UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2016 _______________________________________

 

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

 

For the transition period from _____________________________to______________________________________

 

Commission File Number: 000-52018 _________________________________________

 

VirtualScopics, Inc.
 (Exact name of registrant as specified in its charter)

 

Delaware   04-3007151
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

500 Linden Oaks, Rochester, New York   14625
(Address of principal executive offices)   (Zip Code)

 

(585)249-6231
(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x  Yes   ¨  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x  Yes   ¨  No

 

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

 

Large accelerated filer    ¨ Accelerated filer    ¨
Non-accelerated filer   ¨     (Do not check if a smaller reporting company) Smaller reporting company    x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨ No  x

 

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

 

As of May 9, 2016, there were 3,011,534 shares of the registrant’s common stock, $0.001 par value, outstanding.

 

 

 

  

VIRTUALSCOPICS, INC.

TABLE OF CONTENTS

 

    Page Numbers
PART I FINANCIAL INFORMATION
     
  ITEM 1: Financial Statements  
     
  Condensed Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015 1
     
  Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited) 2
     
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited) 3
     
  Notes to Condensed Consolidated Financial Statements  (unaudited ) 4-12
     
  ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 13-19
     
  ITEM 4: Controls and Procedures 19
     
PART II OTHER INFORMATION  
     
  ITEM 1: Legal Proceedings 20
     
  ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds 20
     
  ITEM 3: Defaults Upon Senior Securities    20
     
  ITEM 4: Mine Safety Disclosures 20
     
  ITEM 5: Other Information 20
     
  ITEM 6: Exhibits 20-21

 

i  

 

 

PART 1: FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

 

    March 31,     December 31,  
    2016     2015  
    (Unaudited)        
Assets                
Current assets                
Cash   $ 2,309,161     $ 2,434,121  
Accounts receivable     2,836,858       2,606,241  
Prepaid expenses and other current assets     465,993       480,031  
Total current assets     5,612,012       5,520,393  
                 
Patents, net     993,667       1,032,817  
Property and equipment, net     547,411       542,493  
Other Assets     138       1,478  
Total assets   $ 7,153,228     $ 7,097,181  
                 
Liabilities and Stockholders’ Equity                
Current liabilities                
Accounts payable and accrued expenses   $ 1,487,057     $ 996,366  
Accrued payroll     690,932       374,387  
Unearned revenue     948,512       1,213,914  
Dividends Payable     335,333       335,333  
Current portion of note payable     65,858       64,505  
Current portion of capital lease obligations     57,891       43,285  
Total current liabilities     3,585,583       3,027,790  
                 
Note payable, net of current portion     103,176       120,157  
Capital lease obligations, net of current portion     171,711       151,916  
Total liabilities     3,860,470       3,299,863  
                 
Commitments and Contingencies                
Stockholders' Equity                
Convertible preferred stock, $0.001 par value; 1,000,000 shares authorized; Series C-1 3,000 shares authorized; issued and outstanding, 3,000 shares at March 31, 2016 and December 31, 2015; liquidation preference $1,000 per share     3       3  
Series B 6,000 shares authorized; issued and outstanding, 600 shares at March 31, 2016 and December 31, 2015; liquidation preference $1,000 per share     1       1  
Series A 8,400 shares authorized; issued and outstanding, 1,965 shares at March 31, 2016 and December 31, 2015; liquidation preference $1,000 per share     2       2  
Series C-2 3,000 shares authorized; none issued and outstanding,  at March 31, 2016 and December 31, 2015; liquidation preference $1,000 per share     -       -  
Common stock, $0.001 par value; 20,000,000 shares authorized; issued and outstanding, 3,011,534 shares at March 31, 2016 and December 31, 2015     3,011       3,011  
Additional paid-in capital     21,967,585       21,966,986  
Accumulated deficit     (18,677,844 )     (18,172,685 )
Total stockholders' equity     3,292,758       3,797,318  
Total liabilities and stockholders' equity   $ 7,153,228     $ 7,097,181  

 

See notes to condensed consolidated financial statements.

 

  1

 

 

VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

 

    For the Three Months Ended
March 31, 		 
    2016     2015  
    (Unaudited)     (Unaudited)  
             
Revenues   $ 3,682,835     $ 2,641,221  
Reimbursement revenues     172,667       173,221  
Total revenues     3,855,502       2,814,442  
                 
Cost of services     2,067,744       1,666,644  
Cost of reimbursement revenues     172,667       173,221  
Total cost of services     2,240,411       1,839,865  
Gross profit     1,615,091       974,577  
                 
Operating expenses                
Research and development     306,271       349,837  
Sales and marketing     269,803       280,397  
General and administrative     1,415,685       799,386  
Depreciation and amortization     104,934       96,972  
Total operating expenses     2,096,693       1,526,592  
                 
Operating loss     (481,602 )     (552,015 )
                 
Other income (expense)                
Interest income     53       259  
Interest expense     (13,002 )     -  
Interest expense – debt issuance costs     (10,452 )     -  
Other expense     (156 )     (914 )
Total other expense     (23,557 )     (655 )
                 
Net loss     (505,159 )     (552,670 )
                 
Preferred stock dividends     42,000       42,000  
Net loss attributable to common stockholders   $ (547,159 )   $ (594,670 )
                 
Weighted average basic and diluted shares outstanding     3,011,534       2,994,928  
Basic and diluted loss per share   $ (0.18 )   $ (0.20 )

 

See notes to condensed consolidated financial statements.

