| |
(13) | Includes 2,991 shares of common stock at a priceissuable upon the exercise of $0.80 per share for an aggregate purchase price of $47,500 as part of our “friends and family” round of financing.warrants. |
| |
(8)(14) | Kenneth L Londoner is our chief executive officer and the chairman of our board of directors.chairman. |
| |
(9)(15) | Comprised of (i) 6,25099,311 shares of common stock directly held by Mr. Londoner and 2,579 shares of common stock issued in lieu of cash payments on the interest accrued on his bridge notes, (ii) 3,511,2503,447,474 shares of common stock held by Endicott Management Partners, LLC, an entity for which Mr. Londoner is deemed the beneficial owner, (iii) 10 shares of Series B Preferred Stock that are convertible into 24,752 shares of common stock, which he purchased for an aggregate purchase price of $50,000, (iv) shares of Series C Preferred Stock that are convertible into 95,694 shares of common stock, (v) 119,618142,225 shares of common stock issuable upon the exercise of warrants purchased in two private placement transactions, (vi) 47,848 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and (vi)Registration Rights Agreement, and (vii) options to purchase 250,000 shares of common stock that are currently exercisable. |
| |
(10)(16) | Comprised of 2,579 shares of common stock issued in lieu of cash payments on the interest accrued on his bridge notes, 95,694 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 119,618 shares of common stock issuable upon the exercise of warrants. |
| |
(11)(17) | Comprised of (i) 31,002124,063 shares of common stock directly held by Mr. Londoner, (ii) 3,511,2503,447,474 shares of common stock are held by Endicott Management Partners, LLC, an entity for which Mr. Londoner is deemed the beneficial owner, (iii) 70,455 shares of common stock issuable upon the exercise of warrants, and (iii)(iv) options to purchase 250,000 shares of common stock that are currently exercisable. |
| |
(12)(18) | Includes 315 shares of common stock issued in lieu of cash payments on the interest accrued on the bridge notes, 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 11,962 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 5,982 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. In February and May 2011, Mr. Chaplin purchased an aggregate of 25,000 shares of common stock at a price of $0.80 per share for an aggregate purchase price of $20,000 as part of our “friends and family” round of financing. |
| |
(19) | Comprised of 315 shares of common stock issued in lieu of cash payments on the interest accrued on the bridge notes, 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 14,953 shares of common stock issuable upon the exercise of warrants. In February and May 2011, Mr. Chaplin purchased an aggregate of 25,000 shares of common stock at a price of $0.80 per share for an aggregate purchase price of $20,000 as part of our “friends and family” round of financing. |
| |
(13)(20) | Includes 2,991 shares of common stock issuable upon the exercise of warrants. |
| |
(21) | Comprised of 535 shares of common stock issued in lieu of cash payments on the interest accrued on his bridge notes, 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 47,847 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 23,924 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(22) | Comprised of 535 shares of common stock issued in lieu of cash payments on the interest accrued on his bridge notes, 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 59,809 shares of common stock issuable upon the exercise of warrants. |
(14) | |
(23) | Comprised of 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(24) | Comprised of 23,923 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 23,923 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 11,964 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(25) | Comprised of 23,923 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 29,906 shares of common stock issuable upon the exercise of warrants. |
| |
(15)(26) | Comprised of 5,982 shares of common stock issuable upon the exercise of warrants. |
| |
(27) | Shaye Hirsch, director of Brio Capital Master Fund Ltd., has sole voting and dispositive power over the securities held for the account of this selling stockholder. |
(28) | Comprised of 59,809 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 59,809 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 29,906 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(16)(29) | Comprised of 59,809 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 74,762 shares of common stock issuable upon the exercise of warrants. |
| |
(17)(30) | Comprised of 14,953 shares of common stock issuable upon the exercise of warrants. |
| |
(31) | Konrad Ackermann has sole voting and dispositive power over the securities held for the account of this selling stockholder. Pursuant to the Securities Purchase Agreement by and among us and the holders of the Series C Preferred Stock, Alpha Capital Anstalt was entitled to an expense reimbursement from us of $95,000, of which $62,500 was paid in cash and $32,500 was paid shares of common stock at a conversion price of $2.09 per share, and a warrant to purchase 8,700 shares of common stock. In addition, any amendments to the Securities Purchase Agreement must be approved by holders representing at least 67% of the outstanding shares of the Series C Preferred Stock, which holders must include Alpha Capital Anstalt, so long as Alpha Capital Anstalt holds not less than $100,000 of Series C Preferred Stock. Also, we may not (i) increase the number of authorized shares of preferred stock, (ii) amend our charter documents, including the terms of the Series C Preferred Stock, in any manner adverse to the holders of the Series C Preferred Stock, or (iii) perform certain covenants, including restrictions on incurrence of debt and liens, repurchasing our equity securities, payment of cash dividends and engaging in affiliate transactions without the approval of holders representing at least 67% of the outstanding shares of the Series C Preferred Stock, which holders must include Alpha Capital Anstalt, so long as Alpha Capital Anstalt holds not less than $100,000 of Series C Preferred Stock. |
| |
(18)(32) | Comprised of 400,000 shares of common stock, 299,043 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 360,268 shares of common stock issuable upon the exercise of warrants purchased in two private placement transactions and 149,522 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(33) | Comprised of 299,043 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 373,804 shares of common stock issuable upon the exercise of warrants. |
| |
(19)(34) | Includes 135,986 shares of common stock issuable upon the exercise of warrants. |
| |
(35) | Comprised of 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 11,962 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 5,982 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(36) | Comprised of 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 14,953 shares of common stock issuable upon the exercise of warrants. |
| |
(20)(37) | Comprised of 2,991 shares of common stock issuable upon the exercise of warrants. |
| |
(38) | Comprised of (i) 10 shares of Series B Preferred Stock that are convertible into 24,752 shares of common stock, which were purchased for an aggregate purchase price of $50,000, (ii) 46,890 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 52,87246,890 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 11,964 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(21)(39) | Comprised of 46,890 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 52,872 shares of common stock issuable upon the exercise of warrants. |
| |
(22)(40) | Includes 11,724 shares of common stock issuable upon the exercise of warrants. |
| |
(41) | Comprised of 16,747 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 16,747 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 5,982 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(42) | Comprised of 16,747 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 19,738 shares of common stock issuable upon the exercise of warrants. |
(43) | Comprised of 4,188 shares of common stock issuable upon the exercise of warrants. |
| |
(23)(44) | Comprised of 71,770 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 71,770 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 35,886 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(45) | Comprised of 71,770 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 89,713 shares of common stock issuable upon the exercise of warrants. |
| |
(24)(46) | Comprised of 17,943 shares of common stock issuable upon the exercise of warrants. |
| |
(47) | Comprised of (i) 10 shares of Series B Preferred Stock that are convertible into 24,752 shares of common stock, which were purchased for an aggregate purchase price of $50,000, (ii) 23,923 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 29,90523,923 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 11,964 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(25)(48) | Comprised of 23,923 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 29,905 shares of common stock issuable upon the exercise of warrants. |
| |
(26)(49) | Includes 5,982 shares of common stock issuable upon the exercise of warrants. |
| |
(50) | Comprised of (i) 20 shares of Series A Preferred Stock that are convertible into 54,348 shares of common stock, which were purchased for an aggregate purchase price of $100,000, (ii) 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 59,80947,847 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 23,924 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(27)(51) | Comprised of 47,847 shares of common stock issuable upon the exercise of warrants and 59,809 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock. |
| |
(28)(52) | Includes 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(53) | Comprised of (i) 35 shares of Series A Preferred Stock that are convertible into 95,109 shares of common stock, which were purchased for an aggregate purchase price of $175,000, (ii) 4 shares of Series B Preferred Stock that are convertible into 9,901 shares of common stock, which were purchased for an aggregate purchase price of $20,000, (iii) 9,569 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iv) 11,9629,569 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (v) 4,786 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
(29) | |
(54) | Comprised of 9,569 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(30)(55) | Includes 2,393 shares of common stock issuable upon the exercise of warrants. |
| |
(56) | Portofino Management, Inc., the general partner of Portofino Ventures LP, has voting and dispositive power over the securities held for the account of this selling stockholder. Portofino Management, Inc. is controlled by Michael Knudsen, its president, and accordingly, Mr. Knudsen may be deemed to have sole voting and dispositive power over the securities owned by Portofino Management, Inc. |
| |
(31)(57) | Comprised of 9,569 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 9,569 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 4,786 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(58) | Comprised of 9,569 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(32)(59) | Comprised of 2,393 shares of common stock issuable upon the exercise of warrants. |
| |
(60) | Comprised of (i) 3 shares of Series B Preferred Stock that are convertible into 7,426 shares of common stock, which were purchased for an aggregate purchase price of $15,000, (ii) 23,92311,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, (iii) 11,962 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction, and (iv) 5,982 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(61) | Comprised of 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and (iii) 26,91414,953 shares of common stock issuable upon the exercise of warrants. |
| |
(33)(62) | Includes 2,991 shares of common stock issuable upon the exercise of warrants. |
| |
| |
(63) | Comprised of 23,92314,355 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and 26,91414,355 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction and 6,581 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(34)(64) | Comprised of 14,355 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 17,346 shares of common stock issuable upon the exercise of warrants. |
| |
(35)(65) | Comprised of 3,590 shares of common stock issuable upon the exercise of warrants. |
| |
(66) | Comprised of (i) 10 shares of Series A Preferred Stock that are convertible into 27,174 shares of common stock, which were purchased for an aggregate purchase price of $50,000, (ii) 23,92311,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 26,91411,962 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 5,982 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(36)(67) | Comprised of 23,92311,962 shares of common stock issuable upon the exercise of warrants and 26,91414,953 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock. |
| |
(37)(68) | Includes 2,991 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock. |
| |
(69) | Comprised of 21,531 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 21,531 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 9,571 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(70) | Comprised of 21,531 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 25,718 shares of common stock issuable upon the exercise of warrants. |
| |
(38)(71) | Comprised of 5,384 shares of common stock issuable upon the exercise of warrants. |
| |
(72) | Comprised of 16,746 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 16,746 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 8,374 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(73) | Comprised of 16,746 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 20,933 shares of common stock issuable upon the exercise of warrants. |
| |
(39)(74) | Comprised of 4,187 shares of common stock issuable upon the exercise of warrants. |
| |
(75) | Brian Miller, manager of Fourfathom Capital, LLC, has sole voting and dispositive power over the securities held for the account of this selling stockholder. |
| |
(40)(76) | Comprised of 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 47,847 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 23,924 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(77) | Comprised of 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 59,809 shares of common stock issuable upon the exercise of warrants. |
(78) | Comprised of 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(79) | Comprised of 71,770 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 71,770 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 35,886 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(80) | Comprised of 71,770 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 89,713 shares of common stock issuable upon the exercise of warrants. |
| |
(81) | Comprised of 17,943 shares of common stock issuable upon the exercise of warrants. |
| |
(82) | Comprised of 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 47,847 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 23,924 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(83) | Comprised of 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 59,809 shares of common stock issuable upon the exercise of warrants. |
| |
(41)(84) | Comprised of 71,770 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 89,71311,962 shares of common stock issuable upon the exercise of warrants. |
| |
(42) | Comprised of 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 59,809 shares of common stock issuable upon the exercise of warrants. |
| |
(43)(85) | Comprised of (i) 10 shares of Series B Preferred Stock that are convertible into 24,752 shares of common stock, which were purchased for an aggregate purchase price of $50,000, (ii) 23,923 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 29,90523,923 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 11,964 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(44)(86) | Comprised of 23,923 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 29,905 shares of common stock issuable upon the exercise of warrants. |
| |
(45)(87) | Includes 5,982 shares of common stock issuable upon the exercise of warrants. |
| |
(88) | Comprised of 9,569 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 9,569 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 4,786 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(89) | Comprised of 9,569 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(46)(90) | Comprised of 2,393 shares of common stock issuable upon the exercise of warrants. |
| |
(91) | Comprised of 8,134 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 8,134 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 4,068 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(92) | Comprised of 8,134 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 10,168 shares of common stock issuable upon the exercise of warrants. |
(47) | |
(93) | Comprised of 2,034 shares of common stock issuable upon the exercise of warrants. |
| |
(94) | Comprised of (i) 5 shares of Series A Preferred Stock that are convertible into 13,587 shares of common stock, which were purchased for an aggregate purchase price of $25,000,, (ii) 2,393 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 2,393 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 599 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(48)(95) | Comprised of 2,393 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 2,393 shares of common stock issuable upon the exercise of warrants. |
| |
(49)(96) | Includes 599 shares of common stock issuable upon the exercise of warrants. |
(97) | Comprised of (i) 5 shares of Series A Preferred Stock that are convertible into 13,587 shares of common stock, which were purchased for an aggregate purchase price of $25,000,, (ii) 2,393 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 2,393 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 599 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(50)(98) | Comprised of 2,393 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 2,393 shares of common stock issuable upon the exercise of warrants. |
| |
(51)(99) | Includes 599 shares of common stock issuable upon the exercise of warrants. |
| |
(100) | Comprised of (i) 20 shares of Series B Preferred Stock that are convertible into 49,505 shares of common stock, which were purchased for an aggregate purchase price of $100,000,, (ii) 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 4,785 shares of common stock issuable upon the exercise of warrants.warrants purchased in a private placement transaction, and (iv) 1,197 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(52)(101) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 4,785 shares of common stock issuable upon the exercise of warrants. |
| |
(53)(102) | Includes 1,197 shares of common stock issuable upon the exercise of warrants. |
| |
(103) | Comprised of 2,871 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 2,871 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 718 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(104) | Comprised of 2,871 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 2,871 shares of common stock issuable upon the exercise of warrants. |
| |
(54)(105) | Comprised of 718 shares of common stock issuable upon the exercise of warrants. |
| |
(106) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 4,785 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 1,197 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(107) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 4,785 shares of common stock issuable upon the exercise of warrants. |
| |
(55)(108) | Comprised of 1,197 shares of common stock issuable upon the exercise of warrants. |
| |
(109) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 4,785 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 1,197 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(110) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 4,785 shares of common stock issuable upon the exercise of warrants. |
| |
(56)(111) | Comprised of 1,197 shares of common stock issuable upon the exercise of warrants. |
| |
(112) | Comprised of (i) 5 shares of Series B Preferred Stock that are convertible into 24,752 shares of common stock, which were purchased for an aggregate purchase price of $25,000,, (ii) 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 4,785 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction, and (iv) 1,197 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(57)(113) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 4,785 shares of common stock issuable upon the exercise of warrants. |
| |
(58)(114) | Includes 1,197 shares of common stock issuable upon the exercise of warrants. |
(115) | Comprised of 9,570 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 9,570 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 2,393 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(116) | Comprised of 9,570 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 9,570 shares of common stock issuable upon the exercise of warrants. |
| |
(59)(117) | Comprised of 2,393 shares of common stock issuable upon the exercise of warrants. |
| |
(118) | Comprised of (i) 5 shares of Series A Preferred Stock that are convertible into 13,587 shares of common stock, which were purchased for an aggregate purchase price of $25,000,, (ii) 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, and (iii) 11,962 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction, and (iv) 2,991 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(60)(119) | Comprised of 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(61)(120) | Includes 2,991 shares of common stock issuable upon the exercise of warrants. |
| |
(121) | Comprised of 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 11,962 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 2,991 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(122) | Comprised of 11,962 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(62)(123) | Comprised of 2,991 shares of common stock issuable upon the exercise of warrants. |
| |
(124) | Comprised of 23,924 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 23,924 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 5,981 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(125) | Comprised of 23,924 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 23,924 shares of common stock issuable upon the exercise of warrants. |
| |
(63)(126) | Comprised of 5,981 shares of common stock issuable upon the exercise of warrants. |
| |
(127) | Comprised of 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 47,847 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 11,962 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(128) | Comprised of 47,847 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 47,847 shares of common stock issuable upon the exercise of warrants. |
| |
(64)(129) | Comprised of 11,962 shares of common stock issuable upon the exercise of warrants. |
| |
(130) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock, 4,785 shares of common stock issuable upon the exercise of warrants purchased in a private placement transaction and 1,197 shares of common stock issuable upon the exercise of warrants issued in consideration of certain amendments made to our Securities Purchase Agreement and Registration Rights Agreement. |
| |
(131) | Comprised of 4,785 shares of common stock issuable upon the conversion of shares of our Series C Preferred Stock and 4,785 shares of common stock issuable upon the exercise of warrants. |
| |
(65)(132) | Comprised of 1,197 shares of common stock issuable upon the exercise of warrants. |
(133) | Laidlaw & Co (UK) Ltd is a registered broker-dealer. Matthew Eitner is the chief executive officer of Laidlaw & Co (UK) Ltd and, in such capacity, he may be deemed to have voting and dispositive power over the securities held for the account of this selling stockholder. On January 17, 2013, we engaged Laidlaw & Co (UK) Ltd to serve as our placement agent in connection with the private placement of our Series C Preferred Stock and the related warrants. In connection with such private placement, we paid Laidlaw & Co (UK) Ltd a fee of $166,860 and we issued it a five-year warrant to purchase 177,057 shares of our common stock, at an initial exercise price of $2.61 per share. |
| |
(66)(134) | Represents shares of common stock issuable upon the exercise of warrants. |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On May 15, 2011, we issued to each of an entity wholly-owned by Mr. Londoner and Miko Consulting Group, Inc., an entity jointly controlled by Dr. Drakulic and Ms. Mikolaitis, 1,700,000 shares of common stock issued at par value for services rendered as our founders in 2009.
On August 1, 2012, we entered into a consulting agreement with Asher Holzer, Ph.D., a member of our board of directors. Pursuant to the consulting agreement, Dr. Holzer was to serve as our chief scientific officer and assist in the development of our technology and our PURE EP System, in exchange for monthly payments of $10,000. We have paid Dr. Holzer an initial payment of $7,500 pursuant to the consulting agreement and we are negotiating an amendment to the consulting agreement with Dr. Holzer that will reflect the parties’ current relationship.
On November 21, 2012, we issued an unsecured promissory note for $218,000 to Kenneth L. Londoner, our then chairman and chief executive officer, for previously advanced funds with interest payable annually, in arrears, on each anniversary at the short term “Applicable Federal Rate” within the meaning of Section 1274(d) of the Internal Revenue Code of 1986, as amended, which was 0.22% in November 2012, and which will be adjusted each anniversary date. The promissory note matures November 21, 2021 and may be prepaid, without premium or penalty, at any time. In connection with the private placement of our Series C Preferred Stock and warrants, on February 6, 2013, Mr. Londoner agreed not to receive payments (by voluntary prepayment, acceleration, set-off or otherwise) associated with the unsecured promissory note absent the prior written consent of the purchasers holding at least 67% interest of our Series C Preferred Stock outstanding, which purchasers must include Alpha Capital Anstalt so long as Alpha Capital Anstalt holds not less than $100,000 of our Series C Preferred Stock. As of June 30, 2013, aggregate interest of $277.19 has accrued on this unsecured promissory note.
On December 6, 2012, we issued an unsecured promissory note for $30,000 to a company under the control of Mr. Londoner for previously advanced funds, interest free and due the earlier of (i) the next financing of not less than $300,000; (ii) February 28, 2013 or (iii) occurrence of an event of default, as defined. The promissory note has been paid in full.
In the fourth quarter of 2012, we sold $600,000 principal amount of certain bridge notes and related warrants in a private placement to selected accredited investors. These bridge notes and related warrants were converted into shares of our Series C Preferred Stock and warrants on February 6, 2013. Kenneth L. Londoner, our then chairman and chief executive officer, purchased $200,000 principal amount of notes, which were converted into 200 shares of Series C Preferred Stock and a warrant to purchase 95,694 shares of our common stock, and Jonathan Steinhouse; a member of our board of directors, purchased $25,000 principal amount of notes, which were converted into 25 shares of Series C Preferred Stock and a warrant to purchase 11,962 shares of our common stock. We also issued to Mr. Londoner and Mr. Steinhouse, in lieu of cash payments on the interest accrued on their respective bridge notes, 2,579 and 383 shares of common stock, respectively.
From 2010 to 2013, Mr. Londoner made four different advances of funds to us in the aggregate amount of $22,000, of which $12,000 has been repaid. In 2013, Mr. Steinhouse made an advance of funds to us in the amount of $20,000, which has been repaid in full. These advances were interest-free and not made on condition of any specific terms.
On February 12, 2013, we issued to Alpha Capital Anstalt 625 shares of Series C Preferred Stock and a warrant to purchase 299,043 shares of our common stock for a purchase price of $625,000.
On May 2, 2013, we entered into an indemnity agreement with Seth H. Z. Fischer in connection with our appointment of Mr. Fischer to our board of directors. Pursuant to the indemnity agreement, we agreed to indemnify Mr. Fischer for all costs and losses relating to proceedings arising out of his service on our board of directors, to the fullest extent permitted by applicable law, subject to certain exceptions, including, but limited to, a final adjudication that Mr. Fischer’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct, or a final adjudication that established Mr. Fischer breached his duty of loyalty to us or that his conduct resulted in illegal personal profits. In addition, we agreed to advance Mr. Fischer expenses when properly requested and we will be entitled to assume the defense of Mr. Fischer if he requests payment of expenses under the indemnity agreement.
On December 31, 2013, as part of a private placement transaction of our common stock and warrants, (i) $228,000 of our outstanding indebtedness that was due to Mr. Londoner was converted into 93,061 shares of common stock and a warrant to purchase 46,531 shares of our common stock; and (ii) we issued to Alpha Capital Anstalt 122,448 shares of our common stock and a warrant to purchase 61,225 shares of our common stock for a purchase price of $300,000.
We have authorized 51,000,000 shares of capital stock, par value $0.001 per share, of which 50,000,000 are shares of common stock and 1,000,000 are shares of “blank check” preferred stock, of which 200 are authorized as Series A Preferred Stock, 600 are authorized as Series B Preferred Stock and 4,200 are authorized as Series C Preferred Stock. On October 3, 2013,January 17, 2014, there were 8,196,5918,412,101 shares of common stock issued and outstanding, 184.4 shares of Series A Preferred Stock issued and outstanding, 177.5 shares of Series B Preferred Stock issued and outstanding and 2,781 shares of Series C Preferred Stock issued and outstanding.
