Summary of Significant Account Policies and Basis of Presentation
|12 Months Ended|
Mar. 31, 2022
|Summary of Significant Account Policies and Basis of Presentation|
|Summary of Significant Account Policies and Basis of Presentation||
2. Summary of Significant Account Policies and Basis of Presentation
Significant accounting policies followed in the preparation of these consolidated financial statements are as follows:
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, liabilities, revenues and expenses and related disclosures at the date of the financial statements during the reporting period. Significant estimates are used for, but are not limited to, revenue recognition, allowance for doubtful accounts, inventory reserves, impairment analysis of goodwill and intangibles including their useful lives, research and development accruals, deferred tax assets, liabilities and valuation allowances, and fair value of stock options. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2022 and through the date of this report filing. On an ongoing basis, management evaluates its estimates and actual results could differ from those estimates.
All adjustments, consisting only of normal recurring items, considered necessary for fair presentation have been included in these consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries; Bionik Inc., Bionik Laboratories Inc., and Bionik Acquisition Corp. All significant intercompany balances and transactions have been eliminated in consolidation.
For comparability purposes, certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period’s presentation within the consolidated statements of operations and comprehensive loss.
At March 31, 2022, cash and cash equivalents were $2.0 million. At March 31, 2022, the Company had a working capital surplus of $3.1 million and at March 31, 2021, the Company had a working capital deficit of $0.7 million. At March 31, 2022 and 2021, the Company has accumulated deficits of $95.4 million and $85.0 million. The Company has incurred a net loss and comprehensive loss for the year ended March 31, 2022 and 2021 of $10.4 million and $13.6 million, respectively.
The Company’s future funding requirements depend on a number of factors, including the rate of market acceptance of its current and future products and the resources the Company devotes to developing and supporting the same. There is no certainty that the Company will be successful in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the future to enable it to meet its obligations as they come due and consequently continue as a going concern.
The Company will require additional financing to fund its operations and it is currently working on securing this funding through corporate collaborations, public or private equity offerings or debt financings. Sales of additional equity securities by the Company would result in the dilution of the interests of existing stockholders. There can be no assurance that financing will be available when required. In the event that the necessary additional financing is not obtained, the Company would reduce its discretionary overhead costs substantially or otherwise curtail operations. The Company is continuing its efforts to raise additional funds to meet the Company’s anticipated cash requirements for the next 12 months; however, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Risks and Uncertainties
The Company has considered the impact of the novel coronavirus (COVID-19) on its consolidated financial statements. Management believes that the major negative impact of COVID-19 pandemic is behind the Company, however, management cannot say for certain that it will not have any future adverse effects. These impacts could include but may not be limited to risks and uncertainty related to ability of its sales and marketing personnel and distributors to access our customer base and reduced demand. Consequently, these may negatively impact the Company’s results of operations, cash flows and its overall financial condition. In addition, the impact of COVID-19 may subject the Company to future risk of long-lived assets impairments and increased reserves for uncollectible accounts.
Fair Value of Financial Instruments
ASC Topic 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Included in the ASC Topic 820 framework is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed by market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to each category of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or use. The Company uses inputs, which are as observable as possible, and the methods most applicable to the specific situation of each company or valued item.
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued liabilities, PPP loans, demand loans, and convertible loans approximate fair value because of the short period of time between the origination of such instruments, their expected realization and their current market rates of interest. Per ASC Topic 820 framework these are considered Level 2 inputs where inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
The Company’s policy is to recognize transfers into and out of Level 3 as of the date of the event or change in the circumstances that caused the transfer. There were no such transfers during the year.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original terms to maturity of 90 days or less at the date of purchase. For all periods presented cash and cash equivalents consisted entirely of cash on deposit with Canadian and US banks.
Allowance for doubtful accounts
The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated credit risk by supplying products to customers with pre-approved capital expenditure budgets or rental credit, and by actively pursuing past due accounts. An allowance for doubtful accounts is estimated and recorded based on management’s assessment of the credit history with the customer and the current relationships with them. As of each of the balance sheet dates presented, no allowance for doubtful accounts was required.
Inventory is stated at the lower of cost or net realizable value. Cost is recorded at actual cost, on the first-in first-out basis. The Company has finished goods inventory recoded based on actual cost from outsourced manufacturing partner and raw materials at cost.
Property and Equipment
For the fiscal year ended March 31, 2021, management followed the below policy:
Equipment was recorded at cost. Depreciation was computed using the declining balance method, over the estimated useful lives of these assets. The costs of improvements that extend the life of equipment were capitalized. All ordinary repair and maintenance costs were expensed as incurred. Equipment was depreciated as follows:
As of April 1, 2021, management has prospectively adopted the below property and equipment policy. Adoption of this policy did not have a material impact on the results of operations.
