NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As of March 31, 2022, the Company had cash of $8.7 million and working capital of $8.3 million. During the three months ended March 31, 2022, the Company used net cash in operating activities of $5.9 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s primary source of operating funds since inception has been cash proceeds from sale of common and preferred stock. The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
The Company’s plans include the continued commercialization of the PURE EP System and other applications of our core technology and raising capital through the sale of additional equity securities, debt or capital inflows from strategic partnerships. The Company’s strategic shift from a focus on technology development to commercialization will allow the Company to significantly reduce operating expenses.
The Company will require additional financing to fund future operations. Further, although the Company began commercial operations; there is no assurance that the Company will be able to generate sufficient cash flow to fund operations. In addition, there can be no assurance that the Company’s continuing research and development will be successfully completed or that any additional products will be commercially viable.
Accordingly, the accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the recoverability and useful lives of long-lived assets, stock-based compensation and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Revenue Recognition
The Company derives its revenue primarily from the sale of its medical device, the PURE EP™ System, and well as related support and maintenance services and software upgrades in connection with the system.
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company determines revenue recognition through the following five steps:
|
|
●
|
Identify the contract with the customer;
|
|
|
●
|
Identify the performance obligations in the contract;
|
|
|
●
|
Determine the transaction price;
|
|
|
●
|
Allocate the transaction price to the performance obligation in the contract; and
|
|
|
●
|
Recognize revenue when, or as, the performance obligations are satisfied.
|
Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. If the Company determines that it has not satisfied a performance obligation, it will defer recognition of the revenue until the performance obligation is deemed to be satisfied. Once the PURE EP system is delivered, installed, and accepted by the customer, our performance obligation is recognized. Support, maintenance, and software upgrades are performance obligations over a defined period and are recognized ratably over the contractual service period. Customers typically purchase these services with the initial sale of the PURE EP System and do not have the right to terminate their contracts unless we fail to perform material obligations.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
The Company may execute more than one contract with a single customer. If so, it is evaluated whether the agreements were negotiated as a package with a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.
The Company records accounts receivable for amounts invoiced to customers for which the Company has an unconditional right to consideration as provided under the contractual arrangement. Unbilled receivables, if any, include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenue includes payments received in advance of performance under the contract. Our unbilled receivables and deferred revenue are reported on an individual contract basis at the end of each reporting period. Unbilled receivables are classified as current or noncurrent based on the timing of when we expect to bill the customer. Deferred revenue is classified as current or noncurrent based on the timing of when we expect to recognize revenue.
The Company’s unconditional right to consideration for goods and services transferred to the customer is included in accounts receivable, net (if any) in the Company’s consolidated balance sheet.
A reconciliation of contract liabilities with customers for the three months ended March 31, 2022 and 2021, are presented below:
Three months ended March 31, 2022:
| |
|
Balance at
December 31, 2021
(000’s)
|
|
|
Consideration Received
(000’s)
|
|
|
Recognized in Revenue
(000’s)
|
|
|
Balance at
March 31, 2022
(000’s)
|
|
|
Product revenue
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Service revenue
|
|
|
37 |
|
|
|
- |
|
|
|
(8 |
)
|
|
|
29 |
|
|
Total
|
|
$ |
37 |
|
|
$ |
- |
|
|
$ |
(8 |
)
|
|
$ |
29 |
|
Three months ended March 31, 2021:
| |
|
Balance at
December 31, 2020
(000’s)
|
|
|
Consideration Received
(000’s)
|
|
|
Recognized in Revenue
(000’s)
|
|
|
Balance at
March 31, 2021
(000’s)
|
|
|
Product revenue
|
|
$ |
- |
|
|
$ |
115 |
|
|
$ |
(115 |
)
|
|
$ |
- |
|
|
Service revenue
|
|
|
- |
|
|
|
65 |
|
|
|
(3 |
)
|
|
|
62 |
|
|
Total
|
|
$ |
- |
|
|
$ |
180 |
|
|
$ |
(118 |
)
|
|
$ |
62 |
|
The table below summarizes our deferred revenue as of March 31, 2022 and December 31, 2021:
| |
|
March 31, 2022
(000’s)
|
|
|
December 31, 2021
(000’s)
|
|
|
Deferred revenue-current
|
|
$ |
29 |
|
|
$ |
32 |
|
|
Deferred revenue-noncurrent
|
|
|
- |
|
|
|
5 |
|
|
Total deferred revenue
|
|
$ |
29 |
|
|
$ |
37 |
|
The Company had one customer which accounted for approximately 100% of their revenue in the three months ended March 31, 2022 and 2021.
The Company utilized one contract manufacturer for the manufacture and supply of the PURE EP system for the three months ended March 31, 2022 and 2021.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Cost of Goods Sold
Cost of goods sold consists primarily of the delivered cost of our medical device(s) sold.
Allowance for Doubtful Accounts
The Company adjusts accounts receivable down to net realizable value with its allowance methodology. In determining the allowance for doubtful accounts for estimated losses, aged receivables are analyzed periodically by management. Each identified receivable is reviewed based upon historical collection experience, financial condition of the customer and the status of any open or unresolved issues with the customer preventing the payment thereof. Corrective action, if necessary, is taken by the Company to resolve open issues related to unpaid receivables. The allowance for doubtful accounts was $0 at March 31, 2022 and December 31, 2021. The Company believes that its reserve is adequate, however results may differ in future periods. For the three months ended March 31, 2022 and 2021, bad debt expense totaled $0.
Fair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash, accounts payable and accrued liabilities as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The Company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit. At March 31, 2022 and December 31, 2021, deposits in excess of FDIC limits were $8.2 million and $11.2 million, respectively.
Inventory
The inventory is comprised of raw materials and finished goods available for sale and are stated at the lower of cost or net realizable value using specific identification method for serial numbered inventory and first-in, first-out method for all other inventory for valuation. The inventory at March 31, 2022 and December 31, 2021, inventory was comprised of the following:
| |
|
March 31, 2022
(000’s)
|
|
|
December 31, 2021
(000’s)
|
|
|
Raw materials
|
|
$ |
176 |
|
|
$ |
- |
|
|
Finished goods
|
|
|
1,850 |
|
|
|
1,881 |
|
|
Total inventory
|
|
$ |
2,026 |
|
|
$ |
1,881 |
|
Prepaid Expenses and Vendor Deposits
Prepaid expenses and vendor deposits are comprised of prepaid insurance, operating expenses and other prepayments.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Leases
The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All the Company’s real estate leases are classified as operating leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.
The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
Impairment of Long-lived Assets
The Company recognizes an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not recognize and record any impairments of long-lived assets used in operations during the three months ended March 31, 2022 and 2021.
Research and Development Costs
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $1.6 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively.
Net Income (loss) Per Common Share
The Company computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
The computation of basic and diluted loss per share as of March 31, 2022 and 2021 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.
Potentially dilutive securities excluded from the computation of basic and diluted net income (loss) per share are as follows:
| |
|
March 31, 2022
|
|
|
March 31, 2021
|
|
|
Series C convertible preferred stock
|
|
|
162,634 |
|
|
|
47,659 |
|
|
Options to purchase common stock
|
|
|
4,869,484 |
|
|
|
3,780,037 |
|
|
Warrants to purchase common stock
|
|
|
3,432,040 |
|
|
|
1,436,200 |
|
|
Restricted stock units to acquire common stock
|
|
|
82,500 |
|
|
|
346,000 |
|
|
Totals
|
|
|
8,546,658 |
|
|
|
5,609,896 |
|
Stock Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award as measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period.
