Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See Cautionary Statement Regarding Forward-Looking Statements.”
Overview
We are a medical technology company primarily focusing on developing and commercializing higher resolution ambulatory ECG solutions that enable the detection and monitoring of cardiac disease outside a healthcare facility setting. Our ability to develop higher resolution ECG solutions is achieved through the development of our proprietary and patented VECG technology platform. Our vector electrocardiography technology is capable of developing three-dimensional (3D) images of cardiac electrical activity by displaying the spatial locations of ECG waveforms that has demonstrated in early studies to deliver equal or superior diagnostic capability than traditional hospital based ECG systems.
Our aim is to deliver ambulatory cardiac health monitoring technologies that can be used for patients anywhere, especially where critical cardiac care decisions need to be made on a more timely basis. Our Products require FDA clearance and have not been cleared for marketing.
We believe our Products and services will benefit many stakeholders, including patients, healthcare providers, and healthcare payors. We are developing our telehealth Product HeartBeam AIMIGo, to address the rapidly growing field of ambulatory cardiac health monitoring. HeartBeam AIMIGo is comprised of a credit card sized electrocardiogram device and other powerful cloud-based diagnostic expert software systems. We believe that we are uniquely positioned to play a central role in remote monitoring of high-risk coronary artery disease patients, because the initial studies have shown that our ischemia detection system may be more accurate than existing ambulatory cardiac health monitoring solutions.
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We are also applying our software platform to create a tool for detecting heart attacks in the ED environment using standard 12-lead ECG recordings. The software tool, HeartBeam AIMI is designed to enable emergency physicians to more accurately and quickly diagnose heart attacks than currently available tools. Market clearance of this Product will precede that of HeartBeam AIMIGo.
To date, we have developed working prototypes for both HeartBeam AIMIGo and HeartBeam AIMI. HeartBeam AIMI has been submitted for FDA 510(k) clearance and we have received questions from the FDA within the statutory 30-day review deadline. We have discussed the questions related to our submission, provided written responses as appropriate and continue to have further discussions via teleconference with the FDA review team regarding any remaining questions.
The custom software and hardware of our Products, we believe, are classified as Class II medical devices by the FDA, running on an FDA approved Class I registered software platform. Class II medical devices are those for which general controls alone are insufficient to provide reasonable assurance of safety and effectiveness and there is sufficient information to establish special controls. Special controls can include performance standards, post-market surveillance, patient histories and FDA guidance documents. Premarket review and clearance by the FDA for these devices is generally accomplished through the 510(k) or 510(k) de-novo premarket notification process
HeartBeam has nine issued U.S. patents (U.S. 10,433,744, U.S. 10,117,592, U.S. 11,071,490, U.S. 11,419,538, U.S. 11,445,963, U.S. 11,529,085, U.S. 10,980,433, U.S. 11,412,972 and U.S. 11,234,658), and six pending U.S applications. Four of the pending applications have been published, the remaining two pending cases are unpublished. Outside of the U.S., HeartBeam has four issued patents in Germany, France, Netherlands and United Kingdom and seven pending applications in Canada, China, the European Union (“EU”), Japan and Australia. HeartBeam has three pending PCT applications. The issued patents are predicted to expire between April 11, 2036 and April 21, 2042.
As of December 31, 2022, we had 15 employees. We intend to hire or engage additional full-time professionals, employees, and / or consultants in alignment with our growth strategy. Although the market is highly competitive for attracting and retaining highly qualified professionals in our industry, we continue our endeavor to find such candidates for our Company. Our management team and additional personnel that we may hire in the future will be primarily responsible for executing and implementing growth opportunities, making tactical decisions related to our strategy and pursuing opportunities to invest in new technologies through strategic partnerships and acquisitions.
Significant Developments during 2022 and early 2023
LIVMOR Partnership Agreement
In January 2022, we entered into a partnership agreement with LIVMOR to build a Company-branded version of the LIVMOR’s Halo+ FDA cleared turnkey solution for RPM to connect physicians and patients. As included in the agreement, HeartBeam and LIVMOR have the right to enter into additional agreements as needed in order to further the Company’s development of its products. The agreement with LIVMOR included a commitment in 2022 of $1.0 million.
During August 2022, we entered into a supplemental agreement with LIVMOR. The supplemental agreement stated we would pay an additional $0.2 million for access the source code under the partnership agreement. Payments totaling $0.2 million have been made by us and LIVMOR has delivered to us copies of source materials and codes. All licenses granted by LIVMOR have been automatically converted into a non-exclusive and perpetual license and has become licenses granted on a royalty-free and fully paid-up basis, in which LIVMOR hereby expressly waives and relinquishes all HeartBeam payment obligations under the initial partnership agreement.
As of December 31, 2022, we expensed a total of $1.2 million associated with the LIVMOR agreements, which has been recognized as R&D expense.
LIVMOR Asset Purchase
In February 2023, we acquired LIVMOR’s Halo+TM Atrial Fibrillation Detection System, the world’s first FDA-cleared (K201208) prescription wearable for continuous cardiac rhythm monitoring, comprising of intellectual property, including three issued United States patents.
Stock Purchase Agreement
In February 2022, we entered into a stock purchase agreement (“Stock Purchase Agreement”) pursuant to which we agreed to issue and sell (“Private Placement”) to OpenSky Opportunities Fund Ltd. 58,000 shares of common stock par value $0.0001 and 58,000 warrants to purchase one share of common stock at a combined price of $6.00 per share. The common stock and the warrants were immediately separable and issued separately but were purchased together in the Private
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Placement. These securities issued pursuant to the Stock Purchase Agreement. We received $348,000 in proceeds from the Private Placement. The Warrants will expire five years from the date of issuance.
Professional Services Agreement
In March 2022, we entered into a professional services agreement with Triple Ring Technologies, Inc, a co-development company, to assist in the design and development of our telehealth complete solution 3D vector ECG collection device for remote heart attack or MI monitoring, followed by an amendment for cost reduction initiatives. The agreement with Triple Ring includes a commitment totaling approximately $3.0 million.
As of December 31, 2022 we expensed $2.3 million and included $0.4 million in accounts payable, $0.12 million in prepaid assets and $0.02 million in accrued expenses
CTO Appointment
In August 2022, the Board of Directors of the Company appointed Kenneth Persen as Chief Technical Officer of the Company.
CMO Appointment
In October 2022, we announced the appointment of Peter J. Fitzgerald, MD, Ph.D, as Chief Medical Officer. Dr. Fitzgerald is the Director of the Center for Cardiovascular Technology and Director of the Cardiovascular Core Analysis Laboratory at Stanford University Medical School. In addition to his world-renowned expertise in interventional cardiology, Dr. Fitzgerald is an accomplished inventor, entrepreneur, and investment fund founder.
Appointment of President
In January 2023, our Board of Directors appointed Robert P. Eno as President of the Company effective as of January 18, 2023.
Patent Assignment
In September 2022, we were granted two patents:
•We were granted a 12-lead ECG patch monitor intended for detection of ACS and cardiac arrhythmia by the United States Patent and Trademark Office. The innovation builds on our growing intellectual property portfolio enabling 12-lead ECG diagnostics outside of a medical setting.
•We were also granted a patent that enables generation of a synthesized 12-lead ECG by the HeartBeam AIMIGo credit card-sized device by the United States Patent and Trademark Office. The innovation opens the pathway for a patient to record a set of signals using HeartBeam AIMIGo outside of a medical setting with a diagnostic synthesized 12-lead ECG immediately transmitted to a physician for review and diagnosis. Unlike single-lead ECG products currently in the marketplace, such as other credit card sized devices or smartwatches, our technology is intended to quickly and accurately help a physician identify MI / heart attack.
Product Pipeline
In October 2022, we announced the expansion of our product pipeline with smartwatch connectivity enablement for 24/7 heart monitoring capability. The product pipeline advancement allows for the addition of arrhythmia detection capabilities to address the multibillion-dollar global market for atrial fibrillation and other arrhythmia monitoring. This capability builds on our recently issued patents. This broader product portfolio enables the following:
•Introducing a 3-lead 3D VECG credit card-sized device, the HeartBeam AIMIGo 3L, that records the X,Y,Z cardiac activity and displays the signals for clinician review, providing the regulatory foundation for subsequent products in our product portfolio. The 510(k) submission to the FDA is planned for no later than Q2 2023.
•Leveraging recently issued patents to incorporate both synthesized baseline and symptomatic 12-lead signals for enhanced diagnostic accuracy as well as the addition of atrial fibrillation detection capability in the HeartBeam AIMIGo 12L device for FDA 510(k) submission in following FDA clearance of HeartBeam AIMIGo 3L.
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•Broadening of the product portfolio profile to enable smartwatch connectivity to our platform in future products as an optional monitoring solution for the clinician and the patient.
At-the-Market Offering
On February 1, 2023 we entered into a sales agreement (the “Sales Agreement”) with AGP pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $13.0 million in at-the-market offerings (“ATM”) sales. At the same time, we filed a prospectus supplement under a shelf registration on Form S-3 relating to the Sales Agreement. The registration statement was declared effective on February 10, 2023. AGP will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement. Our common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary.
