ITEM
15. EXHIBITS AND FINANCIAL STATEMENTS
(a)(1)
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The
financial statements listed below are included in this report
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Report
of Independent Registered Public Accounting Firm
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Consolidated
Balance Sheets
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Consolidated
Statements of Operations
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Consolidated
Statements of Changes in Stockholders’ Deficit
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Consolidated
Statements of Cash Flows
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Notes
to Consolidated Financial Statements
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(a)(3)
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Exhibits
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See
the Exhibit Index filed as part of this Annual Report on Form 10-K.
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VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
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VERITEQ
CORPORATION
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By:
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/s/
Kenneth Shapiro
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Date:
February 17, 2017
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Kenneth
Shapiro
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Chief
Executive Officer and Principal Financial Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/
Kenneth Shapiro
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Chief
Executive Officer, Chairman of the Board and
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February
17, 2017
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Scott
R. Silverman
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Principal
Financial Officer
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/s/
Lynne Shapiro
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Director
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February
17, 2017
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Lynne
Shapiro
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/s/
Michael James
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Director
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February
17, 2017
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Michael
James
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VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
EXHIBIT
INDEX
2.1
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Share
Exchange Agreement dated as of June 24, 2013, among the Company, VeriTeQ and the VeriTeQ Shareholders (filed as Exhibit 2.1
to Registrant’s Current Report on Form 8-K filed with the Commission on June 25, 2013)
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3.1
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Amended
and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 99.2 to Registrant’s Current Report on
Form 8-K filed with the Commission on February 10, 2015)
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3.1.1
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Amendment
to Certificate of Incorporation of the Registrant (filed as Exhibit 99.2 to Registrant’s Current Report on Form 8-K
filed with the Commission on July 28, 2015)
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3.2
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Amended
and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Registrant’s Quarterly Report on
Form 10-Q filed with the Commission on August 9, 2007)
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3.3
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Amended
and Restated Bylaws of the Company (incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form
8-K filed with the Commission on September 28, 2009)
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3.4
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Certificate
of Designations of Series B Convertible Preferred Stock (filed as Exhibit 3.1 to Registrant’s Current Report on Form
8-K filed with the Commission on July 12, 2013)
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3.5
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Certificate
of Designations of Series C Convertible Preferred Stock (filed as Exhibit 3.2 to Registrant’s Current Report on Form
8-K filed with the Commission on July 12, 2013)
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3.6
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Certificate
of Elimination of the Series B Convertible Preferred Stock (filed as Exhibit 3.3 to Registrant’s Current Report on Form
8-K filed with the Commission on July 12, 2013)
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3.7
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Certificate
of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock, as amended (filed as Exhibit
3.7 to Registrant’s Form 10-Q filed with the Commission May 20, 2015)
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3.8
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Certificate
of Designation of Series E Convertible Preferred Stock (9)
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4.1
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Form
of Warrant and Schedule of Holders (filed as Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q filed with
the Commission on November 14, 2013)
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10.1
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Applied
Digital Solutions, Inc. 1999 Flexible Stock Plan, as amended (incorporated herein by reference to Exhibit 4.2 to Registrant’s
Registration Statement on Form S-8 (File No. 333-118776) filed with the Commission on September 3, 2004)
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10.2
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Amended
and Restated Digital Angel Corporation Transition Stock Option Plan, as amended (incorporated herein by reference to Exhibit 4.1
to Registrant’s Registration Statement on Form S-8 (file No. 333-148958) filed with the Commission on January 31,
2008)
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10.3
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Applied
Digital Solutions, Inc. 1999 Employees Stock Purchase Plan, as amended (incorporated by reference to Exhibit 4.2 to Registrant’s
Registration Statement on Form S-8 (File No. 333-126229) filed with the Commission on June 29, 2005)
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10.4
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Digital
Angel Corporation 2003 Flexible Stock Plan, as Amended (incorporated by reference to Exhibit 4.1 to Registrant’s Registration
Statement Under The Securities Act of 1933 on Form S-8 filed with the Commission on October 16, 2009)
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10.5
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Digital
Angel Corporation 2013 Stock Incentive Plan (filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed
with the Commission on July 12, 2013)
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10.6
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Indemnification
Agreement between Digital Angel Corporation (“Parent”) and Patricia M. Petersen (“Indemnitee”) dated
July 22, 2011 (incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q filed with the
Commission on August 19, 2011.)
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10.7
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Indemnification
Agreement between Digital Angel Corporation (“Parent”) and Joseph J. Grillo (“Indemnitee”) dated July
22, 2011 (incorporated by reference to Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on August 19, 2011)
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10.8
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Letter
Agreement between Lorraine M. Breece and Digital Angel Corporation dated July 14, 2011 (incorporated by reference to Exhibit
10.1 to Registrant’s Current Report on Form 8-K filed with the Commission on August 4, 2011)
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10.9
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Indemnification
Agreement between Digital Angel Corporation (“Parent”) and Daniel Penni (“Indemnitee”) dated February
1, 2012 (incorporated by reference to Exhibit 10.52 to Registrant’s Annual Report on Form 10-K filed with the Commission
on March 29, 2012)
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VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
10.10
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Indemnification
Agreement between Digital Angel Corporation (“Parent”) and Lorraine Breece (“Indemnitee”) dated March
6, 2012 (incorporated by reference to Exhibit 10.54 to Registrant’s Annual Report on Form 10-K filed with the Commission
on March 29, 2012)
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10.11
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Employment
Agreement effective as of August 23, 2012 between Digital Angel Corporation and L. Michael Haller (incorporated by reference
to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Commission on August 28, 2012)
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10.12
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Amendment
to Employment Agreement between Digital Angel Corporation and L. Michael Haller executed April 10, 2013 and effective on May
3, 2013 (filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed with the Commission on May 7, 2013)
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10.13
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Transition
Services Agreement between Digital Angel Corporation and MGT Capital Investments, Inc. dated as of May 3, 2013 (filed as Exhibit
10.2 to Registrant’s Current Report on Form 8-K filed with the Commission on May 7, 2013)
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10.14
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Asset
Purchase Agreement by and between Digital Angel Corporation and MGT Capital Investments, Inc. dated April 10, 2013 (filed
as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Commission on April 16, 2013)
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10.15
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Employment
Agreement dated as of July 8, 2013, between the Company and Scott R. Silverman (filed as Exhibit 10.1 to Registrant’s
Current Report on Form 8-K filed with the Commission on July 12, 2013)
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10.16
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Employment
Agreement dated as of July 8, 2013, between the Company and Randolph K. Geissler (filed as Exhibit 10.2 to Registrant’s
Current Report on Form 8-K filed with the Commission on July 12, 2013)
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10.17
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Employment
Agreement, effective as of January 1, 2012, between VeriTeQ Acquisition Corporation and Scott R. Silverman (filed as Exhibit
10.1 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.18
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Termination
of Employment Agreement, effective July 7, 2013, between VeriTeQ Acquisition Corporation and Scott R. Silverman (filed as
Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.19
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Employment
Agreement, dated January 2, 2013, but made effective as of September 1, 2012, between VeriTeQ Acquisition Corporation and
Randolph K. Geissler (filed as Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on November 14, 2013)
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10.20
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Termination
of Employment Agreement, effective July 7, 2013, between VeriTeQ Acquisition Corporation and Randolph K. Geissler(filed as
Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.21
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Restricted
Stock Award Agreement, dated January 22, 2013, between VeriTeQ Acquisition Corporation and Randolph K. Geissler (filed as
Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.22
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Amended
and Restated Employment Agreement, dated as of November 14, 2013, between the Company and Scott R. Silverman (filed as Exhibit
10.6 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.23
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Amended
and Restated Employment Agreement, dated as of November 14, 2013, between the Company and Randolph K. Geissler (filed as Exhibit
10.7 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.24
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Stock
Purchase Agreement, dated January 11, 2012, by and between PositiveID Corporation and VeriTeQ Acquisition Corporation (filed
as Exhibit 10.8 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.25
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Asset
Purchase Agreement, dated August 28, 2012, by and between PositiveID Corporation and VeriTeQ Acquisition Corporation (filed
as Exhibit 10.9 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.26
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Development
and Supply Agreement, effective April 2, 2009 by and between Medical Components, Inc. and VeriChip Corporation assumed by
the Registrant under the terms of the Stock Purchase Agreement, dated January 11, 2012 by and between PositiveID Corporation
and VeriTeQ Acquisition Corporation (1)
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VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
10.27
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License
Agreement, dated August 28, 2012, by and between PositiveID Corporation and VeriTeQ Acquisition Corporation (filed as Exhibit
10.10 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.28
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Letter
Agreement, dated August 28, 2012, between PositiveID Corporation and VeriTeQ Acquisition Corporation (filed as Exhibit 10.11
to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.29
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License
Agreement, dated August 28, 2012, by and between PositiveID Corporation and VeriTeQ Acquisition Corporation (filed as Exhibit
10.10 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.30
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Secured
Promissory Note, dated January 11, 2012, between VeriTeQ Acquisition Corporation as Borrower and PositiveID Corporation as
Lender (filed as Exhibit 10.12 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14,
2013)
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10.31
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Letter
Agreement, dated April 22, 2013, between PositiveID Corporation and VeriTeQ Acquisition Corporation (filed as Exhibit 10.13
to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.32
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Letter
Agreement dated July 8, 2013, between PositiveID Corporation and VeriTeQ Acquisition Corporation (filed as Exhibit 10.4 to
Registrant’s Current Report on Form 8-K filed with the Commission on July 12, 2013)
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10.33
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Asset
Purchase Agreement, dated December 3, 2012, between SNC Holdings Corp. and VeriTeQ Acquisition Corporation (filed as Exhibit
10.15 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.34
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Bill
of Sale, dated November 30, 2012 and effective December 3, 2012, by and between SNC Holdings Corp. and VTQ IP Holding Corporation
(filed as Exhibit 10.16 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.35
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Assignment
and Assumption Agreement, dated November 30, 2012 and effective December 3, 2013, by and between SNC Holdings Corp. and VeriTeQ
Acquisition Corporation (filed as Exhibit 10.17 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on November 14, 2013)
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10.36
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Assignment
and Assumption of Patents, dated November 30, 2012 and effective December 3, 2012, by and between SNC Holdings Corp. and VTQ
IP Holding Corporation (filed as Exhibit 10.18 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on November 14, 2013)
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10.37
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Assignment
and Assumption of Trademarks, dated November 28, 2012 and effective December 3, 2012, by and between SNC Holdings Corp. and
VTQ IP Holdings Corporation (filed as Exhibit 10.19 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on November 14, 2013)
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10.38
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Royalty
Agreement dated November 30, 2012 and effective December 3, 2012, by and between SNC Holdings Corp. and VeriTeQ Acquisition
Corporation (filed as Exhibit 10.20 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November
14, 2013)
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10.39
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Sublicense
Agreement, effective November 26, 2012 by and between VeriTeQ Acquisition Corporation and SNC Holdings Corp. (1)
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10.40
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Form
of Security Agreement, dated November 28, 2012 and effective December 3, 2012, among SNC Holdings Corp., VeriTeQ Acquisition
Corporation and VTQ IP Holdings Corporation (filed as Exhibit 10.21 to Registrant’s Quarterly Report on Form 10-Q filed
with the Commission on November 14, 2013)
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10.41
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Non-Negotiable
Secured Convertible Promissory Note dated December 3, 2012, between VeriTeQ Acquisition Corporation as Borrower and SNC Holding
Corp. as Lender (filed as Exhibit 10.22 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November
14, 2013)
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10.42
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First
Amendment to Promissory Note, dated July 8, 2013, given by VeriTeQ Acquisition Corporation as Borrower in Favor of SNC Holding
Corp.as Lender (filed as Exhibit 10.23 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November
14, 2013)
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VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
10.43
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Promissory
Note, dated April 10, 2013, among VeriTeQ Acquisition Corporation as Borrower and Randolph Geissler/Donald Brattain as Lenders
(filed as Exhibit 10.25 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.44
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Promissory
Note, dated October 11, 2013, between VeriTeQ Acquisition Corporation as Borrower and Scott R. Silverman as Lender (filed
as Exhibit 10.26 to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.45
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Promissory
Note, dated October 29, 2013, between the Registrant as Borrower and Scott R. Silverman as Lender (filed as Exhibit 10.27
to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.46
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Letter
Agreement dated November 8, 2013, between VeriTeQ Acquisition Corporation and PositiveID Corporation (filed as Exhibit 10.28
to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2013)
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10.47
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Securities
Purchase Agreement, dated November 13, 2013, by and among the Registrant and Certain Institutional Investors (filed as Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 14, 2013)
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10.48
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Form
