10-K 1 vteq20141231_10k.htm FORM 10-K vteq20141231_10k.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549 

 

FORM 10-K 

(Mark One) 

 

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

 

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

Commission file number: 000-26020

 

VERITEQ CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 Delaware 

 

43-1641533

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

3333 S. Congress Avenue, Suite 401,
Delray Beach, Florida 33445

(Address of principal executive offices, including zip code)

 

 (561) 846-7000
Registrant’s telephone number, including area code

 

 Securities registered pursuant to Section 12(b) of the Act:

 

 (Title of each class)

 

(Name of each exchange on which registered)

Common Stock, $0.00001 par value

  

OTC Markets

 

 Securities registered pursuant to Section 12(g) of the Act: Not applicable

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☑ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ 

 

Accelerated filer ☐ 

 

Non-accelerated filer ☐ 

 

Smaller reporting company ☑

 

 

 

 

(Do not check if a smaller

reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

At June 30, 2014, the aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $4.8 million, computed by reference to the price at which the stock was last sold on that date of $140 per share as reported on the OTC Market.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding at March 31, 2015

Common Stock, $0.00001 par value per share

 

30,802,114 shares

 

 
 

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

 

VERITEQ CORPORATION

TABLE OF CONTENTS

 

Item

 

Description

 

Page

 

 

 

 

 

 

 

PART I

 

 

 

 

 

 

 

1.

 

Business

 

3

1A.

 

Risk Factors

 

10

1B.   Unresolved Staff Comments   16

2.

 

Properties

 

16

3.

 

Legal Proceedings

 

17

4.

 

Mine Safety Disclosures

 

17

 

 

 

 

  

 

 

PART II

 

  

 

 

 

 

  

5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

18

6.

 

Selected Financial Data

 

18

7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

7A

 

Quantitative and Qualitative Disclosures about Market Risk

 

23

8.

 

Financial Statements

 

23

9.

 

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

23

9A

 

Controls and Procedures

 

23

9B

 

Other Information

 

24

 

 

 

 

  

 

 

PART III

 

  

  

 

  

  

  

10

 

Directors, Executive Officers and Corporate Governance

  

25

11

 

Executive Compensation

  

28

12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  

35

13

 

Certain Relationships and Related Transactions, and Director Independence

  

37

14

 

Principal Accountant Fees and Services

  

40

 

 

 

 

  

 

 

PART IV

 

  

 

 

 

 

  

15.

 

Exhibits and Financial Statements

 

41

 

 

Signatures

 

41

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

PART 1

 

ITEM 1. BUSINESS 

 

Unless the context otherwise provides, when we refer to the “Company,” “we,” “VeriTeQ,” "VC," or “us,” we are referring to VeriTeQ Corporation and its wholly-owned subsidiaries.

 

Overview

 

VeriTeQ Corporation, ("VC"), formerly known as Digital Angel Corporation, acquired its wholly-owned subsidiary, VeriTeQ Acquisition Corporation, ("VAC"), on July 8, 2013 pursuant to the terms of a share exchange agreement, as more fully discussed below, whereby VC became the legal acquirer of VAC and VAC became the accounting acquirer of VC. VAC was founded in December 2011 and is engaged in the business of radio frequency identification technologies, or RFID, for the Unique Device Identification, or UDI, of implantable medical devices. Subject to funds becoming available, the Company also intends to offer radiation dose measurement technologies for use in radiation therapy treatment. In January 2012, VAC acquired all of the outstanding stock of PositiveID Animal Health Corporation ("PAH"), from PositiveID Corporation, then a related party.

 

VeriTeQ is in the early stages of development and its success depends on its ability to obtain financing and realize its marketing efforts. To date, VeriTeQ has generated minimal sales revenue and its operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

VeriTeQ has proprietary technology, including patents, patents pending, patent licenses, and U.S. Food and Drug Administration ("FDA") cleared and CE marked products. VeriTeQ’s principal line of business is UDI for medical devices. If and when funds become available the Company also expects that radiation dosimeters and other medical sensor applications will develop into a second line of business.

 

On September 20, 2013, the FDA published in the Federal Register its Final Rule for UDI (the "FDA Rule"), which requires all medical devices distributed in the U.S. that are intended to be used more than once and intended to undergo any form of reprocessing before each use, to carry a UDI directly on the device itself, known as direct part marking. The FDA Rule was issued in response to the passage of the FDA Safety and Innovation Act, which directed the FDA to develop regulations that would create a UDI system for medical devices. Medical devices that are reprocessed and reused will inevitably be separated from their original label and device package, and therefore the FDA states direct part marking is the only way to ensure the accurate identification of such devices.

 

In October 2004, VeriTeQ’s human-implantable RFID microtransponder, which is the basis for VeriTeQ’s Q Inside Safety Technology, was cleared for use by the FDA. VeriTeQ believes that its Q Inside Safety Technology meets the automatic identification and data capture, or AIDC, technology requirement of the direct part marking mandate of the FDA Rule for reprocessed medical devices. The VeriTeQ UDI system consists of a passive implantable RFID microtransponder called “Q Inside Safety Technology,” a proprietary hand-held reader, and a corresponding database.

 

VeriTeQ also has proprietary technologies and patents for implantable and wearable radiation dosimeters and bio-sensing technologies. Its radiation dosimeter portfolio includes previously commercialized, FDA cleared and CE marked radiation dosimeter technologies that were formerly used in numerous U.S. hospitals to measure radiation doses in vivo and on the skin surface. VeriTeQ’s OneDose® and DVS SmartMarker® technologies provide radiation oncologists, radiologists, therapists and physicists a tool to know the exact dosage of radiation delivered to a patient at the skin level and at the site of a tumor or tumor area.

  

Recent Events

 

Reverse Split of Common Stock

 

On February 11, 2015, an amendment to our Amended and Restated Certificate of Incorporation became effective to implement a 1-for-1,000 reverse split (the “Reverse Stock Split”) of our outstanding common stock, whereby each 1,000 shares of the Company’s issued and outstanding common stock was automatically, and without any action on the part of the respective holders, combined and converted into one issued and outstanding share of common stock. The Reverse Stock Split resulted in a reduction in the number of issued and outstanding shares of the Company’s common stock from approximately 1.2 billion to approximately 1.2 million. The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, as well as all common stock underlying stock options, warrants, convertible notes and convertible preferred stock outstanding immediately prior to the Reverse Stock Split. The Reverse Stock Split was authorized by our Board of Directors, and by our Stockholders at the 2014 Annual Meeting of Stockholders held on December 18, 2014.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

No fractional shares were issued as a result of the Reverse Stock Split and stockholders who otherwise would be entitled to a fractional share received, in lieu thereof, a cash payment equal to the value of the fractional share to which the stockholder would otherwise be entitled based on the per share closing sales price of the Company’s common stock on the effective date of the Reverse Stock Split.

 

History and Development of the Company

 

We were initially incorporated in the state of Missouri on May 11, 1993. Effective April 20, 2007, we became a Delaware corporation.

 

Share Exchange Agreement and 2013 Reverse Stock Split

 

On June 24, 2013, VAC and its stockholders entered into a share exchange agreement (the "Exchange Agreement") with VC and the closing of the transaction (the "VeriTeQ Transaction") took place on July 8, 2013, also referred to as the Closing Date. Pursuant to the terms of the Exchange Agreement, VAC exchanged all of its issued and outstanding shares of common stock for 410,759 shares of VC’s Series C Convertible Preferred Stock, par value $10.00 (the "Series C Preferred Stock"). Each share of Series C Preferred Stock was converted into twenty shares of VC’s common stock upon the effectiveness of the 1:30 reverse split of VC's common stock on October 18, 2013 (the "2013 Reverse Stock Split"). Also on October 18, 2013, the Company changed its name from Digital Angel Corporation to VeriTeQ Corporation.

 

In connection with the VeriTeQ Transaction, all outstanding stock options to purchase shares of VAC’s common stock, whether or not exercisable or vested, converted into options to acquire shares of VC’s common stock, or the Substitute Options, and all outstanding warrants to purchase shares of VAC’s common stock converted into warrants to purchase shares of VC’s common stock, or the Converted Warrants. As a result of the Exchange Agreement and the issuance of the Substitute Options and the Converted Warrants, VAC became a wholly-owned subsidiary of VC, and VAC’s former shareholders owned on July 12, 2013 approximately 91% of VC’s common stock, on an as converted, fully diluted basis (including outstanding stock options and warrants), resulting in a change in control.

  

As a result of the VeriTeQ Transaction, VAC became a wholly-owned subsidiary of VC. The VeriTeQ Transaction was accounted for as a reverse acquisition of VC by VAC under the accounting rules for business combinations, therefore VAC was the accounting acquirer and as a result VAC’s operating results became the historical operating results of the Company. In addition, VAC’s common stock has been presented herein as if it was converted into shares of VC’s common stock at the beginning of the periods presented herein based on an exchange ratio of 0.19083 under the terms of the Exchange Agreement. The exchange ratio took into consideration the 2013 Reverse Stock Split.

 

VC’s Business Prior to the VeriTeQ Transaction

 

Through May 3, 2013, VC’s business operations consisted primarily of its mobile game division, doing business as HammerCat Studio. On May 3, 2013, VC sold its mobile game division to MGT Capital Investments, Inc.

 

PositiveID Animal Health Corporation acquired by VeriTeQ Acquisition Corporation

 

On January 11, 2012, VAC entered into a stock purchase agreement with PositiveID Corporation ("PSID") to acquire the outstanding stock of PSID’s then wholly-owned subsidiary PAH. Our chairman and chief executive officer is the former chairman and chief executive officer of PSID. In addition, the current chairman and chief executive officer of PSID was a member of our board of directors until July 8, 2013.

  

Under the terms of the stock purchase agreement, VAC issued approximately 0.8 million shares of its common stock, valued at approximately $0.3 million, for the 5.0 million shares of outstanding stock of PAH and issued a promissory note payable to PSID in the principal amount of $0.2 million with a stated interest rate of 5% per annum (the "PSID Note"). In addition, the then outstanding stock options to acquire shares of PAH were converted into stock options, valued at $0.5 million, to acquire an equal number of shares of VAC’s common stock and VAC assumed obligations under an existing development and supply agreement and agreed to make royalty payments to PSID initially valued at approximately $0.2 million, as more fully discussed below.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

In connection with the acquisition of PAH, VAC entered into a license agreement with PSID (the "Original License Agreement"), under which VAC was granted a non-exclusive, perpetual, non-transferable, license to utilize PSID’s bio sensor implantable RFID device that is protected under United States Patent No. 7,125,382, “Embedded Bio Sensor System,” (the "Patent") for the purpose of designing and constructing, using, selling and offering to sell products or services related to its business, but excluding the GlucoChip or any product or application involving blood glucose detection or diabetes management. Pursuant to the Original License Agreement, PSID was to receive royalties in the amount of 10% on all gross revenues arising out of or relating to VAC’s sale of products, whether by license or otherwise, specifically relating to the Patent, and a royalty of 20% on gross revenues that are generated under a development and supply agreement between PSID and Medical Components, Inc., or Medcomp, dated April 2, 2009. The total cumulative royalty payments under the agreement with Medcomp will not exceed $0.6 million.

  

On June 26, 2012, the Original License Agreement was amended pursuant to which the license was converted from a non-exclusive license to an exclusive license, subject to VAC meeting certain minimum royalty requirements, which were amended during 2013. The total purchase price of the PAH assets acquired, net of a deferred tax liability of $0.8 million, was $1.2 million.

 

Bio Sensor Patents acquired by VeriTeQ Acquisition Corporation

 

On August 28, 2012, VAC entered into an Asset Purchase Agreement (the "APA") with PSID, whereby VAC purchased all of the intellectual property, including patents and patents pending, related to PSID’s embedded bio sensor portfolio of intellectual property. Under the APA, PSID is to receive royalties in the amount of ten percent (10%) on all gross revenues arising out of or relating to VAC’s sale of products, whether by license or otherwise, specifically related to the embedded bio sensor intellectual property, to be calculated quarterly with royalty payments due within 30 days of each quarter end. Minimum royalty requirements, which were to begin in 2013 and thereafter through the remaining life of any of the patents and patents pending, were identical to the minimum royalties due under the Original License Agreement, as amended.

 

Simultaneously with the APA, VAC entered into a license agreement with PSID granting PSID an exclusive, perpetual, transferable, worldwide and royalty-free license to the patent and patents pending that are a component of the GlucoChip in the fields of blood glucose monitoring and diabetes management. In connection with the APA, the Original License Agreement, as amended June 26, 2012, was terminated. Also on August 28, 2012, the PSID Security Agreement was amended, pursuant to which the assets sold by PSID to VAC under the APA and the related royalty payments were added as collateral under the PSID Security Agreement. We had no plans to develop or commercialize the Bio Sensor patents, and therefore, no value was ascribed to these patents. Further, we are not aware of a buyer or licensor for these patents.

 

VeriTeQ Acquisition Corporation Asset Purchase Agreement with SNC Holding Corp.

 

In December 2012, VAC entered into an asset purchase agreement and a 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 and agreed to make royalty payments based on a percentage of revenue earned from the technology acquired. In addition, under the terms of sublicense agreement related to the technology, VAC made a $20 thousand sublicense payment in February 2013 and agreed to make minimum sublicense payments aggregating $0.2 million over the period from June 2014 to March 2017. The promissory note is convertible into one-third of the beneficial common stock ownership of VC held by our CEO, or 2,148 shares at December 31, 2014. The total purchase price, including estimated royalty obligations of $3.7 million, was approximately $5.8 million. In connection with the asset purchase agreement with SNC Holding Corp., VAC entered into a security agreement whereby certain intellectual property purchased thereunder, including intellectual property related to its dosimeter products, would revert to SNC Holding Corp. in the event of: (i) a default under the promissory note; (ii) failure to pay the minimum royalty obligations; (iii) failure to perform its obligations with respect to commercializing the intellectual property acquired; or (iv) the occurrence of an unauthorized issuance as defined in the agreement. At December 31, 2014, the Company recorded an impairment charge of approximately $5.0 million related to the technology and trademark assets acquired in this transaction, and a corresponding reduction in the fair value of the royalty obligation in the amount of $3.4 million.

 

Industry Overview and Principal Products and Services

 

Industry data indicates that there were 1.2 million breast augmentations performed worldwide in 2011 and 33,000 plastic surgeons worldwide according to the International Society of Aesthetic Plastic Surgeons. According to an iData Research published in May of 2011, “U.S. Market, Vascular Access Devices and Accessories,” data showed that there were 422,000 vascular port procedures performed that year in the US. It also stated that there are 8,000 surgery centers and six major manufacturers in the U.S. Additionally, there were 230,000 artificial hip procedures and 543,000 artificial knee procedures in the U.S. in 2011 according to 24/7 Wall St. research.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

Q-Inside Safety Technology

 

On September 20, 2013, the FDA published the FDA Rule, which requires all medical devices distributed in the U.S. that are intended to be used more than once and intended to undergo any form of reprocessing before each use to carry a UDI directly on the device itself, called direct part marking. The FDA Rule was issued in response to the passage of the FDA Safety and Innovation Act, which directed the federal agency to develop regulations that would create a UDI system for medical devices. Medical devices that are reprocessed and reused will inevitably be separated from their original label and device package, and therefore the FDA states direct part marking is the only way to ensure the accurate identification of such devices.

 

In October 2004, VeriTeQ’s human-implantable RFID microtransponder, which is the basis for VeriTeQ’s Q Inside Safety Technology, was cleared for use by the FDA. VeriTeQ believes that its UDI technology meets the automatic identification and data capture, or AIDC, technology recommendation of the direct part marking mandate of the FDA Rule for reprocessed medical devices. The VeriTeQ UDI system consists of a passive implantable RFID microtransponder called “Q Inside Safety Technology,” a proprietary hand-held reader/scanner, and corresponding database.

