful in its defense.
Other
Legal Proceedings
The
Company is a party to certain legal actions, as either plaintiff or defendant, arising in the ordinary course of business, none
of which is expected to have a material adverse effect on the Company’s business, financial condition or results of operations.
However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental
investigations, legal and administrative cases and proceedings, whether civil or criminal, settlements, judgments and investigations,
claims or charges in any such matters, and developments or assertions by or against the Company relating to the Company or to
the Company’s intellectual property rights and intellectual property licenses could have a material adverse effect on the
Company’s business, financial condition and operating results.
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.
8.
Employment Contracts and Stock Compensation to Related Parties
On
April 8, 2016, the Company entered into employment contracts with both Mr. Caragol, the Company’s CEO, and Mr. Probst, the
Company’s President, effective January 1, 2016. The terms of Mr. Caragol’s employment contract include a three-year
term and a salary of $275,000, with $75,000 of that salary deferred until such time as the Company’s working capital is
sufficient to fund such payments. Mr Caragol’s salary will automatically adjust to $350,000 at the time that PositiveID’s
common stock is listed on a national exchange. Mr. Caragol is eligible for annual bonuses and was granted 500,000 stock options
(see Note 6), which vest; (i) 170,000 on January 1, 2017; (ii) 165,000 on January 1, 2018; and (iii) 165,000 on January 1, 2019.
These options will expire on January 1, 2021. The terms of Mr. Probst’s employment contract include a three-year term and
a salary of $200,000. Mr Probst’s salary will automatically adjust to $250,000 at the time that PositiveID’s common
stock is listed on a national exchange. Mr. Probst is eligible for annual bonuses and was granted 300,000 stock options (see Note
6), which vest; (i) 102,000 on January 1, 2017; (ii) 99,000 on January 1, 2018; and (iii) 99,000 on January 1, 2019. These options
will expire on January 1, 2021.
If
either Mr. Caragol or Mr. Probst’s employment is terminated prior to the expiration of the term of his employment agreement,
certain significant payments become due. The amount of such payments depends on the nature of the termination. In addition, the
employment agreement contains a change of control provision that provides for the payment of 2.0 times and 2.95 times in the case
of Mr. Probst and Mr. Caragol, respectively of the then current base salary and the same multipliers of the highest bonus paid
to the executive during the three calendar years immediately prior to the change of control. Any outstanding stock options or
restricted shares held by the executive as of the date of his termination or a change of control become vested and exercisable
as of such date, and remain exercisable during the remaining life of the option. The employment agreement also contains non-compete
and confidentiality provisions which are effective from the date of employment through two years from the date the employment
agreement is terminated.
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
9.
Segments
The
Company operates in three business segments: Molecular Diagnostics, Medical Devices, and Mobile Labs.
Molecular
Diagnostics
The
Company develops molecular diagnostic systems for rapid medical testing and bio-threat detection. The Company’s fully automated
pathogen detection systems and assays are designed to detect a range of biological threats. The Company’s M-BAND (Microfluidic
Bio-agent Autonomous Networked Detector) system is an airborne bio-threat detection system developed for the homeland defense
industry to detect biological weapons of mass destruction. The Company is developing Firefly Dx, an automated pathogen detection
system for rapid diagnostics, both for clinical and point-of-need applications.
Medical
Devices
Through
its contractual control of Thermomedics, Inc., the Company markets and sells the Caregiver® product. Caregiver is an FDA-cleared
for clinical use, infrared thermometer that measures forehead temperature in adults, children and infants, without contact. Caregiver
is the world’s first clinically validated, non-contact thermometer for the healthcare providers market, which includes hospitals,
physicians’ offices, medical clinics, nursing homes and other long-term care institutions, and acute care hospitals. Our
Caregiver thermometer with TouchFree™ technology is less likely to transmit infectious disease than devices that require
even minimal contact. It therefore saves medical facilities the cost of probe covers ($0.05 to $0.10 per temperature reading),
storage space and disposal costs.
Mobile
Labs
Our
subsidiary, E-N-G Mobile Systems, is a leader in the specialty technology vehicle market, with a focus on mobile laboratories,
command and communications applications, and mobile cellular systems. ENG builds mobile laboratories specifically designed for
chemical and biological detection, monitoring and analysis. ENG also provides specialty vehicle manufacturing for TV news vans
and trucks, emergency response trailers, mobile command centers, infrared inspection, and other special purpose vehicles.
During
2015, the Company operated in a single segment. The following is the selected segment data as of and for the three and six months
ended June 30, 2016:
Three
months ended June 30, 2016
|
|
Mobile
Labs
|
|
|
Medical
Devices
|
|
|
Molecular
Diagnostics
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
1,768
|
|
|
$
|
80
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,848
|
|
Operating income (loss)
|
|
$
|
132
|
|
|
$
|
(149
|
)
|
|
$
|
(293
|
)
|
|
$
|
(942
|
)
|
|
$
|
(1,252
|
)
|
Depreciation and amortization
|
|
$
|
(20
|
)
|
|
$
|
(27
|
)
|
|
$
|
(43
|
)
|
|
$
|
—
|
|
|
$
|
(90
|
)
|
Interest and other income (expense)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
7
|
|
|
$
|
(663
|
)
|
|
$
|
(657
|
)
|
Net loss
|
|
$
|
130
|
|
|
$
|
(149
|
)
|
|
$
|
(281
|
)
|
|
$
|
(1,609
|
)
|
|
$
|
(1,909
|
)
|
Goodwill
|
|
$
|
199
|
|
|
$
|
108
|
|
|
$
|
510
|
|
|
$
|
—
|
|
|
$
|
817
|
|
Segmented assets
|
|
$
|
1,491
|
|
|
$
|
634
|
|
|
$
|
605
|
|
|
$
|
126
|
|
|
$
|
2,856
|
|
Expenditures for property and equipment
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(11
|
)
|
Six
months ended June 30, 2016
|
|
Mobile
Labs
|
|
|
Medical
Devices
|
|
|
Molecular
Diagnostics
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
3,312
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,512
|
|
Operating income (loss)
|
|
$
|
115
|
|
|
$
|
(275
|
)
|
|
$
|
(546
|
)
|
|
$
|
(1,938
|
)
|
|
$
|
(2,644
|
)
|
Depreciation and amortization
|
|
$
|
(39
|
)
|
|
$
|
(55
|
)
|
|
$
|
(106
|
)
|
|
$
|
—
|
|
|
$
|
(200
|
)
|
Interest and other income (expense)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
13
|
|
|
$
|
(3,203
|
)
|
|
$
|
(3,191
|
)
|
Net loss
|
|
$
|
113
|
|
|
$
|
(274
|
)
|
|
$
|
(568
|
)
|
|
$
|
(5,106
|
)
|
|
$
|
(5,835
|
)
|
Goodwill
|
|
$
|
199
|
|
|
$
|
108
|
|
|
$
|
510
|
|
|
$
|
—
|
|
|
$
|
817
|
|
Segmented assets
|
|
$
|
1,491
|
|
|
$
|
634
|
|
|
$
|
605
|
|
|
$
|
126
|
|
|
$
|
2,856
|
|
Expenditures for property and equipment
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(11
|
)
|
POSITIVEID
CORPORATION
Notes
to the Condensed Consolidated Financial Statements
June
30, 2016
(Unaudited)
10.
Subsequent Events
On
July 5, 2016, an amendment to the Amended and Restated Certificate of Incorporation of PositiveID Corporation, as amended, became
effective and the Company effected a 1-for-50 reverse stock split (the “Reverse Stock Split”) of the Company’s
outstanding common stock (the “Common Stock”). As a result of the Reverse Stock Split, each 50 shares of the Company’s
issued and outstanding Common Stock automatically, and without any action on the part of the respective holders, became one (1)
issued and outstanding share of Common Stock. No scrip or fractional share certificates were issued in connection with the Reverse
Stock Split. Stockholders who otherwise would have been entitled to receive fractional shares because they hold a number of shares
of the Company’s common stock not evenly divisible by the reverse split ratio will be entitled, upon surrender of certificate(s)
representing such shares, to a cash payment in lieu thereof. The cash payment will equal the product obtained by multiplying (a)
the fraction to which the stockholder would otherwise be entitled by (b) the per share closing sales price of the Company’s
Common Stock on the effective date of the Reverse Stock Split (see Note 1 and Note 5). All share and per share data in the accompanying
consolidated financial statements and footnotes have been restrospectively restated for the effects of this reverse stock split.