Income Taxes
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
Patents, Net
The Company capitalizes certain initial asset costs in connection with patent applications including registration, documentation and other professional fees associated with the application. Patent costs incurred prior to the Company’s U.S. Food and Drug Administration (“FDA”) 510(k) application on March 28, 2018 were charged to research and development expense as incurred. Commencing upon first in-man trials on February 18 and 19, 2019, capitalized costs are amortized to expense using the straight-line method over the lesser of the legal patent term or the estimated life of the product of 20 years. During the three months ended March 31, 2022 and 2021, the Company recorded amortization of $4,751 and $4,751 to current period operations, respectively.
Warranty
The Company generally warrants its products to be free from material defects and to conform to material specifications for a period of up to two (2) years. Warranty expense is estimated based primarily on historical experience and is reflected in the unaudited condensed consolidated financial statements.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Non-controlling Interest
The Company’s non-controlling interest represents the non-controlling shareholders ownership interests related to the Company’s subsidiary, ViralClear. The Company reports its non-controlling interest in subsidiaries as a separate component of equity in the unaudited condensed consolidated balance sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common shareholders on the face of the unaudited condensed consolidated statements of operations. The Company’s equity interest in ViralClear is 68.44% and the non-controlling stockholders’ interest is 31.56% as of March 31, 2022. This is reflected in the unaudited condensed consolidated statements of changes in equity.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein represents all of the material financial information related to the Company’s principal operating segments. (See Note 12 – Segment Reporting).
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses on available-for-sale debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. ASU 2016-13 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption was permitted, including adoption in any interim period.
In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amended the effective date of the original pronouncement for smaller reporting companies. ASC 2016-13 and its amendments will be effective for annual and interim periods beginning after December 15, 2022 for smaller reporting companies. The Company did not have a significant impact upon adoption of this new standard on its unaudited condensed consolidated financial statements and related disclosures.
There were other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 2022 and December 31, 2021 is summarized as follows:
| |
|
March 31, 2022
(000’s)
|
|
|
December 31, 2021
(000’s)
|
|
|
Computer equipment
|
|
$ |
388 |
|
|
$ |
383 |
|
|
Furniture and fixtures
|
|
|
88 |
|
|
|
88 |
|
|
Manufacturing equipment
|
|
|
302 |
|
|
|
286 |
|
|
Testing/Demo equipment
|
|
|
178 |
|
|
|
145 |
|
|
Leasehold improvements
|
|
|
79 |
|
|
|
79 |
|
|
Total
|
|
|
1,035 |
|
|
|
981 |
|
|
Less accumulated depreciation
|
|
|
(379 |
)
|
|
|
(329 |
)
|
|
Property and equipment, net
|
|
$ |
656 |
|
|
$ |
652 |
|
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years. Leasehold improvements are depreciated over the related expected lease term. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
Depreciation expense was $50,082 and $36,834 for three months ended March 31, 2022 and 2021, respectively.
NOTE 5 – RIGHT TO USE ASSETS AND LEASE LIABILITY
As of March 31, 2022 and December 31, 2021, the Company had outstanding five leases with aggregate payments of $32,143 per month, expiring through December 31, 2024.
Right to use assets is summarized below:
| |
|
March 31, 2022
(000’s)
|
|
|
December 31, 2021
(000’s)
|
|
|
Right to use asset
|
|
$ |
803 |
|
|
$ |
803 |
|
|
Less accumulated amortization
|
|
|
(284 |
)
|
|
|
(199 |
)
|
|
Right to use assets, net
|
|
$ |
519 |
|
|
$ |
604 |
|
During the three months ended March 31, 2022 and 2021, the Company recorded $107,734 and $118,601 as lease expense to current period operations, respectively.
Lease liability is summarized below:
| |
|
March 31, 2022
(000’s)
|
|
|
December 31, 2021
(000’s)
|
|
|
Total lease liability
|
|
$ |
570 |
|
|
$ |
656 |
|
|
Less: short term portion
|
|
|
(252 |
)
|
|
|
(283 |
)
|
|
Long term portion
|
|
$ |
318 |
|
|
$ |
373 |
|
Maturity analysis under these lease agreements are as follows (000’s):
|
Year ended December 31, 2022
|
|
$ |
207 |
|
|
Year ended December 31, 2023
|
|
|
221 |
|
|
Year ended December 31, 2024
|
|
|
191 |
|
|
Total
|
|
|
619 |
|
|
Less: Present value discount
|
|
|
(49 |
)
|
|
Lease liability
|
|
$ |
570 |
|
Lease expense for the three months ended March 31, 2022 and 2021 was comprised of the following:
| |
|
March 31, 2022
(000’s)
|
|
|
March 31, 2021
(000’s)
|
|
|
Operating lease expense
|
|
$ |
85 |
|
|
$ |
111 |
|
|
Short-term lease expense
|
|
|
9 |
|
|
|
7 |
|
|
Variable lease expense
|
|
|
14 |
|
|
|
1 |
|
|
Total
|
|
$ |
108 |
|
|
$ |
119 |
|
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at March 31, 2022 and December 31, 2021 consist of the following:
| |
|
March 31, 2022
(000’s)
|
|
|
December 31, 2021
(000’s)
|
|
|
Accrued accounting and legal
|
|
$ |
295 |
|
|
$ |
204 |
|
|
Accrued reimbursements and travel
|
|
|
53 |
|
|
|
56 |
|
|
Accrued consulting
|
|
|
163 |
|
|
|
264 |
|
|
Accrued research and development expenses
|
|
|
248 |
|
|
|
367 |
|
|
Accrued product purchases
|
|
|
- |
|
|
|
1 |
|
|
Accrued marketing
|
|
|
112 |
|
|
|
38 |
|
|
Accrued office and other
|
|
|
213 |
|
|
|
84 |
|
|
Accrued payroll
|
|
|
947 |
|
|
|
552 |
|
|
Accrued settlement related to arbitration
|
|
|
313 |
|
|
|
613 |
|
| |
|
$ |
2,344 |
|
|
$ |
2,179 |
|
NOTE 7 – STOCKHOLDER EQUITY
Preferred stock
The Company is authorized to issue 1,000,000 shares of $0.001 par value preferred stock. As of March 31, 2022 and December 31, 2021, the Company has designated 200 shares of Series A preferred stock, 600 shares of Series B preferred stock, 4,200 shares of Series C Preferred Stock, 1,400 shares of Series D Preferred Stock, 1,000 shares of Series E Preferred Stock and 200,000 shares of Series F Preferred Stock. As of March 31, 2022 and December 31, 2021, there were no outstanding shares of Series A, Series B, Series D, Series E and Series F preferred stock.
Common stock
BioSig Technologies, Inc.
The Company is authorized to issue 200,000,000 shares of $0.001 par value common stock. As of March 31, 2022 and December 31, 2021, the Company had 39,559,059 and 35,567,180 shares issued and outstanding, respectively.
During the three months ended March 31, 2022, the Company issued 1,312,500 shares of common stock for services at a fair value of $1,601,275.