 

  2

 

 

VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

    For the Three Months Ended  
    March 31,  
    2016     2015  
Cash flows from operating activities                
Net loss   $ (505,159 )   $ (552,670 )
Adjustments to reconcile net loss to net cash  used in operating activities:                
Depreciation and amortization     104,933       96,972  
Amortization of debt issuance costs     10,452       -  
Stock-based compensation     42,599       44,669  
Changes in operating assets and liabilities                
Accounts receivable     (230,617 )     (283,370 )
Prepaid expenses and other assets     4,926       (123,186 )
Accounts payable and accrued expenses     490,691       (273,228 )
Accrued payroll     316,545       (266,998 )
Unearned revenue     (265,402 )     (195,033 )
Total adjustments     474,127       (1,000,174 )
Net cash used in operating activities     (31,032 )     (1,552,844 )
                 
Cash flows from investing activities                
Purchases of property and equipment     (21,067 )     (52,882 )
Patent applications and maintenance     (4,691 )     (4,905 )
Net cash used in investing activities     (25,758 )     (57,787 )
                 
Cash flows from financing activities                
Repayment of note payable     (15,628 )     -  
Repayment of capital lease obligations     (10,542 )     -  
Cash dividends on series B preferred stock     (42,000 )     (42,000 )
Net cash used in financing activities     (68,170 )     (42,000 )
Net decrease in cash     (124,960 )     (1,652,631 )
Cash                
Beginning of period     2,434,121       4,046,599  
End of period   $ 2,309,161     $ 2,393,968  
                 
Supplemental disclosure of cash flow information                
Cash payments for interest   $ 13,002     $ -  
                 
Non-cash financing and investing activity:                    
Purchase of equipment under capital lease obligation   $ 44,943     $ -  

 

See notes to condensed consolidated financial statements.

 

  3

 

  

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

NOTE 1 – Nature of Business and Basis of Presentation

 

Nature of Business

The headquarters of VirtualScopics. Inc. and its wholly-owned subsidiary, VirtualScopics New York, LLC (the “Subsidiary” and, together, the “Company”) are located in Rochester, New York. The Company is a provider of quantitative imaging services currently serving the pharmaceutical and biotechnology industries in early and late stage clinical trials. The Company has created a suite of image analysis software tools and applications which are used in detecting and measuring specific anatomical structures and metabolic activity using medical images. The Company’s proprietary software and algorithms provide measurement capabilities designed to improve clinical research and development. The Company focuses on applying our imaging technology to improve the efficiency and effectiveness of the pharmaceutical research and development processes.

 

On March 25, 2016, the Company entered into a definitive merger agreement with Biotelemetry, Inc. (“BioTelemetry”) pursuant to which BioTelemetry proposed to acquire VirtualScopics ( the “Merger”). The transaction was structured as a tender offer for a majority of the Company’s outstanding voting shares followed by a second-step merger. The total consideration is $15.5 million dollars, payable in cash, which includes a price per share to common shareholders of $4.05 per common share.

 

On May 9, 2016, 1,968,869 shares of the Company’s common stock, 1,600 shares of the Company’s Series A Convertible Preferred Stock, 600 shares of the Company’s Series B Convertible Preferred Stock, and 3,000 shares of the Company’s Series C-1 Preferred Stock were tendered in connection with the Merger. This represented 68.6% of the outstanding voting power of the Company, which exceeded the requirement of 50% plus one vote for approval of the tender offer. On May 11, 2016, the Company finalized the merger.

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for condensed financial statements and should be read in conjunction with the audited consolidated financial statements and notes related thereto contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2015. In the opinion of management, these financial statements contain all adjustments necessary for a fair presentation for and as of the end of the interim period, all of which were normal recurring adjustments. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.

 

NOTE 2 – Liquidity and Financial Condition

 

The Company had a net loss attributable to common stockholders of $547,159 for the three months ended March 31, 2016. At March 31, 2016, the Company’s accumulated deficit amounted to $18,677,844 and the Company had working capital of $2,026,429. The Company’s future plans and growth are dependent on its ability to increase revenues and continue its business development efforts surrounding its contract award backlog. If the Company continues to incur losses and revenues do not generate from the backlog as expected, the Company may need to raise additional capital to expand its business and continue as a going concern. The Company currently anticipates that its cash and cash equivalents will be sufficient to meet its working capital requirements to continue its sales and marketing and research and development efforts for at least 12 months from the date of issuance of this quarterly report. If in the future our plans or assumptions change or prove to be inaccurate the Company may need raise additional funds through public or private debt or equity offerings financings, corporate collaborations or other means. The Company may also be required to reduce operating expenditures or investments in its infrastructure. The Company has not secured any commitment for new financing at this time, nor can it provide any assurance that other new financings will be available on commercially acceptable terms, if needed. If the Company is unable to secure additional capital, it may be required to curtail its research and development activities and take additional measures in reducing costs to conserve its cash.

