Note 7 - Stockholders' Deficit | 12 Months Ended |
Dec. 31, 2013 |
Stockholders' Equity Note [Abstract] | ' |
Stockholders' Equity Note Disclosure [Text Block] | ' |
7. Stockholders’ Deficit |
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Preferred Stock |
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On June 24, 2013, VAC and its stockholders entered in the Exchange Agreement with VC and on July 8, 2013, the transaction closed. Pursuant to the terms of the Exchange Agreement, VAC exchanged all of its issued and outstanding shares of common stock for 4,107,592 shares of VC’s Series B Preferred Stock. On July 10, 2013, VC realized that it incorrectly issued the Series B Preferred Stock and as result, on July 12, 2013, it exchanged the Series B Preferred Stock for 410,759 shares of its newly created Series C Preferred Stock. The terms of the Series C Preferred Stock are substantially similar to the Series B Preferred Stock, including the aggregate number of shares of common stock into which the Series C Preferred Stock was convertible. Each share of Series C Preferred Stock was converted into twenty shares of VC’s common stock, par value $0.01 per share (the “Conversion Shares”), automatically upon the effectiveness of the Reverse Stock Split on October 18, 2013. |
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The Series C Preferred Stock consists of 500,000 authorized shares. The shares of Series C Preferred Stock issued to VAC’s shareholders in connection with the Share Exchange, by their principal terms: |
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(a) | converted into a total of 8,215,184 Conversion Shares, constituting approximately 88% of the issued and outstanding shares of common stock of VC, following the “Reverse Stock Split” on October 18, 2013 (as more fully discussed below); | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | have the same voting rights as holders of VC’s common stock on an as-converted basis for any matters that are subject to stockholder vote; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(c) | are not entitled to any dividends; and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(d) | are to be treated pari passu with the common stock on liquidation, dissolution or winding up of VC. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Common Stock |
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In July 2013, we issued 41,667 shares of our common stock to an investment advisory firm for services rendered for an aggregate value of $62,500. The shares were valued at the fair market value of the stock on the date of issuance which was $1.50 per share. |
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On October 18, 2013, VC filed a Certificate of Amendment to its Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware effecting a one-for-thirty reverse stock split of its common stock (the “Reverse Stock Split”) and a name change to VeriTeQ Corporation. The reverse stock split became effective on October 18, 2013, and every thirty (30) shares of VC's issued and outstanding common stock were automatically converted into one (1) issued and outstanding share of VC's common stock, without any change in the par value per share. The Certificate of Amendment provides that no fractional shares will be issued. Stockholders of record who otherwise would be entitled to receive fractional shares will receive, in lieu thereof, a cash payment based on the volume weighted average price of the Company's common stock as reported on October 21, 2013 on the OTC Markets. All shares and options amounts have been adjusted accordingly for all periods presented in the Annual Report. |
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Pursuant to the terms of a July 8, 2013 letter agreement between PSID and the Company, we agreed to issue shares of our common stock as repayment of the PSID Note. Accordingly, in October 2013, we issued approximately 16,666 shares of common stock in connection with a partial repayment of the PSID Note, and we agreed to issue an additional 135,793 shares of our common stock in full repayment of the PSID Note. These share issued by us to PSID in October 2013 were issued in private placement in reliance upon the exemption from the registration requirements set forth in the Act provided for in Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated by the SEC thereunder. In connection with the November 13, 2013 financing described in Note 5, PSID assigned the PSID Note to certain investors. |