On
July 5, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $416,000 (the “Notes”), with the first note
being in the amount of $208,000 (“Note I”) and the second note being in the amount of $208,000 (“Note II”)
with a maturity date of July 30, 2017. Pursuant to Note I, the Company received $190,000 of proceeds, net of original issue discount
of $8,000 and legal fees of $10,000. Note II was initially paid for by the issuance of an offsetting $200,000 secured note issued
by the Lender to the Company (“Secured Note”). The Notes bear an interest rate of 12%; and may be at any time after
180 days of the date of closing converted into shares of Company common stock convertible at the lesser of a 37.5% discount to
the common stock price on the date of the note (which was $1.10) or a 37.5% discount to the price of our common stock price at
the time of conversion. The Notes also contain certain representations, warranties, covenants and events of default, and increases
in the amount of the principal and interest rates under the Notes in the event of such defaults. In connection with the issuance
of Note I, the Company recorded will record a debt discount, related to the embedded conversion option derivative liability. As
the note conversion includes a “lesser of” pricing provision, a derivative liability will also be recorded.
On
July 6, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $132,300 (the “Notes”), with the first note
being in the amount of $66,150 (“Note I”) and the second note being in the amount of $66,150 (“Note II”)
with a maturity date of July 7, 2017. Pursuant to Note I, the Company received $60,000 of net proceeds, net of original issue
discount of $3,150 and legal fees of $3,000. Note II was initially paid for by the issuance of an offsetting $63,000 secured note
issued by the Lender to the Company (“Secured Note”). The Notes bear an interest rate of 10%; and maybe converted
into shares of Company common stock, convertible at variable conversion price at a 35% discount of the lowest closing bid price
of the common stock for the 15 trading days prior to conversion. The Notes also contain certain representations, warranties, covenants
and events of default, and increases in the amount of the principal and interest rates under the Notes in the event of such defaults.
In connection with the issuance of the note, the Company will record a premium as the note is considered stock settled debt under
ASC 480.
On
July 25, 2016, the Board of Directors (“Board”) of PositiveID authorized a Certificate of Designations of Preferences,
Rights and Limitations of Series II Convertible Preferred Stock (the “Certificate”). The Certificate was filed with
the State of Delaware Secretary of State on July 25, 2016. The Series II Convertible Preferred Stock (“Series II”)
ranks: (a) senior with respect to dividends and right of liquidation with the Common Stock, par value $0.01 (“Common Stock”);
(b) pari passu with respect to dividends and right of liquidation with the Corporation’s Series I Convertible Preferred
Stock (“Series I”) and Series J Convertible Preferred Stock; and (c) junior to all existing and future indebtedness
of the Company. The Series II has a stated value per share of $1,000, subject to adjustment as provided in the Certificate (the
“Stated Value”), and a dividend rate of 6% per annum of the Stated Value. The Series II Preferred Stock has voting
rights equal to the number of shares of Common stock that Series II Preferred Stock is convertible into times twenty five. The
Series II is subject to redemption (at Stated Value, plus any accrued, but unpaid dividends (the “Liquidation Value”))
by the Company no later than three years after a Deemed Liquidation Event and at the Company’s option after one year from
the issuance date of the Series II, subject to a ten-day notice (to allow holder conversion). The Series II is convertible at
the option of a holder or if the closing price of the Common Stock exceeds 400% of the Conversion Price for a period of twenty
consecutive trading days, at the option of the Company. Conversion Price means a price per share of the Common Stock equal to
100% of the lowest daily volume weighted average price of the Common Stock during the subsequent 12 months following the date
the Series II was issued. On August 11, 2016, the Board of PositiveID agreed to exchange 2,025 shares of its Series I, which shares
have a stated value of $2,261,800, held by its directors, officers and management, for 2,262 shares of Series II (the “Exchange”).
Pursuant to the Exchange each existing holder of Series I exchanged their Series I shares for Series II shares having equivalent
stated value, maintaining the same voting rights as they had as holders of the Series I. Both the Series I and the Series
II have a stated value per share of $1,000, and a dividend rate of 6% per annum. All shares of Series I previously issued have
become null and void and any and all rights arising thereunder have been extinguished. The Series II will vest on January
1, 2019, subject to acceleration in the event of conversion or redemption.
On
August 1, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of a Convertible Redeemable Note with a principal amount of $52,500 (the “Note”) and maturity date of April 29, 2017,
pursuant to Note, the Company received $50,000 of net proceeds, net of original issue discount of $2,500. The Note bears an interest
rate of 10%; and maybe converted into shares of Company common stock, convertible at variable conversion price at a 37.5% discount
of the three lowest closing bid price of the common stock for the 20 trading days prior to conversion. The Note also contain certain
representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rates
under the Note in the event of such defaults. In connection with the issuance of the note, the Company will record a premium as
the note is considered stock settled debt under ASC 480.
The
Company, subsequent to the quarter ended June 30, 2016, issued approximately 7,084,000 shares of common stock for the conversion
of notes with a principal and interest value of approximately $549,000.
The
Company, subsequent to the quarter ended June 30, 2016, issued 100,000 shares of common stock which vest on January 1, 2017 and
with grant date fair value of approximately $11,500, to consultants. The value will be amortized over the service periods.
PART
II — INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item.
13 Other Expenses Of Issuance And Distribution.
Securities
and Exchange Commission registration fee
|
|
$
|
33
|
|
Transfer Agent Fees
|
|
$
|
2,000
|
|
Accounting fees and
expenses
|
|
$
|
5,000
|
|
Legal fees and expense
|
|
$
|
10,000
|
|
Miscellaneous
|
|
$
|
1,000
|
|
Total
|
|
$
|
18,033
|
|
All
amounts are estimates other than the SEC’s registration fee. The Company is paying all of the registration expenses incurred
in connection with the registration of the shares except for accounting fees and expenses. No portion of these expenses will be
borne by the selling stockholders. The selling stockholders, however, will pay any other expenses incurred in selling their common
stock, including any brokerage commissions or costs of sale.
Item
14. Indemnification of Directors and Officers.
Under
Section 145 of the Delaware General Corporation Law, or the DGCL, a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person
is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by
the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe the person’s conduct was unlawful.
Section
145 also provides that a corporation has the power to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the corporation. However, no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Expenses
(including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as authorized in Section 145 of the DGCL. Such expenses
(including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
Notwithstanding
the instances outlined above where a corporation may indemnify its current and former directors and officers, a corporation may
purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation against any liability
asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as
such. Correspondingly, we have purchased and maintain insurance on behalf of our directors and officers against any liability
asserted against such directors and officers in their capacities as such.
Our
certificate of incorporation and by-laws provide that we shall indemnify, to the full extent permitted by law, any of our current
or former directors or officers and that we may indemnify, to the full extent permitted by law, any of our current or former employees
or agents against all expense, liability and loss incurred as a result of such service, or as a result of any other service on
our behalf, or service at our request as a director, officer, employee member or agent of another corporation, partnership, joint
venture, trust or other enterprise.
Item
15. Recent Sales of Unregistered Securities.
1)
|
On
October 1, 2013, we issued 800,000 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
2)
|
On
October 16, 2013, we issued 900,000 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
3)
|
On
October 17, 2013, we issued 50,000 shares of our common stock to Eran Gazit in connection with a consulting agreement.
|
|
|
4)
|
On
October 29, 2013, we issued 1,000,000 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
5)
|
On
November 7, 2013, we issued 1,104,236 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
6)
|
On
December 11, 2013, we issued 1,200,000 shares of our common stock to JMJ Financial in connection with the conversion of a
promissory note.
|
|
|
7)
|
On
December 18, 2013, we issued 500,000 shares of our common stock to American Capital Ventures in connection with a consulting
agreement.
|
|
|
8)
|
On
December 19, 2013, we issued 1,400,000 shares of our common stock to JMJ Financial in connection with the conversion of a
promissory note.
|
|
|
9)
|
On
December 31, 2013, we issued an aggregate of 1,500,000 shares of our common stock to our board of directors.
|
|
|
10)
|
On
December 31, 2013, we issued 75 shares of Series I Preferred Stock to the non-executive members of the board of directors
as a component of director’s compensation for 2014
|
We
made the foregoing stock issuances in reliance upon the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
During
the three months ended March 31, 2014, we issued shares of our common stock that were not registered under the Securities Act,
and were not previously disclosed in a Current Report on Form 8-K as follows:
1)
|
On
January 10, 2014, we issued 1,418,440 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion
of a promissory note.
|
|
|
2)
|
On
January 10, 2014, we issued 150 shares of Series F Preferred Stock to Ironridge as a fee pursuant to the Stock Purchase Agreement
dated August 26, 2013.
|
|
|
3)
|
On
January 13, 2014, we issued 725,734 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
4)
|
On
January 14, 2014, we issued 2,127,660 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion
of a promissory note.