Note Purchase Agreement and Security Purchase Agreement
On February 28, 2023 we entered into Agreements, each as amended on March 7, 2023 with Maverick. Pursuant to the terms of the Agreements, as amended, we agreed to sell up to $4,000,000 of our common stock at 75% of the average calculated Volume Weighted Average Price (“VWAP”) per share during a Drawdown Pricing Period as defined in the Agreements. We issued a $500,000 Convertible Note to the Investor pursuant to the NPA. On March 9, 2023 the Convertible Note was settled upon the execution of a SPA and related issuance of 0.2 million shares of common stock pursuant to the SPA drawdown notice dated March 7, 2023. These 0.2 million shares of common stock were registered under our registration statement on Form S-3 dated February 10, 2023 and the related prospectus supplement dated March 9, 2023.
Industry Trends and Outlook
COVID-19 has significantly impacted the delivery of healthcare. The transformation in daily life required healthcare systems to adjust how they delivered care and focus on patient convenience because of the social isolation measures. This change has resulted in innovations in virtual care and telehealth and opened new market opportunities for digital health platforms. During the pandemic the adoption rate of telehealth has increased dramatically, especially in cardiology, radiology, behavioral health, and online consultation.
The US telehealth market was $63B in 2020 and is projected to grow from $90B in 2021 to $636B in 2028 at a CAGR of 32% in the 2021-2028 period. The sudden growth in CAGR is attributable to the current market’s demand and growth, returning to pre-pandemic levels.
The change in clinical practice driven by COVID-19 resulted in governments of many countries actively developing new policies and reimbursement guidelines to promote the use of digital health platforms. In the US, the CMS expanded reimbursement for telehealth. These market trends shifted care delivery from the traditional healthcare settings. Online audio and video consultations with physicians are becoming the new normal, resulting in reduced patient waiting times, easy access to specialists and a cost-effective solution for healthcare systems.
The active Government initiatives for telehealth solutions and the favorable policies to encourage telehealth solutions are set to propel market growth. Telehealth helps overcome the distance barrier for patients in rural locations and enables healthcare systems to provide virtual care platforms to serve patients with limited access to quality healthcare. The combination of market conditions, the rising prevalence of chronic conditions and the growing geriatric population point to the huge potential of telehealth. However, there are technological and infrastructure barriers that are key reasons inhibiting the expansion of the market, especially in developing countries.
We believe these favorable market conditions and our current progress on developing our first ED software product and our telehealth end-to-end solution for the patient and physician provide a positive commercial opportunity for the Company. While there are technological and infrastructure barriers, especially in developing countries, our initial focus is on the US market and we don’t expect these issues to exist as we enter the US market.
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Results of operations for the years ended December 31, 2022 and 2021
The following table summarizes our results of operations for the periods presented on our statement of operations data. The year over year comparison of results of operations is not necessarily indicative of results of operations for future periods.
Years ended December 31,
(In thousands, except percentages)
Operating expenses:
Income tax provision — — — — %
Summary of Statements of Operations for the year ended December 31, 2022 compared with the year ended December 31, 2021:
General and administrative expenses (“G&A”) are largely related to personnel and professional services. G&A expense increased $5.3 million or 262% when compared to the same period in 2021. The primary increases were in personnel expenses related to an increase in headcount following the IPO and public company expenses, comprised of D&O insurance, Board of Director fees, investor and public relations and SEC reporting.
Research and development expenses (“R&D”) are primarily from software development and hardware related to our credit-card sized collection device for HeartBeam AIMIGo. R&D expense increased $5.4 million or 2,126% when compared with the same period in 2021. This is primarily from our service providers LIVMOR and Triple Ring. Furthermore there were increases in employee headcount and engagement of additional independent consultants for HeartBeam AIMI and HeartBeam AIMIGo product development.
Other income (expense) is primarily interest income during 2022, related to interest on our cash balances and interest expense during 2021, due to the accretion of the 2015 Notes 30% discount.
Liquidity and Capital Resources
Our cash requirements are and will continue to be, dependent upon a variety of factors. We expect to continue devoting significant capital resources to R&D and go to market strategies.
As of December 31, 2022, we had approximately $3.6 million in cash and cash equivalents, a decrease of $9.6 million from $13.2 million as of December 31, 2021.
During the year ended December 31, 2022, we raised approximately $0.3 million from the sale of securities.
Based on its current business plan assumptions and expected cash burn rate, the Company believes that the existing cash is insufficient to fund operations for the next twelve months following the issuance of these financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
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Our cash is as follows (in thousands):
December 31,
Cash flows for the year ended December 31, 2022 and 2021 (in thousands):
December 31
Net cash used in operating activities (9,948) (3,230)
Net cash provided by financing activities $ 350 $ 16,398
Operating Activities:
Net cash used in our operating activities of $9.9 million during the year ended December 31, 2022, is primarily due to our net loss of $12.9 million less $1.1 million in stock-based compensation expense and $1.9 million from changes in operating assets and liabilities.
Net cash used in our operating activities of $3.2 million during the year ended December 31, 2021, was primarily due to our net loss of $4.4 million less $1.9 million in accretion expense related the convertible notes that converted to common stock at the IPO and $0.4 million in other non-cash expenses, offset by an increase of $1.1 million of net changes in operating assets and liabilities.
Financing Activities:
During the year ended December 31, 2022, net cash provided by financing activities of $0.3 million, is primarily from the issuance of common stock under the February Stock Purchase Agreement.
During the year ended December 31, 2021, net cash provided by financing activities of $16.4 million was primarily from our IPO totaling $14.7 million net and issuances of our 2015 Notes totaling $1.7 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or “U.S. GAAP.” The preparation of these financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, assumptions and judgments. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions and the impact of such differences may be material to our financial statements.
Critical accounting policies are those policies that, in management’s view, are most important in the portrayal of our financial condition and results of operations. The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. These critical accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Those critical accounting policies and estimates that require the most significant judgment are
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discussed further below. We consider our most critical accounting policies and estimates to be stock-based compensation and research and development expense.
Research and development costs
Research and development costs are expensed as incurred and include salaries, benefits, bonus, share-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop proprietary materials and delivery devices; and associated overhead costs. Headcount and consulting costs are a significant component of research and development expenses. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of fees and costs associated with the contract that were rendered during the period. Research and development costs that are paid in advance of performance are capitalized and are expensed as incurred .
Stock-based compensation
The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award, determined using a Black-Scholes option pricing model for stock options and fair value on the date of grant for non-vested restricted stock, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). Determining the fair value of stock-based awards at the grant date requires significant estimates and judgments, including estimating the market price volatility of our Common Stock, future employee stock option exercise behavior and requisite service periods. We account for forfeitures as they occur, stock-based compensation expense recognized in the financial statements is reduced by the awards forfeited.
A total of 2,450,768 stock options and unvested RSUs remain outstanding as of December 31, 2022, under the 2015 Equity Incentive Plan (“2015 Plan”) and 2022 Plan. We expect to increase the number of employees and consultants to help execute our strategy in the medical device business and support our public company functions. Accordingly, we expect that future equity based awards will continue to be made under the 2022 Plan and future equity incentive plans to our directors, officers and other employees and consultants, as a result, to the extent relevant, we may incur non-cash, stock-based compensation expenses in future periods that may not be comparable to historical periods presented in our financial statements.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments”. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance applies to loans, accounts receivable, trade receivables and other financial assets measured at amortized cost, loan commitments, debt securities and beneficial interests in securitized financial assets, but the effect on the Company is projected to be limited to accounts receivable. In May 2019, the FASB issued ASU 2019-05 “Financial Instruments-Credit Losses (Topic 326)” which provides transition relief for companies adopting ASU 2016-13. This guidance amends ASU 2016-13 to allow companies to elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost under certain circumstances. Companies are required to make this election on an instrument by instrument basis. The guidance is effective for the fiscal year beginning January 1, 2023, including interim periods within that year. The impact from this guidance is expected to be immaterial.
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the
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Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. We have not early adopted ASU 2020-06 and are currently evaluating the effects of the adoption, but currently believe the guidance will have no impact on our accounting.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data of the Company required by this Item are described in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We adopted and maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Annual Report on Form 10-K, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, our management, including the Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), after evaluating the effectiveness of disclosure controls and procedures, identified material weaknesses in our internal control over financial reporting. The material weaknesses identified include (i) policies and procedures which are not yet adequately documented, (ii) lack of proper approval processes and review processes and documentation for such reviews, (iii) insufficient GAAP experience regarding complex transactions and reporting, and (iv) insufficient number of staff to maintain optimal segregation of duties and levels of oversight.
We have taken and continue to take remedial steps to improve our internal controls over financial reporting, which includes hiring additional personnel, we will continue to assess the weaknesses as these individuals progress through our onboarding process. We also continue to expand the functionality of our internal accounting systems to provide for higher levels of automation and assurance in our financial reporting function.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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This Annual Report on Form 10-K does not include an audit or attestation report from our registered public accounting firm regarding our internal control over financial reporting. Our management’s report was not subject to audit or attestation by our registered public accounting firm since we are not an accelerated filer or a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934.
Changes in Internal Control
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fourth quarter of the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.