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In October and November 2013, we issued 163,333 shares of common stock to three investor relation firms for services rendered for an aggregate value of approximately $0.4 million. The shares were valued at the fair market value of the stock on the dates of issuance which were $2.70, $2.10 and $2.00. |
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At December 31, 2013, VC had authorized 50.0 million shares of common stock of which approximately 9.5 million were issued and outstanding. Of the 9.5 million issued and outstanding shares of common stock at December 31, 2013, 5.7 million were beneficially owned by our Chief Executive Officer. |
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Warrants |
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We have issued warrants exercisable for shares of common stock for consideration, as follows (in thousands, except exercise price): |
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Series/ Issue Date | | Warrants | | | Warrants | | | Exercised/ | | | Balance | | | Exercise | | | | Exercisable | | | | | | | | |
Authorized | Issued | Forfeited | December | Price | Period | | | | | | | |
| | | 31, | | (years) | | | | | | | |
| | | 2013 | | | | | | | | | |
Series A /June 2012 | | | 95 | | | | 95 | | | | — | | | | 95 | | | $ | 0.37 | | | | 3 | | | | | | | | |
Series B / September 2012 | | | 40 | | | | 40 | | | | — | | | | 40 | | | $ | 1.57 | | | | 3 | | | | | | | | |
Series C / October 2012 | | | 40 | | | | 40 | | | | — | | | | 40 | | | $ | 1.57 | | | | 3 | | | | | | | | |
Series D / December 2012 | | | 14 | | | | 14 | | | | — | | | | 14 | | | $ | 1.57 | | | | 5 | | | | | | | | |
Series E /December 2012 | | | 29 | | | | 29 | | | | — | | | | 29 | | | $ | 1.57 | | | | 5 | | | | | | | | |
Series F / March 2013 | | | 40 | | | | 40 | | | | — | | | | 40 | | | $ | 1.57 | | | | 3 | | | | | | | | |
Series G / April 2013 | | | 95 | | | | 95 | | | | — | | | | 95 | | | $ | 1.31 | | | | 3 | | | | | | | | |
Series H / June 2013 | | | 83 | | | | 83 | | | | — | | | | 83 | | | $ | 1.57 | | | | 3 | | | | | | | | |
Series VT a/ November 2013 | | | 2,644 | | | | 2,644 | | | | — | | | | 2,644 | | | $ | 2.84 | | | | 5 | | | | | | | | |
Series VT b/ November 2013 | | | 300 | | | | 300 | | | | — | | | | 300 | | | $ | 2.84 | | | | 5 | | | | | | | | |
| | | 3,380 | | | | 3,380 | | | | — | | | | 3,380 | | | | | | | | | | | | | | | | |
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The Series A warrants were issued in connection with a stock subscription agreement to an investor. The Series A warrants are exercisable at any time during the exercisable periods. The Series A warrant agreement provides for the number of shares to be adjusted in the event of a stock split, a reverse stock split, a share exchange or other conversion or exchange event in which case the number of warrants and the exercise price of the warrants shall be adjusted on a proportional basis. |
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The Series B, C, D, E, F, G and H warrants were issued in connection with promissory notes. The promissory note issued in April 2013 in connection with the series G warrants was repaid during 2013. The promissory notes issued in connection with the series B,C,D, E, F and H warrants are more fully described in Note 5. These warrants are exercisable at any time during the exercisable periods. The warrant agreements provide for the number of shares to be adjusted in the event of a stock split, a reverse stock split, a share exchange or other conversion or exchange event in which case the number of warrants and the exercise price of the warrants shall be adjusted on a proportional basis. The total value of these warrants of approximately $0.3 million was amortized to interest expense over the life of the promissory notes and accordingly, we recorded approximately $0.3 million and $31 thousand of non-cash interest expense related to these warrants during the years ended December 31, 2013 and 2012, respectively. |
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The Series VTa warrants were issued on November 13, 2013 in connection with senior secured convertible notes, which are more fully described in Note 5. These warrants are exercisable at any time during the exercisable periods. The warrant agreements provide for the number of shares to be adjusted in the event of a stock split, a reverse stock split, a share exchange or other conversion or exchange event in which case the number of warrants and the exercise price of the warrants shall be adjusted on a proportional basis. In addition, if we issue or sell any shares of our common stock, except certain specified issuances pursuant to the Company’s stock plans or the issuance of common stock pursuant to agreements existing on November 13, 2013, at a price per share, or the New Exercise Price, less than the Exercise Price in effect immediately before the issuance or sale, then immediately after such dilutive issuance, the Exercise Price will be reduced to the New Exercise Price. If there is an adjustment to the Exercise Price as a result of any of the dilution events specified in the Warrant agreements, the number of shares of common stock that may be purchased upon exercise of the Warrant will be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable for the adjusted number of shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise). |