of Senior Convertible Note, dated November 13, 2013, by and among the Registrant and Certain Institutional Investors (filed
as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 14, 2013)
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10.49
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Form
of Warrant, dated November 13, 2013, by and among the Registrant and Certain Institutional Investors (filed as Exhibit 10.3
to the Registrant’s Current Report on Form 8-K filed with the Commission on November 14, 2013)
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10.50
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Form
of Registration Rights Agreement, dated November 13, 2013, by and among the Registrant and Certain Institutional Investors
(filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 14, 2013)
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10.51
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Form
of Lock-Up Agreement, dated November 13, 2013, by and among the Registrant and Certain Institutional Investors (filed as Exhibit
10.5 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 14, 2013)
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10.52
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Security
Agreement, dated November 13, 2013, by and among the Registrant and Certain Institutional Investors (filed as Exhibit 10.6
to the Registrant’s Current Report on Form 8-K filed with the Commission on November 14, 2013)
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10.53
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Guaranty,
dated November 13, 2013, by and among the Registrant and Certain Institutional Investors (filed as Exhibit 10.7 to the Registrant’s
Current Report on Form 8-K filed with the Commission on November 14, 2013)
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10.54
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Stock
Purchase Agreement, dated November 21, 2013, by and among the Registrant and Hudson Bay Master Fund Ltd. (1)
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10.55
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Promissory
Note, dated January 8, 2014, between the Registrant as Borrower and Michael E. Krawitz as Lender (filed as Exhibit 10.54 to
the Registrant’s Registration Statement on Form S-1/A filed with the Commission January 17, 2014)
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10.56
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Promissory
Note, dated January 16, 2014, between the Registrant as Borrower and Scott R. Silverman as Lender (filed as Exhibit 10.55
to the Registrant’s Registration Statement on Form S-1/A filed with the Commission January 17, 2014)
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10.57
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Promissory
Note, dated January 16, 2014, between the Registrant as Borrower and Randolph K. Geissler as Lender (filed as Exhibit
10.56 to the Registrant’s Registration Statement on Form S-1/A filed with the Commission January 17, 2014)
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10.58
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Promissory
Note, dated February 4, 2014, between the Registrant as Borrower and Corbin Properties LLC (filed as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed with the Commission on February 5, 2014)
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10.59
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Employment
Agreement between the Company and Michael E. Krawitz effective January 31, 2014 (filed as Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K filed with the Commission on February 5, 2014)
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10.60
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Development
and Supply Agreement, dated September 21, 2012 by and between VeriTeQ Acquisition Corporation and Establishment Labs,
S.A. (1)
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VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
10.61
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Letter
Agreement between the Registrant and the Buyers of Digital Angel Radio Communications Limited effective January 30, 2014 (1)
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10.62
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Promissory
Note, dated March 4, 2014, between the Registrant as Borrower and Daniel Penni as Lender (1)
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10.63
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Springing
Promissory Note, dated March 6, 2014, between the Registrant as Borrower and James Rybicki Trust as Lender (1)
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10.64
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Springing
Promissory Note, dated March 5, 2014, between the Registrant as Borrower and Deephaven Enterprises, Inc. as Lender (1)
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10.65
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Springing
Promissory Note, dated March 10, 2014 between the Registrant as Borrower and William Caragol as Lender (1)
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10.66
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Springing
Promissory Note, dated March 20, 2014 between the Registrant as Borrower and Deephaven Enterprises, Inc. as Lender (1)
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10.67
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Promissory
Note dated April 16, 2014, between the Registrant as Borrower and William J. Caragol as Lender (filed as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2014)
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10.68
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Promissory
Note dated April 16, 2014, between the Registrant as Borrower and Ned L. Siegel as Lender (filed as Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q filed with the Commission on May 14, 2014)
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10.69
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Promissory
Note dated May 1, 2014, between the Registrant as Borrower and Ned L. Siegel as Lender (filed as Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q filed with the Commission on May 14, 2014)
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10.70
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First
Amendment Agreement dated May 30, 2014 between the Registrant and Positive ID Animal Health Corporation (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2014)
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10.71
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Securities
Purchase Agreement dated May 30, 2014 between the Registrant, Hudson Bay Master Fund Ltd., Alpha Capital Anstalt and HS Contrarian
Investments (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on June 3,
2014)
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10.72
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Form
of Senior Convertible Note dated May 30, 2014 between the Registrant and Certain Institutional Investors (filed as Exhibit
10.3 to the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2014)
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10.73
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Form
of Restated Senior Secured Convertible Note dated November 13, 2013 between the Registrant and Certain Institutional Investors
(filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2014)
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10.74
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Form
of Restated Warrant dated November 13, 2013 between the Registrant and Certain Institutional Investors (filed as Exhibit 10.5
to the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2014)
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10.75
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Right
to Shares Agreement dated June 10, 2014 between the Registrant and Alpha Capital Anstalt (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Commission on June 13, 2014)
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10.76
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Right
to Shares Agreement dated June 10, 2014 between the Registrant and Hudson Bay Master Fund Ltd. (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on June 25, 2014)
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10.77
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Securities
Purchase Agreement dated July 15, 2014 between the Registrant and KBM Worldwide, Inc. (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Commission on July 25, 2014)
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10.78
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Convertible
Promissory Note dated July 15, 2014 between the Registrant and KBM Worldwide, Inc. (filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the Commission on July 25, 2014)
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10.79
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|
Convertible
Note dated July 16, 2014 between the Registrant and JMJ Financial (filed as Exhibit 10.3 to the Company’s Current Report
on Form 8-K filed with the Commission on July 25, 2014)
|
|
|
|
10.80
|
|
Securities
Purchase Agreement dated July 31, 2014 between the Registrant and LG Capital Funding, LLC (2)
|
|
|
|
10.81
|
|
Convertible
Redeemable Note dated August 6, 2014 between the Registrant and LG Capital Funding, LLC (2)
|
VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
10.82
|
|
Convertible
Redeemable Note (Back End Note) dated August 6, 2014 between the Registrant and LG Capital Funding, LLC (2)
|
|
|
|
10.83
|
|
Collateralized
Secured Promissory Note (Back End Note) dated July 31, 2014 between LC Capital Funding, LLC and the Registrant (2)
|
|
|
|
10.84
|
|
Securities
Purchase Agreement dated August 4, 2014 between the Registrant and Union Capital, LLC (2)
|
|
|
|
10.85
|
|
Convertible
Redeemable Note dated August 4, 2014 between the Registrant and Union Capital, LLC (2)
|
|
|
|
10.86
|
|
Convertible
Redeemable Note (Back End Note) dated August 4, 2014 between the Registrant and Union Capital, LLC (2)
|
|
|
|
10.87
|
|
Collateralized
Secured Promissory Note (Back End Note) dated August 4, 2014 between Union Capital, LLC and the Registrant (2)
|
|
|
|
10.88
|
|
Securities
Purchase Agreement dated August 4, 2014 between the Registrant and Magna Equities II, LLC (3)
|
|
|
|
10.89
|
|
Convertible
Promissory Note dated August 4, 2014 between the Registrant and Magna Equities II, LLC (3)
|
|
|
|
10.90
|
|
Assignment
Agreement dated August 4, 2014 between the Registrant, Corbin Properties LLC and Magna Equities I, LLC (3)
|
|
|
|
10.91
|
|
Convertible
Promissory Note dated August 4, 2014 between the Registrant and Magna Equities I, LLC (3)
|
|
|
|
10.92
|
|
Securities
Purchase Agreement dated August 13, 2014 between the Registrant and KBM Worldwide, Inc. (3)
|
|
|
|
10.93
|
|
Convertible
Promissory Note dated August 13, 2014 between the Registrant and KBM Worldwide, Inc. (3)
|
|
|
|
10.94
|
|
Master
Convertible Promissory Note between the Registrant and Iliad Research and Trading, L.P. (3)
|
|
|
|
10.95
|
|
Convertible
Promissory Note dated August 26, 2014 between the Registrant and Corbin Properties LLC (3)
|
|
|
|
10.96
|
|
Securities
Purchase Agreement dated September 30, 2014 between the Registrant and Magna Equities II, LLC (4)
|
|
|
|
10.97
|
|
Convertible
Promissory Note dated September 30, 2014 between the Registrant and Magna Equities II, LLC (4)
|
|
|
|
10.98
|
|
Securities
Exchange Agreement dated September 30, 2014 between the Registrant and Magna Equities I, LLC (4)
|
|
|
|
10.99
|
|
Convertible
Promissory Note dated September 30, 2014 between the Registrant and Magna Equities I, LLC (4)
|
|
|
|
10.100
|
|
Securities
Purchase Agreement dated October 1, 2014 between the Registrant and KBM Worldwide, Inc. (4)
|
|
|
|
10.101
|
|
Convertible
Promissory Note dated October 1, 2014 between the Registrant and KBM Worldwide, Inc. (4)
|
|
|
|
10.102
|
|
Securities
Purchase Agreement dated October 10
th
, 2014 between the Registrant and WHC Capital, LLC (filed as Exhibit 10.1
to the Company’s Current Report on Form 8-K filed with the Commission on October 17, 2014)
|
|
|
|
10.103
|
|
Convertible
Promissory Note dated October 10
th
, 2014 between the Registrant and WHC Capital, LLC (filed as Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed with the Commission on October 17, 2014)
|
|
|
|
10.104
|
|
Glucochip
and Settlement Agreement dated October 20, 2014 between the Registrant and PositiveID Corporation (filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed with the Commission on October 24, 2014)
|
|
|
|
10.105
|
|
Convertible
Promissory Note dated October 20, 2014 between the Registrant and PositiveID Corporation (filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the Commission on October 24, 2014)
|
|
|
|
10.106
|
|
Convertible
Promissory Note dated October 20, 2014 between the Registrant and PositiveID Corporation (filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed with the Commission on October 24, 2014)
|
VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
10.107
|
|
Securities
Purchase Agreement dated November 3, 2014 between the Registrant and Magna Equities II, LLC (5)
|
|
|
|
10.108
|
|
Convertible
Promissory Note dated November 3, 2014 between the Registrant and Magna Equities II, LLC (5)
|
|
|
|
10.109
|
|
Agreement
between the Registrant and certain Executives to Convert Director, Officer and Management Liabilities into Equity (5)
|
|
|
|
10.100
|
|
Second
Amendment Agreement to the Securities Purchase Agreement between the Registrant, Magna Equities II, LLC, Alpha Capital Anstatlt,
Magna Equities I, LLC and HS Contrarian Investments, LLC (5)
|
|
|
|
10.111
|
|
Securities
Purchase Agreement effective as of December 26, 2014 between the Registrant and KBM Worldwide, Inc. (filed as Exhibit 10.1
to the Company’s Current Report on Form 8-K filed with the Commission on December 30, 2014)
|
|
|
|
10.112
|
|
Convertible
Promissory Note dated effective as of December 26, 2014 between the Registrant and KBM Worldwide, Inc. (filed as Exhibit 10.2
to the Company’s Current Report on Form 8-K filed with the Commission on December 30, 2014)
|
|
|
|
10.113
|
|
Securities
Purchase Agreement dated January 27, 2015 between the Registrant and Magna Equities II, LLC (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on January 28, 2015)
|
|
|
|
10.114
|
|
Convertible
Promissory Note dated January 27, 2015 between the Registrant and Magna Equities II, LLC (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Commission on January 28, 2015)
|
|
|
|
10.115
|
|
Promissory
Note dated January 23, 2015 between the Registrant and Scott R. Silverman (filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the Commission on January 28, 2015)
|
|
|
|
10.116
|
|
Convertible
Promissory Note dated February 6, 2015 between the Registrant and Alpha Capital Anstalt (6)
|
|
|
|
10.117
|
|
Convertible
Promissory Note dated February 6, 2015 between the Registrant and Magna Equities II, LLC (6)
|
|
|
|
10.118
|
|
Form
of Agreement Regarding Liabilities to Officers dated March 3, 2015 (6)
|
|
|
|
10.119
|
|
Form
of Officer Note dated March 3, 2015 (6)
|
|
|
|
10.120
|
|
Securities
Purchase Agreement dated March 19, 2015 between the Registrant and Adar Bays, LLC (7)
|
|
|
|
10.121
|
|
Convertible
Redeemable Note dated March 19, 2015 between the Registrant and Adar Bays, LLC (7)
|
|
|
|
10.122
|
|
Convertible
Promissory Note dated March 17, 2015 between the Registrant and Magna Equities II, LLC (7)
|
|
|
|
10.123
|
|
Securities
Purchase Agreement dated March 10, 2015 between the Registrant and Vis Vires Group, Inc. (7)
|
|
|
|
10.124
|
|
Convertible
Promissory Note dated March 10, 2015 between the Registrant and Vis Vires Group, Inc. (7)
|
|
|
|
10.125
|
|
Common
Stock Purchase Warrant dated March 10, 2015 issued by the Registrant to Vis Vires Group, Inc. (7)
|
|
|
|
10.126
|
|
Convertible
Debenture dated April 10, 2015 issued by the Registrant to RDW Capital, LLC (8)
|
|
|
|
10.127
|
|
Securities
Settlement Agreement between the Registrant and RDW Capital, LLC (8)
|
|
|
|
10.128
|
|
Stock
Purchase Agreement, dated as of November 25, 2015, by and among the Registrant, Brace Shop and Mrs. Lynne Shapiro (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission December 2, 2015 and incorporated
herein by reference)
|
|
|
|
10.129
|
|
Goldenshare
Warrant, dated as of May 6, 2016 (9)
|
|
|
|
10.130
|
|
Mutual
Release and Agreement dated April 28, 2016 between the Registrant and Barry Edelstein*
|
VERITEQ
CORPORATION
2015
ANNUAL REPORT ON FORM 10-K
10.131
|
|
Mutual
Release and Agreement dated April 28, 2016 between the Registrant and Scott Silverman*
|
|
|
|
10.132
|
|
Mutual
Release and Agreement dated April 28, 2016 between the Registrant and Randolph Geissler*
|
|
|
|
31.1*
|
|
Certification
by Kenneth Shapiro, Chief Executive Officer and Principal Financial Officer, pursuant to Exchange Act Rules 13A-14(a)
and 15d-14(a)
|
|
32.1*
|
|
Certification
by Kenneth Shapiro Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
101.INS*
|
XBRL
Instance
|
101.SCH*
|
XBRL
Taxonomy Extension Schema
|
101.CAL*
|
XBRL
Taxonomy Extension Calculation
|
101.DEF*
|
XBRL
Taxonomy Extension Definition
|
101.LAB*
|
XBRL
Taxonomy Extension Labels
|
101.PRE*
|
XBRL
Taxonomy Extension Presentation
|
*
|
Filed
herewith.
|
(1)
|
Filed
as an exhibit to the Company’s Annual Report on Form 10-K filed with the Commission on April 15, 2014 and incorporated
herein by reference.
|
(2)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on August 8, 2014 and incorporated
herein by reference.
|
(3)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on August 26, 2014 and incorporated
herein by reference.
|
(4)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on October 8, 2014 and incorporated
herein by reference.
|
(5)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on November 5, 2014
|
(6)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2015 and incorporated
herein by reference.
|
(7)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on March 25, 2015 and incorporated
herein by reference.
|
(8)
|
Filed
as an exhibit to the Company’s Annual Report on Form 10-K filed with the Commission on April 14, 2015 and incorporated
herein by reference.
|
(9)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed with the Commission on May 11, 2016 and incorporated
herein by reference.
|
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
CONTENTS
|
Page
|
|
|
Reports
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets as of December 31, 2015 and 2014
|
F-3
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2015 and 2014
|
F-4
|
|
|
Consolidated
Statements of Stockholders’ Deficit for the years ended December 31, 2015 and 2014
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2015 and 2014
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
Veriteq
Corporation:
We
have audited the accompanying consolidated balance sheets of Veriteq Corporation and Subsidiaries at 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 provide 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 Veriteq Corporation and Subsidiaries 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.
As
discussed in Note 14 to the consolidated financial statements, the 2014 consolidated financial statements, as previously audited
by a predecessor auditor, have been restated to correct misstatements.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has continuing net losses and has negative cash flows
from operations through December 31, 2015 and has a working capital deficit and accumulated deficit of approximately $14.5 million
and $37.3 million, respectively, at December 31, 2015. In November 2015 a lender of the Company foreclosed on the Company’s
assets resulting in the discontinuance of all operations. Furthermore, as of the date of this report, the Company is in default
on most of their notes payable. These matters raise substantial doubt about the Company's ability to continue as a going concern.