Pursuant to the terms of our Series A Preferred Stock and our Series B Preferred Stock, upon us becoming subject to the reporting requirements under Section 13 or 15(d) of the Securities and Exchange Act, as amended, all shares of our Series A Preferred Stock and our Series B Preferred Stock will automatically convert into shares of our common stock. As a result, upon the effectiveness of this registration statement, the outstanding shares of our Series A Preferred Stock and our Series B Preferred Stock will convert into an aggregate of 1,037,974 shares of our common stock, including dividends accrued on the shares of preferred stock that will be paid in kind and automatically converted. In addition, there will be 43 additional holders of our common stock. Therefore, upon the effectiveness of this registration statement, there will be an aggregate of 9,225,624 shares of our common stock outstanding, separate from any shares registered on this registration statement.
The shares of common stock offered by this prospectus are issuable upon the exercise of common stock purchase warrants or the conversion of shares of Series C Preferred Stock. As such, if a selling stockholder exercises all or any portion of its warrants on a cash basis, we will receive the aggregate exercise price paid by such selling stockholder in connection with any such warrant exercise. The maximum amount of proceeds we would receive upon the exercise of all the warrants on a cash basis would be approximately $4,690,000. However, certain of the selling stockholders may also exercise their warrants through a cashless exercise. In the event a selling stockholder exercises a warrant through a cashless exercise, we will not receive any proceeds from such exercise. We expect to use the proceeds received from the exercise of the warrants, if any, for general working capital purposes.
Holders of Capital Stock
As of October 3, 2013,January 17, 2014, we had 25 holders of our common stock, 20 holders of our Series A Preferred Stock, 24 holders of our Series B Preferred Stock and 41 holders of our Series C Preferred Stock.
Rule 144 Shares
As of October 3, 2013,January 17, 2014, we do not have anyhad 1,563,428 shares of our common stock that are currently available for sale to the public.public , including shares of common stock issuable upon conversion of our Series A Preferred Stock and Series B Preferred Stock .
Common Stock
The holders of common stock are entitled to one vote per share on all matters to be voted upon by stockholders. Holders of our common stock are entitled to receive ratably dividends as may be declared by the board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution, or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities. The common stock has no preemptive or conversion rights, other subscription rights, or redemption or sinking fund provisions.
Each share of common stock entitles the holder to one vote, either in person or by proxy, at meetings of stockholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the stockholders of our common stock who hold, in the aggregate, more than fifty percent of the total voting rights can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any of such directors. The vote of the holders of a majority of the issued and outstanding shares of common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law.
Subject to the rights of the holders of any preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of funds legally available. We have not paid any dividends since our inception, and, subject to our obligations to pay dividends to the holders of our preferred stock as described below, we presently anticipate that all earnings, if any, will be retained for development of our business. Any future disposition of dividends will be at the discretion of our board of directors and will depend upon, among other things, our future earnings, operating and financial condition, capital requirements, and other factors.
Holders of our common stock have no preemptive rights or other subscription rights, conversion rights, redemption or sinking fund provisions. Subject to the rights of the holders of our preferred stock, upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities. There are no provisions in our certificate of incorporation or our by-laws that would prevent or delay a change in our control.
Series A Preferred Stock
The holders of the Series A Preferred Stock are entitled to a five percent (5%) dividend on the $5,000 per share stated value. From and after May 31, 2011, cumulative, preferential dividends on outstanding shares of Series A Preferred Stock have accrued and have been payable quarterly, in arrears, beginning on August 31, 2011. Dividends are payable at our option in cash or in shares of Series A Preferred Stock. If not previously converted, the shares of the Series A Preferred Stock will be redeemed by us on December 31, 2014. In the event of our liquidation or winding up of affairs, the holders of the Series A Preferred Stock will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends.
Upon us being required to file reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the shares of Series A Preferred Stock will automatically convert into shares of common stock at a conversion price equal to $1.84 per share. In addition, at any time prior to the automatic conversion of the Series A Preferred Stock, the holders of the Series A Preferred Stock have the option to convert some or all of their shares of Series A Preferred Stock into shares of common stock at a conversion price equal to $1.84 per share.
The holders of the Series A Preferred Stock have no voting rights, except as required by law. Any amendment to our certificate of incorporation that adversely affects the Series A Preferred Stock requires the approval of the holders of a majority of the shares of Series A Preferred Stock then outstanding.
Series B Preferred Stock
The holders of the Series B Preferred Stock are entitled to a five percent (5%) dividend on the $5,000 per share stated value. From and after December 31, 2011, cumulative, preferential dividends on outstanding shares of Series B Preferred Stock have accrued and have been payable quarterly, in arrears, beginning on March 31, 2012. Dividends are payable at our option in cash or in shares of Series B Preferred Stock. If not previously converted, the shares of the Series B Preferred will be redeemed by us on December 31, 2014. In the event of our liquidation or winding up of affairs, the holders of the Series B Preferred Stock, subject to the rights of the holders of the Series A Preferred Stock, will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends.
Upon us being required to file reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the shares of Series B Preferred will automatically convert into shares of common stock at a conversion price equal to $2.02 per share. In addition, at any time prior to the automatic conversion of the Series B Preferred Stock, the holders of the Series B Preferred Stock have the option to convert some or all of their shares of Series B Preferred Stock into shares of common stock at a conversion price equal to $2.02 per share.
The holders of the Series B Preferred Stock have no voting rights, except as required by law. Any amendment to our certificate of incorporation that adversely affects the Series B Preferred Stock requires the approval of the holders of a majority of the shares of Series B Preferred Stock then outstanding.
Series C Preferred Stock
The holders of the Series C Preferred Stock are entitled to a nine percent (9%) dividend on the $1,000 per share Stated Value. Unless the Series C Preferred Stock is converted into shares of common stock, from and after February 12, 2013, the dividends have accrued and have been payable in cash or, subject to the satisfaction of certain conditions, in pay-in-kind shares. Such cumulative dividends are payable quarterly, commencing on September 30, 2013 and on each conversion date; provided, however, that if a holder converts its shares of Series C Preferred Stock into shares of common stock any time prior to February 12, 2016, the holder will be deemed to have earned a make whole amount as if such shares of Series C Preferred Stock had been outstanding until such date.
In the event that
(i) we fail to, or announce our intention not to, deliver common stock share certificates upon conversion of our Series C Preferred Stock prior to the seventh trading day after such shares are required to be delivered,
(ii) we fail for any reason to pay in full the amount of cash due pursuant to our failure to deliver common stock share certificates upon conversion of our Series C Preferred Stock within five calendar days after notice therefor is delivered,
(iii) we fail to have available a sufficient number of authorized and unreserved shares of common stock to issue to upon a conversion of our Series C Preferred Stock,
(iv) we fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of our obligations under, the securities purchase agreement, the registration rights agreement, the certificate of designation or the warrants entered into pursuant to the private placement transaction for our Series C Preferred Stock, which failure or breach could have a material adverse effect, and such failure or breach is not cured within 30 calendar days after written notice was delivered,
(v) we fail to complete a financing or series of related financings by February 12, 2014 that results in gross proceeds to us of at least $3 million at a valuation of at least $30 million,
(vi) we are party to a change of control transaction,
(vii) we file for bankruptcy or a similar arrangement or are adjudicated insolvent,
(viii) at any time after February 12, 2014, we fail to maintain the listing of our common stock on a trading market for more than five trading days in any twelve month period, or
(ix) we are subject to a judgment of greater than $100,000, and such judgment remains unvacated, unbonded or unstayed for a period of 45 calendar days,
the holders of the Series C Preferred Stock are entitled, among other rights, to redeem their shares of Series C Preferred Stock at any time for greater than their stated value, increase the dividend rate on their shares of Series C Preferred Stock to 18% or, solely upon the occurrence of (v) above, reduce the conversion price of their shares of Series C Preferred Stock to $1.50 per share.
In the event of our liquidation or winding up of affairs, the holders of the Series C Preferred Stock will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends or any other fees due the holder. The shares of the Series C Preferred Stock rank senior to the rights of the common stock and all other securities exercisable or convertible into shares of common stock.
Any holder of Series C Preferred Stock is entitled at any time to convert any whole or partial number of shares of Series C Preferred Stock into shares of our common stock at a price based on a pre-money valuation of $20 million, or $2.09 per share. The Series C Preferred Stock is subject to full ratchet anti-dilution price protection upon the issuance of equity or equity-linked securities at an effective common stock purchase price of less than $2.09 per share as well as other customary anti-dilution protection. As noted above, in the event that we fail to complete a financing pursuant to which we raise at least $3 million at a valuation of at least $30 million within 12 months following the closing, the conversion price of the Series C Preferred Stock may be reset to $1.50 per share at the discretion of the holders.
In the event we issue any equity or equity-linked securities with terms more favorable than those of the Series C Preferred Stock, any holder of the Series C Preferred Stock may request to amend the terms of such holder’s Series C Preferred Stock to be equivalent to the terms of such issued equity or equity-linked securities, subject to certain exempted issuances.
The holders of the Series C Preferred Stock vote together with the holders of our common stock on an as-converted basis, but may not vote the Series C Preferred Stock in excess of the beneficial ownership limitation of the Series C Preferred Stock. The beneficial ownership limitation is 4.99% of our then outstanding shares of common stock following such conversion or exercise, , which may be increased to up to 9.99% of our then outstanding shares of common stock following such conversion or exercise upon the request of an individual holder. The beneficial ownership limitation is determined on an individual holder basis, such that the as-converted number of shares of one holder is not included in the shares outstanding when calculating the limitation for a different holder .holder. In addition, absent the approval of holders representing at least 67% of the outstanding shares of the Series C Preferred Stock, which holders must include Alpha Capital Anstalt, so long as Alpha Capital Anstalt holds not less than $100,000 of Series C Preferred Stock, we may not (i) increase the number of authorized shares of preferred stock, (ii) amend our charter documents, including the terms of the Series C Preferred Stock, in any manner adverse to the holders of the Series C Preferred Stock, including authorizing or creating any class of stock ranking senior to, or otherwise pari passu with, the shares of Series C Preferred Stock as to dividends, redemption or distribution of assets upon a liquidation, or (iii) perform certain covenants, including:
· incur additional indebtedness;
· permit liens on assets;
· repay, repurchase or otherwise acquire more than a de minimis number of shares of common stock, Series A Preferred Stock or Series B Preferred Stock;
· pay cash dividends to our stockholders; and
· engage in transactions with affiliates.
Pursuant to the securities purchase agreement for the Series C Preferred Stock, each holder of Series C Preferred Stock has a right to participate in any of our financings, subject to certain exceptions, on a pro-rata basis, for a period expiring 12 months after the effectiveness date of this registration statement.
Warrant
Five-Year Warrants
In connection with the private placement of our Series C Preferred Stock, we issued to the holders of our Series C Preferred Stock warrants to purchase up to an aggregate of 1,330,629 shares of common stock at an exercise price of $2.61 per share. The warrants contain full ratchet anti-dilution price protection upon the issuance of equity or equity-linked securities at an effective common stock purchase price of less than $2.61 per share as well as other customary anti-dilution protection. The warrants are exercisable for cash; or if at any time after six months from the issuance date, there is no effective registration statement registering the resale, or no current prospectus available for the resale, of the shares of common stock underlying the warrants, the warrants may be exercised by means of a “cashless exercise”.
Five-Year Amendment Warrants
As consideration for (i) extending the termination date of the securities purchase agreement and (ii) extending the filing and effectiveness dates for the filing of the registration statement pursuant to the registration rights agreement related our Series C Preferred Stock, we issued to the holders of our Series C Preferred Stock that purchased shares of our Series C Preferred Stock prior to the July 15, 2013 closing warrants to purchase up to an aggregate of 289,730 shares of common stock. The terms of these warrants are identical to the Five-Year Warrants described above.
October 2013 Five-Year Amendment Warrants
As consideration for amending the terms of the securities purchase agreement to permit our private placement of our common stock and warrants in December 2013, we issued to the holders of our Series C Preferred Stock warrants to purchase up to an aggregate of 332,684 shares of common stock. The terms of these warrants are identical to the Five-Year Warrants described above.
December 2013 Five-Year Warrants
In connection with the private placement of our common stock in December 2013, we issued to the investors participating in the private placement warrants to purchase up to an aggregate of 107,756 shares of common stock at an exercise price of $3.67 per share. The warrants contain customary anti-dilution protections. The warrants are exercisable for cash; or if at any time after six months from the issuance date, there is no effective registration statement registering the resale, or no current prospectus available for the resale, of the shares of common stock underlying the warrants, the warrants may be exercised by means of a “cashless exercise”.
Series A Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series A Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a seven-year warrant to purchase up to 35,076 shares of common stock at an exercise price of $1.84 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Series B Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series B Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a seven-year warrant to purchase up to 30,755 shares of common stock at an exercise price of $2.02 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Series C Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series C Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a warrant to purchase up to 177,057 shares of common stock. The terms of this warrant are identical to the Five-Year Warrants described above.
Par Value Warrant
As consideration for providing general financial advisory services, we issued to Jamess Capital Group LLC a seven-year warrant to purchase up to 383,320 shares of common stock at an exercise price of $0.001 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Common Stock Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of our common stock, we issued to Laidlaw & Company (UK) Ltd. a warrant to purchase up to 21,551 shares of common stock. The terms of this warrant are identical to the December 2013 Five-Year Warrants described above.
Registration Rights
On February 6, 2013, in connection with our private placement of our Series C Preferred Stock and warrants, we entered into a registration rights agreement with the purchasers pursuant to which we agreed to provide certain registration rights with respect to the common stock issuable upon conversion of our Series C Preferred Stock and exercise of the warrants issued to holders of our Series C Preferred Stock. Specifically, we agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the common stock issuable upon conversion of the convertible debenturesSeries C Preferred Stock and exercise of the warrants on or before July 22, 2013 and to cause such registration statement to be declared effective by the Securities and Exchange Commission, in the event that the registration statement is not reviewed by the Securities and Exchange Commission, within five trading days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, and by November 22, 2013 in the event that the registration statement is reviewed by the Securities and Exchange Commission and the Securities and Exchange Commission issues comments.
If (i) the registration statement is not filed by July 22, 2013, (ii) the registration statement is not declared effective by the Securities and Exchange Commission within five trading days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, in the case of a no review, (iii) the registration statement is not declared effective by the Securities and Exchange Commission by November 22, 2013 in the case of a review by the Securities and Exchange Commission pursuant to which the Securities and Exchange Commission issues comments or (iv) the registration statement ceases to remain continuously effective for more than 20 consecutive calendar days or more than an aggregate of 45 calendar days during any 12-month period after its first effective date, then we are subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to .25% of the aggregate purchase price paid by such purchasers per month of delinquency. Notwithstanding the foregoing, (i) the maximum aggregate liquidated damages due under the registration rights agreement shall be 3% of the aggregate purchase price paid by the purchasers, and (ii) if any partial amount of liquidated damages remains unpaid for more than seven days, we shall pay interest of 18% per annum, accruing daily, on such unpaid amount.
Pursuant to the registration rights agreement, we must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, subject to the our right to suspend or defer the use of the registration statement in certain events.
On December 31, 2013, in connection with our private placement of our common stock and warrants, we entered into a registration rights agreement with the purchasers pursuant to which we agreed to provide certain registration rights with respect to the common stock issued to the investors participating in our private placement and the common stock issuable upon exercise of the related warrants issued such investors. Specifically, we agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the shares of common stock issued pursuant to the private placement and issuable upon the exercise of the warrants within 45 days of January 31, 2014 and to cause such registration statement to be declared effective by the Securities and Exchange Commission, in the event that the registration statement is not reviewed by the Securities and Exchange Commission, within 30 calendar days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, and within 180 calendar days of the initial filing date of the registration statement in the event that the registration statement is reviewed by the Securities and Exchange Commission and the Securities and Exchange Commission issues comments.
If (i) the registration statement is not filed within 45 days of January 31, 2014, (ii) the registration statement is not declared effective by the Securities and Exchange Commission within 30 calendar days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, in the case of a no review, (iii) the registration statement is not declared effective by the Securities and Exchange Commission within 180 calendar days of the initial filing date of the registration statement in the case of a review by the Securities and Exchange Commission pursuant to which the Securities and Exchange Commission issues comments or (iv) the registration statement ceases to remain continuously effective for more than 10 consecutive calendar days or more than an aggregate of 15 calendar days during any 12-month period after its first effective date, then we are subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to 1.0% of the aggregate purchase price paid by such purchasers per month of delinquency, provided, however, that we will not be required to make any payments any of the foregoing events occurred at such time that all securities registered or to be registered in the registration statement are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended and provided, further, that we will not be required to make any liquidated damage payments with respect to any securities registered or to be registered in the registration statement that we are unable to register due to limits imposed by the Securities and Exchange Commission’s interpretation of Rule 415 under the Securities Act of 1933, as amended.. Notwithstanding the foregoing, (i) the maximum aggregate liquidated damages due under the registration rights agreement shall be 3% of the aggregate purchase price paid by the purchasers, and (ii) if any partial amount of liquidated damages remains unpaid for more than seven days, we shall pay interest of 18% per annum, accruing daily, on such unpaid amount.
Pursuant to the registration rights agreement, we must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, subject to the our right to suspend or defer the use of the registration statement in certain events.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws
Section 203 of the Delaware General Corporation Law, in general, prohibits a business combination between a corporation and an interested stockholder within three years of the time such stockholder became an interested stockholder, unless:
| · | prior to such time the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
| · | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, exclusive of shares owned by directors who are also officers and by certain employee stock plans; or |
| · | at or subsequent to such time, the business combination is approved by the board of directors and authorized by the affirmative vote at a stockholders’ meeting of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
The term “business combination” is defined to include, among other transactions between an interested stockholder and a corporation or any direct or indirect majority owned subsidiary thereof: a merger or consolidation; a sale, lease, exchange, mortgage, pledge, transfer or other disposition (including as part of a dissolution) of assets having an aggregate market value equal to 10% or more of either the aggregate market value of all assets of the corporation on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation; certain transactions that would result in the issuance or transfer by the corporation of any of its stock to the interested stockholder; certain transactions that would increase the interested stockholder’s proportionate share ownership of the stock of any class or series of the corporation or such subsidiary; and any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or any such subsidiary. In general, and subject to certain exceptions, an “interested stockholder” is any person who is the owner of 15% or more of the outstanding voting stock of the corporation, an affiliate or associate of the corporation who was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date or the affiliates and associates of such person. The term “owner” is broadly defined to include any person that individually or with or through such person’s affiliates or associates, among other things, beneficially owns such stock, or has the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement or understanding or upon the exercise of warrants or options or otherwise or has the right to vote such stock pursuant to any agreement or understanding, or has an agreement or understanding with the beneficial owner of such stock for the purpose of acquiring, holding, voting or disposing of such stock.
The restrictions described above do not apply to corporations that have elected, in the manner provided therein, not to be subject to Section 203 of the Delaware General Corporation Law or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders. We have not opted out of Section 203, but we are not currently subject to it because we are not listed on a national securities exchange and our securities are held of record by fewer than 2,000 stockholders. However, we could become subject to it if we become so listed or so held.
If Section 203 becomes applicable to us, it could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, could discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
Provisions of our certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our certificate of incorporation and bylaws:
| · | do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); |
| · | provide that special meetings of our stockholders may be called only by our board of directors, chairman, chief executive officer, president or secretary; and |
| · | provide advance notice provisions with which a stockholder who wishes to nominate a director or propose other business to be considered at a stockholder meeting must comply. |
Indemnification of Directors and Officers
Pursuant to Section 145 of the Delaware General Corporation Law, a corporation has the power to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a third-party action, other than a derivative action, and against expenses actually and reasonably incurred in the defense or settlement of a derivative action, provided that there is a determination that the individual acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the individual’s conduct was unlawful. Such determination will be made, in the case of an individual who is a director or officer at the time of such determination:
| · | by a majority of the disinterested directors, even though less than a quorum; |
| · | by a committee of such directors designated by a majority vote of such directors, even though less than a quorum; |
| · | if there are no disinterested directors, or if such directors so direct, by independent legal counsel; or |
| · | by a majority vote of the stockholders, at a meeting at which a quorum is present. |
Without court approval, however, no indemnification may be made in respect of any derivative action in which such individual is adjudged liable to the corporation.
The Delaware General Corporation Law requires indemnification of directors and officers for expenses relating to a successful defense on the merits or otherwise of a derivative or third-party action.
The Delaware General Corporation Law permits a corporation to advance expenses relating to the defense of any proceeding to directors and officers contingent upon such individuals’ commitment to repay any advances unless it is determined ultimately that such individuals are entitled to be indemnified.
Under the Delaware General Corporation Law, the rights to indemnification and advancement of expenses provided in the law are non-exclusive, in that, subject to public policy issues, indemnification and advancement of expenses beyond that provided by statute may be provided by bylaw, agreement, vote of stockholders, disinterested directors or otherwise.
Limitation of Personal Liability of Directors
The Delaware General Corporation Law provides that a corporation’s certificate of incorporation may include a provision limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. However, no such provision can eliminate or limit the liability of a director for:
| · | any breach of the director’s duty of loyalty to the corporation or its stockholders; |
| · | acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; |
| · | violation of certain provisions of the Delaware General Corporation Law; |
| · | any transaction from which the director derived an improper personal benefit; or |
| · | any act or omission prior to the adoption of such a provision in the certificate of incorporation. |
Our certificate of incorporation provides that our directors will not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the Delaware General Corporation Law.
Disclosure of Commission Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and persons controlling us, we have been advised that it is the Securities and Exchange Commission’s opinion that such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
As used in this prospectus, “selling stockholders” includes the successors-in-interest, donees, transferees, pledgees or others who may later hold the selling stockholders’ interests. In all cases, the selling stockholders will act independently of us in making decisions with respect to the timing, manner, size and price of each sale.
The selling stockholders may sell some or all of their shares of common stock at a fixed price of $2.09 per share until our common stock is quoted on the OTC Bulletin Board, and thereafter, at prevailing market prices or in transactions that are not in the public market.privately negotiated prices . After the effective date of the registration statement relating to this prospectus, we hope to have a market maker file an application with the Financial Industry Regulatory Authority for our common stock to eligible for trading on the OTC Bulletin Board. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority, nor can there be any assurance that such an application for quotation will be approved.
Once a market has developed for our common stock, each selling stockholder of the common stock may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are listed or quoted at the time of sale or in private transactions. These sales may be at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| · | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | loan or pledge the shares to a broker-dealer, who may sell the loaned shares or, in the event of default, sell the pledged shares; |
| · | through underwriters or dealers; |
| · | directly to purchasers, including institutional investors; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended, may be sold under Rule 144 rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short after the effective date of the registration statement of which this prospectus is a part and deliver common stock registered hereby to close out their short positions and to return borrowed shares in connection with such short sales, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of the shares of common stock will be paid by the selling stockholder and/or the purchasers. Each selling stockholder has represented and warranted to us that it acquired the securities subject to this registration statement solely for its own account and not with a view to, or for offer or sale in connection with, any distribution thereof. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.
Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. There is no underwriter or coordinating broker acting in connection with the proposed sale of the common stock by the selling stockholders.
We have agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the shares covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the common stock may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933, as amended).
Haynes and Boone, LLP, New York, New York, will pass upon the validity of the shares of our common stock offered by the selling stockholders under this prospectus.
Our financial statements as of December 31, 2012 and 2011 and for the years then ended included in this prospectus have been audited by Rosenberg Rich Baker Berman & Company, an independent registered public accounting firm, as stated in its report appearing in the registration statement, and are included in reliance upon the report of such firm given upon its authority as experts in accounting and auditing.
Change in Our Public Accounting Firm
On May 28, 2013, we advised Rosenberg Rich Baker Berman & Company that it was dismissed as our independent registered public accounting firm. On June 11, 2013, we engaged Liggett, Vogt & Webb P.A., as our independent registered public accounting firm. The decision to dismiss Rosenberg Rich Baker Berman & Company as our independent registered public accounting firm was approved by our board of directors.
The report of Rosenberg Rich Baker Berman & Company on our financial statements for the fiscal years ended December 31, 2011 and December 31, 2012 did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except that the report raised substantial doubt as to our ability to continue as a going concern.
From our inception through May 28, 2013, there was a disagreement with Rosenberg Rich Baker Berman & Company with regard to the application of accounting principles to certain anti-dilution provisions embedded within our Series C Preferred Stock and related warrants issued during the three months ended March 31, 2013. This disagreement was not discussed by our board of directors. We authorized Rosenberg Rich Baker Berman & Company to respond fully to the inquiries of Liggett, Vogt & Webb P.A. concerning the application of accounting principles with certain anti-dilution provisions embedded within our Series C Preferred Stock and related warrants issued during the three months ended March 31, 2013.
From our inception through date of engagement (June 11, 2013), we did not consult Liggett, Vogt & Webb P.A. regarding either: (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1, together with any amendments and related exhibits, under the Securities Act of 1933, as amended, with respect to our shares of common stock offered by this prospectus. The registration statement contains additional information about us and our shares of common stock that the selling stockholders are offering in this prospectus.
Following this offering, we will be required to file annual, quarterly and current reports and other information with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Our Securities and Exchange Commission filings are available to the public over the Internet at the Securities and Exchange Commission’s website at http://www.sec.gov. You may also read and copy any document we file at the Securities and Exchange Commission’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. Access to those electronic filings is available as soon as practicable after filing with the Securities and Exchange Commission. You may also request a copy of those filings, excluding exhibits, from us at no cost. Any such request should be addressed to us at: 12424 Wilshire Boulevard, Suite 745, Los Angeles, California 90025, Attention: Kenneth L. Londoner, Executive Chairman and Chief Executive Officer..
FINANCIAL STATEMENTS
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
BioSig Technologies, Inc. (a Development Stage Company)
We have audited the accompanying balance sheets of BioSig Technologies. Inc. (a Development Stage Company) as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended and for the period from February 24, 2009 (date of inception) to December 31, 2012. BioSig Technologies, Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BioSig Technologies, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended and for the period from February 24, 2009 (date of inception) to December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage, has incurred losses from operations since its inceptions and has a net stockholders’ deficiency. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Rosenberg Rich Baker Berman & Company
Somerset, New Jersey
May 7, 2013, except for note 16 as to which the date is September 11, 2013.
| |
(a development stage company) | |
BALANCE SHEETS | |
DECEMBER 31, 2012 AND 2011 | |
| | | | | | |
| | 2012 | | | 2011 | |
| | | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 24,237 | | | $ | 69,020 | |
Prepaid expenses | | | 33,125 | | | | 82,118 | |
Capitalized financing costs | | | 212,635 | | | | 84,167 | |
Total current assets | | | 269,997 | | | | 235,305 | |
| | | | | | | | |
Property and equipment, net | | | 30,209 | | | | 24,752 | |
| | | | | | | | |
Other assets: | | | | | | | | |
Deposits | | | 25,000 | | | | 25,000 | |
| | | | | | | | |
Total assets | | $ | 325,206 | | | $ | 285,057 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 472,882 | | | $ | 35,725 | |
Advances, related party | | | 27,040 | | | | 27,040 | |
Note payable, related party | | | 30,000 | | | | - | |
Liability to placement agent | | | 94,500 | | | | - | |
Dividends payable | | | 117,751 | | | | 26,892 | |
Total current liabilities | | | 742,173 | | | | 89,657 | |
| | | | | | | | |
Long term liabilities: | | | | | | | | |
Deferred rent payable | | | 5,067 | | | | 5,067 | |
Note payable, related party | | | 218,000 | | | | - | |
Convertible bridge notes payable, $225,000 related party | | | 613,812 | | | | - | |
Redeemable Series A preferred stock | | | 922,000 | | | | 922,000 | |
Redeemable Series B preferred stock | | | 887,500 | | | | 100,000 | |
Total long term liabilities | | | 2,646,379 | | | | 1,027,067 | |
Total liabilities | | | 3,388,552 | | | | 1,116,724 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
Stockholders' deficit | | | | | | | | |
Preferred stock, $0.001 par value, authorized 1,000,000 shares | | | | | | | | |
Common stock, $0.001 par value, authorized 50,000,000 and 10,000,000 shares as of December 31, 2012 and 2011, respectively, 8,166,238 and 8,136,238 issued and outstanding as of December 31, 2012 and 2011, respectively | | | 8,166 | | | | 8,136 | |
Additional paid in capital | | | 833,647 | | | | 588,354 | |
Deficit accumulated during development stage | | | (3,905,159 | ) | | | (1,428,157 | ) |
Total stockholders' deficit | | | (3,063,346 | ) | | | (831,667 | ) |
| | | | | | | | |
Total liabilities and stockholders' deficit | | $ | 325,206 | | | $ | 285,057 | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENTS OF OPERATIONS | |
| | | | | | | | | |
| | | | | | | | From February 24, | |
| | | | | | | | 2009 (date of | |
| | Year ended December 31, | | | inception) to | |
| | 2012 | | | 2011 | | | December 31, 2012 | |
Operating expenses: | | | | | | | | | |
Research and development | | $ | 888,948 | | | $ | 582,525 | | | $ | 1,471,473 | |
General and administrative | | | 1,363,007 | | | | 484,127 | | | | 2,097,190 | |
Depreciation | | | 10,020 | | | | 6,795 | | | | 16,815 | |
Total operating expenses | | | 2,261,975 | | | | 1,073,447 | | | | 3,585,478 | |
| | | | | | | | | | | | |
Net loss from operations | | | (2,261,975 | ) | | | (1,073,447 | ) | | | (3,585,478 | ) |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Interest income (expense) | | | (18,286 | ) | | | 171 | | | | (18,115 | ) |
Financing costs | | | (105,881 | ) | | | (77,933 | ) | | | (183,814 | ) |
| | | | | | | | | | | | |
Net loss before income taxes | | | (2,386,142 | ) | | | (1,151,209 | ) | | | (3,787,407 | ) |
| | | | | | | | | | | | |
Income taxes (benefit) | | | - | | | | - | | | | - | |
| | | | | | | | | | | | |
Net loss | | | (2,386,142 | ) | | | (1,151,209 | ) | | | (3,787,407 | ) |
| | | | | | | | | | | | |
Preferred stock dividend | | | (90,860 | ) | | | (26,892 | ) | | | (117,752 | ) |
| | | | | | | | | | | | |
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS’ | | $ | (2,477,002 | ) | | $ | (1,178,101 | ) | | $ | (3,905,159 | ) |
| | | | | | | | | | | | |
Net loss per common share, basic and diluted | | $ | (0.30 | ) | | $ | (0.18 | ) | | | | |
| | | | | | | | | | | | |
Weighted average number of common shares outstanding, basic and diluted | | | 8,142,222 | | | | 6,650,026 | | | | | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENT OF STOCKHOLDERS' DEFICIT | |
FROM FEBRUARY 24, 2009 (DATE OF INCEPTION) TO DECEMBER 31, 2012 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Deficit | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | | | | | | | | Additional | | | During | | | | |
| | Common stock | | | Shares subscribed | | | Shares to be issued | | | Paid in | | | Development | | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Stage | | | Total | |
Common stock issued to founders | | | 4,000,000 | | | $ | 4,000 | | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 4,000 | |
Common stock issuable to founders | | | - | | | | - | | | | - | | | | - | | | | 3,400,000 | | | | 3,400 | | | | - | | | | - | | | | 3,400 | |
Donated capital | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 100 | | | | - | | | | 100 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (104,584 | ) | | | (104,584 | ) |
Balance, December 31, 2009 | | | 4,000,000 | | | | 4,000 | | | | - | | | | - | | | | 3,400,000 | | | | 3,400 | | | | 100 | | | | (104,584 | ) | | | (97,084 | ) |
Proceeds from common stock subscription | | | - | | | | - | | | | 37,500 | | | | 30,000 | | | | - | | | | - | | | | - | | | | - | | | | 30,000 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (145,472 | ) | | | (145,472 | ) |
Balance, December 31, 2010 | | | 4,000,000 | | | | 4,000 | | | | 37,500 | | | | 30,000 | | | | 3,400,000 | | | | 3,400 | | | | 100 | | | | (250,056 | ) | | | (212,556 | ) |
Sale of common stock | | | 153,125 | | | | 153 | | | | (37,500 | ) | | | (30,000 | ) | | | - | | | | - | | | | 122,347 | | | | - | | | | 92,500 | |
Common stock issued for services rendered | | | 408,113 | | | | 408 | | | | - | | | | - | | | | - | | | | - | | | | 326,082 | | | | - | | | | 326,490 | |
Common stock issued for future services | | | 175,000 | | | | 175 | | | | - | | | | - | | | | - | | | | - | | | | 139,825 | | | | - | | | | 140,000 | |
Common stock issued to founders | | | 3,400,000 | | | | 3,400 | | | | - | | | | - | | | | (3,400,000 | ) | | | (3,400 | ) | | | - | | | | - | | | | - | |
Preferred stock dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (26,892 | ) | | | (26,892 | ) |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,151,209 | ) | | | (1,151,209 | ) |
Balance, December 31, 2011 | | | 8,136,238 | | | | 8,136 | | | | - | | | | - | | | | - | | | | - | | | | 588,354 | | | | (1,428,157 | ) | | | (831,667 | ) |
Common stock issued for services rendered | | | 30,000 | | | | 30 | | | | - | | | | - | | | | - | | | | - | | | | 59,970 | | | | - | | | | 60,000 | |
Fair value of vested options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 185,323 | | | | - | | | | 185,323 | |
Preferred stock dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (90,860 | ) | | | (90,860 | ) |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,386,142 | ) | | | (2,386,142 | ) |
Balance, December 31, 2012 | | | 8,166,238 | | | $ | 8,166 | | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 833,647 | | | $ | (3,905,159 | ) | | $ | (3,063,346 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENTS OF CASH FLOWS | |
| | | | | | | | | |
| | | | | | | | From February 24, | |
| | | | | | | | 2009 (date of | |
| | Year ended December 31, | | | inception) to | |
| | 2012 | | | 2011 | | | December 31, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss attributable to common stockholders | | $ | (2,386,142 | ) | | $ | (1,151,209 | ) | | $ | (3,787,407 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | | | | | | | | | | | | |
Depreciation | | | 10,020 | | | | 6,795 | | | | 16,815 | |
Amortization of financing costs | | | 105,881 | | | | 77,933 | | | | 183,814 | |
Stock based compensation | | | 314,316 | | | | 384,372 | | | | 706,088 | |
Donated capital | | | - | | | | - | | | | 100 | |
(Increase) in prepaid expenses | | | (20,000 | ) | | | - | | | | (20,000 | ) |
Increase (Decrease) in accounts payable and accrued expenses | | | 450,969 | | | | (158,385 | ) | | | 486,694 | |
Decease in accrued expenses, related party | | | - | | | | (2,940 | ) | | | - | |
Increase in deferred rent payable | | | - | | | | 5,067 | | | | 5,067 | |
Net cash used in operating activities | | | (1,524,956 | ) | | | (838,367 | ) | | | (2,408,829 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Purchase of property and equipment | | | (15,477 | ) | | | (31,547 | ) | | | (47,024 | ) |
Payment of long term deposit | | | - | | | | (25,000 | ) | | | (25,000 | ) |
Net cash used in investing activity | | | (15,477 | ) | | | (56,547 | ) | | | (72,024 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from notes payable, related party | | | 248,000 | | | | 5,500 | | | | 275,040 | |
Proceeds from convertible bridge notes payable | | | 600,000 | | | | - | | | | 600,000 | |
Net proceeds from the sale of Series A preferred stock | | | - | | | | 788,400 | | | | 788,400 | |
Net proceeds from the sale of Series B preferred stock | | | 647,650 | | | | 71,500 | | | | 719,150 | |
Proceeds from sale of common stock | | | - | | | | 92,500 | | | | 122,500 | |
Net cash provided by financing activities | | | 1,495,650 | | | | 957,900 | | | | 2,505,090 | |
| | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (44,783 | ) | | | 62,986 | | | | 24,237 | |
| | | | | | | | | | | | |
Cash and cash equivalents, beginning of the period | | | 69,020 | | | | 6,034 | | | | - | |
Cash and cash equivalents, end of the period | | $ | 24,237 | | | $ | 69,020 | | | $ | 24,237 | |
| | | | | | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
Cash paid during the period for interest | | $ | - | | | $ | - | | | $ | - | |
Cash paid during the period for income taxes | | $ | - | | | $ | - | | | $ | - | |
See the accompanying notes to the financial statements
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.
Business and Basis of Presentation
BioSig Technologies Inc. (the “Company”) was initially incorporated on February 24, 2009 under the laws of the State of Nevada and subsequently re-incorporated in the state of Delaware in 2011. The Company is in the development stage as defined under Accounting Standards Codification subtopic 915-10 Development Stage Entities and its efforts are principally devoted to improving the quality of cardiac recordings obtained during ablation of atrial fibrillation (AF). The Company has not generated any revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
The Company accounts for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
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. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. The Company does not have accounts receivable and allowance for doubtful accounts at December 31, 2012 and 2011.
Prepaid Expenses
From time to time, the Company issues shares of its common stock for services to be performed. The fair value of the common stock is determined at the date of the contract for services and is amortized ratably over the term of the contract. As of December 31, 2012 and 2011, prepaid expenses relating to stock based payments were $13,135 and $82,118, respectively.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Capitalized financing costs
Capitalized financing costs are comprised of costs incurred in connection with the sale of the Company’s Series A and Series B preferred stock. These costs are amortized ratably and charged to financing expenses through December 31, 2014, the date redemption is available to the preferred shareholders. The amortization for the years ended December 31, 2012 and 2011 was $105,881 and $77,933, respectively. Accumulated amortization of capitalized financing costs were $183,815 and $77,993 at December 31, 2012 and 2011, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
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.
Long-Lived Assets
The Company follows Accounting Standards Codification 360-10-15-3, “Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
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 year. Diluted net loss per share for year ending December 31, 2012 does not reflect the effects of 25,000 shares potentially issuable upon the exercise of the Company's stock options (calculated using the treasury stock method) as of December 31, 2012 as including such would be anti-dilutive. As of December 31, 2011, the Company did not have common stock equivalents.
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. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Research and Development
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 $888,948 and $582,525 the years ended December 31, 2012 and 2011, respectively and $1,471,473 from the period from February 24, 2009 (date of inception) to December 31, 2012.
Fair ValueSeries A Preferred Stock
The holders of Financial Instrumentsthe Series A Preferred Stock are entitled to a five percent (5%) dividend on the $5,000 per share stated value. From and after May 31, 2011, cumulative, preferential dividends on outstanding shares of Series A Preferred Stock have accrued and have been payable quarterly, in arrears, beginning on August 31, 2011. Dividends are payable at our option in cash or in shares of Series A Preferred Stock. If not previously converted, the shares of the Series A Preferred Stock will be redeemed by us on December 31, 2014. In the event of our liquidation or winding up of affairs, the holders of the Series A Preferred Stock will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends.
Upon us being required to file reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the shares of Series A Preferred Stock will automatically convert into shares of common stock at a conversion price equal to $1.84 per share. In addition, at any time prior to the automatic conversion of the Series A Preferred Stock, the holders of the Series A Preferred Stock have the option to convert some or all of their shares of Series A Preferred Stock into shares of common stock at a conversion price equal to $1.84 per share.
The holders of the Series A Preferred Stock have no voting rights, except as required by law. Any amendment to our certificate of incorporation that adversely affects the Series A Preferred Stock requires the approval of the holders of a majority of the shares of Series A Preferred Stock then outstanding.
Series B Preferred Stock
The holders of the Series B Preferred Stock are entitled to a five percent (5%) dividend on the $5,000 per share stated value. From and after December 31, 2011, cumulative, preferential dividends on outstanding shares of Series B Preferred Stock have accrued and have been payable quarterly, in arrears, beginning on March 31, 2012. Dividends are payable at our option in cash or in shares of Series B Preferred Stock. If not previously converted, the shares of the Series B Preferred will be redeemed by us on December 31, 2014. In the event of our liquidation or winding up of affairs, the holders of the Series B Preferred Stock, subject to the rights of the holders of the Series A Preferred Stock, will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends.
Upon us being required to file reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the shares of Series B Preferred will automatically convert into shares of common stock at a conversion price equal to $2.02 per share. In addition, at any time prior to the automatic conversion of the Series B Preferred Stock, the holders of the Series B Preferred Stock have the option to convert some or all of their shares of Series B Preferred Stock into shares of common stock at a conversion price equal to $2.02 per share.
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosureThe holders of the fairSeries B Preferred Stock have no voting rights, except as required by law. Any amendment to our certificate of incorporation that adversely affects the Series B Preferred Stock requires the approval of the holders of a majority of the shares of Series B Preferred Stock then outstanding.
Series C Preferred Stock
The holders of the Series C Preferred Stock are entitled to a nine percent (9%) dividend on the $1,000 per share Stated Value. Unless the Series C Preferred Stock is converted into shares of common stock, from and after February 12, 2013, the dividends have accrued and have been payable in cash or, subject to the satisfaction of certain conditions, in pay-in-kind shares. Such cumulative dividends are payable quarterly, commencing on September 30, 2013 and on each conversion date; provided, however, that if a holder converts its shares of Series C Preferred Stock into shares of common stock any time prior to February 12, 2016, the holder will be deemed to have earned a make whole amount as if such shares of Series C Preferred Stock had been outstanding until such date.
In the event that
(i) we fail to, or announce our intention not to, deliver common stock share certificates upon conversion of our Series C Preferred Stock prior to the seventh trading day after such shares are required to be delivered,
(ii) we fail for any reason to pay in full the amount of cash due pursuant to our failure to deliver common stock share certificates upon conversion of our Series C Preferred Stock within five calendar days after notice therefor is delivered,
(iii) we fail to have available a sufficient number of authorized and unreserved shares of common stock to issue to upon a conversion of our Series C Preferred Stock,
(iv) we fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of our obligations under, the securities purchase agreement, the registration rights agreement, the certificate of designation or the warrants entered into pursuant to the private placement transaction for our Series C Preferred Stock, which failure or breach could have a material adverse effect, and such failure or breach is not cured within 30 calendar days after written notice was delivered,
(v) we fail to complete a financing or series of related financings by February 12, 2014 that results in gross proceeds to us of at least $3 million at a valuation of at least $30 million,
(vi) we are party to a change of control transaction,
(vii) we file for bankruptcy or a similar arrangement or are adjudicated insolvent,
(viii) at any time after February 12, 2014, we fail to maintain the listing of our common stock on a trading market for more than five trading days in any twelve month period, or
(ix) we are subject to a judgment of greater than $100,000, and such judgment remains unvacated, unbonded or unstayed for a period of 45 calendar days,
the holders of the Series C Preferred Stock are entitled, among other rights, to redeem their shares of Series C Preferred Stock at any time for greater than their stated value, increase the dividend rate on their shares of Series C Preferred Stock to 18% or, solely upon the occurrence of (v) above, reduce the conversion price of their shares of Series C Preferred Stock to $1.50 per share.
In the event of our liquidation or winding up of affairs, the holders of the Series C Preferred Stock will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends or any other fees due the holder. The shares of the Series C Preferred Stock rank senior to the rights of the common stock and all other securities exercisable or convertible into shares of common stock.
Any holder of Series C Preferred Stock is entitled at any time to convert any whole or partial number of shares of Series C Preferred Stock into shares of our common stock at a price based on a pre-money valuation of $20 million, or $2.09 per share. The Series C Preferred Stock is subject to full ratchet anti-dilution price protection upon the issuance of equity or equity-linked securities at an effective common stock purchase price of less than $2.09 per share as well as other customary anti-dilution protection. As noted above, in the event that we fail to complete a financing pursuant to which we raise at least $3 million at a valuation of at least $30 million within 12 months following the closing, the conversion price of the Series C Preferred Stock may be reset to $1.50 per share at the discretion of the holders.
In the event we issue any equity or equity-linked securities with terms more favorable than those of the Series C Preferred Stock, any holder of the Series C Preferred Stock may request to amend the terms of such holder’s Series C Preferred Stock to be equivalent to the terms of such issued equity or equity-linked securities, subject to certain exempted issuances.
The holders of the Series C Preferred Stock vote together with the holders of our common stock on an as-converted basis, but may not vote the Series C Preferred Stock in excess of the beneficial ownership limitation of the Series C Preferred Stock. The beneficial ownership limitation is 4.99% of our then outstanding shares of common stock following such conversion or exercise, which may be increased to up to 9.99% of our then outstanding shares of common stock following such conversion or exercise upon the request of an individual holder. The beneficial ownership limitation is determined on an individual holder basis, such that the as-converted number of shares of one holder is not included in the shares outstanding when calculating the limitation for a different holder. In addition, absent the approval of holders representing at least 67% of the outstanding shares of the Series C Preferred Stock, which holders must include Alpha Capital Anstalt, so long as Alpha Capital Anstalt holds not less than $100,000 of Series C Preferred Stock, we may not (i) increase the number of authorized shares of preferred stock, (ii) amend our charter documents, including the terms of the Series C Preferred Stock, in any manner adverse to the holders of the Series C Preferred Stock, including authorizing or creating any class of stock ranking senior to, or otherwise pari passu with, the shares of Series C Preferred Stock as to dividends, redemption or distribution of assets upon a liquidation, or (iii) perform certain covenants, including:
· incur additional indebtedness;
· permit liens on assets;
· repay, repurchase or otherwise acquire more than a de minimis number of shares of common stock, Series A Preferred Stock or Series B Preferred Stock;
· pay cash dividends to our stockholders; and
· engage in transactions with affiliates.