During the three months ended March 31, 2022, the Company issued an aggregate of 66,249 shares of its common stock for vested restricted stock units.
Sale of common stock
On March 21, 2022, the Company entered into a securities purchase agreement with several institutional and accredited investors, pursuant to which the Company sold in a registered direct offering an aggregate of 2,613,130 shares of the Company’s common stock, at an offering price of $1.15 per share and warrants to purchase up to 2,613,130 shares of common stock at an exercise price of $1.40 per share, that are exercisable six months after the date of issuance and will expire three and one-half years following the date of issuance, for gross proceeds of approximately $3.0 million, net of expenses of approximately $3,000.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 8 – OPTIONS, RESTRICTED STOCK UNITS AND WARRANTS
BioSig Technologies, Inc.
2012 Equity Incentive Plan
On October 19, 2012, the Board of Directors of BioSig Technologies, Inc. approved the 2012 Equity Incentive Plan (the “Plan”) and terminated the Long-Term Incentive Plan (the “2011 Plan”). The Plan (as amended) provides for the issuance of options, stock appreciation rights, restricted stock and restricted stock units to purchase up to 14,474,450 shares of the Company’s common stock to officers, directors, employees and consultants of the Company. Under the terms of the Plan the Company may issue Incentive Stock Options as defined by the Internal Revenue Code to employees of the Company only and nonstatutory options. The Board of Directors of the Company or a committee thereof administers the Plan and determines the exercise price, vesting and expiration period of the grants under the Plan.
However, the exercise price of an Incentive Stock Option should not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more stockholder and 100% of fair value for a grantee who is not 10% stockholder. The fair value of the common stock is determined based on the quoted market price or in absence of such quoted market price, by the administrator in good faith.
Additionally, the vesting period of the grants under the Plan will be determined by the administrator, in its sole discretion, with an expiration period of not more than ten years. There are 2,612,523 shares remaining available for future issuance of awards under the terms of the Plan as of March 31, 2022.
Options
Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from historical stock prices of the Company. The Company accounts for the expected life of options using the based on the contractual life of options for non-employees.
For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.
During the three months ended March 31, 2022, the Company granted an aggregate of 736,000 options to officers, directors and key consultants.
The following table presents information related to stock options at March 31, 2022:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Exercisable
|
|
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
|
|
Price
|
|
|
Options
|
|
|
In Years
|
|
|
Options
|
|
|
|
$
|
Under 2.00 |
|
|
|
736,000 |
|
|
|
9.9 |
|
|
|
75,000 |
|
|
|
|
2.00-2.99 |
|
|
|
1,000,375 |
|
|
|
9.4 |
|
|
|
549,375 |
|
|
|
|
3.00-3.99 |
|
|
|
587,466 |
|
|
|
4.1 |
|
|
|
387,466 |
|
| |
|
4.00-4.99 |
|
|
|
1,547,916 |
|
|
|
6.2 |
|
|
|
1,136,573 |
|
|
|
|
5.00-5.99 |
|
|
|
156,132 |
|
|
|
6.9 |
|
|
|
124,046 |
|
|
|
|
6.00-6.99 |
|
|
|
461,542 |
|
|
|
5.0 |
|
|
|
389,515 |
|
|
|
|
7.00-7.99 |
|
|
|
186,720 |
|
|
|
6.6 |
|
|
|
176,721 |
|
|
|
|
Over 8.00 |
|
|
|
193,333 |
|
|
|
7.6 |
|
|
|
168,461 |
|
|
|
|
|
|
|
|
4,869,484 |
|
|
|
7.2 |
|
|
|
3,007,157 |
|
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
A summary of the stock option activity and related information for the Plan for the three months ended March 31, 2022 is as follows:
| |
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
| |
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at December 31, 2021
|
|
|
4,568,484 |
|
|
$ |
4.57 |
|
|
|
6.9 |
|
|
$ |
- |
|
|
Grants
|
|
|
736,000 |
|
|
$ |
1.47 |
|
|
|
10.0 |
|
|
$ |
- |
|
|
Forfeited/expired
|
|
|
(435,000 |
)
|
|
$ |
5.36 |
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2022
|
|
|
4,869,484 |
|
|
$ |
4.03 |
|
|
|
7.2 |
|
|
$ |
- |
|
|
Exercisable at March 31, 2022
|
|
|
3,007,157 |
|
|
$ |
4.68 |
|
|
|
6.4 |
|
|
$ |
- |
|
The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise price less than the stock price of BioSig Technologies, Inc. of $1.15 as of March 31, 2022, which would have been received by the option holders had those option holders exercised their options as of that date.
On February 7, 2022, the Company granted 150,000 options to purchase the company’s common stock in connection with the services rendered at the exercise price of $1.72 per share for a term of ten years with 75,000 vesting immediately and 75,000 vesting upon achieving certain performance conditions.
On February 7, 2022, the Company granted an aggregate of 100,000 options to purchase the company’s common stock in connection with the services rendered at the exercise price of $1.72 per share for a term of ten years with vesting on the quarterly for one year.
On February 17, 2022, the Company granted an aggregate of 66,000 options to purchase the company’s common stock in connection with the services rendered at the exercise price of $1.58 per share for a term of ten years with one-third vesting on the one-year anniversary and two-thirds vesting quarterly thereafter beginning February 17, 2023 for two years.
On March 15, 2022, the Company granted an aggregate of 70,000 options to purchase the company’s common stock in connection with the services rendered at the exercise price of $1.28 per share for a term of ten years with one-third vesting on the one-year anniversary and two-thirds vesting quarterly thereafter beginning March 15, 2023 for two years.
On March 30, 2022, the Company granted 350,000 options to purchase the company’s common stock in connection with the services rendered at the exercise price of $1.30 per share for a term of ten years with one-third vesting on the one-year anniversary and two-thirds vesting quarterly thereafter beginning March 30, 2023 for two years.
The following assumptions were used in determining the fair value of options during the three months ended March 31, 2022:
|
Risk-free interest rate
|
|
|
1.17% - 2.43
|
%
|
|
Dividend yield
|
|
|
0 |
% |
|
Stock price volatility
|
|
|
83.83% to 92.93 |
% |
|
Expected life
|
|
6 to 10 years |
|
|
Weighted average grant date fair value
|
|
$
|
1.06 |
|
On March 16, 2022, in connection with the termination of a Company executive, the Company extended the life of 100,000 previously issued options from the contractual 90 days from termination of service to the earlier of the initial life or March 16, 2024. The change in estimated fair value of the modified options of $15,181 was charged to current period operations.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
The following assumptions were used in determining the change in fair value of the modified options at March 16, 2022:
|
Risk-free interest rate
|
|
|
0.44% - 1.95
|
%
|
|
Dividend yield
|
|
|
0 |
% |
|
Stock price volatility
|
|
|
83.86 |
% |
|
Expected life
|
|
0.25 – 2 years |
|
The fair value of all options vesting during the three months ended March 31, 2022 and 2021 of $649,992 and $576,885, respectively, was charged to current period operations. Unrecognized compensation expense of $3,183,159 at March 31, 2022 will be expensed in future periods.