Management’s plan in regards to these matters is also described in Note 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
February
16, 2017
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
VERITEQ
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share and per share data)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
ASSETS:
|
|
Restated
(Note 14)
|
|
Current assets:
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
1
|
|
Restricted cash
|
|
|
-
|
|
|
|
12
|
|
Other current assets
|
|
|
12
|
|
|
|
81
|
|
Total current assets
|
|
|
12
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
5
|
|
Assets from discontinued operations
|
|
|
-
|
|
|
|
1,640
|
|
Other assets
|
|
|
-
|
|
|
|
6
|
|
Total assets
|
|
$
|
12
|
|
|
$
|
1,745
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
713
|
|
|
$
|
583
|
|
Accrued expenses (including $864 and $808 to related parties)
|
|
|
2,216
|
|
|
|
1,458
|
|
Notes payable, current portion, net of discounts (including $1,110 and $152 to related parties)
|
|
|
4,478
|
|
|
|
2,365
|
|
Liabilities for conversion options of convertible notes
|
|
|
5,337
|
|
|
|
2,128
|
|
Warrant liabilities at fair value
|
|
|
1,410
|
|
|
|
1,802
|
|
Liabilities of discontinued operations, (includes $369 due to officers)
|
|
|
-
|
|
|
|
2,166
|
|
Subordinated debt with an embedded conversion option, at fair value
|
|
|
370
|
|
|
|
316
|
|
Total current liabilities
|
|
|
14,524
|
|
|
|
10,818
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net of discount
|
|
|
-
|
|
|
|
286
|
|
Total liabilities
|
|
|
14,524
|
|
|
|
11,104
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred stock ($0.01 par value; 1,841 shares outstanding)
|
|
|
1,841
|
|
|
|
1,841
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Preferred stock ($0.01 par value; 5 million shares authorized; 0 issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock ($0.00001 par value; 100 million shares
authorized; 723,718 and 30 shares issued and outstanding)
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
20,992
|
|
|
|
15,000
|
|
Accumulated deficit
|
|
|
(37,345
|
)
|
|
|
(26,200
|
)
|
Total stockholders' deficit
|
|
|
(16,353
|
)
|
|
|
(11,200
|
)
|
Total liabilities and stockholders' deficit
|
|
$
|
12
|
|
|
$
|
1,745
|
|
*
|
At December 31, 2014 the Company had 30 shares (unrounded) outstanding after giving retroactive effect to the reverse splits of
1:1,000 on February 11, 2015 and 1:10,000 on July 29, 2015.
|
The
accompanying notes are an integral part of these consolidated financial statements.
VERITEQ
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except share and per share data)
|
|
For the Year Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Restated
(Note 14)
|
|
Operating Expenses:
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
6,390
|
|
|
|
3,484
|
|
Depreciation and amortization expense
|
|
|
1
|
|
|
|
1
|
|
Total operating expenses
|
|
|
6,391
|
|
|
|
3,485
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,391
|
)
|
|
|
(3,485
|
)
|
Other (income) expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,400
|
|
|
|
2,466
|
|
Change in fair value of derivatives and other fair valued instruments, net
|
|
|
3,321
|
|
|
|
(3,827
|
)
|
Loss on disposal of property and equipment
|
|
|
5
|
|
|
|
|
|
Other (income) expense
|
|
|
(9
|
)
|
|
|
61
|
|
Total other (income) expenses
|
|
|
5,717
|
|
|
|
(1,300
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(12,108
|
)
|
|
|
(2,185
|
)
|
Income tax benefit
|
|
|
-
|
|
|
|
-
|
|
Net loss from continuing operations
|
|
|
(12,108
|
)
|
|
|
(2,185
|
)
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(1,603
|
)
|
|
|
(4,191
|
)
|
Gain on disposal from discontinued operations
|
|
|
2,566
|
|
|
|
-
|
|
Income (loss) from discontinued operations
|
|
|
963
|
|
|
|
(4,191
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,145
|
)
|
|
$
|
(6,376
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(31.00
|
)
|
|
$
|
(293,189
|
)
|
Discontinued operations
|
|
$
|
2.46
|
|
|
$
|
(562,359
|
)
|
Net loss per common share - basic and diluted
|
|
$
|
(28.53
|
)
|
|
$
|
(855,548
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
390,589
|
|
|
|
7
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
VERITEQ
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
(in
thousands except share amounts)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Number
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance at December 31, 2013
|
|
|
1
|
|
|
$
|
-
|
|
|
$
|
5,690
|
|
|
$
|
(19,824
|
)
|
|
$
|
(14,134
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,376
|
)
|
|
|
(6,376
|
)
|
Issuance of common stock on conversions of notes payable
|
|
|
23
|
|
|
|
-
|
|
|
|
917
|
|
|
|
-
|
|
|
|
917
|
|
Issuance of common stock on cashless exercise of warrants
|
|
|
6
|
|
|
|
-
|
|
|
|
7,052
|
|
|
|
-
|
|
|
|
7,052
|
|
Issuance of warrants under terms of promissory notes
|
|
|
-
|
|
|
|
-
|
|
|
|
67
|
|
|
|
-
|
|
|
|
67
|
|
Beneficial conversion feature of convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
114
|
|
|
|
-
|
|
|
|
114
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
777
|
|
|
|
-
|
|
|
|
777
|
|
Reclassification of conversion option liabilities of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
-
|
|
|
|
336
|
|
|
|
-
|
|
|
|
336
|
|
Issuance of unvested stock to a director
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2014 Restated (Note 14)
|
|
|
30
|
|
|
|
-
|
|
|
|
15,000
|
|
|
|
(26,200
|
)
|
|
|
(11,200
|
)
|
Issuance of common stock on partial conversions of notes payable and accrued interest
|
|
|
487,978
|
|
|
|
-
|
|
|
|
658
|
|
|
|
-
|
|
|
|
658
|
|
Issuance of common stock on cashless exercise of warrants
|
|
|
223,818
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
Cancellation of warrants accounted for as as liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
657
|
|
|
|
-
|
|
|
|
657
|
|
Reclassification of conversion option liabilities upon conversion of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
168
|
|
|
|
-
|
|
|
|
168
|
|
Sale of common stock to related parties
|
|
|
1,192
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Settlement of liabilities with related party
|
|
|
10,700
|
|
|
|
-
|
|
|
|
32
|
|
|
|
-
|
|
|
|
32
|
|
Stock options issued to employees
|
|
|
-
|
|
|
|
-
|
|
|
|
4,446
|
|
|
|
-
|
|
|
|
4,446
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,145
|
)
|
|
|
(11,145
|
)
|
Balance at December 31, 2015
|
|
|
723,718
|
|
|
$
|
-
|
|
|
$
|
20,992
|
|
|
$
|
(37,345
|
)
|
|
$
|
(16,353
|
)
|
*
|
At
December 31, 2014 and 2013, the Company had 30 shares and 1 share (unrounded), respectively, outstanding after giving retroactive
effect to the reverse splits of 1:1,000 on February 11, 2015 and 1:10,000 on July 29, 2015
|
The
accompanying notes are an integral part of these consolidated financial statements.
VERITEQ
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
For the Year Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Restated
(Note 14)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,145
|
)
|
|
$
|
(6,376
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
4,446
|
|
|
|
777
|
|
Deprecation and amortization
|
|
|
1
|
|
|
|
598
|
|
Non-cash interest charges
|
|
|
1,662
|
|
|
|
2,362
|
|
Gain on discontinued operations
|
|
|
(2,565
|
)
|
|
|
|
|
Loss on disposal of property and equipment
|
|
|
5
|
|
|
|
|
|
Asset impairment charge
|
|
|
-
|
|
|
|
4,954
|
|
Change in fair value of royalty obligation
|
|
|
-
|
|
|
|
(3,400
|
)
|
Issuance of common stock for services
|
|
|
-
|
|
|
|
336
|
|
Change in fair value of subordinated convertible debt
|
|
|
54
|
|
|
|
(4,609
|
)
|
Change in fair value of conversion options embedded in convertible notes
|
|
|
2,991
|
|
|
|
(1,959
|
)
|
Change in fair value of warrants
|
|
|
276
|
|
|
|
2,741
|
|
Gain on extinguishment of debt
|
|
|
(9
|
)
|
|
|
-
|
|
Loss on settlement of other receivable
|
|
|
-
|
|
|
|
55
|
|
Issuance of notes payable for services
|
|
|
165
|
|
|
|
-
|
|
Increase (decrease) in cash attributable to changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
2,865
|
|
|
|
1,845
|
|
Other receivable
|
|
|
-
|
|
|
|
116
|
|
Other current assets
|
|
|
25
|
|
|
|
7
|
|
Accounts receivable
|
|
|
11
|
|
|
|
-
|
|
Other assets
|
|
|
7
|
|
|
|
(40
|
)
|
Net cash used in operating activities
|
|
|
(1,211
|
)
|
|
|
(2,593
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
(35
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of convertible notes payable and warrants
|
|
|
1,209
|
|
|
|
2,113
|
|
Proceeds from the issuance of related party notes and advances
|
|
|
137
|
|
|
|
235
|
|
Repayment of convertible notes
|
|
|
(95
|
)
|
|
|
(400
|
)
|
Repayment of related party notes and advances
|
|
|
(137
|
)
|
|
|
(126
|
)
|
Proceeds from the issuance of common stock to related parties
|
|
|
20
|
|
|
|
-
|
|
Decrease in restricted cash
|
|
|
-
|
|
|
|
870
|
|
Net cash provided by financing activities
|
|
|
1,134
|
|
|
|
2,692
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(77
|
)
|
|
|
64
|
|
Cash and cash equivalents - beginning of period
|
|
|
77
|
|
|
|
13
|
|
Cash and cash equivalents - end of period
|
|
$
|
-
|
|
|
$
|
77
|
(1)
|
(1)
|
-
$76 of cash is included in assets from discontinued operations at December 31, 2014
|
The
accompanying notes are an integral part of these consolidated financial statements.
VERITEQ
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND NATURE OF OPERATIONS
These
consolidated financial statements and notes thereto include the financial statements of VeriTeQ Corporation (“VC”),
a Delaware corporation, and, through November 4, 2015, its wholly-owned subsidiary, VeriTeQ Acquisition Corporation (“VAC”),
a Florida corporation. In January 2012, VAC acquired all of the outstanding stock of PositiveID Animal Health Corporation, a Florida
corporation (“PAH”), from PositiveID Corporation (“PSID”), a then-related party. VC, VAC and VAC’s
inactive VTQ IP Holding Corporation and PAH subsidiaries are referred to together as, “VeriTeQ,” or “the Company.”
The Company’s business had been comprised of efforts to provide implantable medical device identification and radiation
dose measurement technologies to the healthcare industry. On November 4, 2015, substantially all of the Company’s assets,
including the capital stock of VAC and PAH through which the Company conducted all of its business operations, were sold at auction
for the sum of $1 million, which was credited against the Company’s outstanding senior debt (see notes 3 and 5).
As
of December 31, 2015, the Company had ceased its business operations. On May 6, 2016, the Company completed its acquisition of
Brace Shop, LLC (“Brace Shop”) through a stock purchase agreement and reverse merger and recapitalization transaction
(see note 15).
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred
significant operating losses since its inception on December 14, 2011 and had a working capital deficit and accumulated deficit
at December 31, 2015 of $14.5 million and $37.3 million, respectively. A lender foreclosed upon the assets of the Company in November
2015 resulting in the discontinuance of all operations at that date. The Company’s cash position is critically deficient,
and payments essential to the Company’s ability to operate are not being made in the ordinary course of business. Failure
to raise capital in the near term to fund the Company’s operations and failure to generate positive cash flow to fund such
operations in the future will have a material adverse effect on the Company’s financial condition. In addition, as of the
date of this report, the Company is in payment default of a substantial portion of its existing indebtedness. The Company’s
failure to timely file periodic reports with the Securities and Exchange Commission (the “SEC”), including the Quarterly
Reports on Form 10-Q for the periods ending March 31, 2016, June 30, 2016 and September 30, 2016, constitute events of default
on all of the Company’s outstanding convertible notes. These factors raise substantial doubt about the Company’s ability
to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to the classification
of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty.
The
Company needs to raise additional funds immediately and continue to raise funds until it begins to generate sufficient cash from
operations, and it may not be able to obtain the necessary financing on acceptable terms, or at all. During the year ended December
31, 2015, the Company raised approximately $1.2 million, net of repayments, from the sale of convertible promissory notes (see
note 5). In May 2016 the Company acquired an operating company which transaction was accounted for as a reverse recapitalization
(see note 15)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation
The
consolidated financial statements include the accounts of the Company, including its wholly owned subsidiaries prior to November
4, 2015. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) and in accordance with Regulation S-X of the SEC. During the years ended
December 31, 2015 and 2014, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying
consolidated statements of operations. All inter-company accounts and transactions have been eliminated in consolidation, and
certain prior year balances have been reclassified to conform to the current presentation. Specifically, the amount of repayment
of notes payable in the consolidated statement of cash flows for the year ended December 31, 2014 has been segregated between
payments on related party notes and payments on unrelated party notes. In addition, the balance sheet and statement of operations
for the year ended December 31, 2014 have been retroactively restated to reflect the net assets and operations of VAC and PAH
as a discontinued operation (see note 3). Separate disclosure of cash flows pertaining to discontinued operations is not presented
in the accompanying consolidated statements of cash flows consistence with the guidance in ASC 230.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
Reverse
Stock Split and Change in Par Value of Common Stock
On
December 18, 2014, an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse split
of all of the outstanding shares of the Company’s common stock at a ratio of 1 for 1,000 was approved by the Company’s
Stockholders. The Certificate of Amendment became effective on February 11, 2015, and at that time each 1,000 shares of outstanding
common stock of the Company was combined and automatically converted into one share of the Company’s common stock, with
a par value of $0.00001 per share (the “February 2015 Reverse Stock Split”). In addition, the conversion and exercise
prices of all of the Company’s outstanding preferred stock, common stock purchase warrants, stock options and convertible
notes payable were proportionately adjusted at the 1:1,000 reverse split ratio consistent with the terms of such instruments.
No fractional shares were issued as a result of the February 2015 Reverse Stock Split, and shareholders received a cash payment
in lieu of such fractional shares that they would otherwise be entitled.
Also
on December 18, 2014, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate
of Incorporation to (i) reduce the par value of the Company’s common stock from $0.01 per share to $0.00001 per share; and
(ii) increase the number of shares of common stock that the Company is authorized to issue from 500 million to 10 billion. This
amendment became effective on December 18, 2014.