 

  4

 

 

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

NOTE 3 – Summary of Certain Significant Accounting Policies

 

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and the Subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the year. Actual results could differ from those estimates. Estimates included in these condensed consolidated financial statements relate to assessing the collectability of accounts receivable, the valuation of securities underlying share-based compensation, realization of deferred tax assets, tax contingencies and any related valuation allowance, and the useful lives and potential impairment of the Company’s property and equipment and intangible assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary.

 

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when an agreement exists, services and products have been performed or delivered, as the case may be, prices are fixed or determinable, and collectability is reasonably assured. Revenues are reduced for estimated discounts and other allowances, if any.

 

The Company provides advanced medical image analysis on a per analysis basis, and recognizes revenue when the image analysis is completed. Revenue related to project, data and site management services is recognized as the services are rendered and in accordance with the terms of the contract. Consulting revenue is recognized once the services are rendered and typically charged at an hourly rate.

 

  5

 

 

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Reimbursements received and related costs incurred for out-of-pocket expenses are separately reported as revenue and cost of services, respectively, in the financial statements.

 

Income Taxes

In its interim financial statements, the Company follows the guidance of Accounting Standards Codification (“ASC”) 270 “Interim Reporting” and ASC 740 “Income Taxes” whereby it uses the expected annual effective tax rate in determining its interim tax provisions. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized based upon the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit 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 operations in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.

 

Research and Development

Research and development expense relates to the development of new applications and processes including improvements and enhancements to existing software applications. These costs are expensed as incurred.

 

Recently Issued and Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). The standard amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting ASU 2016-02 on our consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) . This ASU amends the principal versus agent guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which was issued in May 2014 (“ASU 2014-09”). Further, in April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing . This ASU also amends ASU 2014-09 and is related to the identification of performance obligations and accounting for licenses. The effective date and transition requirements for both of these amendments to ASU 2014-09 are the same as those of ASU 2014-09, which was deferred for one year by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date . That is, the guidance under these standards is to be applied using a full retrospective method or a modified retrospective method, as outlined in the guidance, and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for annual periods, and interim period within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the provisions of each of these standards and assessing their impact on the Company’s condensed consolidated financial statements and disclosures.

 

  6

 

 

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria for the specific amendments as outlined in the guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted, as long as all of the amendments are adopted in the same period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s condensed consolidated financial statements and disclosures.

 

NOTE 4 – Stock-Based Compensation

 

For the three months ended March 31, 2016 and 2015, the Company’s condensed consolidated statements of operations reflect stock-based compensation expense for stock options granted and restricted stock awards under its long-term incentive plans and allocated as follows:

 

    Three Months Ended  
    March 31,  
    2016     2015  
             
Cost of service revenues   $ 5,244     $ 9,096  
Research and development     4,720       9,053  
Sales and marketing     627       3,179  
General and administrative     32,008       23,341  
Total stock-based compensation   $ 42,599     $ 44,669  

 

Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to but no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a three or four-year period from the date of grant. As of March 31, 2016, there was $340,930 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.57 years.

 

  7

 

 

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

The fair value of stock options granted was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, and expected dividend yield. The risk free interest rate is based on U.S. Treasury zero-coupon yield curve over the expected term of the option. The expected term assumption is determined using the weighted average midpoint between the vesting and expiration term for all individuals within the grant. The Company estimated its expected volatility using its own historical stock prices. The Company’s model includes a zero dividend yield assumption, as the Company has not historically paid nor does it anticipate paying dividends on its common stock. The Company’s model does not include a discount for post-vesting restrictions, as the Company has not issued awards with such restrictions. The periodic expense is then determined based on the valuation of the options, and at that time an estimated forfeiture rate is used to reduce the expense recorded. The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest. The following assumptions were used to estimate the fair value of options granted for the three months ended March 31, 2016 and 2015 using the Black-Scholes option-pricing model:

 

    March 31,  
    2016     2015  
Risk free interest rate     1.6 %     1.8 %
Expected term (years)     6.1       6.0  
Expected volatility     67.1 %     63.5 %
Expected dividend yield     -       -  

 

A summary of the employee stock option activity for the three months ended March 31, 2016 is as follows:

 

    Number of
Shares 		    Weighted
Average
Exercise
Price 		    Weighted
Average
Remaining
Contractual
Term 		 
Options outstanding at January 1, 2016     443,847     $ 6.52          
Granted     10,950       3.10          
Exercised     -                  
Cancelled/Forfeited     (1,074 )     (7.41 )        
Expired     (450 )     (12.00 )        
Options outstanding at March 31, 2016     453,273       6.43       7.10  
Options exercisable at March 31, 2016     192,661       10.65       4.71  

 

  8

 

   

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2016 and 2015 was $20,765 and $28,924, respectively.

 

NOTE 5 – Stockholders’ Equity

 

As of March 31, 2016, the Company has authorized 1,000,000 shares of preferred stock, par value $0.001 per share, of which 8,400 are designated as Series A Convertible Preferred Stock (“Series A”), 6,000 are designated as Series B Convertible Preferred Stock (“Series B”), 3,000 are designated as Series C-1 Convertible Preferred Stock (“Series C-1”), and 3,000 are designated as Series C-2 Convertible Preferred Stock (“Series C-2”) as specified in the Certificate of Designation (the “Certificate”). There were no conversions of the Company’s convertible Series A, B and C-1 preferred stock during the three months ended March 31, 2016 and 2015.