Warrants
The following table summarizes information with respect to outstanding warrants to purchase common stock of BioSig Technologies, Inc. at March 31, 2022:
|
|
Exercise
|
|
|
Number
|
|
Expiration
|
|
|
Price
|
|
|
Outstanding
|
|
Date
|
| |
$
|
1.40 |
|
|
|
2,613,130 |
|
September 2025 |
|
|
$
|
4.80 |
|
|
|
250,000 |
|
February 2025 to July 2026 |
|
|
$
|
6.16 |
|
|
|
568,910 |
|
November 2027 |
|
|
|
|
|
|
|
3,432,040 |
|
|
On March 21, 2022, the Company issued warrants to purchase 2,613,130 shares of its common stock at $1.40 per share, that are exercisable six months after the date of issuance and will expire three and one-half years following the date of issuance in connection with the sale of the Company’s common stock.
A summary of the warrant activity for the three months ended March 31, 2022 is as follows:
| |
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
| |
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at December 31, 2021
|
|
|
818,910 |
|
|
$ |
5.74 |
|
|
|
5.3 |
|
|
$ |
- |
|
|
Issued
|
|
|
2,613,130 |
|
|
$ |
1.40 |
|
|
|
3.5 |
|
|
|
- |
|
|
Outstanding at March 31, 2022
|
|
|
3,432,040 |
|
|
$ |
2.44 |
|
|
|
3.8 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2022
|
|
|
3,432,040 |
|
|
$ |
2.44 |
|
|
|
3.8 |
|
|
$ |
- |
|
|
Exercisable at March 31, 2022
|
|
|
818,910 |
|
|
$ |
5.74 |
|
|
|
5.0 |
|
|
$ |
- |
|
The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise price less than the company’s stock price of $1.15 of March 31, 2022, which would have been received by the option holders had those option holders exercised their options as of that date.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Restricted Stock Units
The following table summarizes the restricted stock activity for the three months ended March 31, 2022:
|
Restricted shares issued as of December 31, 2021
|
|
|
141,250 |
|
|
Granted
|
|
|
37,500 |
|
|
Vested and issued
|
|
|
(66,249 |
)
|
|
Forfeited
|
|
|
(30,001 |
)
|
|
Vested restricted shares as of March 31, 2022
|
|
|
- |
|
|
Unvested restricted shares as of March 31, 2022
|
|
|
82,500 |
|
On March 18, 2022, the Company granted an aggregate of 37,500 restricted stock units for services with 12,500 vesting upon achievement of certain performance conditions and 25,000 vesting quarterly for one year.
Stock based compensation expense related to restricted stock grants was $69,754 and $99,120 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the stock-based compensation relating to restricted stock of $197,050 remains unamortized.
ViralClear Pharmaceuticals, Inc.
2019 Long-Term Incentive Plan
On September 24, 2019, ViralClear’s Board of Directors approved the 2019 Long-Term Incentive Plan (as subsequently amended, the “ViralClear Plan”). The ViralClear Plan was approved by BioSig as ViralClear’s majority stockholder. The ViralClear Plan provides for the issuance of options, stock appreciation rights, restricted stock and restricted stock units to purchase up to 4,000,000 shares of ViralClear’s common stock to officers, directors, employees and consultants of the ViralClear. Under the terms of the ViralClear Plan, ViralClear may issue Incentive Stock Options as defined by the Internal Revenue Code to employees of ViralClear only and nonstatutory options. The Board of Directors of ViralClear or a committee thereof administers the ViralClear Plan and determines the exercise price, vesting and expiration period of the grants under the ViralClear Plan.
However, the exercise price of an Incentive Stock Option should not be less than 110% of fair market value of the common stock at the date of the grant for a 10% or more stockholder and 100% of fair market value for a grantee who is not 10% stockholder. The fair market value of the common stock is determined based on the quoted market price or in absence of such quoted market price, by the administrator in good faith.
Additionally, the vesting period of the grants under the ViralClear Plan will be determined by the administrator, in its sole discretion, with an expiration period of not more than ten years. There are 2,390,071 shares remaining available for future issuance of awards under the terms of the ViralClear Plan.
ViralClear Options
The following table presents information related to stock options at March 31, 2022:
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Exercisable
|
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
|
Price
|
|
|
Options
|
|
|
In Years
|
|
|
Options
|
|
|
$
|
5.00 |
|
|
|
125,000 |
|
|
|
6.9 |
|
|
|
91,664 |
|
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
The fair value of the stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from an index of historical stock prices of comparable entities with the market value of stock price based on recent sales. The Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.
The fair value of all options vesting during the three months ended March 31, 2022 and 2021 of $36,520 and $36,521, respectively, was charged to current period operations. Unrecognized compensation expense of $146,082 at March 31, 2022 will be expensed in future periods.
Warrants (ViralClear)
The following table presents information related to warrants (ViralClear) at March 31, 2022:
|
|
Exercise
|
|
|
Number
|
|
Expiration
|
|
|
Price
|
|
|
Outstanding
|
|
Date
|
|
|
$
|
5.00 |
|
|
|
473,772 |
|
November 2027 |
|
|
|
10.00 |
|
|
|
6,575 |
|
May 2025 |
|
|
|
|
|
|
|
480,347 |
|
|
Restricted stock units (ViralClear)
The following table summarizes the restricted stock activity for the three months ended March 31, 2022:
|
Restricted shares outstanding at December 31, 2021:
|
|
|
1,318,679 |
|
|
Forfeited
|
|
|
(80,000 |
)
|
|
Total restricted shares outstanding at March 31, 2022:
|
|
|
1,238,679 |
|
| |
|
|
|
|
|
Comprised of:
|
|
|
|
|
|
Vested restricted shares as of March 31, 2022
|
|
|
678,679 |
|
|
Unvested restricted shares as of March 31, 2022
|
|
|
560,000 |
|
|
Total
|
|
|
1,238,679 |
|
Stock based compensation expense related to restricted stock unit grants of ViralClear was $(356,396) and $29,151 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the stock-based compensation relating to restricted stock of $142,443 remains unamortized.
NOTE 9 – NON-CONTROLLING INTEREST
On November 7, 2018, the Company formed a subsidiary, now known as ViralClear, to pursue additional applications of the PURE EP™ signal processing technology outside of cardiac electrophysiology, and subsequently in 2020, was repurposed to develop merimepodib, a broad-spectrum anti-viral agent that showed potential for the treatment of COVID-19. Since late 2020, ViralClear has been realigned with its original objective of pursuing additional applications of the PURE EP™ signal processing technology outside of cardiac electrophysiology.
As of March 31, 2022 and December 31, 2021, the Company had a majority interest in ViralClear of 68.44%.
A reconciliation of the ViralClear Pharmaceuticals, Inc. non-controlling loss attributable to the Company:
Net profit attributable to the non-controlling interest for the three months ended March 31, 2022 (000’s):
|
Net loss
|
|
$ |
(322 |
) |
|
Average Non-controlling interest percentage of profit/losses
|
|
|
31.6 |
%
|
|
Net income attributable to the non-controlling interest
|
|
$ |
(102 |
)
|
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Net loss attributable to the non-controlling interest for the three months ended March 31, 2021 (000’s):
|
Net loss
|
|
$
|
(805 |
)
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
29.8 |
%
|
|
Net loss attributable to the non-controlling interest
|
|
$
|
(240 |
)
|
The following table summarizes the changes in non-controlling interest for the three months ended March 31, 2022 (000’s):
|
Balance, December 31, 2021
|
|
|
219 |
|
|
Allocation of equity to non-controlling interest due to equity-based compensation issued
|
|
|
(101 |
)
|
|
Net loss attributable to non-controlling interest
|
|
|
(102 |
)
|
|
Balance, March 31, 2022
|
|
$ |
16 |
|
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Licensing agreements
Master Services Agreement
On January 1, 2022, the Company entered into a master services agreement with Access Strategy Partners Incorporated (“ASPI”) whereby ASPI will provide commercial executives assigned with specific customer targets and develop sales and marketing plans that are mutually agreed to between ASPI and the Company and assist in their execution. The agreement expires two years from the effective date, with an addition one year extension option.