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The Series VTb warrants were issued November 13, 2013 to PSID in connection with a letter agreement between the Company and PSID as more fully discussed in Note 10. The terms of the Series VTb warrants are identical to the Series VTa warrants. |
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We determined the value of the warrants issued in 2012 and 2013 on the issuance dates utilizing the following assumptions in the BSM valuation model: |
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Warrants Issued | | Dividend | | | Volatility | | | Expected | | | Risk-Free | | | Date of the | | | | | | | | | | | | | |
Yield | Lives (Yrs.) | Rate | Assumptions | | | | | | | | | | | | | |
Jun-12 | | | 0 | % | | | 126 | % | | | 3 | | | | 0.34 | % | | 1-Jun-12 | | | | | | | | | | | | | |
Sep-12 | | | 0 | % | | | 126 | % | | | 3 | | | | 0.35 | % | | 25-Sep-12 | | | | | | | | | | | | | |
Oct-12 | | | 0 | % | | | 126 | % | | | 3 | | | | 0.35 | % | | 12-Oct-12 | | | | | | | | | | | | | |
Dec-12 | | | 0 | % | | | 126 | % | | | 5 | | | | 0.72 | % | | 31-Dec-12 | | | | | | | | | | | | | |
Mar-13 | | | 0 | % | | | 126 | % | | | 3 | | | | 0.38 | % | | 18-Mar-13 | | | | | | | | | | | | | |
Apr-13 | | | 0 | % | | | 126 | % | | | 3 | | | | 0.34 | % | | 10-Apr-13 | | | | | | | | | | | | | |
Jun-13 | | | 0 | % | | | 126 | % | | | 3 | | | | 0.52 | % | | 1-Jun-13 | | | | | | | | | | | | | |
Nov-13 | | | 0 | % | | | 154 | % | | | 5 | | | | 1.41 | % | | 13-Nov-13 | | | | | | | | | | | | | |
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Stock Option Activity |
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In accordance with the Compensation – Stock Compensation Topic of the Codification, awards granted are valued at fair value and compensation cost is recognized on a straight line basis over the service period of each award. Upon exercise of stock options, the Company’s policy is to issue new shares from its authorized but unissued balance of common stock outstanding that have been reserved for issuance under our stock option plans. A summary of the status of our stock options as of December 31, 2013, and changes during the two years then ended, is presented below. |
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During 1999, we adopted the 1999 Flexible Stock Plan and the 1999 Employees’ Stock Plan. During 2003, we adopted the 2003 Flexible Stock Plan. The options granted under these plans have contractual terms ranging from six to ten years. |
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Under the 1999 Flexible Plan, the number of shares authorized to be issued or sold, or for which options, Stock Appreciation Rights (“SARs”), or Performance Shares may be granted to our officers, directors and employees is approximately 15,000. As of December 31, 2013, approximately 14,000 options have been granted, net of forfeitures, approximately 1,700 options are outstanding, and approximately 1,000 shares are available for future issuance. The options vest as determined by our board of directors and are exercisable over a period of five years. |
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The 1999 Employees’ Stock Purchase Plan authorizes the grant of options to employees who purchase shares of common stock. The number of shares authorized to be issued for which options may be granted is approximately 5,400. As of December 31, 2013, approximately 4,200 options have been granted, 1,100 are outstanding and 1,200 shares are available for grant. |
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Under the 2003 Flexible Plan, the number of shares authorized to be issued or sold, or for which options, SARs, or performance shares may be granted to our officers, directors and employees is approximately 133,000. As of December 31, 2013, approximately 93,000 options have been granted, net of forfeitures, approximately 29,000 are outstanding and approximately 41,000 shares are available for future issuances. The options vest as determined by our board of directors and are exercisable over a period of three to ten years. |