 

Each share of Series A is convertible into 83.036 shares of the Company’s common stock and is senior in liquidation preference in comparison to shares of the Company’s common stock.

 

Each share of Series B is convertible into 83.036 shares of the Company’s common stock and has a liquidation preference that is pari passu with the Company’s Series A and senior to the Company’s common stock. Cumulative dividends on the Series B accrue on the stated value of $1,000 per share at an annual rate of 8%, payable monthly in cash and/or shares of the Company’s common stock at the option of the Company. Subject to certain exceptions, the Series B holders are only entitled to be paid dividends if full dividends are first paid or concurrently paid to the holders of the Series C-1. As of March 31, 2016 and December 31, 2015, there was $96,000 of accrued dividends payable to Series B stockholders. During the three months ended March 31, 2016 and 2015, cash dividends paid to Series B stockholders aggregated to $12,000.

 

Each share of Series C-1 is convertible into shares of the Company’s common stock at a conversion rate determined by dividing (i) the stated value per share of $1,000, plus, if consented to by the Company, all accrued and unpaid dividends, by (ii) the conversion price of $12.043. The Series C-1 is senior in liquidation preference in comparison to shares of the Company’s common stock and the Series A and Series B preferred stock. Cumulative dividends on the Series C accrue on the stated value of $1,000 per share at an annual rate of 4%. As of March 31, 2016 and December 31, 2015, there was $239,333 of accrued dividends payable to Series C-1 stockholders. During the three months ended March 31, 2016 and 2015, cash dividends paid to Series C-1 stockholders aggregated to $30,000.

 

  9

 

 

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

NOTE 6 – Loss Per Share

 

Basic earnings and loss per share are computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, the exercise of stock options and warrants from the calculation of net loss per share as their effect would be antidilutive.

 

Securities that could potentially dilute earnings per share in the future that were not included in the computation of diluted loss per share consist of the following numbers of shares into which preferred stock could have been converted and shares for which outstanding options and warrants could have been exercised during the three months ending March 31, 2016 and 2015:

 

    2016     2015  
Convertible preferred stock     462,094       478,701  
Warrants to purchase common stock     136,132       136,132  
Options to purchase common stock     453,273       404,697  
Total     1,051,499       1,019,530  

 

NOTE 7 – Income Taxes

 

The Company has significant net operating loss and business credit carryovers which are subject to a valuation allowance due to the uncertain nature of the realization of the losses. The Internal Revenue Code imposes certain limitations on the utilization of net operating loss carryovers and other tax attributes after a change in control. The Company does not believe it has encountered ownership changes which could significantly limit the possible utilization of such carryovers. It is not anticipated that limitations, if any, would have a material impact on the condensed consolidated balance sheet as a result of offsetting changes in the deferred tax valuation allowance. Based on all available evidence, the Company believes that its deferred tax assets should be fully reserved as of March 31, 2016 because it is still currently more likely than not that the benefits of the Company’s deferred tax assets will not be realized in future periods. The Company will continue to assess the likelihood of recognizing a portion of its deferred tax assets and will make an assessment of whether it should reduce the valuation allowance.

 

The Company will recognize interest and penalties accrued related to unrecognized tax benefits as components of its income tax provision. As of March 31, 2016, the Company does not have any interest and penalties accrued related to unrecognized tax benefits

 

NOTE 8 – Concentration of Credit Risk

 

The Company’s top three customers accounted for approximately 24%, 22%, and 15% of total revenue for the three months ended March 31, 2016. Three customers accounted for 21%, 20%, and 18% of total revenue for the three months ended March 31, 2015.

 

  10

 

 

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Three customers accounted for approximately 26%, 22%, and 20% of accounts receivable as of March 31, 2016. Three customers accounted for approximately 26%, 22%, and 18% of accounts receivable as of December 31, 2015.

 

NOTE 9 – Related Party

 

In April 2012, the Company issued Merck Global Health Innovation Fund, LLC (“Merck”) 3,000 shares of Series C-1 which are convertible into 249,107 shares of common stock and Series C-1 Warrants which are exercisable to purchase 136,132 shares of common stock. Revenues generated from Merck were $283,477 and $98,664 for the three months ended March 31, 2016 and 2015, respectively. The accounts receivable balance due from Merck was $131,452 and $105,634 as of March 31, 2016 and December 31, 2015, respectively.

 

NOTE 10 – Capital Lease Obligation

 

On January 16, 2016, the Company entered into a Lease Agreement (the “Third Lease”) in connection with financing the purchase of $44,943 of certain specialized hardware equipment. The Third Lease calls for interest at a rate of 7.66% per year and payments on the Third Lease are due in monthly installments of $1,401. The Third Lease matures in three years. The Company has the option to purchase the leased equipment at the maturity for $1.