On
July 29, 2015, another amendment to the Company’s Amended and Restated Certificate of Incorporation became effective to
implement a 1-for-10,000 reverse stock split (the “July 2015 Reverse Stock Split”) of the Company’s common stock.
As a result, each 10,000 shares of the Company’s issued and outstanding common stock automatically, and without any action
on the part of the respective holders, were combined and converted into one issued and outstanding share of common stock. The
July 2015 Reverse Stock Split resulted in a reduction in the number of issued and outstanding shares of the Company’s common
stock from approximately 4.4 billion to approximately 446,000. The July 2015 Reverse Stock Split affected all issued and outstanding
shares of the Company's common stock, as well as all common stock underlying convertible notes, warrants, convertible preferred
stock and stock options outstanding immediately prior to the July 2015 Reverse Stock Split. The amendment also increased the number
of shares of common stock that the Company is authorized to issue from 10 billion to 100 billion. The Amendment was approved by
the Company’s Board of Directors and ratified by the Company’s stockholders on May 26, 2015.
All
share, per share and capital stock amounts as of December 31, 2015 and December 31, 2014, and for the years ended December 31,
2015 and 2014 have been retroactively restated to give effect to the July 2015 Reverse Stock Split, the February 2015 Reverse
Stock Split and the change in the par value of the Company’s common stock.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results could
be affected by those estimates. Included in these estimates are assumptions used in determining the lives and valuation of long-lived
assets, in valuation models used in estimating the fair value of certain promissory notes, warrants, embedded conversion options,
stock-based compensation and in determining valuation allowances for deferred tax assets.
Restricted
Cash
Restricted
cash is comprised of cash held in bank accounts by parties to the Company’s private placement transaction of senior secured
convertible notes on November 13, 2013.
Property
and Equipment
Property
and equipment consists primarily of computer equipment and is stated at cost less accumulated depreciation. Depreciation expense
is computed using the straight-line method over the estimated useful life of the related assets, ranging from 3 to 10 years. Depreciation
expense from continuing operations for each of the years ended December 31, 2015 and 2014 was approximately $1,000.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
Derivative
Financial Instruments
The
Company accounts for notes payable that are convertible into shares of the Company’s common stock and warrants issued
in conjunction with the issuance of such notes in accordance with the guidance contained in the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815,
Derivatives and
Hedging
(“ASC 815”) and ASC Topic 480,
Distinguishing Liabilities From Equity
(“ASC 480”).
For warrant instruments and conversion options embedded in promissory notes that are not deemed to be indexed to the
Company’s own stock, the Company classifies such instruments as liabilities at their fair values at the time of
issuance and adjusts the instruments to fair value at each reporting period. These liabilities are subject to re-measurement
at each balance sheet date until extinguished either through conversion or exercise, and any change in fair value is
recognized in the Company’s statements of operations (see notes 7 and 8). Upon conversion of debt the fair value of the
derivative is reclassified into equity, and the common stock is recorded at the book value of the debt. The fair values of
these derivative instruments have been estimated using a Monte Carlo simulation model. Unobservable inputs that, if changed,
might produce a significantly higher or lower fair value measurement of the Company’s derivative liabilities include
the discount rate used to estimate the fair value of the Company’s subordinated debt (see note 6) and the
expected volatility used to estimate the fair value of warrants reflected as derivative liabilities. The discount rate used
to estimate the fair value of the Company’s subordinated debt is based on rates of return achieved by market
participants investing in similar instruments, and reflects the perceived risk of investing of such instruments. Should the
credit risk of the Company improve or worsen, a lower or higher, respectively, discount rate may be appropriate, which could
result in a significantly higher or lower, respectively, measurement of fair value. The expected volatility used to estimate
the fair value of warrants reflected as derivative liabilities is based on the historical volatility of comparable
publicly traded common stocks. Should the expected volatility of the Company increase or decrease, there could be a
significantly higher or lower, respectively, measurement of fair value.
Stock-Based
Compensation
Stock-based
compensation awards to employees are measured at fair value and compensation cost is recognized on a straight line basis over
the requisite service period of each award. The Company awarded stock options to its directors and employees during the year ended
December 31, 2015 (see note 8). No awards were granted during the year ended December 31, 2014.
Income
Taxes
The
Company recognizes deferred tax liabilities and assets based on the temporary differences between the financial statement and
tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates
in effect for the year in which the differences are expected to affect taxable income. Temporary differences between taxable income
reported for financial reporting purposes and income tax purposes consist primarily of timing differences and net operating loss
carryforwards. A valuation allowance is provided against net deferred tax assets when the Company determines it is more likely
than not that it will fail to generate sufficient taxable income to be able to realize the deferred tax assets.
In
accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not
to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously
recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company
has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 2015 and 2014.
Loss
per Common Share and Common Share Equivalent
Basic
loss per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted loss per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock
that then shared in the income of the Company.
The
following stock options and warrants and shares issuable upon conversion of convertible notes payable outstanding at December
31, 2015 and 2014 were not included in the computation of dilutive loss per share because the net effect would have been anti-dilutive:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
|
|
Stock options
|
|
|
123,500,000
|
|
|
|
-
|
|
Warrants
|
|
|
33,895,130
|
|
|
|
323
|
|
Shares issuable upon conversion of preferred stock
|
|
|
46,964,286
|
|
|
|
93
|
|
Shares issuable upon conversion of convertible notes payable
|
|
|
82,388,120
|
|
|
|
319
|
|
|
|
|
286,747,536
|
|
|
|
734
|
|
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
Impact
of Recently Issued Accounting Standards
From
time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies will issue new accounting
pronouncements. Updates to the FASB ASC are communicated through issuance of an Accounting Standards Update (“ASU”).
In
August 2014, the FASB issued ASU No. 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 (“ASU 2014-15”), which is effective
for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is
permitted. Under ASU 2014-15, entities will be required to formally assess their ability to continue as a going concern and provide
disclosures under certain circumstances. While current practice regarding such disclosures is often guided by U.S. auditing standards,
the new standard explicitly requires the assessment at interim and annual periods, and provides management with its own disclosure
guidance. The standard can be adopted early. The Company is currently assessing the impact that adopting these new assessment
and disclosure requirements will have on its financial statements and footnote disclosures. See note 1 for the Company’s
current disclosure about its ability to continue as a going concern.
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09, “
Revenue from Contracts with Customers (Topic 606),
”
(“ASU 2014-09”). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.
This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model
will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration a company expects to receive in exchange for those goods or services. ASU 2014-09 is effective for public entities
for annual reporting periods beginning after December 15, 2016 and interim periods within those periods. Early adoption is not
permitted. The FASB has approved a one-year deferral of the effective date with the option to early adopt using the original effective
date. Entities may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company is currently
assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote
disclosures.
3.
DISCONTINUED OPERATIONS
As
more fully described in note 5, on October 19, 2015, the Company received a default notice from the collateral agent under the
security agreement pertaining to the Company’s senior secured indebtedness. The default notice demanded repayment of the
entire amount of senior debt that was due, and the Company did not have the financial resources to repay this indebtedness. The
Company also received a Notification of Disposition of Collateral (the “NDC”). The NDC advised the Company that the
collateral agent intended to sell, lease or license the assets securing the Company’s senior secured debt at a public auction
to take place in early November of 2015. These assets comprised substantially all of the assets of the Company and its subsidiaries,
except for certain intangible assets that the Company had deemed to be fully impaired as of December 31, 2014. On November 4,
2015, the public auction took place, and the holder of a substantial portion of the Company’s senior secured indebtedness
purchased the assets, including the capital stock of the Company’s VAC and PositiveID Animal Health subsidiaries, for $1
million, which was credited against the Company’s outstanding indebtedness to the holder of the senior secured indebtedness.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
As
a result of the foreclosure and auction transaction, the Company’s RFID business has been accounted for as a discontinued
operation. The assets and liabilities of VAC and PAH at the date of the auction transaction were as follows (in thousands):
Restricted cash
|
|
$
|
12
|
|
Property and equipment
|
|
|
25
|
|
Intangible assets, net
|
|
|
973
|
|
Other assets
|
|
|
48
|
|
Accounts payable and accrued expenses
|
|
|
(1,934
|
)
|
Notes payable
|
|
|
(115
|
)
|
Accrued royalty obligations
|
|
|
(575
|
)
|
Net assets (liabilities) disposed
|
|
|
(1,566
|
)
|
Consideration received in the form of notes payable reduction
|
|
|
(1,000
|
)
|
Gain on disposal of RFID business
|
|
$
|
(2,566
|
)
|
Accrued
interest allocated to discontinued operations is limited to interest on VAC notes for which the parent is neither a guarantor
nor a co-borrower.
4.
ACCRUED EXPENSES
The
following table summarizes the significant components of accrued expenses:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
(in thousands)
|
|
Accrued payroll and payroll related (including $729 and $492 to related parties)
|
|
$
|
778
|
|
|
$
|
531
|
|
Accrued legal
|
|
|
55
|
|
|
|
55
|
|
Accrued interest
|
|
|
842
|
|
|
|
84
|
|
Accrued other expenses (including $135 and $316 to related parties)
|
|
|
541
|
|
|
|
788
|
|
Total accrued expenses
|
|
$
|
2,216
|
|
|
$
|
1,458
|
|
During
the year ended December 31, 2015, the Company entered into separate agreements with Scott Silverman, the Company’s then
Chief Executive Officer, Randolph Geissler, the Company’s then President, Michael Krawitz, the Company’s then Chief
Legal and Financial Officer and two other employees, (collectively, the “Officers”) whereby each Officer agreed that
certain amounts of accrued but unpaid compensation that each individual was entitled to receive (aggregating approximately $1,010,000)
would be paid in the form of a convertible promissory note (the “Officer Notes”). In connection with these agreements,
the Company issued Officer Notes to Messrs. Silverman, Geissler, Krawitz and the other two employees in the principal amounts
of $194,010, $285,000, $384,509 and $146,955, respectively.
5.
NOTES PAYABLE
Notes
payable at December 31, 2015 and 2014 consist of the following:
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Convertible notes payable with a bifurcated conversion option
|
|
|
3,345
|
|
|
|
2,828
|
|
Related party notes payable
|
|
|
1,142
|
|
|
|
169
|
|
Other notes payable
|
|
|
61
|
|
|
|
185
|
|
Discount on notes payable
|
|
|
(70
|
)
|
|
|
(531
|
)
|
|
|
|
4,478
|
|
|
|
2,651
|
|
Less current portion
|
|
|
(4,478
|
)
|
|
|
(2,365
|
)
|
Non-current notes payable
|
|
|
-
|
|
|
|
286
|
|
Convertible
Notes with a Bifurcated Conversion Option
On
November 13, 2013, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with a group
of institutional investors (the “Investors”), whereby the Company issued to the Investors senior secured convertible
promissory notes in the principal amount of $1,816,667, including a $150,000 note payable to the placement agent in lieu of a
cash fee (the “November 2013 Notes”). The November 2013 Notes were issued with an original issue discount of $166,667.
Therefore, the November 2013 Notes were issued for a cash purchase price of $1,500,000, and with warrants to purchase up to 2,644
shares of the Company’s common stock, including 222 warrants granted to the placement agent (the “November 2013 Warrants”)
without giving effect to the July 2015 Reverse Split.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
In
connection with the sale of the November 2013 Notes and the November 2013 Warrants, (i) the Company entered into a registration
rights agreement with the Investors (the "Registration Rights Agreement"), (ii) the Company and certain of its subsidiaries
entered into a security and pledge agreement in favor of the collateral agent for the Investors (the "Security Agreement"),
(iii) certain of the Company’s subsidiaries entered into a guaranty in favor of the collateral agent for the Investors (the
“Guaranty”), and (iv) the Company and each depository bank in which such bank account is maintained entered into certain
account control agreements with respect to certain accounts described in the Purchase Agreement and related agreements.
Upon
the closing of this transaction, $750,000 of the proceeds were placed in restricted bank accounts in amounts proportionate to
each Investor’s note balance, to be applied to pay any redemption or other payment due under the applicable note to the
applicable holder from time to time (see note 10 for further information). In addition, $115,000 of the Investors’ expenses
was paid by the Company. As a result, the Company received net proceeds in 2013 of $635,000 from this transaction. During the
year ended December 31, 2014, $0.4 million of the restricted funds were used to prepay a portion of one of the outstanding November
2013 Notes and all but approximately $12,000 of the remaining funds were released to the Company.
The
November 2013 Notes had an original maturity date of November 13, 2014. Interest does not accrue on the November 2013 Notes unless
there is an event of default (as defined in the notes), in which case interest on the November 2013 Notes commences accruing daily
at a rate of 18% per annum. The November 2013 Notes were originally convertible into shares of the Company’s common stock,
at the option of the holder, at any time following issuance at a conversion price of $7,500,000 per share, unless such conversion
or share issuance thereunder would cause the holder to beneficially own in excess of 4.99% of the Company’s common stock.
The conversion price is subject to adjustment for stock dividends, stock splits or stock combinations, whereby in any such case
the conversion price would be multiplied by the following fraction: (i) the number of shares of common stock outstanding immediately
before such event and (ii) the number of shares of common stock outstanding immediately after such event. Under the terms of the
November 2013 Notes, in the event the Company were to issue or sell, or is deemed to have issued or sold, any shares of common
stock for a consideration per share (the “New Issuance Price”) that is less than the conversion price in effect immediately
prior to such issue or sale or deemed issuance or sale (a “Dilutive Issuance”), then, immediately after such Dilutive
Issuance, the conversion price then in effect is reduced to an amount equal to the New Issuance Price. As a result of various
issuances of convertible promissory notes subsequent to November 13, 2013 and through December 31, 2015, the conversion price
as of December 31, 2015 was $0.057 per share.
The
November 2013 Warrants became exercisable at issuance and entitle the Investors to purchase shares of the Company’s common
stock for a period of five years at an initial exercise price of $28,400,000 per share, and contain a cashless exercise provision.
The exercise price is also subject to adjustment for stock dividends, stock splits and stock combinations. In addition, the exercise
price of the warrant is subject to downward adjustment in the event the Company issues common stock or securities convertible
into common stock at an issuance price or conversion price that is less than the exercise price of the November 2013 Warrants.
Moreover, the November 2013 Warrants provide that the holder of the warrant has the right to invest the same aggregate amount,
regardless of changes in the price of the Company’s common stock. Accordingly, decreases in the price of the Company’s
common stock result in an increase in the number of shares exercisable under the Warrants (see note 8 for further information).