 

We believe the benefits of our UDI Q Inside Safety Technology are as follows:

 

 

Allows more accurate reporting and analysis of adverse events to quickly identify problem devices;

 

Reduces medical errors by quickly and accurately identifying a device and its characteristics;

 

Provides a standardized identifier that allows manufacturers, distributors and healthcare facilities to more effectively manage medical device recalls;

 

Provides a consistent way to enter information about devices in electronic health records and clinical information systems; and

 

Provides a foundation for a global, secure distribution chain, helping to address counterfeiting and diversion and prepare for medical emergencies. 

 

The challenges we faced in incorporating the UDI chip into the silicone breast implants are the extreme high-heat temperatures that the breast implant goes through during the manufacturing process as well as the additional high-heat levels required for sterilization or “autoclave” process for the breast implant sizers, which must be sterilized after each use. It is imperative that the inter-core of the transponder work past certain heat levels. We have worked with our development partner, Establishment Labs, S.A., to ensure that the chip maintains its integrity and effectiveness at temperatures of 400 degrees Fahrenheit.

 

Other challenges we face as they relate to our UDI products include customer specific performance and testing requirements, ISO compliance issues and the length of time for a customer to file with and have our device cleared by the FDA for use in their products. We are also working through issues surrounding the use of our Q Inside Safety Technology products on implantable devices that are made of metal. RFID devices will not “read” when placed directly on metal so our UDI products for these types of devices will need to be encased in plastic or other material to function properly.

 

Dosimeter Technology

 

VeriTeQ also has proprietary technologies and patents for implantable and wearable radiation dosimeters and bio-sensing technologies. Its radiation dosimeter portfolio includes previously commercialized, FDA cleared and CE marked radiation dosimeter technologies that were formerly used in numerous U.S. hospitals to measure radiation doses in vivo and on the skin surface. VeriTeQ’s OneDose® and DVS SmartMarker® technologies provide radiation oncologists, radiologists, therapists and physicists a tool to know the exact dosage of radiation delivered to a patient at the skin level and at the site of a tumor or tumor area.

 

VeriTeQ’s external (wearable) radiation dosimeter technology, OneDose, has FDA clearance and CE marks for use in patients being treated with external beam radiation therapy, while its implantable radiation dosimeter technology, DVS SmartMarker, has FDA clearance and CE marks for use in breast and prostate cancer patients undergoing radiation therapy.

 

OneDose is a proprietary, wearable radiation dosimetry technology, single-use system that is used to verify the radiation dose delivered to a patient. The OneDose system is comprised of disposable sensors that attach to the patient’s skin using a basic adhesive and hand-held scanner that reads the sensor. OneDose is the only wireless, pre-calibrated, disposable, skin surface sensor that provides instant dose delivery data, which could be fed into patient radiology reports and electronic health records.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

DVS (dose verification system) SmartMarker is a proprietary, wireless, implantable radiation dosimetry technology that enables radiation oncologists to both locate tumors and verify that the accurate radiation doses have been delivered to a tumor or tumor site. The VeriTeQ DVS SmartMarker technology is comprised of an implantable dosimeter and a hand-held scanner that reads the data gathered by the implanted microtransponders. Like OneDose, the DVS SmartMarker could be used to populate patient radiology reports and electronic health records.

 

VeriTeQ has patents, patent applications and patent licenses that protect its intellectual property in the United States and internationally. In addition to the UDI and dosimeter related patents, VeriTeQ also has patents which protect its RFID reader/scanner and microtransponder technologies. VeriTeQ’s RFID reader/scanner and microtransponder technologies could protect differentiated technical characteristics in UDI, radiation dosimetry and biosensor enabled products.

 

VeriTeQ’s OneDose and DVS SmartMarker systems are protected by a portfolio of patents including broad foundational patents. In addition to its foundational patents, VeriTeQ has a number of patents that protect more specific applications of its technology such as those that cover VeriTeQ’s OneDose and DVS SmartMarker products. As additional applications for VeriTeQ’s technologies are developed, VeriTeQ will pursue further patent protection.

 

Though FDA cleared and CE marked, VeriTeQ’s dosimetry technologies are not currently on the commercial market. To date we have been unable to commercialize these technologies due to a lack of available funds. We do not expect to generate any sales revenue from our dosimeter technology until such time as we are able to complete a significant capital raise. There are currently no commitments for any such financing and no assurances can be given that funds will ever become available on terms that are acceptable to us, or at all.

 

As a result of the foregoing circumstances with respect to our radiation dosimeter technologies, during the year ended December 31, 2014 we recorded an impairment charge on the assets purchased from SNC Holding Corp. in the amount of $1.6 million.

 

Data Services

 

In addition to our UDI and radiation dosimetry businesses, we intend to offer data services including database connectivity to our microtransponders and application software through our Office of Medicine and Data Science. Data extracted from VeriTeQ's UDI and dosimeter technologies could wirelessly populate third-party databases maintained by VeriTeQ, hospitals, health insurers, or regulators, and support electronic health record and evidence-based healthcare initiatives. We currently have one customer that has just begun to use our data services.

  

Growth Strategy 

 

We intend to grow our business and product lines organically and through strategic acquisitions.

 

Sales, Marketing and Distribution

 

Our sales, marketing and distribution plan for our products is to align with medical device manufacturers and their distributors, and manufacture the products to their specifications.

 

Our current customer for our UDI breast implant microtransponders and readers, Establishment Labs, S.A. (“EL”), sells its breast implants under the name Motiva Implant Matrix®. We have a 5-year development and supply agreement with EL which sets for the pricing for our microtransponders and RFID readers/scanners, and provides for revenue share payments to EL where the sale of microtransponders to third parties exceeds certain thresholds. The RFID readers/scanners we sell are used to identify the direct mark contained on the microtransponders, which is a unique identification number. We buy our readers from a manufacturer and resell them at a mark-up. We do not yet have an agreement in place with the manufacturer of the RFID readers/scanners.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

Other targeted customers are:

 

UDI Products

Breast Implant Manufacturers-Allergan, Mentor, Sientra, among others;

Vascular Port Manufacturers – CR Bard, Smiths;

Artificial Joint Manufacturers- Stryker, Zimmer, Synthes, Wright, Boston Scientific, among others;

Heart Valve Sizers, Endo/ Surgical Equipment – Medtronic, St. Jude Medical, Welch Allyn and Cook Medical; and

Scope Manufacturers – Pentax, Olympus and Fujinon.

 

Dosimeter Products

Our potential customers are radiation oncologists. Potential distribution partners are: Varian Medical Systems, BSD Medical, Calypso, Siemens, Henry Schein, MedComp, Elekta, McKesson, Standard Imaging, among others.

 

We also are party to a development and supply agreement with Medcomp, dated April 2, 2009, which we acquired under the terms of the stock purchase agreement for PAH in January 2012. We have not yet generated any revenue under this agreement, which relates to the development and sale of our vascular port products. 

 

Competitive Conditions

 

As it relates to UDI applications for reprocessed medical devices that adhere to the FDA Rule for a UDI System, VeriTeQ believes that the Q Inside Safety Technology is the only FDA cleared technology that serves as a direct part marking with AIDC features and, therefore, meets the AIDC recommendation for reprocessed medical devices under the FDA Rule. There are 2D and 3D barcodes and etching that could technically be AIDC for the direct part marking recommendation on a reprocessed device. The direct part marking can be in the form of plain text and/or AIDC.

 

Several competing technologies to VeriTeQ’s OneDose exist that support radiation dose monitoring via the surface of a patient’s skin. However, OneDose is unique in terms of the combination of its ease-of-use and ability to automatically archive patient dosage data. OneDose is a disposable, pre-calibrated technology that can wirelessly report radiation dose delivery on demand in real time.

 

VeriTeQ’s DVS SmartMarker is the only FDA cleared and CE marked implantable radiation dosimeter technology able to measure radiation dose at the tumor site. We recently announced that we would rebrand our DVS Smart Market as Q Inside SmartMarker. VeriTeQ is unaware of any alternate technology that can be used to both locate the patient’s tumor and confirm delivery of the prescribed radiation dosage at the site of the tumor.

   

Intellectual Property

 

VeriTeQ has proprietary technology, including patents, patents pending, patent licenses, and FDA cleared and CE marked products. Certain of our patents are subject to security and/or license agreements that require us to make certain payments, including the payment due under a promissory note, in order for us to retain exclusivity and/or usage.Our patent that relates to the use of our Q Inside Safety Technology in a breast implant is jointly owned with EL. Pursuant to our agreement with EL, we have agreed to pay them a 10% royalty in any year in which sales of the Q Inside Safety Technology for breast implants to third parties exceeds 100,000 microtransponders. Q Inside Safety Technology is a trade name being used in connection with the Company’s UDI products and, as discussed above, we are branding our dosimeter products as Q Inside SmartMarker. Other registered trade names are VeriTeQ’s OneDose® and DVS SmartMarker®. Destron Fearing Corporation and its parent, Allflex U.S.A. Inc., have covenanted not to sue the Company for its use of any intellectual property in human applications. Accordingly, we have the ability to deploy any of their technology and/or patents created before November 2008 free of charge for use in the medical field. 

 

Manufacturing; Supply Arrangements

 

VeriTeQ’s products are manufactured by third parties. Its Q Inside product is manufactured by RFID Solutions in Malaga, Spain under a verbal agreement. We source our readers/scanners from a third party manufacturer. Currently, we purchase readers from Destron Fearing Corporation, the manufacturer, under a simple purchase order process rather than under a written agreement. VeriTeQ’s radiation dosimeter products were previously manufactured by Bourns, Inc., a Riverside, California-based company. To date, we have not had material difficulties obtaining any of the materials for our products; however, we have not purchased significant qualities to date. We believe that if any of our manufacturers or suppliers were to cease supplying us with products, we would be able to procure alternative sources without material disruption to our business. We plan to continue to outsource any manufacturing requirements of our current and under development products.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

Environmental Regulation

 

We must comply with local, state, federal, and international environmental laws and regulations in the countries in which we do business, including laws and regulations governing the management and disposal of hazardous substances and wastes. We expect our operations and products will be affected by future environmental laws and regulations, but we cannot predict the effects of any such future laws and regulations at this time. Customers who place our products on the market in the European Union are required to comply with EU Directive 2002/96/EC on waste electrical and electronic equipment, known as the WEEE Directive. Noncompliance by our distributors with EU Directive 2002/96/EC would adversely affect the success of our business in that market. Additionally, we are investigating the applicability of EU Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment, known as the RoHS Directive which took effect on July 1, 2006. We do not expect the RoHS Directive will have a significant impact on our business.

 

Government Regulation

 

VeriTeQ’s business is subject to regulation by governmental agencies in the U.S., including the FDA, and in the European Union, including the European Commission.

 

U.S. Federal Communications Commission Regulations 

 

Under FCC regulations and Section 302 of the Communications Act, RFID devices must be authorized and comply with all applicable technical standards and labeling requirements prior to being marketed in the United States. The FCC’s rules prescribe technical, operational and design requirements for devices that operate on the electromagnetic spectrum at very low powers. The rules ensure that such devices do not cause interference to licensed spectrum services, mislead consumers regarding their operational capabilities or produce emissions that are harmful to human health. Our RFID devices are intentional radiators, as defined in the FCC’s rules. As such, our devices may not cause harmful interference to licensed services and must accept any interference received. We must construct all equipment in accordance with good engineering design as well as manufacturers’ practices.

 

Manufacturers of RFID devices must submit testing results and/or other technical information demonstrating compliance with the FCC’s rules in the form of an application for equipment authorization. The FCC processes each application when it is in a form acceptable for filing and, upon grant, issues an equipment identification number. Each of our RFID devices must bear a label which displays the equipment authorization number, as well as specific language set forth in the FCC’s rules. In addition, each device must include a user manual cautioning users that changes or modifications not expressly approved by the manufacturer could void the equipment authorization. As a condition of each FCC equipment authorization, we warrant that each of our devices marked under the grant and bearing the grant identifier will conform to all the technical and operational measurements submitted with the application. RFID devices used and/or sold in interstate commerce must meet these requirements or the equipment authorization may be revoked, the devices may be seized and a forfeiture may be assessed against the equipment authorization grantee. The FCC requires all holders of equipment authorizations to maintain a copy of each authorization together with all supporting documentation and make these records available for FCC inspection upon request. The FCC may also conduct periodic sampling tests of equipment to ensure compliance. We believe we are in substantial compliance with all FCC requirements applicable to our products and systems which are offered for sale or lease in the United States. 

 

Internet Website

 

Our internet website address is www.veriteqcorp.com. The information on this website is not incorporated by reference into this Annual Report on Form 10-K. We make available free of charge through our website annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Forms 3, 4 and 5 filings, and all amendments to those reports and filings as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

 

Seasonality

 

We do not believe that our business in significantly impacted by seasonality.

 

Employees 

 

At March 31, 2015, we employed 11 full-time employees and two part-time employees. We believe we have a positive relationship with our employees.

 

 
9

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Geographic Areas 

 

Our operations are located in the U.S. However, our sole customer during the years ended December 31, 2014 and 2013, EL, is based in Costa Rica.

 

Dependence on One or a Few Major Customers

 

All of our revenues for the years ended December 31, 2014 and 2013 were sourced from a single customer, EL.

 

ITEM 1A. RISK FACTORS 

 

Risks Related to Our Operations and Business

 

We have a history of losses, working capital deficit and stockholders’ deficit, and we expect to incur additional losses in the future. There can be no assurance that we will ever achieve profitability or have sufficient funds to execute our business strategy.

 

For the years ended December 31, 2014 and 2013, we experienced net losses of $3.9 million and $18.2 million, respectively. Our working capital deficit and accumulated deficit at December 31, 2014 was $7.2 million and $23.7 million, respectively. We reported $151,000 and $18,000 of revenue for the years ended December 31, 2014 and 2013, respectively. Until one or more of the products under development is successfully brought to market, we do not anticipate generating significant revenue or gross profit. As a result, we did not generate positive cash flow from operations for the years ended December 31, 2014 and 2013. We expect to continue to incur operating losses for the near future, and may not be able to support our operations or otherwise establish a return on invested capital. In addition, we may not have sufficient funds to execute our business strategy, requiring us to raise funds from the capital markets or other sources, resulting in dilution of our common stock.

 

These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders’ deficit. In light of our recurring losses, accumulated deficit and cash flow difficulties, the report of our independent registered public accounting firm on our financial statements for the fiscal year ended December 31, 2014 contains an explanatory paragraph raising substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may be necessary in the event we are unable to continue as a going concern.

 

We are introducing new products without a record of sales in the marketplace, and if we are not successful in launching some of our products, we may need to cease ongoing business operations.

 

Our success depends upon our ability to obtain financing and generate revenues from the sale of our products. To date, we have generated minimal sales revenue, incurred expenses and sustained significant operating and net losses. Consequently, our operations are subject to all the risks inherent in the establishment of a new business enterprise. If our products fail to gain market acceptance, we will be unable to achieve the necessary revenues, which will allow us to remain in business. Notwithstanding the need for our products in the marketplace, products like ours do not yet exist, and may not be accepted.

 

There can be no assurance that the products we intend to offer will be accepted by the marketplace and we may never operate profitably, even in the long term. Operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. Potential investors should be aware of the difficulties normally encountered in commercializing new products and services. If our business plan is not successful and we are not able to operate profitably, investors may lose some or all of their investment in us.

 

Our failure to raise additional capital to fund our operations and complete our work in introducing our products and launch an effective marketing campaign could reduce our ability to compete successfully and adversely affect our results of operations.

 

We need to raise additional funds to finance our operations and to achieve our strategic objectives, and we may not be able to obtain additional debt or equity financing on terms that are acceptable to us, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests and the value of shares of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

If we cannot raise the additional capital we need on acceptable terms, we may not be able to, among other things:

 

 

fund our operations and pay our existing and past due operating expenses;

  

continue to expand our technology development, sales and/or marketing efforts;

 

hire, train and retain employees; or

 

develop and enhance our existing products and services.

 

Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect our results of operations and our ability to continue as a going concern.

 

We have limited resources compared to some of our potential competitors and we may not be able to compete effectively and increase market share.