 

The future minimum payments under the Company’s capital lease obligations consist of the following:

 

For the Years Ending December 31,
2016 (remaining nine months)   $ 54,032  
2017     72,042  
2018     72,043  
2019     38,129  
2020     25,444  
         
Total minimum payments     261,690  
Less: Amount representing interest     (32,088 )
Present value of net minimum payments   $ 229,602  
         
Current portion   $ 57,891  
Non-current portion     171,711  
Total capital lease obligation   $ 229,602  

 

  11

 

 

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

NOTE 11 – Financing Arrangements

 

On August 7, 2015, the Company entered into a Loan and Security Agreement with a financial institution pursuant to which the Company obtained a revolving line of credit. The maximum amount that the Company may borrow at any time under the line of credit is $2,000,000 subject to a borrowing base equal to a percentage of the Company’s eligible accounts receivable. Initially, the borrowing base is equal to 80% of eligible accounts receivable. The decision to extend credit under the line of credit, the percentage of eligible accounts making up the borrowing base and the accounts eligible for inclusion in the borrowing base are all subject to the discretion of the financial institution. Interest on the principal amount outstanding under the line of credit accrues at the prime rate published by the Wall Street Journal plus 1.00% per annum and is payable monthly. The line of credit requires the Company to comply with various affirmative and negative covenants, including a covenant regarding minimum “Adjusted EBITDA” as defined in the agreement.

 

On March 24, 2016, the Company entered into a “First Loan Modification Agreement” with Silicon Valley Bank to modify the EBITDA covenants on its line of credit facility. The modification changed the EBITDA covenants to a negative $300,000 for the rolling three month periods ending December 31, 2015 and January 31, 2016, a negative $500,000 for the three month periods ending February 29, 2016, and March 31, 2016, and a negative $750,000 for the three month periods ending April 30, 2016, May 31, 2016, and June 30, 2016. The Company was in compliance with the covenants as of March 31, 2016.

 

The line of credit terminates and all amounts outstanding thereunder are due and payable on August 6, 2016. The obligations of the Company under the line of credit are secured by a first priority security interest in all assets of the Company other than intellectual property. The Company has no outstanding borrowings under the line of credit.

 

The principal payments under the Company’s note payable consist of the following:

 

For the Years Ending December 31,
2016 (remaining nine months)   $ 48,877  
2017     70,090  
2018     50,067  
Total principal payments   $ 169,034  
         
Current portion   $ 65,858  
Non-current portion     103,176  
Total note payable   $ 169,034  

 

NOTE 12 – Subsequent Events

  

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed below.

 

On March 25, 2016, the Company entered into a definitive merger agreement with Biotelemetry, Inc. (“BioTelemetry”) pursuant to which BioTelemetry proposed to acquire VirtualScopics (the “Merger”). The transaction was structured as a tender offer for a majority of the Company’s outstanding voting shares followed by a second-step merger. The total consideration is $15.5 million dollars, payable in cash, which includes a price per share to common shareholders of $4.05 per common share.

 

On May 9, 2016, 1,968,869 shares of the Company’s common stock, 1,600 shares of the Company’s Series A Convertible Preferred Stock, 600 shares of the Company’s Series B Convertible Preferred Stock, and 3,000 shares of the Company’s Series C-1 Preferred Stock were tendered in connection with the Merger. This represented 68.6% of the outstanding voting power of the Company, which exceeded the requirement of 50% plus one vote for approval of the tender offer. On May 11, 2016, the Company finalized the merger.

 

On May 10, 2016, the Company terminated its line of credit with its financial institution incurring an early termination fee of $20,000.

 

  12

 

 

ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with VirtualScopics’ condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015 and the related condensed consolidated statements of operations and cash flows for the three months ended March 31, 2016 and 2015, included elsewhere in this report. This discussion contains forward-looking statements, the accuracy of which involves risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons including, but not limited to, those discussed under the heading “Forward Looking Statements” below and elsewhere in this report. We disclaim any obligation to update information contained in any forward-looking statements.

 

Business Overview

 

We are a provider of clinical trial imaging services currently serving the pharmaceutical and biotechnology industries in early and late stage clinical trials. We have created a suite of image analysis software tools and applications which are used in detecting and measuring specific anatomical structures and metabolic activity using medical images. Our proprietary software and algorithms provide measurement capabilities designed to improve clinical research and development. We focus on applying our imaging technology to improve the efficiency and effectiveness of the pharmaceutical research and development processes. We believe our technology can also be used in improving the treatment planning for patients with cancer and other debilitating diseases.

 

On May 11, 2016, the Company finalized its sale to BioTelemetry with the closing of its merger transaction. Tenders of shares for 68.6% of the Company’s outstanding voting power were received exceeding the requirement of 50% plus one vote for approval of the tender offer. The total consideration was $15.5 million dollars, payable in cash, which includes a price per share to common shareholders of $4.05 per common share.

 

Revenues since inception have been derived primarily from image analysis services in connection with pharmaceutical drug trials. For these services, we have been concentrating in the areas of oncology, fatty liver disease, neurology, cardiovascular, and osteoarthritis. We have also derived a small portion of our revenue from consulting services. We expect that the concentration of our revenue will continue in these services and in those areas in 2016. Revenues are recognized as the medical images that we process are quantified and delivered to our customers and/or the services are performed.

 

We are focused on strengthening our core business and increasing the number of contract awards we receive. This effort includes investments in our infrastructure and sales function. We continue to submit proposals and bids for new contracts, however, there can be no assurance that we will secure or maintain contracts from these efforts. Additionally, due to recent consolidation within the industry, our pricing and services may not stay competitive with companies that have a stronger global presence. Also, there can be no assurance that the amount or timing of our investments in infrastructure and sales function will allow us to successfully compete.