Not applicable
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Part III
Item 10. Directors, Executive Officers and Corporate Governance
Information About our Executive Officers and Directors
Our business and affairs are organized under the direction of our board of directors, which currently consists of five members.
The following table sets forth certain information with respect to the current directors of our Company:
NAME AGE POSITION
Richard Ferrari 69 Executive Chairman of the Board of Directors
Branislav Vajdic, PhD 68 Chief Executive Officer, Director
George A. de Urioste 67 Director
Marga Ortigas-Wedekind 61 Director
Willem Elfrink 70 Director
Richard Ferrari - Executive Chairman of the Board of Directors
Mr. Richard Ferrari, 69, joined our Board in 2019 and was appointed Executive Director of the Board of Directors in June 2021. Mr. Ferrari combines over 40 years of experience in Medical Device Start-ups as CEO, and entrepreneur. Also Mr. Ferrari is co-founder of De Novo Ventures which has $650M under management and has been Managing Director since 2000. Mr. Ferrari has also co-founded 6 more companies, two of which have been successful IPO’s and subsequent acquisitions, CTS one of the companies he co-founded was the fastest start-up to an IPO in the last 22 years in the medical device industry. Mr. Ferrari most recently from 2018 to 2021 was Chairman and CEO of PQ Bypass which was recently acquired by Endologix. Mr. Ferrari sits on the board of Pulmonx, a public company and is the Chairman of the Compensation Committee. Additionally, Mr. Ferrari is Executive Chairman of Tenon Medical, Vice-Chairman of ABS Interventional, Executive Chairman of Medlumics, and holds board positions with several other medical device start-ups. Mr. Ferrari has an undergraduate degree from Ashland University and an MBA from University of South Florida.
We believe that Mr. Ferrari is qualified to serve on our board of directors because of his experience in leadership and management roles in the field of medicine, as well as his experience as a member in the healthcare industry.
Branislav Vajdic, PhD - Chief Executive Officer and Director
Dr. Branislav Vajdic, 68, Chief Executive Officer and Founder of HeartBeam, Inc, combines over 30 years of experience in technology development and senior management positions. Dr. Vajdic has been deeply involved with the development of HeartBeam’s technology to fit his vision for the Company. Prior to HeartBeam from 2007 to 2010, Dr. Vajdic was CEO and Founder of NewCardio, a publicly traded company in the cardiovascular devices space, from 1984 to 2007, Dr. Vajdic was at Intel, where he held various senior management positions. At Intel, Dr. Vajdic was the designer of first Flash memory and two key inventions that enabled Flash as a product and led engineering groups responsible for Pentium 1 through Pentium 4 designs. Dr. Vajdic was awarded two Intel Achievement Awards, the highest level of award for outstanding contributions to Intel. Dr. Vajdic is author of numerous patents and publications in the fields of cardiovascular devices as well as chip design. Dr. Vajdic holds a PhD degree in Electrical Engineering from the University of Minnesota.
We believe that Dr. Vajdic is qualified to serve on our board of directors because of his experience in leadership and management roles in the field of medicine, as well as his experience as a member in the healthcare industry.
George A. de Urioste - Director
Mr. de Urioste, 67, combines over 30 years of experience in high technology industry senior management. Previously, Mr. de Urioste has been involved in over 10 companies, holding positions including Board Director, Chief Operating Officer and Chief Financial Officer. Mr. de Urioste was Chief Financial Officer of Remedy Corporation (software) from 1992 to 1998, Chief Executive Officer of Aeroprise, Inc., from 2000 to 2003 (software), from 2004 to 2006 he was Chief Operating Officer and Chief Financial Officer for Chordiant Software, Inc. (software), interim Chief Operating Officer and Chief Financial Officer for Marvell Technology, Inc. (semiconductors) during 2008, Chief Financial Officer for Pluribus
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Networks, Inc. (software) 2014 to 2018, Chief Financial Officer for 4iQ, Inc. (software) 2019 to 2020 and interim Chief Financial Officer for Mozilla, Inc. (software). Mr. de Urioste’s Board Director experience includes Audit Committee chairman roles for the following companies: Rainmaker Systems, Inc. (business outsourcing), from 2003 to 2005, Saba Software, Inc. (software) from 2008 to 2010, GCT, Inc. (semiconductors), from 2009 to 2011 Villa Montalvo (performing arts center), from 2011 to 2013, Bridgelux, Inc., from 2011 to 2016 (LED lighting), and Vendavo, Inc., from 2013 to 2014 (software). Mr. de Urioste was also chairman of the Board of Directors for Aeroprise, Inc. from 2000 to 2005 (software). Mr. de Urioste is currently a Board Director at Silicon Valley Directors Exchange, (a not-for-profit for Board education events). Mr. de Urioste has an undergraduate degree from University of Southern California and an MBA from University of California at Berkeley. Mr. de Urioste is also a Certified Public Accountant (inactive) in the State of California and is a member of the Latino Corporate Directors Association.
We believe that Mr. de Urioste is qualified to serve on our board of directors because of his experience in leadership and management roles in high technology industries, as well as his experience as a board member including Audit Committee Chairman roles.
Marga Ortigas-Wedekind - Director
Ms. Marga Ortigas-Wedekind, 61, Board member, has over 30 years of experience in health technology senior management. Ms. Ortigas-Wedekind has been Chief Commercial Strategy Officer of Fogarty Innovation, a non-profit educational incubator for early stage medtech companies since December 2019, Executive Vice President of Marketing and Payer Relations for iRhythm Technologies Inc., a publicly-traded digital healthcare company from July 2015 through July 2019, Executive Vice President, Global Marketing and Product Development of Omnicell Inc., a publicly-traded developer of automated medication dispensing and analytics systems where she led the Marketing, International and Engineering departments from 2009 to 2015, Senior Vice President, Marketing, Development, and Clinical Affairs at Xoft, Inc, a developer of disruptive technology to deliver radiation therapy with capital equipment and high-end disposables from 2002 to December 2008. She started her medtech career at Guidant Vascular, now Abbott Vascular.Ms. Ortigas-Wedekind was on the board of Itamar Medical (NASDAQ: ITMR), which provides digitally-enabled systems for sleep apnea management until its sale to Zoll Medical in December 2021, Total Flow Cannula, an early stage company developing a mechanism to improve safety during on-pump open heart surgery and, the Bay Area Cancer Coalition, a non-profit organization that supports those affected by breast or ovarian cancer. Ms. Ortigas-Wedekind is a limited partner and advisory board member for Launchpad Digital Health, a venture fund focused on digital heath technologies and is also an angel investor with Health Tech Capital. Ms. Ortigas-Wedekind has an undergraduate degree from Wellesley College and an MBA from the Stanford Graduate School of Business.
We believe that Ms. Ortigas-Wedekind is qualified to serve on our board of directors because of her experience in leadership and management roles in the field of medicine, as well as her experience as a member in the healthcare industry.
Willem Elfrink - Director
Mr. Willem Elfrink, 70, was Chairman of the Board since our founding and in June 2021 stepped down from this position but remains a Board member. Mr. Elfrink has over 40 years of experience in bringing new technologies to the market. Mr. Elfrink actively contributes to portfolio companies via board participation, strategic marketing, governance and capital structure. Mr. Elfrink is also the Founder and President of WPE Ventures Digitized Solutions, a security and digitization solutions investment firm. Mr. Elfrink joined Cisco in 1997 and was Cisco’s Executive Vice President of Industry Solutions and Chief Globalization Officer from 2000 to 2006 and 2007 to 2015 respectively, where Mr. Elfrink made and contributed to key strategic and operational decisions of the Company. Widely recognized as Cisco’s Corporate Entrepreneur in residence, his global charter was to identify significant technology opportunities. Mr. Elfrink also led an industry initiative — called the Internet of Things World Forum. Before joining Cisco, Mr. Elfrink held management and senior management positions at Olivetti, Xerox, HP, Digital Equipment Corporation and Philips. Mr. Elfrink earned a Bachelor of Engineering degree from the Institute of Technology in Rotterdam, the Netherlands.
We believe that Mr. Elfrink is qualified to serve on our board of directors because of his experience in leadership and management roles in bringing new technologies to the market, as well as his globalization experience.
There are no agreements or understandings for any of our executive officers or directors to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.
Directors are elected to serve until their successors are duly qualified and elected.
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Board Diversity
The table below provides information relating to certain voluntary self-identified characteristics of our directors. Each of the categories listed in the table below has the meaning as set forth in NASDAQ Rule 5605(f).
Board Diversity Matrix (As of December 31, 2022
Total Number of Directors 5
Female Male Non-Binary Did Not Disclose Gender
Part I: Gender Identity
Part II: Demographic Background
African American or Black
Alaskan Native or Native American
Asian
Hispanic or Latinx 1
Native Hawaiian or Pacific Islander
White 3
Two or More Races or Ethnicities 1
LGBTQ
Did Not Disclose Demographic Background
Director Independence
The Board has affirmatively determined that four of the directors are “independent directors” under NASDAQ Listing Rule 5605(a)(2) and the related rules of the U.S. Securities and Exchange Commission (the “SEC”). In making this determination, our Board considered the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. The Company’s independent directors conduct executive sessions at regularly scheduled meetings as required by NASDAQ Listing Rule 5605(b)(2).