The Company is obligated to pay ASPI: i) a monthly service fee of $40,000 and ii) 10% commission on all New Account revenue, as defined, on a quarterly basis.
2017 Know-How License Agreement
On March 15, 2017, the Company entered into a know-how license agreement with Mayo Foundation for Medical Education and Research whereby the Company was granted an exclusive license, with the right to sublicense, certain know how and patent applications in the field of signal processing, physiologic recording, electrophysiology recording, electrophysiology software and autonomics to develop, make and offer for sale. The agreement expires in ten years from the effective date.
The Company is obligated to pay to Mayo Foundation a 1% or 2% royalty payment on net sales of licensed products, as defined.
Patent and Know-How License Agreement – EP Software Agreement
On November 20, 2019, the Company entered into a patent and know-how license agreement (the “EP Software Agreement”) with Mayo Foundation for Medical Education and Research (“Mayo”). The EP Software Agreement grants to the Company an exclusive worldwide license, with the right to sublicense, within the field of electrophysiology software and under certain patent rights as described in the EP Software Agreement (the “Patent Rights”), to make, have made, use, offer for sale, sell and import licensed products and a non-exclusive license to the Company to use the research and development information, materials, technical data, unpatented inventions, trade secrets, know-how and supportive information of Mayo to develop, make, have made, use, offer for sale, sell, and import licensed products. The EP Software Agreement will expire upon the later of either (a) the expiration of the Patent Rights or (b) the 10th anniversary of the date of the first commercial sale of a licensed product, unless earlier terminated by Mayo for the Company’s failure to cure a material breach of the EP Software Agreement, the Company’s or a sublicensee’s commencement of any action or proceedings against Mayo or its affiliates other than for an uncured material breach of the EP Software Agreement by Mayo, or insolvency of the Company.
In connection with the EP Software Agreement, the Company agreed to make earned royalty payments to Mayo in connection with the Company’s sales of the licensed products to third parties and sublicense income received by the Company and to make milestone payments of up to $625,000 in aggregate.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Amended and Restated Patent and Know-How License Agreement – Tools Agreement
On November 20, 2019, the Company entered into an amended and restated patent and know-how license agreement (the “Tools Agreement”) with Mayo. The Tools Agreement contains terms of license grant substantially identical to the EP Software Agreement, although it is for different patent rights and covers the field of electrophysiology systems.
In connection with the Tools Agreement, the Company agreed to pay Mayo an upfront consideration of $100,000. The Company also agreed to make earned royalty payments to Mayo in connection with the Company’s sales of the licensed products to third parties and sublicense income received by the Company and to make milestone payments of up to $550,000 in aggregate. In June 2021, patent rights were issued (“Valid Claim”) as defined whereby the Company paid milestone one of $75,000 during the 2021 year.
ViralClear Patent and Know-How License Agreement
On November 20, 2019, the Company’s majority-owned subsidiary, ViralClear, entered into a patent and know-how license agreement (the “ViralClear Agreement”) with Mayo. The ViralClear Agreement contains terms of license grant substantially identical to the EP Software Agreement and the Tools Agreement, although it is for different patent rights and covers the field of stimulation and electroporation for hypotension/syncope management, renal and non-renal denervation for hypertension treatment, and for use in treatment of arrhythmias in the autonomic nervous system.
In connection with the ViralClear Agreement, ViralClear agreed to make earned royalty payments to Mayo in connection with ViralClear’s sales of the licensed products to third parties and sublicense income received by the Company and to make milestone payments of up to $700,000 in aggregate. In June 2021, patent rights were issued (“Valid Claim”) as defined whereby the Company paid milestone one of $75,000 during the 2021 year.
Trek Therapeutics, PBC
In the event of sublicensing, sale, transfer, assignment or similar transaction, ViralClear agreed to pay Trek 10% of the consideration received.
As part of the acquired assets, ViralClear received an assignment and licensing rights agreement from Trek with a third-party vendor regarding certain formulas and compounds usage. The agreement calls for milestone payments upon marketing authorization (as amended and defined with respect of product in a particular jurisdiction in the territory, the receipt of all approvals from the relevant regulatory authority necessary to market and sell such product in any such jurisdiction, excluding any pricing approval or reimbursement authorization) in any first and second country of $10 million and $5 million, respectively, in addition to 6% royalty payments.
Defined Contribution Plan
Effective January 1, 2019, the Company established a qualified defined contribution plan (the “401(k) Plan”) pursuant to Section 401(k) of the Code, whereby all eligible employees may participate. Participants may elect to defer a percentage of their annual pretax compensation to the 401(k) plan, subject to defined limitations. The Company is required to make contributions to the 401(k) Plan equal to 3 percent of each participant’s eligible compensation, subject to limitations under the Code. For the three months ended March 31, 2022 and 2021, the Company charged operations $67,640 and $71,465, respectively, for contributions under the 401(k) Plan.
Purchase commitments
As of March 31, 2022, the Company had aggregate purchase commitments of approximately $2,697,021 for future services or products, some of which are subject to modification or cancellations.
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Litigation
Aurigene Pharmaceutical Services LTD vs. ViralClear Pharmaceuticals Inc. and BioSig Technologies, Inc.
On January 8, 2021, Aurigene Pharmaceutical Services, LTD (“Aurigene”) filed a complaint with the United States District Court for the District of Connecticut claiming the Company is in default of certain milestone payments for manufacturing and services under contracts dated June 23, 2020 and July 16, 2020 in aggregate amount of $1,530,000.
On September 23, 2021, the Company entered into a settlement agreement with Aurigene for a sum of $1,000,000 payable in three installments of $400,000, $300,000, and $300,000 on September 30, 2021, December 31, 2021 and March 31, 2022, respectively, with no admission or concession by either party. The remaining $300,000 was accrued as of March 31, 2022.
The Company is subject at times to other legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.
NOTE 11 – SEGMENT REPORTING
In accordance with ASC 280-10, the Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company has three reportable segments: BioSig Technologies, Inc. (parent), NeuroClear Technologies, Inc. and ViralClear Pharmaceuticals, Inc.