Pursuant to the securities purchase agreement for the Series C Preferred Stock, each holder of Series C Preferred Stock has a right to participate in any of our financings, subject to certain exceptions, on a pro-rata basis, for a period expiring 12 months after the effectiveness date of this registration statement.
Warrant
Five-Year Warrants
In connection with the private placement of our Series C Preferred Stock, we issued to the holders of our Series C Preferred Stock warrants to purchase up to an aggregate of 1,330,629 shares of common stock at an exercise price of $2.61 per share. The warrants contain full ratchet anti-dilution price protection upon the issuance of equity or equity-linked securities at an effective common stock purchase price of less than $2.61 per share as well as other customary anti-dilution protection. The warrants are exercisable for cash; or if at any time after six months from the issuance date, there is no effective registration statement registering the resale, or no current prospectus available for the resale, of the shares of common stock underlying the warrants, the warrants may be exercised by means of a “cashless exercise”.
Five-Year Amendment Warrants
As consideration for (i) extending the termination date of the securities purchase agreement and (ii) extending the filing and effectiveness dates for the filing of the registration statement pursuant to the registration rights agreement related our Series C Preferred Stock, we issued to the holders of our Series C Preferred Stock that purchased shares of our Series C Preferred Stock prior to the July 15, 2013 closing warrants to purchase up to an aggregate of 289,730 shares of common stock. The terms of these warrants are identical to the Five-Year Warrants described above.
October 2013 Five-Year Amendment Warrants
As consideration for amending the terms of the securities purchase agreement to permit our private placement of our common stock and warrants in December 2013, we issued to the holders of our Series C Preferred Stock warrants to purchase up to an aggregate of 332,684 shares of common stock. The terms of these warrants are identical to the Five-Year Warrants described above.
December 2013 Five-Year Warrants
In connection with the private placement of our common stock in December 2013, we issued to the investors participating in the private placement warrants to purchase up to an aggregate of 107,756 shares of common stock at an exercise price of $3.67 per share. The warrants contain customary anti-dilution protections. The warrants are exercisable for cash; or if at any time after six months from the issuance date, there is no effective registration statement registering the resale, or no current prospectus available for the resale, of the shares of common stock underlying the warrants, the warrants may be exercised by means of a “cashless exercise”.
Series A Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series A Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a seven-year warrant to purchase up to 35,076 shares of common stock at an exercise price of $1.84 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Series B Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series B Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a seven-year warrant to purchase up to 30,755 shares of common stock at an exercise price of $2.02 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Series C Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series C Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a warrant to purchase up to 177,057 shares of common stock. The terms of this warrant are identical to the Five-Year Warrants described above.
Par Value Warrant
As consideration for providing general financial advisory services, we issued to Jamess Capital Group LLC a seven-year warrant to purchase up to 383,320 shares of common stock at an exercise price of $0.001 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Common Stock Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of our common stock, we issued to Laidlaw & Company (UK) Ltd. a warrant to purchase up to 21,551 shares of common stock. The terms of this warrant are identical to the December 2013 Five-Year Warrants described above.
Registration Rights
On February 6, 2013, in connection with our private placement of our Series C Preferred Stock and warrants, we entered into a registration rights agreement with the purchasers pursuant to which we agreed to provide certain registration rights with respect to the common stock issuable upon conversion of our Series C Preferred Stock and exercise of the warrants issued to holders of our Series C Preferred Stock. Specifically, we agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the common stock issuable upon conversion of the Series C Preferred Stock and exercise of the warrants on or before July 22, 2013 and to cause such registration statement to be declared effective by the Securities and Exchange Commission, in the event that the registration statement is not reviewed by the Securities and Exchange Commission, within five trading days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, and by November 22, 2013 in the event that the registration statement is reviewed by the Securities and Exchange Commission and the Securities and Exchange Commission issues comments.
If (i) the registration statement is not filed by July 22, 2013, (ii) the registration statement is not declared effective by the Securities and Exchange Commission within five trading days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, in the case of a no review, (iii) the registration statement is not declared effective by the Securities and Exchange Commission by November 22, 2013 in the case of a review by the Securities and Exchange Commission pursuant to which the Securities and Exchange Commission issues comments or (iv) the registration statement ceases to remain continuously effective for more than 20 consecutive calendar days or more than an aggregate of 45 calendar days during any 12-month period after its first effective date, then we are subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to .25% of the aggregate purchase price paid by such purchasers per month of delinquency. Notwithstanding the foregoing, (i) the maximum aggregate liquidated damages due under the registration rights agreement shall be 3% of the aggregate purchase price paid by the purchasers, and (ii) if any partial amount of liquidated damages remains unpaid for more than seven days, we shall pay interest of 18% per annum, accruing daily, on such unpaid amount.
Pursuant to the registration rights agreement, we must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, subject to the our right to suspend or defer the use of the registration statement in certain events.
On December 31, 2013, in connection with our private placement of our common stock and warrants, we entered into a registration rights agreement with the purchasers pursuant to which we agreed to provide certain registration rights with respect to the common stock issued to the investors participating in our private placement and the common stock issuable upon exercise of the related warrants issued such investors. Specifically, we agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the shares of common stock issued pursuant to the private placement and issuable upon the exercise of the warrants within 45 days of January 31, 2014 and to cause such registration statement to be declared effective by the Securities and Exchange Commission, in the event that the registration statement is not reviewed by the Securities and Exchange Commission, within 30 calendar days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, and within 180 calendar days of the initial filing date of the registration statement in the event that the registration statement is reviewed by the Securities and Exchange Commission and the Securities and Exchange Commission issues comments.
If (i) the registration statement is not filed within 45 days of January 31, 2014, (ii) the registration statement is not declared effective by the Securities and Exchange Commission within 30 calendar days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, in the case of a no review, (iii) the registration statement is not declared effective by the Securities and Exchange Commission within 180 calendar days of the initial filing date of the registration statement in the case of a review by the Securities and Exchange Commission pursuant to which the Securities and Exchange Commission issues comments or (iv) the registration statement ceases to remain continuously effective for more than 10 consecutive calendar days or more than an aggregate of 15 calendar days during any 12-month period after its first effective date, then we are subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to 1.0% of the aggregate purchase price paid by such purchasers per month of delinquency, provided, however, that we will not be required to make any payments any of the foregoing events occurred at such time that all securities registered or to be registered in the registration statement are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended and provided, further, that we will not be required to make any liquidated damage payments with respect to any securities registered or to be registered in the registration statement that we are unable to register due to limits imposed by the Securities and Exchange Commission’s interpretation of Rule 415 under the Securities Act of 1933, as amended.. Notwithstanding the foregoing, (i) the maximum aggregate liquidated damages due under the registration rights agreement shall be 3% of the aggregate purchase price paid by the purchasers, and (ii) if any partial amount of liquidated damages remains unpaid for more than seven days, we shall pay interest of 18% per annum, accruing daily, on such unpaid amount.
Pursuant to the registration rights agreement, we must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, subject to the our right to suspend or defer the use of the registration statement in certain events.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws
Section 203 of the Delaware General Corporation Law, in general, prohibits a business combination between a corporation and an interested stockholder within three years of the time such stockholder became an interested stockholder, unless:
| · | prior to such time the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
| · | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, exclusive of shares owned by directors who are also officers and by certain employee stock plans; or |
| · | at or subsequent to such time, the business combination is approved by the board of directors and authorized by the affirmative vote at a stockholders’ meeting of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
The term “business combination” is defined to include, among other transactions between an interested stockholder and a corporation or any direct or indirect majority owned subsidiary thereof: a merger or consolidation; a sale, lease, exchange, mortgage, pledge, transfer or other disposition (including as part of a dissolution) of assets having an aggregate market value equal to 10% or more of either the aggregate market value of certain financial instruments. The carryingall assets of the corporation on a consolidated basis or the aggregate market value of cashall the outstanding stock of the corporation; certain transactions that would result in the issuance or transfer by the corporation of any of its stock to the interested stockholder; certain transactions that would increase the interested stockholder’s proportionate share ownership of the stock of any class or series of the corporation or such subsidiary; and any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or any such subsidiary. In general, and subject to certain exceptions, an “interested stockholder” is any person who is the owner of 15% or more of the outstanding voting stock of the corporation, an affiliate or associate of the corporation who was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date or the affiliates and associates of such person. The term “owner” is broadly defined to include any person that individually or with or through such person’s affiliates or associates, among other things, beneficially owns such stock, or has the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement or understanding or upon the exercise of warrants or options or otherwise or has the right to vote such stock pursuant to any agreement or understanding, or has an agreement or understanding with the beneficial owner of such stock for the purpose of acquiring, holding, voting or disposing of such stock.
The restrictions described above do not apply to corporations that have elected, in the manner provided therein, not to be subject to Section 203 of the Delaware General Corporation Law or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders. We have not opted out of Section 203, but we are not currently subject to it because we are not listed on a national securities exchange and our securities are held of record by fewer than 2,000 stockholders. However, we could become subject to it if we become so listed or so held.
If Section 203 becomes applicable to us, it could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, could discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
Provisions of our certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our certificate of incorporation and bylaws:
| · | do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); |
| · | provide that special meetings of our stockholders may be called only by our board of directors, chairman, chief executive officer, president or secretary; and |
| · | provide advance notice provisions with which a stockholder who wishes to nominate a director or propose other business to be considered at a stockholder meeting must comply. |
Indemnification of Directors and Officers
Pursuant to Section 145 of the Delaware General Corporation Law, a corporation has the power to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a third-party action, other than a derivative action, and against expenses actually and reasonably incurred in the defense or settlement of a derivative action, provided that there is a determination that the individual acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the individual’s conduct was unlawful. Such determination will be made, in the case of an individual who is a director or officer at the time of such determination:
| · | by a majority of the disinterested directors, even though less than a quorum; |
| · | by a committee of such directors designated by a majority vote of such directors, even though less than a quorum; |
| · | if there are no disinterested directors, or if such directors so direct, by independent legal counsel; or |
| · | by a majority vote of the stockholders, at a meeting at which a quorum is present. |
Without court approval, however, no indemnification may be made in respect of any derivative action in which such individual is adjudged liable to the corporation.
The Delaware General Corporation Law requires indemnification of directors and officers for expenses relating to a successful defense on the merits or otherwise of a derivative or third-party action.
The Delaware General Corporation Law permits a corporation to advance expenses relating to the defense of any proceeding to directors and officers contingent upon such individuals’ commitment to repay any advances unless it is determined ultimately that such individuals are entitled to be indemnified.
Under the Delaware General Corporation Law, the rights to indemnification and advancement of expenses provided in the law are non-exclusive, in that, subject to public policy issues, indemnification and advancement of expenses beyond that provided by statute may be provided by bylaw, agreement, vote of stockholders, disinterested directors or otherwise.
Limitation of Personal Liability of Directors
The Delaware General Corporation Law provides that a corporation’s certificate of incorporation may include a provision limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. However, no such provision can eliminate or limit the liability of a director for:
| · | any breach of the director’s duty of loyalty to the corporation or its stockholders; |
| · | acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; |
| · | violation of certain provisions of the Delaware General Corporation Law; |
| · | any transaction from which the director derived an improper personal benefit; or |
| · | any act or omission prior to the adoption of such a provision in the certificate of incorporation. |
Our certificate of incorporation provides that our directors will not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the Delaware General Corporation Law.
Disclosure of Commission Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and persons controlling us, we have been advised that it is the Securities and Exchange Commission’s opinion that such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
As used in this prospectus, “selling stockholders” includes the successors-in-interest, donees, transferees, pledgees or others who may later hold the selling stockholders’ interests. In all cases, the selling stockholders will act independently of us in making decisions with respect to the timing, manner, size and price of each sale.
The selling stockholders may sell some or all of their shares of common stock at a fixed price of $2.09 per share until our common stock is quoted on the OTC Bulletin Board, and thereafter, at prevailing market prices or privately negotiated prices . After the effective date of the registration statement relating to this prospectus, we hope to have a market maker file an application with the Financial Industry Regulatory Authority for our common stock to eligible for trading on the OTC Bulletin Board. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority, nor can there be any assurance that such an application for quotation will be approved.
Once a market has developed for our common stock, each selling stockholder of the common stock may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are listed or quoted at the time of sale or in private transactions. These sales may be at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| · | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | loan or pledge the shares to a broker-dealer, who may sell the loaned shares or, in the event of default, sell the pledged shares; |
| · | through underwriters or dealers; |
| · | directly to purchasers, including institutional investors; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended, may be sold under Rule 144 rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short after the effective date of the registration statement of which this prospectus is a part and deliver common stock registered hereby to close out their short positions and to return borrowed shares in connection with such short sales, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of the shares of common stock will be paid by the selling stockholder and/or the purchasers. Each selling stockholder has represented and warranted to us that it acquired the securities subject to this registration statement solely for its own account and not with a view to, or for offer or sale in connection with, any distribution thereof. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.
Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. There is no underwriter or coordinating broker acting in connection with the proposed sale of the common stock by the selling stockholders.
We have agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the shares covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the common stock may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933, as amended).
Haynes and Boone, LLP, New York, New York, will pass upon the validity of the shares of our common stock offered by the selling stockholders under this prospectus.
Our financial statements as of December 31, 2012 and 2011 and for the years then ended included in this prospectus have been audited by Rosenberg Rich Baker Berman & Company, an independent registered public accounting firm, as stated in its report appearing in the registration statement, and are included in reliance upon the report of such firm given upon its authority as experts in accounting and auditing.
Change in Our Public Accounting Firm
On May 28, 2013, we advised Rosenberg Rich Baker Berman & Company that it was dismissed as our independent registered public accounting firm. On June 11, 2013, we engaged Liggett, Vogt & Webb P.A., as our independent registered public accounting firm. The decision to dismiss Rosenberg Rich Baker Berman & Company as our independent registered public accounting firm was approved by our board of directors.
The report of Rosenberg Rich Baker Berman & Company on our financial statements for the fiscal years ended December 31, 2011 and December 31, 2012 did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except that the report raised substantial doubt as to our ability to continue as a going concern.
From our inception through May 28, 2013, there was a disagreement with Rosenberg Rich Baker Berman & Company with regard to the application of accounting principles to certain anti-dilution provisions embedded within our Series C Preferred Stock and related warrants issued during the three months ended March 31, 2013. This disagreement was not discussed by our board of directors. We authorized Rosenberg Rich Baker Berman & Company to respond fully to the inquiries of Liggett, Vogt & Webb P.A. concerning the application of accounting principles with certain anti-dilution provisions embedded within our Series C Preferred Stock and related warrants issued during the three months ended March 31, 2013.
From our inception through date of engagement (June 11, 2013), we did not consult Liggett, Vogt & Webb P.A. regarding either: (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K.
WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1, together with any amendments and related exhibits, under the Securities Act of 1933, as amended, with respect to our shares of common stock offered by this prospectus. The registration statement contains additional information about us and our shares of common stock that the selling stockholders are offering in this prospectus.
Following this offering, we will be required to file annual, quarterly and current reports and other information with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Our Securities and Exchange Commission filings are available to the public over the Internet at the Securities and Exchange Commission’s website at http://www.sec.gov. You may also read and copy any document we file at the Securities and Exchange Commission’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. Access to those electronic filings is available as soon as practicable after filing with the Securities and Exchange Commission. You may also request a copy of those filings, excluding exhibits, from us at no cost. Any such request should be addressed to us at: 12424 Wilshire Boulevard, Suite 745, Los Angeles, California 90025, Attention: Kenneth L. Londoner, Executive Chairman .
FINANCIAL STATEMENTS
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
BioSig Technologies, Inc. (a Development Stage Company)
We have audited the accompanying balance sheets of BioSig Technologies. Inc. (a Development Stage Company) as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ deficit, and cash equivalents, accounts payableflows for the years then ended and accrued liabilities,for the period from February 24, 2009 (date of inception) to December 31, 2012. BioSig Technologies, Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and short-term borrowings,perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as reflecteda basis for designing audit procedures that are appropriate in the balance sheets, approximate fair value becausecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the short-term maturity of these instruments. All other significantcompany’s internal control over financial assets, financial liabilitiesreporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and equity instruments of the Company are either recognized or discloseddisclosures in the financial statements, together with other information relevant for makingassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable 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.
Stock Based Compensationbasis for our opinion.
The Company measuresIn our opinion, the costfinancial statements referred to above present fairly, in all material respects, the financial position of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. 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.
AsBioSig Technologies, Inc. as of December 31, 2012 and 2011, and the Company had 1,273,927results of its operations and 25,000 employeeits cash flows for the years then ended and non-employee options outstandingfor the period from February 24, 2009 (date of inception) to purchase shares of common stock, respectively. As of December 31, 2011,2012 in conformity with accounting principles generally accepted in the Company had Nil employee and non-employee stock options outstanding.
Recent Accounting PronouncementsUnited States of America.
There are 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 2 – GOING CONCERN MATTERS
The accompanying financial statements have been prepared onassuming the Company will continue as a going concern basis, which contemplatesconcern. As discussed in Note 2 to the realization of assets andfinancial statements, the satisfaction of liabilitiesCompany is in the normal course of business. As shown in the accompanying financial statements during the years ended December 31, 2012development stage, has incurred losses from operations since its inceptions and 2011, the Company incurredhas a net losses attributable to common stockholders of $2,477,002 and $1,178,101, respectively and used $1,524,956 in cash for operating activities for the year ended December 31, 2012.stockholders’ deficiency. These factorsamong others raise substantial doubt about the Company’s ability to continue as a going concernconcern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Rosenberg Rich Baker Berman & Company
Somerset, New Jersey
May 7, 2013, except for a reasonable period of time.note 16 as to which the date is September 11, 2013.