Family Relationships
There are no family relationships among any of our directors and executive officers.
Board Leadership Structure
The Board does not have an express policy regarding the separation of the roles of Chief Executive Officer (“CEO”) and Board Chairman, as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. Currently, Dr. Branislav Vajdic serves as the Company’s President and CEO and Richard Ferrari serves as the Chairman of the Board. The Board believes that its current leadership structure best serves the objectives of the Board’s oversight of management; the ability of the Board to carry out its roles and responsibilities on behalf of the stockholders; and the Company’s overall corporate governance. The Board also believes that the current separation of the Chairman and CEO roles allows the CEO to focus his time and energy on operating and managing the Company and leverages the experience and perspectives of the Chairman.
Board Oversight of Risk Management
The full Board has responsibility for general oversight of risks facing the Company. The Board is informed by senior management on areas of risk facing the Company and periodically conducts discussions regarding risk assessment and risk management. The Board believes that evaluating how the executive team manages the various risks confronting the Company is one of its most important areas of oversight. While the Board has the ultimate oversight responsibility for the
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risk management process, various committees of the Board also have responsibility for risk management. For example, the Audit Committee reviews and assesses the Company’s processes to manage financial reporting risk and to manage investment, tax, and other financial risks; the Compensation Committee oversees risks relating to the compensation and incentives provided to our executive officers; and the Nominating and Governance Committee oversees risks associated with our overall compliance and corporate governance practices, as well as the independence and composition of our Board. Finally, management periodically reports to the Board or relevant committee, which provides guidance on risk assessment and mitigation.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of securities ownership and changes in such ownership with the SEC.
Based solely upon a review of such forms filed electronically with the SEC or written representations that no Form 5s were required, the Company believes that all Section 16(a) filing requirements were timely met during the year ended December 31, 2022, except for: Mr. George de Urioste submitted one late Form 3 filing in regards to disclosing initial securities, Mr. Willem Elfrink submitted one late Form 4 filing in regards to disclosing the distribution of equity from his venture partnership to the respective non-affiliated partners and Mr. Kenneth Persen one late Form 4 filing disclosing his options award.
Code of Ethics
The Company has adopted a code of ethics policy during 2022 for its principal executive officer and senior financial officers and that is applicable to all directors, officers and employees, a copy of which is available online at www.Heartbeam.com. Stockholders may also request a free copy of this document from: HeartBeam, Inc., 2118 Walsh Avenue, Suite 210, Santa Clara, CA 95050, Attn: Corporate Secretary.
Director Meeting Attendance
During the year ended December 31, 2022, the Board held five meetings of the full Board, The Board also took action by written consent on eleven occasions. During the year ended December 31, 2022, each member of the Board attended at least 75% of the aggregate of all meetings of the Board and the meetings of the committees on which he or she served (during the periods for which he or she served).
The Company does not have a written policy requiring directors to attend the annual meeting.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. Our board of directors may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. The charter of each committee is available on our corporate website at https://ir.heartbeam.com/corporate-governance/governance-documents.
Committee Composition
The following description below outlines our current membership for each committee of our board of directors:
Audit Committee
The Audit Committee, among other things, will be responsible for:
•appointing; approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent auditor;
•reviewing the internal audit function, including its independence, plans, and budget;
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•approving, in advance, audit and any permissible non-audit services performed by our independent auditor;
•reviewing our internal controls with the independent auditor, the internal auditor, and management;
•reviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management;
•overseeing our financial compliance system; and
•overseeing our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal audit function, and information technology.
The Audit Committee will consist of Mr. de Urioste, Ms. Ortigas-Wedekind and Mr. Elfrink. Mr. de Urioste will chair the Audit Committee. We believe the Audit Committee will comply with the applicable requirements of the rules and regulations of the Nasdaq listing rules and the SEC.
Compensation Committee
The Compensation Committee will be responsible for:
•reviewing and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO;
•overseeing and administering the Company’s executive compensation plans, including equity-based awards;
•negotiating and overseeing employment agreements with officers and directors; and
•overseeing how the Company’s compensation policies and practices may affect the Company’s risk management practices and/or risk-taking incentives.
The Compensation Committee will consist of Mr. Ferrari, Mr. Elfrink and Mr. de Urioste, Mr. Ferrari will serve as chairman of the Compensation Committee. The board of directors has affirmatively determined that each member of the Compensation Committee meets the independence criteria applicable to compensation committee members under SEC rules and Nasdaq listing rules.
Nominating and Governance Committee
The Nominating and Corporate Governance Committee, among other things, will be responsible for:
•reviewing and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion and succession issues;
•evaluating and reporting to the Board on the performance and effectiveness of the directors, committees and the Board as a whole;
•working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity considerations, for the full Board and each committee;
•annually presenting to the Board a list of individuals recommended to be nominated for election to the Board;
•reviewing, evaluating, and recommending changes to the Company’s Corporate Governance Principles and Committee Charters;
•recommending to the Board individuals to be elected to fill vacancies and newly created directorships;
•overseeing the Company’s compliance program, including the Code of Conduct; and
•overseeing and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, may affect the Company’s major risk exposures.
The Nominating and Corporate Governance Committee will consist of Ms. Ortigas-Wedekind and Mr. de Urioste. Ms. Ortigas-Wedekind will serve as chairperson. The Company’s board of directors has determined that each member of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director guidelines of Nasdaq listing rules.
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Stockholder Communications with the Board
The Company’s Stockholders who wish to communicate with the Board of Directors or with an individual director may do so by writing to the Corporate Secretary, HeartBeam, Inc., 2118 Walsh Avenue, Suite 210, Santa Clara, CA 95050. The letter should indicate that you are a stockholder and whether you own your shares in street name. Letters received will be reviewed by the Corporate Secretary and retained until the next Board meeting when they will be available to the addressed director. Such communications may receive an initial evaluation to determine, based on the substance and nature of the communication, a suitable process for internal distribution, review and response or other appropriate treatment. There is no assurance that all communications will receive a response.
Hedging, Short Sales and Related Policies
Pursuant to the Company’s insider trading policy, the Company prohibits all directors, officers and employees of the Company (collectively, “Team Members”), as well as their spouses, minor children, other persons living in their household and entities over which they exercise control, from engaging in the following transactions involving Company’s securities without the advance unanimous written approval from members of the compliance committee designated by the Board:
•Hedging. Team Members may not enter into hedging or monetization transactions or similar arrangements with respect to the Company’s securities.
•Short sales. Team Members may not sell the Company’s securities short;
•Options trading. Team Members may not buy or sell puts or calls or other derivative securities on the Company’s securities; and
•Trading on margin. Team Members may not hold the Company’s securities in a margin account or pledge the Company’s securities as collateral for a loan.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our Named Executive Officers (“NEOs”) for services rendered in all capacities during the noted periods. The fiscal years ended December 31, 2022 and December 31, 2021 are indicated below:
1.In 2021 the Company provided cash bonuses to its Chief Executive Officer and Chief Financial Officer based upon the Company’s achievement of certain financial and strategic objectives. The bonuses were not based on any specific performance criteria.
2.In 2022 the Board of Directors ratified the Compensation Committee approval of cash bonuses to its Chief Executive Officer and Chief Financial Officer based on the Company’s achievements of the performance metrics as defined in the bonus plan. The Bonuses will be paid in the second quarter of 2023.
3.Represents the full grant date fair value of the stock award or option grant, as applicable, calculated in accordance with FASB ASC Topic 718. Our policy and assumptions made in the valuation of share-based payments are contained in
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Note 6 to our December 31, 2022 financial statements. The value of stock awards presented in the Summary Compensation Table reflects the grant date fair value of the awards and does not correspond to the actual value that will be recognized by the named executive officers.
Employment Agreements
We have entered into employment agreements, with Branislav Vajdic, the Company’s Chief Executive Officer and Richard Brounstein the Company’s Chief Financial Officer.
Branislav Vajdic Employment Agreement
On September 10, 2021 we entered into an employment agreement with Dr. Vajdic as its Chief Executive Officer and a member of the board of directors (“2021 Vajdic Agreement”), Dr. Vajdic will receive an annual salary of $325,000, commencing on September 15, 2021. During 2022 the Board of Directors approved an amendment to the 2021 Vajdic Agreement, whereby effective January 1, 2022 Dr. Vajdic’s annual salary increased to $428,000 and he was awarded 359,000 stock options. The stock option will vest as to 25% on the 1-year anniversary of the vesting commencement date, and the remainder will vest monthly thereafter on the same day of the month as the vesting commencement date until fully vested. Pursuant to the amended 2021 Vajdic Agreement, Dr. Vajdic will be eligible to receive an annual bonus up to 60% of his annual compensation, subject to adjustment on an annual basis, based on his performance and overall progress of the Company.