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as compared to the declining balance method the Company had previously used. Assets under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the respective lease term. Included in property and equipment are certain robots that are used for demonstration purposes. Maintenance and repairs are charged to expense as incurred.
Bionik continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant revision or that the carrying value of these assets may be impaired. Bionik evaluates the realizability of its long-lived assets based on profitability and cash flow expectations for the related asset. Any write-downs are treated as permanent reductions in the carrying amount of the assets. Based on this evaluation, Bionik believes that, as of each of the balance sheet dates presented, none of Bionik’s long-lived assets were impaired.
The useful lives for property and equipment is as follows:
Included in property and equipment are certain of the Company’s product that are used for demonstration purposes. Maintenance and repairs are charged to expense as incurred. Bionik continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant revision or that the carrying value of these assets may be impaired. Bionik evaluates the realizability of its long-lived assets based on profitability and cash flow expectations for the related asset. Any write-downs are treated as permanent reductions in the carrying amount of the assets. Based on this evaluation, Bionik believes that, as of each of the balance sheet dates presented, none of Bionik’s long-lived assets were impaired.
ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, establishes standards for the way that public business enterprises report information about operating segments in the Company’s consolidated financial statements. Operating segment are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
Approximately 100% of the Company’s assets are US-based and all sales for the years ended March 31, 2022 and 2021 were made by the Company’s US subsidiary, Bionik, Inc. In addition, all the Company’s technology and other assets and goodwill are connected to the acquisition by the Company in April 2016 of Bionik, Inc.
Bionik views its operations and manages its business as one segment, rehabilitation products and services.
Bionik capitalizes and includes in intangible assets the costs of patents, customer relationships and trademarks acquired in a business combination or asset acquisition. Intangible assets are recorded at fair value and stated net of accumulated amortization and impairments. Bionik amortizes its intangible assets that have finite lives using the straight-line method, based on the useful life of the asset over which it is expected to be consumed utilizing expected undiscounted future cash flows. Amortization is recorded over the estimated useful lives ranging fromto 10 years. Bionik evaluates the realizability of its definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, Bionik estimates the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, Bionik uses an income approach pursuant to ASC 820, Fair Value Measurements. If the estimate of an intangible asset’s remaining useful life is changed, Bionik will amortize the remaining carrying value of the intangible asset prospectively over the revised useful life.
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. Bionik does not amortize its goodwill, but instead tests for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying value of the asset. Bionik’s annual test for impairment occurs in the fourth quarter.
We have adopted ASU 2011-08 Intangibles—Goodwill and Other, an amendment to ASC 350, which updates how an entity evaluates its goodwill for impairment. The guidance provides entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. Under ASC Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment if further testing is necessary entities perform their goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value.
The income approach is based on the present value of future cash flows, which are derived from long term financial forecasts, and requires significant assumptions and judgement including among others, a discount rate and a terminal value. Fair values were based on expected future cash flows using Level 3 inputs under ASC 820. The cash flows are those expected to be generated by the market participants, discounted at the weighted average cost of capital.
The adjusted book value method, a form of the asset approach, was used to estimate the fair value by subtracting the market value of the non-debt liabilities from the market value of the assets. Since the value indication we derived from the income approach was below the value indicated from the asset approach, the Company relied on the asset approach to determine the fair value for the goodwill and intangible asset impairment test.
Revenue Recognition and Deferred Revenue
Bionik generates revenues primarily from the sales of its rehabilitation robots as well as its InMotion Connect hardware, which Bionik refers to collectively as its product sales. Bionik also generates revenues from sales of services and extended warranties as well as software subscription sales. Bionik does not offer a right of cancellation, termination, refund or return.
The Company determines revenue through the following steps: a) identification of the contract with the customer; b) identification of the performance obligations in the contract; c) determination of the transaction price; d) allocation of the transaction price for the performance obligations in the contract; and e) recognition of revenue when or as the Company satisfies a performance obligation. Revenue is recognized when control of a product is transferred to a customer. Revenue is measured based on the consideration specified in the contract with the customer, net of returns and discounts. Contract liabilities are recorded when cash payments are received or due in advance of the Company’s performance. The Company defers revenue from extended warranty sales and recognizes them over the period of extended warranty and from training services when the training is provided.
Product revenue is generally evidenced by either a contract with a customer or a valid purchase order which includes all relevant terms of sale and shipment of product or service provided has been incurred. Product revenue is recognized when the customer obtains control of Bionik’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract.