 

The success of a technology/medical device business like ours is dependent not only upon its intellectual property, but also upon reaching the market quickly, safely and effectively. Notwithstanding patent protections, it is possible that another technology/medical device company could develop a non-infringing product that meets the same needs that are addressed by our products. A larger, better capitalized or better connected technology/medical device company could be able to innovate more quickly and reach the market using far more resources. As a result, a competitor could reach the market first, blocking us from some or all of the market for our products.

 

We may have challenges in selling our products that a well-known brand would not have and our ability to negotiate financing sources and customer contracts may be more difficult for us than for competitors with greater resources.

 

As a new company, we do not have a reputation that larger, well established companies have. Particularly in the technology/medical device market, in which trust in product quality is important, the absence of a proven reputation could make selling our products more difficult. Conversely, if our products are well received in the market, we may have challenges associated with rapid growth, such as needing capital for inventory, IT infrastructure and personnel.

 

Our lack of significant resources and operating history could result in difficulties in negotiating favorable or market-rate terms for our required debt or equity financings, as the risk of engaging in a financing transaction with us is higher than it would be with a more established entity. Similarly, we will need to sell our products almost exclusively to organizations that are much larger than we are. These organizations will usually have enhanced strength in any negotiations because they are not as dependent on their relationship with us we are on our relationship with them.

 

Our commercial success depends significantly on our ability to develop and commercialize our products without infringing upon the intellectual property rights of third parties.

 

Our commercial success will depend, in part, on operating our business without infringing on the proprietary rights of third parties. Third parties that believe we are infringing on their rights could bring actions against us claiming damages and seeking to enjoin the development, marketing and use of our website and services. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If any of these actions are successful, we could be required to pay damages and/or to obtain a license to continue to develop or market our services, in which case we may be required to pay substantial royalties. However, any such license may not be available on terms acceptable to us or at all. Ultimately, we could be prevented from commercializing our products or be forced to cease some aspect of our business operations as a result of patent infringement claims, which would harm our business.

 

Our results of operations may be adversely affected if our intangible assets were deemed to be impaired.

 

As of December 31, 2014, our intangible assets, net of accumulated amortization, totaled $1.5 million. We assess the fair value of our intangible assets whenever events occur or circumstances change that would more likely than not reduce the fair value of these assets below their carrying value. If we determine that an impairment has occurred, then we are required to write off the impaired portion of the intangible assets. An impairment charge could have a material adverse effect on our operating results and financial condition, and for the year ended December 31, 2014 we recorded a charge of $5.0 million for the impairment of some of our dosimeter-related intangible assets and a corresponding reduction in the fair value of the royalty obligation of $3.4 million.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

Our industry changes rapidly as a result of technological and product developments, which may quickly render our product candidates less desirable or even obsolete. If we are unable or unsuccessful in supplementing our product offerings, our revenue and operating results may be materially adversely affected.

 

The industry in which we operate is subject to rapid technological change. The introduction of new technologies in the market, as well as new alternatives for the delivery of products and services, will continue to have a profound effect on competitive conditions in this market. We may not be able to develop and introduce new products, services and enhancements that respond to technological changes on a timely basis. If our product candidates are not accepted by the market as anticipated, if at all, our business, operating results, and financial condition may be materially and adversely affected.

 

We have pledged our intellectual property, and may pledge more in the future, in connection with financing transactions. If we default on our obligations under the terms of those agreements, the secured parties can take our intellectual property, which would hurt our ability to sell our products and maintain a competitive advantage and could have a material adverse effect on our business.

 

Under the terms of a financing we entered into in November 2013 and an asset purchase agreement with SNC Holdings Corp. that we entered into in December 2012, certain intellectual property, including intellectual property related to our UDI and dosimeter products is pledged as security. If we default on our obligations under the terms of those agreements, the secured parties can take our intellectual property. As of March 31, 2015, we are in payment default of two promissory notes with an aggregate principal amount of approximately $0.2 million related to the November 2013 financing and the remaining notes related to that financing become due in July of 2015. The loss of our intellectual property or the rights to the exclusive use of certain intellectual property will hurt our ability to sell our products and/or maintain a competitive advantage.

 

Our success depends on continuing to hire and retain qualified personnel, including our directors and officers and our technical personnel. If we are not successful in attracting and retaining these personnel, our business will be adversely impacted.

 

Our success depends substantially on the performance of our management team and key personnel. We believe our Chairman and Chief Executive Officer, or CEO, is extremely important in connection with our ability to communicate with bankers, development partners and potential investors. Our President is extremely important in connection with the further development of our products and will be extremely important in generating revenue from those products. Our future success will depend on our ability to attract, integrate, motivate and retain qualified technical, sales, operations, and managerial personnel, as well as our ability to successfully implement a plan for management succession. We believe that retaining qualified personnel is particularly difficult for companies that do not yet have revenue, and we may not be able to continue to attract and retain key personnel. In addition, if we lose the services of any of our management team or key personnel and are not able to find suitable replacements in a timely manner, our business could be disrupted and we may incur increased operating expenses.

 

If we are unable to manage our growth effectively, our business, financial condition and results of operations may be adversely affected.

 

We intend to develop a customer base, expand our product offerings and pursue market opportunities. The expansion of our operations and customer base is expected to place a significant strain on our management, operational and financial resources. There can be no assurance that our current management or sales, marketing and support or technical personnel will be able to support our future operations or to identify, manage and exploit potential market and technological opportunities. If we are unable to manage growth effectively, such inability could have a material adverse effect on our business, financial condition and results of operations.

 

Our products are subject to regulatory approval, and failure to obtain such approval may adversely affect us.

 

Our products are regulated by the FDA in the United States, or U.S., and analogous agencies in other countries. Failure to obtain, or timely obtain, approvals from the regulating agencies would delay or prevent our entry into the market with our products. Application to, and compliance with, these agencies can be costly, and may require resources that would detract from our other efforts, such as sales or marketing.

 

Liquidation of Signature Industries Limited may result in additional cash obligations.

 

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 a potential additional liability of approximately $159,000. The Company expects the liquidation process to be completed by the middle of 2015, although it could extend beyond the expected timeframe.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

We may be involved in legal claims which could materially adversely affect us.

 

Claims or disputes against the Company may arise in the future. Results of legal proceedings are subject to significant uncertainty and, regardless of the merit of the claims, litigation may be expensive, time-consuming and disruptive to our operations.

 

Medical devices are subject to products liability claims, and such claims, regardless of merit, could be disruptive and costly, and may exceed any insurance we have in connection with product liability. Although our management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against us for amounts in excess of management’s expectations, our results of operations could be materially adversely affected. Further, such outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against us, all of which could have a material impact on our business, liquidity, results of operations or financial condition.

 

Failure to maintain proper and effective internal controls could adversely affect our operating results, our ability to produce financial statements that comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”), our ability to operate our business and our stock price.

 

During the course of our testing of our internal controls, we may identify material weaknesses or significant deficiencies in our internal controls that will have to be remediated. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, and entail substantial costs in order to modify our existing accounting systems, which take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or our subsequent inability to produce financial statements that comply with U.S. GAAP on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements may negatively affect our stock price.

 

In connection with the errors discussed in our Annual Report on Form 10-K/A filed with the SEC on August 19, 2014, management identified material weaknesses in our internal control over financial reporting. As a result, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2013. Although the Company believes that these material weaknesses have been fully remediated as of the filing date of this report, and that the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2014, any failure to continue to maintain internal control over financial reporting in the future could have a material adverse effect on our business, financial condition and our stock price.

 

 

Risks Related to Our Common Stock

 

Because our Chairman and CEO owns a substantial percentage of our voting stock, he may be able to exercise greater control over the decisions and direction of the Company than other stockholders.

 

Mr. Scott Silverman, our Chairman and CEO, holds 1,400 shares of our Series D Convertible Preferred Stock, and beneficially owns 443,044,416 shares of our outstanding common stock, representing approximately 72% of the voting rights of the Company. As such, Mr. Silverman will have greater influence in determining the outcome of all matters submitted to a vote of our stockholders, including but not limited to mergers, acquisitions, the sale of substantially all of our assets, the power to prevent or cause a change of control of the Company and the election of directors. Even if Mr. Silverman’s voting rights were to be reduced below 50% of the voting rights outstanding, he will continue to maintain significant influence over the outcome of such matters. The interests of Mr. Silverman may differ from those of other stockholders.

 

 
13

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Our stock price has reflected a great deal of volatility, including a significant decrease over the past few years. The volatility may mean that, at times, our stockholders may be unable to resell their shares at or above the price at which they acquired them. 

 

From January 1, 2013 to March 31, 2015, the price per share of our common stock has ranged from a high of $3.30 to a low of $0.0018. The price of our common stock has been, and may continue to be, highly volatile and subject to wide fluctuations. The market value of our common stock has declined in the past, in part, due to our operating performance. In the future, broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. Recent declines in the market price of our common stock have and could continue to affect our access to capital, and may, if they continue, impact our ability to continue operations at the current level. In addition, any continuation of the recent declines in the price of our common stock may curtail investment opportunities presented to us, and negatively impact other aspects of our business, including our ability to raise the funds necessary to fund our operations. As a result of any such declines, many stockholders have been or may become unable to resell their shares at or above the price at which they acquired them.

 

In addition, the market price of our common stock may fluctuate significantly in response to a number of other factors, many of which are beyond our control, including but not limited to the following:

 

Our ability to obtain securities analyst coverage

 

Changes in securities analysts’ recommendations or estimates of our financial performance

 

Changes in the market valuations of companies similar to us

 

Announcements by us or our competitors of significant contracts, new offerings, acquisitions, commercial relationships, joint ventures, or capital commitments

 

Failure to meet analysts’ expectations regarding financial performance

 

Furthermore, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. A securities class action lawsuit against us, regardless of its merit, could result in substantial costs and divert the attention of our management from other business concerns, which in turn could harm our business.

 

Because we will be subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.

 

The SEC has adopted regulations which generally define "penny stock" to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements severely limit the liquidity of securities in the secondary market because few brokers or dealers are likely to undertake these compliance activities, which may increase the difficulty Investors experience in attempting to liquidate such securities. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and lack of a liquid market.

 

Current stockholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock issued pursuant to our debt instruments and outstanding warrants

 

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 10,005,000,000 shares of capital stock, consisting of 10,000,000,000 shares of common stock and 5,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors. As of March 31, 2015, there are 30,802,114 shares of our common stock outstanding, and there are 2,197 stock options outstanding and we have 255,069,924 shares of our common stock reserved for issuance under our stock option plans. We also have as of March 31, 2015 outstanding warrants for the issuance of 2,657,452,539 shares of our common stock, and convertible notes outstanding convertible into an aggregate of 2,557,606,165 shares of our common stock. Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages. In addition, the terms of the convertible promissory notes issued by us in November 2013 and 2014 provide for reductions in the conversion price per share of the notes and in the exercise price of associated warrants, if applicable, in the event that we issue common stock at an issuance price or issue convertible debt or equity securities with an exercise price that is less than the conversion or exercise price of the outstanding notes or warrants. These provisions have resulted in significant dilution of our common stock during the latter half of 2014.      

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

To fund our business, we will need to raise additional capital through public or private offerings of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued under our equity incentive plans), as payment to providers of goods and services, in connection with acquisitions or for other business purposes. Our Board of Directors may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our amended and restated certificate of incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward pressure on the trading price of the common stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded.

 

In the aftermath of the reverse split of our common stock, the market price for our common stock may not maintain its post-split market price.

 

On December 18, 2014, our stockholders empowered our Board of Directors to, subject to certain parameters, effectuate a reverse split of the Company’s outstanding common stock. On February 11, 2015, the Reverse Stock Split became effective whereby each 1,000 shares of our common stock were combined and converted into one issued and outstanding share of common stock. We cannot be certain that the Reverse Stock Split will have a long-term positive effect on the market price of our common stock, or increase our ability to consummate acquisitions or financing arrangements in the future. The market price of our common stock is based on factors that may be unrelated to the number of shares outstanding.  These factors include our performance, general economic and market conditions and other factors, many of which are beyond our control.  The market price for our post-split shares may not rise or remain constant in proportion to the reduction in the number of pre-split shares outstanding before the Reverse Stock Split.  Accordingly, the total market capitalization of our common stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split.   In addition, the post-split market price of our common stock may not equal or exceed the market price prior to the Reverse Stock Split.

 

We are unlikely to pay cash dividends on our common stock in the foreseeable future.

 

We have never declared or paid any cash dividends on our common stock. We intend to retain any future earnings to finance our operations and expand our business and therefore do not expect to pay any cash dividends in the foreseeable future. The payment of dividends is also subject to provisions of Delaware law prohibiting the payment of dividends except out of surplus and certain other limitations, as well as the provisions contained in our senior notes payable.

 

Pursuant to the terms of our outstanding convertible promissory notes, the occurrence of certain events may require us to pay cash to holders of certain notes and warrants, and we may not have sufficient working capital to make such cash payments.

 

Upon the occurrence of certain events, including but not limited to the following, we may be required to make a payment in cash to the holders of certain notes:

 

 

upon maturity of the notes, if not otherwise redeemed or converted;

 

upon a change in control (as defined in the notes);

 

upon an event of default (as defined in the notes), including our failure to pay any amount of principal, default interest, late charges or other amounts when due, after applicable cure periods;

 

if shares issuable upon conversion of the notes or exercise of certain warrants are not registered for resale on an effective registration statement or are otherwise not freely tradable under any state or federal securities laws; and

 

our failure to issue shares of common stock upon conversion of the notes or upon exercise of the warrants on a timely basis.

  

We may not have sufficient working capital to make such cash payments, or to the extent we are able to make such cash payments, it will reduce the amount of working capital we have to operate our business. Promissory notes with an aggregate principal amount of approximately $0.2 million matured on November 13, 2014. To date, we have not repaid these notes and no action has been taken against us by the holders with respect to these notes.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Anti-dilution and other provisions in outstanding notes and warrants may also adversely affect our stock price or our ability to obtain additional financing.

 

The notes and warrants that we issued in the November 2013 financing and the notes we issued in 2014 contain anti-dilution provisions that provide for adjustment of the conversion price of the notes and the exercise price of the associated warrants under certain circumstances. If we issue or sell shares of our common stock, or securities convertible into our common stock, at prices below the conversion price or exercise price, as applicable, the conversion price of the notes will be reduced and the exercise price of the warrants will be reduced and the number of shares issuable under the warrants will be increased. The amount of such adjustment if any, will be determined pursuant to a formula specified in the notes and the warrants and will depend on the number of shares issued and the offering price of the subsequent issuance of securities. Adjustments to the notes and warrants pursuant to these anti-dilution provisions have resulted in significant dilution to our existing stockholders and adversely affected the market price of our common stock, and may continue to do so in the future. The anti-dilution provisions may also limit our ability to obtain additional financing on terms acceptable to us.

 

Moreover, we may not realize any cash proceeds from the exercise of the warrants. A holder of warrants may opt for a cashless exercise of all or part of the warrants under certain circumstances. In a cashless exercise, the holder of a warrant would make no cash payment to us, and would receive a number of shares of our common stock having an aggregate value equal to the excess of the then-current market price of the shares of our common stock issuable upon exercise of the warrant over the exercise price of the warrant. Such an issuance of common stock would be immediately dilutive to other stockholders.

 

We could use preferred stock to fund operations or resist takeovers, and the issuance of preferred stock may cause additional dilution.

 

Our amended and restated certificate of incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock, of which 1,841 shares of Series D Preferred Stock are currently issued and outstanding. Our amended and restated certificate of incorporation gives our board of directors the authority to issue preferred stock without the approval of our stockholders. We may issue additional shares of preferred stock to raise money to finance our operations. We may authorize the issuance of the preferred stock in one or more series. In addition, we may set the terms of preferred stock, including:

 

 

Dividend and liquidation preferences

 

Voting rights

 

Conversion privileges

 

Redemption terms

 

Other privileges and rights of the shares of each authorized series

 

The issuance of large blocks of preferred stock could possibly have a dilutive effect to our existing stockholders. It can also negatively impact our existing stockholders’ liquidation preferences. In addition, while we include preferred stock in our capitalization to improve our financial flexibility, we could possibly issue our preferred stock to friendly third parties to preserve control by present management. This could occur if we become subject to a hostile takeover that could ultimately benefit our stockholders and us.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not applicable to a smaller reporting company.