Richard Brounstein Employment Agreement
On September 10, 2021 we entered into an employment agreement with Mr. Brounstein as its Chief Financial Officer (“2021 Brounstein Agreement”), Mr. Brounstein will receive an annual salary of $187,000, commencing on September 15, 2021. During 2022 the Board of Directors approved an amendment to the 2021 Brounstein Agreement, whereby effective January 1, 2022 Mr. Brounstein’s annual salary increased to $250,000 and he was awarded 80,000 stock options. The stock option will vest as to 25% on the 1-year anniversary of the vesting commencement date, and the remainder will vest monthly thereafter on the same day of the month as the vesting commencement date until fully vested. Pursuant to the amended 2021 Brounstein Agreement, Mr. Brounstein will be eligible to receive an annual bonus up to 40% of his annual compensation, subject to adjustment on an annual basis, based upon his performance and overall progress of the Company.
2022 Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect to the value of all equity awards that were outstanding at December 31, 2022:
1.Dr. Vajdic was awarded 359,000 options on June 15, 2022, these options are scheduled to vest over 4 years with 25% vesting on January 1, 2023 and the remainder vesting and exercisable monthly thereafter.
2.Mr. Brounstein was awarded 80,000 options on June 15, 2022, these options are scheduled to vest over 4 years with 25% vesting on January 1, 2023 and the remainder vesting and exercisable monthly thereafter.
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Options Exercised and Stock Vested
The Following table summarizes, with respect to our named executive officers, all options that were exercised or stock that was vested during fiscal 2022:
Name Option Awards
Number of Shares Acquired on Vesting (#) Value Realized on Exercise ($)(1)
Branislav Vajdic, PhD — $ —
1.Based on the closing market price of our Common Stock as reported on the NASDAQ Capital Market on December 31, 2022.
DIRECTOR COMPENSATION
Directors who are also employees of the Company do not receive any separate compensation in connection with their Board service, and we pay cash fees to our non-employee directors. Prior to 2022, our non-employee directors received a non-qualified initial stock option award upon joining the Board, which vest monthly over a four-year period, beginning on the date of the director’s election to the Board.
On June 15, 2022, the Board of Directors approved a plan for the annual cash compensation of directors effective January 1, 2022:
Board Audit Committee Compensation Committee Nominating & Governance Committee
The following table presents the total compensation for each person who served as a non-employee member of our board of directors and received compensation for such service during the fiscal year ended December 31, 2022. Other than as set forth in the table and described more fully below:
1.Represents director fees paid to each of of Messrs Ferrari, de Urioste, Elfrink and Mmes Ortigas-Wedekind.
2.The annual RSU grants to Messrs Ferrari, de Urioste, Elfrink and Mmes Ortigas-Wedekind occur at each Annual Stockholder Meeting, vesting in full at the following annual meeting. The dollars convert to shares based on the FMV at the date of grant.
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Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
The following table sets forth certain information regarding the Company’s Common Stock, beneficially owned as of December 31, 2022 by:
•each person known to the Company to beneficially own more than 5% of its Common Stock,
•each executive officer, director and director nominee
•all officers, directors and director nominees as a group.
The Company calculated beneficial ownership according to Rule 13d-3 of the Securities Exchange Act of 1934, as amended as of that date. Shares of the Company’s Common Stock issuable upon exercise of options or warrants or conversion of notes that are exercisable or convertible within 60 days after December 31, 2022 are included as beneficially owned by the holder, but not deemed outstanding for computing the percentage of any other stockholder for Percentage of Common Stock Beneficially Owned. For each individual and group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the 8,009,743 shares of Common Stock outstanding at December 31, 2022, plus the number of shares of Common Stock that such person or group had the right to acquire on or within 60 days after December 31, 2022. Beneficial ownership generally includes voting and dispositive power with respect to securities. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole dispositive power with respect to all shares beneficially owned.
Name Shares Beneficially Owned %
George A. de Urioste(3) 16,504 *
Marga Ortigas-Wedekind(4) 54,959 *
Kenneth Persen(8) — —
All directors and executive officers as a group (8 persons) 1,883,224 22.27 %
____________
* Less than 1 percent ownership
1.Includes (i) 65,653 shares acquired from the conversion of 2015 Convertible Notes and (ii) 101,522 options exercisable within 60 days after December 31, 2022. Does not include 107,568 unvested stock options and 73,529 unvested RSUs.
2.Includes (i) 794,545 shares acquired as founders equity, (ii) 115,559 shares acquired from the conversion of 2015 Convertible Notes, (iii) 97,229 options exercisable within 60 days after December 31, 2022, (iv) 35,000 BEATW exercisable warrants and (v) 5,818 four-year warrants acquired as a result of a short-term loan investment program. Does not include 261,771 unvested stock options.
3.Includes 16,504 options exercisable within 60 days after December 31, 2022. Does not include 27,496 unvested stock options and 55,147 unvested RSUs.
4.Includes (i) 9,000 shares and 9,000 BEATW warrants purchased November 11, 2021, (ii) 7,824 shares acquired from the conversion of 2015 Convertible Notes, and (iii) 29,135 options exercisable within 60 days after December 31, 2022. Does not include 14,500 unvested stock options and 55,147 unvested RSUs.
5.Includes (i) 101,818 shares acquired under the 2015 Incentive Plan (ii) 207,056 shares acquired from the conversion of 2015 Convertible Notes, (iii) 19,089 options exercisable within 60 days after December 31, 2022, (iv) 60,000 BEATW exercisable warrants and (v) 3,640 four-year warrants acquired as a result of a short-term loan investment program. Does not include (a) 24,547 unvested stock options, 55,147 unvested RSUs and (b) 43,636 unvested service warrants.
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6.Includes (i) 72,725 shares acquired under the 2015 Incentive Plan, (ii) 5,000 shares and 5,000 BEATW warrants purchased November 11, 2021, (iii) 5,000 shares and 10,000 BEATW warrants acquired on the open market, (iv) 29,197 shares acquired from the conversion of 2015 Convertible Notes, (v) 21,667 options which vest within 60 days after December 31, 2022 and (vi) 1,455 four-year warrants acquired as a result of a short-term loan investment. Does not include 58,333 unvested stock options.
7.Includes (i) 23,976 shares acquired from the conversion of the 2015 Convertible Notes and (ii) 30,812 options exercisable within 60 days after December 31, 2022. Does not include 128,188 unvested stock options.
8.Does not include 80,000 unvested stock options.
9.Represents 517,272 shares acquired as founders equity.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The Company has established policies and other procedures regarding approval of transactions between the Company and any employee, officer, director, and certain of their family members and other related persons. These policies and procedures are generally not in writing but are evidenced by long standing principles adhered to by our Board. The disinterested members of the Board review, approve and ratify transactions that involve “related persons” and potential conflicts of interest. Related persons must disclose to the disinterested members of the Board any potential related person transactions and must disclose all material facts with respect to such transaction. All such transactions will be reviewed by the disinterested members of the Board and, in their discretion, approved or ratified. In determining whether to approve or ratify a related person transaction the disinterested members of the Board will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction to the Company and the related person, the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis, and the impact of the transaction on the Company’s business and operations.
Since the beginning of fiscal year 2022, the Company did not have any transactions to which it has been a participant that involved amounts that exceeded or will exceed the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years, and in which any of the Company’s directors, executive officers or any other “related person” as defined in Item 404(a) of Regulation S-K had or will have a direct or indirect material interest.
Item 14. Principal Accounting Fees and Services
Based on the Audit Committee's evaluation and determination that Marcum LLP (“Marcum”) is independent, our Audit Committee has retained the firm of Marcum as our independent registered public accounting firm for fiscal year 2022. In making this determination, the Company is requesting its stockholders to ratify the appointment of Marcum at its next Annual Stockholder Meeting. In the event the stockholders fail to ratify the appointment, the Audit Committee will consider in its direction to select other auditors for the subsequent year. Even if the selection is ratified, the Audit Committee, in its discretion, may select a new independent registered public accounting firm at any time during the year if it feels that such a change would be in the best interest of the Company and its stockholders. Representatives of Marcum will be present at the 2023 Annual Stockholders' Meeting and will have the opportunity to make a statement and be available to answer questions.
Fees to Independent Registered Public Accounting Firm.
The merger of Marcum and Friedman LLP (“Friedman”) was effective as September 1, 2022. The following table sets forth the fees that the Company was billed by Friedman and Marcum in 2022 and by Friedman in 2021, our independent registered public accountants for fiscal years 2022 and 2021:
Tax Fees — —
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1.Audit fees relate to professional services rendered in connection with the audit of the Company's annual financial statements, quarterly review of financial statements and audit services provided in connection with other statutory and regulatory filings.
2.Fees related to services provided for the S-1 registration statement during the fourth quarter of 2022 and initial public offering in November 2021.
Policy on Audit Committee Pre-Approval of Fees
The Audit Committee must pre-approve all services to be performed for us by our independent registered public accounting firm. Pre-approval is granted usually at regularly scheduled meetings of the Audit Committee. If unanticipated items arise between regularly scheduled meetings of the Audit Committee, the Audit Committee has delegated authority to the chairman of the Audit Committee to pre-approve services, in which case the chairman communicates such pre-approval to the full Audit Committee at its next meeting. The Audit Committee also may approve the additional unanticipated services by either convening a special meeting or acting by unanimous written consent. During the years ended prior to December 31, 2021 which was prior to the establishment of committees, all services billed by Friedman were pre-approved by the Board of Directors.