| |
(a development stage company) | |
BALANCE SHEETS | |
DECEMBER 31, 2012 AND 2011 | |
| | | | | | |
| | 2012 | | | 2011 | |
| | | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 24,237 | | | $ | 69,020 | |
Prepaid expenses | | | 33,125 | | | | 82,118 | |
Capitalized financing costs | | | 212,635 | | | | 84,167 | |
Total current assets | | | 269,997 | | | | 235,305 | |
| | | | | | | | |
Property and equipment, net | | | 30,209 | | | | 24,752 | |
| | | | | | | | |
Other assets: | | | | | | | | |
Deposits | | | 25,000 | | | | 25,000 | |
| | | | | | | | |
Total assets | | $ | 325,206 | | | $ | 285,057 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 472,882 | | | $ | 35,725 | |
Advances, related party | | | 27,040 | | | | 27,040 | |
Note payable, related party | | | 30,000 | | | | - | |
Liability to placement agent | | | 94,500 | | | | - | |
Dividends payable | | | 117,751 | | | | 26,892 | |
Total current liabilities | | | 742,173 | | | | 89,657 | |
| | | | | | | | |
Long term liabilities: | | | | | | | | |
Deferred rent payable | | | 5,067 | | | | 5,067 | |
Note payable, related party | | | 218,000 | | | | - | |
Convertible bridge notes payable, $225,000 related party | | | 613,812 | | | | - | |
Redeemable Series A preferred stock | | | 922,000 | | | | 922,000 | |
Redeemable Series B preferred stock | | | 887,500 | | | | 100,000 | |
Total long term liabilities | | | 2,646,379 | | | | 1,027,067 | |
Total liabilities | | | 3,388,552 | | | | 1,116,724 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
Stockholders' deficit | | | | | | | | |
Preferred stock, $0.001 par value, authorized 1,000,000 shares | | | | | | | | |
Common stock, $0.001 par value, authorized 50,000,000 and 10,000,000 shares as of December 31, 2012 and 2011, respectively, 8,166,238 and 8,136,238 issued and outstanding as of December 31, 2012 and 2011, respectively | | | 8,166 | | | | 8,136 | |
Additional paid in capital | | | 833,647 | | | | 588,354 | |
Deficit accumulated during development stage | | | (3,905,159 | ) | | | (1,428,157 | ) |
Total stockholders' deficit | | | (3,063,346 | ) | | | (831,667 | ) |
| | | | | | | | |
Total liabilities and stockholders' deficit | | $ | 325,206 | | | $ | 285,057 | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENTS OF OPERATIONS | |
| | | | | | | | | |
| | | | | | | | From February 24, | |
| | | | | | | | 2009 (date of | |
| | Year ended December 31, | | | inception) to | |
| | 2012 | | | 2011 | | | December 31, 2012 | |
Operating expenses: | | | | | | | | | |
Research and development | | $ | 888,948 | | | $ | 582,525 | | | $ | 1,471,473 | |
General and administrative | | | 1,363,007 | | | | 484,127 | | | | 2,097,190 | |
Depreciation | | | 10,020 | | | | 6,795 | | | | 16,815 | |
Total operating expenses | | | 2,261,975 | | | | 1,073,447 | | | | 3,585,478 | |
| | | | | | | | | | | | |
Net loss from operations | | | (2,261,975 | ) | | | (1,073,447 | ) | | | (3,585,478 | ) |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Interest income (expense) | | | (18,286 | ) | | | 171 | | | | (18,115 | ) |
Financing costs | | | (105,881 | ) | | | (77,933 | ) | | | (183,814 | ) |
| | | | | | | | | | | | |
Net loss before income taxes | | | (2,386,142 | ) | | | (1,151,209 | ) | | | (3,787,407 | ) |
| | | | | | | | | | | | |
Income taxes (benefit) | | | - | | | | - | | | | - | |
| | | | | | | | | | | | |
Net loss | | | (2,386,142 | ) | | | (1,151,209 | ) | | | (3,787,407 | ) |
| | | | | | | | | | | | |
Preferred stock dividend | | | (90,860 | ) | | | (26,892 | ) | | | (117,752 | ) |
| | | | | | | | | | | | |
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS’ | | $ | (2,477,002 | ) | | $ | (1,178,101 | ) | | $ | (3,905,159 | ) |
| | | | | | | | | | | | |
Net loss per common share, basic and diluted | | $ | (0.30 | ) | | $ | (0.18 | ) | | | | |
| | | | | | | | | | | | |
Weighted average number of common shares outstanding, basic and diluted | | | 8,142,222 | | | | 6,650,026 | | | | | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENT OF STOCKHOLDERS' DEFICIT | |
FROM FEBRUARY 24, 2009 (DATE OF INCEPTION) TO DECEMBER 31, 2012 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Deficit | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | | | | | | | | Additional | | | During | | | | |
| | Common stock | | | Shares subscribed | | | Shares to be issued | | | Paid in | | | Development | | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Stage | | | Total | |
Common stock issued to founders | | | 4,000,000 | | | $ | 4,000 | | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 4,000 | |
Common stock issuable to founders | | | - | | | | - | | | | - | | | | - | | | | 3,400,000 | | | | 3,400 | | | | - | | | | - | | | | 3,400 | |
Donated capital | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 100 | | | | - | | | | 100 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (104,584 | ) | | | (104,584 | ) |
Balance, December 31, 2009 | | | 4,000,000 | | | | 4,000 | | | | - | | | | - | | | | 3,400,000 | | | | 3,400 | | | | 100 | | | | (104,584 | ) | | | (97,084 | ) |
Proceeds from common stock subscription | | | - | | | | - | | | | 37,500 | | | | 30,000 | | | | - | | | | - | | | | - | | | | - | | | | 30,000 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (145,472 | ) | | | (145,472 | ) |
Balance, December 31, 2010 | | | 4,000,000 | | | | 4,000 | | | | 37,500 | | | | 30,000 | | | | 3,400,000 | | | | 3,400 | | | | 100 | | | | (250,056 | ) | | | (212,556 | ) |
Sale of common stock | | | 153,125 | | | | 153 | | | | (37,500 | ) | | | (30,000 | ) | | | - | | | | - | | | | 122,347 | | | | - | | | | 92,500 | |
Common stock issued for services rendered | | | 408,113 | | | | 408 | | | | - | | | | - | | | | - | | | | - | | | | 326,082 | | | | - | | | | 326,490 | |
Common stock issued for future services | | | 175,000 | | | | 175 | | | | - | | | | - | | | | - | | | | - | | | | 139,825 | | | | - | | | | 140,000 | |
Common stock issued to founders | | | 3,400,000 | | | | 3,400 | | | | - | | | | - | | | | (3,400,000 | ) | | | (3,400 | ) | | | - | | | | - | | | | - | |
Preferred stock dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (26,892 | ) | | | (26,892 | ) |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,151,209 | ) | | | (1,151,209 | ) |
Balance, December 31, 2011 | | | 8,136,238 | | | | 8,136 | | | | - | | | | - | | | | - | | | | - | | | | 588,354 | | | | (1,428,157 | ) | | | (831,667 | ) |
Common stock issued for services rendered | | | 30,000 | | | | 30 | | | | - | | | | - | | | | - | | | | - | | | | 59,970 | | | | - | | | | 60,000 | |
Fair value of vested options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 185,323 | | | | - | | | | 185,323 | |
Preferred stock dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (90,860 | ) | | | (90,860 | ) |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,386,142 | ) | | | (2,386,142 | ) |
Balance, December 31, 2012 | | | 8,166,238 | | | $ | 8,166 | | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 833,647 | | | $ | (3,905,159 | ) | | $ | (3,063,346 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENTS OF CASH FLOWS | |
| | | | | | | | | |
| | | | | | | | From February 24, | |
| | | | | | | | 2009 (date of | |
| | Year ended December 31, | | | inception) to | |
| | 2012 | | | 2011 | | | December 31, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss attributable to common stockholders | | $ | (2,386,142 | ) | | $ | (1,151,209 | ) | | $ | (3,787,407 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | | | | | | | | | | | | |
Depreciation | | | 10,020 | | | | 6,795 | | | | 16,815 | |
Amortization of financing costs | | | 105,881 | | | | 77,933 | | | | 183,814 | |
Stock based compensation | | | 314,316 | | | | 384,372 | | | | 706,088 | |
Donated capital | | | - | | | | - | | | | 100 | |
(Increase) in prepaid expenses | | | (20,000 | ) | | | - | | | | (20,000 | ) |
Increase (Decrease) in accounts payable and accrued expenses | | | 450,969 | | | | (158,385 | ) | | | 486,694 | |
Decease in accrued expenses, related party | | | - | | | | (2,940 | ) | | | - | |
Increase in deferred rent payable | | | - | | | | 5,067 | | | | 5,067 | |
Net cash used in operating activities | | | (1,524,956 | ) | | | (838,367 | ) | | | (2,408,829 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Purchase of property and equipment | | | (15,477 | ) | | | (31,547 | ) | | | (47,024 | ) |
Payment of long term deposit | | | - | | | | (25,000 | ) | | | (25,000 | ) |
Net cash used in investing activity | | | (15,477 | ) | | | (56,547 | ) | | | (72,024 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from notes payable, related party | | | 248,000 | | | | 5,500 | | | | 275,040 | |
Proceeds from convertible bridge notes payable | | | 600,000 | | | | - | | | | 600,000 | |
Net proceeds from the sale of Series A preferred stock | | | - | | | | 788,400 | | | | 788,400 | |
Net proceeds from the sale of Series B preferred stock | | | 647,650 | | | | 71,500 | | | | 719,150 | |
Proceeds from sale of common stock | | | - | | | | 92,500 | | | | 122,500 | |
Net cash provided by financing activities | | | 1,495,650 | | | | 957,900 | | | | 2,505,090 | |
| | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (44,783 | ) | | | 62,986 | | | | 24,237 | |
| | | | | | | | | | | | |
Cash and cash equivalents, beginning of the period | | | 69,020 | | | | 6,034 | | | | - | |
Cash and cash equivalents, end of the period | | $ | 24,237 | | | $ | 69,020 | | | $ | 24,237 | |
| | | | | | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
Cash paid during the period for interest | | $ | - | | | $ | - | | | $ | - | |
Cash paid during the period for income taxes | | $ | - | | | $ | - | | | $ | - | |
See the accompanying notes to the financial statements
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.
Business and Basis of Presentation
BioSig Technologies Inc. (the “Company”) was initially incorporated on February 24, 2009 under the laws of the State of Nevada and subsequently re-incorporated in the state of Delaware in 2011. The Company is in the development stage as defined under Accounting Standards Codification subtopic 915-10 Development Stage Entities and its efforts are principally devoted to improving the quality of cardiac recordings obtained during ablation of atrial fibrillation (AF). The Company has not generated any revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
The Company accounts for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
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. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. The Company does not have accounts receivable and allowance for doubtful accounts at December 31, 2012 and 2011.
Prepaid Expenses
From time to time, the Company issues shares of its common stock for services to be performed. The fair value of the common stock is determined at the date of the contract for services and is amortized ratably over the term of the contract. As of December 31, 2012 and 2011, prepaid expenses relating to stock based payments were $13,135 and $82,118, respectively.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 2 – GOING CONCERN MATTERS1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's existenceCapitalized financing costs
Capitalized financing costs are comprised of costs incurred in connection with the sale of the Company’s Series A and Series B preferred stock. These costs are amortized ratably and charged to financing expenses through December 31, 2014, the date redemption is dependent upon management's ability to develop profitable operations. The Company completed financing subsequentavailable to the datepreferred shareholders. The amortization for the years ended December 31, 2012 and 2011 was $105,881 and $77,933, respectively. Accumulated amortization of these financial statements (See Note 15). However additional capital will be needed to continue developing its productscapitalized financing costs were $183,815 and services and there can be no assurance that the Company's efforts will be successful. There is no assurance that can be given that management's actions will result in profitable operations or the resolution of its liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company’s President and shareholders have advanced funds to the Company for working capital purposes since the Company’s inception in February 2009. No formal repayment terms or arrangements exist and the Company is not accruing interest on these advances. The net amount outstanding$77,993 at December 31, 2012 and 2011, was $27,040.respectively.
Accrued interestUse of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and expenses dueassumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
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 partiescarrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
Long-Lived Assets
The Company follows Accounting Standards Codification 360-10-15-3, “Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
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 year. Diluted net loss per share for year ending December 31, 2012 does not reflect the effects of 25,000 shares potentially issuable upon the exercise of the Company's stock options (calculated using the treasury stock method) as of December 31, 2012 and 2011 was $54,184 and $nil, respectively.
During 2012, the Company issued promissory notes for funding provided by the Company’s president or a company under his control in the aggregate of $248,000. See Note 6 below.
During 2012, the Company issued convertible bridge notes for funding provided by the Company’s president and a Director of the Company for an aggregate of $225,000. See Note 7 below.
During 2011, the Company issued an aggregate of 3,400,000 shares of its common stock at par value in connection with services provided by founders.
The Company has informal compensation and consulting agreements with employees and outside contractors, certain of whom are also Company stockholders. The Agreements are generally month to month.as including such would be anti-dilutive. As of December 31, 2012 and 2011, total due under these agreements and related expenses were $43,630 and $nil.the Company did not have common stock equivalents.
On December 10, 2010,Income Taxes
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the Company entered into a two year consulting agreement with oneprovision 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 Company's directorsdeferred 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 certain services with compensation totaling 43,750 sharesdeferred 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. Deferred taxes are classified as current or non-current, depending on the Company's common stock valued at $35,000
NOTE 4 – PROPERTY AND EQUIPMENT
Propertyclassification of assets and equipmentliabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as of December 31, 2012current or non-current depending on the periods in which the temporary differences are expected to reverse and 2011 is summarized as follows:
| | 2012 | | | 2011 | |
Computer equipment | | $ | 39,221 | | | $ | 24,735 | |
Furniture and fixtures | | | 7,803 | | | | 6,813 | |
Total | | | 47,024 | | | | 31,548 | |
Less accumulated depreciation | | | (16,815 | ) | | | (6,795 | ) |
| | $ | 30,209 | | | $ | 24,752 | |
are considered immaterial.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Research and Development
Accounts payableThe Company accounts for research and accrueddevelopment 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 atof $888,948 and $582,525 the years ended December 31, 2012 and 2011, consistrespectively and $1,471,473 from the period from February 24, 2009 (date of the following:
| | 2012 | | | 2011 | |
Accrued accounting and legal | | $ | 120,922 | | | $ | 35,725 | |
Accrued reimbursements | | | 44,338 | | | | - | |
Accrued consulting | | | 111,546 | | | | - | |
Accrued research and development expenses | | | 68,120 | | | | - | |
Accrued credit card obligations | | | 21,844 | | | | - | |
Accrued payroll | | | 101,621 | | | | - | |
Accrued interest | | | 4,491 | | | | - | |
| | $ | 472,882 | | | $ | 35,725 | |
NOTE 6 – NOTES PAYABLE, RELATED PARTY
On November 21, 2012, the Company issued an unsecured promissory note for $218,000inception) to the Company’s President for previously advanced funds with interest payable annually, in arrears, on each anniversary at the short term “Applicable Federal Rate” within the meaning of Section 1274(d) of the Internal Revenue Code of 1986, as amended adjusted each anniversary date. The promissory note matures November 21, 2021 and may be prepaid, without premium or penalty, at any time. In connection with the issuance of the unsecured promissory note, the Company’s President agreed not to receive payments (by voluntary prepayment, acceleration, set-off or otherwise) associated with the unsecured promissory note absent the prior written consent of the purchasers holding at least 67% interest of the preferred stock outstanding, which purchasers must include Alpha Capital Anstalt so long as Alpha Capital Anstalt holds not less than $100,000 of preferred stock.
On December 6, 2012, the Company issued an unsecured promissory note for $30,000 to a company under the control of the Company’s President for previously advanced funds, interest free and due the earlier of (i) the next financing of not less than $300,000; (ii) February 28, 2013 or (iii) occurrence of an event of default, as defined.31, 2012.
NOTE 7 – CONVERTIBLE BRIDGE NOTES
In 2012, the Company issued an aggregate of $600,000 unsecured Senior Convertible Promissory Notes ($225,000 related party) with interest due at maturity at 8% per annum and may be paid, at the Company’s discretion, in cash or the Company’s common stock. The Notes, together with unpaid accrued interest, if any, is due upon written notice by the majority in interest of the holders on or after February 15, 2014 or (ii) upon the occurrence of an event of default, as defined. The Notes may be prepaid in whole or in part prior to the maturity date at the Company’s discretion.
The Convertible Bridge Notes and any accrued and unpaid interest automatically converts at the earlier of (i) (A) a completion of a transaction whereby the Company merges or consolidates with another company that has its common stock approved for quotation on any domestic national stock exchange and (B) the new entity thereafter issues and sells shares for no less than $3.0 million aggregate gross proceeds or (ii) a qualified IPO. The Convertible Bridge Notes shall convert into the new securities issued at 95% of the purchase price of the Conversion Securities offered to investors.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTSDECEMBER 31, 2012
NOTE 7 – CONVERTIBLE BRIDGE NOTES
In connection with the issuance of the Senior Convertible Promissory Notes, the Company issued the right to purchase at any time, on or after the Public Financing Closing Date,(as defined above) hereof until the fifth anniversary of the Public Financing Closing date, the number of fully paid and nonassessable shares (the “Warrant Shares”) of the Company’s common stock equal to the quotient of (a) the Warrant Coverage Amount (as defined below), divided by (b) the applicable Conversion Price of the Notes, at the per share exercise price (the “Exercise Price”), which shall initially be, as of the Public Financing Closing Date, equal to the Initial Exercise Price (as defined below), subject to further adjustments, as defined.
Initial Exercise Price” means one hundred twenty-five percent (125%) of the Conversion Price.
Warrant Coverage Amount” shall be the amount obtained by multiplying (x) the Warrant Coverage Percentageby (y) the principal amount outstanding (and not including any accrued and unpaid interest) of the Note, in connection with which this Warrant is concurrently issued.
“Warrant Coverage Percentage” shall be equal to fifty percent (50%) as defined in the Bridge Loan Agreement.
NOTE 8 — REDEEMABLE PREFERRED STOCK
Series A Preferred Stock
The holders of the Series A Preferred Stock are entitled to a five percent (5%) dividend on the $5,000 per share stated value. From and after May 31, 2011, cumulative, preferential dividends on outstanding shares of Series A Preferred Stock have accrued and have been payable quarterly, in arrears, beginning on August 31, 2011. Dividends are payable at our option in cash or in shares of Series A Preferred Stock. If not previously converted, the shares of the Series A Preferred Stock will be redeemed by us on December 31, 2014. In the event of our liquidation or winding up of affairs, the holders of the Series A Preferred Stock will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends.
Upon us being required to file reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the shares of Series A Preferred Stock will automatically convert into shares of common stock at a conversion price equal to $1.84 per share. In addition, at any time prior to the automatic conversion of the Series A Preferred Stock, the holders of the Series A Preferred Stock have the option to convert some or all of their shares of Series A Preferred Stock into shares of common stock at a conversion price equal to $1.84 per share.
The holders of the Series A Preferred Stock have no voting rights, except as required by law. Any amendment to our certificate of incorporation that adversely affects the Series A Preferred Stock requires the approval of the holders of a majority of the shares of Series A Preferred Stock then outstanding.
Series B Preferred Stock
The holders of the Series B Preferred Stock are entitled to a five percent (5%) dividend on the $5,000 per share stated value. From and after December 31, 2011, cumulative, preferential dividends on outstanding shares of Series B Preferred Stock have accrued and have been payable quarterly, in arrears, beginning on March 31, 2012. Dividends are payable at our option in cash or in shares of Series B Preferred Stock. If not previously converted, the shares of the Series B Preferred will be redeemed by us on December 31, 2014. In the event of our liquidation or winding up of affairs, the holders of the Series B Preferred Stock, subject to the rights of the holders of the Series A Preferred Stock, will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends.
Upon us being required to file reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the shares of Series B Preferred will automatically convert into shares of common stock at a conversion price equal to $2.02 per share. In addition, at any time prior to the automatic conversion of the Series B Preferred Stock, the holders of the Series B Preferred Stock have the option to convert some or all of their shares of Series B Preferred Stock into shares of common stock at a conversion price equal to $2.02 per share.
The holders of the Series B Preferred Stock have no voting rights, except as required by law. Any amendment to our certificate of incorporation that adversely affects the Series B Preferred Stock requires the approval of the holders of a majority of the shares of Series B Preferred Stock then outstanding.
Series C Preferred Stock
The holders of the Series C Preferred Stock are entitled to a nine percent (9%) dividend on the $1,000 per share Stated Value. Unless the Series C Preferred Stock is converted into shares of common stock, from and after February 12, 2013, the dividends have accrued and have been payable in cash or, subject to the satisfaction of certain conditions, in pay-in-kind shares. Such cumulative dividends are payable quarterly, commencing on September 30, 2013 and on each conversion date; provided, however, that if a holder converts its shares of Series C Preferred Stock into shares of common stock any time prior to February 12, 2016, the holder will be deemed to have earned a make whole amount as if such shares of Series C Preferred Stock had been outstanding until such date.
In the event that
(i) we fail to, or announce our intention not to, deliver common stock share certificates upon conversion of our Series C Preferred Stock prior to the seventh trading day after such shares are required to be delivered,
(ii) we fail for any reason to pay in full the amount of cash due pursuant to our failure to deliver common stock share certificates upon conversion of our Series C Preferred Stock within five calendar days after notice therefor is delivered,
(iii) we fail to have available a sufficient number of authorized and unreserved shares of common stock to issue to upon a conversion of our Series C Preferred Stock,
(iv) we fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of our obligations under, the securities purchase agreement, the registration rights agreement, the certificate of designation or the warrants entered into pursuant to the private placement transaction for our Series C Preferred Stock, which failure or breach could have a material adverse effect, and such failure or breach is not cured within 30 calendar days after written notice was delivered,
(v) we fail to complete a financing or series of related financings by February 12, 2014 that results in gross proceeds to us of at least $3 million at a valuation of at least $30 million,
(vi) we are party to a change of control transaction,
(vii) we file for bankruptcy or a similar arrangement or are adjudicated insolvent,
(viii) at any time after February 12, 2014, we fail to maintain the listing of our common stock on a trading market for more than five trading days in any twelve month period, or
(ix) we are subject to a judgment of greater than $100,000, and such judgment remains unvacated, unbonded or unstayed for a period of 45 calendar days,
the holders of the Series C Preferred Stock are entitled, among other rights, to redeem their shares of Series C Preferred Stock at any time for greater than their stated value, increase the dividend rate on their shares of Series C Preferred Stock to 18% or, solely upon the occurrence of (v) above, reduce the conversion price of their shares of Series C Preferred Stock to $1.50 per share.
In the event of our liquidation or winding up of affairs, the holders of the Series C Preferred Stock will be entitled to a liquidation preference of the stated value plus any accrued but unpaid dividends or any other fees due the holder. The shares of the Series C Preferred Stock rank senior to the rights of the common stock and all other securities exercisable or convertible into shares of common stock.
Any holder of Series C Preferred Stock is entitled at any time to convert any whole or partial number of shares of Series C Preferred Stock into shares of our common stock at a price based on a pre-money valuation of $20 million, or $2.09 per share. The Series C Preferred Stock is subject to full ratchet anti-dilution price protection upon the issuance of equity or equity-linked securities at an effective common stock purchase price of less than $2.09 per share as well as other customary anti-dilution protection. As noted above, in the event that we fail to complete a financing pursuant to which we raise at least $3 million at a valuation of at least $30 million within 12 months following the closing, the conversion price of the Series C Preferred Stock may be reset to $1.50 per share at the discretion of the holders.
In the event we issue any equity or equity-linked securities with terms more favorable than those of the Series C Preferred Stock, any holder of the Series C Preferred Stock may request to amend the terms of such holder’s Series C Preferred Stock to be equivalent to the terms of such issued equity or equity-linked securities, subject to certain exempted issuances.
The holders of the Series C Preferred Stock vote together with the holders of our common stock on an as-converted basis, but may not vote the Series C Preferred Stock in excess of the beneficial ownership limitation of the Series C Preferred Stock. The beneficial ownership limitation is 4.99% of our then outstanding shares of common stock following such conversion or exercise, which may be increased to up to 9.99% of our then outstanding shares of common stock following such conversion or exercise upon the request of an individual holder. The beneficial ownership limitation is determined on an individual holder basis, such that the as-converted number of shares of one holder is not included in the shares outstanding when calculating the limitation for a different holder. In addition, absent the approval of holders representing at least 67% of the outstanding shares of the Series C Preferred Stock, which holders must include Alpha Capital Anstalt, so long as Alpha Capital Anstalt holds not less than $100,000 of Series C Preferred Stock, we may not (i) increase the number of authorized shares of preferred stock, (ii) amend our charter documents, including the terms of the Series C Preferred Stock, in any manner adverse to the holders of the Series C Preferred Stock, including authorizing or creating any class of stock ranking senior to, or otherwise pari passu with, the shares of Series C Preferred Stock as to dividends, redemption or distribution of assets upon a liquidation, or (iii) perform certain covenants, including:
· incur additional indebtedness;
· permit liens on assets;
· repay, repurchase or otherwise acquire more than a de minimis number of shares of common stock, Series A Preferred Stock or Series B Preferred Stock;
· pay cash dividends to our stockholders; and
· engage in transactions with affiliates.
Pursuant to the securities purchase agreement for the Series C Preferred Stock, each holder of Series C Preferred Stock has a right to participate in any of our financings, subject to certain exceptions, on a pro-rata basis, for a period expiring 12 months after the effectiveness date of this registration statement.
Warrant
Five-Year Warrants
In connection with the private placement of our Series C Preferred Stock, we issued to the holders of our Series C Preferred Stock warrants to purchase up to an aggregate of 1,330,629 shares of common stock at an exercise price of $2.61 per share. The warrants contain full ratchet anti-dilution price protection upon the issuance of equity or equity-linked securities at an effective common stock purchase price of less than $2.61 per share as well as other customary anti-dilution protection. The warrants are exercisable for cash; or if at any time after six months from the issuance date, there is no effective registration statement registering the resale, or no current prospectus available for the resale, of the shares of common stock underlying the warrants, the warrants may be exercised by means of a “cashless exercise”.
Five-Year Amendment Warrants
As consideration for (i) extending the termination date of the securities purchase agreement and (ii) extending the filing and effectiveness dates for the filing of the registration statement pursuant to the registration rights agreement related our Series C Preferred Stock, we issued to the holders of our Series C Preferred Stock that purchased shares of our Series C Preferred Stock prior to the July 15, 2013 closing warrants to purchase up to an aggregate of 289,730 shares of common stock. The terms of these warrants are identical to the Five-Year Warrants described above.
October 2013 Five-Year Amendment Warrants
As consideration for amending the terms of the securities purchase agreement to permit our private placement of our common stock and warrants in December 2013, we issued to the holders of our Series C Preferred Stock warrants to purchase up to an aggregate of 332,684 shares of common stock. The terms of these warrants are identical to the Five-Year Warrants described above.