Information concerning the operations of the Company’s reportable segments is as follows:
| |
|
Three Months Ended
March 31, 2022
(000’s)
|
|
|
Three Months Ended
March 31, 2021
(000’s)
|
|
|
Revenues (from external customers)
|
|
|
|
|
|
|
|
|
|
BioSig
|
|
$ |
8 |
|
|
$ |
118 |
|
|
ViralClear
|
|
|
- |
|
|
|
- |
|
|
NeuroClear
|
|
|
- |
|
|
|
- |
|
| |
|
$ |
8 |
|
|
$ |
118 |
|
| |
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
BioSig
|
|
$ |
7,749 |
|
|
$ |
7,774 |
|
|
ViralClear
|
|
|
322 |
|
|
|
805 |
|
|
NeuroClear
|
|
|
2 |
|
|
|
- |
|
| |
|
$ |
8,073 |
|
|
$ |
8,579 |
|
| |
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
|
|
|
|
|
|
|
BioSig
|
|
$ |
(7,741 |
)
|
|
$ |
(7,754 |
)
|
|
ViralClear
|
|
|
(322 |
)
|
|
|
(805 |
)
|
|
NeuroClear
|
|
|
(2 |
)
|
|
|
- |
|
| |
|
$ |
(8,065 |
)
|
|
$ |
(8,559 |
)
|
| |
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
BioSig
|
|
$ |
11,951 |
|
|
$ |
13,595 |
|
|
ViralClear
|
|
|
591 |
|
|
|
1,924 |
|
|
NeuroClear
|
|
|
- |
|
|
|
- |
|
| |
|
$ |
12,542 |
|
|
$ |
15,519 |
|
BIOSIG TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 12 – RELATED PARTY TRANSACTIONS
Accrued expenses related primarily to travel reimbursements, director fees and accrued compensation due related parties as of March 31, 2022 and December 31, 2021 was $100,000 and $86,208, respectively.
During the three months ended March 31, 2022 and 2021, the Company’s Chief Financial Officer guaranteed issued corporate credit cards for no consideration.
NOTE 13 – SUBSEQUENT EVENTS
Equity transactions:
On April 7, 2022, the Company issued 2,500 shares of its common stock for vested restricted stock units.
On April 13, 2022, BioSig granted an aggregate of 444,000 options to purchase shares of its common stock to employees. The options are exercisable at $1.14 per share for ten years with one-third vesting on the first anniversary of the date of grant, and the remaining two-thirds vesting in substantially equal quarterly installments over the following two years.
On April 1, 2022, ViralClear issued 196,778 shares of its common stock to BioSig as payment for accumulated accrued liabilities due BioSig in the amount of $944,635.
On May 6, 2022, the Company issued a 100,000 restricted stock unit to a consultant for services rendered with 50,000 shares vesting immediately and 50,000 shares vesting on the one-year anniversary of the date of grant valued at $81,000. The vested shares of 50,000 were issued on May 9, 2022.
On May 12, 2022, the Company granted 50,000 options to purchase shares of its common stock to a board member. The options are exercisable at $.82 per share for ten years with one-half vesting immediately and one-half vesting on the one year anniversary of the acceptance of the offer to serve as a member of the board on April 22, 2023.
Operating leases:
On April 4, 2022, the Company entered into a Seventh Amendment to the Office Lease at 12424 Wilshire Blvd in Los Angeles dated August 9, 2011 – it is the Fifth Extended Term with respect to Suite 745 and the Expansion Term with respect to Suite 740 which is from July 1, 2022 until July 31, 2025 with a fixed monthly rent beginning at $14,124 and escalating yearly to $15,130 in the final year. The security deposit remains unchanged at $27,404.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for materials, and competition.
Business Overview
BioSig Technologies, Inc.
We are a medical technology company that is commercializing our PURE EP™ System which is an advanced signal acquisition and processing platform designed to provide essential diagnostic signals with high clinical value in all types of cardiac catheter ablations. PURE EP™ is designed to address long-standing limitations that slow and disrupt cardiac catheter ablation procedures, such as environmental lab noise, signal saturation, slow signal recovery, and inaccurate display of fractionated potentials.
Cardiac catheter ablation is a procedure that involves delivery of energy through the tip of a catheter that scars or destroys heart tissue to correct heart rhythm disturbances (arrhythmias). In August 2018, we received 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) to market our PURE (Precise Uninterrupted Real-time evaluation of Electrograms) EP™ System.
PURE EP™ is a signal processing platform that combines advanced hardware and software to address known challenges associated to signal acquisition, to enable electrophysiologists to see more signals and analyze them in real-time. The device aims to minimize noise and artifacts from cardiac recordings and acquire high-fidelity cardiac signals. Improving fidelity of acquired cardiac signals may potentially increase the diagnostic value of these signals, thereby possibly improving accuracy and efficiency of the EP studies and ablation procedures.
PURE EP™’s initial focus is on improving intracardiac signal acquisition and enhancing diagnostic information for catheter ablation procedures for complex arrhythmias like ventricular tachycardia (“VT”), a potentially life-threatening arrhythmia, and atrial fibrillation (“AF”), the most common cardiac arrhythmia associated with a fivefold risk of stroke.
Clinical data acquired by the PURE EP™ System in a multi-center study at Texas Cardiac Arrhythmia Institute at St. David’s Medical Center in Austin, Texas, Mayo Clinic in Jacksonville, Florida, and Massachusetts General Hospital in Boston, Massachusetts was published in September 2021 in the Journal of Cardiovascular Electrophysiology and is available electronically with open access via the Wiley Online Library. Study results showed 93% consensus across the blinded reviewers with a 75% overall improvement in intracardiac signal quality and confidence in interpreting PURE EP™ signals over conventional sources. AF accounted for over 40% of enrollments.
We continue to install PURE EP™ Systems at centers of excellence for clinical evaluation under our market development plan. The PURE EP™ System has been utilized at numerous institutions, including Mayo Clinic campuses in Arizona, Florida and Minnesota; the University of Pennsylvania Hospital in Philadelphia, Pennsylvania; Overland Park Regional Medical System in Overland Park, Kansas; Deborah Heart and Lung Center in Browns Mills, New Jersey; St. Elizabeth’s Medical Center in Boston, Massachusetts; Medical City Heart Hospital in Dallas, Texas; Beth Israel Deaconess Medical Center (BIDMC) in Boston, Massachusetts, a teaching hospital of Harvard Medical School; Methodist Hospital in San Antonio, Texas; Houston Methodist Hospital; Medical City North Hills in North Richland Hills; and Westside Regional Medical Center in Plantation, Florida.
To date, more than 2,257 patient procedures have been conducted with the PURE EP™ System by more than 76 electrophysiologists across seventeen different clinical sites in the United States.
In addition to clinical evaluation, we have conducted pre-clinical evaluation with the PURE EP™ System under several protocols. At Mayo Clinic in Rochester, Minnesota, we have performed twenty-seven experiments (including novel research programs such as Artificial Intelligence, or AI, and repolarization) in various animal models; we also conducted a pre-clinical study at the Mount Sinai Hospital in New York, New York, with an emphasis on the VT model; and six experiments to date during a study at the University of Pennsylvania. We intend to continue additional research and development studies with our technology at Mayo Clinic, the University of Pennsylvania and other national centers.
In September 2021, we announced that we entered into a manufacturing and professional services agreement with Plexus Corp (“Plexus”) (Nasdaq: PLXS). Under the terms of the agreement, Plexus will manufacture the PURE EP™ System and develop a new product pipeline for our subsidiary, ViralClear.
We have made progress towards obtaining a European CE marking certificate for medical devices. In the first quarter of 2022, we completed the quality management system audit for the International Organization for Standardization (“ISO”) 13485:2016 with the expectation to obtain the ISO 13485:2016 certification in the first half of 2022 and proceed to the application for the European CE Marking clearance in the first half of 2023, subject to the guidance and availability from the European Notified Body.