 

ITEM 2. PROPERTIES 

 

Our corporate headquarters is located in Delray Beach, Florida. As of December 31, 2014, we occupied approximately 3,185 square feet of office space under a lease that we terminated on January 14, 2015. Effective January 15, 2015, we entered into a new lease for approximately 1,862 square feet that expires in April 2018. In addition, we occupy approximately 2,401 square feet of office space and 515 square feet of warehouse space in Plymouth, Minnesota under the terms of a verbal, month-to-month lease. Total monthly rent payments for these properties, including common area maintenance and real estate taxes, is approximately $6,500 per month.

 

 
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ITEM 3. LEGAL PROCEEDINGS 

 

The Company is from time to time involved in claims and legal actions arising in the ordinary course of business. Management does not expect that the outcome of any such claims or actions will have a material effect on the Company’s liquidity, results of operations or financial condition.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

During the fiscal year ended December 31, 2013 and through October 13, 2014, our common stock was traded on the OTCQB Marketplace. Since October 14, 2014, our common stock has been trading on the OTC Pink Marketplace under the symbol “VTEQ.” The following table lists the high and low price for our common stock as quoted, in U.S. dollars, on the internet tracking services during each quarter within the last two fiscal years: 

 

Fiscal Year Ended December 31, 2014

 

High

   

Low

 

Quarter ended December 31, 2014

  $ 7.90     $ 1.50  

Quarter ended September 30, 2014

  $ 160.00     $ 4.50  

Quarter ended June 30, 2014

  $ 1,210.00     $ 110.00  

Quarter ended March 31, 2014

  $ 2,400.00     $ 650.00  

 

 

Fiscal Year Ended December 31, 2013

 

High

   

Low

 

Quarter ended December 31, 2013

  $ 4,300.00     $ 1,510.00  

Quarter ended September 30, 2013

  $ 3,000.00     $ 900.00  

Quarter ended June 30, 2013

  $ 1,800.00     $ 600.00  

Quarter ended March 31, 2013

  $ 3,300.00     $ 1,200.00  

 

The quotations set forth above give effect to the 1:1,000 reverse split of our common stock effective as of February 11, 2015, and reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. On March 31, 2015, the closing sale price of our common stock on the OTC Pink Marketplace was $0.0023 per share.

 

Holders

 

As of March 31, 2015, there were 155 holders of record of our common stock, which number does not reflect beneficial stockholders who hold their stock in nominee or “street” name through various brokerage firms.      

 

Dividend Policy

 

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations, and to expand our business. Subject to the rights of holders of preferred stock, any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, operating results, capital requirements, limitations under Delaware law and the terms of our senior debt and other factors that our board of directors considers appropriate.

 

Recent Sales of Unregistered Securities/Recent Purchases of Securities

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable for a smaller reporting company.

 

 
18

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of the Company’s financial condition and results of operations should be read together with the Company’s consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1996, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may”, “expect”, “anticipate”, “intend”, “estimate” or “continue” or the negative thereof or other variations thereof or comparable terminology. The reader is cautioned that all forward-looking statements are speculative, and there are certain risks and uncertainties that could cause actual events or results to differ from those referred to in such forward-looking statements (see Item 1A, “Risk Factors”).

 

OVERVIEW

 

Our Business

 

Prior to July 8, 2013, our business operations consisted primarily of our mobile game division, doing business as HammerCat Studio. On May 3, 2013, we sold our mobile game division. Since the consummation of the Exchange Agreement and the closing of the VeriTeQ Transaction on July 8, 2013 (see Item 1, “History and Development of the Company”), we have been engaged in the business of RFID technologies for the UDI of implantable medical devices, and radiation dose measurement technologies for use in radiation therapy treatment. Our success depends on our ability to obtain financing and execute our comprehensive business plan. To date, we have generated minimal sales revenue and our operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

The near term focus of our business plan is to align with medical device manufacturers and their distributors, and manufacture our products to their specifications. Our current customer for UDI breast implant microtransponders and readers, Establishment Labs, S.A. (“EL”), sells its breast implants under the name Motiva Implant Matrix®.

The RFID readers/scanners we sell are used to identify the direct mark contained on the microtransponders, which is a unique identification number. We buy our readers from a manufacturer and resell them at a mark-up. Our current plan is to continue to outsource our manufacturing operations to third parties.     

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. We base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted.

 

We have identified the policies and significant estimation processes discussed below as critical to our business operations and to the understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see Note 2 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

 

Use of Estimates  

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on the knowledge of current events and actions we may undertake in the future, they may ultimately differ from actual results. Included in these estimates are assumptions used in: (i) determining the lives of long-lived assets; (ii) valuation models used in determining the beneficial conversion feature or embedded conversion options associated with convertible debt; (iii) determining the fair value of a promissory note with an embedded convertible option; (iv) determining valuation allowances for deferred tax assets; (v) Black-Scholes or other valuation models used to estimate the fair value of stock-based compensation and warrants; and (vi) the liability for royalty obligations.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Convertible Debt

 

Since November of 2013, we have funded our operations primarily through the issuance of promissory notes that are convertible, at the option of the holder, into shares of our common stock at variable conversion prices based on the market value of our common stock at the time of the conversion. The terms of these convertible promissory notes generally provide that if the Company were to issue or sell any shares of its common stock in connection with a subsequent placement for a consideration per share based on a variable price formula that is less than the conversion price in effect on the date of such issuance of shares of common stock, then the conversion price is reduced to the amount of the consideration per share received for such issuance. As a result, we recognize a liability for the fair value of these embedded conversion options at the time of issuance and record gains or losses in our consolidated statement of operations for changes in the fair value of these conversion options at each accounting period.

 

Revenue Recognition 

 

We recognize revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed and determinable, and collectability is reasonably assured. Our revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and year to year.

 

Income Taxes 

 

We have adopted Accounting Standards Codification subtopic 740-10, Income Taxes, (“ASC 740-10”), which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in our financial statement. Under this method, deferred tax liabilities and assets are determined for 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 such as amortization of intangible assets, deferred officers' compensation and stock-based compensation. A valuation allowance is provided against net deferred tax assets when we determine that it is more likely than not that we will fail to generate sufficient taxable income to be able to utilize the deferred tax assets.

 

As of December 31, 2014, we had an aggregate valuation allowance against all of our U. S. net deferred tax assets of approximately $5.9 million and we had U.S. net operating loss carryforwards of $10.8 million.

 

Loss per Common Share and Common Share Equivalent 

 

Basic and diluted loss per common share has been computed by dividing the net loss by the weighted average number of common shares outstanding for the period. Since we have incurred losses attributable to common stockholders, diluted loss per common share does not give effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares consist of incremental shares issuable upon exercise or conversion of stock options, warrants and convertible notes payable.

 

Impact of Recently Issued Accounting Standards 

 

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (“ASU 2014-10”). ASU 2014-10 removes the concept of development stage companies from the FASB Codification, including the previous requirement that certain companies include inception-to date information and other disclosure requirements of Topic 915. The guidance is to be applied retrospectively and is effective for annual reporting periods beginning after December 15, 2014 and interim periods therein, with early adoption permitted. ASU 2014-10 also clarifies that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principal operations. The amendments regarding Topic 275 and the sufficiency-of-equity-at-risk criterion for development stage entities of Topic 810 are to be applied prospectively. Beginning with the quarter ended September 30, 2014, we chose the early adoption of ASU 2014-10 and, accordingly, eliminated the inception–to-date information that had been previously presented in the Company’s consolidated financial statements.  

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

RESULTS OF OPERATIONS

 

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

 

Revenue and Gross Profit

 

We generated $151,000 of revenue and $89,000 of gross profit during the year ended December 31, 2014, as compared to revenue and gross profit of $18,000 and $11,000, respectively, during the year ended December 31, 2013, all of which was related to the sale of our Q Inside Safety Technology product. We expect our revenue to continue to increase during 2015 and beyond as we fulfill orders under our exiting development and supply contract with EL and as we obtain new customers. We expect that substantially all of our revenue for 2015 will be related to sales our Q Inside Safety Technology products for the breast implant market. We anticipate that opportunities for application of our Q Inside Safety Technology to other implantable medical devices and sales of our dosimeter products will materialize beginning in 2016.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses, including development expenses were $5.6 million for the year ended December 31, 2014, as compared to $6.0 million for the year ended December 31, 2013. The decrease is largely due to a decrease in stock-based compensation of $1.3 million in 2014 as all of our outstanding stock options became vested in early January of 2014, the absence of $0.4 million of transaction expenses related to the VeriTeQ Transaction which took place in 2013, partially offset by increases in other employee compensation expense of $1.1 million and professional fees of $0.2 million in 2014. We expect our selling, general and administrative expenses to approximate their 2014 levels during 2015 and to increase in future years as we grow our business.

 

Asset Impairment Charge

 

At December 31, 2014, we determined that the intangible assets related to our radiation dosimeter technologies, which have yet to generate any revenue for us, were fully impaired. As a result, we recorded an impairment charge in 2014 of $5.0 million for the unamortized portion of these assets, and a corresponding reduction in the fair value of the associated royalty obligations in the amount of $3.4 million.

 

Depreciation and Amortization Expense

 

We incurred $0.6 million of depreciation and amortization expense for the years ended December 31, 2014 and 2013, primarily related to technology, customer relationship and trademark intangible assets resulting from two acquisitions during 2012. We expect depreciation and amortization expense to decrease significantly in 2015 due to the write-off of the radiation dosimeter intangibles in 2014, and to gradually increase thereafter as we incur capital expenditures to support the anticipated expansion of our business operations.

 

Interest Expense

 

Interest expense was $2.5 million and $7.1 million for the years ended December 31, 2014 and 2013, respectively. The interest expense for the year ended December 31, 2013 relates primarily to a financing with several investors that we entered into in November 2013. Non-cash interest expense in 2014 amounted to $2.4 million, comprised primarily of amortization of debt discount. Approximately $6.7 million of 2013 interest expense was non-cash interest expense related to with a financing transaction that closed in November 2013, including: (i) the accretion of debt discount of approximately $0.2 million; (ii) $3.2 million of discount associated with the fair value of the warrants issued in connection with the financing; (iii) $2.8 million related to the initial fair value of the conversion options of the convertible notes and (iv) the amortization of financing costs of $0.4 million. If we enter into additional convertible debt financings, which include the issuances of warrants and beneficial conversion features, or if we modify the terms of our existing convertible debt and warrants we may be required to record significant interest expense in future periods.

 

Other (Income) Expense

 

Other income/expense for the year ended December 31, 2014 includes a gain on the change in fair value of conversion options embedded in notes payable in the amount of $3.2 million, a gain on the change in fair value of convertible debt in the amount of $4.6 million and a loss on the change in the fair value of warrants that do not qualify for equity treatment in the amount of $1.5 million. For the year ended December 31, 2013, we recorded losses on the change in fair value of conversion options embedded in notes payable, the fair value of convertible debt and warrant liabilities in the amount of $0.4 million, $2.8 million and $1.3 million, respectively. We expect that the embedded conversion options within outstanding notes payable, the outstanding $3.3 million convertible note related to our acquisition of SNC and the outstanding warrant liabilities will continue to result in significant fluctuations to our results of operations, as these instruments, or securities with similar terms that we may issue in the future, require a determination of fair value in each reporting period, and changes in these fair values are required to be recognized through our statement of operations.

 

 
21

 

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Net Loss

 

The net loss was for the year ended December 31, 2014 was $3.9 million, as compared to $18.2 million for the year ended December 31, 2013. The decrease in net loss for 2014 was primarily due to the net gain from changes in fair value of the foregoing derivative instruments of $6.3 million, as compared to net losses from the change in fair value from these instruments of $4.4 million in 2013, and a $4.6 million decrease in interest expense, partially offset by the $1.6 million asset impairment change in 2014.  

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

We have incurred significant operating losses and generated only nominal revenues since our inception. Our working capital deficit at December 31, 2014 was $7.2 million and our cash balance at December 31, 2014 was $77,000. Our cash position is critically deficient, and payments critical to our ability to operate are not being made in the ordinary course. Failure to raise capital in the coming days to fund our operations will have a material adverse effect on our financial condition, raising substantial doubt about our ability to continue as a going concern.

 

The Company’s fixed monthly operating expenses amount to approximately $175,000. In addition, as of March 31, 2015, we are in payment default on existing indebtedness in the approximate amount of $0.3 million, and substantially all of our $6.5 million of existing indebtedness at December 31, 2014 will become due in the next twelve months. We currently do not have sufficient cash or other financial resources to fund our operations and meet our obligations for the next twelve months.

 

We are seeking to consummate a significant sale of our equity securities or refinancing of our existing indebtedness which would provide us with the necessary working capital to continue to execute our business plan. There are currently no commitments for any such financings and no assurances can be given that funds will be available on terms that are acceptable to us, or at all. In the event that we are unable to secure the necessary funding to meet our working capital requirements and payment obligations, either through the sale of our securities or through other financing arrangements, we may be required to downsize, reduce our workforce sell assets or possibly curtail or even cease operations.

 

A summary of our cash flows for the periods indicated is as follows:

 

(in thousands)

 

Year Ended December 31,

 
   

2014

   

2013

 

Cash used in operating activities

  $ (2,593 )   $ (1,954 )

Cash (used) provided by in investing activities

    (35 )     947  

Cash provided by financing activities

    2,692       837  

Increase in cash and cash equivalents

    64       (170 )

Cash and cash equivalents, beginning of year

    13       183  

Cash and cash equivalents, end of year of year

  $ 77     $ 13  

 

Cash used in operating activities was $2.6 million for the year ended December 31, 2014, as compared to $2.0 million for the year ended December 31, 2013. The following table illustrates the primary components of our cash flows from operations:

 

(in thousands)

 

Year Ended December 31,

 
   

2014

   

2013

 

Net loss

  $ (3,910 )   $ (18,201 )

Non-cash expenses, gains and losses

    (591 )     14,222  

Accounts payable and accrued expenses

    1,826       2,053  

Other

    82       (28 )

Cash used in operating activities

  $ (2,593 )   $ (1,954 )

 

Cash used in investing activities for the year ended December 31, 2014 was $35,000, comprised of purchases of property and equipment. Cash provided by investing activities for the year ended December 31, 2013 was $0.9 million, consisting of cash acquired from the acquisition of VeriTeQ Corporation of $0.8 million and proceeds from the sale of marketable securities of $0.1 million.

 

 
22 

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Cash provided by financing activities for the year ended December 31, 2014 was $2.7 million, consisting of proceeds from the sale of notes payable of $2.3 million, the release of restricted cash in 2014 $0.9 million related to our November 2013 financing and the repayment of notes payable of $0.5 million. Cash provided by financing activities for the year ended December 31, 2013 was $0.8 million, consisting of proceeds from the sale of convertible notes of $1.7 million, partially offset by the placement of $0.9 million into restricted cash accounts in accordance with the terms of the November 2013 financing.

  

Inflation

 

We do not believe that inflation has had a material effect on our Company's results of operations.

 

Off-Balance Sheet Arrangements

 

Under SEC regulations, we are required to disclose the Company’s off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Off-balance sheet arrangements consist of transactions, agreements or contractual arrangements to which any entity that is not consolidated with us is a party, under which we have:

 

 

Any obligation under certain guarantee contracts.

 

Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets.

 

Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to the Company’s stock and classified in stockholder’s equity in the Company’s statement of financial position.

 

Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

 

As of December 31, 2014, the Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

 

Not applicable for smaller reporting companies.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The Company’s consolidated financial statements required by this item are included after Item 15 of this report.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES 

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2014. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2014, the Company’s disclosure controls and procedures were not effective due to the material weakness described below.