|
|
|
5)
|
On
January 14, 2014, we issued 512 shares of Series I Preferred Stock to management and executives as compensation.
|
|
|
6)
|
On
January 16, 2014, we issued 2,243,972 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion
of a promissory note.
|
|
|
7)
|
On
January 28, 2014, we issued 1,666,399 shares of our common stock to JMJ Financial in connection with a cashless warrant exercise.
|
|
|
8)
|
On
February 6, 2014, we issued 250,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
9)
|
On
February12, 2014, we issued 1,000,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
10)
|
On
February17, 2014, we issued 250,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
11)
|
On
February18, 2014, we issued 714,298 shares of our common stock to JMJ Financial in connection with a cashless warrant exercise.
|
|
|
12)
|
On
February18, 2014, we issued 250,000 shares of our common stock to a consultant pursuant to a consulting agreement
|
|
|
13)
|
On
February 20, 2014, we issued 2,162,135 shares of our common stock to JMJ Financial in connection with a cashless warrant exercise.
|
|
|
14)
|
On
February 27, 2014, we issued 200 shares of Series F Preferred Stock to Ironridge pursuant to the Stock Purchase Agreement
dated February 27, 2014.
|
|
|
15)
|
On
March 3, 2014, we issued 1,628,356 shares of our common stock to JMJ Financial in connection with a cashless warrant exercise.
|
|
|
16)
|
On
March 9, 2014, we issued 1,000,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
17)
|
On
March 12, 2014, we issued 150,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
18)
|
On
March 14, 2014, we issued 300,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
19)
|
On
March 28, 2014, we issued 100 shares of Series F Preferred Stock to Ironridge as a fee pursuant to the Stock Purchase Agreement
dated February 27, 2014.
|
Except
as discussed below, the shares of stock described above were issued without registration in reliance upon the exemption provided,
among others, by Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving any public offering. Our
reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the transaction did not involve a public
offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of
the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
During
the three months ended June 30, 2014, we issued shares of our Common Stock that were not registered under the Securities Act,
and were not previously disclosed in a Current Report on Form 8-K as follows:
|
1)
|
On
April 3, 2014, we issued 2,359,838 shares of our common stock to JMJ Financial in connection with cashless warrant exercises.
|
|
|
|
|
2)
|
On
April 16, 2014, we issued an aggregate of 1,000,000 shares of our common stock to certain members of our senior management
as performance-based incentive compensation for 2013.
|
|
|
|
|
3)
|
On
May 1, 2014, we issued 300,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
4)
|
On
May 7, 2014, we issued 350,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
5)
|
On
May 30, 2014, we issued 3,348,458 of our common shares to Ironridge Global IV, LLC Pursuant to the preferred stock agreement
dated August 26, 2013.
|
|
|
|
|
6)
|
On
June 19, 2014, we issued 589,971 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion of
a promissory note.
|
|
|
|
|
7)
|
On
June 23, 2014, we issued 558,659 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion of
a promissory note.
|
|
|
|
|
8)
|
On
June 23, 2014, we issued 250,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
9)
|
On
June 23, 2014, we issued 250,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
10)
|
On
June 26, 2014, we issued 470,219 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion of
a promissory note.
|
|
|
|
|
11)
|
On
June 30, 2014, we issued 901,899 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion of
a promissory note.
|
Except
as discussed below, the shares of stock described above were issued without registration in reliance upon the exemption provided,
among others, by Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving any public offering. Our
reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the transaction did not involve a public
offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of
the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
During
the three months ended September
30, 2014, we issued shares of our common stock, par value $0.01 per share that were not
registered under the Securities Act, and were not previously disclosed in a Current Report on Form 8-K as follows:
|
1.
|
On
July 2, 2014, we issued 773,718 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion of
a promissory note.
|
|
|
|
|
2.
|
On
July 30, 2014, we issued 1,123,596 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion
of a promissory note.
|
|
3.
|
On
July 30, 2014, we issued 5,209,004 of our common shares to Ironridge Global IV, LLC pursuant to the preferred stock agreement
dated August 26, 2013.
|
|
|
|
|
4.
|
On
August 5, 2014, we issued 679,245 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion
of a promissory note.
|
|
|
|
|
5.
|
On
August 7, 2014, we issued 1,329,644 shares of our common stock to Asher Enterprises, Inc. in connection with the conversion
of a promissory note.
|
|
|
|
|
6.
|
On
August 7, 2014, we issued 2,000,000 shares of our common stock to a consultant pursuant to a consulting agreement. Pursuant
to a settlement agreement, these shares will be returned to the Company due to non-performance of agreed upon consulting services.
|
|
|
|
|
7.
|
On
August 18, 2014, we issued 4,024,654 of our common shares to Ironridge Global IV, LLC pursuant to the preferred stock agreement
dated August 26, 2013.
|
|
|
|
|
8.
|
On
August 21, 2014, we issued 700,000 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
|
|
9.
|
On
August 22, 2014, we issued 100,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
10.
|
On
August 25, 2014, we issued 4,149,378 shares of our common stock to Redwood Fund II, LLC in connection with the conversion
of a promissory note.
|
|
|
|
|
11.
|
On
September 4, 2014, we issued 2,000,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
12.
|
On
September 9, 2014, we issued 900,000 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
|
|
13.
|
On
September 12, 2014, we issued 5,340,579 of our common shares to Ironridge Global IV, LLC pursuant to the preferred stock agreement
dated February 28, 2014.
|
|
|
|
|
14.
|
On
September 15, 2014, we issued 269,350 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
15.
|
On
September 16, 2014, we issued 376,344 shares of our common stock to Adar Bays, LLC in connection with the conversion of a
promissory note.
|
|
|
|
|
16.
|
On
September 19, 2014, we issued 840,035shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
17.
|
On
September 23, 2014, we issued 868,767 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
18.
|
On
September 24, 2014, we issued 1,000,000 shares of our common stock to JMJ Financial in connection with the conversion of a
promissory note.
|
|
|
|
|
19.
|
On
September 29, 2014, we issued 869,863 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
Except
as discussed below, the shares of stock described above were issued without registration in reliance upon the exemption provided,
among others, by Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving any public offering. Our
reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the transaction did not involve a public
offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of
the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
On
October 2, 2014, we issued 1,100,000 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
On
October 2, 2014, we issued 1,450,685 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
October 3, 2014, we issued 279,117 shares of our common stock to Union Capital, LLC in connection with the conversion of a
promissory note.
|
|
|
|
|
|
On
October 3, 2014, we issued 1,273,656 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
October 7, 2014, we issued 555,556 shares of our common stock to Adar Bays, LLC in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
October 7, 2014, we issued 6,242,112 shares of our common stock to Ironridge Global IV, LLC pursuant to the preferred stock
agreement dated August 26, 2013.
|
|
|
|
|
|
On
October 7, 2014, we issued 555,555 shares of our common stock to Coventry Enterprises, LLC in connection with the conversion
of a promissory note.
|
|
|
|
|
|
On
October 1, 2014, we issued 800,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
October 9, 2014, we issued 1,056,739 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
October 13, 2014, we issued 2,237,808 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
October 13, 2014, we issued 1,711,808 shares of our common stock to LG Capital Funding, LLC in connection with the conversion
of a promissory note.
|
|
|
|
|
|
On
October 15, 2014, we issued 975,610 shares of our common stock to KBM Worldwide, Inc. in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
October 15, 2014, we issued 58,051 shares of our common stock to LG Capital Funding, LLC in connection with the conversion
of a promissory note.
|
|
|
|
|
|
On
October 16, 2014, we issued 2,127,103 shares of our common stock to KBM Worldwide, Inc. in connection with the conversion
of a promissory note.
|
|
|
|
|
|
On
October 17, 2014, we issued 3,400,000 shares of our common stock to JMJ Financial in
connection with the conversion of a promissory note.
|
|
|
|
|
|
On
October 20, 2014, we issued 2,333,333 shares of our common stock to Coventry Enterprises, LLC in connection with the conversion
of a promissory note.
|
|
|
|
|
|
On
October 20, 2014, we issued 1,600,870 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
On
October 20, 2014, we issued 1,322,751 shares of our common stock to Adar Bays, LLC in connection with the conversion of a
promissory note.
|
|
|
|
|
|
On
October 21, 2014, we issued 1,316,349 shares of our common stock to Adar Bays, LLC in connection with the conversion of a
promissory note.
|
|
|
|
|
|
On
October 22, 2014, we issued 697,785 shares of our common stock to Adar Bays, LLC in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
October 22, 2014, we issued 180,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
October 23, 2014, we issued 4,988,220 shares of our common stock to Ironridge Global IV, LLC pursuant to the preferred stock
agreement dated August 26, 2013.