The
November 2013 Notes rank senior to the Company’s other indebtedness and are secured by a perfected first lien security interest
in all of the Company’s and its subsidiaries’ assets except certain assets of VTQ IP Holding Corporation (IP related
to the Company’s dosimeter technology). The November 2013 Notes contain certain covenants and restrictions, including, among
others, that, for so long as the November 2013 Notes are outstanding, the Company will not incur any indebtedness except permitted
indebtedness, permit liens on its properties (other than permitted liens under the November 2013 Notes), pay dividends or transfer
certain assets.
During
the year ended December 31, 2014, $400,000 of the November 2013 Notes was repaid using a portion of the Company’s restricted
cash, and $568,990 of the November 2013 Notes was converted into 7 shares of common stock in accordance with the terms of the
November 2013 Notes or under Right to Shares Agreements entered into in 2014 with certain of the Investors. The outstanding balance
on the November 2013 Notes at December 31, 2014 was $718,010. On October 31, 2014, the Company entered into an amendment to the
Purchase Agreement with some of the original parties to the Purchase Agreement. As a result of this amendment, as well as a sale
of one of the November 2013 Notes to another accredited investor, the maturity date on $642,121 of the outstanding November 2013
Notes was extended to July 13, 2015. The remaining $205,556 of notes that was due on November 14, 2014 has not been repaid, and
default interest on these notes has been recognized from the maturity date.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
During
the year ended December 31, 2014, the Company issued additional convertible promissory notes with an aggregate principal amount
of $2,107,350, and satisfied the obligation to PSID under a shared services agreement through the issuance to PSID of a convertible
promissory note (see note 10) in the amount of $222,115 (collectively, the “2014 Convertible Notes”). The 2014 Convertible
Notes contain terms that are substantially similar to those of the November 2013 Notes, including variable conversion price formulas
with downward adjustment features. No warrants were issued in conjunction with the 2014 Convertible Notes, and except for $322,222
of notes issued to the Investors (the “May 2014 Notes”), they do not contain priority liens on the Company’s
assets. The 2014 Convertible Notes generally mature within 9 to 12 months from the date of issuance, bear interest at rates ranging
from 8% to 12% per annum with all interest payable at maturity, and are convertible into shares of common stock at 60% to 61%
of the market price of the Company’s common stock based on the low end of the trading range of the common stock during the
10 to 25 days prior to conversion, depending on the specific note being converted.
During
the year ended December 31, 2014, $233,750 of the 2014 Convertible Notes, along with $375 of accrued interest were converted into
12 shares of the Company’s common stock in accordance with their terms, and the outstanding balance on the 2014 Convertible
Notes was $2,095,715 at December 31, 2014.
During
the year ended December 31, 2015, the Company issued convertible promissory notes in the aggregate principal amount of $1,349,471,
and received net proceeds of $1,208,835. These notes are generally due one year after the date of issuance, bear interest at rates
of 1% to 12% per annum, and are convertible into shares of common stock at 57% to 61% of the market price of the Company’s
common stock based on the low end of the trading range of the common stock during the 10 to 30 days prior to conversion, depending
on the specific note being converted.
With
respect to the foregoing notes, in the event the Company were to issue or sell, or is deemed to have issued or sold, any shares
of common stock for a consideration per share (the “New Issuance Price”) that is less than the conversion price in
effect immediately prior to such issue or sale or deemed issuance or sale (a “Dilutive Issuance”), then, immediately
after such Dilutive Issuance, the conversion price then in effect is reduced to an amount equal to the New Issuance Price.
In
connection with the issuance of one of the foregoing notes, the Company issued a warrant to purchase 50 shares of the Company’s
common stock at an exercise price of $210 per share, subject to adjustment for stock splits, stock dividends and stock combinations
(the “March 2015 Warrant”). The March 2015 Warrant is exercisable at any time until three years after the date of
issuance. The terms of the warrant provides for a proportional downward adjustment of the exercise price in the event that the
Company issues or sells, or is deemed to have issued or sold, shares of common stock at an issuance price that is less than the
market price of the common stock at the time of issuance, as defined in the warrant agreement. The Company determined that the
fair value of the March 2015 Warrant was de minimus at the date of issuance and at December 31, 2015.
During
the year ended December 31, 2015, $597,474 of previously issued convertible notes, along with $10,375 of accrued interest, were
converted into 461,211 shares of the Company’s common stock, and $94,675 of convertible notes were repaid in accordance
with their terms. In connection with the notes converted, approximately $168,000 of the bifurcated option liability was reclassified
into additional paid-in capital. Also during the year ended December 31, 2015, the Company entered into a settlement agreement
with one of its convertible noteholders which reduced the outstanding principal balance on their notes by $9,375, which was recorded
as a gain on the settlement of debt and is reflected in other income in the accompanying consolidated statements of operations
for the year ended December 31, 2015. In addition, the Company received additional notices for the conversion of $3,860 convertible
notes that the Company was unable to honor.
In
November and December of 2015, the Company issued convertible notes in the aggregate principal amount of $194,118 in connection
with the acquisition transaction discussed in note 15. The Company received no cash proceeds with the issuance of these notes.
These notes are due one year after the date of issuance, bear interest at rates of 10% to 12% per annum, and are convertible into
shares of common stock at 60% of the average of the three lowest trading prices of the Company’s common stock during the
10 days prior to conversion. These notes also contain terms similar to the Company’s previously issued convertible notes,
whereby in the event the Company were to issue or sell, or is deemed to have issued or sold, any shares of common stock for a
consideration per share (the “New Issuance Price”) that is less than the conversion price in effect immediately prior
to such issue or sale or deemed issuance or sale (a “Dilutive Issuance”), then, immediately after such Dilutive Issuance,
the conversion price then in effect is reduced to an amount equal to the New Issuance Price.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
The
Company’s failure to (i) timely file its Quarterly Report on Form 10-Q for the period ending June 30, 2015 with SEC, (ii)
repay certain convertible notes that had reached their maturity date and (iii) honor the foregoing conversion notices, constitute
events of default under the terms of the convertible notes, including the November 2013 Notes and the May 2014 Notes (collectively,
the “Senior Notes”). The terms of some of the convertible notes require that the outstanding principal amount on the
notes increase by as much as 50% in the event of a default. As a result, the Company recorded additional principal on these notes
and a corresponding interest charge in the amount of $456,684. The Company also accrued additional interest in connection with
these defaults in the amount of $508,659. In addition, the Company entered into discussions with Magna Equities I, LLC, (together
with its affiliate, Magna Equities II, “Magna”) the collateral agent for the holders of the Senior Notes, and agreed
to the actions taken below.
On
October 19, 2015, the Company entered into a letter agreement with Magna pursuant to which the Company agreed to exchange approximately
$1.3 million aggregate principal amount of outstanding unsecured convertible promissory notes held by Magna for an equal principal
amount of new secured convertible promissory notes (the “New Magna Notes”) intended to be pari passu in rank and priority
with the Senior Notes. There was no accounting effect to this amendment.
On
October 19, 2015, the Company received a default notice from Magna, acting in its capacity as collateral agent under the security
agreement pertaining to the Senior Notes. At the time of the notice, Magna was the holder of outstanding convertible promissory
notes of the Company in the aggregate principal amount of approximately $1.6 million (excluding all accrued but unpaid interest),
consisting of approximately $0.3 million of Senior Notes and $1.3 million of New Magna Notes, and had entered into agreements
with holders of an additional $500,000 aggregate principal of Senior Notes to acquire such Senior Notes. The default notice demanded
repayment of the entire amount due under the Senior Notes (including the $500,000 of Senior Notes Magna had the right to acquire)
and the New Magna Notes (collectively, the "Magna Notes"). The Company did not have the financial resources to repay
this indebtedness. The default notice also advised the Company and its subsidiaries that Magna was exercising all of its rights
and remedies under the Magna Notes and the related debt documents. In conjunction with this default notice, the Company received
from Magna a Notification of Disposition of Collateral (the “NDC”). The NDC advised the Company that Magna intended
to sell, lease or license the assets securing the Magna Notes at a public auction to take place in early November of 2015. These
assets constitute substantially all of the assets of the Company and its subsidiaries, except for those assets securing the SNC
Note, as defined in note 6. On November 4, 2015, the public auction took place, and Magna purchased the assets, including the
capital stock of the Company’s VAC and PositiveID Animal Health subsidiaries, for $1 million, which was credited against
the Company’s outstanding Magna Notes.
Magna’s
purchase of the $500,000 of Senior Notes from the previous holders was completed on November 10, 2015. In connection with this
transaction, the Company amended a previously issued unsecured convertible promissory note with one of the holders by increasing
the principal amount of the note by $102,500, which was charged to interest expense in the accompanying consolidated statement
of operations. The Company did not receive any cash proceeds from this transaction.
The
remaining outstanding unsecured convertible notes currently accrue default interest at rates ranging from of 18% to 22% per annum,
and the holders of the notes retain their right to convert the outstanding principal plus accrued and unpaid interest into shares
of the Company’s common stock in accordance with the terms of the notes.
Related
Party Notes Payable
Related
party notes payable at December 31, 2013 consisted of two promissory notes payable to Scott Silverman, the Company’s Chief
Executive Officer, each in the principal amount of $30,000, bearing interest at a rate of 5% per annum, payable on demand. The
outstanding principal on these notes was repaid during the year ended December 31, 2014 and Mr. Silverman elected to forgo receiving
interest on these notes.
During
the year ended December 31, 2014, the Company issued unsecured promissory notes to several of its officers and directors, including
Mr. Silverman, in the aggregate principal amount of $185,000. These notes bear interest at 5% per annum, with accrued interest
and principal payable on demand. The Company repaid $66,000 of these notes during the year ended December 31, 2014.
On
April 16, 2014 and May 1, 2014, the Company issued promissory notes to Ned L. Siegel in the principal amount of $30,000 and $20,000,
respectively (collectively, the “Siegel Notes”). The Siegel Notes bear interest at a rate of 9% per annum, with principal
and interest due on these notes one year after their date of issuance. The Siegel Notes are convertible into shares of the Company’s
common stock at the option of the holder at a conversion price of $3,500,000 per share. Based on the value of a warrant issued
in conjunction with these notes, as well as the price of the Company’s common stock at the time the Siegel Notes became
convertible, the Company recognized a discount on the Siegel Notes in the amount of $50,000, which was amortized over a period
of one year. Mr. Siegel was appointed a director of the Company on June 17, 2014, and resigned from the Company’s board
of directors on January 28, 2015. On February 27, 2015, the Siegel Notes were amended to (i) extend the maturity date to March
1, 2016, and (ii) reduce the per share conversion price to 60% of the average of the three lowest closing prices of the Company’s
common stock for the 10 trading days prior to conversion.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
As
discussed in note 4, during the year ended December 31, 2015, three of the Company’s executive officers and two other senior
level employees entered into agreements with the Company whereby certain amounts of accrued but unpaid compensation that each
individual was entitled to receive would be paid in the form of Officer Notes, and the Company issued an aggregate of $1,010,474
of Officer Notes in satisfaction of the accrued liabilities. In addition, Mr. Geissler and Mr. Krawitz agreed to have their previously
issued and outstanding demand notes due from the Company, in the principal amounts of $34,000 and $60,000, respectively, converted
into separate Officer Notes. The Officer Notes bear interest at a rate of 5% per annum, with principal and interest due on March
1, 2016. As of the date of this report these notes are in default.
During
the year ended December 31, 2015, $37,924 of related party notes, along with $1,483 of accrued interest, were converted into 26,718
shares of common stock.
Other
Notes Payable
Other
notes payable as of December 31, 2013 consists of a note originally payable to PSID in the amount of $200,000 issued in connection
with the acquisition of a PSID subsidiary in January of 2012 (the “PSID Note”). Pursuant to the terms of a July 8,
2013 letter agreement between PSID and the Company, the Company and PSID agreed that the note would be paid in shares of the Company’s
common stock. Accordingly, in October 2013, the Company issued 16 shares of common stock to PSID and the principal balance on
PSID Note was reduced to $175,000, and that the balance of the note is to be repaid through the issuance of an additional 135
shares of common stock, prior to giving effect to the July 2015 Reverse Split. In connection with the issuance of the November
2013 Notes, PSID assigned the PSID Note to the Investors. In February of 2014, one of the Investors converted approximately $60,000
of this note, along with approximately $10,000 of accrued interest, into 46 shares of the Company’s common stock. The remaining
balance on the PSID Note at December 31, 2015 and 2014 is $0 and $114,000, respectively.
During
the year ended December 31, 2014, the Company issued several promissory notes to accredited investors with an aggregate principal
amount of $111,225. Each note had a maturity date one year after the date of issuance, bears interest at a rate of 9% per annum,
and is generally convertible into shares of the Company’s common stock at the option of the holder at a conversion price
of $3,500,000 per share. For some of these notes, the Company may, at its sole option, elect to convert the note into common stock
at a conversion price that is equal to 60% of the market price of the Company’s common stock, as defined in the notes. During
the year ended December 31, 2014, $40,600 of these notes, plus $1,330 of accrued interest, was converted into 2 shares of the
Company’s common stock. During the year ended December 31, 2015, $9,400 of these notes, plus $1,537 of accrued interest,
was converted into 10 shares of the Company’s common stock.
At
December 31, 2015, the total of all of the Company’s outstanding promissory notes was convertible into an aggregate of 82,388,120
shares of the Company’s common stock.
Interest
expense was approximately $2.4 million for the year ended December 31, 2015, including non-cash interest expense of $1.7 million.
Non-cash interest expense includes additional debt principal of $0.5 million recognized upon the default of the Company’s
convertible notes and the amortization of debt discounts. Interest expense was approximately $2.5 million for the year ended December
31, 2014, including $2.4 million of non-cash interest expense, which is primarily related to the amortization of debt discount.
6.
SUBORDINATED DEBT REPORTED AT FAIR VALUE
In
December 2012, VAC entered into an asset purchase agreement and royalty agreement with SNC Holding Corp. wherein VAC acquired
various technology and trademarks related to its radiation dose measurement technology. Under the terms of the agreements, VAC
issued a non-interest bearing secured subordinated convertible promissory note in the principal amount of $3.3 million (the “SNC
Note”). The SNC Note is convertible into one-third of the beneficial common stock ownership of VC held by Scott Silverman.