 

Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on the assessment using those criteria, management concluded that the internal control over financial reporting was not effective as of December 31, 2014.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. The material weakness at December 31, 2014 pertains to a lack of expertise in the valuation of complex debt and equity instruments that are required to be reported at fair value. Partly due to this deficiency, the Company was required to restate its financial statements for the year ended December 31, 2013, for the three-months March 31, 2014 and for the three and six-months ended June 30, 2014. As a result, the Company filed an amendment to its Annual Report on Form 10-K/A for the year ended December 31, 2013 on August 19, 2014, an amendment to its Quarterly Report on Form 10-Q/A for the three-months ended March 31, 2014 on August 20, 2014 and an amendment to its Quarterly Report on Form 10-Q/A for the three and six-months ended June 30, 2014 on September 17, 2014.

 

In order to remediate this material weakness, the Company intends to identify and engage additional third party expertise with the appropriate financial background and skill level to perform the proper valuation analysis on the Company’s derivative financial instruments, so that changes in their fair values can be properly recorded on a timely basis.

 

Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting 

 

Our Chief Executive Officer and Chief Financial Officer do not expect that our disclosure controls or our internal controls will prevent all error and all fraud. The design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving the Company’s stated goals under all potential future conditions. Therefore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with the policies and procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

Although management appointed a chief accounting officer and implemented additional procedures related to the review and analysis of its balance sheet accounts, the terms of new issuances of debt and equity securities and the methods used in determining the fair value of its liabilities as presented in its consolidated financial statements during the quarter ended December 31, 2014, the Company has not fully remediated its material weakness as of December 31, 2014, and remediation efforts will continue into fiscal 2015. There were no other changes to the Company’s procedures related to internal control over financial reporting during the quarter ended December 31, 2014.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our directors, their ages and business experience, as of March 31, 2015, are set forth below:           

 

Name

Age

Position

 

 

 

Scott R. Silverman 

51

Chairman of the Board of Directors/Chief Executive Officer

 

 

 

Barry M. Edelstein

51

Director

 

 

 

Daniel E. Penni

67

Director

 

 

 

Shawn A. Wooden

41

Director

 

Scott R. Silverman

Mr. Silverman has served as the Company’s chief executive officer and chairman of its Board of Directors since July 2013. Previously, Mr. Silverman served as the chairman of the Board of Directors of PositiveID Corporation from November 2008 until December 2011, and as chief executive officer from August 2009 until August 2011. He previously served as chief executive officer of PositiveID Corporation, then known as VeriChip Corporation, from December 2006 through July 2008, as chairman of its Board of Directors from March 2003 through July 2008, and as a member of its Board of Directors from February 2002 through July 2008. Mr. Silverman served as the chairman of Steel Vault Corporation from January 2006 until November 2009. He also served as a member of the Board of Directors of Gulfstream International Group, Inc. from September to October, 2010. Mr. Silverman served as chief executive officer and chairman of the Board of Directors of the Company from March 2003 to December 2006, and chairman of Destron Fearing Corporation (then known as Digital Angel Corporation) a then majority-owned subsidiary of the Company from March 2003 to July 2007. Mr. Silverman is an attorney licensed to practice in New Jersey and Pennsylvania. Mr. Silverman was selected to serve as a director on our Board of Directors because of his specific experience and proven expertise in our industry, his past and continuing contributions to the Company, his general business expertise and his experience in leading publicly-held companies.  

 

 

Barry M. Edelstein

Mr. Edelstein has served as a director of the Company since July 2013. Mr. Edelstein has served as managing partner of Structured Growth Capital, Inc., a boutique investment banking firm, since January 2009. Mr. Edelstein served as acting president and chief executive officer of Destron Fearing Corporation, a majority-owned subsidiary of ours (then known as Digital Angel Corporation) from August 2007 until December 2007, and he served on Destron Fearing Corporation’s Board of Directors from June 2005 to December 2007. Mr. Edelstein has served as the chairman of ScentSational Technologies, LLC since 2002. Mr. Edelstein served as President of GlobalCom Telecommunications, LLC which he co-founded in 1992 and which was acquired in 1997 by Comcast Corporation, where he then served as a divisional vice president until 2002. Mr. Edelstein has a bachelor’s degree in business administration from Drexel University and received his law degree from Widener University School of Law. Mr. Edelstein served as a member of the Board of Directors of PositiveID Corporation from January 2008 to June 2013. Mr. Edelstein was nominated to the Board of Directors due to his past business experience, including as a director and officer of one of our former subsidiaries, and his knowledge of our industry.

   

Daniel E. Penni

Mr. Penni has served as a director since March 1995 and as chairman of our Board of Directors from July 3, 2007 to July 7, 2013. From May 3, 2013 to July 7, 2013, he served as our interim chief executive officer and president. Mr. Penni also served as our interim chief executive officer and president from January 31, 2012 to August 23, 2012. From September 1988 until December 2005, Mr. Penni was employed by Arthur J. Gallagher & Co., an insurance brokerage and risk management services firm, where he served in several positions, including his final position as area executive vice president. He has worked in various sales and administrative roles in the insurance business since 1969. He also served on the board of trustees of the Massachusetts College of Pharmacy and Health Sciences in Boston from 1989 through June 2006 and served as the chair of finance, the corporate treasurer and the chair of the audit committee at various times during his service period. Mr. Penni graduated with a bachelor of science degree in 1969 from the School of Management at Boston College. Mr. Penni was a member of the Board of Directors of VeriChip Corporation, n/k/a PositiveID Corporation (a former subsidiary of ours) from June 2004 until January 2008. Mr. Penni was selected to serve as a director on our Board of Directors because of his specific experience and proven expertise in our industry, his past and continuing contributions to the Company, and his general expertise and perspective on our business.

 

 
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VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Shawn A. Wooden

Mr. Wooden runs Wooden Wealth Strategies, a full-service financial services and investment boutique firm. He earned his bachelor of science from the University of Notre Dame in Computer Science. After graduation, he began a nine year career in the National Football League, where he played for the Miami Dolphins and the Chicago Bears. After retiring in 2005, Mr. Wooden transitioned into the financial services industry where he has earned the Financial Industry Regulation Authority (FINRA) Series 6, 7, 63, and 65 licenses, as well as the Life Underwriter Training Council Fellow (LUTCF) professional designation. Mr. Wooden also earned a Certificate for Retirement Planning from the Wharton School of Business in Pennsylvania.

 

Executive Officers

 

Our executive officers, their ages and business experience, as of March 31, 2015 are set forth below:      

 

Name

 

Age

 

Position

Scott R. Silverman

  

51

  

Chief Executive Officer

Randolph K. Geissler

  

54

  

President

Michael E. Krawitz

 

45

 

Chief Legal and Financial Officer

Marc S. Gelberg

 

49

 

Chief Accounting Officer and Vice President of Financial Reporting

 

Scott R. Silverman

A summary of Mr. Silverman’s experience is set forth above.

 

 

Randolph K. Geissler

Mr. Geissler is currently the Company’s president. He also is currently the chief executive officer of Geissler Corporation. Mr. Geissler previously served as the chief executive officer of Geissler Technologies from 2004 to 2008 and as chief executive officer of Destron Fearing Corporation (then known as Digital Angel Corporation) from 1993 to 2003. Mr. Geissler specializes in managing companies and technologies focused on RFID, and he is the developer of the implantable microtransponder for animal identification.

   

Michael E. Krawitz    

Mr. Krawitz was appointed our chief legal and financial officer effective January 31, 2014. He served as a member of our Board of Directors from July 2013 to June 2014. Mr. Krawitz served as chief executive officer of PEAR, LLC, a provider of renewable energy and financing for renewable energy projects, from February 2011 to January 31, 2014. From July 2010 until February 2011, he served as chief executive officer of Florida Sunshine Investments I, Inc. He previously served as the chief executive officer and president of the Company from December 2006 to December 2007, executive vice president from March 2003 until December 2006, and as a member of the Company’s Board of Directors from July 2007 until December 2007. Mr. Krawitz served as a member on the Board of Directors of Steel Vault Corporation from July 23, 2008 until November 11, 2009 and has served on the Board of Directors of PositiveID Corporation since November 2008. He practiced law at Fried, Frank, Harris, Shriver & Jacobson in New York from 1994 to 1999. Mr. Krawitz earned a bachelor of arts degree from Cornell University in 1991 and a juris doctorate from Harvard Law School in 1994.  

   

Marc S. Gelberg    

Mr. Gelberg was appointed our chief accounting officer and vice president of financial reporting effective October 30, 2014. Mr. Gelberg was previously corporate controller of Fusion Telecommunications International, Inc., a provider of unified communications and cloud services, since April of 2011, assuming the additional responsibilities of vice president of finance and senior vice president of finance in November of 2012 and March of 2014, respectively.  From November of 2010 through March of 2011, Mr. Gelberg served as an SEC Reporting consultant for China Direct Industries, Inc., primarily serving its client companies.  From February of 2008 through September 2010, Mr. Gelberg was vice president, corporate controller for Cross Match Technologies, Inc. and from July of 2006 through February of 2008 he was vice president of accounting and financial reporting for ION Media Networks, Inc. Mr. Gelberg holds a Bachelor’s Degree in Economics from the State University of New York at Albany, and received his certified public accounting certification from the State of New York in 1994. 

 

There are no family relationships among our executive officers or directors.  

 

 
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Currently, our Board of Directors consists of four directors. On January 28, 2015, Ambassador Ned L. Siegel resigned as a member of our Board of Directors. Ambassador Siegel’s resignation did not involve any disagreement on any matter related to the Company’s operations, policies or practices. Our Board of Directors was structured to be divided into three classes, and a class is generally elected to serve for a three-year term or until the directors' successors are duly elected and qualified. Thus, it has been our historical practice (since 1998) to elect approximately one-third of the members of the Board of Directors annually. Directors may be removed only for cause. Any director appointed by our Board of Directors to fill a vacancy on the board serves the balance of the unexpired term of the class of directors in which the vacancy occurred. The roles and responsibilities of the Board of Directors are as set forth by Delaware corporate law, which includes providing general oversight of management and setting strategic direction for the Company.

 

CORPORATE GOVERNANCE

 

We have a standing Audit and Governance Committee, Compensation Committee and Nominating Committee of our board of directors. Each has a written charter approved by our Board.

 

Audit Committee

 

Our Board of Directors established an Audit and Governance Committee (the “Audit Committee”) in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act. Our Audit Committee is comprised of two members of the Board of Directors: Mr. Edelstein and Mr. Wooden. All of the committee members are independent as defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules and as defined by the Sarbanes-Oxley Act of 2002. Our Board of Directors has determined that our Audit Committee members are financially literate and that we have one audit committee financial expert as defined in the applicable SEC rules: Mr. Edelstein, who serves as the chairman of the committee.

 

The Audit Committee assists our Board of Directors in its oversight of:

  

our accounting, financial reporting processes, audits and the integrity of our financial statements;

  

our independent auditor’s qualifications, independence and performance;

  

our compliance with legal and regulatory requirements;

  

our internal accounting and financial controls; and

  

our audited financial statements and reports, and the discussion of the statements and reports with management, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management.

 

The Audit Committee has the sole and direct responsibility for appointing, evaluating and retaining our independent registered public accounting firm and for overseeing their work. All audit and non-audit services to be provided to us by our independent auditors must be approved in advance by our Audit Committee, other than de minimis non-audit services that may instead be approved in accordance with applicable rules of the SEC. The Audit Committee met four times and took one action through unanimous written consent during fiscal 2014.

 

Compensation Committee 

 

Our Compensation Committee consists of Messrs. Edelstein and Wooden. Mr. Wooden is chairman of the committee. The committee administers the Company’s stock incentive plans, including the review and grant of awards to officers and other employees under such plans, and recommends the adoption of new plans. The committee also reviews and approves various other compensation policies and matters and reviews and approves salaries, bonuses and other matters relating to our officers. The committee reviews all senior corporate employees after the end of each fiscal year to determine compensation for the subsequent year. Particular attention is paid to each employee’s contributions to our current and future success, as well as their salary level in comparison to the market value of personnel with similar skills and responsibilities. The committee also looks at accomplishments which are above and beyond management’s normal expectations for their positions. The Compensation Committee did not hold any meetings and took one action through unanimous written consent during fiscal 2014.

 

Our Compensation Committee assists our Board of Directors in the discharge of its responsibilities related to compensation of our executive officers. Specific responsibilities of our Compensation Committee include:

 

reviewing and recommending to our board approval of the compensation, benefits, corporate goals and objectives of our chief executive officer and our other executive officers;

 

evaluating the performance of our executive officers; and

 

administering our employee benefit plans and making recommendations to our Board of Directors regarding these matters.

 

 
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Our Compensation Committee has the authority to delegate any of its responsibilities to one or more subcommittees as the committee may from time to time deem appropriate and may ask members of management, employees, outside counsel, or others whose advice and counsel are relevant to the issues then being considered by the Compensation Committee to attend any meetings and to provide such pertinent information as the Compensation Committee may request. We expect that the Compensation Committee will continue to solicit input from our chief executive officer with respect to compensation decisions affecting other members of our senior management. Our Compensation Committee has not engaged compensation consultants to determine or recommend the amount or form of executive and director compensation.

 

Nominating Committee 

 

Our Nominating Committee considers and nominates candidates for election to our Board of Directors. The committee consists of Mr. Wooden, who serves as its chairman, and Mr. Edelstein.

 

Code of Conduct and Corporate Ethics General Policy Statement 

 

Our Board of Directors has approved and we have adopted a Code of Business Conduct and Ethics, or the Code of Conduct, which applies to all of our directors, officers and employees. Our Board of Directors has also approved and we have adopted a Code of Ethics for Senior Financial Officers, or the Code for SFO, which applies to our chief executive officer, president, chief legal and financial officer and other officers. The Code of Conduct and the Code for SFO are available upon written request to VeriTeQ Corporation, Attention: Secretary, 3333 South Congress Park Avenue, Suite 401, Delray Beach, Florida 33445. The Audit Committee is responsible for overseeing the Code of Conduct and the Code for SFO. Our audit committee must approve any waivers of the Code of Conduct for directors and executive officers and any waivers of the Code for SFO. 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires that our officers and directors and persons who own 10% or more of our common stock to file reports of ownership and changes in ownership with the SEC and furnish us with copies of all such reports. Based solely on a review of copies of such forms and written representations from our directors and executive officers, we believe that for the fiscal year 2014, all of our directors and executive officers were in compliance with the disclosure requirements of Section 16(a), except that Mr. Penni filed one late Form 4 in 2014.  

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth information regarding compensation earned in or with respect to our fiscal year 2013 and 2014 by:

 

  

our Principal Executive Officer;

  

our two most highly compensated Executive Officers (other than our Principal Executive Officer), who were serving as such on December 31, 2014 and whose compensation exceeded $100,000; and

 

up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an Executive Officer on December 31, 2014

  

We refer to these officers collectively as our “Named Executive Officers.”           

 

 
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Summary Compensation Table

 

Name and

Principal Position

Year

 

Salary

   

Bonus

   

Stock

Awards(5)

   

Option

Awards(6)

   

Non-Equity Incentive Plan Compensation

   

All Other Compensation

   

Total

 

Scott R. Silverman (1)

2014

  $ 346,500     $ 446,500     $     $     $     $ 76,057 (7)   $ 869,057  

Chief Executive Officer

2013

  $ 330,000     $ 430,000     $     $ 537,007     $     $ 54,731 (7)   $ 1,351,738  

Randolph K. Geissler(2)

2014

  $ 210,000     $ 285,000     $           $     $ 31,248 (8)   $ 526,248  

President

2013

  $ 200,000     $ 275,000     $ 1,350,000     $ 537,007     $     $     $ 2,362,007  

Michael E. Krawitz (3)

2014

  $ 192,500     $ 267,500     $     $     $     $ 28,803 (9)   $ 488,803  

Chief Legal and Financial Officer

2013

                                         

Lorraine M. Breece (4)

2014

  $ 11,667           $     $     $     $     $ 11,667  

Former Chief Financial Officer

2013

  $ 142,700     $ 50,000     $     $     $     $ 2,629 (10)   $ 195,329  

 

  

(1)

Mr. Silverman became our chief executive officer on July 8, 2013 in connection with the Exchange Agreement and the closing of the VeriTeQ Transaction. The VeriTeQ Transaction was treated as a reverse acquisition, therefore we have included Mr. Silverman’s compensation in the table above for the full year ended December 31, 2013. The portion of Mr. Silverman’s salary, bonus and option award earned by him from January 1, 2013 to July 7, 2013 was $171,875, $171,875 and $537,007, respectively. A portion of the 2013 Other Compensation was also earned by Mr. Silverman prior to the VeriTeQ Transaction as noted in footnote 8 below.   