|
|
|
|
|
|
On
October 27, 2014, we issued 2,890,411 shares of our common stock to Auctus Private Equity Fund, LLC in connection with the
conversion of a promissory note.
|
|
|
|
|
|
On
October 27, 2014, we issued 1,126,126 shares of our common stock to Adar Bays, LLC in connection with the conversion of a
promissory note.
|
|
|
|
|
|
On
October 31, 2014, we issued 3,510,704 shares of our common stock to JMJ Financial in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
November 3, 2014, we issued 496,032 shares of our common stock to Adar Bays, LLC in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
November 5, 2014, we issued 258,018 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
November 5, 2014, we issued 300,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
November 10, 2014, we issued 545,635 shares of our common stock to Adar Bays, LLC in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
November 11, 2014, we issued 1,450,172 shares of our common stock to Adar Bays, LLC in connection with the conversion of a
promissory note.
|
|
|
|
|
|
On
November 12, 2014, we issued 775,196 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
November 17, 2014, we issued 1,050,311 shares of our common stock to Union Capital, LLC in connection with the conversion
of a promissory note.
|
|
|
|
|
|
On
November 21, 2014, we issued 527,190 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
December 2, 2014, we issued 528,407 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
December 8, 2014, we issued 435,034 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
December 11, 2014, we issued 66,915 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
On
December 22, 2014, we issued 525,315 shares of our common stock to Union Capital, LLC in connection with the conversion of
a promissory note.
|
|
|
|
|
|
On
December 24, 2014, we issued 1,006,575 shares of our common stock to Union Capital, LLC in connection with the conversion
of a promissory note.
|
We
made the foregoing stock issuances in reliance upon the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
On
January 5, 2015, we issued 872,153 shares of our common stock to a lender in connection with the conversion of a promissory note.
|
|
On
January 5, 2015, we issued 185,185 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 7, 2015, we issued 771,605 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 7, 2015, we issued 6,177,606 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 9, 2015, we issued 935,261 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 9, 2015, we issued 617,284 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 5, 2015, we issued 1,234,568 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 12, 2015, we issued 1,560,883 shares of our common stock to an advisor in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 13, 2015, we issued 936,073 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 14, 2015, we issued 1,543,210 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 20, 2015, we issued 750,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
January 20, 2015, we issued 1,205,349 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 21, 2015, we issued 1,984,127 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 22, 2015, we issued 1,912,698 shares of our common stock a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
January 28, 2015, we issued 6,808,511 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
On
February 6, 2015, we issued 500,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
February 10, 2015, we issued 800,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
February 17, 2015, we issued 5,000,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
February 23, 2015, we issued 8,363,636 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
February 23, 2015, we issued 750,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
March 3, 2015, we issued 4,000,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
March 4, 2015, we issued 1,400,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
March 12, 2015, we issued 3,500,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
March 20, 2015, we issued 750,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
March 20, 2015, we issued 9,004,443 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
March 23, 2015, we issued 361,073 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
March 24, 2015, we issued 4,295,341 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
March 30, 2015, we issued 700,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
Except
as discussed below, the shares of stock described above were issued without registration in reliance upon the exemption provided,
among others, by Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving any public offering. Our
reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the transaction did not involve a public
offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of
the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
On
April 4, 2015, we issued 900,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
On
April 6, 2015, we issued 3,560,976 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
April 7, 2015, we issued 2,886,002 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
On
April 9, 2015, we issued 4,704,184 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
April 9, 2015, we issued 3,333,333 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
April 14, 2015, we issued 675,894 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
April 22, 2015, we issued 1,000,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
April 23, 2015, we issued 991,179 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
April 27, 2015, we issued 6,741,573 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
May 6, 2015, we issued 800,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
May 13, 2015, we issued 1,293,389 shares of our common stock to a lender in connection with the conversion of a promissory
note
|
|
|
|
|
|
On
May 13, 2015, we issued 1,000,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
May 26, 2015, we issued 5,000,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 1, 2015, we issued 1,127,386 shares of our common stock a lender in connection with the conversion of a promissory note.
|
|
|
|
|
|
On
June 5, 2015, we issued 4,722,200 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 9, 2015, we issued 1,250,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 15, 2015, we issued 1,322,877 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 16, 2015, we issued 2,333,333 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 16, 2015, we issued 1,875,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 17, 2015, we issued 12,000,000 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 18, 2015, we issued 100,000 shares of our common stock to a consultant pursuant to a consulting agreement.
|
|
|
|
|
|
On
June 18, 2015, we issued 3,365,219 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
On
June 19, 2015, we issued 10,434,783 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 22, 2015, we issued 5,210,553 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 24, 2015, we issued 1,855,938 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
|
|
|
|
|
On
June 26, 2015, we issued 3,975,309 shares of our common stock to a lender in connection with the conversion of a promissory
note.
|
Except
as discussed below, the shares of stock described above were issued without registration in reliance upon the exemption provided,
among others, by Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving any public offering. Our
reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the transaction did not involve a public
offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of
the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
During
the quarter ended September 30, 2015, we issued 51,722,159 shares of our common stock to a lender in connection with the conversion
of convertible promissory notes.
During
the quarter ended September 30, 2015, we issued 5,857,374 shares of our common stock to another lender in connection with the
conversion of convertible promissory notes.
Except
as discussed below, the shares of stock described above were issued without registration in reliance upon the exemption provided,
among others, by Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving any public offering. Our
reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the transaction did not involve a public
offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of
the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
|
1.
|
During
the quarter ended December 31, 2015, we issued 54,381,084 shares of our common stock to a lender in connection with the conversion
of promissory notes.
|
|
|
|
|
2.
|
On
October 1, 2015, we issued 5,000,000 shares of our common stock to a consultant in connection with the consulting agreement.
|
|
|
|
|
3.
|
On
November 1, 2015, we issued 900,000 shares of our common stock to a consultant in connection with the consulting agreement.
|
|
|
|
|
4.
|
On
November 30, 2015, we issued 3,919,741 shares of our common stock to another lender in connection with the conversion of a
promissory note.
|
We
made the foregoing stock issuances in reliance upon the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
During
the quarter ended March
31, 2016, we issued 44.8 million shares of our common stock to a lender in connection with the
conversion of convertible promissory notes.
|
During
the quarter ended March
31, 2016, we issued 4.2 million shares of our common stock to another lender in connection
with the conversion of convertible promissory notes.
|
|
|
|
During
the quarter ended March
31, 2016, we issued 5.7 million shares of our common stock to a third lender in connection
with the conversion of convertible promissory notes.
|
|
|
|
During
the quarter ended March
31, 2016, we issued 3.0 million shares of our common stock to two consultants in connection
with consulting agreements.
|
Except
as discussed below, the shares of stock described above were issued without registration in reliance upon the exemption provided,
among others, by Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving any public offering. Our
reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the transaction did not involve a public
offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of
the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
During
the three months ended June 30, 2016, we issued 3.7 million shares of our common stock to a lender in connection with their conversion
of convertible promissory notes. The notes were converted at an average price per share of $0.15.
During
the quarter ended June 30, 2016, we issued 2.9 million shares of our common stock to a second lender in connection with their
conversion of convertible promissory notes. The notes were converted at an average price per share of $0.15.
During
the quarter ended June 30, 2016, we issued 0.3 million shares of our common stock to a third lender in connection with their conversion
of convertible promissory notes. The notes were converted at an average price per share of $0.15.
On
April 4, 2016, we issued 8,700 shares of our common stock to a consultant pursuant to a 12-month investor relations consulting
agreement. The shares had a grant date fair value of $4,875 based on the trading price of the Company’s common stock on
the issuance date.
On
May 9, 2016, we issued 100,000 shares of our common stock to a consultant pursuant to a 12-month investor relations consulting
agreement. The shares had a grant date fair value of $37,500 based on the trading price of the Company’s common stock on
the issuance date.
On
June 15, 2016, we issued 60,000 shares of our common stock to a consultant pursuant to a 6-month investor relations consulting
agreement. The shares had a grant date fair value of $18,300 based on the trading price of the Company’s common stock on
the issuance date.