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Under the Digital Angel Transition Stock Option Plan, the number of shares authorized to be issued is approximately 61,000. As of December 31, 2013, approximately 40,000 shares have been granted, net of forfeitures, approximately 30,000 are outstanding, and approximately 21,000 remain available for issuance. The options vest as determined by the board of directors, and are exercisable over a period of three to nine years. |
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On July 12, 2013, pursuant to the Exchange Agreement, a majority of our voting stockholders adopted resolutions by written consent approving the DAC 2013 Stock Incentive Plan (the “Plan”), under which employees, including officers and directors, and consultants may receive awards. Awards under the 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 Plan are to attract and retain the best available 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’ directly to stockholder interests through increased stock ownership. The Plan became effective on October 18, 2013, upon effectiveness of the Reverse Stock Split. On October 18, 2013, the outstanding stock options under the three VAC’s stock plans were converted into options to acquire VC’s common stock under the DAC 2013 Stock Plan and VAC’s three former stock plans were terminated. |
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The aggregate number of shares of the Company’s common stock that may be subject to awards under the 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 Plan. At December 31, 2013, approximately 2.6 million options are outstanding, and approximately $2.4 million options remain available for issuance under this Plan. |
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In addition, as of December 31, 2013, we have granted approximately 4,400 options, net of forfeitures, and have outstanding approximately 4,000 options which were granted outside of the above plans as an inducement to employment. |
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During the years ended December 31, 2013 and 2012, we granted 1.0 million and 0.5 million options, respectively. The weighted average fair values of the options granted during the years ended December 31, 2013 and 2012 were $1.33 and $0.90, respectively. |
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We account for our stock-based compensation plans in accordance with ASC 718-10, Compensation – Stock Compensation. Under the provisions of ASC 718-10, the fair value of each stock option is estimated on the date of grant using a BSM option-pricing formula, and amortizing that value to expense over the expected performance or service periods using the straight-line attribution method. The weighted average values of the assumptions used to value the options granted in the year ended December 31, 2013 were as follows: expected term of 5 years, expected volatility of 126%, risk-free interest rates of 0.83%, and expected dividend yield of 0%. The weighted average values of the assumptions used to value the options granted in the year ended December 31, 2012 were as follows: expected term of 5 years, expected volatility of 126%, risk-free interest rates of 0.67%, and expected dividend yield of 0%. The expected life represents an estimate of the weighted average period of time that options are expected to remain outstanding given consideration to vesting schedules and the Company’s historical exercise patterns. Expected volatility is estimated based on the historical volatility of similar companies’ common stock. The risk free interest rate is estimated based on the U.S. Federal Reserve’s historical data for the maturity of nominal treasury instruments that corresponds to the expected term of the option. The expected dividend yield is 0% based on the fact that we have never paid dividends and have no present intention to pay dividends. |
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During the years ended December 31, 2013 and 2012, we recorded $1.4 million and $0.4 million, respectively, in compensation expense related to stock options granted to our directors, employees and consultants (who provide corporate support services). |
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A summary of the stock option activity for our stock options plans for 2013 and 2012 is as follows (shares in thousands): |
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| | 2013 | | | 2012 | | | | | | | | | | | | | | | | |
| | Number of | | | Weighted- | | | Number of | | | Weighted- | | | | | | | | | | | | | | | | |
Options | Average | Options | Average | | | | | | | | | | | | | | | |
| Exercise | | Exercise | | | | | | | | | | | | | | | |