 

  

(2)

Mr. Geissler became our president on July 8, 2013 in connection with the VeriTeQ Transaction, and we have included Mr. Geissler’s compensation in the table above for the full year ended December 31, 2013. The portion of Mr. Geissler’s salary, bonus and option award earned by him from January 1, 2013 to July 7, 2013 was $104,167, $104,167 and $537,007, respectively.  

 

  

(3)

Mr. Krawitz was appointed our chief legal and financial officer effective January 31, 2014.  

 

  

(4)

Ms. Breece served as our chief financial officer from August 1, 2011 to January 30, 2014.  Ms. Breece was also paid $117,502 in salary and consulting fees during 2014, subsequent to her resignation as chief financial officer

 

  

(5)

Mr. Geissler was granted 858,747 shares of restricted stock on January 1, 2013 under the terms of his employment agreement. The amount of compensation reflects the aggregate grant date fair value of the award computed in accordance with FASB ASC Topic 718. Also see the Outstanding Equity Awards Table as of December 31, 2014 presented elsewhere in this report.  

 

  

(6)

Messrs. Silverman and Geissler were each granted 381,655 stock options during 2013. The amount of compensation reflects the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions regarding the option awards, refer to Note 7 to our accompanying consolidated financial statements, which are included elsewhere in this report. Also see the Outstanding Equity Awards Table as of December 31, 2013 presented on page 35 of this report.   

 

  

(7)

Amount represents payments made for Mr. Silverman in 2014 and 2013 in connection with Mr. Silverman’s employment agreement, including: reimbursement of unallocable expenses, medical expense reimbursement, life and disability insurance, car allowance, and reimbursements for telephone and internet service.   

 

  

(8)

Amount represents reimbursements to Mr. Geissler in 2014 for health insurance in connection with Mr. Geissler’s employment agreement.   

 

  

(9)

Amount represents payments made for Mr. Krawitz in 2014 in connection with Mr. Krawitz’s employment agreement, including: reimbursements for health insurance and disability insurance, car allowance and clothing allowance.   

 

 

(10)

Amount represents $2,629 for Ms. Breece’s cellular telephone and internet services paid for during 2013.

 

 
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NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND ADDITIONAL NARRATIVE DISCLOSURE

 

Executive Employment Arrangements

 

We did not establish an incentive and recognition plan for our Named Executive Officers for 2014 and 2013.  We have entered into employment agreements with Messrs. Silverman, Geissler and Krawitz. Previously, Messrs. Silverman and Geissler had employment agreements with VAC.    

  

Scott R. Silverman Employment Agreements

 

Effective January 1, 2012, Mr. Silverman entered into an Employment and Non-Compete Agreement with VAC, (the “Silverman 2012 Employment Agreement”). Mr. Silverman’s 2012 Employment Agreement was terminated effective July 8, 2013 at which time Mr. Silverman entered into a new employment agreement, which was amended and restated on November 14, 2013 (the “Silverman Employment Agreement”), appointing Mr. Silverman as our chairman and chief executive officer, effective as of July 8, 2013 until December 31, 2016. Under the Silverman Employment Agreement, Mr. Silverman’s initial base salary was $330,000, which is reviewed annually and is subject to a minimum increase of 5% per calendar year during each year of the term. Accordingly, Mr. Silverman’s base salary was increased to $346,500 beginning January 1, 2014. During the term, Mr. Silverman is eligible to receive an annual bonus, based on performance metrics and goals as determined annually by the Board of Directors, with the amount of such bonus to be determined based upon the annual objectives determined by the Compensation Committee, but in no event to be less than 100% of earned base salary for the applicable year. The bonus shall be paid in cash or, if Mr. Silverman and the Company agree at the time, using shares of the Company’s common stock, at a valuation equal to fair market value.  On January 30, 2014, the Compensation Committee authorized a discretionary bonus in the amount of $100,000 to be paid to Mr. Silverman. This discretionary bonus was in addition to Mr. Silverman’s minimum bonus for 2013 under the terms of the Silverman Employment Agreement. Due to the Company’s financial condition, a substantial portion of the compensation that Mr. Silverman was entitled to receive under the terms of the Silverman 2012 Employment Agreement and the Silverman Employment Agreement had gone unpaid as of October 31, 2014. On October 31, 2014, Mr. Silverman entered into an agreement with the Company to exchange an aggregate of $1,400,000 owed to him by the Company, including all accrued but unpaid obligations related to the Silverman 2012 Employment Agreement, for 1,400 shares of the Company’s Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Included in this amount are, among other items: (i) Mr. Silverman’s 2012 salary in the amount of $300,000; (ii) Mr. Silverman’s annual bonus for 2012 in the amount of $300,000; (iii) Mr. Silverman’s 2013 annual and discretionary bonus aggregating to $430,000; and (iv) a pro rata portion of his 2014 annual bonus. The Series D Preferred Stock issued under this exchange will vest upon the earlier of January 1, 2017 or a change of control event. If Mr. Silverman separates from the Company prior to the vesting date of the Series D Preferred Stock because of a termination for cause or by resigning without good reason, as defined under the terms of the Silverman Employment Agreement, then he shall forfeit the shares of Series D Preferred Stock.

 

On February 20, 2015, the Compensation Committee authorized a discretionary bonus in the amount of $100,000 to be paid to Mr. Silverman. This discretionary bonus was in addition to Mr. Silverman’s minimum bonus for 2014 under the terms of his employment agreement. On March 3, 2015, Mr. Silverman executed a letter agreement with the Company whereby this $100,000 discretionary bonus, along with the portion of his 2014 annual bonus that was not converted into Series D Preferred Stock, amounting to $94,010, would be paid in the form of a convertible promissory note issued by the Company due March 1, 2016. The convertible promissory note bears interest at a rate of 5% per annum, and is convertible at any time after September 1, 2015 into unregistered shares of the Company’s common stock, at a conversion price that is equal to the average daily closing price of the Company’s common stock for the 10 trading days prior to conversion.

 

If Mr. Silverman’s employment is terminated prior to the expiration of the term, certain payments become due. In the event Mr. Silverman is terminated with cause or he terminates for any reason other than good reason, Mr. Silverman is entitled to receive (i) earned or accrued but unpaid, base salary, through the date of termination, (ii) any bonus earned or accrued and vested, but unpaid, (iii) the economic value of the employee’s accrued, but unused, vacation time, and (iv) any unreimbursed business expenses incurred by the employee (collectively, the “Accrued Obligations”). In the event Mr. Silverman is terminated without cause or he terminates for good reason, or upon his death, Mr. Silverman is entitled to receive the Accrued Obligations and a termination payment equal to his base salary from the date of termination through December 31, 2016, (or two years whichever is longer) plus bonus for such period, with such bonus being determined based upon the time remaining between the date of termination and December 31, 2016 (or two years, whichever is longer) and with the rate of bonus to be based upon the average annual bonus paid by the Company to Mr. Silverman over the last three (3) full calendar years (or if the Agreement is terminated before Mr. Silverman has been employed by the Company for three (3) full calendar years, for purposes of calculating the average Annual Bonus, the Company will use 100% of Mr. Silverman’s base salary as the annual bonus) plus certain benefits as set forth in the Silverman Employment Agreement.

  

In addition, the Silverman Employment Agreement contains a change of control provision that provides for the payment of 299% of Mr. Silverman’s base salary plus 299% of the average annual bonus paid over the last three full calendar years (or 60% of base salary if the Silverman Employment Agreement is terminated before Mr. Silverman has been employed for three full years). Any outstanding stock options and unvested restricted stock held by Mr. Silverman as of the date of termination (other than for cause or by Mr. Silverman without good reason) or a change of control shall become vested and exercisable as of such date, and remain exercisable during the life of the option. In the event Mr. Silverman is terminated for cause or terminates without good reason, any unvested options and restricted stock awards shall terminate and all vested options shall remain exercisable for a period of ninety (90) days. The Silverman Employment Agreement also contains non-compete and confidentiality provisions which are effective from the date of employment through eighteen months from the date the Silverman Employment Agreement is terminated.

 

 
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Randolph Geissler Employment Agreements

 

On January 2, 2013, VAC entered into an employment agreement with Mr. Geissler with an effective date of September 1, 2012 (the “Geissler 2012 Agreement”). The Geissler 2012 Agreement called for an annual base salary of $200,000 and discretionary annual and incentive bonuses. The Geissler 2012 Agreement was terminated effective July 8, 2013 at which time Mr. Geissler entered into a new employment agreement, which was amended and restated on November 14, 2013 (the Geissler Employment Agreement”), appointing Mr. Geissler as president of VC, effective as of July 8, 2013. The Geissler Employment Agreement is for a term of two (2) years and is renewable for additional one (1) year periods upon mutual agreement. Under the Geissler Employment Agreement, Mr. Geissler received an initial base salary of $200,000, which base salary will be reviewed annually and is subject to a minimum increase of 5% per annum each calendar year. Accordingly, Mr. Geissler’s salary was increased to $210,000 beginning January 1, 2014. Mr. Geissler is eligible to receive an annual bonus, based on performance metrics and goals as determined annually by the Board of Directors, with the amount of such bonus to be determined based upon the annual objectives determined by the Compensation Committee of the Board of Directors, but in no event to be less than 100% of earned base salary for the applicable year. The bonus shall be paid in cash or, if Mr. Geissler and the Company agree at the time, using shares of the Company’s common stock, at a valuation equal to fair market value. On January 30, 2014, the compensation committee of the board of directors authorized a discretionary bonus in the amount of $75,000 to be paid to Mr. Geissler. This discretionary bonus was in addition to Mr. Geissler’s minimum bonus for 2013 under the terms of the Geissler Employment Agreement. Due to the Company’s financial condition, a substantial portion of the compensation that Mr. Geissler was to receive under the terms of the Geissler 2012 Agreement and the Geissler Employment Agreement had gone unpaid as of October 31, 2014. On October 31, 2014, Mr. Geissler entered into an agreement with the Company to exchange an aggregate of $441,000 owed to him by the Company, including all accrued but unpaid obligations related to the Geissler 2012 Agreement, for 441 shares of Series D Preferred Stock. This amount is comprised of: (i) A portion of Mr. Geissler’s 2012 and 2013 salary in the amount of $166,000; and; (ii) Mr. Geissler’s 2013 annual and discretionary bonus aggregating to $275,000. The Series D Preferred Stock issued under this exchange will vest upon the earlier of January 1, 2017 or a change of control event. If Mr. Geissler separates from the Company prior to the vesting date of the Series D Preferred Stock because of a termination for cause or by resigning without good reason, as defined under the terms of the Geissler Employment Agreement, then he shall forfeit the shares of Series D Preferred Stock.

 

On February 20, 2015, the Compensation Committee authorized a discretionary bonus in the amount of $75,000 to be paid to Mr. Geissler. This discretionary bonus was in addition to Mr. Geissler’s minimum bonus for 2014 under the terms of his employment agreement. On March 3, 2015, Mr. Geissler executed a letter agreement with the Company whereby this $75,000 discretionary bonus, along with his 2014 annual bonus of $210,000, would be paid in the form of a convertible promissory note issued by the Company due March 1, 2016. The convertible promissory note bears interest at a rate of 5% per annum, and is convertible at any time after September 1, 2015 into unregistered shares of the Company’s common stock, at a conversion price that is equal to the average daily closing price of the Company’s common stock for the 10 trading days prior to conversion.

 

Mr. Geissler is also entitled to the following: (i) the Company shall, at its option, either lease for Mr. Geissler an automobile, or reimburse Mr. Geissler for the lease or financing payments incurred by Mr. Geissler’s on his automobile, the amount of such reimbursement to be reasonably comparable to 75% of the current cost on the automobile then being provided to the Company’s CEO. The Company shall reimburse car-related expenses; (ii) the Company shall, at its option, either provide to Mr. Geissler disability insurance that provides standard disability coverage and terms, in an amount of at least equal to $15,000 per month until age 65, or reimburse Mr. Geissler for the premium payments incurred by him for disability insurance coverage for himself, the amount of such reimbursement to be reasonably comparable to the current cost of his disability insurance; (iii) the Company shall provide comprehensive health insurance as it provides to other executives and employees; (iv) reimbursement for expenses related to business attire in an amount not to exceed $950 per month; and (v) if the Company elects to secure a key man life insurance policy on the life of Mr. Geissler, it will provide a split-dollar policy.   

 

If Mr. Geissler’s employment is terminated for cause or he terminates for any reason other than good reason, Mr. Geissler is entitled to receive the Accrued Obligations. In the event Mr. Geissler is terminated without cause or he terminates for good reason, or termination upon his death, Mr. Geissler is entitled to receive the Accrued Obligations and a termination payment equal to one times his base salary plus the previous year’s bonus, but no less than one times his base salary. In the event that Mr. Geissler is terminated as a result of a change in control, Mr. Geissler is entitled to receive the Accrued Obligations and a termination payment equal to two times his base salary, plus the previous year’s bonus, but no less than two times his base salary. Any termination payment shall be payable to Mr. Geissler in cash, or if Mr. Geissler agrees, in shares of the Company’s common stock valued at market value. Any outstanding stock options and unvested restricted stock held by Mr. Geissler as of the date of termination (other than for cause or by Mr. Geissler without good reason) or a change of control shall become vested and exercisable as of such date, and remain exercisable during the life of the option. In the event Mr. Geissler is terminated for cause or terminates without good reason, any unvested options and restricted stock awards shall terminate and all vested options shall remain exercisable for a period of 90 days. The Geissler Employment Agreement also contains non-compete and confidentiality provisions which are effective from the date of employment through one year from the date the Geissler Employment Agreement is terminated.

 

 
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Michael E. Krawitz Employment Agreement   

 

Effective January 31, 2014, we entered into an employment agreement with Michael Krawitz (the “Krawitz Employment Agreement”) to serve as our Chief Legal and Financial Officer. The Krawitz Employment Agreement is for an initial term of two (2) years and is renewable for additional one (1) year terms upon mutual agreement of the parties. Under the Krawitz Employment Agreement, Mr. Krawitz received an initial base salary of $210,000, which base salary will be reviewed annually by the compensation committee and is subject to a minimum increase of 5% per annum, with the first increase to be effective on January 1, 2015. Mr. Krawitz is also entitled to (i) disability insurance or reimbursement of disability insurance in an amount at least equal to $15,000 per month until age 65; (ii) health insurance; (iii) an automobile or reimbursement of lease or financing payments incurred, the amount of such reimbursement to be reasonably comparable to 75% of the current cost of the automobile being provided to our Chief Executive Officer; and (iv) life insurance. During the term of the Krawitz Employment Agreement, Mr. Krawitz is eligible to receive an annual bonus based on performance metrics and goals as determined annually by the Company’s Board of Directors, with the amount of such bonus to be determined based upon annual objectives determined by the Compensation Committee of the Board of Directors, but in no event will be less than 100% of Mr. Krawitz’s earned base salary for the applicable year.


On February 20, 2015, the Compensation Committee authorized a discretionary bonus in the amount of $75,000 to be paid to Mr. Krawitz. This discretionary bonus was in addition to Mr. Geissler’s minimum bonus for 2014 under the terms of his employment agreement. On March 3, 2015, Mr. Krawitz executed a letter agreement with the Company whereby this $75,000 discretionary bonus, along with his 2014 pro-rated bonus of $192,500, would be paid in the form of a convertible promissory note issued by the Company due March 1, 2016. The convertible promissory note bears interest at a rate of 5% per annum, and is convertible at any time after September 1, 2015 into unregistered shares of the Company’s common stock, at a conversion price that is equal to the average daily closing price of the Company’s common stock for the 10 trading days prior to conversion.