Mr. Silverman did not own any shares of common stock as of December 31, 2015. The note was amended in July 2013 to extend the
maturity date to June 2015 and has not been repaid.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
The
SNC Note is secured by all of the assets acquired by the Company under the 2012 asset purchase agreement, consisting primarily
of intellectual property and certain property and equipment (the “SNC Collateral”) carried at zero cost basis as of
December 31, 2015. The SNC Collateral was not included in the foreclosure transaction discussed in note 5. Under the terms of
the SNC Note, as amended, the holder of the SNC Note may look solely to the SNC Collateral to satisfy all obligations of the Company
to it under the SNC Note and not to any other assets of the Company and/or its subsidiaries. In October of 2015, the Company contacted
the holder of the SNC Note regarding the return of the SNC Collateral to the holder in satisfaction of the SNC Note. By letter
agreement dated February 18, 2016, the Company agreed to return the SNC Collateral to the holder of the SNC Note, and the holder
agreed to discharge the Company of all of its obligations and liabilities under the SNC Note upon receipt of the assets. As of
the date of this report, the collateral has not been accepted by the holder of the SNC Note and the SNC Note remains outstanding
(see note 15).
Pursuant
to ASC 825-10-25-1,
Fair Value Option,
the Company made an irrevocable election at the time of issuance to report the note
at fair value, with changes in fair value recorded through the Company’s statement of operations as Other expense/income
in each accounting period. The fair value recorded as of December 31, 2015 was $2.9 million less than the actual principal due
of $3.3 million. At December 31, 2015 and 2014, the fair value of the SNC Note was $0.4 million and $0.3 million, respectively
(see note 7 for further information) and the principal amount due was $3.3 million.
7.
FINANCIAL INSTRUMENTS
Fair
Value Measurements
Fair
value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that
are required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such
as inherent risk, transfer restrictions and credit risk.
The
Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels
and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair
value measurement:
Level
1 – Quoted prices in active markets for identical assets or liabilities.
Level
2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for
identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level
3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability.
During
the years ended December 31, 2015 and 2014, the SNC Note (which the Company elected to be accounted for at fair value), the bifurcated
embedded option in other convertible notes and the warrant liabilities were valued using Level 3 inputs. During the year ended
December 31, 2014, the Company’s royalty obligations were also valued using Level 3 inputs. The estimated values at December
31, 2014 also considered the value of the Company’s stock price of $0.11 per share following the February 2015 Reverse Stock
Split. The closing price on December 31, 2014 was $0.002 per share (without giving effect to the reverse split). The changes in
fair value of the SNC Note, the bifurcated embedded option in the convertible notes and the warrant liability during 2015 and
2014 are reflected in the changes in fair value of derivative and other fair valued instruments in the Company’s consolidated
statement of operations.
As
of December 31, 2015 and 2014 the fair value of the convertible subordinated debt was determined using a discounted cash flow
model. The fair value of the November 2013 Warrants and the bifurcated embedded option in the convertible notes were determined
using various Monte Carlo simulations.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
The
following table summarizes our financial assets and liabilities measured at fair value as presented in the consolidated balance
sheets as of December 31, 2015 and December 31, 2014 (in thousands):
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNC Note
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
370
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
316
|
|
Bifurcated option in convertible notes
|
|
|
|
|
|
|
|
|
|
|
5,337
|
|
|
|
|
|
|
|
|
|
|
$
|
2,128
|
|
Warrant liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,410
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,802
|
|
The
following is a summary of activity of Level 3 liabilities for the years ended December 31, 2015 and 2014:
|
|
SNC
Note
|
|
|
Bifurcated
embedded option in convertible notes
|
|
|
Warrant
liabilities
|
|
Balance at December 31, 2013
|
|
$
|
4,925
|
|
|
$
|
3,124
|
|
|
$
|
6,114
|
|
Issuance of additional debt
|
|
|
|
|
|
|
1,009
|
|
|
|
|
|
Gains (losses) included in net loss
|
|
|
(4,609
|
)
|
|
|
(1,959
|
)
|
|
|
2,741
|
|
Conversion of notes and exercise of warrants into shares of common
stock
|
|
|
|
|
|
|
(46
|
)
|
|
|
(7,053
|
)
|
Balance at December 31, 2014
|
|
|
316
|
|
|
|
2,128
|
|
|
|
1,802
|
|
Issuance of additional debt
|
|
|
|
|
|
|
386
|
|
|
|
|
|
Cancellation of warrants
|
|
|
|
|
|
|
|
|
|
|
(657
|
)
|
Conversion of notes and exercise of warrants into shares of common
stock
|
|
|
|
|
|
|
(168
|
)
|
|
|
(11
|
)
|
Losses (gains) included in net loss
|
|
|
54
|
|
|
|
2,991
|
|
|
|
276
|
|
Balance at December 31, 2015
|
|
$
|
370
|
|
|
$
|
5,337
|
|
|
$
|
1,410
|
|
8.
STOCKHOLDERS’ DEFICIT
Preferred
Stock
On
October 31, 2014, the Company entered into agreements with Mr. Silverman and Mr. Geissler, officers of the Company, whereby Messrs.
Silverman and Geissler agreed to convert amounts owed to them by the Company of $1.4 million and $441,000, respectively, into
a total of 1,841 shares of the Company’s newly designated Series D Convertible Preferred Stock, 2,000 shares designated,
par value $0.01 per share (the “Series D Preferred Stock”) with a stated value of $1,000 per share. Since the shares
were issued to related party officers any gain was recorded as temporary equity resulting in a total credit to temporary equity
equal to the settled debt amount of $1.841 million. The Series D Preferred Stock issued under this agreement will vest on January
1, 2017 and will automatically vest upon a change of control event.
Absent a change of control or certain other transformational
events, the Series D Preferred Stock, the terms of which were amended on May 13, 2015, will convert on January 2, 2017 (immediately
after it vests) into shares of the Company’s common stock at a conversion price per share equal to the lesser of $31,000
per share or the average closing price of the common stock for any 5 consecutive trading days occurring between March 12, 2015
and the conversion date, which 5-day period is elected by the holder in their conversion notice. The Series D Preferred Stock
is entitled to vote along with shares of common stock. The number of votes that a holder of the Series D Preferred Stock is able
to cast is equal to the number of common shares that the Series D Preferred Stock would convert into on any record date for any
shareholder vote. At December 31, 2015, the Series D Preferred Stock is convertible into an aggregate of 46,964,286 shares of
common stock, subject to adjustment for stock splits or stock combinations.
In
the event that the Company did not have a sufficient number of authorized shares to effect the conversion of all of the outstanding
Series D Preferred Stock into common stock prior to April 2, 2017, then the Company is required to redeem all of the outstanding
shares of Series D Preferred Stock for cash, based on the value of the shares of common stock that would otherwise have been issued.
This amount may exceed stated value but is unknown until this date occurs. Because the circumstances under which the Company may
be required to redeem the Series D Preferred Stock for cash remains contingent but is potentially within the Company’s control,
the stated value of the Series D Preferred Stock is classified outside of permanent equity in the Company’s consolidated
balance sheet as of December 31, 2015 and 2014.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
As
of December 31, 2015, the Company has authorized 5 million shares of preferred stock, par value $0.01 per share, with 1,841 shares
of Series D Preferred Stock issued and outstanding. On April 29, 2016, Mr. Silverman transferred his Series D shares to a third
party lender of the Company and Mr. Geissler relinquished his shares of Series D Preferred Stock and there remained 1,400 outstanding
shares of Series D Preferred Stock as of that date.
Common
Stock
As
previously discussed in note 1, the February 2015 Reverse Stock Split became effective on February 11, 2015, and the July 2015
Reverse Stock Split became effective on July 29, 2015. All share, per share and capital stock amounts have been retroactively
restated as of December 31, 2015 and 2014 to give effect to the reverse stock splits. In conjunction with the effectiveness of
the July 2015 Reverse Stock Split, the number of common shares that the Company is authorized to issue increased to 100 billion.
On
April 20, 2015, the Company sold 526 shares of its common stock to a director of the Company for a purchase price of $10,000.
The purchase price was based on the closing price of the Company’s common stock on April 19, 2015.
On
April 22, 2015, the Company sold 666 shares of its common stock to Mr. Silverman for $10,000. The purchase price was based on
the closing price of the Company’s common stock on April 21, 2015.
On
May 12, 2015, a director of the Company converted outstanding amounts owed to him in the amount of $32,101, into 10,700 shares
of common stock. The number of shares issued was based on the closing price of the Company’s common stock on May 11, 2015.
During
the year ended December 31, 2015, 487,978 shares of common stock were issued upon the conversion of $658,193 of notes payable
and accrued interest, 223,818 shares of common stock were issued upon the cashless exercise of warrants with $11,135 of warrant
liabilities reclassified into equity and $167,600 of derivative liabilities related to the embedded conversion option in convertible
notes payable were reclassified into equity.
As
of December 31, 2015, the Company had 100 billion shares of common stock authorized and 723,718 shares were issued and outstanding.
On
June 18, 2014, the Company obtained approval from a majority of its stockholders to:
|
●
|
increase
the number of authorized shares of the Company’s common stock from 50 million to
500 million;
|
|
●
|
reduce
the par value of the Company’s preferred stock from $10.00 per share to $0.01 per
share; and
|
|
●
|
adopt
the Company’s 2014 Stock Incentive Plan under which 50 million shares were reserved
for issuance.
|
The
Company filed an Amended and Restated Certificate of Incorporation with the State of Delaware to effect the changes to its authorized
shares of common stock and the par value of its preferred stock and to complete the adoption of the 2014 Stock Incentive Plan
on August 27, 2014.
In
July of 2014, the Company entered into consulting and advisory agreements with three separate entities providing investment and
advisory and investor relations services. In connection with these agreements, the Company issued an aggregate of 1,550 shares
(prior to adjustment for the July 2015 Reverse Stock Split) to these service providers valued at approximately $336,000 which
was expensed over the same periods in 2014.
During
the year ended December 31, 2014, the Company issued 6 shares of common stock to warrant holders upon the cashless exercise of
outstanding warrants or under Right to Shares agreements entered into with certain holders of the November 2013 Warrants, and
363 shares (prior to adjustment for the July 2015 Reverse Stock Split) of common stock upon the cashless exercise of outstanding
stock options. As a result, $7,052,249 of warrant liabilities were reclassified into equity.
During
2014 the Company issued 23 shares of common stock upon conversion of $916,589 of convertible promissory notes and accrued interest.
On
December 18, 2014, the Company filed an amendment to its Amended and Restated Certificate of Incorporation increasing the number
of shares of common stock which it is authorized to issue from 500 million to 10 billion, to decrease the par value of the Company’s
common stock from $0.01 per share to $0.00001 per share and to increase the number of shares issuable under the Company’s
2014 Stock Incentive Plan from 50 million to 500 million. The amendment was approved by the Company’s stockholders on December
18, 2014.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
On
February 24, 2015, in accordance with the terms of the 2014 Plan, the Company’s board of directors approved a decrease in
the number of shares reserved for issuance under the 2014 Plan from 500,000,000 to 250,000,000.
Warrants
Deemed as Equity
As
a result of the July 2015 Reverse Stock Split, the Company no longer has any warrants exercisable for shares of common stock
and which qualify for equity treatment as of December 31, 2015.
Warrants
Deemed as Liabilities
On
November 13, 2013, in connection with the issuance of the November 2013 Notes, the Company issued the November 2013 Warrants,
which are more fully described in Note 5. The November 2013 Warrant agreements provide that if the Company were to issue or sell
any shares of its common stock, except certain specified issuances pursuant to the Company’s stock plans or the issuance
of common stock pursuant to agreements existing on November 13, 2013, at a price per share less than the exercise price in effect
immediately before the issuance or sale, then immediately after such dilutive issuance, the exercise price will be reduced. If
there is an adjustment to the exercise price as a result of any of the dilution events specified in the Warrant agreements, the
number of shares of common stock that may be purchased upon exercise of the warrant will be increased or decreased proportionately,
so that after such adjustment the aggregate exercise price payable for the adjusted number of shares shall be the same as the
aggregate exercise price in effect immediately prior to such adjustment (without regard to any limitations on exercise).
In
conjunction with Magna’s purchase of the $500,000 of Senior Notes from the previous holders on November 10, 2015, a portion
of the November 2013 Warrants were cancelled. As a result of the issuances of promissory notes with variable conversion price
formulas over the course of fiscal 2014 and 2015, the reset provisions under the terms of warrants were triggered. Because the
variable price formula changes with the value of the Company’s common stock, the number of shares subject to warrant varies. As
of December 31, 2015, if all of the remaining November 2013 Warrants had been exercised under the alternative price formulation
the number of shares of the Company’s common stock that would have been issued would have been 33,895,080 shares based on
an exercise price of $0.057 per share, subject to adjustment for the cashless exercise provisions.
During
the year ended December 31, 2015, the Company issued the March 2015 Warrant (see note 5). The March 2015 Warrant is exercisable
at any time until three years after the date of issuance. The terms of the warrant provides for a proportional downward adjustment
of the exercise price in the event that the Company issues or sells, or is deemed to have issued or sold, shares of common stock
at an issuance price that is less than the market price of the common stock at the time of issuance, as defined in the warrant
agreement. The Company determined that the fair value of the March 2015 Warrant was de minimus at the time of issuance and at
December 31, 2015.
The
terms of the March 2015 Warrant and the November 2013 Warrants are such that they do not qualify for equity treatment under ASC
815 and are classified as liabilities at December 31, 2015 and 2014. The carrying amount of the warrant liabilities approximate
management’s estimate of their fair value (see note 7) and were determined to be $1.4 million and $1.8 million at December
31 2015 and 2014, respectively. The Company recognized expense of approximately $0.3 million and $2.7 million in the years ended
December 31, 2015 and 2014, respectively as a result of the change in fair value of the November 2013 Warrants.
Stock
Options and Restricted Stock
In
accordance with the Compensation – Stock Compensation Topic of the FASB Codification, awards of stock options are measured
at fair value on the date of grant and compensation cost is recognized on a straight line basis over the service period of each
award. Upon exercise of stock options, the Company’s policy is to issue new shares from its authorized but unissued balance
of common stock outstanding that have been reserved for issuance under the Company’s stock option plans.
On
August 13, 2015, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”)
granted 100,000,000 shares of restricted common stock to executive officers of the Company and options to purchase 123,500,000
shares of the Company’s common stock to employees and directors of the Company. These grants were under the Company’s
2014 Stock Incentive Plan. Also on August 13, 2015, the Compensation Committee granted an additional 150,000,000 shares of restricted
common stock to certain executive officers and a director. The restricted common stock were to have vested on January 2, 2017
or upon a change of control. On April 28, 2016, all of the recipients of the restricted stock grants agreed to relinquish their
shares and rescind their grants in their entirety. As a result, in accordance with ASC 718, no compensation expense was recorded
for the restricted stock grants and the shares were not reflected as outstanding as of December 31, 2015.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
The
stock options vested on the date of grant and expire ten years from the date of grant. The stock options were valued at the date
of grant using the Black-Scholes valuation model, with the following assumptions: risk-free interest rate of 2.19%, dividend yield
of 0% and volatility of 694.91%. For the year ended December 31, 2015, the Company recorded compensation expense of $4.4 million
with respect to the stock options. There were no exercises, forfeitures, cancellations or additional grants of stock options during
the year ended December 31, 2015. Stock-based compensation expense is reflected within Selling, general and administrative expenses
in the accompanying consolidated statements of operations. As of December 31, 2015, the intrinsic value of the outstanding stock
options was approximately $11.1 million.