In
addition, on July 25, 2016, the Board of Directors (“Board”) of PositiveID authorized a Certificate of Designations
of Preferences, Rights and Limitations of Series II Convertible Preferred Stock (the “Certificate”). The Certificate
was filed with the State of Delaware Secretary of State on July 25, 2016. The Series II Convertible Preferred Stock (“Series
II”) ranks: (a) senior with respect to dividends and right of liquidation with the Common Stock, par value $0.01 (“Common
Stock”); (b) pari passu with respect to dividends and right of liquidation with the Corporation’s Series I Convertible
Preferred Stock (“Series I”) and Series J Convertible Preferred Stock; and (c) junior to all existing and future indebtedness
of the Company. The Series II has a stated value per share of $1,000, subject to adjustment as provided in the Certificate (the
“Stated Value”), and a dividend rate of 6% per annum of the Stated Value. The Series II Preferred Stock has voting
rights equal to the number of shares of Common stock that Series II Preferred Stock is convertible into times twenty-five. The
Series II is subject to redemption (at Stated Value, plus any accrued, but unpaid dividends (the “Liquidation Value”))
by the Company no later than three years after a Deemed Liquidation Event and at the Company’s option after one year from
the issuance date of the Series II, subject to a ten-day notice (to allow holder conversion). The Series II is convertible at
the option of a holder or if the closing price of the Common Stock exceeds 400% of the Conversion Price for a period of twenty
consecutive trading days, at the option of the Company. Conversion Price means a price per share of the Common Stock equal to
100% of the lowest daily volume weighted average price of the Common Stock during the subsequent 12 months following the date
the Series II was issued. On August 11, 2016, the Board of PositiveID agreed to exchange 2,025 shares of its Series I, which shares
have a stated value of $2,261,800, held by its directors, officers and management, namely, our CEO, acting CFO and Chairman, William
J. Caragol, our President, Lyle L. Probst, and our three non-employee directors, Jeffrey Cobb, Michael Krawitz, and Ned L. Siegel,
as well as Allison Tomek, our Senior Vice President of Corporate Development, and Kimothy Smith, our Chief Technology Advisor,
for 2,262 shares of Series II (the “Exchange”). Pursuant to the Exchange each existing holder of Series I exchanged
their Series I shares for Series II shares having equivalent stated value, maintaining the same voting rights as they had as holders
of the Series I. Both the Series I and the Series II have a stated value per share of $1,000, and a dividend rate of 6% per annum.
All shares of Series I previously issued have become null and void and any and all rights arising thereunder have been extinguished.
The Series II will vest on January 1, 2019, subject to acceleration in the event of conversion or redemption.
The
securities described above were issued without registration in reliance upon the exemption provided, among others, by Section
4(2) of the Securities Act of 1933, as amended, as transactions not involving any public offering. Our reliance on Section 4(2)
of the Securities Act was based upon the following factors: (a) the transactions did not involve a public offering; (b) there
were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by
us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sales of the securities
took place directly between the offerees and us.
|
1.
|
From
July 1, 2016 to September 23, 2016, we issued 23.8 million shares of our common stock to a lender in connection with their
conversion of convertible promissory notes.
|
|
|
|
|
2.
|
July
1, 2016 to September 23, 2016, we issued 1.4 million shares of our common stock to a second lender in connection with their
conversion of convertible promissory notes.
|
|
|
|
|
3.
|
On
July 25, 2016, we issued 100,000 shares of our common stock to a consultant pursuant to a 12-month consulting agreement. The
shares had a grant date fair value of $11,200 based on the trading price of the Company’s common stock on the issuance
date.
|
|
|
|
|
4.
|
On
August 12, 2016, we issued 400,000 shares of our common stock to a consultant pursuant to a 6-month investor relations consulting
agreement. The shares had a grant date fair value of $40,000 based on the trading price of the Company’s common stock
on the issuance date.
|
We
made the foregoing stock issuances in reliance upon the exemption from registration under Section 4(2) of the Securities Act.
Item
16. Exhibits and Financial Statement Schedules.
3.1
|
|
Second
Amended and Restated Certificate of Incorporation of PositiveID Corporation filed with the Secretary of State of Delaware
on December 18, 2006, as amended on November 10, 2009, January 27, 2012, May 31, 2012, and April 18, 2013 (1a).
|
|
|
|
3.2
|
|
Fifth
Amendment to the Second Amended and Restated Certificate of Incorporation of PositiveID Corporation filed on December 8, 2014
(1b).
|
|
|
|
3.3
|
|
Sixth
Amendment to the Second Amended and Restated Certificate of Incorporation filed on April 30, 2015 (1c).
|
|
|
|
3.4
|
|
Seventh
Amendment to the Second Amended and Restated Certificate of Incorporation filed on February 25, 2016 (1d).
|
|
|
|
3.5
|
|
Eighth
Amendment to the Second Amended and Restated Certificate of Incorporation filed on June 27, 2016 (1e).
|
|
|
|
3.6
|
|
Second
Amended and Restated By-Laws of PositiveID Corporation adopted on April 8, 2016 (1f).
|
|
|
|
3.7
|
|
Certificate
of Elimination to Eliminate the Company’s Series C Convertible Preferred Stock, Series F Convertible Preferred Stock,
and Series H Convertible Preferred Stock (1g)
|
|
|
|
4.1
|
|
Form
of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Form 10-K previously filed by PositiveID
Corporation on March 19, 2010).
|
|
|
|
4.2
|
|
Certificate
of Designations of Preferences, Rights and Limitations of Series J Convertible Preferred Stock (12)
|
4.3
|
|
Certificate
of Designation of the Series II Convertible Preferred Stock (1h)
|
|
|
|
5.1***
|
|
Legal
Opinion of Lucosky Brookman, LLP
|
|
|
|
10.1 *
|
|
PositiveID
Corporation 2011 Stock Incentive Plan (incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-8
previously filed by PositiveID Corporation on September 7, 2011) (Registration No. 333-176716).
|
|
|
|
10.2
*
|
|
Form
of Non-Qualified Stock Option Award Agreement under the PositiveID Corporation 2011 Stock Incentive Plan (incorporated by
reference to Exhibit 10.21 of the Form 10-K previously filed by PositiveID Corporation on April 16, 2013).
|
|
|
|
10.3
*
|
|
Form
of Restricted Stock Award Agreement under the PositiveID Corporation 2011 Stock Incentive Plan (incorporated by reference
to Exhibit 10.22 of the Form 10-K previously filed by PositiveID Corporation on April 16, 2013).
|
|
|
|
10.4
*
|
|
Employment
and Non-Compete Agreement, dated September 30, 2011 between PositiveID Corporation and Bryan D. Happ (incorporated by reference
to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on September 30, 2011).
|
|
|
|
10.5
|
|
Secured
Promissory Note, dated January 11, 2012, between PositiveID Corporation and VeriTeQ Acquisition Corporation (incorporated
by reference to Exhibit 10.65 of the Form S-1 previously filed by PositiveID Corporation on January 25, 2012).
|
|
|
|
10.6
|
|
Letter
Agreement, dated March 7, 2012, between PositiveID Corporation and Stanley Black & Decker, Inc. (incorporated by reference
to Exhibit 10.10 of the Form 10-Q previously filed by PositiveID Corporation on May 14, 2012).
|
|
|
|
10.7
|
|
Letter
Agreement, dated May 30, 2012, between PositiveID Corporation and Stanley Black & Decker, Inc. (incorporated by reference
to Exhibit 10.76 of the Registration Statement on Form S-1/A previously filed by PositiveID Corporation on June 5, 2012) (Registration
No. 333-180645).
|
|
|
|
10.8
|
|
Secured
Promissory Note, dated July 9, 2012, between PositiveID Corporation and Holland & Knight LLP (incorporated by reference
to Exhibit 10.8 of the Form 10-Q previously filed by PositiveID Corporation on August 20, 2012).
|
|
|
|
10.9
|
|
Separation
Agreement and General Release, dated September 28, 2012, between PositiveID Corporation and Bryan D. Happ (incorporated by
reference to Exhibit 10.14 of the Form 10-Q previously filed by PositiveID Corporation on November 16, 2012).
|
|
|
|
10.10
|
|
Agreement,
dated February 15, 2013, among PositiveID Corporation, Smart Glucose Meter Corp., Easy Check Medical Diagnostics, LLC, Easy-Check
Medical Diagnostic Technologies Ltd., and Benjamin Atkin (incorporated by reference to Exhibit 10.99 of the Form 10-K previously
filed by PositiveID Corporation on April 16, 2013).
|
|
|
|
|
|
|
10.11
|
|
Letter
Agreement, dated July 8, 2013, between PositiveID Corporation and VeriTeQ Acquisition Corporation (incorporated by reference
to Exhibit 10.1 of Current Report on Form 8-K previously filed by PositiveID Corporation on July 10, 2013).