 

If Mr. Krawitz’s employment is terminated prior to the expiration of the term, certain payments become due. In the event Mr. Krawitz is terminated with cause or he terminates for any reason other than good reason, Mr. Krawitz is entitled to receive (i) earned or accrued but unpaid, base salary, through the date of termination, (ii) any bonus earned or accrued and vested, but unpaid, (iii) the economic value of the employee’s accrued, but unused, vacation time, and (iv) any unreimbursed business expenses incurred by the employee, collectively, the Krawitz Accrued Obligations. In the event Mr. Krawitz is terminated without cause or he terminates for good reason, Mr. Krawitz is entitled to receive the Krawitz Accrued Obligations and a termination payment equal to his base salary plus the previous year’s bonus (but no less than one times his base salary). In the event that Mr. Krawitz is terminated as a result of a change in control, Mr. Krawitz is entitled to receive any Krawitz Accrued Obligations and a termination payment equal to two times his base salary, plus the previous year’s bonus, but no less than two times his base salary. Any outstanding stock options and unvested restricted stock held by Mr. Krawitz as of the date of termination (other than for cause or by Mr. Krawitz without good reason) or a change of control shall become vested and exercisable as of such date, and remain exercisable during the life of the option. In the event Mr. Krawitz is terminated for cause or terminates without good reason, any unvested options and restricted stock awards shall terminate and all vested options shall remain exercisable for a period of 90 days. The Krawitz Employment Agreement also contains non-compete provisions which are effective from the date of employment through one year from the date the Krawitz Employment Agreement is terminated.

 

Executive Employment Arrangements with Former Named Executive Officers

 

On January 30, 2014, the compensation committee of the board of directors authorized a 2013 discretionary bonus in the amount of $50,000 to be paid to Ms. Breece. The discretionary bonus has been accrued but has not been paid due to the Company’s financial condition. It will be paid in cash after the Compensation Committee determines we have adequate working capital to make such payments, or, if we are permitted to do so without triggering a reset provision on any outstanding warrants and the applicable employee so elects, in shares of our common stock, in which case the amount of the bonus would be increased by 25%.   

 

 
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Outstanding Equity Awards as of December 31, 2014

 

The following table provides information as of December 31, 2014 regarding unexercised stock options and restricted stock awards granted to each of our Named Executive Officers by us. 

 

   

Option Awards

 

Stock Awards

 

Name

 

Number of Securities Underlying Unexercised Options Exercisable (1)

   

Number of Securities Underlying Unexercised Options Unexercisable

   

Equity Incentive Plan Awards: Number of Securities Underlying Unearned Options

   

Option

Exercise

Price

 

Option

Expiration

Date

 

Number of Shares or Units of Stock That Have Not Vested

   

Market Value of Shares of Units of Stock That Have Not Vested

   

Equity Incentive Plan Awards: Number of Unearned Units or Other Rights That Have Not Vested

   

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested

 
                                                                   

Scott R. Silverman

                                                                 
      1                     $ 871,200  

02/25/2015

                               
      2                     $ 559,200  

06/14/2016

                               
      190                     $ 52.40  

03/16/2020

                               
      190                     $ 52.40  

12/09/2021

                               
      381                     $ 1,572.06  

02/07/2018

                               

Randolph Geissler

                                                                 
      127                     $ 52.40  

03/16/2020

                               
      381                     $ 1,572.06  

02/07/2018

                               
                                        858 (2)    $ 1,716                  

Michael Krawitz

                                                                 
      38                     $ 52.40  

03/16/2020

                               
      38                     $ 52.40  

12/09/2021

                               

  

  

(1)

All share amounts give effect to the Reverse Stock Split that was implemented on February 11, 2015 

  

(2)

Restricted stock vests on January 1, 2015

 

 

2014 Option Exercises and Stock Vested 

 

None of our Named Executive Officers exercised options during the year ended December 31, 2014.  

 

Pension Benefits 

 

None of our Named Executive Officers are covered by a pension plan or other similar benefit plan that provides for payments or other benefits at, following, or in connection with retirement.

 

Nonqualified Deferred Compensation 

 

None of our Named Executive Officers are covered by a defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.  

 

 
33

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

  

2014 DIRECTOR COMPENSATION 

 

Name

 

Fees

Earned

or Paid in

Cash

   

Stock

Awards

   

Option

Awards

   

Non-Equity

Incentive Plan Compensation

   

Nonqualified

Deferred

Compensation

Earnings

   

All Other

Compensation

   

Total

 

Scott R. Silverman(1)

  $     $     $     $    

S

    $     $  

Barry Edelstein

    26,000                                     26,000  

Michael Krawitz(2)

    5,500                                     5,500  

Shawn Wooden

    25,500                                     25,500  

Daniel E. Penni

    20,000                                     20,000  

Ned L. Siegel

    10,769                                     10,769  

 

  

(1)

Mr. Silverman did not receive any compensation as a director. See section “Executive Compensation” for details regarding his compensation as an executive officer for 2014.

  

(2)

Mr. Krawitz was appointed our chief legal and financial officer effective January 31, 2014, and resigned from the Board of Directors on June 17, 2014. See section “Executive Compensation” for details regarding his compensation as an executive officer for 2014.

  

For the year ended December 31, 2014, fees earned by members of the Board of Directors are as follows: (i) $5,000 per quarter for board service; and (ii) an additional $1,500 per quarter for service as chairman of a board committee. Reasonable out of pocket travel expenses are reimbursed when incurred. Directors who are not also executive officers are not eligible to participate in any of our other benefit plans.   

 

None of our directors exercised options during the year ended December 31, 2014.    

 

STOCK OPTION AND OTHER COMPENSATION PLANS 

 

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. The options granted under these plans have contractual terms ranging from three to ten years. At December 31, 2014, 31 options are outstanding under these plans, with 72,447 shares available for future issuance.

 

On July 12, 2013, pursuant to the Exchange Agreement, a majority of the Company’s voting stockholders adopted resolutions by written consent approving the DAC 2013 Stock Incentive Plan (the “2013 Plan”), under which employees, including officers and directors, and consultants may receive awards. Awards under the 2013 Plan include incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock performance units, performance shares, cash awards and other stock based awards. The purposes of the 2013 Plan are to attract and retain highly qualified personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants, to promote the success of the Company’s business and to link participants’ interests directly with those of stockholders through increased stock ownership. The 2013 Plan became effective on October 18, 2013. On October 18, 2013, the outstanding stock options under the three VAC stock incentive plans were converted into options to acquire VC’s common stock under the 2013 Plan and VAC’s three former stock incentive plans were terminated.

 

The aggregate number of shares of the Company’s common stock that may be subject to awards under the 2013 Plan, subject to adjustment upon a change in capitalization, is 5,000,000 shares. Such shares of common stock may be authorized but unissued, or reacquired shares of common stock. Shares of common stock that were subject to plan awards that expire or become unexercisable without having been exercised in full shall become available for future awards under the 2013 Plan. At December 31, 2014, approximately 2,172 options are outstanding, and approximately 4,997,447 options remain available for issuance under the 2013 Plan.

 

On June 18, 2014, the Company’s stockholders adopted the VeriTeQ Corporation 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan has terms and provisions that are substantially similar to the 2013 Plan, and provided for 50,000,000 shares of common stock to be reserved for awards under the 2014 Plan. On December 18, 2014, the Company’s shareholders approved an increase in the number of authorized shares of common stock issuable under the 2014 Plan to 500,000,000 shares. No grants have been awarded under the 2014 Plan. On February 24, 2015, in accordance with the terms of the 2014 Plan, our 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.

 

 
34

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information known to us regarding beneficial ownership of shares of our common stock as of March 31, 2015 by:

 

(i)

each person known to us to beneficially own more than 5% of our common stock,

 

(ii)

each of the named executive officers (as disclosed in the summary compensation table),

 

(iii)

each of our directors, and

 

(iv)

all of the current executive officers and directors as a group.

 

Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting and investment power with respect to the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 31, 2015 are deemed outstanding. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of any other person. To our knowledge, except as indicated in the footnotes to this table and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of our common stock shown opposite such person’s name. The Company has two classes of voting stock that vote together on all matters requiring a shareholder vote: (i) Series D Convertible Preferred Stock held by Scott Silverman and Randolph Geissler (see “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE”), which is voted on an as converted basis, and (ii) Common Stock. At March 31, 2015, the outstanding Series D Preferred Stock was convertible into 582,594,937 shares of common stock, and there were 30,802,114 shares of our common stock outstanding as of March 31, 2015. Unless otherwise noted below, the address of the persons and entities listed in the table is c/o VeriTeQ Corporation, 3333 South Congress Ave., Suite 401, Delray Beach, Florida 33445.    

 

 
35

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Name and Address of Beneficial Owner   Seried D Preferred Stock     Common Stock     % of Voting Stock  
   

Shares

Beneficially 

Owned

    % of Class    

Shares

Beneficially

 Owned

    % of Class        

Scott R. Silverman (1)

    443,037,975       76.0 %     6,441       *       72.2 %

Randolph K. Geissler (2)

    139,556,962       24.0 %     1,597        *       22.8 %

Barry M. Edelstein (3)

                    167        *        *  

Michael E. Krawitz (4)

                    234        *        *  

Daniel E. Penni (5)

                    37        *        *  

Shawn A. Wooden

                    -        *        *  

Executive Officers and Directors as a group (6 persons)

    582,594,937       100.0 %     8,476        *       95.0 %

Corbin Properties LLC (6)

                    66,640,538       68.40 %     9.8 %

Iliad Research and Trading, L.P. (7,11)

                    3,419,000       9.99 %     0.6 %

HS Contrarian Investments, LLC (7,12)

                    3,419,000       9.99 %     0.6 %

KBM Worldwide, Inc. (7,13)

                    3,419,000       9.99 %     0.6 %

Magna Equities II, LLC (8)

                    3,199,745       9.99 %     0.5 %

PositiveID Corporation (9)

                    3,232,287       9.99 %     0.5 %

Union Capital, LLC (10)

                    3,338,324       9.99 %     0.5 %

 

 

* Represents less than 1%

 

 

(1)

Includes 443,037,975 shares issuable upon the conversion of 1,441 shares of Series D Preferred Stock, which are entitled to vote, along with common stockholders, on all matters requiring a stockholder vote.

 

(2)

Includes 139,556,962 shares issuable upon the conversion of 400 shares of Series D Preferred Stock, which are entitled to vote, along with common stockholders, on all matters requiring a stockholder vote.

 

(3)

Includes warrants to purchase 28 shares of common stock and options to purchase 39 shares of common stock.

 

(4)

Includes options to purchase 76 shares of common stock.

 

(5)

Includes options to purchase 3 shares of common stock.

 

(6)

Pertains to shares issuable upon conversion of a promissory note. The address of Corbin Properties LLC is 70 E. 10th Street, Suite 12T New York, NY 10003

 

(7)

Pertains to shares issuable upon conversion of a promissory note or notes, with such notes containing “blocker” provisions limiting conversion to a number shares that would be equal to 9.99% of the Company’s outstanding common stock after giving effect to such conversion.

 

(8)

Includes 1,223,000 shares issuable upon conversion of promissory notes, with such notes (including notes held by the holder’s affiliate, Magna Equities I, LLC) containing “blocker” provisions limiting conversion to a number shares that would be equal to 9.99% of the Company’s outstanding common stock after giving effect to such conversion. The address of Magna Equities II, LLC is 5 Hanover Square New York, NY 10004.

 

(9)

Includes 1,552,500 shares issuable upon conversion of promissory notes, with such notes containing “blocker” provisions limiting conversion to a number shares that would be equal to 9.99% of the Company’s outstanding common stock after giving effect to such conversion. The address of PositiveID Corporation is 1690 S. Congress Avenue, Suite 201, Delray Beach, FL 33445.

 

(10)

Includes 2,610,000 shares issuable upon conversion of promissory notes, with such notes containing “blocker” provisions limiting conversion to a number shares that would be equal to 9.99% of the Company’s outstanding common stock after giving effect to such conversion. The address of Union Capital, LLC is 338 Crown Street Brooklyn, NY 11225.

 

(11)

The address of Iliad Research and Trading is 303 E. Wacker Drive, Suite 1200, Chicago, IL 60601.

 

(12)

The address of HS Contrarian is 347 N. New River Dr. East #804 Fort Lauderdale, FL 33301.

 

(13)

The address of KBM Worldwide is 80 Cuttermill Road, Suite 410, Great Neck, NY 11021.

 

 
36

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Securities Authorized for Issuance Under Equity Compensation Plans 

 

A description of our equity compensation plans and shares of our common stock that were authorized for issuance under such is presented in Item 11, Executive Compensation”, appearing elsewhere in this Annual Report on Form 10-K.

 

The following table presents information regarding options and rights outstanding under our compensation plans as of December 31, 2014:

 

   

Equity Compensation Plan Information

 

Plan Category

 

(a)
Number of

securities to be

issued upon

exercise of

outstanding

options,

warrants and

rights

   

(b)
Weighted-

average exercise

price per share

of outstanding

options,

warrants and

rights

   

(c)
Number of

securities

remaining

available for

future issuance

under equity

compensation

plans (excluding

securities

reflected in

column (a))

 

Equity compensation plans approved by security holders

    2,200     $ 4,974.74       505,069,924  

Equity compensation plans not approved by security holders

    3       162,000.00       --  

Total

    2,203       5,188.03       505,069,924  

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Since January 1, 2013, there has not been, and there is not currently proposed any transaction or series of similar transactions in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which any related person, including any director, executive officer, holder of more than 5% of our capital stock during such period, or entities affiliated with them, had a material interest, other than those described in Item 11, Executive Compensationand the transactions set forth below.

 

Related Party Transactions

 

Shared Services Agreement with PSID

 

The Company entered into a shared services agreement (the “SSA”) with PSID on January 11, 2012, pursuant to which PSID agreed to provide certain services, including administrative, rent, accounting, business development and marketing, to the Company in exchange for $30,000 per month. The SSA has also included working capital advances from time to time. The term of the SSA commenced on January 23, 2012. The SSA was amended from time to time during the year ended 2012 to, among other things, reduce the monthly charge for services to $5,000. On April 22, 2013, the Company and PSID entered into a non-binding letter agreement in which PSID agreed to provide up to an additional $60,000 of support during April and May 2013.

 

On July 8, 2013, the Company entered into a letter Agreement with PSID (the “July Letter Agreement”) to amend certain terms of several agreements between PSID and the Company. The July Letter Agreement amended certain terms of the SSA, as amended, the asset purchase agreement entered into on August 28, 2012, as amended (the “APA”), and the note payable to PSID.

 

On November 8, 2013, the Company entered into a Letter Agreement (the “November Letter Agreement”) with PSID which further amended the terms of the several agreements between PSID and the Company.

 

The July Letter Agreement, as modified by the November Letter Agreement, provides for:

 

(i)

The elimination of minimum royalties payable to PSID under the APA in their entirety. In the event that royalty payments under the APA based on the Company’s attainment of certain sales levels are not at least $800,000 for the calendar year 2014, then the Company will grant PSID Corporation a non-exclusive, perpetual, non-transferrable, world-wide, fully paid license to said patents.

 

 
37 

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

  

(ii)

VC’s granting to PSID a warrant to purchase 300,000 shares of common stock with an initial exercise price of $2.84. The warrant is exercisable for a period of five years, and the terms and form of the warrant are the same as the warrants issued in the Company’s November 2013 financing transaction (see notes 6 and 9 to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K).

 

As of December 31, 2013, the Company owed PSID $0.2 million under the SSA. On October 20, 2014, the Company entered into a GlucoChip and Settlement Agreement (the “PSID Settlement Agreement”) with PSID to transfer the final element of PSID implantable microchip business to the Company, to provide for a period of financial support to the Company, and to provide for settlement of the $0.2 million owed by the Company to PSID under the SSA. The PSID Settlement Agreement provides for the termination of the License Agreement entered into between the PSID and the Company on August 28, 2012, whereby, PSID had retained an exclusive license to the GlucoChip technology. Pursuant to the PSID Settlement Agreement, PSID retains its right to any future royalties from the sale of GlucoChip or any other implantable bio sensor applications. The PSID Settlement Agreement also provided for the settlement of the amount outstanding under the SSA by the Company issuing a convertible promissory note to PSID with terms similar to those of other convertible promissory notes issued by the Company during the year ended December 31, 2014.