December 2013 Five-Year Warrants
In connection with the private placement of our common stock in December 2013, we issued to the investors participating in the private placement warrants to purchase up to an aggregate of 107,756 shares of common stock at an exercise price of $3.67 per share. The warrants contain customary anti-dilution protections. The warrants are exercisable for cash; or if at any time after six months from the issuance date, there is no effective registration statement registering the resale, or no current prospectus available for the resale, of the shares of common stock underlying the warrants, the warrants may be exercised by means of a “cashless exercise”.
Series A Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series A Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a seven-year warrant to purchase up to 35,076 shares of common stock at an exercise price of $1.84 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Series B Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series B Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a seven-year warrant to purchase up to 30,755 shares of common stock at an exercise price of $2.02 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Series C Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of Series C Preferred Stock, we issued to Laidlaw & Company (UK) Ltd. a warrant to purchase up to 177,057 shares of common stock. The terms of this warrant are identical to the Five-Year Warrants described above.
Par Value Warrant
As consideration for providing general financial advisory services, we issued to Jamess Capital Group LLC a seven-year warrant to purchase up to 383,320 shares of common stock at an exercise price of $0.001 per share. The terms of this warrant are otherwise identical to the Five-Year Warrants described above.
Common Stock Placement Agent Warrant
As consideration for serving as our placement agent in connection with the private placement of our common stock, we issued to Laidlaw & Company (UK) Ltd. a warrant to purchase up to 21,551 shares of common stock. The terms of this warrant are identical to the December 2013 Five-Year Warrants described above.
Registration Rights
On February 6, 2013, in connection with our private placement of our Series C Preferred Stock and warrants, we entered into a registration rights agreement with the purchasers pursuant to which we agreed to provide certain registration rights with respect to the common stock issuable upon conversion of our Series C Preferred Stock and exercise of the warrants issued to holders of our Series C Preferred Stock. Specifically, we agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the common stock issuable upon conversion of the Series C Preferred Stock and exercise of the warrants on or before July 22, 2013 and to cause such registration statement to be declared effective by the Securities and Exchange Commission, in the event that the registration statement is not reviewed by the Securities and Exchange Commission, within five trading days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, and by November 22, 2013 in the event that the registration statement is reviewed by the Securities and Exchange Commission and the Securities and Exchange Commission issues comments.
If (i) the registration statement is not filed by July 22, 2013, (ii) the registration statement is not declared effective by the Securities and Exchange Commission within five trading days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, in the case of a no review, (iii) the registration statement is not declared effective by the Securities and Exchange Commission by November 22, 2013 in the case of a review by the Securities and Exchange Commission pursuant to which the Securities and Exchange Commission issues comments or (iv) the registration statement ceases to remain continuously effective for more than 20 consecutive calendar days or more than an aggregate of 45 calendar days during any 12-month period after its first effective date, then we are subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to .25% of the aggregate purchase price paid by such purchasers per month of delinquency. Notwithstanding the foregoing, (i) the maximum aggregate liquidated damages due under the registration rights agreement shall be 3% of the aggregate purchase price paid by the purchasers, and (ii) if any partial amount of liquidated damages remains unpaid for more than seven days, we shall pay interest of 18% per annum, accruing daily, on such unpaid amount.
Pursuant to the registration rights agreement, we must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, subject to the our right to suspend or defer the use of the registration statement in certain events.
On December 31, 2013, in connection with our private placement of our common stock and warrants, we entered into a registration rights agreement with the purchasers pursuant to which we agreed to provide certain registration rights with respect to the common stock issued to the investors participating in our private placement and the common stock issuable upon exercise of the related warrants issued such investors. Specifically, we agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the shares of common stock issued pursuant to the private placement and issuable upon the exercise of the warrants within 45 days of January 31, 2014 and to cause such registration statement to be declared effective by the Securities and Exchange Commission, in the event that the registration statement is not reviewed by the Securities and Exchange Commission, within 30 calendar days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, and within 180 calendar days of the initial filing date of the registration statement in the event that the registration statement is reviewed by the Securities and Exchange Commission and the Securities and Exchange Commission issues comments.
If (i) the registration statement is not filed within 45 days of January 31, 2014, (ii) the registration statement is not declared effective by the Securities and Exchange Commission within 30 calendar days after we are notified that registration statement is not being reviewed by the Securities and Exchange Commission, in the case of a no review, (iii) the registration statement is not declared effective by the Securities and Exchange Commission within 180 calendar days of the initial filing date of the registration statement in the case of a review by the Securities and Exchange Commission pursuant to which the Securities and Exchange Commission issues comments or (iv) the registration statement ceases to remain continuously effective for more than 10 consecutive calendar days or more than an aggregate of 15 calendar days during any 12-month period after its first effective date, then we are subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to 1.0% of the aggregate purchase price paid by such purchasers per month of delinquency, provided, however, that we will not be required to make any payments any of the foregoing events occurred at such time that all securities registered or to be registered in the registration statement are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended and provided, further, that we will not be required to make any liquidated damage payments with respect to any securities registered or to be registered in the registration statement that we are unable to register due to limits imposed by the Securities and Exchange Commission’s interpretation of Rule 415 under the Securities Act of 1933, as amended.. Notwithstanding the foregoing, (i) the maximum aggregate liquidated damages due under the registration rights agreement shall be 3% of the aggregate purchase price paid by the purchasers, and (ii) if any partial amount of liquidated damages remains unpaid for more than seven days, we shall pay interest of 18% per annum, accruing daily, on such unpaid amount.
Pursuant to the registration rights agreement, we must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, subject to the our right to suspend or defer the use of the registration statement in certain events.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws
Section 203 of the Delaware General Corporation Law, in general, prohibits a business combination between a corporation and an interested stockholder within three years of the time such stockholder became an interested stockholder, unless:
| · | prior to such time the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
| · | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, exclusive of shares owned by directors who are also officers and by certain employee stock plans; or |
| · | at or subsequent to such time, the business combination is approved by the board of directors and authorized by the affirmative vote at a stockholders’ meeting of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
The term “business combination” is defined to include, among other transactions between an interested stockholder and a corporation or any direct or indirect majority owned subsidiary thereof: a merger or consolidation; a sale, lease, exchange, mortgage, pledge, transfer or other disposition (including as part of a dissolution) of assets having an aggregate market value equal to 10% or more of either the aggregate market value of all assets of the corporation on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation; certain transactions that would result in the issuance or transfer by the corporation of any of its stock to the interested stockholder; certain transactions that would increase the interested stockholder’s proportionate share ownership of the stock of any class or series of the corporation or such subsidiary; and any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or any such subsidiary. In general, and subject to certain exceptions, an “interested stockholder” is any person who is the owner of 15% or more of the outstanding voting stock of the corporation, an affiliate or associate of the corporation who was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date or the affiliates and associates of such person. The term “owner” is broadly defined to include any person that individually or with or through such person’s affiliates or associates, among other things, beneficially owns such stock, or has the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement or understanding or upon the exercise of warrants or options or otherwise or has the right to vote such stock pursuant to any agreement or understanding, or has an agreement or understanding with the beneficial owner of such stock for the purpose of acquiring, holding, voting or disposing of such stock.
The restrictions described above do not apply to corporations that have elected, in the manner provided therein, not to be subject to Section 203 of the Delaware General Corporation Law or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders. We have not opted out of Section 203, but we are not currently subject to it because we are not listed on a national securities exchange and our securities are held of record by fewer than 2,000 stockholders. However, we could become subject to it if we become so listed or so held.
If Section 203 becomes applicable to us, it could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, could discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
Provisions of our certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our certificate of incorporation and bylaws:
| · | do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); |
| · | provide that special meetings of our stockholders may be called only by our board of directors, chairman, chief executive officer, president or secretary; and |
| · | provide advance notice provisions with which a stockholder who wishes to nominate a director or propose other business to be considered at a stockholder meeting must comply. |
Indemnification of Directors and Officers
Pursuant to Section 145 of the Delaware General Corporation Law, a corporation has the power to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a third-party action, other than a derivative action, and against expenses actually and reasonably incurred in the defense or settlement of a derivative action, provided that there is a determination that the individual acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the individual’s conduct was unlawful. Such determination will be made, in the case of an individual who is a director or officer at the time of such determination:
| · | by a majority of the disinterested directors, even though less than a quorum; |
| · | by a committee of such directors designated by a majority vote of such directors, even though less than a quorum; |
| · | if there are no disinterested directors, or if such directors so direct, by independent legal counsel; or |
| · | by a majority vote of the stockholders, at a meeting at which a quorum is present. |
Without court approval, however, no indemnification may be made in respect of any derivative action in which such individual is adjudged liable to the corporation.
The Delaware General Corporation Law requires indemnification of directors and officers for expenses relating to a successful defense on the merits or otherwise of a derivative or third-party action.
The Delaware General Corporation Law permits a corporation to advance expenses relating to the defense of any proceeding to directors and officers contingent upon such individuals’ commitment to repay any advances unless it is determined ultimately that such individuals are entitled to be indemnified.
Under the Delaware General Corporation Law, the rights to indemnification and advancement of expenses provided in the law are non-exclusive, in that, subject to public policy issues, indemnification and advancement of expenses beyond that provided by statute may be provided by bylaw, agreement, vote of stockholders, disinterested directors or otherwise.
Limitation of Personal Liability of Directors
The Delaware General Corporation Law provides that a corporation’s certificate of incorporation may include a provision limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. However, no such provision can eliminate or limit the liability of a director for:
| · | any breach of the director’s duty of loyalty to the corporation or its stockholders; |
| · | acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; |
| · | violation of certain provisions of the Delaware General Corporation Law; |
| · | any transaction from which the director derived an improper personal benefit; or |
| · | any act or omission prior to the adoption of such a provision in the certificate of incorporation. |
Our certificate of incorporation provides that our directors will not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the Delaware General Corporation Law.
Disclosure of Commission Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and persons controlling us, we have been advised that it is the Securities and Exchange Commission’s opinion that such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
As used in this prospectus, “selling stockholders” includes the successors-in-interest, donees, transferees, pledgees or others who may later hold the selling stockholders’ interests. In all cases, the selling stockholders will act independently of us in making decisions with respect to the timing, manner, size and price of each sale.
The selling stockholders may sell some or all of their shares of common stock at a fixed price of $2.09 per share until our common stock is quoted on the OTC Bulletin Board, and thereafter, at prevailing market prices or privately negotiated prices . After the effective date of the registration statement relating to this prospectus, we hope to have a market maker file an application with the Financial Industry Regulatory Authority for our common stock to eligible for trading on the OTC Bulletin Board. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority, nor can there be any assurance that such an application for quotation will be approved.
Once a market has developed for our common stock, each selling stockholder of the common stock may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are listed or quoted at the time of sale or in private transactions. These sales may be at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| · | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | loan or pledge the shares to a broker-dealer, who may sell the loaned shares or, in the event of default, sell the pledged shares; |
| · | through underwriters or dealers; |
| · | directly to purchasers, including institutional investors; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended, may be sold under Rule 144 rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short after the effective date of the registration statement of which this prospectus is a part and deliver common stock registered hereby to close out their short positions and to return borrowed shares in connection with such short sales, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of the shares of common stock will be paid by the selling stockholder and/or the purchasers. Each selling stockholder has represented and warranted to us that it acquired the securities subject to this registration statement solely for its own account and not with a view to, or for offer or sale in connection with, any distribution thereof. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.
Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. There is no underwriter or coordinating broker acting in connection with the proposed sale of the common stock by the selling stockholders.
We have agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the shares covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the common stock may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933, as amended).
Haynes and Boone, LLP, New York, New York, will pass upon the validity of the shares of our common stock offered by the selling stockholders under this prospectus.
Our financial statements as of December 31, 2012 and 2011 and for the years then ended included in this prospectus have been audited by Rosenberg Rich Baker Berman & Company, an independent registered public accounting firm, as stated in its report appearing in the registration statement, and are included in reliance upon the report of such firm given upon its authority as experts in accounting and auditing.
Change in Our Public Accounting Firm
On May 28, 2013, we advised Rosenberg Rich Baker Berman & Company that it was dismissed as our independent registered public accounting firm. On June 11, 2013, we engaged Liggett, Vogt & Webb P.A., as our independent registered public accounting firm. The decision to dismiss Rosenberg Rich Baker Berman & Company as our independent registered public accounting firm was approved by our board of directors.
The report of Rosenberg Rich Baker Berman & Company on our financial statements for the fiscal years ended December 31, 2011 and December 31, 2012 did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except that the report raised substantial doubt as to our ability to continue as a going concern.
From our inception through May 28, 2013, there was a disagreement with Rosenberg Rich Baker Berman & Company with regard to the application of accounting principles to certain anti-dilution provisions embedded within our Series C Preferred Stock and related warrants issued during the three months ended March 31, 2013. This disagreement was not discussed by our board of directors. We authorized Rosenberg Rich Baker Berman & Company to respond fully to the inquiries of Liggett, Vogt & Webb P.A. concerning the application of accounting principles with certain anti-dilution provisions embedded within our Series C Preferred Stock and related warrants issued during the three months ended March 31, 2013.
From our inception through date of engagement (June 11, 2013), we did not consult Liggett, Vogt & Webb P.A. regarding either: (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K.
WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1, together with any amendments and related exhibits, under the Securities Act of 1933, as amended, with respect to our shares of common stock offered by this prospectus. The registration statement contains additional information about us and our shares of common stock that the selling stockholders are offering in this prospectus.
Following this offering, we will be required to file annual, quarterly and current reports and other information with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Our Securities and Exchange Commission filings are available to the public over the Internet at the Securities and Exchange Commission’s website at http://www.sec.gov. You may also read and copy any document we file at the Securities and Exchange Commission’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. Access to those electronic filings is available as soon as practicable after filing with the Securities and Exchange Commission. You may also request a copy of those filings, excluding exhibits, from us at no cost. Any such request should be addressed to us at: 12424 Wilshire Boulevard, Suite 745, Los Angeles, California 90025, Attention: Kenneth L. Londoner, Executive Chairman .
FINANCIAL STATEMENTS
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
BioSig Technologies, Inc. (a Development Stage Company)
We have audited the accompanying balance sheets of BioSig Technologies. Inc. (a Development Stage Company) as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended and for the period from February 24, 2009 (date of inception) to December 31, 2012. BioSig Technologies, Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BioSig Technologies, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended and for the period from February 24, 2009 (date of inception) to December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage, has incurred losses from operations since its inceptions and has a net stockholders’ deficiency. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Rosenberg Rich Baker Berman & Company
Somerset, New Jersey
May 7, 2013, except for note 16 as to which the date is September 11, 2013.
| |
(a development stage company) | |
BALANCE SHEETS | |
DECEMBER 31, 2012 AND 2011 | |
| | | | | | |
| | 2012 | | | 2011 | |
| | | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 24,237 | | | $ | 69,020 | |
Prepaid expenses | | | 33,125 | | | | 82,118 | |
Capitalized financing costs | | | 212,635 | | | | 84,167 | |
Total current assets | | | 269,997 | | | | 235,305 | |
| | | | | | | | |
Property and equipment, net | | | 30,209 | | | | 24,752 | |
| | | | | | | | |
Other assets: | | | | | | | | |
Deposits | | | 25,000 | | | | 25,000 | |
| | | | | | | | |
Total assets | | $ | 325,206 | | | $ | 285,057 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 472,882 | | | $ | 35,725 | |
Advances, related party | | | 27,040 | | | | 27,040 | |
Note payable, related party | | | 30,000 | | | | - | |
Liability to placement agent | | | 94,500 | | | | - | |
Dividends payable | | | 117,751 | | | | 26,892 | |
Total current liabilities | | | 742,173 | | | | 89,657 | |
| | | | | | | | |
Long term liabilities: | | | | | | | | |
Deferred rent payable | | | 5,067 | | | | 5,067 | |
Note payable, related party | | | 218,000 | | | | - | |
Convertible bridge notes payable, $225,000 related party | | | 613,812 | | | | - | |
Redeemable Series A preferred stock | | | 922,000 | | | | 922,000 | |
Redeemable Series B preferred stock | | | 887,500 | | | | 100,000 | |
Total long term liabilities | | | 2,646,379 | | | | 1,027,067 | |
Total liabilities | | | 3,388,552 | | | | 1,116,724 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
Stockholders' deficit | | | | | | | | |
Preferred stock, $0.001 par value, authorized 1,000,000 shares | | | | | | | | |
Common stock, $0.001 par value, authorized 50,000,000 and 10,000,000 shares as of December 31, 2012 and 2011, respectively, 8,166,238 and 8,136,238 issued and outstanding as of December 31, 2012 and 2011, respectively | | | 8,166 | | | | 8,136 | |
Additional paid in capital | | | 833,647 | | | | 588,354 | |
Deficit accumulated during development stage | | | (3,905,159 | ) | | | (1,428,157 | ) |
Total stockholders' deficit | | | (3,063,346 | ) | | | (831,667 | ) |
| | | | | | | | |
Total liabilities and stockholders' deficit | | $ | 325,206 | | | $ | 285,057 | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENTS OF OPERATIONS | |
| | | | | | | | | |
| | | | | | | | From February 24, | |
| | | | | | | | 2009 (date of | |
| | Year ended December 31, | | | inception) to | |
| | 2012 | | | 2011 | | | December 31, 2012 | |
Operating expenses: | | | | | | | | | |
Research and development | | $ | 888,948 | | | $ | 582,525 | | | $ | 1,471,473 | |
General and administrative | | | 1,363,007 | | | | 484,127 | | | | 2,097,190 | |
Depreciation | | | 10,020 | | | | 6,795 | | | | 16,815 | |
Total operating expenses | | | 2,261,975 | | | | 1,073,447 | | | | 3,585,478 | |
| | | | | | | | | | | | |
Net loss from operations | | | (2,261,975 | ) | | | (1,073,447 | ) | | | (3,585,478 | ) |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Interest income (expense) | | | (18,286 | ) | | | 171 | | | | (18,115 | ) |
Financing costs | | | (105,881 | ) | | | (77,933 | ) | | | (183,814 | ) |
| | | | | | | | | | | | |
Net loss before income taxes | | | (2,386,142 | ) | | | (1,151,209 | ) | | | (3,787,407 | ) |
| | | | | | | | | | | | |
Income taxes (benefit) | | | - | | | | - | | | | - | |
| | | | | | | | | | | | |
Net loss | | | (2,386,142 | ) | | | (1,151,209 | ) | | | (3,787,407 | ) |
| | | | | | | | | | | | |
Preferred stock dividend | | | (90,860 | ) | | | (26,892 | ) | | | (117,752 | ) |
| | | | | | | | | | | | |
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS’ | | $ | (2,477,002 | ) | | $ | (1,178,101 | ) | | $ | (3,905,159 | ) |
| | | | | | | | | | | | |
Net loss per common share, basic and diluted | | $ | (0.30 | ) | | $ | (0.18 | ) | | | | |
| | | | | | | | | | | | |
Weighted average number of common shares outstanding, basic and diluted | | | 8,142,222 | | | | 6,650,026 | | | | | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENT OF STOCKHOLDERS' DEFICIT | |
FROM FEBRUARY 24, 2009 (DATE OF INCEPTION) TO DECEMBER 31, 2012 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Deficit | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | | | | | | | | Additional | | | During | | | | |
| | Common stock | | | Shares subscribed | | | Shares to be issued | | | Paid in | | | Development | | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Stage | | | Total | |
Common stock issued to founders | | | 4,000,000 | | | $ | 4,000 | | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 4,000 | |
Common stock issuable to founders | | | - | | | | - | | | | - | | | | - | | | | 3,400,000 | | | | 3,400 | | | | - | | | | - | | | | 3,400 | |
Donated capital | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 100 | | | | - | | | | 100 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (104,584 | ) | | | (104,584 | ) |
Balance, December 31, 2009 | | | 4,000,000 | | | | 4,000 | | | | - | | | | - | | | | 3,400,000 | | | | 3,400 | | | | 100 | | | | (104,584 | ) | | | (97,084 | ) |
Proceeds from common stock subscription | | | - | | | | - | | | | 37,500 | | | | 30,000 | | | | - | | | | - | | | | - | | | | - | | | | 30,000 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (145,472 | ) | | | (145,472 | ) |
Balance, December 31, 2010 | | | 4,000,000 | | | | 4,000 | | | | 37,500 | | | | 30,000 | | | | 3,400,000 | | | | 3,400 | | | | 100 | | | | (250,056 | ) | | | (212,556 | ) |
Sale of common stock | | | 153,125 | | | | 153 | | | | (37,500 | ) | | | (30,000 | ) | | | - | | | | - | | | | 122,347 | | | | - | | | | 92,500 | |
Common stock issued for services rendered | | | 408,113 | | | | 408 | | | | - | | | | - | | | | - | | | | - | | | | 326,082 | | | | - | | | | 326,490 | |
Common stock issued for future services | | | 175,000 | | | | 175 | | | | - | | | | - | | | | - | | | | - | | | | 139,825 | | | | - | | | | 140,000 | |
Common stock issued to founders | | | 3,400,000 | | | | 3,400 | | | | - | | | | - | | | | (3,400,000 | ) | | | (3,400 | ) | | | - | | | | - | | | | - | |
Preferred stock dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (26,892 | ) | | | (26,892 | ) |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,151,209 | ) | | | (1,151,209 | ) |
Balance, December 31, 2011 | | | 8,136,238 | | | | 8,136 | | | | - | | | | - | | | | - | | | | - | | | | 588,354 | | | | (1,428,157 | ) | | | (831,667 | ) |
Common stock issued for services rendered | | | 30,000 | | | | 30 | | | | - | | | | - | | | | - | | | | - | | | | 59,970 | | | | - | | | | 60,000 | |
Fair value of vested options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 185,323 | | | | - | | | | 185,323 | |
Preferred stock dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (90,860 | ) | | | (90,860 | ) |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,386,142 | ) | | | (2,386,142 | ) |
Balance, December 31, 2012 | | | 8,166,238 | | | $ | 8,166 | | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 833,647 | | | $ | (3,905,159 | ) | | $ | (3,063,346 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
See the accompanying notes to the financial statements
| |
(a development stage company) | |
STATEMENTS OF CASH FLOWS | |
| | | | | | | | | |
| | | | | | | | From February 24, | |
| | | | | | | | 2009 (date of | |
| | Year ended December 31, | | | inception) to | |
| | 2012 | | | 2011 | | | December 31, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss attributable to common stockholders | | $ | (2,386,142 | ) | | $ | (1,151,209 | ) | | $ | (3,787,407 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | | | | | | | | | | | | |
Depreciation | | | 10,020 | | | | 6,795 | | | | 16,815 | |
Amortization of financing costs | | | 105,881 | | | | 77,933 | | | | 183,814 | |
Stock based compensation | | | 314,316 | | | | 384,372 | | | | 706,088 | |
Donated capital | | | - | | | | - | | | | 100 | |
(Increase) in prepaid expenses | | | (20,000 | ) | | | - | | | | (20,000 | ) |
Increase (Decrease) in accounts payable and accrued expenses | | | 450,969 | | | | (158,385 | ) | | | 486,694 | |
Decease in accrued expenses, related party | | | - | | | | (2,940 | ) | | | - | |
Increase in deferred rent payable | | | - | | | | 5,067 | | | | 5,067 | |
Net cash used in operating activities | | | (1,524,956 | ) | | | (838,367 | ) | | | (2,408,829 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Purchase of property and equipment | | | (15,477 | ) | | | (31,547 | ) | | | (47,024 | ) |
Payment of long term deposit | | | - | | | | (25,000 | ) | | | (25,000 | ) |
Net cash used in investing activity | | | (15,477 | ) | | | (56,547 | ) | | | (72,024 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from notes payable, related party | | | 248,000 | | | | 5,500 | | | | 275,040 | |
Proceeds from convertible bridge notes payable | | | 600,000 | | | | - | | | | 600,000 | |
Net proceeds from the sale of Series A preferred stock | | | - | | | | 788,400 | | | | 788,400 | |
Net proceeds from the sale of Series B preferred stock | | | 647,650 | | | | 71,500 | | | | 719,150 | |
Proceeds from sale of common stock | | | - | | | | 92,500 | | | | 122,500 | |
Net cash provided by financing activities | | | 1,495,650 | | | | 957,900 | | | | 2,505,090 | |
| | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (44,783 | ) | | | 62,986 | | | | 24,237 | |
| | | | | | | | | | | | |
Cash and cash equivalents, beginning of the period | | | 69,020 | | | | 6,034 | | | | - | |
Cash and cash equivalents, end of the period | | $ | 24,237 | | | $ | 69,020 | | | $ | 24,237 | |
| | | | | | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
Cash paid during the period for interest | | $ | - | | | $ | - | | | $ | - | |
Cash paid during the period for income taxes | | $ | - | | | $ | - | | | $ | - | |
See the accompanying notes to the financial statements
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.