In January 2022, we were awarded U.S. patent claims for our PURE EP™ noise-filtering technology which address computer-implemented systems and methods for filtering noise from input cardiac signals. We now have 49 worldwide patents owned or controlled by us covering our novel technology for arrhythmia care and electroporation.
ViralClear Pharmaceuticals, Inc.
ViralClear Pharmaceuticals, Inc. (“ViralClear”) is a majority-owned subsidiary of the Company originally known as NeuroClear Technologies, Inc. The subsidiary was established November 2018 to pursue additional applications of the PURE EP™ signal processing technology outside of EP. In March 2020, it was renamed ViralClear to develop merimepodib, a broad-spectrum anti-viral agent that showed potential to treat COVID-19. We currently do not intend to further develop merimepodib. Since late 2020, ViralClear has been realigned with its original objective of pursuing additional applications of the PURE EP™ signal processing technology outside of cardiac electrophysiology. As of March 31, 2022, the Company retains 68.44% ownership of ViralClear.
Results of Operations (000’s)
We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, such as the progress of our research and development and commercialization efforts, the timing and outcome of future regulatory submissions and uncertainty around the current pandemic. Due to these uncertainties, accurate predictions of future operations are difficult or impossible to make.
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 (000’s)
Revenues and Cost of Goods Sold. Revenue for the three months ended March 31, 2022 totaled $8 comprised of service revenue as compared to $118 for the three months ended March 31, 2021 comprised of product sales of $115 and recognized service revenue of $3.
We derive our revenue primarily from the sale of our medical device, PURE EP system, as well as related support and maintenance services and software upgrades in connection with the system.
We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Cost of sales for the three months ended March 31, 2022 was nil as compared to $99 for the three months ended March 31, 2021.
Gross profit from the three months ended March 31, 2022 was $8 or 100.0% as compared to $19 or 16.1% for the three months ended March 31, 2021.
In 2021, we had limited release of our product and our commercial launch is scheduled in latter part of 2022.
Research and Development Expenses. Research and development expenses for the three months ended March 31, 2022 were $1,617, an increase of $351, or 27.7%, from $1,266 for the three months ended March 31, 2021. The increase is primarily due to increased staffing levels to $1,051 for the three months ended March 31, 2022 as compared to $499 for the three months ended March 31, 2021 in the BioSig segment, an increase of $552 or 110.6%. Research and development expenses were comprised of the following:
Three months ended:
| |
|
March 31, 2022
|
|
|
March 31, 2021
|
|
|
Salaries and equity compensation
|
|
$ |
1,051 |
|
|
$ |
499 |
|
|
Consulting expenses
|
|
|
131 |
|
|
|
189 |
|
|
Research and clinical studies and design work
|
|
|
112 |
|
|
|
295 |
|
|
Data/AI development
|
|
|
50 |
|
|
|
127 |
|
|
Regulatory
|
|
|
20 |
|
|
|
59 |
|
|
Product development
|
|
|
- |
|
|
|
14 |
|
|
Travel, supplies, other
|
|
|
253 |
|
|
|
83 |
|
|
Total
|
|
$ |
1,617 |
|
|
$ |
1,266 |
|
Stock based compensation for research and development personnel was $373 and $(67) for the three months ended March 31, 2022 and 2021, respectively.
General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2022 were $6,401, a decrease of $870, or 12.0%, from $7,271 incurred in the three months ended March 31, 2021. This decrease is primarily due to reduction in the activities of our ViralClear segment, net with an increase in employee performance pay and staff in the current period as compared to the same period in the prior year and additional service provider fees paid.
Payroll related expenses increased to $2,532 in the current period from $1,849 for the three months ended March 31, 2021, an increase of $683, or 36.9%. The increase was primarily due to added staff in commercialization, sales and general and administration in the BioSig segment. We incurred $1,643 in stock-based compensation in connection with the vesting of stock and stock options issued to board members, officers, employees and consultants for the three months ended March 31, 2022 as compared to $2,586 in stock-based compensation for the same period in 2021.
Professional services for the three months ended March 31, 2022 totaled $340, a decrease of $40, or 10.5%, over the $380 recognized for the three months ended March 31, 2021. Of professional services, legal fees totaled $233 for the three months ended March 31, 2022; a decrease of $75, or 24.4%, from $308 incurred for the three months ended March 31, 2021. The decrease is primarily due to costs incurred in 2021 for financing, contract work and patent filings for the BioSig segment not incurred in current period. Accounting fees incurred in the three months ended March 31, 2022 amounted to $107, an increase of $35, or 48.6%, from $72 incurred in same period last year. In 2022, we incurred added audit costs for both the BioSig and ViralClear segments.
Consulting, public and investor relations fees for the three months ended March 31, 2022 were $896 as compared to $1,374 incurred for the three months ended March 31, 2021, a decrease of $478, or 34.8%. The decrease in consulting, marketing and investor relations fees during the three months ended March 31, 2022 related to our efficient efforts to develop our recognition throughout the medical industry in an effective manner.
Travel, meals and entertainment costs for the three months ended March 31, 2022 were $299, an increase of $190, or 174.3%, from $109 incurred in the three months ended March 31, 2021. Travel, meals and entertainment costs include travel related to business development and financing. The increase in 2022 was due to the lifting of various restrictions imposed by the COVID-19 outbreak leading to increased commercialization effort in 2022 as compared to 2021.
Rent for the three months ended March 31, 2022 totaled $106, a decrease of $11, or 9.4%, from $117 incurred in three months ended March 31, 2021. The decrease in rent for 2022 as compared to 2021 is due primarily to a lower negotiated rent for our Los Angeles offices beginning July 1, 2021 and reduction of our rent in our Connecticut headquarters with our move to a larger facility in September 2021 as compared to 2021.
Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended March 31, 2022 totaled $55, an increase of $13, or 31.0%, over the expense of $42 incurred in the three months ended March 31, 2021, as a result of the adding additional office computers and other equipment.
Preferred Stock Dividend. Preferred stock dividend for the three months ended March 31, 2022 and 2021 totaled $2. Preferred stock dividends are related to the dividends accrued on our Series C Preferred Stock issued during the period from 2013 through 2015.
Net Loss Attributable to BioSig Technologies, Inc. Common Shareholders. As a result of the foregoing, net loss attributable to common shareholders for the three months ended March 31, 2022 was $7,965 compared to a net loss of $8,321 for the three months ended March 31, 2021.
Segment Results
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
Summary Statement of Operations for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 are detailed in Note 11 of the accompanying unaudited condensed consolidated financial statements.
COVID-19
On March 11, 2020, the World Health Organization (the “WHO”) declared a pandemic related to the rapidly spreading coronavirus (COVID-19) outbreak, which has led to a global health emergency. The full public-health impact of the ongoing pandemic is currently indeterminable and rapidly evolving, and the related health crisis has adversely affected and may continue to adversely affect the global economy, resulting in delaying to our commercialization objectives of the PURE EP Systems into mid-2022.