At
December 31, 2014, options to purchase 2,203 shares of common stock (prior to adjustment for the July 2015 Reverse Stock Split)
were outstanding. These options were no longer outstanding upon the effectiveness of the July 2015 Reverse Stock Split.
On
June 17, 2014, the Company issued 650 shares of restricted stock (prior to adjustment for the July 2015 Reverse Stock Split) to
a director in connection with his appointment to the Company’s board of directors, of which 150 shares vested on January
2, 2015. The remaining shares were forfeit in 2015 due to this director’s resignation from the board of directors on January
28, 2015. In January 2013, the Company issued approximately 900 shares of restricted common stock (prior to adjustment for the
July 2015 Reverse Stock Split) to a member of its senior management. This restricted stock vested in full on January 1, 2015.
The total value of the restricted stock of approximately $1.5 million was expensed over the vesting period. During the year
ended December 31, 2014, the Company recorded $0.8 million in compensation expense related to the restricted stock.
During
1999, the Company adopted the 1999 Flexible Stock Plan and the 1999 Employees’ Stock Purchase Plan. During 2002 the Company
adopted the Digital Angel Corporation Transition Stock Option Plan. During 2003, the Company adopted the 2003 Flexible Stock Plan.
No options remain outstanding under these plans and the plans were terminated in February of 2015. The following table displays
the Company’s stock option activity for the years ended December 31, 2015 and 2014:
|
|
Options Quantity
|
|
|
Weighted average exercise price
|
|
Options outstanding as of December 31, 2013 (after giving effect ot the July 2015 Reverse Stock Split)
|
|
|
-
|
|
|
$
|
-
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
Options outstanding as of December 31, 2014
|
|
|
-
|
|
|
|
-
|
|
Options granted
|
|
|
123,500,000
|
|
|
|
0.036
|
|
Options exercised
|
|
|
-
|
|
|
|
|
|
Forfeitures
|
|
|
-
|
|
|
|
|
|
Options outstanding as of December 31, 2015
|
|
|
123,500,000
|
|
|
$
|
0.036
|
|
9. INCOME
TAXES
The
Company did not have an income tax provision or benefit for the years ended December 31, 2015 and 2014. The Company has incurred
losses and therefore has provided a valuation allowance of approximately $5.3 million against net deferred tax assets as of December
31, 2015.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
The
tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities
consist of the following:
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Accrued compensation and stock-based compensation
|
|
$
|
2,007
|
|
|
$
|
1,652
|
|
Accrued liabilities and other
|
|
|
1,255
|
|
|
|
671
|
|
Net operating loss carryforwards
|
|
|
2,018
|
|
|
|
4,151
|
|
Gross deferred tax assets
|
|
|
5,280
|
|
|
|
6,474
|
|
Valuation allowance
|
|
|
(5,280
|
)
|
|
|
(5,908
|
)
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
—
|
|
|
|
(566
|
)
|
Gross deferred tax liabilities
|
|
|
—
|
|
|
|
(566
|
)
|
Net Deferred Tax Assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The
valuation allowance for deferred tax assets decreased by $0.6 million and increased by $3.0 million in the years ended December
31, 2015 and 2014, respectively, primarily due to the disposal of the Company’s VAC subsidiary and related deferred tax
assets that were not realized.
At
December 31, 2015, the Company had U.S. net operating loss carryforwards of approximately $5.2 million for income tax purposes,
which expire in varying amounts through 2035. The amount of any benefit from the Company’s U.S. tax net operating losses
is dependent on: (1) its ability to generate future taxable income, and (2) the unexpired amount of net operating loss
carryforwards available to offset amounts payable on such taxable income. Any change in ownership greater than fifty percent under
IRC section 382 places significant annual limitations on the use of the Company’s U.S. net operating losses to offset future
taxable U.S. income that may be generated. As a result of the VeriTeQ acquisition, which was a tax-free reorganization, the Company
exceeded the 50 percent threshold and as a result, effective on the closing date of the VeriTeQ transaction, VC’s U.S. net
operating losses became limited to approximately $0.5 million in the aggregate. Accordingly, the Company eliminated all prior
loss carryforwards generated by VC in excess of the amount not currently limited. In addition, net operating losses totaling $5
million were removed due to the disposal of VAC in 2015. Certain future transactions could cause a greater than 50% ownership
change in the future, including (a) additional issuances of shares of common stock by the Company or (b) acquisitions or
sales of shares by certain holders of the Company’s stock, including persons who have held, currently hold, or accumulate
in the future five percent or more of the Company’s outstanding stock.
The
reconciliation of the effective tax rate with the statutory federal income tax (benefit) rate is as follows:
|
|
2015
|
|
|
2014
|
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
Statutory
tax/(benefit) rate
|
|
|
(35
|
)
|
|
|
(35
|
)
|
State
income taxes, net of federal benefits
|
|
|
(2
|
)
|
|
|
(4
|
)
|
Non-deductible
interest and other permanent items
|
|
|
16
|
|
|
|
(8
|
)
|
Other
permanent differences
|
|
|
9
|
|
|
|
—
|
|
Change
in deferred tax asset valuation allowance
|
|
|
(5
|
)
|
|
|
47
|
|
Removal
of net operating loss on disposal of VAC subsidiary
|
|
|
17
|
|
|
|
—
|
|
|
|
|
(—
|
)
|
|
|
(—
|
)
|
The
Company did not have an unrecognized tax benefit at December 31, 2015 and 2014. The Company files income tax returns in the
U.S. and in various states in which it operates. Separate federal and state tax returns for VC and VAC for the periods prior to
the VAC discontinued operations and consolidated tax returns for subsequent periods will be filed. The Company has not yet filed
its U.S. federal and certain state tax returns for VC for 2015 and 2014 and for VAC for 2014 and 2013, and does not currently
have any examinations ongoing. Tax returns for the years 2011 onwards are subject to federal, state or local examinations.
10.
RELATED PARTY TRANSACTIONS
Included
in accrued expenses at December 31, 2015 and 2014 are approximately $0.9 million and $0.8 million, respectively, owed to the Company's
officers and directors (see note 4). See note 5 for a discussion of related party notes payable. On April 28, 2016, $0.6 million
of the amounts owed to officers as of December 31, 2015 were discharged by written consent and the Company’s no longer has
any obligation to pay these amounts as of that date. The written consent also relieved the Company of its obligations under executive
employment agreements with Mr. Silverman and Mr. Geissler.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
11.
COMMITMENTS AND CONTINGENCIES
As
a result of the foreclosure and disposal of the Company’s VAC subsidiary (see note 3), approximately $2.6 million of liabilities
were deconsolidated. There is a possibility that creditors could pursue claims against the Company in connection with these liabilities.
In
connection with the Stock Purchase Agreement entered into on November 25, 2015 (see note 15), the Company entered into a consulting
agreement with a third party under which the Company is required to pay a consulting fee of $50,000 upon the closing of the transaction,
and to issue a 3 year warrant to purchase 2.99% of the Company’s common stock at an exercise price of $0.01 per share with
a cashless exercise provision to the consultant.
In
March 2013, VC appointed a liquidator and initiated the formal liquidation of its U.K. subsidiary, Signature Industries Limited
(“Signature”), primarily related to its outstanding liabilities. VC used £40,000 (approximately $61,000) of
the proceeds from the sale of Signature’s former division, Digital Angel Radio Communications Limited (“DARC”)
to satisfy its estimated portion of Signature’s outstanding liabilities. However, additional claims submitted to the liquidator
could result in the Company being required to pay additional amounts to cover its share of Signature’s outstanding liabilities.
The Company has estimated and recorded a potential additional liability of approximately $159,000. The Company is not aware of
any claims through the date of this report.
On
January 30, 2014, the Company and the buyers of DARC entered into a letter agreement under which the Company agreed to accept
a payment of £62,000 (USD approximately $0.1 million) in full and final settlement of a deferred purchase price related
to VC’s sale of DARC in March 2013. As a result, the Company recorded, a loss on the settlement of this receivable of approximately
USD $55,000 in the year ended December 31, 2014, which is reflected in Other expenses in the Company’s consolidated statement
of operations. All of the other provisions (including, without limitation, the indemnities) agreed between VC, and/or the Buyers
under the stock purchase agreement and any related documents remain in full force and effect.
In
October 2015, the Company executed five Consent and Release Agreements with five different noteholders. The related notes totaled
$755,620. The Company’s interpretation of the Consent and Release Agreements was that all the associated debt related to
these note holders was forgiven. The noteholders allege the debt is still outstanding. As of December 31, 2015 the debt is recorded
on the books of the Company until this dispute is resolved. Subsequent to year end, in April 2016, one of the noteholders forgave
$319,000 of his notes in connection with a separate release agreement.
12.
LEGAL PROCEEDINGS
We
have been informed by the New Jersey Department of Environmental Protection that a subsidiary of a predecessor business, sold
a building in 2006 for which an environmental action has been claimed. The claim is being reviewed by the Company’s outside
legal counsel. We have not yet determined the impact on our financial condition or cash flows, if any.
In February 2017
the Company received notice of a filing of a lawsuit from a party claiming rights as a partial assignee of debt held by a prior
lender to the Company. The lawsuit alleges damages consisting of principal, interest and costs totaling $374,742. The Company
has not determined the validity of the claim or potential defenses to the lawsuit. However, to the extent that the claim
is based on notes from a lender of record of the Company, all appropriate amounts for principal and interest are believed to be
recorded in the Company’s records as of the balance sheet date.
13.
SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash
investing and financing activities for the years ended December 31, 2015 and 2014 were as follows (in thousands):
|
|
2015
|
|
|
2014
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
-
|
|
|
|
-
|
|
Cash paid for income taxes
|
|
|
-
|
|
|
|
-
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Notes payable and accrued liabilities converted into common stock
|
|
|
658
|
|
|
|
917
|
|
Accrued liabilities satisfied through the issuance of convertible promissory notes to related parties
|
|
|
1,010
|
|
|
|
-
|
|
Cashless exercises of common stock warrants
|
|
|
11
|
|
|
|
7,052
|
|
Reclassification of derivative liability to equity upon conversion of notes payable
|
|
|
168
|
|
|
|
-
|
|
Discounts recorded for embedded conversion option liabilities of convertible notes
|
|
|
386
|
|
|
|
-
|
|
Cancellation of warrants treated as liabilities
|
|
|
657
|
|
|
|
-
|
|
Settlement of note through foreclosure
|
|
|
1,000
|
|
|
|
-
|
|
Accrued liabilities converted into preferred stock
|
|
|
-
|
|
|
|
1,841
|
|
Deferred financing fees paid through the issuance of convertible promissory notes
|
|
|
-
|
|
|
|
240
|
|
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
14.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In
the course of preparing its consolidated financial statements for the year ended December 31, 2015, the Company determined that
its derivative liabilities related to (i) the bifurcated option in the Company’s convertible promissory notes and (ii) the
November 2013 Warrants (see note 7) for the year ended December 31, 2014 were not properly stated at fair value. This error resulted
in an understatement in the derivative liability related to the bifurcated option in convertible notes in the amount of $1.2 million,
an understatement in the warrant liabilities of $1.3 million and an understatement in net loss of $2.5 million as of and for the
year ended December 31, 2014. Additionally, the warrant liabilities should have been reflected as current liabilities rather than
as non-current liabilities. Accordingly, the Company is restating its previously issued financial statements to reflect the fair
value of these derivative liabilities and the classification of the warrant liabilities as of December 31, 2014 and for the change
in these fair values recognized in the statement of operations for the year ended December 31, 2014. The effect of the restatement
on each of the Company’s financial statements as of and for the year ended December 31, 2014 is as follows:
Consolidated
Balance Sheet Data
(in thousands)
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
As Previously Reported December 31,
2014
|
|
|
Correction
|
|
|
As Restated December 31,
2014
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Liabilities for conversion options of convertible notes
|
|
|
930
|
|
|
|
1,198
|
|
|
|
2,128
|
|
Warrant liabilities at fair value
|
|
|
-
|
|
|
|
1,802
|
|
|
|
1,802
|
|
Total current liabilities
|
|
|
7,378
|
|
|
|
3,440
|
|
|
|
10,818
|
|
Warrant liabilities at fair value
|
|
|
534
|
|
|
|
(534
|
)
|
|
|
-
|
|
Total liabilities
|
|
|
8,638
|
|
|
|
2,466
|
|
|
|
11,104
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(23,734
|
)
|
|
|
(2,466
|
)
|
|
|
(26,200
|
)
|
Total stockholders' deficit
|
|
|
(8,734
|
)
|
|
|
(2,466
|
)
|
|
|
(11,200
|
)
|
Consolidated
Statement of Operations Data
(in thousands, except per share data)
Other (income) expenses
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative and other fair valued instruments, net
|
|
|
(6,293
|
)
|
|
|
2,466
|
|
|
|
(3,827
|
)
|
Total other (income) expenses
|
|
|
(3,766
|
)
|
|
|
2,466
|
|
|
|
(1,300
|
)
|
Loss before income taxes
|
|
|
(3,910
|
)
|
|
|
(2,466
|
)
|
|
|
(6,376
|
)
|
Net loss
|
|
|
(3,910
|
)
|
|
|
(2,466
|
)
|
|
|
(6,376
|
)
|
Net loss per common share - basic and diluted
|
|
|
(524,654
|
)
|
|
|
(330,894
|
)
|
|
|
(855,548
|
)
|
Consolidated
Statement of Stockholders' Deficit Data
(in
thousands)
Net loss
|
|
|
(3,910
|
)
|
|
|
(2,466
|
)
|
|
|
(6,376
|
)
|
Accumulated deficit
|
|
|
(23,734
|
)
|
|
|
(2,466
|
)
|
|
|
(26,200
|
)
|
Total stockholders' deficit
|
|
|
(8,734
|
)
|
|
|
(2,466
|
)
|
|
|
(11,200
|
)
|
Consolidated
Statement of Cash Flow Data
(in thousands)
Net loss
|
|
|
(3,910
|
)
|
|
|
(2,466
|
)
|
|
|
(6,376
|
)
|
Change in fair value of conversion options embedded in convertible notes
|
|
|
(3,156
|
)
|
|
|
1,197
|
|
|
|
(1,959
|
)
|
Change in fair value of warrants
|
|
|
1,472
|
|
|
|
1,269
|
|
|
|
2,741
|
|
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
15.