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Part IV
Item 15. Exhibits and Financial Statement Schedules
ExhibitNumber Exhibit Description
14.1 Code of Business and Ethics *
23.1 Consent of Marcum LLP Independent Registered Public Accounting Firm *
23.2 Consent of Friedman LLP Independent Registered Public Accounting Firm *
24.1 Power of Attorney *
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101.INS XBRL Instance Document*+
101.SCH XBRL Taxonomy Extension Schema Document*+
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*+
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*+
101.LAB XBRL Taxonomy Extension Label Linkbase Document*+
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*+
* Filed herewith.
† Management or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HEARTBEAM, Inc.
By: /s/ Branislav Vajdic
Name: Branislav Vajdic
Title: Chief Executive Officer
(Principal Executive Officer)
By: /s/ Richard Brounstein
Name: Richard Brounstein
Title: Chief Financial Officer
Dated: March 16, 2023 (Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Branislav Vajdic and Richard Brounstein and each of them, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Name Title Date
/s/ Richard Ferrari Executive Chairman March 16, 2023
Richard Ferrari
/s/ George deUrioste Director March 16, 2023
George deUrioste
/s/ Marga Ortigas-Wedekind Director March 16, 2023
Marga Ortigas-Wedekind
/s/ Willem Elfrink Director March 16, 2023
Willem Elfrink
/s/ Branislav Vajdic President & Chief Executive Officer March 16, 2023
Branislav Vajdic (Principal Executive Officer)
/s/ Richard Brounstein Chief Financial Officer & Treasurer March 16, 2023
Richard Brounstein (Principal Financial and Accounting Officer)
Contents
Page
Report of Independent Registered Public Accounting Firms (PCAOB ID No: 688) F-2
Report of Independent Registered Public Accounting Firms (PCAOB ID No: 711) F-3
Statements of Operations for the years ended December 31, 2022 and 2021 F-5
Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-7
Notes to Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
HeartBeam Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of HeartBeam, Inc. (the “Company”) as of December 31, 2022, the related statements ofoperations, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditalso included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum LLP
We have served as the Company’s auditor since 2020 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022)
East Hanover, New Jersey
March 16, 2023
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of HeartBeam, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of HeartBeam, Inc. (the “Company”) as of December 31, 2021, and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor from 2020 through 2022.
East Hanover, New Jersey
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HEARTBEAM, INC.
Balance Sheets
(In thousands, except share data)
December 31,
Assets
Current Assets:
Prepaid expenses and other assets 445 806
Liabilities and Stockholders’ Equity
Current Liabilities:
Commitments and contingencies (Note 8)
Stockholders’ Equity
Total Liabilities and Stockholders’ Equity $ 4,039 $ 13,998
See accompanying notes to the financial statements
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HEARTBEAM, INC.
Statements of Operations
(In thousands, except share and per share data)
December 31,
Operating Expenses:
General and administrative $ 7,354 $ 2,030
Other Income (Expense)
Interest income (expense) 66 (2,165)
Other income 3 22
Total other income (expense) 69 (2,143)
Loss before provision for income taxes (12,962) (4,428)
Income tax provision — —
Net loss per share, basic and diluted $ (1.59) $ (1.03)
See accompanying notes to the financial statements
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HEARTBEAM, INC.
Statement of Changes in Stockholders’ Equity
(In thousands, except share data)
Shares Amount
Stock based compensation, expense — 192 — 192
Common stock issued upon vesting and exercise of stock options 34,846 — — — —
Stock based compensation, expense — — 1,120 — 1,120
Stock issuance upon vesting and exercise of stock options 38,806 — 2 — 2
Stock issuance upon vesting of restricted stock units 25,000 — — — —
See accompanying notes to the financial statements
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HEARTBEAM, INC.
Statements of Cash Flows
(In thousands)
December 31,
Cash Flows From Operating Activities
Adjustments to reconcile net loss to net cash used in operating activities
Accretion expense, convertible notes — 1,886
Non-cash interest expense — 278
Stock-based compensation expense 1,120 192
PPP loan forgiveness — (22)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 361 (779)
Accounts payable, accrued expenses and other current liabilities 1,533 (357)
Net cash used in operating activities (9,948) (3,230)
Cash Flows From Financing Activities
Proceeds from exercise of stock options 2 —
Proceeds from issuance of convertible notes — 1,715
Repayment and interest paid on short-term loans — (30)
Net cash provided by financing activities 350 16,398
Net (decrease) increase in cash (9,598) 13,168
Cash and Cash Equivalents – Beginning of the year 13,192 24
Cash and Cash Equivalents – End of the year $ 3,594 $ 13,192
Supplemental Disclosures of Cash Flow Information:
Taxes paid $ — $ —
Interest paid — —
Supplemental Disclosures of Non-cash Flow Information:
Issuance of common stock and warrants to settle accrued expenses 456 —
Conversion of debt to equity — 6,288
Debt discount — 1,886
Common stock and awards accrued but not issued — 456
See accompanying notes to the financial statements
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HEARTBEAM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND OPERATIONS
HeartBeam, Inc. (“HeartBeam” or the “Company”) is a cardiac technology company focusing on developing and commercializing higher resolution ambulatory Electrocardiogram (“ECG”) solutions that enable the detection and monitoring of cardiac disease outside a healthcare facility setting. The Company’s ability to develop higher resolution ECG solutions is achieved through the development of the Company’s proprietary and patented Vector Electrocardiography (“VECG”) technology platform. HeartBeam’s VECG is capable of developing three-dimensional (3D) images of cardiac electrical activity by displaying the spatial locations of ECG waveforms that demonstrated in early studies to deliver equal or superior diagnostic capability than traditional hospital-based ECG systems.
The Company has validated this novel technology and is seeking U.S. Food and Drug Administration (“FDA”) clearance of its initial telehealth products during 2023.
The Company was incorporated in 2015 as a Delaware corporation. The Company’s operations are based in Santa Clara, California and operates as one segment.
NOTE 2 – LIQUIDITY, GOING CONCERN AND OTHER UNCERTAINTIES
The Company is subject to a number of risks similar to those of early stage companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the potential need to obtain additional capital, competition from larger companies, other technology companies and other technologies.
The Company has incurred losses each year since inception and has experienced negative cash flows from operations in each year since inception. As of December 31, 2022 and December 31, 2021, the Company had an accumulated deficit of approximately $22,186,000 and $9,224,000, respectively. As of December 31, 2022 the Company had approximately $3.6 million cash on hand.
The Company maintains cash balances in accounts which exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. On March 10, 2023 the FDIC took control of Silicon Valley Bank (“SVB”) and as a result raised uncertainty about the Company’s deposits at SVB. On March 13, 2023 the Federal Reserve announced that account holders at SVB with deposits in excess of the FDIC insurance limits would be protected against any losses.
In February 2023, the Company entered into a sales agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (“AGP”) pursuant to which the Company may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $13.0 million in at-the-market offerings (“ATM”) sales. At the same time, the Company filed a prospectus supplement under a shelf registration relating to the Sales Agreement. AGP will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary.
In February 2023, the Company entered into a securities purchase agreement and a note purchase agreement (“SPA”, NPA” or together “Agreements”) with Maverick Capital Partners, LLC (“Maverick” or “Investor”). Pursuant to the terms of the Agreements, as amended, the Company agreed to sell up to $4,000,000 of the Company’s common stock at 75% of the average calculated Volume Weighted Average Price (“VWAP”) per share during a Drawdown Pricing Period as defined in the Agreements.
In February 2023, the Company issued a $500,000 Convertible Note to the Investor pursuant to the NPA. On March 9, 2023 the Convertible Note was settled upon the execution of a SPA and related issuance of 0.2 million shares of common stock pursuant to the SPA drawdown notice dated March 7, 2023. These shares of common stock were registered under the Company’s registration statement on Form S-3 dated February 10, 2023 and the related prospectus supplement dated March 9, 2023.
Based on its current business plan assumptions and expected cash burn rate, the Company believes that the existing cash is insufficient to fund operations for the next twelve months following the issuance of these financial statements. These
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factors raise substantial doubt regarding the Company’s ability to continue as a going concern. As of December 31, 2022 the Company has a cash and cash equivalents balance of $3.6 million.
The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships and revenue. Management can provide no assurance that such financing or strategic relationships will be available on acceptable terms, or at all, which would likely have a material adverse effect on the Company and its financial statements.
The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OFPRESENTATION
The accompanying audited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and in conformity with the instructions on Form 10-K and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”) and have been prepared on a basis which assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP,requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based on amounts that differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of December 31, 2022 the Company has $2.6 million held as cash equivalents and as of December 31, 2021 there were no cash equivalents. The Company maintains cash balances in accounts which exceed the federally insured limits during the year ended December 31, 2022 and 2021.