Liquidity and Capital Resources ($000’s)
As of March 31, 2022, we had a working capital of $8,293, comprised of cash of $8,665, inventory of $2,026 and prepaid expenses, vendor deposits and employee advances of $311, which was offset by $2,344 of accounts payable and accrued expenses, accrued dividends on preferred stock issuances of $84 and current portions of deferred revenue of $29 and of lease liability of $252. For the three months ended March 31, 2022, we used $5,941 of cash in operating activities and $55 of cash in investing activities.
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 (000’s)
Cash provided by financing activities totaled $3,002, comprised of proceeds from the sale of our common stock and warrants, net of expenses, of $3.
In the comparable period in 2021, our aggregate cash provided by financing activities totaled $1,328, comprised of proceeds from the sale of our common stock in an at-the-market offering of $1,300 and proceeds from exercise of options of $28. At March 31, 2022, we had cash of $8,665 compared to $22,475 at March 31, 2021. Our cash is held in bank deposit accounts. At March 31, 2022 and March 31, 2021, we had no convertible debentures outstanding.
Cash used in operations for the three months ended March 31, 2022 and 2021 was $5,941 and $6,991, respectively, which represent cash outlays for research and development and general and administrative expenses in such periods. The decreases in cash outlays principally resulted reduced operating costs, general and administrative expenses in 2022 and with increases in our operating assets of $95 and a net increase in our operating liabilities of $58.
We used $55 cash for investing activities for the three months ended March 31, 2022, compared to $130 for the three months ended March 31, 2021. For the current period and comparable period, we purchased computer and other equipment.
We had an accumulated deficit as of March 31, 2022 of $196.9 million, as well as a net loss attributable to BioSig Technologies, Inc. of $8.0 and negative operating cash flows. We expect to continue incurring losses and negative cash flows from operations until our products (primarily PURE EP System) reach full commercial profitability.
These conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is an issue raised due to our net losses and negative cash flows from operations since inception and our expectation is that these conditions will continue for the foreseeable future. We will require additional financing to fund future operations. Although we have commercial products available for sale, we have not generated significant revenues to date, and there is no assurance that we will be able to generate cash flow to fund operations. In addition, there can be no assurance that our research and development will be successfully completed or that any additional products will be approved or commercially viable. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, obtaining loans from various financial institutions or being awarded grants from government agencies, where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
Our plans include the continued commercialization of the PURE EP System and other applications of our core technology and raising capital through the sale of additional equity securities, debt or capital inflows from strategic partnerships. Our shift from a focus on technology development to commercialization has allowed us to reduce our annual expenses in a meaningful way. As a result of this transition, we have been able to achieve savings through reductions in executive and management compensation and a reduction of our utilization of external consultants and professional service providers. We believe these cost-saving measures combined with our expectations of positive trends in commercial activity create the potential for us to achieve a lower cash flow breakeven rate. There are no assurances, however, that we will be successful in obtaining the level of financing needed for our operations. The ongoing COVID-19 pandemic has resulted and continues to result in significant financial market volatility and uncertainty in recent months. In addition, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine.
A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital and on the market price of our common stock, and we may not be able to successfully raise capital through the sale of our securities.
Our Series C Preferred Stock contains triggering events which would, among other things, require redemption (i) in cash, at the greater of (a) 120% of the stated value of $1 or (b) the product of (I) the variable weighted average price of our common stock on the trading day immediately preceding the date of the triggering event and (II) the stated value divided by the then conversion price or (ii) in shares of our common stock, equal to a number of shares equal to the amount set forth in (i) above divided by 75%. As of March 31, 2022, the aggregate stated value of our Series C Preferred Stock was $105. The triggering events include our being subject to a judgment of greater than $100 or our initiation of bankruptcy proceedings. If any of the triggering events contained in our Series C Preferred Stock occur, the holders of our Series C Preferred Stock may demand redemption, an obligation we may not have the ability to meet at the time of such demand. We will be required to pay interest on any amounts remaining unpaid after the required redemption of our Series C Preferred Stock, at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law.
We expect to incur losses from operations for the near future. We expect to incur increasing marketing and commercialization expenses related to our PURE EP system in addition to additional research and development costs relating to the PURE EP and other product candidates, including expenses related to clinical trials. We expect that our general and administrative expenses will increase in the future as we expand our business development, add infrastructure and incur additional costs related to being a public company, including incremental audit fees, investor relations programs and increased professional services.
Our future capital requirements will depend on a number of factors, including the progress of our research and development of product candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing and our success in developing markets for our product candidates.
Future financing may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, existing holders of our securities may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our securities.
If additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.
Equity Financing
On March 22, 2022, we closed a registered direct offering (the “Offering”) of an aggregate of 2,613,130 shares of our common stock, at an offering price of $1.15 per share and (ii) warrants to purchase up to 2,613,130 shares of our common stock, at an exercise price of $1.40 per share, that will become exercisable six months after the date of issuance and will expire three and one-half years following the date of issuance, for gross proceeds of approximately $3.0 million before the deduction of fees and offering expenses.
The common stock and warrants were offered by us pursuant to a shelf registration statement on Form S-3 (File No. 333-251859) (the “Shelf Registration Statement”), previously filed with the SEC on December 31, 2020, and declared effective by the SEC on January 12, 2021, and a prospectus supplement, dated March 21, 2022, to the Shelf Registration Statement, filed with the SEC on March 22, 2022.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
We derive our revenue primarily from the sale of our medical device, the PURE EP™ System, as well as related support and maintenance services and software upgrades in connection with the system.
We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We determine revenue recognition through the following five steps:
|
|
●
|
Identify the contract with the customer;
|
|
|
●
|
Identify the performance obligations in the contract;
|
|
|
●
|
Determine the transaction price;
|
|
|
|
|
|
|
●
|
Allocate the transaction price to the performance obligation in the contract; and
|
|
|
●
|
Recognize revenue when, or as, the performance obligations are satisfied.
|
Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. If we determine that it has not satisfied a performance obligation, it will defer recognition of the revenue until the performance obligation is deemed to be satisfied. Support, maintenance, and software upgrades are performance obligations over a defined period and are recognized ratably over the contractual service period. Customers typically purchase these services with the initial sale of the PURE EP System and do not have the right to terminate their contracts unless we fail to perform material obligations.
We may execute more than one contract with a single customer. If so, it is evaluated whether the agreements were negotiated as a package with a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.
We estimate the transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, we evaluate the amount of the potential payments and the likelihood that the payments will be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price.
We record accounts receivable for amounts invoiced to customers for which the Company has an unconditional right to consideration as provided under the contractual arrangement. Unbilled receivables, if any, include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenue includes payments received in advance of performance under the contract. Our unbilled receivables and deferred revenue are reported on an individual contract basis at the end of each reporting period. Unbilled receivables are classified as current or noncurrent based on the timing of when we expect to bill the customer. Deferred revenue is classified as current or noncurrent based on the timing of when we expect to recognize revenue.
Research and Development
We account for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.
Stock Based Compensation
All stock-based payments to employees and to nonemployee directors for their services as directors consisted of grants of restricted stock and stock options, which are measured at fair value on the grant date and recognized in the statements of operations as compensation expense over the relevant vesting period. Restricted stock payments and stock-based payments to nonemployees are recognized as an expense over the period of performance.
Such payments are measured at fair value at the earlier of the date a performance commitment is reached, or the date performance is completed. In addition, for awards that vest immediately and are non-forfeitable, the measurement date is the date the award is issued.