 

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There are several factors that can affect whether we will realize the full benefits under any contract and the time over which we will realize that revenue. Customers may not continue our services due to many reasons including lack of demonstrated efficacy with their compounds in development. Furthermore, the contracts may contemplate performance over multiple years. Therefore, revenue may not be realized in the fiscal year in which the contract is signed or awarded. Recognition of revenue under the contract may also be affected by the timing of patient recruitment and image site identification and training.

 

Results of Operations

 

Results of Operations for Quarter Ended March 31, 2016 Compared to Quarter Ended March 31, 2015

 

Revenues

 

We had revenues of $3,856,000 for the quarter ended March 31, 2016 compared to $2,814,000 for the comparable period in 2015, representing a $1,041,000, or 37%, increase in revenues. The increase was a result of the improvement in bookings during 2014 and 2015 and the resulting increase in the Company’s backlog. The backlog is maturing as studies move toward training sites and enrolling subjects which results in an increase in images being received and revenue. During the first quarter of 2016, we performed work on 133 different projects, in connection with our pharmaceutical drug trials in the fields of oncology, osteoarthritis and various other therapeutic areas. This compares to 108 projects during the same period in 2015.

 

Gross Profit

 

We had a gross profit of $1,615,000 for the first quarter of 2016 compared to $975,000 for the comparable period in 2015, representing a $640,000, or a 66% increase. Our gross profit margin was 42% during the quarter ended March 31, 2016 compared to 35% during the first quarter of 2015. We believe that our margin improvement resulted from the increase in revenues, the focus on our core offerings, price structure, cost controls, and operating efficiencies. Additionally, our gross margins tend to fluctuate based on therapeutic area mix and phase of study. During the first quarter of 2016 we experienced an increase in revenue derived from oncology projects and later stage studies which historically drive higher margins. During the first quarter of 2016, 68% of our business was in oncology services, 19% in musculoskeletal services, and the remaining 13% was in other therapeutic areas. This compares to 52%, 33% and 15%, respectively, in 2015. During the first quarter of 2016, 85% of the revenues were derived from Phase II and III studies compared to 77% during the comparable period in 2015.

 

Research and Development

 

We had research and development costs of $306,000 for the first quarter of 2016 compared to $349,000 for the comparable period in 2015, representing a $43,000, or a 12% decrease. The decrease in costs was attributed to an increase in resource allocation from the research and development area to operations to support the business and revenue generation. Our research and development efforts center around refining our processes through the use of our software platform in order to gain efficiencies which we believe will better allow us to standardize our processes as we scale the business. We continue to invest in the commercialization of new imaging techniques across many modalities and therapeutic areas to best serve our customers and utilize our Scientific Advisory Board which we believe will help enhance and deepen our knowledge in our core competencies and allow for an exchange of ideas in each therapeutic area.

 

  14

 

  

Sales and Marketing

 

We had sales and marketing costs of $270,000 for the first quarter of 2016 compared to $280,000 for the comparable period in 2015, representing a $10,000, or 4% decrease. The decrease is related to expenses for marketing materials incurred during the first quarter of 2015 that were not incurred during the three months ended March 31, 2016. Our sales and marketing initiatives encompass attendance and presentations at leading industry conferences, frequent educational webinars and active calling on existing and new customers as well as our continued efforts to attract new business through the PPD, IXICO, and Micron channel.

 

General and Administrative

 

We had general and administrative expenses of $1,416,000 for the first quarter of 2016 compared to $799,000 for the comparable period in 2015, representing a $616,000, or 77% increase. The increase was the result of approximately $571,000 of one-time expenses incurred for the BioTelemetry merger agreement which covered legal costs, the data room, board fees, and broker fees related to the fairness opinion. General and administrative expenses include both personnel and non-personnel costs. Departments included within general and administrative function are finance, information technology, quality, human resources and the CEO position. Non-payroll related costs included within general and administration include stock option expense, audit and legal fees, regulatory and compliance fees, NASDAQ listing fees, board fees, non-capitalizable hardware and software costs and licenses and non-sales related travel costs.

 

Depreciation and Amortization

 

Depreciation and amortization charges were $105,000 for the quarter ended March 31, 2016 compared to $97,000 during the quarter ended March 31, 2015. The increase was due to the investments in capital assets during 2015 and a reduction in the remaining useful lives of four patents resulting in accelerated amortization. The amortization and depreciation costs are based on the timing and life of patents and property and equipment. Our IT systems are the basis of our operating platform. In 2016, we expect our investments to increase in our IT infrastructure to ensure we have an efficient and reliable operating system. This will be contingent on the availability of financing as referenced in Note 2 Liquidity and Financial Condition.

 

Other Expense

 

Other expense for the quarter ended March 31, 2016 was $23,557 compared to other expense of $655 for the quarter ended March 31, 2015. The increase was a result of interest expense from capital lease obligations and the amortization of debt issuance costs associated with opening a credit facility during 2015.

  

  15

 

 

Net Loss

 

Net loss for the quarter ended March 31, 2016 was $505,000 compared to $553,000 for the quarter ended March 31, 2015. The decrease in our net loss was primarily related to the increase in revenue and a higher gross margin offset by one-time expenses related to the BioTelemetry merger recognized during the first quarter of 2016 as compared to the previous comparable period in 2015.