On March 10, 2023 the FDIC took control of SVB and as a result raised uncertainty about the Company’s deposits at SVB. On March 13, 2023 the Federal Reserve announced that account holders at SVB with deposits in excess of the FDIC insurance limits would be protected against any losses
RESEARCH AND DEVELOPMENT EXPENSE
The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily of professional services costs associated with the development of cardiovascular technologies and products.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist primarily of cash, accounts payable, accrued liabilities and debt instruments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset transaction between market participants on the measurement date. Where available, fair value is based on observable market prices or is derived from such prices. The Company uses the market approach valuation technique to value its investments. The market approach uses prices and other pertinent information generated from market transactions involving identical or comparable assets or liabilities. The types of factors that the Company may consider in fair value pricing the investments include available current market data, including relevant and applicable market quotes.
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Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
•Level 1 - Observable inputs such as quoted prices in active markets.
•Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
•Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
ACCOUNTING FOR WARRANTS
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company accounts for its currently issued warrant instruments in conjunction with the Company’s common stock in permanent equity. These warrants are indexed to the Company’s stock and meet the requirements of equity classification as prescribed under ASC 815. Warrants classified as equity are initially measured at fair value, and subsequent changes in fair value are not recognized so long as the warrants continue to be classified as equity.
STOCK-BASEDCOMPENSATION
The Company periodically issues stock options and restricted stock awards (“RSUs”) to employees and non-employees for services. The Company accounts for such grants issued and vesting to employees and non-employees based on ASC 718, whereby the value of the award is measured on the date of grant and recognized as compensation expense over the vesting period.
The fair value of stock options on the date of grant is calculated using the Black-Scholes option pricing model, based on key assumptions such as the fair value of common stock, expected volatility and expected term. These estimates require the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the calculation of the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. These assumptions are primarily based on historical data, peer company data and the judgment of management regarding future trends and other factors. The Company has estimated the expected term of its employee stock options using the “simplified” method, whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. The risk-free interest rates for periods within the expected term of the option are based on the US Treasury securities with a maturity date commensurate with the expected term of the associated award. The Company has never paid and does not expect to pay dividends in the foreseeable future. The Company accounts for forfeitures when they occur. Stock-based compensation expense recognized in the financial statements is reduced by the actual awards forfeited.
Compensation cost for RSUs issued to employees and non-employees is measured using the grant date fair value of the award, and expense is recognized over the service period, adjusted to reflect actual forfeitures.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized
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income tax positions are measured at the largest amount that is greater than 50% likely of being recognized. Changes in recognition and measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are included in income tax expense.
NETLOSS PERCOMMONSHARE
Basic net loss per share excludes the effect of dilution and is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding.
Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options and warrants to the extent dilutive. Basic net loss per share was the same as diluted net loss per share for the years ended December 31, 2022 and 2021 as the inclusion of all potential common shares outstanding would have an anti-dilutive effect.
As of December 31, 2022, the penny warrants issued during 2019 have been excluded from the net loss per common share calculation following treatment of contingently issuable shares as there are circumstances under which these shares would not be issued and therefore not exercisable.
In accordance with ASC 260-10-45-13, exercisable penny options are included in the calculation of weighted average basic and diluted earnings per share. As of December 31, 2022, 175,958 penny options have been included in the calculation of weighted average basic and diluted earnings per share.
The following is a summary of awards outstanding as of December 31, 2022 and 2021, which are not included in the computation of basic and diluted weighted average shares:
Year ended December 31,
Stock options (excluding exercisable penny stock options) 2,020,819 936,996
Restricted stock units 253,970 —
RECENTLY ISSUED ACCOUNTING STANDARDS
Not Yet Adopted as of December 31, 2022:
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments”. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance applies to loans, accounts receivable, trade receivables and other financial assets measured at amortized cost, loan commitments, debt securities and beneficial interests in securitized financial assets, but the effect on the Company is projected to be limited to accounts receivable. In May 2019, the FASB issued ASU 2019-05 “Financial Instruments-Credit Losses (Topic 326)” which provides transition relief for companies adopting ASU 2016-13. This guidance amends ASU 2016-13 to allow companies to elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost under certain circumstances. Companies are required to make this election on an instrument by instrument basis. The guidance will be effective for the fiscal year beginning January 1, 2023, including interim periods within that year. The impact from this guidance is expected to be immaterial.
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to
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separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. The Company has not early adopted ASU 2020-06 and is currently evaluating the effects of the adoption, but currently believe the guidance will have no impact on the Company’s accounting.
NOTE 4 – DEBT
CONVERTIBLE NOTES
On August 21, 2015, the Board of Directors approved the 2015 Note Subscription Agreement (the “2015 Notes”) authorizing financing through the sale and issuance of 2015 convertible promissory notes (the “Financing”) for an aggregate amount not to exceed $1,000,000, with a maturity date of August, 25, 2017, which was derived from the issuance of the first 2015 Note. The Company entered into a series of amendments over the years, of which the most recent during 2021 include the sixth amendment on March 22, 2021, expanding the definition of a Qualified Financing of at least $2,000,000 as defined in the 2015 Notes to include either preferred stock or common stock, followed by the seventh and final amendment on October 7, 2021, increasing the aggregate amount for issuance to $5,500,000. All amendments were updated in accordance with the 2015 Note Subscription Agreements and approved by the Board of Directors. The Company has accounted for the last amendment to the 2015 Notes in accordance with ASC 470-50-40-6, (modifications and exchanges), under modification accounting and there was no impact to the financial statements as a result of the amendment to the 2015 Notes.
The sale and purchase of the 2015 Notes took place at closing on the date of the agreements. At closing, the Company delivered to the investor the 2015 Note to be purchased by such investor, against receipt by the Company of the corresponding purchase price. The 2015 Notes have been registered in each investor’s name in the Company’s records. The 2015 Notes accrued interest payable at the rate of eight percent (8%) and the conversion price was equal to seventy percent (70%) of the per share price at which shares of preferred stock or common stock were sold, $4.20 per share.
On November 10, 2021, as a result of the completion of the IPO (see Note 5) and as required under the terms of the 2015 Notes, the Company converted the entirety of the outstanding principal of $5,084,000 and interest accrued of $1,204,404 to 1,497,216 shares of common stock at the Conversion Price of $4.20 per share and issued the shares to the 2015 Note holders, fully satisfying the Company’s obligations.
The Company assessed the probability of a Qualified Financing occurring before maturity of the 2015 Notes to be greater than 50% (more likely than not). In accordance with the guidance ASC 480, the Company recorded the amount of the 2015 Notes’ 30% conversion discount of the sum of principal and accrued interest to the earliest of conversion date (if known) or maturity. Through December 31, 2021, the Company recorded approximately $1,886,000 as debt discount. As all of the debt converted at the IPO, the Company fully accreted the debt discount as interest expense as of December 31, 2021.
NOTE 5 – STOCKHOLDERS’ EQUITY
On November 14, 2022 the Company held a Special Meeting of Stockholders (“Special Meeting”), wherein the stockholders of the Company approved an amendment to the Company’s Certificate of Incorporation (“Certificate of Incorporation”) to increase the number of authorized shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”) to 100,000,000, and to authorize 10,000,000 shares of the Company’s preferred stock. The amendment to the Certificate of Incorporation became effective upon filing with, and acceptance for record by, the Secretary of State of Delaware on November 16, 2022.
COMMON STOCK
On September 27, 2021, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-2.75 reverse stock split of its outstanding shares of common stock. As a result of the reverse stock split, every 2.75 shares of the Company’s outstanding pre-reverse
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split common stock were combined and reclassified into one share of common stock. Unless otherwise noted, all share and per share data included in these financial statements retroactively reflect the 1-for-2.75 reverse stock split.
On November 10, 2021, the Company concluded its IPO of 2,750,000 units, (the “Units”), with each Unit consisting of one share of common stock, par value $0.0001 per share Common Stock and one warrant (the “Warrants”) to purchase Common Stock at a combined public offering price of $6.00 per Unit. The Common Stock and the Warrants were immediately separable and issued separately but were purchased together in the IPO. The Warrants will have a per share exercise price of $6.00 and are exercisable immediately. The Warrants will expire five years from the date of issuance.
The Company received approximately $14,713,000 in net proceeds from the IPO after deducting the underwriting discount and commission and other IPO expenses payable by the Company of approximately $1,800,000.
On November 10, 2021, as a result of the completion of the IPO and as required under the terms of the 2015 Notes, the Company converted the entirety of the outstanding principal of $5,084,000 and interest accrued of $1,204,404 to 1,497,216 shares of common stock at the Conversion Price of $4.20 per share and issued the shares to the 2015 Note holders, fully satisfying the Company’s obligations.
On January 14, 2022, the Company issued 78,025 shares of Common Stock to a consulting firm for services provided that were related to the IPO. The Company calculated the value of the common stock using closing stock price on November 11, 2022, resulting in a fair value of approximately $365,000. Additionally, the Company was required to issue 72,727 warrants based on performance metrics achieved in 2021, the warrants have an exercise price of $5.50 with an expiration of five years from the date of issuance. The Company calculated the fair value of $1.25 each for these warrants using the Black-Scholes option pricing model on the date the consulting firm achieved the milestone, using the following assumptions: (a) fair value of $2.28 per share, (b) expected volatility of 90.81%, (c) dividend yield of 0%, (d) risk-free interest rate of 0.87%, and (e) expected life of 5 years, resulting in the fair value of approximately $91,000.