SUBSEQUENT EVENTS
Issuance
of Convertible Notes
Between
January 1, 2016 and March 11, 2016, the Company issued convertible promissory notes in the aggregate principal amount of $95,493,
for which the Company received $81,169 in proceeds, net of original issue discounts. In addition, the Company issued convertible
promissory notes in connection with the proposed acquisition and other transactions discussed below in the aggregate principal
amount of $147,059, $125,000 of which was paid to the sellers net of original discount of $22,059. The Company received no cash
proceeds with the issuance of these notes. On March 21, 2016 the Company issued an additional promissory note in the principal
amount of $23,529, for which the Company received $20,000 in proceeds, net of original issue discount.
On
June 14, 2016, the Company issued additional promissory notes in the aggregate principal amount of $668,502, for which the Company
received proceeds of $47,000, net of $53,000 paid directly to vendors and $5,000 of original issue discounts and $563,502 to consolidate
and refinance certain previously issued promissory notes with the same lender aggregating $536,670. The two lenders were also
issued warrants for 1,565,286 and 291,667 common shares exercisable at $0.1755 and $0.1755 per share (with cashless exercise rights)
which warrants expire on June 14, 2018. These notes are due one year after the date of issuance, bear interest at rates of 12%
per annum, and are convertible into shares of common stock at the lesser of (i) $0.015 per share or (ii) 60% of the average of
the three lowest trading prices of the Company’s common stock during the 10 days prior to conversion.
On
August 16, 2016 the Company issued a convertible promissory note with a principal amount of $52,500 for which the Company received
$45,000 in proceeds net of original issue discount of $2,500 and deferred financing costs of $5,000.
This
note is due one year after the date of issuance, bears interest at a rate of 12% per annum, and is convertible into shares of
common stock at the lesser of (i) $0.18 per share or (ii) 60% of the average of the three lowest trading prices of the Company’s
common stock during the 15 days prior to conversion.
These
above notes include embedded conversion options which will be bifurcated and accounted for as derivative liabilities at fair value
(see Note 2). For warrant instruments the Company classifies such instruments as liabilities at their fair values at the time
of issuance and adjusts the instruments to fair value at each reporting period. These liabilities are subject to re-measurement
at each balance sheet date until extinguished either through conversion or exercise, and any change in fair value is recognized
in the Company’s statements of operations.
Senior
Secured Credit Facility Agreement and Convertible Promissory Note
On
September 30, 2016 with an effective date of November 10, 2016 the Company executed a Senior Secured Credit Facility Agreement
(the “Agreement”)
by and among: (i)
the Company; (ii) BRACE SHOP, LLC, a limited liability company organized under the laws of the State of Florida, BRACESHOP REAL
ESTATE HOLDINGS, LLC, a Florida limited liability company (each individually, a “Corporate Guarantor” and collectively,
the “Corporate Guarantors”); (iii) any Person to hereafter become a Subsidiary of the Borrower as defined, and any
Person that from time to time may hereafter become liable for the Obligations, or any part thereof, as joint and several guarantors
(the “Additional Guarantors”) (the Corporate Guarantors and the Additional Guarantors, together, jointly and severally,
the “Guarantors” and together with the Borrower, the “Credit Parties”); and (iv) TCA GLOBAL CREDIT MASTER
FUND, LP, a limited partnership organized and existing under the laws of the Cayman Islands, as lender (the “Lender”).
The Lender extended a senior secured credit facility to the Company of up to One Million and No/100 United States Dollars (US$1,000,000.00)
for working capital financing for the Company and its Subsidiary, and for any other purposes permitted.
The
line is joint and severally guaranteed by the subsidiaries of the Company, the Company’s CEO/Director and by the CEO’s
wife, who is a director of the Company. The CEO and his wife have also pledged their equity holdings in the Company and its subsidiaries
and the Company has pledged its equity holdings in the Company’s subsidiaries. Additionally, the line is secured under a
first priority security interest by substantially all assets of the Company and its subsidiaries and the line is subject to negative,
affirmative and financial covenants as defined in the Agreement.
In September 2016 the Company amended
its Certificate of Incorporation to amend the authorized common shares to 100 million from 100 billion. This change has been retroactively
presented in the balance sheet.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
On
November 10, 2016, the Company issued a convertible promissory note with a principal amount of $750,000 for which the Company
received $315,638 in proceeds net of deferred financing fees of $56,400, a payment made directly to a noteholder of $84,050, a
payment made directly to a line of credit of $281,771 and a payment made directly to paydown state taxes of $12,141.
This
note is due on May 10, 2018, eighteen months after the effective date and bears interest at a rate of 18% per annum. At any time
while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents; or (ii)
mutual agreement between the Borrower and the Holder, the Holder may convert all or any portion of the outstanding principal,
accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder or under any other Loan Documents
(such total amount, the “Conversion Amount”) into shares of Common Stock of the Company (the “Conversion Shares”)
at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) eighty-five percent (85%) of the lowest of the
daily volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to
the Conversion Date, which price shall be indicated in the conversion notice.
This note also contains a make hold provision
for any amounts converted into common
shares
. In connection with this convertible promissory note the Company entered into an Advisory Services Agreement with
the lender dated November 10, 2016 where a range of advisory services were rendered which may, or may not, have included (i) identifying,
evaluating and advising in relation to the Company's current structural (including business model), financial, operational, managerial,
strategic and other needs and objectives, (ii) preparing and coordinating with the Company and others in the development of business
plans, and financial models, (iii) identifying potential merger, acquisition, divestiture, consolidation or other combination
("M&A Transaction") opportunities and negotiating, structuring and advising in connection with potential M&A
Transactions, (v) advising and assisting the Company in connection with the preparation of any registration statements, periodic
or other SEC reports or proxies, and (vi) coordinating with, and advising in connection with the activities of, Outside Professionals,
including without limitation attorneys, accountants, market professionals, etc. The compensation for these services was $337,500.
The management advisory services payable is fully secured under the loan documents and has been expensed as professional fees
as of November 10, 2016, the period the management advisory services were provided. The convertible promissory note and the Advisory
Service Agreement have the following repayment terms; commencing December 18, 2016 there will be three payments of interest only
totaling $11,250; the following fourteen months the Company will repay principal, interest and $5,000 toward the Advisory Service
Agreement totaling monthly payments of $61,208. The eighteenth payment will be comprised of principal, interest and a balloon
payment of $267,500 related to the Advisory Service Agreement.
Loan
Agreement
On
October 1, 2016 (Execution Date) the Company executed a loan agreement with a third party (Lender) the terms of the loan agreement
include issuance of a promissory note dated October 1, 2016 with a principal amount of $42,250, for which the Company proceeds
of $32,500 net of an OID of $9,750; beginning on the date that is one month following the Execution Date, and continuing on the
same calendar day of each successive month thereafter, the Lender shall invest an amount equal to $12,500, until the Lender has
invested an aggregate amount of $70,000 (the Purchase Price). In return for each subsequent investment the Company shall
issue the Lender notes in the original principal amount of $16,250 per note; beginning on the fifteenth calendar day of the month
that is six months following the Execution Date, and continuing on the same calendar day of each successive month thereafter,
the Company shall make payments in cash to the Lender until a total of $91,000 has been paid to the Lender, the amount of each
cash repayment shall be equal to 50% of the Company's net profit earned in the month prior to the month of the applicable cash
payment. Net profit shall be defined as net revenue minus cost of goods sold and marketing expenses less $73,000. As
of the date of this report the November 1, 2016 and December 1, 2016 loans have not been received by the Company.
SNC
Assets
The
SNC Note (see note 4) is secured by all of the assets, consisting primarily of intellectual property and certain tangible property
and equipment (the “SNC Collateral”), acquired by the Company under the asset purchase agreement entered into by the
Company and SNC Holdings Corp. on November 30, 2012. Under the terms of the SNC Note, as amended, which was due on June 30, 2015
and has not been repaid, the holder of the SNC Note may look solely to the SNC Collateral to satisfy all obligations of the Company
to it under the SNC Note and not to any other assets of the Company and/or its subsidiaries. In October of 2015, the Company contacted
the holder of the SNC Note regarding the return of the SNC Collateral to the holder in satisfaction of the SNC Note. By letter
agreement dated February 18, 2016, the Company agreed to return the SNC Collateral to the holder of the SNC Note, and the holder
agreed to discharge the Company of all of its obligations and liabilities under the SNC Note upon receipt of the SNC Collateral.
In November 2016 the Company returned the SNC Collateral to the holder of the SNC Note, but the holder has not yet accepted such
collateral and the debt remains outstanding.
Acquisition
of Brace Shop
On
November 25, 2015, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with The Brace Shop,
LLC, a Florida limited liability company (“Brace Shop”) and Lynne Shapiro (the “Seller”), whereby the
Company agreed to acquire (the “Acquisition”), all of the issued and outstanding membership interests (the “Stock”)
of Brace Shop. The Company incurred approximately $125,000 and $165,000, respectively of expenses during the three months ended
March 31, 2016 and the year ended December 31, 2015 in connection with the Purchase Agreement, which is reflected in Selling,
general and administrative expenses in the Company’s statement of operations. Brace Shop operates as an online retailer
of orthopedic braces and related medical devices and had revenues of approximately $1.7 million for the three months ended March
31, 2016 and March 31, 2015.
VERITEQ CORPORATION AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2015 and 2014
The
acquisition of Brace Shop was completed on May 6, 2016, at which time Brace Shop became a wholly owned subsidiary of the
Company. Pursuant to the terms of the Purchase Agreement, the Company paid (i) $250,000 in cash to Mrs. Lynne Shapiro, (ii)
849 shares of its newly designated Series E Convertible Preferred Stock (“Series E Preferred Stock”), which is
convertible into 84.9% of the issued and outstanding shares of the Company’s common stock on a fully diluted basis, and
has voting rights on an as converted basis and (iii) a goldenshare in the form of a 5-year warrant (the
“Goldenshare”), exercisable at $0.00001 per share with a cashless exercise provision for that number of shares of
common stock required to insure that the Series E Preferred Stock issued as part of the purchase price to Mrs. Lynne Shapiro
is convertible into 84.9% of the issued and outstanding shares of the Company’s common stock, on a fully diluted basis.
At the closing of the transaction, Mr. Silverman received 39 shares of the Series E Preferred Stock convertible into 3.9% of
the issued and outstanding Common Stock on a fully-diluted basis. The shares of Series E Preferred Stock and the Goldenshare
shall not be convertible until the six (6) month anniversary of the closing of the transaction. Further, once a majority of
the outstanding Series E Preferred Stock has been converted into common stock, then any other Series E Preferred Stock then
outstanding shall automatically be deemed converted into common stock on the fifth business day following the date that a
majority of the outstanding Series E Preferred Stock is converted into common stock.
The
foregoing transaction was accounted for as a reverse acquisition and recapitalization of Brace Shop. Accordingly, the Brace Shop
historical financial statements as of period ends, and for periods ended, prior to the acquisition will become the historical
financial statements of the Company prior to the date of the reverse acquisition.
The
aggregate cash payment of $250,000 to the Seller was financed by the sale of senior secured convertible promissory notes in the
aggregate principal amount of $294,118 (the “Acquisition Notes”) to an institutional investor who previously purchased
convertible debt from the Company (the “Investor”). The Acquisition Notes bear interest at a rate of 12% per annum,
with principal and interest due one year from the date of issuance. The Acquisition Notes are convertible into shares of the Company’s
Common Stock at a conversion price equal to the lesser of (i) $0.015 per share or (ii) 60% of the average of the three lowest
trading prices during the ten trading days prior to conversion, and contain full-ratchet anti-dilution provisions similar to those
of convertible notes previously issued by the Company. The embedded conversion option contained in the Acquisition Notes will
be bifurcated and reflected as a derivative liability at fair value. The Company currently anticipates that the $50,000 consulting
fee and all other costs and expenses related to the Acquisition and the Company’s ongoing operations will be funded through
the sale of additional senior secured convertible promissory notes to the Investor on terms substantially identical to that of
the Acquisition Notes.
The
Purchase Agreement contemplates that all interest, principal and any other required payments on all debt instruments of the Company
that are outstanding as of the date of the Purchase Agreement (but excluding the Acquisition Notes) shall only be paid through
the issuance of shares of common stock. All options, warrants, shares of preferred stock and other securities of the Company outstanding
as of the date of the Purchase Agreement are to remain in place on the terms set forth in each of such securities, except that
all options, warrants and shares of preferred stock are to be converted into common stock within six months of the date of closing
of the Acquisition or cancelled.
Forgiveness
of Certain Debt and Preferred Stock Series D
As
of December 31, 2015 the Company had outstanding accrued salaries and bonuses payable to two former officers totaling $565,950.
In January 2016 the Company made payments of $9,550 related to the outstanding accrued salaries and bonuses. In April 2016 the
two former officers agreed to release the Company from all outstanding accrued salaries and bonuses due to them totaling $556,400.
The Company accounted for the above transaction recognizing a gain on the statement of operations of $202,125 for one officer
and a gain posted to additional paid in capital of $354,275 for the other officer who was a related party.
In
April 2016 one former officer agreed to release the Company from a loan payable due to him totaling $319,000 and to the cancellation
of 441 Series D shares that he owned. The Company accounted for the above transaction recognizing a gain on the statement of operations
of $319,000 and a gain of $441,000 in additional paid in capital resulting from the cancellation of the 441 Series D shares.
In
April 2016 one former director of the Company agreed to the cancellation of stock options for 15,000,000 shares, which were held
by him.
Transfer
of Former Officer’s Loans Payable and Preferred Stock to a Lender of the Company
In
February 2016, as amended in April 2016, in a private transaction between a lender of the Company and a former officer, the lender
purchased $194,010 of notes payable due to the officer and 1,400 shares of Series D preferred stock held by the officer.
Conversion
of Debt to Common Shares
On
March 17, 2016, the Company issued 241,917 shares of common stock in satisfaction of $8,955 of convertible notes and $1,520 of
accrued interest. The note was converted at the contractual rate of $0.0433. The approximately $46,000 fair value of the related
embedded conversion option derivative liability was reclassified to additional paid-in capital.
In September 2016 the Company amended
its Certificate of Incorporation to amend the authorized common shares to 100 million from 100 billion. This change has been retroactively
presented in the balance sheet.
F-26
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