  

Liquidity and Capital Resources

 

Our working capital as of March 31, 2016 was approximately $2,026,000 compared to $2,493,000 as of December 31, 2015. The decrease in working capital was primarily a result of continued losses, dividend payments, and repayment of financing obligations. We do not expect, nor have we experienced significant write-offs of our receivables; however, we continue to see an extension of payment terms within the industry and with several of our largest customers.

 

Net cash used in operating activities totaled $31,000 in the three months ended March 31, 2016 compared to net cash used in operating activities of $1,553,000 in the comparable 2015 period. The improvement is due to the increase in revenues, higher gross margins, timing of cash receipts from customers, timing of payments to vendors related to the one-time expenses for the BioTelemetry merger, and there being no bonus payout in 2016 as compared to the previous year.

 

We invested $26,000 in the purchase of equipment and the maintenance of patents in the first three months of 2016, compared to $58,000 for the investment in these items in the first three months of 2015. The decrease in cash used for the purchase of equipment was the result of the Company entering into $44,943 lease agreement to purchase network backup equipment and computers as referenced in Note 10 Capital Lease Obligation instead of purchasing the equipment outright. Our IT systems are the basis of our operating platform. Therefore, we plan to continue to invest in our IT infrastructure during 2016 to ensure we have an efficient and reliable operating system to further support our core business.

 

There was $68,000 in cash used by our financing activities during the three months ended March 31, 2016 as compared to $42,000 during the comparable 2015 period. The Company paid $42,000 in Series C-1 and Series B preferred stock cash dividends during the first three months of 2016 and 2015. Additionally, there was $26,000 in cash payments incurred during the first quarter of 2016 for payments made toward a note agreement and master equipment leases that did not occur during the first quarter of 2015.

 

On August 7, 2015, the Company entered into a Loan and Security Agreement with a financial institution pursuant to which the Company obtained a revolving line of credit. The maximum amount that the Company may borrow at any time under the line of credit is $2,000,000 subject to a borrowing base equal to a percentage of the Company’s eligible accounts receivable. Initially, the borrowing base is equal to 80% of eligible accounts receivable. The decision to extend credit under the line of credit, the percentage of eligible accounts making up the borrowing base and the accounts eligible for inclusion in the borrowing base are all subject to the discretion of the financial institution. Interest on the principal amount outstanding under the line of credit accrues at the prime rate published by the Wall Street Journal plus 1.00% per annum and is payable monthly. The line of credit requires the Company to comply with various affirmative and negative covenants, including a covenant regarding minimum “Adjusted EBITDA” as defined in the agreement. On March 24, 2016, the Company entered into a “First Loan Modification Agreement” with Silicon Valley Bank to modify the EBITDA covenants on its line of credit facility. The modification changed the EBITDA covenants to a negative $300,000 for the rolling three month periods ending December 31, 2015 and January 31, 2016, a negative $500,000 for the three month periods ending February 29, 2016, and March 31, 2016, and a negative $750,000 for the three month periods ending April 30, 2016, May 31, 2016, and June 30, 2016. As of March 31, 2016, the principal amount outstanding under the revolving line of credit was $0 and $2 million was available to borrow under the revolving line of credit. The Company was in compliance with all covenants under the revolving line of credit as of March 31, 2016. On May 10, 2016, the Company terminated the line of credit with the financial institution incurring an early termination fee of $20,000.

 

  16

 

 

On May 11, 2016, the Company finalized its sale to BioTelemetry with the closing of the merger transaction. Tenders were received for 68.6% of the outstanding voting power of the Company’s shares exceeding the requirement of 50% plus one vote for approval of the tender offer. The total consideration was $15.5 million dollars, payable in cash, which includes a price per share to common shareholders of $4.05 per common share.

 

We currently anticipate that our cash will be sufficient to meet our working capital requirements to continue our sales and marketing and research and development efforts for at least the next 12 months from the date our financial statements are issued. Our future plans and growth are dependent on our ability to continue our business development efforts surrounding our project award backlog, increasing our operating efficiencies, and in turn, increasing the revenues of the Company. If in the future, our plans or assumptions change or prove to be inaccurate we may need to seek additional capital through public or private debt or equity financings, corporate collaborations or other means. We may also be required to reduce our operating expenditures and investments in our infrastructure especially if revenues are not realized as expected from our backlog.

 

Off Balance Sheet Arrangements

 

We have no off-balance sheet arrangements (other than our consulting agreements and operating leases for our corporate headquarters, satellite office and certain equipment) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures that is material to investors.

 

Forward Looking Statements

 

Certain statements made in this discussion are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements that address activities, events or developments that we expect, believe or anticipate may occur in the future, including the following risk factors:

 

  17

 

  

· adverse economic conditions;

 

· loss of market share due to competing products and services;

 

· unexpected costs, lower than expected sales and revenues, and operating defects;

 

· study cancellations and delays in the startup of trials;

 

· adverse results of any legal proceedings;

 

· the volatility of our operating results and financial condition;

 

· inability to attract or retain qualified senior management and scientific personnel;

 

· inability to recognize all of the revenue included in our backlog;

 

· inability to raise sufficient additional capital to operate our business, if necessary;

 

· changes in government regulations; and

 

· other specific risks that may be referred to in this report or in our report on Form 10-K for the year ended December 31, 2015.