On February 18, 2022, the Company entered into a stock purchase agreement (“Stock Purchase Agreement”) pursuant to which the Company agreed to issue and sell (“Private Placement”) to OpenSky Opportunities Fund Ltd. 58,000 shares of common stock par value $0.0001 and 58,000 warrants to purchase one share of common stock at a combined price of $6.00 per share. The common stock and the warrants were immediately separable and issued separately but were purchased together in the Private Placement. These securities issued pursuant to the Stock Purchase Agreement. The Company received $348,000 in proceeds from the Private Placement. The Warrants will expire five years from the date of issuance. The Company paid no underwriting discounts or commissions.
During the years ended December 31, 2022 and 2021 the Company issued 63,806 and 34,846 shares of common stock upon exercise of vested stock options and vesting of restricted stock units.
WARRANTS
During 2019, milestone warrants were issued to certain executives totaling 407,272 warrants (“Penny Warrants”). These warrants were valued on the date of grant at $0.0003 to vest upon meeting certain milestones. These Penny Warrants have performance obligations to be met by the Company to become exercisable which are not met under any circumstance as of December 31, 2022, and are excluded from weighted-average shares outstanding in the net loss per share calculation. These warrants expired unissued in February 2023.
In accordance with ASC Topic 480, Distinguishing Liabilities from Equity, as no derivative feature exists, the penny warrants issued to executives were classified as equity and the Company determined that as of December 31, 2022 and December 31, 2021 it is not likely that these warrants would vest and as such the value of the warrants would be deemed immaterial with no impact on the accompanying financial statements.
In connection with the IPO, the Company issued 2,750,000 Warrants, with a per share exercise price of $6.00 and exercisable immediately. The Warrants expire five years from the date of issuance.
Pursuant to the Underwriting Agreement dated November 10, 2021 between the Company and The Benchmark Company, LLC (the “Underwriter”) the Company granted the Underwriter a 30-day option to purchase up to an additional 412,500
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shares of the Company’s Common Stock and/or Warrants to cover over-allotments. On consummation of the IPO, the Underwriter exercised the over-allotment option to purchase 412,500 Offering Warrants.
The Company also issued warrants to purchase Common Stock (7% of the number of Common Stock sold in IPO) to be issued to the Underwriter, as a portion of the underwriting compensation payable in connection with IPO. The Company issued 192,500 warrants, exercisable at a per share exercise price equal to $7.50 per share. The warrants will expire five years from the date of issuance.
On January 14, 2022, the Company issued 72,727 warrants based on performance metrics achieved in 2021 to purchase 72,727 shares of common stock at an exercise price of $5.50 per share, with an expiration of five years from the date of issuance.
On February 28, 2022, the Company issued 58,000 warrants to purchase 58,000 shares of common stock at an exercise price of $6.00 per share.
A summary of the outstanding warrants as of December 31, 2022 and 2021 is as follows:
Exercised — — — —
Exercised — — — —
NOTE 6 – STOCK-BASED COMPENSATION
In 2015, the Company’s Board of Directors approved the HeartBeam, Inc. 2015 Equity Incentive Plan ("2015 Plan"), to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors, and consultants, and to promote the success of the Company’s business. The 2015 Plan provided for the grant of stock options and RSUs to purchase common stock of which 1,636,362 were authorized by the board, of these 1,243,194 are outstanding as of December 31, 2022. The 2015 Plan was terminated upon stockholder approval of the 2022 Equity Incentive Plan (“2022 Plan”) whereby no new awards can be issued under the 2015 Plan.
The Company’s stockholders approved the 2022 Plan at the annual meeting of stockholders held on June 15, 2022, pursuant to which 1,900,000 shares of common stock was authorized for issuance. The 2022 Plan includes a provision for add back of any cancelled options from the 2015 Plan up to 1,372,816 shares, and as of December 31, 2022, there are 64,917 shares from the 2015 Plan that are included in the 747,364 shares available for issuance under the 2022 Plan.
As of December 31, 2022 and 2021, the Company received proceeds of a de minimis amount from the exercise of stock options.
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STOCK OPTIONS
The following is a summary of stock option activity during the years ended December 31, 2022 and 2021:
Options exercised (34,846) —
Options exercised (38,806) —
(*) $ - Indicates exercise price less than $0.01 per share
(**) Intrinsic value is based on the fair market value of the Company's common stock.
The Company estimates the fair values of stock options using the Black-Scholes option-pricing model on the date of grant. For the years ended December 31, 2022 and 2021, the assumptions used in the Black-Scholes option pricing model, which was used to estimate the grant date fair value per option, were as follows:
Year ended December 31,
Weighted-average Black-Scholes option pricing model assumptions:
Expected dividend yield $ — $ —
Weighted average grant date fair value per share $1.08 - 3.34 $2.07 - 3.44
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RESTRICTED STOCK UNITS
On December 14, 2021, the Company issued 30,000 shares of RSUs to a consultant to provide services over the next two years. The total fair value of the issuances is $96,000.
On July 15, 2022, the Company issued 238,970 and 10,000 shares of RSUs to the Board of Directors of the Company and a consultant, respectively. The total fair value of the issuances is approximately $325,000 and $13,600, respectively. The RSUs issued to the Board of Directors will vest upon the earlier of the one year anniversary of the Grant Date or the next annual meeting of the Company’s stockholders. The RSUs issued to the consultant vested immediately.
The following is a summary of RSUs award activity:
Year ended December 31,
Non-vested at beginning of the year 30,000 $ 3.20 — $ —
STOCK BASED COMPENSATION
The following is a summary of stock-based compensation expense:
Year ended December 31,
General and administration
R&D
As of December 31, 2022 total compensation cost not yet recognized related to unvested stock options and unvested RSUs was approximately $2.2 million and $0.2 million, respectively, which is expected to be recognized over a weighted-average period of 2.56 years and 0.5 years, respectively.
NOTE 7 – RELATED PARTY TRANSACTIONS
During the course of business, the Company obtains accounting services from CTRLCFO, a firm in which the Company’s Chief Financial Officer has significant influence, as well as Hardesty, where he is a non-managing partner. The Company incurred accounting fees from these firms of approximately $21,000 and $88,000 during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the Company had balances due to these firms amounting to approximately $2,000 and $1,000, respectively.
The Company’s Directors and Officers invested in the 2015 Notes of the Company, as did several consultants who provide services. On November 10, 2021, on completion of the IPO and as required under the terms of the 2015 Notes, the
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Company converted the entirety of the outstanding principal and interest accrued to the 2015 Notes to common stock, which included 586,256 shares issued to Directors and Officers, representing a principal amount of $1,927,000 and interest of $535,296 and 258,420 shares issued to consultants representing a principal amount of $923,000 and interest $162,363.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Lease Obligations
In May 2019, the Company entered into a month to month lease agreement for our headquarters. The agreement is for an undefined term and can be cancelled at any time, given one month’s notice by either party. The Company’s monthly rent expense associated with this agreement is approximately $1,440. The Company’s month to month headquarters lease is in the name of the Company’s Chief Executive Officer, and the cost is reimbursed monthly.
For the years ended December 31, 2022 and 2021, rent expense was approximately $17,000, for each year.
Partnership Agreement
In January 2022, the Company entered into a partnership agreement with LIVMOR Inc. (“LIVMOR”) to build a Company-branded version of the LIVMOR’s Halo+ FDA cleared turnkey solution for RPM to connect physicians and patients. As included in the agreement, the Company and LIVMOR have the right to enter into additional agreements as needed in order to further the Company’s development of its products. The agreement with LIVMOR included a commitment in 2022 of $1.0 million.
In August 2022, the Company entered into a supplemental agreement with LIVMOR. The supplemental agreement stated the Company would pay an additional $0.2 million for the source code access under the partnership agreement. Payments totaling $0.2 million have been made by the Company and LIVMOR has delivered to the Company copies of source materials and codes. All licenses granted by LIVMOR will automatically be converted into a non-exclusive and perpetual license and become licenses granted on a royalty-free and fully paid-up basis, in which LIVMOR hereby expressly waives and relinquishes all HeartBeam payment obligations under the initial partnership agreement. Based on management’s review of Topic ASC 805 and 730, it was determined that only the source code and perpetual license were purchased and it was determined there was no alternative future uses, therefore management recorded the expense as research and development expense.
As of December 31, 2022, the Company expensed a total of $1.2 million associated with the LIVMOR agreements, which
has been recognized as R&D expense.
Professional Services Agreement
In March 2022, the Company entered into a professional services agreement with Triple Ring Technologies, Inc, a co-development company, to assist in the design and development of the Company’s telehealth complete solution 3D vector ECG collection device for remote heart attack or MI monitoring, followed by an amendment for cost reduction initiatives. The agreement with Triple Ring includes a commitment totaling approximately $3.0 million.
As of December 31, 2022 the Company has expensed $2.3 million and included $0.4 million in accounts payable, $0.12 million in prepaid assets and $0.02 million in accrued expenses.
F-17
NOTE 9 - INCOME TAX
Income tax expense attributable to pretax loss from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pretax loss from continuing operations as a result of the following:
For the Years ended December 31,
Increase (reduction) in income taxes resulting from):