Business and Basis of Presentation
BioSig Technologies Inc. (the “Company”) was initially incorporated on February 24, 2009 under the laws of the State of Nevada and subsequently re-incorporated in the state of Delaware in 2011. The Company is in the development stage as defined under Accounting Standards Codification subtopic 915-10 Development Stage Entities and its efforts are principally devoted to improving the quality of cardiac recordings obtained during ablation of atrial fibrillation (AF). The Company has not generated any revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
The Company accounts for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
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. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. The Company does not have accounts receivable and allowance for doubtful accounts at December 31, 2012 and 2011.
Prepaid Expenses
From time to time, the Company issues shares of its common stock for services to be performed. The fair value of the common stock is determined at the date of the contract for services and is amortized ratably over the term of the contract. As of December 31, 2012 and 2011, prepaid expenses relating to stock based payments were $13,135 and $82,118, respectively.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Capitalized financing costs
Capitalized financing costs are comprised of costs incurred in connection with the sale of the Company’s Series A and Series B preferred stock. These costs are amortized ratably and charged to financing expenses through December 31, 2014, the date redemption is available to the preferred shareholders. The amortization for the years ended December 31, 2012 and 2011 was $105,881 and $77,933, respectively. Accumulated amortization of capitalized financing costs were $183,815 and $77,993 at December 31, 2012 and 2011, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
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.
Long-Lived Assets
The Company follows Accounting Standards Codification 360-10-15-3, “Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
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 year. Diluted net loss per share for year ending December 31, 2012 does not reflect the effects of 25,000 shares potentially issuable upon the exercise of the Company's stock options (calculated using the treasury stock method) as of December 31, 2012 as including such would be anti-dilutive. As of December 31, 2011, the Company did not have common stock equivalents.
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. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Research and Development
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 $888,948 and $582,525 the years ended December 31, 2012 and 2011, respectively and $1,471,473 from the period from February 24, 2009 (date of inception) to December 31, 2012.
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 and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, 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.
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. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. 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.
As of December 31, 2012, the Company had 1,273,927 and 25,000 employee and non-employee options outstanding to purchase shares of common stock, respectively. As of December 31, 2011, the Company had Nil employee and non-employee stock options outstanding.
Recent Accounting Pronouncements
There are 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 2 – GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements during the years ended December 31, 2012 and 2011, the Company incurred net losses attributable to common stockholders of $2,477,002 and $1,178,101, respectively and used $1,524,956 in cash for operating activities for the year ended December 31, 2012. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 2 – GOING CONCERN MATTERS
The Company's existence is dependent upon management's ability to develop profitable operations. The Company completed financing subsequent to the date of these financial statements (See Note 15). However additional capital will be needed to continue developing its products and services and there can be no assurance that the Company's efforts will be successful. There is no assurance that can be given that management's actions will result in profitable operations or the resolution of its liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company’s President and shareholders have advanced funds to the Company for working capital purposes since the Company’s inception in February 2009. No formal repayment terms or arrangements exist and the Company is not accruing interest on these advances. The net amount outstanding at December 31, 2012 and 2011 was $27,040.
Accrued interest and expenses due related parties as of December 31, 2012 and 2011 was $54,184 and $nil, respectively.
During 2012, the Company issued promissory notes for funding provided by the Company’s president or a company under his control in the aggregate of $248,000. See Note 6 below.
During 2012, the Company issued convertible bridge notes for funding provided by the Company’s president and a Director of the Company for an aggregate of $225,000. See Note 7 below.
During 2011, the Company issued an aggregate of 3,400,000 shares of its common stock at par value in connection with services provided by founders.
The Company has informal compensation and consulting agreements with employees and outside contractors, certain of whom are also Company stockholders. The Agreements are generally month to month. As of December 31, 2012 and 2011, total due under these agreements and related expenses were $43,630 and $nil.
On December 10, 2010, the Company entered into a two year consulting agreement with one of the Company's directors for certain services with compensation totaling 43,750 shares of the Company's common stock valued at $35,000
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2012 and 2011 is summarized as follows:
| | 2012 | | | 2011 | |
Computer equipment | | $ | 39,221 | | | $ | 24,735 | |
Furniture and fixtures | | | 7,803 | | | | 6,813 | |
Total | | | 47,024 | | | | 31,548 | |
Less accumulated depreciation | | | (16,815 | ) | | | (6,795 | ) |
| | $ | 30,209 | | | $ | 24,752 | |
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSESAccounts payable and accrued expenses at December 31, 2012 and 2011 consist of the following:
| | 2012 | | | 2011 | |
Accrued accounting and legal | | $ | 120,922 | | | $ | 35,725 | |
Accrued reimbursements | | | 44,338 | | | | - | |
Accrued consulting | | | 111,546 | | | | - | |
Accrued research and development expenses | | | 68,120 | | | | - | |
Accrued credit card obligations | | | 21,844 | | | | - | |
Accrued payroll | | | 101,621 | | | | - | |
Accrued interest | | | 4,491 | | | | - | |
| | $ | 472,882 | | | $ | 35,725 | |
NOTE 6 – NOTES PAYABLE, RELATED PARTY
On November 21, 2012, the Company issued an unsecured promissory note for $218,000 to the Company’s President for previously advanced funds with interest payable annually, in arrears, on each anniversary at the short term “Applicable Federal Rate” within the meaning of Section 1274(d) of the Internal Revenue Code of 1986, as amended adjusted each anniversary date. The promissory note matures November 21, 2021 and may be prepaid, without premium or penalty, at any time. In connection with the issuance of the unsecured promissory note, the Company’s President agreed not to receive payments (by voluntary prepayment, acceleration, set-off or otherwise) associated with the unsecured promissory note absent the prior written consent of the purchasers holding at least 67% interest of the preferred stock outstanding, which purchasers must include Alpha Capital Anstalt so long as Alpha Capital Anstalt holds not less than $100,000 of preferred stock.
On December 6, 2012, the Company issued an unsecured promissory note for $30,000 to a company under the control of the Company’s President for previously advanced funds, interest free and due the earlier of (i) the next financing of not less than $300,000; (ii) February 28, 2013 or (iii) occurrence of an event of default, as defined.
NOTE 7 – CONVERTIBLE BRIDGE NOTES
In 2012, the Company issued an aggregate of $600,000 unsecured Senior Convertible Promissory Notes ($225,000 related party) with interest due at maturity at 8% per annum and may be paid, at the Company’s discretion, in cash or the Company’s common stock. The Notes, together with unpaid accrued interest, if any, is due upon written notice by the majority in interest of the holders on or after February 15, 2014 or (ii) upon the occurrence of an event of default, as defined. The Notes may be prepaid in whole or in part prior to the maturity date at the Company’s discretion.
The Convertible Bridge Notes and any accrued and unpaid interest automatically converts at the earlier of (i) (A) a completion of a transaction whereby the Company merges or consolidates with another company that has its common stock approved for quotation on any domestic national stock exchange and (B) the new entity thereafter issues and sells shares for no less than $3.0 million aggregate gross proceeds or (ii) a qualified IPO. The Convertible Bridge Notes shall convert into the new securities issued at 95% of the purchase price of the Conversion Securities offered to investors.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 7 – CONVERTIBLE BRIDGE NOTES
In connection with the issuance of the Senior Convertible Promissory Notes, the Company issued the right to purchase at any time, on or after the Public Financing Closing Date,(as defined above) hereof until the fifth anniversary of the Public Financing Closing date, the number of fully paid and nonassessable shares (the “Warrant Shares”) of the Company’s common stock equal to the quotient of (a) the Warrant Coverage Amount (as defined below), divided by (b) the applicable Conversion Price of the Notes, at the per share exercise price (the “Exercise Price”), which shall initially be, as of the Public Financing Closing Date, equal to the Initial Exercise Price (as defined below), subject to further adjustments, as defined.
Initial Exercise Price” means one hundred twenty-five percent (125%) of the Conversion Price.
Warrant Coverage Amount” shall be the amount obtained by multiplying (x) the Warrant Coverage Percentageby (y) the principal amount outstanding (and not including any accrued and unpaid interest) of the Note, in connection with which this Warrant is concurrently issued.
“Warrant Coverage Percentage” shall be equal to fifty percent (50%) as defined in the Bridge Loan Agreement.
NOTE 8 — REDEEMABLE PREFERRED STOCK
Series A Preferred Stock
In May 2011, the Board of Directors authorized the issuance of up to 200 shares of Series A Preferred Stock (the “Series A preferred stock”).
The Series A preferred stock is entitled to preference over holders of junior stock upon liquidation in the amount of $5,000 plus any accrued and unpaid dividends ; entitled to dividends as a preference to holders of junior stock at a rate of 5% per annum of the Stated Value of $5,000 per share, payable quarterly beginning on August 31, 2011 and are cumulative. The holders of Series A preferred stock have no voting rights, however without the affirmative vote of all the holders of then outstanding shares of the Series A preferred stock, the Company cannot, (a) alter or change adversely the powers, preferences or rights given to the Series A preferred stock or alter or amend the Certificate of Designation.
The Series A preferred stock is mandatorily redeemable on December 31, 2014 (as modified) at a price equal to the Stated Value ($5,000) plus an amount equal to all accumulated and unpaid dividends. If the Company fails to redeem at redemption, the unpaid redemption price will accrue at 14% per annum until paid.
The Series A preferred stock is convertible, at the holders discretion, at any time to convert any whole or partial number of Series A preferred stock into common stock at a price based on $15 million post conversion calculated on a fully diluted basis. The number of common shares issuable is obtained by multiplying (i) the number of Series A preferred stock to be converted by (ii) the sum of (A) $5,000 and (B) all accrued by unpaid dividends divided the product by $15 million and issuing common shares equal to the quotient as a percentage of the fully diluted common shares of the Company.
The Series A preferred stock is automatically convertible at the earlier of (i) (A) a completion of a transaction whereby the Company merges or consolidates with another company that has its common stock approved for quotation on any domestic national stock exchange and (B) the new entity thereafter issues and sells shares for no less than $5.0 million aggregate gross proceeds or (ii) a qualified IPO. The Series A preferred stock shall convert into the new securities issued at 90% of the purchase price.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 8 — REDEEMABLE PREFERRED STOCK
During the year ended December 31, 2012 and 2011, the Company sold an aggregate of 184.4 shares of Series A preferred stock at net proceeds of $-0- and $788,400, respectively. As of December 31, 2012 and 2011, 184.4 shares of Series A preferred stock were issued and outstanding. As of December 31, 2012 and 2011, the Company has accrued $73,255 and $26,892 dividends payable on the Series A preferred stock.
The gross proceeds of the Series A Preferred Stock of $922,000 as of December 31, 2012 and 2011 are shown as a current liability and the related issuance costs as a current asset labeled capitalized financing costs in the accompanying balance sheets. The capitalized financing cost are amortized through December 31, 2014, the date redemption is available to the preferred shareholders.
See modifications of the Series A preferred stock subsequent to the financial statements, Note 15.
Series B Preferred Stock
On November 28, 2011, the Board of Directors authorized the issuance of up to 600 shares of Series B Preferred Stock (the “Series B preferred stock”).
The Series B preferred stock is entitled to preference over holders of junior stock upon liquidation in the amount of $5,000 plus any accrued and unpaid dividends; entitled to dividends as a preference to holders of junior stock at a rate of 5% per annum of the Stated Value of $5,000 per share, payable quarterly beginning on December 31, 2011 and are cumulative. The holders of Series B preferred stock have no voting rights, however without the affirmative vote of all the holders of then outstanding shares of the Series B preferred stock, the Company cannot (a) alter or change adversely the powers, preferences or rights given to the Series A preferred stock or alter or amend the Certificate of Designation.
The Series B preferred stock is mandatorily redeemable on December 31, 2014 at a price equal to the Stated Value ($5,000) plus an amount equal to all accumulated and unpaid dividends. If the Company fails to redeem at redemption, the unpaid redemption price will accrue at 14% per annum until paid.
The Series B preferred stock is convertible, at the holders discretion, at any time to convert any whole or partial number of Series B preferred stock into common stock at a price based on $17.5 million post conversion calculated on a fully diluted basis. The number of common shares issuable is obtained by multiplying (i) the number of Series B preferred stock to be converted by (ii) the sum of (A) $5,000 and (B) all accrued by unpaid dividends divided the product by $17.5 million and issuing common shares equal to the quotient as a percentage of the fully diluted common shares of the Company.
The Series B preferred stock is automatically convertible at the earlier of (i) (A) a completion of a transaction whereby the Company merges or consolidates with another company that has its common stock approved for quotation on any domestic national stock exchange and (B) the new entity thereafter issues and sells shares for no less than $5.0 million aggregate gross proceeds or (ii) a qualified IPO. The Series B preferred stock shall convert into the new securities issued at 90% of the purchase price.
During the year ended December 31, 2012 and 2011, the Company sold an aggregate of 157.5 and 20.0 shares of Series B preferred stock at net proceeds of $647,650 and $71,500, respectively. As of December 31, 2012 and 2011, 177.5 and 20.0 shares of Series B preferred stock were issued and outstanding, respectively. As of December 31, 2012 and 2011, the Company has accrued $44,497 and $-0- dividends payable on the Series B preferred stock.
The gross proceeds of the Series B Preferred Stock of $887,500 and $100,000 as of December 31, 2012 and 2011, respectively, are shown as a current liability and the related issuance costs as a current asset labeled capitalized financing costs in the accompanying balance sheets. The capitalized financing cost are amortized through December 31, 2014, the date redemption is available to the preferred shareholders.
See modifications of the Series B preferred stock subsequent to the financial statements, Note 15.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 9 — STOCKHOLDER EQUITY
There is not a viable market for the Company’s common stock to determine its fair value; therefore, management is required to estimate the fair value to be utilized in the determining stock based compensation costs. In estimating the fair value, management considers recent sales of its common stock to independent qualified investors, placement agents’ assessments of the underlying common shares relating to our sale of preferred stock and validation by independent fair value experts. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Preferred stock
The Company is authorized to issue 1,000,000 shares of $0.001 par value preferred stock. As of December 31, 2012 the Company has designated and issued 200 and 184.4 shares of Series A preferred stock, respectively, designated and issued 600 and 177.5 shares of Series B preferred stock, respectively and designated and issued 2,000 and -0- shares of Series C 9% convertible preferred stock.
Common stock
On October 17, 2012, the Company amended its Articles of Incorporation to increase the number of authorized shares of its common stock from 10 million to 50 million shares. As of December 31, 2012 the Company has 8,166,238 shares of common stock issued and outstanding.
During the period from February 24, 2009 to December 31, 2009, the Company issued or designated an aggregate of 7,400,000 shares of common stock as payment for services by founders, 4,000,000 and 3,400,000 shares issued during the years ended December 31, 2009 and 2011, respectively ($0.01 per share).
During the year ended December 31, 2011, the Company issued an aggregate of 408,113 shares of common stock for services rendered totaling $326,490 ($0.80 per share).
During the year ended December 31, 2011, the Company issued an aggregate of 175,000 shares of common stock for future services totally $140,000 ($0.80 per share).
During the year ended December 31, 2012, the Company issued an aggregate of 30,000 shares of common stock for future services totally $60,000 ($2.00 per share).
NOTE 10 — OPTIONS AND WARRANTS
There is not a viable market for the Company’s common stock to determine its fair value; therefore, management is required to estimate the fair value to be utilized in the determining stock based compensation costs. In estimating the fair value, management considers recent sales of its common stock to independent qualified investors, placement agents’ assessments of the underlying common shares relating to our sale of preferred stock and validation by independent fair value experts. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Stock option plans
On October 19, 2012, the Company’s Board of Directors approved the 2012 Equity Incentive Plan (the “ 2012 Plan”). The Plan provides for the issuance of options to purchase up to 2,000,000 shares of the Company’s common stock to officers, directors, employees and consultants of the Company including any common stock reserved by not issued pursuant to any awards granted under the Company’s 2011 Long-Term Incentive Plan . 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 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 quoted market price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the vesting period of the grants under the Plan will be determined by the Committee, in its sole discretion and expiration period not more than ten years. In connection with the Board’s approval, the Company’s 2011 Long-Term Incentive Plan was closed.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 10 — OPTIONS AND WARRANTS
On October 19, 2011, the Company’s Board of Directors approved the 2011 Long-Term Incentive Plan (the “ 2011 Plan”). The Plan provides for the issuance of options to purchase up to 1,500,000 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 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 quoted market price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the vesting period of the grants under the Plan will be determined by the Committee, in its sole discretion and expiration period not more than ten years. The Company reserved 1,500,000 shares of its common stock for future issuance under the terms of the Plan. As of December 31, 2012, the Company granted an aggregate of 1,298,927 options to directors and key consultants with an aggregate estimated fair value of $1,237,868.
Employee Options
The following table summarizes the employee options outstanding and the related prices for the shares of the Company's common stock issued at December 31, 2012:
| | | Options Outstanding | | | | | | Options Exercisable | |
| | | | | | Weighted Average | | | Weighted | | | | | | Weighted | |
Prices | | | Outstanding | | | (Years) | | | Price | | | Exercisable | | | Price | |
$ | 2.00 | | | | 1,273,927 | | | | 6.57 | | | $ | 2.00 | | | | - | | | $ | 2.00 | |
Transactions involving stock options issued to employees are summarized as follows:
| | Number of Shares | | | Weighted Average Price Per Share | |
Outstanding at December 31, 2010: | | | - | | | $ | - | |
Granted | | | - | | | | - | |
Exercised | | | - | | | | - | |
Expired | | | - | | | | - | |
Outstanding at December 31, 2011: | | | - | | | | - | |
Granted | | | 1,273,927 | | | | 2.00 | |
Exercised | | | - | | | | - | |
Expired | | | - | | | | - | |
Outstanding at December 31, 2012: | | | 1,273,927 | | | $ | 2.00 | |
During the year ended December 31, 2012, the Company granted 1,273,927 options to purchase the Company stock in connection with the services rendered at the exercise price of $2.00 per share for a term of seven years with 250,821 options vesting at the first, second and third anniversaries of the grant date. The remainder (521,464 options) vest contingent on the occurrence of certain events, as defined.
The fair value of the granted options for the year ended December 31, 2012 was determined using the Black Scholes option pricing model with the following assumptions:
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 10 — OPTIONS AND WARRANTS
Dividend yield: | | | -0- | % |
Volatility | | 108.60% to 111.78 | % |
Risk free rate: | | 0.97% to 1.14 | % |
Expected life: | | 7 years | |
Estimated fair value of the Company’s common stock | | $2.00 | |
The fair value of all employee options vesting during the year ended December 31, 2012 and 2011 of $142,032 and $-0-, respectively, was charged to current period operations. Unrecognized compensation expense of $1,152,939 at December 31, 2012 will be expensed in future periods.
Non-employee Options
The following table summarizes the non-employee options outstanding and the related prices for the shares of the Company's common stock issued at December 31, 2012:
| | | Options Outstanding | | | | | | Options Exercisable | |
| | | | | | Weighted Average | | | Weighted | | | | | | Weighted | |
Prices | | | Outstanding | | | (Years) | | | Price | | | Exercisable | | | Price | |
$ | 2.00 | | | | 25,000 | | | | 6.72 | | | $ | 2.00 | | | | 25,000 | | | $ | 2.00 | |
Transactions involving stock options issued to non- employees are summarized as follows:
| | Number of Shares | | | Weighted Average Price Per Share | |
Outstanding at December 31, 2010: | | | - | | | $ | - | |
Granted | | | - | | | | - | |
Exercised | | | - | | | | - | |
Expired | | | - | | | | - | |
Outstanding at December 31, 2011: | | | - | | | | - | |
Granted | | | 25,000 | | | | 2.00 | |
Exercised | | | - | | | | - | |
Expired | | | - | | | | - | |
Outstanding at December 31, 2012: | | | 25,000 | | | $ | 2.00 | |
During the year ended December 31, 2012, the Company granted 25,000 options to purchase the Company stock in connection with the services rendered at the exercise price of $2.00 per share for a term of seven years vesting immediately.