|
|
|
|
10.12
|
|
Letter
Agreement, dated November 8, 2013, by and among PositiveID Corporation and VeriTeQ Corporation (f/k/a Digital Angel Corporation)
(incorporated by reference to Exhibit 10.2 of the Form 8-K filed by PositiveID Corporation on November 14, 2013)
|
|
|
|
10.13
|
|
Statement
of Work, dated February 4, 2014, between the Company and Hamilton Sundstrand (1)
|
|
|
|
10.14
|
|
Purchase
Order, dated March 28, 2014, between the Company and Hamilton Sundstrand (1)
|
|
|
|
10.15
|
|
Securities
Purchase Agreement, dated August 13, 2014, with Toledo Advisors LLC (2)
|
|
|
|
10.16
|
|
First
Convertible Promissory Note dated August 13, 2014 with Toledo Advisors LLC (2)
|
|
|
|
10.17
|
|
Second
Convertible Promissory Note dated August 13, 2014 with Toledo Advisors LLC (2)
|
|
|
|
10.18
|
|
Financing
Agreement, dated June 30, 2014, with Macallan Partners, LLC (2)
|
|
|
|
10.19
|
|
Convertible
Debenture, dated June 30, 2014, with Macallan Partners, LLC (2)
|
|
|
|
10.20
|
|
Securities
Purchase Agreement, dated September 15, 2014, with Union Capital, LLC (3)
|
|
|
|
10.21
|
|
First
8% Convertible Redeemable Note, dated September 15, 2014, with Union Capital, LLC (3)
|
|
|
|
10.22
|
|
First
8% Convertible Redeemable Note, dated September 15, 2014, with Union Capital, LLC (3)
|
|
|
|
10.23
|
|
Securities
Purchase Agreement, dated September 19, 2014, with Auctus Private Equity Fund, LLC (3)
|
|
|
|
10.24
|
|
Convertible
Promissory Note, dated September 19, 2014, with Auctus Private Equity Fund, LLC (3)
|
10.25
|
|
Securities
Purchase Agreement, dated September 29, 2014, with KBM Worldwide, Inc. (4)
|
|
|
|
10.26
|
|
Convertible
Redeemable Note, dated September 29, 2014, with KBM Worldwide, Inc. (4)
|
|
|
|
10.27
|
|
Convertible
Redeemable Note, dated September 30, 2014, with JSJ Investments Inc. (4)
|
|
|
|
10.28
|
|
GlucoChip
and Settlement Agreement, dated October 20, 2014, by PositiveID Corporation and VeriTeQ Corporation (5)
|
|
|
|
10.29
|
|
Convertible
Promissory Note, principal amount $222,115.07, dated October 20, 2014, by PositiveID Corporation and VeriTeQ Corporation (5)
|
|
|
|
10.30
|
|
Convertible
Promissory Note, principal amount $60,000, dated October 20, 2014, by PositiveID Corporation and VeriTeQ Corporation (5)
|
|
|
|
10.31
|
|
Securities
Purchase Agreement, dated October 24, 2014, with Blue Citi, LLC (6)
|
|
|
|
10.32
|
|
Convertible
Promissory Note, dated October 24, 2014, with Blue Citi, LLC (6)
|
|
|
|
10.33
|
|
Securities
Purchase Agreement, dated October 21, 2014, with LG Capital (6)
|
|
|
|
10.34
|
|
First
8% Convertible Redeemable Note, dated October 21, 2014, with LG Capital (6)
|
|
|
|
10.35
|
|
Second
8% Convertible Redeemable Note, dated October 21, 2014, with LG Capital (6)
|
|
|
|
10.36
|
|
4%
Original Issue Discount Senior Secured Promissory Convertible Note, dated November 21, 2014, by and between PositiveID Corp
and Dominion Capital LLC (7)
|
|
|
|
10.37
|
|
Securities
Purchase Agreement, dated November 21, 2014, by and between PositiveID Corp and Dominion Capital LLC (7)
|
|
|
|
10.38
|
|
Security
Agreement, dated November 21, 2014, by and among PositiveID Corp, all of the Subsidiaries of the Company and Dominion Capital
LLC (7)
|
|
|
|
10.39
|
|
Subsidiary
Guarantee, dated November 21, 2014, made by the Subsidiaries in favor of Dominion Capital LLC (7)
|
|
|
|
10.40
|
|
Amendment
and Restatement in Full of $550,000 Senior Secured, Convertible, Redeemable Debenture of PositiveID Corporation (8)
|
|
|
|
10.41
|
|
$158,400.00
Senior Convertible, Redeemable Debenture of PositiveID Corporation (8)
|
|
|
|
10.42
|
|
Convertible
Note Agreement, dated May 11, 2015, between PositiveID Corporation and Regal Consulting (9)
|
|
|
|
10.43
|
|
Convertible
Note Agreement, dated May 11, 2015, between PositiveID Corporation and Circadian Group (9)
|
|
|
|
10.44
|
|
Form
of 4% Original Issue Discount Senior Secured Promissory Convertible Note, dated August 14, 2015, by and between PositiveID
Corp and Dominion Capital LLC (10)
|
|
|
|
10.45
|
|
Form
of Securities Purchase Agreement, dated August 14, 2015, by and between PositiveID Corp and Dominion Capital LLC (10)
|
|
|
|
10.46
|
|
Form
of Security Agreement, dated August 14, 2015, by and among PositiveID Corp, all of the Subsidiaries of the Company and Dominion
Capital LLC (10)
|
|
|
|
10.47
|
|
Form
of Subsidiary Guarantee, dated August 14, 2015, made by the Subsidiaries in favor of Dominion Capital LLC (10)
|
|
|
|
10.50
|
|
Stock
Purchase Agreement, dated October 21, 2015, by and between PositiveID Corporation and Sanomedics Inc. (11)
|
|
|
|
10.51
|
|
First
Amendment to Stock Purchase Agreement, dated December 4, 2015, by and between PositiveID Corporation and Sanomedics Inc. (12)
|
|
|
|
10.52
|
|
Management
Services and Control Agreement, dated December 4, 2015, by and between PositiveID Corporation and Sanomedics Inc. (12)
|
|
|
|
10.53
|
|
Security
Agreement, dated December 4, 2015, by and between PositiveID Corporation and Thermomedics Inc. (12)
|
|
|
|
10.54
|
|
Security
Agreement, dated December 4, 2015, by and between PositiveID Corporation and Sanomedics Inc. (12)
|
|
|
|
10.55
|
|
Convertible
Secured Promissory Note, dated December 22, 2015, by and between PositiveID Corporation and Dick Glass (13)
|
|
|
|
10.56
|
|
Form
of 4% Original Issue Discount Senior Secured Convertible Promissory Note, dated December 22, 2015, by and between PositiveID
Corporation and Dominion Capital, LLC (13)
|
|
|
|
10.57
|
|
Stock
Purchase Agreement, dated December 22, 2015, by and between PositiveID Corporation and Dick Glass (13)
|
10.58
|
|
Security
Agreement, dated December 22, 2015, by and between PositiveID Corporation and Dick Glass (13)
|
|
|
|
10.59
|
|
Form
of Securities Purchase Agreement, dated December 22, 2015, by and between PositiveID Corporation and Dominion Capital LLC (13)
|
|
|
|
10.60
|
|
Form
of Security Agreement, dated December 22, 2015, by and between PositiveID Corporation and Dominion Capital, LLC (13)
|
|
|
|
10.61
|
|
Form
of Subsidiary Agreement, dated December 22, 2015, by and between PositiveID Corporation and Dominion Capital, LLC (13)
|
|
|
|
10.62
|
|
Form
of 4% Original Issue Discount Senior Secured Promissory Convertible Note, dated January 28, 2016, by and between PositiveID Corp
and Dominion Capital LLC (14)
|
|
|
|
10.63
|
|
Form
of Placement Agent Warrant, dated January 28, 2016, by and Between PositiveID Corp. and Aegis Capital Corp (14)
|
|
|
|
10.64
|
|
Form
of Securities Purchase Agreement, dated January 28, 2016, by and between PositiveID Corp and Dominion Capital LLC (14)
|
|
|
|
10.65
|
|
Form
of Security Agreement, dated January 28, 2016, by and among PositiveID Corp, all of the Subsidiaries of the Company and Dominion
Capital LLC (14)
|
|
|
|
10.66
|
|
Form
of Subsidiary Guarantee, dated January 28, 2016, made by the Subsidiaries in favor of Dominion Capital LLC (14)
|
|
|
|
10.67
|
|
March
Agreement, dated March 4, 2016, by and between PositiveID Corporation, Sanomedics Inc., and Thermomedics, Inc. (15)
|
|
|
|
10.68
|
|
Form
of Securities Purchase Agreement, dated March 9, 2016, with Union Capital, LLC (16)
|
|
|
|
10.69
|
|
Form
of 12% Convertible Redeemable Note, dated March 9, 2016, with Union Capital, LLC (16)
|
|
|
|
10.70
|
|
Form
of 12% Convertible Redeemable Note, dated March 9, 2016, with Union Capital, LLC (16)
|
|
|
|
10.71
|
|
Form
of Union Collateralized Note, dated March 9, 2016, with PositiveID Corporation (16)
|
|
|
|
10.72
|
|
Form
of Securities Purchase Agreement, dated March 16, 2016, with Vis Vires Group, Inc. (17)
|
|
|
|
10.73
|
|
Convertible
Redeemable Note, dated March 16, 2016, with Vis Vires Group, Inc. (17)
|
|
|
|
10.74
|
|
Form
of Securities Purchase Agreement, dated April 1, 2016, with Union Capital, LLC (18)
|
|
|
|
10.75
|
|
Form
of 12% Convertible Redeemable Note, dated April 1, 2016, with Union Capital, LLC (18)
|
|
|
|
10.76
|
|
Form
of 12% Convertible Redeemable Note, dated April 1, 2016, with Union Capital, LLC (18)
|
|
|
|
10.77
|
|
Form
of Union Collateralized Note, dated April 1, 2016, with PositiveID Corporation (18)
|
|
|
|
10.78
|
|
Form
of Convertible Promissory Note, dated April 7, 2016, with Crown Bridge Partners, LLC. (18)
|
|
|
|
10.79
|
|
Form
of Securities Purchase Agreement, dated April 7, 2016, with Crown Bridge Partners, LLC. (18)
|
|
|
|
10.80
*
|
|
PositiveID
Corporation Employment and Non-Compete Agreement between the Company and William J. Caragol dated April 8, 2016. (18)
|
|
|
|
10.81
*
|
|
PositiveID
Corporation Employment and Non-Compete Agreement between the Company and Lyle Probst dated April 8, 2016 (18).