| Price | | Price | | | | | | | | | | | | | | | |
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Outstanding on January 1 | | | 1,531 | | | $ | 0.31 | | | | — | | | $ | — | | | | | | | | | | | | | | | | |
Granted | | | 1,050 | | | | 1.57 | | | | 458 | | | | 1.05 | | | | | | | | | | | | | | | | |
Assumed in PAH acquisition | | | — | | | | — | | | | 1,307 | | | | 0.05 | | | | | | | | | | | | | | | | |
Assumed in VC acquisition | | | 75 | | | | 344.15 | | | | — | | | | — | | | | | | | | | | | | | | | | |
Forfeited or expired | | | (28 | ) | | | 151.64 | | | | (234 | ) | | | 0.31 | | | | | | | | | | | | | | | | |
Outstanding at December 31 | | | 2,628 | | | | 9.01 | | | | 1,531 | | | | 0.31 | | | | | | | | | | | | | | | | |
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Exercisable at December 31(1) | | | 1,579 | | | | 13.95 | | | | 1,264 | | | | 0.05 | | | | | | | | | | | | | | | | |
Vested or expected to vest at December 31(2) | | | 2,628 | | | | 9.01 | | | | 1,531 | | | | 0.31 | | | | | | | | | | | | | | | | |
Shares available on December 31 for options that may be granted | | | 2,503 | | | | | | | | 1,684 | | | | | | | | | | | | | | | | | | | | |
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-1 | The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the option. The fair value of our common stock was $2.29 at December 31, 2013 based upon the closing price on the OTC Market. As of December 31, 2013, the aggregate intrinsic value of options outstanding, exercisable and vested or expected to vest was $3.8 million, $3.0 million and $3.8 million, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-2 | The weighted average remaining contractual life for exercisable options is 6.27 years, and for options vested or expected to vest, is 5.41 years, as of December 31, 2013. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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There were no stock option exercises during the years ended December 31, 2013 and 2012. The total fair value of options vested during the years ended December 31, 2013 and 2012, was approximately $0.4 million and nil, respectively. As of December 31, 2013, there was no unrecognized compensation cost related to unvested share-based compensation arrangements granted under our plans, as all unvested options at December 31, 2013 vested on January 1, 2014. |
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The following table summarizes information about our stock options at December 31, 2013 (shares in thousands): |
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| | | | | | | | | | | | | Outstanding Options | | | Exercisable Stock | |
Options |
| Range of Exercise | | | Shares | | | Weighted- | | | Weighted- | | | Shares | | | Weighted- | |
Prices | Average | Average Exercise | Average Exercise |
| Remaining | Price | Price |
| Contractual Life | | |
| in Years | | |
| | $0 | | | | to | | | | $100 | | | | 2,593 | | | | 5.5 | | | $ | 1.03 | | | | 1,544 | | | $ | 0.66 | |
| | $101 | | | | to | | | | $200 | | | | 5 | | | | 4.2 | | | | 156.71 | | | | 5 | | | | 156.71 | |
| | $201 | | | | to | | | | $300 | | | | 1 | | | | 3.6 | | | | 244.8 | | | | 1 | | | | 244.8 | |
| | $301 | | | | to | | | | $400 | | | | 1 | | | | 2.6 | | | | 342.29 | | | | 1 | | | | 342.29 | |
| | $401 | | | | to | | | | $500 | | | | — | | | | 2.5 | | | | 451.2 | | | | — | | | | 451.2 | |
| | $501 | | | | to | | | | $600 | | | | 11 | | | | 1.8 | | | | 568.39 | | | | 11 | | | | 568.39 | |
| | $601 | | | | to | | | | $700 | | | | 5 | | | | 0.2 | | | | 661.82 | | | | 5 | | | | 661.82 | |
| | $701 | | | | to | | | | $800 | | | | 1 | | | | 1.7 | | | | 733.38 | | | | 1 | | | | 733.38 | |
| | $801 | | | | to | | | | $900 | | | | 9 | | | | 1.2 | | | | 871.2 | | | | 9 | | | | 871.2 | |
| | $901 | | | | to | | | | $1,000 | | | | 2 | | | | 0.7 | | | | 966.93 | | | | 2 | | | | 966.93 | |
| Total stock options | | | | 2,628 | | | | 5.4 | | | | 9.01 | | | | 1,579 | | | | 13.95 | |
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As of December 31, 2013, 2.5 million shares were available for issuance under our plans. |
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Restricted Stock Grants |
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In January 2013, we issued approximately 0.9 million shares of our restricted common stock to a member of our senior management. This restricted stock vests in January 2015. The total value of the restricted stock of approximately $1.4 million is being expensed over the vesting period. During the year ended December 31, 2013, we recorded $0.7 million in compensation expense related to the restricted stock. We did not incur any restricted stock expense in 2012. |