The fair value of the granted options of $43,291 for the year ended December 31, 2012 was determined using the Black Scholes option pricing model with the following assumptions:
| | | -0- | % |
| | | 111.78 | % |
| | | 0.97 | % |
| | | |
Estimated fair value of the Company’s common stock | | $ | 2.00 | |
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 10 — OPTIONS AND WARRANTS
The fair value of all non- employee options vesting during the year ended December 31, 2012 and 2011 of $43,291 and $-0-, respectively, was charged to current period operations.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term. Estimated volatility is a measure of the amount by which the Company's stock price is expected to fluctuate each year during the term of the award. The Company's estimated volatility is an average of the historical volatility of the stock prices of its peer entities whose stock prices were publicly available. The Company's calculation of estimated volatility is based on historical stock prices over a period equal to the term of the awards. The Company used the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
Warrants.
As of December 31, 2012, the Company had issued warrants contingent on future events in connection with the issuance of the Convertible Bridge Notes. (See Note 7 above)
NOTE 11 - LOSS PER SHARE
The following table presents the computation of basic and diluted loss per share for the years ended December 31, 2012 and 2011:
| | 2012 | | | 2011 | |
| | | | | | |
Net loss available to Common stockholders | | $ | (2,477,002 | ) | | $ | (1,178,101 | ) |
Basic and diluted earnings (loss) per share | | $ | (0.30 | ) | | $ | (0.18 | ) |
Weighted average common shares outstanding | | | 8,142,222 | | | | 6,650,026 | |
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows the provisions of ASC 825-10. For financial assets and liabilities included within the scope of ASC 825-10, the Company was required to adopt the provisions of ASC 825-10 prospectively as of the beginning of Fiscal 2009. The adoption of ASC 825-10 did not have a material impact on our consolidated financial position or results of operations.
There were no items required to be measured at fair value on a recurring basis in the consolidated financial statements as of December 31, 2012 and 2011.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Operating leases
On August 9, 2011, the Company entered into a three-year lease for office space in Los Angeles, California, with monthly payments escalating from $60,804 in the first year to $66,456 in the third year.
Future minimum lease payments under the operating lease are as follows:
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Year Ending December 31, | | | |
2013 | | $ | 63,256 | |
2014 | | | 44,304 | |
| | $ | 107,560 | |
In addition, the Company leases parking in aggregate of approximately $620 per month, on a month to month basis.
Total lease rental expenses for the years ended December 31, 2012 and 2011 was $72,408 and $8,752, respectively.
Litigation
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. There was no outstanding litigation as of December 31, 2012.
Employment and Consulting Agreements
The Company has consulting agreements with outside contractors to provide certain consulting and advisory services. The Agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement by written notice. As of December 31, 2012, the Company has an aggregate of $252,000 (annualized) informal consulting/employment agreements.
On December 10, 2010, the Company entered into a two year consulting contract with a Company director in exchange for 43,750 shares of the Company's common stock valued at $35,000.
NOTE 14 -INCOME TAXES
At December 31, 2012, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $3,100,000, expiring in the year 2031, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Due to possible significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. All or portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.
We have adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax position that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered to be uncertain.
The Company is required to file income tax returns in the U.S. Federal jurisdiction and in California. The Company is no longer subject to income tax examinations by tax authorities for tax years ending before December 31, 2009.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 14 - INCOME TAXES
The effective rate differs from the statutory rate of 34% for due to the following:
Statutory rate on pre-tax book loss | | | (34.00 | )% |
Stock based compensation | | | 11.70 | % |
Financing costs | | | 2.40 | % |
Valuation allowance | | | 19.90 | % |
| | | 0.00 | % |
The Company’s deferred taxes as of December 31, 2012 consist of the following:
Non-Current deferred tax asset: | | | | |
Net operating loss carry-forwards | | $ | 900,000 | |
Valuation allowance | | | (900,000) | |
Net non-current deferred tax asset | | $ | - | |
NOTE 15 – SUBSEQUENT EVENTS
Series C Convertible Preferred Stock
On January 9, 2013, the Board of Directors authorized the issuance of up to 3,500 shares of Series C Convertible Preferred Stock (the “Series C Convertible Preferred Stock”).
The Series C convertible preferred stock is entitled to preference over holders of junior stock upon liquidation in the amount of $1,000 plus any accrued and unpaid dividends ; entitled to dividends as a preference to holders of junior stock at a rate of 9% per annum of the Stated Value of $1,000 per share, payable quarterly beginning on September 30, 2013 and are cumulative. The holders of Series C preferred stock have no voting rights, however without the affirmative vote of all the holders of then outstanding shares of the Series C preferred stock, the Company cannot (a) alter or change adversely the powers, preferences or rights given to the Series C preferred stock or alter or amend the Certificate of Designation.
Each share of Series C preferred stock is convertible, at any time at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series C preferred stock by the conversion price $2.30 subject to adjustments.
If, at any time while the Series C preferred stock is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues any common stock or common stock equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then conversion price (“Base Conversion Price”), then the conversion price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 15 –SUBSEQUENT EVENTS
Amendments to Certificates of Designations to Preferred Stock
On February 6, 2013, the Company filed an Amended and Restated Certificate of Incorporation to amend the Certificates of Designation for the Series A and B preferred stock to replace the automatic conversion provision to automatically convert, inclusive of any accrued and unpaid dividends, immediately upon the Company becoming subject to the reporting requirements under Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended at conversion price of $1.84 (Series A) and $2.02 (Series B), respectively. In addition, the Company amended the Certificate of Designation for the Series C preferred stock to amend the conversion price to $2.09 per share and to increase the number of authorized Series C preferred stock the Company may issue from 3,500 shares to 4,200 shares.
Sale of Series C Convertible Preferred Stock
During the months of February and March 2013, the Company sold an aggregate of 1,635 shares of the Company’s Series C Convertible Preferred Stock for net proceeds of $1,362,270.
In connection with the sale of the Series C preferred stock, the Company issued an aggregate of 782,297 warrants to purchase the Company’s common stock at $2.61 per share expiring five years from the initial exercise date and contain certain defined anti-dilutive and cashless provisions.
Conversion of Convertible Bridge notes payable
On January 13, 2013, the Convertible Bridge note holders converted into 600 shares of Series C preferred stock and 287,081 warrants to purchase the Company’s common stock at $2.61 per share expiring five years from the initial exercise date and contain certain defined anti-dilutive and cashless provisions. In connection with the conversion of the convertible bridge notes, the note holders surrendered and the Company’s cancelled the previous issued contingent warrants.
In connection with the conversion, the note holders surrendered previously issued contingent warrants (See Note 7 above).
Registration Rights Agreement
The Company entered into a Registration Rights Agreement in connection with the sale and issuance of the Series C preferred stock. The Company is required to file a registration statement registering for resale (a) the common stock issuable upon conversion in full of the Preferred Stock (assuming on such date the shares of Preferred Stock are converted in full without regard to any conversion limitations therein), (b) all shares of Common Stock issuable as dividends and “Make-Whole Payments” (as defined in the Certificate of Designation) on the Preferred Stock assuming all dividend and Make-Whole Payments are made in shares of Common Stock and the Preferred Stock is held for at least 3 years, (c) all warrant shares then issuable upon exercise of the Warrants (assuming on such date the warrants are exercised in full without regard to any exercise limitations therein), (d) any additional shares of Common Stock issuable in connection with any anti-dilution provisions in the Preferred Stock or the Warrants (in each case, without giving effect to any limitations on conversion set forth in the Certificate of Designation or limitations on exercise set forth in the Warrants) and (e) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing. The Company is required to file a registration statement and must be declared effective no later than 210 days from the date of termination of the sale the Series C preferred stock.
BIOSIG TECHNOLOGIES INC.
(A development stage company)
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2012
NOTE 15 – SUBSEQUENT EVENTS
The Company is required to maintain the effectiveness of the registration statement from its effective date unless all securities registered under the registration statement have been sold or are otherwise able to be sold. If the Company fails to comply with the registration statement effective date requirements, the Company is required to pay the investors a fee equal to 0.25% of the Purchaser’s investment, for each 30-day period of delay, subject to a maximum payment of 3% to each Purchaser
On January 7, 2013, the Company issued 383,320 warrants to purchase the Company’s common stock at $0.001 per share for five years for future services. In addition, the Company issued 35,076 and 30,755 warrants to purchase the Company’s common stock at $1.84 and $2.02 per share, respectively, for five years in settlement of placement agent liability relating to the sale of the Series A and Series B preferred stock. The Company accrued an estimated fair value of $94,500 included in the December 31, 2012 financial statements.
On January 1, 2013, the Company’s board of directors granted 95,800 employee options under the 2012 Equity Incentive Plan. The options vest over one year from the date of issuance and exercisable at $2.09 per share for seven years.
On January 16, 2013, the Company’s board of directors granted an aggregate of 935,000 employee and 30,000 non-employee options under the 2012 Equity Incentive Plan. The options are fully vested at the date of issuance and exercisable at $2.09 per share for seven years.
On February 12, 2013, the Company’s board of directors granted 283,750 non-employee options to a consultant exercisable at a price equal to the fair value of the Company’s common stock at the time of the grant for seven years. The options vest at (1) 48,611 shares on the first, second and third month anniversaries and (2) with the remainder vesting one twenty fourth (1/24) each monthly anniversary thereafter.
NOTE 16 – RESTATEMENT
The notes to the financial statements have been restated for the following:
1. | Include the accounting policy for capitalized financing costs in Note 1. |
2. | Revise the disclosure of the stock-based compensation disclosure in Note 1. |
3. | Enhance the disclosure included in Note 8, 9 and 10. |
| | |
| | | |
(a development stage company) | (a development stage company) | | (a development stage company) | |
CONDENSED BALANCE SHEETS | CONDENSED BALANCE SHEETS | | CONDENSED BALANCE SHEETS | |
| | | | | | | | | | | | |
| | June 30, | | | December 31, | | | September 30, | | | December 31, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | (unaudited) | | | | | | (unaudited) | | | | |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash | | $ | 304,938 | | | $ | 24,237 | | | $ | 65,481 | | | $ | 24,237 | |
Prepaid expenses | | | 20,000 | | | | 33,125 | | | | 20,000 | | | | 33,125 | |
Capitalized financing costs | | | - | | | | 212,635 | | | | - | | | | 212,635 | |
Total current assets | | | 324,938 | | | | 269,997 | | | | 85,481 | | | | 269,997 | |
| | | | | | | | | | | | | | | | |
Property and equipment, net | | | 32,023 | | | | 30,209 | | | | 29,501 | | | | 30,209 | |
| | | | | | | | | | | | | | | | |
Other assets: | | | | | | | | | | | | | | | | |
Deposits | | | 25,000 | | | | 25,000 | | | | 25,000 | | | | 25,000 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 381,961 | | | $ | 325,206 | | | $ | 139,982 | | | $ | 325,206 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 332,452 | | | $ | 472,882 | | | $ | 302,501 | | | $ | 472,882 | |
Advances, related party | | | 10,500 | | | | 27,040 | | | | 10,500 | | | | 27,040 | |
Note payable, related party | | | - | | | | 30,000 | | | | - | | | | 30,000 | |
Liability to placement agent | | | 36,420 | | | | 94,500 | | | | - | | | | 94,500 | |
Dividends payable | | | 244,512 | | | | 117,751 | | | | 329,076 | | | | 117,751 | |
Total current liabilities | | | 623,884 | | | | 742,173 | | | | 642,078 | | | | 742,173 | |
| | | | | | | | | | | | | | | | |
Long term liabilities: | | | | | | | | | | | | | | | | |
Deferred rent payable | | | 5,067 | | | | 5,067 | | | | 5,067 | | | | 5,067 | |
Note payable, related party | | | 218,000 | | | | 218,000 | | | | 218,000 | | | | 218,000 | |
Convertible bridge notes payable, $229,359 related party | | | - | | | | 613,812 | | | | - | | | | 613,812 | |
Redeemable Series A Preferred Stock, liquidation preference of $922,000, net of debt discount of $58,129 | | | 863,871 | | | | 922,000 | | |
Redeemable Series B Preferred Stock, liquidation preference of $887,500, net of debt discount of $110,726 | | | 776,774 | | | | 887,500 | | |
Redeemable Series A Preferred Stock, liquidation preference of $922,000, net of debt discount of $47,764 | | | | 874,236 | | | | 922,000 | |
Redeemable Series B Preferred Stock, liquidation preference of $887,500, net of debt discount of $91,602 | | | | 795,898 | | | | 887,500 | |
Total long term liabilities | | | 1,863,712 | | | | 2,646,379 | | | | 1,893,201 | | | | 2,646,379 | |
Total liabilities | | | 2,487,596 | | | | 3,388,552 | | | | 2,535,279 | | | | 3,388,552 | |
| | | | | | | | | | | | | | | | |
Series C 9% Convertible Preferred stock, liquidation preference of $2,422,000, net of debt discount of $1,512,068 | | | 909,932 | | | | - | | |
Series C 9% Convertible Preferred stock, liquidation preference of $2,781,000, net of debt discount of $1,184,858 | | | | 1,596,142 | | | | - | |
| | | | | | | | | | | | | | | | |
Stockholders' deficit | | | | | | | | | | | | | | | | |
Preferred stock, $0.001 par value, authorized 1,000,000 shares, designated 200 shares of Series A, 600 shares of Series B and 4,200 shares of Series C Preferred Stock | | | | | | | | | | | | | | | | |
Common stock, $0.001 par value, authorized 50,000,000 shares, 8,187,650 and 8,166,238 issued and outstanding as of June 30, 2013 and December 31, 2012, respectively | | | 8,188 | | | | 8,166 | | |
Common stock, $0.001 par value, authorized 50,000,000 shares, 8,196,591 and 8,166,238 issued and outstanding as of September 30, 2013 and December 31, 2012, respectively | | | | 8,197 | | | | 8,166 | |
Additional paid in capital | | | 6,557,993 | | | | 833,647 | | | | 8,260,999 | | | | 833,647 | |
Deficit accumulated during development stage | | | (9,581,748 | ) | | | (3,905,159 | ) | | | (12,260,634 | ) | | | (3,905,159 | ) |
Total stockholders' deficit | | | (3,015,567 | ) | | | (3,063,346 | ) | | | (3,991,438 | ) | | | (3,063,346 | ) |
| | | | | | | | | | | | | | | | |
Total liabilities and stockholders' deficit | | $ | 381,961 | | | $ | 325,206 | | | $ | 139,982 | | | $ | 325,206 | |
| | | | | | | | | | | | | | | | |
See the accompanying notes to the unaudited condensed financial statements | See the accompanying notes to the unaudited condensed financial statements | | See the accompanying notes to the unaudited condensed financial statements | |
| | | | |
(a development stage company) | (a development stage company) | | (a development stage company) | |
CONDENSED STATEMENTS OF OPERATIONS | CONDENSED STATEMENTS OF OPERATIONS | | CONDENSED STATEMENTS OF OPERATIONS | |
(unaudited) | (unaudited) | | (unaudited) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | From February 24, | |
| | | | | | | | | | | | | | From February 24, | | | | | | | | | | | | | | | 2009 (date of | |
| | | | | | | | | | | | | | 2009 (date of | | | Three months ended | | | Nine months ended | | | inception) to | |
| | Three months ended June 30, | | | Six months ended June 30, | | | inception) to | | | September 30, | | | September 30, | | | September 30, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | | | June 30, 2013 | | | 2013 | | | 2012 | | | 2013 | | | 2012 | | | 2013 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | $ | 178,507 | | | $ | 225,356 | | | $ | 484,846 | | | $ | 524,381 | | | $ | 1,956,319 | | | $ | 289,964 | | | $ | 290,892 | | | $ | 774,810 | | | $ | 815,273 | | | $ | 2,246,283 | |
General and administrative | | | 1,041,972 | | | | 171,609 | | | | 4,061,431 | | | | 297,557 | | | | 6,158,621 | | | | 509,285 | | | | 342,496 | | | | 4,570,716 | | | | 640,053 | | | | 6,667,906 | |
Depreciation | | | 4,259 | | | | 3,169 | | | | 7,951 | | | | 5,691 | | | | 24,766 | | | | 4,473 | | | | 3,386 | | | | 12,424 | | | | 9,077 | | | | 29,239 | |
Total operating expenses | | | 1,224,738 | | | | 400,135 | | | | 4,554,228 | | | | 827,630 | | | | 8,139,706 | | | | 803,722 | | | | 636,774 | | | | 5,357,950 | | | | 1,464,403 | | | | 8,943,428 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss from operations | | | (1,224,738 | ) | | | (400,135 | ) | | | (4,554,228 | ) | | | (827,630 | ) | | | (8,139,706 | ) | | | (803,722 | ) | | | (636,774 | ) | | | (5,357,950 | ) | | | (1,464,403 | ) | | | (8,943,428 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income (expense) | | | (114 | ) | | | 9 | | | | (20,535 | ) | | | 14 | | | | (38,650 | ) | | | (69 | ) | | | 3 | | | | (20,604 | ) | | | 17 | | | | (38,719 | ) |
Financing costs | | | (614,566 | ) | | | (26,470 | ) | | | (975,066 | ) | | | (52,940 | ) | | | (1,158,880 | ) | | | (1,790,533 | ) | | | (26,471 | ) | | | (2,765,599 | ) | | | (79,411 | ) | | | (2,949,413 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss before income taxes | | | (1,839,418 | ) | | | (426,596 | ) | | | (5,549,829 | ) | | | (880,556 | ) | | | (9,337,236 | ) | | | (2,594,324 | ) | | | (663,242 | ) | | | (8,144,152 | ) | | | (1,543,797 | ) | | | (11,931,559 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income taxes (benefit) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | (1,839,418 | ) | | | (426,596 | ) | | | (5,549,829 | ) | | | (880,556 | ) | | | (9,337,236 | ) | | | (2,594,324 | ) | | | (663,242 | ) | | | (8,144,152 | ) | | | (1,543,797 | ) | | | (11,931,559 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock dividend | | | (75,243 | ) | | | (22,557 | ) | | | (126,760 | ) | | | (45,250 | ) | | | (244,512 | ) | | | (84,563 | ) | | | (22,805 | ) | | | (211,323 | ) | | | (68,055 | ) | | | (329,075 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | | $ | (1,914,661 | ) | | $ | (449,153 | ) | | $ | (5,676,589 | ) | | $ | (925,806 | ) | | $ | (9,581,748 | ) | | $ | (2,678,887 | ) | | $ | (686,047 | ) | | $ | (8,355,475 | ) | | $ | (1,611,852 | ) | | $ | (12,260,634 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss per common share, basic and diluted | | $ | (0.23 | ) | | $ | (0.06 | ) | | $ | (0.69 | ) | | $ | (0.11 | ) | | | | | | $ | (0.33 | ) | | $ | (0.08 | ) | | $ | (1.02 | ) | | $ | (0.20 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding, basic and diluted | | | 8,185,589 | | | | 8,136,238 | | | | 8,180,434 | | | | 8,136,238 | | | | | | | | 8,192,898 | | | | 8,144,553 | | | | 8,184,634 | | | | 8,139,030 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See the accompanying notes to the unaudited condensed financial statements | See the accompanying notes to the unaudited condensed financial statements | | See the accompanying notes to the unaudited condensed financial statements | |
| | | | |
(a development stage company) | (a development stage company) | | (a development stage company) | |
STATEMENT OF STOCKHOLDERS' DEFICIT | STATEMENT OF STOCKHOLDERS' DEFICIT | | STATEMENT OF STOCKHOLDERS' DEFICIT | |
FROM JANUARY 1, 2013 TO JUNE 30, 2013 | | |
FROM JANUARY 1, 2013 TO SEPTEMBER 30, 2013 | | FROM JANUARY 1, 2013 TO SEPTEMBER 30, 2013 | |
(unaudited) | | (unaudited) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Deficit | | | | | | | | | | | | | | | Deficit | | | | |
| | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | Additional | | | During | | | | | | | | | | | | Additional | | | During | | | | |
| | Common stock | | | Paid in | | | Development | | | | | | Common stock | | | Paid in | | | Development | | | | |
| | Shares | | | Amount | | | Capital | | | Stage | | | Total | | | Shares | | | Amount | | | Capital | | | Stage | | | Total | |
Balance, December 31, 2012 | | | 8,166,238 | | | $ | 8,166 | | | $ | 833,647 | | | $ | (3,905,159 | ) | | $ | (3,063,346 | ) | | | 8,166,238 | | | $ | 8,166 | | | $ | 833,647 | | | $ | (3,905,159 | ) | | $ | (3,063,346 | ) |
Common stock issued for services rendered | | | 21,412 | | | | 22 | | | | 44,729 | | | | - | | | | 44,751 | | | | 21,412 | | | | 22 | | | | 44,729 | | | | - | | | | 44,751 | |
Common stock issued as payment for accrued interest to note holders at $2.09 per share | | | | 8,941 | | | | 9 | | | | 18,668 | | | | - | | | | 18,677 | |
Beneficial conversion feature in connection with note payable | | | - | | | | - | | | | 20,000 | | | | - | | | | 20,000 | | | | - | | | | - | | | | 20,000 | | | | - | | | | 20,000 | |
Beneficial conversion feature and warrants issued in connection with the Series C Preferred Stock | | | - | | | | - | | | | 2,084,070 | | | | - | | | | 2,084,070 | | | | - | | | | - | | | | 2,404,830 | | | | - | | | | 2,404,830 | |
Fair value of warrants issued to Series C investors for certificate of designation amendment | | | | - | | | | - | | | | 1,074,833 | | | | - | | | | 1,074,833 | |
Fair value of warrants issued for services | | | - | | | | - | | | | 916,677 | | | | - | | | | 916,677 | | | | - | | | | - | | | | 916,677 | | | | - | | | | 916,677 | |
Fair value of vested options | | | - | | | | - | | | | 2,658,870 | | | | - | | | | 2,658,870 | | | | - | | | | - | | | | 2,947,615 | | | | - | | | | 2,947,615 | |
Preferred stock dividend | | | - | | | | - | | | | - | | | | (126,760 | ) | | | (126,760 | ) | | | - | | | | - | | | | - | | | | (211,323 | ) | | | (211,323 | ) |
Net loss | | | - | | | | - | | | | - | | | | (5,549,829 | ) | | | (5,549,829 | ) | | | - | | | | - | | | | - | | | | (8,144,152 | ) | | | (8,144,152 | ) |
Balance, June 30, 2013 | | | 8,187,650 | | | $ | 8,188 | | | $ | 6,557,993 | | | $ | (9,581,748 | ) | | $ | (3,015,567 | ) | |
Balance, September 30, 2013 | | | | 8,196,591 | | | $ | 8,197 | | | $ | 8,260,999 | | | $ | (12,260,634 | ) | | $ | (3,991,438 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See the accompanying notes to the unaudited condensed financial statements | See the accompanying notes to the unaudited condensed financial statements | | See the accompanying notes to the unaudited condensed financial statements | |