 

Pursuant to the PSID Settlement Agreement, PSID also agreed to provide financial support to the Company, for a period of up to two years, in the form of convertible promissory notes. On October 20, 2014, PSID funded the Company $60,000 and the Company issued to PSID a convertible promissory note, with similar terms to other convertible promissory notes issued by the Company during 2014. Pursuant to the PSID Settlement Agreement, PSID agreed to provide the Company with continuing financial support through issuance of additional convertible promissory notes with similar terms and conditions as those notes issued in October 2014. The additional promissory notes are at the option of the Company, which option it can exercise every 100 days and, unless the parties agree otherwise, on January 30, 2015 the Company issued a $40,000 convertible promissory note to PSID.

 

Investment from VeriTeQ Corporation’s Director

 

In June of 2013, VC’s then interim chief executive officer and president and then chairman of VC’s board, Daniel E. Penni, agreed to make a $25,000 equity investment in VAC. As a result of such investment, Mr. Penni owned shares of VAC’s common stock, which have been exchanged for 19 shares of VC’s common stock. Mr. Penni continues to serve as a member of VC’s board.

 

Notes Payable

 

During 2013, 2014 and through March 31, 2015, VC and VAC issued notes payable to certain directors and officers as follows:  

 

On April 10, 2013, VAC entered into a promissory note with its president, Randolph Geissler and his business partner in the amount of $50,000. The note bore interest at 10% per annum was due on demand and was repaid on November 15, 2013. In connection with the note, Mr. Geissler and his partner received warrants to acquire shares of VAC’s common stock. The warrants were converted into warrants to acquire 95,416 shares of VC’s common stock at an exercise price of $1.31 per share.

 

On October 11, 2013, VAC entered into a promissory note with its CEO, Scott Silverman, in the principal amount of $80,000. The note bears interest at 5% per annum and is due on demand. On November 15, 2013, we made a partial repayment of $50,000 and the remainder was repaid during the year ended December 31, 2014.  

 

On October 29, 2013, VC entered into a promissory note with its CEO, Scott Silverman, in the principal amount of $30,000. The note bears interest at 5% per annum and was due on demand. This note was repaid during the year ended December 31, 2014.

 

On January 8, 2014, VC entered into a promissory note with its director, Michael Krawitz, in the principal amount of $60,000. The note bears interest at 5% per annum and is due on demand.

 

On January 15, 2014, VC entered into a promissory note with its president, Randolph Geissler, in the principal amount of $40,000. The note bears interest at 5% per annum and is due on demand. The Company made a payment of $6,000 on this note during the year ended December 31, 2014, and the remaining balance on this note is $34,000.

 

 
38

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

On January 15, 2014, VC entered into a promissory note with its CEO, Scott Silverman, in the principal amount of $60,000. The note bears interest at 5% per annum and was due on demand. The note was repaid during the year ended December 31, 2014.

 

On March 4, 2014, VC entered into a promissory note with its director, Daniel Penni, in the principal amount of $25,000. The note bears interest at 5% per annum and is due on demand.

 

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 are 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 $350 per share. In connection with the issuance of the May 1, 2014 note, Mr. Siegel also received a warrant to purchase 100 shares of the Company’s common stock at an exercise price of $350 per share, subject to adjustment for stock splits, stock dividends or stock combinations. 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 January 22, 2015 the Company entered into a promissory note with its CEO, Scott Silverman, in the principal amount of $45,000. The note bears interest at 5% per annum and is due on demand.  

 

Officer Liabilities

 

On October 31, 2014, the Company entered into agreements with Mr. Silverman and Mr. Geissler 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 Series D Convertible Preferred Stock (the “Series D Preferred Stock”). The Series D Preferred Stock issued under this agreement will vest on January 1, 2017. If Mr. Silverman or Mr. Geissler separate from the Company because of a termination for cause or by resigning without good reason, as defined under the terms of their respective employment agreements, then they shall forfeit the shares of Series D Preferred Stock acquired under this agreement. The Series D Preferred Stock will automatically vest upon a change of control event.

 

Absent a change of control or certain other transformational events, the Series D Preferred Stock will become convertible 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 the average closing price of the common stock for the five trading days prior to the date of conversion or $3.10, which was the closing price of the Company’s common stock on October 31, 2014. 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 if it could be converted on the date of issuance. Based on the closing price of the Company’s common stock at December 31, 2014, the Series D Preferred Stock being issued under this agreement is convertible into an aggregate of 929,798 shares of common stock, subject to adjustment for stock splits or stock combinations.

 

On March 3, 2015, the Company entered into separate agreements with Mr. Silverman, Mr. Geissler and Michael E. Krawitz, the Company’s Chief Legal and Financial Officer, (collectively, the “Named Executive Officers”) whereby each Named Executive Officer agreed that certain amounts of accrued but unpaid compensation that each individual was entitled to receive 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 and Krawitz in the principal amount of $194,010, $285,000 and $267,500, respectively. In addition, Mr. Geissler and Mr. Krawitz agreed to have their 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. The Company has the option to prepay the Officer Notes, in whole or in part, and without premium or penalty, at any time upon 5 business days’ written notice to the holder. At any time after September 1, 2015, the holder of an Officer Note can convert all or part of the note into shares of the Company’s common stock at a conversion price equal to the average daily closing price of the Company’s common stock for the 10 days prior to conversion.

 

Review, Approval or Ratification of Transactions with Related Parties 

 

Our audit committee’s charter requires review of any proposed related party transaction, conflicts of interest and any other transaction for which independent review is necessary or desirable to achieve the highest standards of corporate governance. It is also our unwritten policy, which policy is not otherwise evidenced, for any related party transaction that involves more than a de minimis obligation, expense or payment, to obtain approval by our board of directors prior to our entering into any such transaction. In conformity with our various policies on related party transactions, the above transactions discussed in this “Certain Relationships and Related Transactions” section had been reviewed and approved by our board of directors.

 

 
39

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

Director Independence

 

Currently, two members on our Board of Directors, Messrs. Edelstein and Wooden, are considered “independent” within the meaning of the listing standards of The Nasdaq Stock Market. Our other directors, Mr. Silverman, and Mr. Penni, held or hold officer positions with us and accordingly they are not considered independent, even though Mr. Penni is not currently an employee or currently has any other relationship with us that would otherwise disqualify him as independent.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit and Non-Audit Fees 

 

For the fiscal years ended December 31, 2014 and 2013, fees for services provided by our principal accountant, EisnerAmper LLP, were as follows:

 

   

2014

   

2013

 

Audit Fees

  $ 156,209     $ 220,450  
                 

Audit-Related Fees (review of registration statements and other SEC filings)

            -  
                 

Assistance with research related to a proposed transaction

    -       -  
                 

Tax Fees

    -       -  
                 

All Other Fees

    -       -  
                 

Total Fees

  $ 156,209     $ 220,450  

 

None of the services described above were approved pursuant to the exception provided in Rule 2-01(c)(7)(i)(C) of Regulation S-X promulgated by the SEC.

 

Compatibility of Fees 

 

The Audit Committee of the Board of Directors has considered whether the provision of the services listed above is compatible with maintaining the independent registered public accounting firm’s independence and has concluded that the services did not interfere with the independent registered public accounting firm’s independence.

 

Pre-Approval Policies and Procedures 

 

The audit committee has a policy for the pre-approval of audit services, requiring its prior approval for all audit and non-audit services provided by our independent registered public accounting firm. Our independent registered public accounting firm may not provide certain prohibited services. The audit committee’s prior approval must be obtained before the scope or cost of pre-approved services is increased.

 

Consistent with these policies and procedures, the audit committee approved all of the services rendered by EisnerAmper LLP during fiscal years 2014 and 2013, as described above.

 

 
40

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS

 

(a)(1) 

 

The financial statements listed below are included in this report

 

 

 

  

 

Report of Independent Registered Public Accounting Firm

 

 

 

  

 

Consolidated Balance Sheets

 

 

 

  

 

Consolidated Statements of Operations

 

 

 

  

 

Consolidated Statements of Stockholders’ Equity

 

 

 

  

 

Consolidated Statements of Cash Flows

 

 

 

  

 

Notes to Consolidated Financial Statements

 

 

 

(a)(3) 

 

Exhibits

 

 

 

  

 

See the Exhibit Index filed as part of this 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.

 

 

VERITEQ CORPORATION

 

 

 

 

 

By: 

/s/ Scott R. Silverman

 

Date: April 14, 2015

 

Scott R. Silverman

 

 

 

Chief Executive Officer

 

 

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

 

Title

 

Date

  

 

  

 

 

/s/ Scott R. Silverman

 

Chief Executive Officer and Chairman of the Board 

 

April 14, 2015

Scott R. Silverman

 

  

 

 

  

 

 

 

 

/s/ Michael E. Krawitz

 

Chief Legal and Financial Officer

 

April 14, 2015

Michael E. Krawitz

 

(Principal Financial Officer) 

 

  

  

 

  

 

 

/s/ Marc S. Gelberg

 

Chief Accounting Officer and Vice President of

 

April 14, 2015

Marc S. Gelberg

 

of Financial Reporting

   
         

/s/ Barry M. Edelstein

 

Director

 

April 14, 2015

Barry M. Edelstein

 

  

 

 

 

/s/ Daniel E. Penni

 

Director

 

April 14, 2015  

Daniel E. Penni

 

  

 

 

 

 

  

 

 

/s/ Shawn A. Wooden

 

 Director

 

April 14, 2015     

Shawn A. Wooden

 

 

 

 

 

 
41

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

EXHIBIT INDEX

 

2.1

 

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)

  

  

 

3.1

 

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)

  

  

 

3.2 

 

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)

  

  

 

3.3

 

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)

  

  

 

3.4

 

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)

  

  

 

3.5

 

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)

  

  

 

3.6

 

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)

  

  

 

3.7

 

Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (5)

     

4.1

 

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)

  

  

 

10.1 

 

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)

 

 

 

10.2

 

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)

  

  

 

10.3 

 

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)

  

  

 

10.4

 

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)

  

  

  

10.5

 

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)

  

  

  

10.6

 

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.)

  

  

  

10.7

 

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)

     

10.8

 

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)

 

 
42

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

10.9

 

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)

  

 

  

10.10

 

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)

     

10.11

 

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)

  

 

  

10.12

 

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)

  

 

  

10.13

 

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)

  

 

  

10.14

 

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)

  

 

  

10.15

 

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)

  

 

  

10.16

 

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)

  

 

  

10.17

 

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)

  

 

  

10.18

 

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)

  

 

  

10.19

 

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)

  

 

  

10.20

 

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)

  

 

  

10.21

 

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)

  

 

  

10.22

 

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)

  

 

  

10.23

 

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)

 

 
43

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

10.24

 

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)

  

 

  

10.25

 

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)

 

 

 

10.26

 

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)

     

10.27

 

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)

     

10.28

 

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)

 

 

 

10.29

 

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)

  

 

  

10.30

 

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)

  

 

  

10.31

 

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)

  

 

  

10.32

 

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)

  

 

  

10.33

 

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)

  

 

  

10.34

 

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)

  

 

  

10.35

 

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)

  

 

  

10.36

 

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)

  

 

  

10.37

 

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)

  

 

  

10.38

 

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)

 

 
44

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

10.39

 

Sublicense Agreement, effective November 26, 2012 by and between VeriTeQ Acquisition Corporation and SNC Holdings Corp. (1)

  

 

  

10.40

 

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)

  

 

  

10.41

 

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)

  

 

  

10.42

 

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)

  

 

  

10.43

 

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)

     

10.44

 

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)

  

 

  

10.45

 

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)

     

10.46

 

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)

  

 

  

10.47

 

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)

  

 

  

10.48

 

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)

  

 

  

10.49

 

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)

  

 

  

10.50

 

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) 

  

 

  

10.51

 

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)

  

 

  

10.52

 

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)

  

 

  

10.53

 

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)

  

 

  

10.54

 

Stock Purchase Agreement, dated November 21, 2013, by and among the Registrant and Hudson Bay Master Fund Ltd. (1)

 

 

 

10.55 

 

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)    

 

 
45

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

10.56 

 

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)   

 

 

 

10.57 

 

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)

 

 

 

10.58 

 

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)

     

10.59 

 

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)

 

 

 

10.60 

 

Development and Supply Agreement, dated September 21, 2012 by and between VeriTeQ Acquisition Corporation and Establishment Labs, S.A. (1)

 

 

  

10.61 

 

Letter Agreement between the Registrant and the Buyers of Digital Angel Radio Communications Limited effective January 30, 2014 (1)

 

 

 

10.62

 

Promissory Note, dated March 4, 2014, between the Registrant as Borrower and Daniel Penni as Lender (1)

 

 

  

10.63 

 

Springing Promissory Note, dated March 6, 2014, between the Registrant as Borrower and James Rybicki Trust as Lender (1)

 

 

 

10.64 

 

Springing Promissory Note, dated March 5, 2014, between the Registrant as Borrower and Deephaven Enterprises, Inc. as Lender (1)

 

 

 

10.65 

 

Springing Promissory Note, dated March 10, 2014 between the Registrant as Borrower and William Caragol as Lender (1)

 

 

 

10.66 

 

Springing Promissory Note, dated March 20, 2014 between the Registrant as Borrower and Deephaven Enterprises, Inc. as Lender (1)

     

 10.67

 

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) 

     

10.68

 

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) 

     

10.69

 

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) 

     

10.70

 

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)

     

10.71

 

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)

     

10.72

 

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)

     

10.73

 

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)

     

10.74

 

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)

 

 
46

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

10.75

 

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)

     

10.76

 

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)

     

10.77

 

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)

     

10.78

 

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)

     

10.79

 

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)

     

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)

 

 
47

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

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 10th, 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 10th, 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)

     

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)

 

 
48

 

 

VERITEQ CORPORATION

2014 ANNUAL REPORT ON FORM 10-K

 

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*

     

10.127

 

Securities Settlement Agreement between the Registrant and RDW Capital, LLC*

     

21.1* 

 

List of Subsidiaries

 

 

 

23.1*

 

Consent of EisnerAmper LLP

     

31.1*

 

Certification by Scott R. Silverman, Chief Executive Officer, pursuant to Exchange Act Rules 13A-14(a) and 15d-14(a)

     

31.2*

 

Certification by Michael E. Krawitz, Chief Financial Officer, pursuant to Exchange Act Rules 13A-14(a) and 15d-14(a)

 

 

 

32.1*

 

Certification by Scott R. Silverman Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

 

  

32.2*

 

Certification by Michael E. Krawitz 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 and incorporated herein by reference.

(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.

 

 
49

 

  

VERITEQ CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2014 and 2013

 

 

CONTENTS 

 

 

 

Page

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets as of December 31, 2014 and 2013

F-3

 

 

Consolidated Statements of Operations for the years ended December 31, 2014 and 2013

F-4

 

 

Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2014 and 2013

F-5

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013

F-6

 

 

Notes to Consolidated Financial Statements

F-7

 

 
F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

VeriTeQ Corporation

 

 

We have audited the accompanying consolidated balance sheets of VeriTeQ Corporation and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the years in the two-year period ended December 31, 2014. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

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

 

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 incurred recurring net losses, and at December 31, 2014 had negative working capital and a stockholders’ deficit. These events and conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments to reflect the outcome of this uncertainty.

 

/s/ EisnerAmper LLP

 

New York, New York

 

April 13, 2015

 

 
F-2

 

 

VERITEQ CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2014 and 2013

 

CONSOLIDATED BALANCE SHEETS 

(in thousands, except per share data)

 

   

December 31,

   

December 31,

 
   

2014

   

2013

 

ASSETS

               

Current assets:

               

Cash

  $ 77     $ 13  

Restricted cash

    12       882  

Accounts receivable

    11       -  

Inventory

    2       21  

Other receivable

    -       171  

Other current assets

    84       96  

Total current assets

    186       1,183  
                 

Property and equipment, net

    35       4  

Other assets

    54       14  

Intangible assets, net

    1,470       7,018  

Total assets

  $ 1,745     $ 8,219