|
|
|
|
10.82
|
|
Form
of Securities Purchase Agreement, dated April 18, 2016, with Toledo Advisors, LLC (18a).
|
|
|
|
10.83
|
|
Form
of 10% Convertible Redeemable Note, dated April 18, 2016, with Toledo Advisors, LLC (18b).
|
|
|
|
10.84
|
|
Form
of 10% Convertible Redeemable Note, dated April 18, 2016, with Toledo Advisors, LLC (18c).
|
|
|
|
10.85
|
|
Form
of Toledo Advisors, LLC Collateralized Note, dated April 18, 2016, with PositiveID Corporation (18d).
|
10.86
|
|
Form
of Securities Purchase Agreement, dated April 19, 2016, with LG Capital Funding, LLC (19).
|
|
|
|
10.87
|
|
Form
of 10% Convertible Redeemable Note, dated April 19, 2016, with LG Capital Funding, LLC (20).
|
|
|
|
10.88
|
|
Form
of 10% Convertible Redeemable Note, dated April 19, 2016, with LG Capital Funding, LLC (21).
|
|
|
|
10.89
|
|
Form
of LG Capital Funding, LLC Collateralized Note, dated April 19, 2016, with PositiveID Corporation (22).
|
|
|
|
10.90
|
|
Form
of 12% Convertible Redeemable Note, dated April 27, 2016, with Union Capital, LLC (23).
|
|
|
|
10.91
|
|
Form
of 12% Convertible Redeemable Note, dated April 27, 2016, with Union Capital, LLC (24).
|
|
|
|
10.92
|
|
Form
of Securities Purchase Agreement, dated April 27, 2016, with Union Capital, LLC (25).
|
|
|
|
10.93
|
|
Form
of Union Capital, LLC Collateralized Note, dated April 27, 2016, with PositiveID Corporation (26).
|
|
|
|
10.94
|
|
Form
of ENG Revolving Line of Credit with California Bank of Commerce, dated May 2, 2016 (27).
|
|
|
|
10.95
|
|
Form
of 10% Convertible Redeemable Note, dated May 4, 2016, with ADAR Capital, LLC (28).
|
|
|
|
10.96
|
|
Form
of 10% Convertible Redeemable Note, dated May 4, 2016, with ADAR Capital, LLC (29).
|
|
|
|
10.97
|
|
Form
of Securities Purchase Agreement, dated May 4, 2016, with ADAR Capital, LLC (30).
|
|
|
|
10.98
|
|
Form
of ADAR Capital, LLC Collateralized Note, dated May 4, 2016, with PositiveID Corporation (31).
|
|
|
|
10.99
|
|
Form
of 10% Convertible Redeemable Note, dated May 17, 2016, with Essex Global Investment Corp. (32).
|
|
|
|
10.100
|
|
Form
of Securities Purchase Agreement, dated May 17, 2016, with Essex Global Investment Corp. (33).
|
|
|
|
10.101
|
|
Form
of 12% Convertible Redeemable Note, dated June 2, 2016, with Union Capital, LLC (34).
|
|
|
|
10.102
|
|
Form
of 12% Convertible Redeemable Note, dated June 2, 2016, with Union Capital, LLC (35).
|
|
|
|
10.103
|
|
Form
of Securities Purchase Agreement, dated June 2, 2016, with Union Capital, LLC (36).
|
|
|
|
10.104
|
|
Form
of Union Capital, LLC Collateralized Note, dated June 2, 2016, with PositiveID Corporation (37).
|
|
|
|
10.105
|
|
Form
of 10% Convertible Redeemable Note, dated June 17, 2016, with Crossover Capital Fund I, LLC (38).
|
|
|
|
10.106
|
|
Form
of 10% Convertible Redeemable Note, dated June 17, 2016, with Crossover Capital Fund I, LLC (39).
|
|
|
|
10.107
|
|
Securities
Purchase Agreement, dated June 17, 2016, with Crossover Capital Fund I, LLC (40).
|
|
|
|
10.108
|
|
Form
of Crossover Capital Fund I, LLC Collateralized Note, dated June 17, 2016, with PositiveID Corporation (41).
|
|
|
|
10.109
|
|
Form
of 12% Convertible Redeemable Note, dated June 30, 2016, with Union Capital, LLC (42)
|
|
|
|
10.110
|
|
Form
of 12% Convertible Redeemable Note, dated June 30, 2016, with Union Capital, LLC (43)
|
|
|
|
10.111
|
|
Securities
Purchase Agreement, dated June 30, 2016, with Union Capital, LLC (44)
|
|
|
|
10.112
|
|
Form
of Union Capital, LLC Collateralized Note, dated June 30, 2016, with PositiveID Corporation (45)
|
|
|
|
10.113*
|
|
Form
of Exchange Agreement between the Company and the Series I Convertible Preferred Stock Shareholders with regard to Exchanging
Series I for Series II Convertible Preferred Stock, dated as of August 11, 2016 (46)
|
10.114*
|
|
Form
of Series II Preferred Stock Award Agreement, made as of August 11, 2016 (47)
|
|
|
|
10.115
|
|
Form
of 10% Convertible Redeemable Note, dated July 7, 2016, with LG Capital Funding, LLC (48)
|
|
|
|
10.116
|
|
Form
of 10% Convertible Redeemable Note, dated July 7, 2016, with LG Capital Funding, LLC (49)
|
|
|
|
10.117
|
|
Securities
Purchase Agreement, dated July 7, 2016, with LG Capital Funding, LLC (50)
|
|
|
|
10.118
|
|
Form
of LG Capital Funding, LLC Collateralized Note, dated July 7, 2016, with PositiveID Corporation (51)
|
|
|
|
10.119
|
|
Form
of 12% Convertible Promissory Note, dated July 29, 2016, with JSJ Investments Inc. (52)
|
|
|
|
10.120
|
|
Form
of 10% Secured Convertible Promissory Note, dated August 11, 2016, with GHS Investments, LLC (53)
|
|
|
|
10.121
|
|
Form
of 10% Convertible Redeemable Note, dated August 17, 2016, with Crossover Capital Fund I, LLC (54)
|
|
|
|
10.122
|
|
Form
of 10% Convertible Redeemable Note, dated August 17, 2016, with Crossover Capital Fund I, LLC (55)
|
|
|
|
10.123
|
|
Securities
Purchase Agreement, dated August 11, 2016, with GHS Investments, LLC (56)
|
|
|
|
10.124
|
|
Securities
Purchase Agreement, dated August 17, 2016, with Crossover Capital Fund I, LLC (57)
|
|
|
|
10.125
|
|
Form
of Crossover Capital Fund I, LLC Collateralized Secured Promissory Note, dated August 17, 2016, with PositiveID Corporation
(58)
|
|
|
|
10.126
|
|
Form
of 5% Convertible Promissory Note, dated August 25, 2016, with Keith Houlihan (59)
|
|
|
|
10.127
|
|
Agreement
by and among PositiveID Corporation, Sanomedics, Inc. and Thermomedics, Inc. dated August 25, 2016 (60)
|
|
|
|
10.128
|
|
Reserve
Equity Financing Agreement, dated August 29, 2016, with GHS Investments LLC (61)
|
|
|
|
10.129
|
|
Registration
Rights Agreement, dated August 29, 2016, with GHS Investments LLC (62)
|
23.1**
|
|
Consent
of Salberg & Company, P.A. (PositiveID)
|
|
|
|
23.2**
|
|
Consent
of Salberg & Company, P.A. (Thermomedics, Inc.)