 

All statements, other than statements of historical facts, included in this report including, without limitation, statements regarding our strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements. When used in this report, the words “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan,” “could,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. We do not undertake any obligation to update any forward-looking statements or other information contained in this report. Existing stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure our stockholders or potential investors that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under the heading entitled “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”) and elsewhere in this report. These risk factors qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

  18

 

  

Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources, and we cannot assure our stockholders or potential investors of the accuracy or completeness of the data included in this report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. See “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”), for a more detailed discussion of uncertainties and risks that may have an impact on future results.

 

ITEM 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a set of disclosure controls and procedures, as defined in Section 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.

 

Changes in Internal Controls Over Financial Reporting

 

An evaluation was performed under the supervision of the Company’s management, including the CEO and CFO, as required under Exchange Act Rule 13a-15(d) and 15d-15(d) of whether any change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the fiscal quarter ended March 31, 2016. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that no change in the Company’s internal controls over financial reporting occurred during the fiscal quarter ended March 31, 2016 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

 

  19

 

  

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6.  Exhibits

 

Exhibit 2.1         Agreement and Plan of Merger dated March 25, 2016, by and among VirtualScopics, Inc., BioTelemetry, Inc. and Biotelemetry Research Acquisition Corporation (Incorporated herein by reference to Exhibit 2.1 to the VirtualScopics, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on March 25, 2016 (File No. 000-52018)).

 

Exhibit 3.1         Amended and Restated By-Laws of VirtualScopics, Inc. dated March 25, 2016.

 

Exhibit 10.1     Amendment No. 4 to the Strategic Alliance Agreement between VirtualScopics, Inc. and PPD Development, LP, dated January, 15, 2016 (Incorporated herein by reference to Exhibit 10.1 to the VirtualScopics, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2016 (File No. 000-52018)).

 

Exhibit 10.2      Amendment No. 1 to the Loan and Security Agreement between the Company, VirtualScopics New York, LLC and Silicon Valley Bank dated March 24, 2016 (Incorporated herein by reference to Exhibit 10.24 to the VirtualScopics, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2016 (File No. 000-52018)).

 

Exhibit 10.3       Indemnification Agreement between the Company and Ronald Way dated March 24, 2016 (Reference is made to the VirtualScopics, Inc. Form of Indemnification Agreement by and among VirtualScopics, Inc., and the directors and officers of the VirtualScopics, Inc. filed as Exhibit 10.19 to the VirtualScopics, Inc. Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 2, 2006 (File No. 333- 133747)).

 

  20

 

  

Exhibit 31.1       Certification of Chief Executive Officer as required by Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit  31.2      Certification of Chief Financial Officer as required by Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit 32.1       Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Exhibit 32.2       Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase.

 

Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase.

 

Exhibit 101.INS XBRL Instance Document.

 

Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase.

 

Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase.

 

Exhibit 101.SCH XBRL Taxonomy Extension Schema Linkbase.

 

  21

 

  

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.

 

Dated: May 11, 2016 VIRTUALSCOPICS, INC.
   
  /s/  Eric Converse
  Eric Converse
  President and Chief Executive Officer
   
  /s/  James Groff
  James Groff
  Chief Financial Officer

 

 

 

  

Exhibit Index

 

Exhibit 2.1        Agreement and Plan of Merger dated March 25, 2016, by and among VirtualScopics, Inc., BioTelemetry, Inc. and Biotelemetry Research Acquisition Corporation (Incorporated herein by reference to Exhibit 2.1 to the VirtualScopics, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on March 25, 2016 (File No. 000-52018)).

 

Exhibit 3.1         Amended and Restated By-Laws of VirtualScopics, Inc. dated March 25, 2016.

 

Exhibit 10.1     Amendment No. 4 to the Strategic Alliance Agreement between VirtualScopics, Inc. and PPD Development, LP, dated January, 15, 2016 (Incorporated herein by reference to Exhibit 10.1 to the VirtualScopics, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2016 (File No. 000-52018)).

 

Exhibit 10.2      Amendment No. 1 to the Loan and Security Agreement between the Company, VirtualScopics New York, LLC and Silicon Valley Bank dated March 24, 2016 (Incorporated herein by reference to Exhibit 10.24 to the VirtualScopics, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2016 (File No. 000-52018)).

 

Exhibit 10.3       Indemnification Agreement between the Company and Ronald Way dated March 24, 2016 (Reference is made to the VirtualScopics, Inc. Form of Indemnification Agreement by and among VirtualScopics, Inc., and the directors and officers of the VirtualScopics, Inc. filed as Exhibit 10.19 to the VirtualScopics, Inc. Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 2, 2006 (File No. 333- 133747)).

 

Exhibit 31.1      Certification of Chief Executive Officer as required by Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit  31.2     Certification of Chief Financial Officer as required by Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit 32.1      Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Exhibit 32.2      Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Exhibit 101.CAL      XBRL Taxonomy Extension Calculation Linkbase.

 

Exhibit 101.DEF      XBRL Taxonomy Extension Definition Linkbase.

  

Exhibit 101.INS       XBRL Instance Document.

 

Exhibit 101.LAB      XBRL Taxonomy Extension Label Linkbase.

 

Exhibit 101.PRE      XBRL Taxonomy Extension Presentation Linkbase.

 

Exhibit 101.SCH      XBRL Taxonomy Extension Schema Linkbase.

 

 

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