|
|
|
|
23.3**
|
|
Consent of Salberg &
Company, P.A. (E-N-G)
|
|
|
|
23.4***
|
|
Consent
of Lucosky Brookman, LLP (included in Exhibit 5.1).
|
|
|
|
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
|
|
|
|
99.4**
|
|
Financial statements of
E-N-G Mobile Systems, Inc. as of and for the years ended December 31, 2014 and 2013.
|
|
|
|
99.5**
|
|
Unaudited financial statements
of E-N-G Mobile Systems, Inc. as of September 30, 2015 and for the nine months ended September 30, 2015 and 2014.
|
|
|
|
99.6**
|
|
Unaudited pro forma condensed
combined financial information.
|
|
|
|
101.INS**
|
|
XBRL
Instance Document
|
101.SCH**
|
|
XBRL
Taxonomy Extension Schema Document
|
101.CAL**
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
101.DEF**
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
101.LAB**
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
101.PRE**
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
*
|
Management
contract or compensatory plan.
|
|
|
|
|
**
|
Filed
herewith
|
|
|
|
|
***
|
To
be filed by amendment.
|
(1a)
|
|
Incorporated
by reference to Exhibit 3.1 of the Form 8-K/A previously filed by PositiveID Corporation on April 26, 2013.
|
|
|
|
(1b)
|
|
Incorporated
by reference to Exhibit 3.1 of the Form 8-K previously filed by PositiveID Corporation on December 12, 2014.
|
|
|
|
(1c)
|
|
Incorporated
by reference to Exhibit 3.1 of the Form 8-K previously filed by PositiveID Corporation on May 1, 2015.
|
(1d)
|
|
Incorporated
by reference to Exhibit 3.1 of the Form 8-K previously filed by PositiveID Corporation on February 26, 2016.
|
|
|
|
(1e)
|
|
Incorporated
by reference to Exhibit 3.1 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(1f)
|
|
Incorporated
by reference to Exhibit 3.2 of the Form 10-K previously filed by PositiveID Corporation on April 12, 2016.
|
|
|
|
(1g)
|
|
Incorporated
by reference to Exhibit 3.1 of the Form 8-K previously filed by PositiveID Corporation
on September 2, 2016.
|
|
|
|
(1h)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on July 29, 2016.
|
|
|
|
(1)
|
|
Incorporated
by reference to the Form 10-K filed by PositiveID Corporation on April 11, 2014.
|
|
|
|
(2)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on August 22, 2014.
|
|
|
|
(3)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on September 26, 2014.
|
|
|
|
(4)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on October 10, 2014
|
|
|
|
(5)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on October 24, 2014
|
|
|
|
(6)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on October 31, 2014
|
|
|
|
(7)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on November 26, 2014
|
|
|
|
(8)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on December 30, 2014
|
|
|
|
(9)
|
|
Incorporated
by reference to the Form 10-Q previously filed by PositiveID Corporation on May 15, 2015
|
|
|
|
(10)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on August 14, 2015
|
|
|
|
(11)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on October 21, 2015
|
|
|
|
(12)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on December 7, 2015
|
|
|
|
(13)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on December 29, 2015
|
|
|
|
(14)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on January 29, 2016
|
|
|
|
(15)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on March 8, 2016
|
|
|
|
(16)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on March 11, 2016
|
|
|
|
(17)
|
|
Incorporated
by reference to the Form 8-K previously filed by PositiveID Corporation on March 18, 2016
|
|
|
|
(18)
|
|
Incorporated
by reference to the Form 10-K previously filed by PositiveID Corporation on April 12, 2016
|
|
|
|
(18a)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
|
|
|
(18b)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
|
|
|
(18c)
|
|
Incorporated
by reference to Exhibit 10.3 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
|
|
|
(18d)
|
|
Incorporated
by reference to Exhibit 10.4 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
|
|
|
(19)
|
|
Incorporated
by reference to Exhibit 10.5 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
|
|
|
(20)
|
|
Incorporated
by reference to Exhibit 10.6 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
|
|
|
(21)
|
|
Incorporated
by reference to Exhibit 10.7 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
|
|
|
(22)
|
|
Incorporated
by reference to Exhibit 10.8 of the Form 8-K previously filed by PositiveID Corporation on April 22, 2016.
|
(23)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on May 3, 2016.
|
|
|
|
(24)
|
|
Incorporated
by reference to Exhibit 4.2 of the Form 8-K previously filed by PositiveID Corporation on May 3, 2016.
|
|
|
|
(25)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on May 3, 2016.
|
|
|
|
(26)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on May 3, 2016.
|
|
|
|
(27)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on May 6, 2016.
|
|
|
|
(28)
|
|
Incorporated
by reference to Exhibit 4.2 of the Form 8-K previously filed by PositiveID Corporation on May 6, 2016.
|
|
|
|
(29)
|
|
Incorporated
by reference to Exhibit 4.3 of the Form 8-K previously filed by PositiveID Corporation on May 6, 2016.
|
|
|
|
(30)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on May 6, 2016
|
|
|
|
(31)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on May 6, 2016.
|
|
|
|
(32)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on May 20, 2016.
|
|
|
|
(33)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on May 20, 2016.
|
|
|
|
(34)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on June 3, 2016.
|
|
|
|
(35)
|
|
Incorporated
by reference to Exhibit 4.2 of the Form 8-K previously filed by PositiveID Corporation on June 3, 2016.
|
|
|
|
(36)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on June 3, 2016.
|
|
|
|
(37)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on June 3, 2016.
|
|
|
|
(38)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on June 24, 2016.
|
|
|
|
(39)
|
|
Incorporated
by reference to Exhibit 4.2 of the Form 8-K previously filed by PositiveID Corporation on June 24, 2016.
|
|
|
|
(40)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on June 24, 2016.
|
|
|
|
(41)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on June 24, 2016.
|
|
|
|
(42)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(43)
|
|
Incorporated
by reference to Exhibit 4.2 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(44)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(45)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(46)
|
|
Incorporated
by reference to Exhibit 10.40 of the Form 10-Q previously filed by PositiveID Corporation on August 12, 2016.
|
|
|
|
(47)
|
|
Incorporated
by reference to Exhibit 10.41 of the Form 10-Q previously filed by PositiveID Corporation on August 12, 2016.
|
|
|
|
(48)
|
|
Incorporated
by reference to Exhibit 4.3 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(49)
|
|
Incorporated
by reference to Exhibit 4.4 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(50)
|
|
Incorporated
by reference to Exhibit 10.3 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
(51)
|
|
Incorporated
by reference to Exhibit 10.4 of the Form 8-K previously filed by PositiveID Corporation on July 8, 2016.
|
|
|
|
(52)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on August 5, 2016
|
|
|
|
(53)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K previously filed by PositiveID Corporation on August 19, 2016
|
|
|
|
(54)
|
|
Incorporated
by reference to Exhibit 4.2 of the Form 8-K previously filed by PositiveID Corporation on August 19, 2016
|
|
|
|
(55)
|
|
Incorporated
by reference to Exhibit 4.3 of the Form 8-K previously filed by PositiveID Corporation on August 19, 2016
|
|
|
|
(56)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on August 19, 2016
|
|
|
|
(57)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on August 19, 2016
|
|
|
|
(58)
|
|
Incorporated
by reference to Exhibit 10.3 of the Form 8-K previously filed by PositiveID Corporation on August 19, 2016
|
|
|
|
(59)
|
|
Incorporated
by reference to Exhibit 4.1 of the Form 8-K/A previously filed by PositiveID Corporation on August 26, 2016
|
|
|
|
(60)
|
|
Incorporated
by reference to Exhibit 10.4 of the Form 8-K/A previously filed by PositiveID Corporation on August 26, 2016
|
|
|
|
(61)
|
|
Incorporated
by reference to Exhibit 10.1 of the Form 8-K previously filed by PositiveID Corporation on September 2, 2016
|
|
|
|
(62)
|
|
Incorporated
by reference to Exhibit 10.2 of the Form 8-K previously filed by PositiveID Corporation on September 2, 2016
|
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i.
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii.
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price
set forth in the “Calculation of Registration Fee” table in the effective registration statement.
iii.
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issue.
(5)
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included
in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in
a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to
a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date
of first use.