Service revenue is generally recognized over time as the services are rendered to the customer based on the extent of progress towards completion of the performance obligation. The Company recognizes service revenues over the term of the service contract. Services are expected to be transferred to the customer throughout the term of the contract and we believe recognizing revenue ratably over the term of the contract best depicts the transfer of value to the customer.
Revenue generated from the Company’s extended warranty sales are deferred and recognized ratably as revenue over the extended warranty period.
In the year ended March 31, 2021, Bionik started selling its Pulse subscriptions with the purchase of our InMotion Connect devices. Customers are billed in advance of the start of their annual subscription and revenues are recognized ratably over each annual subscription period.
The Company provides a one-year warranty as part of its normal sales offering. When products are sold, the Company provides warranty reserves, which, based on the historical experience of the Company are sufficient to cover warranty claims. Accrued warranty reserves are included in accrued liabilities on the consolidated balance sheets and amounted to $9,000, at March 31, 2022 and $46,000 at March 31, 2021.
Research and Development
Research and development costs consist of salaries and other personnel-related expenses, for employees primarily engaged in research, development and engineering activities and materials used and other overhead expenses incurred in connection with the design and development of Bionik’s products and from time to time expenses associated with collaborative research agreements that the Company may enter into. These costs are expensed as incurred.
Foreign Currency Translation
The functional and presentation currency of the Company and its wholly owned subsidiaries is the U.S. dollar. Transactions denominated in a currency other than the functional currency are recorded on the initial recognition at the exchange rate at the date of the transaction. After initial recognition monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. Exchange differences are recognized in profit and loss. Non- monetary assets and liabilities measured at cost are translated at the exchange rate at the date of the transaction.
As of April 1, 2021, management has updated and adopted the below foreign currency translation policy:
A portion of our operations is conducted through operations in countries other than the United States. Since we conduct our business in U.S. dollars, the main exposure, if any, results from changes in the exchange rate between the Canadian dollar and the U.S. dollar. Our functional currency is the U.S. dollar. Our policy is to reduce exposure to exchange rate fluctuations by having most of our assets and liabilities, as well as most of our revenues and expenditures, in U.S. dollars, or U.S. dollar linked. We have not historically engaged in hedging activities relating to our non-U.S. dollar operations. We may incur negative foreign currency conversion charges as a result of changes in currency exchange rates.
Bionik follows the fair value recognition provisions of ASC 718, Stock Compensation Topic. This guidance requires share-based payments to employees, including grants of employee stock options and restricted stock units (“RSUs”), to be recognized in the statements of operations based on their fair values at the date of grant. The fair value of performance-based stock options is determined based on the fair market value of Bionik’s common stock on the grant dates. Bionik expenses the fair value of share-based payments over the service period. ASC 718 requires companies to utilize an estimated forfeiture rate when calculating the expense for the period. Accordingly, Bionik reviews its actual forfeiture rates and periodically aligns its stock compensation expense with the share-based payments that are vesting. Bionik recorded stock-based compensation expense of $0.4 million and $0.8 million for the years ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, the total unrecognized compensation cost related to outstanding stock options expected to vest was $0.4 million, which the Company expects to recognize over a weighted-average period of 2.2 years.
Bionik granted 233,500 stock options during the year ended March 31, 2022. Bionik granted 76,902 stock options during the year ended March 31, 2021. Bionik uses the Black-Scholes option pricing model to determine the fair value of options. The fair value of the options granted during the years ended March 31, 2022 and 2021 was $2.05 and $1.05, respectively. During the year ended March 31, 2022, 40,000 performance- based stock options were granted with a grant date fair value of $2.05. There were no performance-based options granted during the year ended March 31, 2021. All grants awarded during the periods presented used the following assumptions:
Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. Bionik’s estimated expected stock price volatility is based on past grants that have been made. Bionik’s expected term of options granted during the year ended March 31, 2022 and 2021 was derived from looking at the Company’s exercise history of its awards granted. The risk-free rate for the expected term of the options is based on the U.S. Treasury yield curve in effect at the time of the grant.
Bionik granted performance-based stock options in October 2021 to its Interim Chief Executive Officer; Chief Financial Officer that vest annually over a three-year period based on the achievement of performance goals (determined by the compensation committee of the board of directors in its sole discretion) and continued performance of services. The performance-based stock options vest annually on March 31st if various performance metrics are met. The final vesting tranche will vest on March 31st, 2024. Bionik recognizes compensation expense for performance goals when the probability of achieving such goals is considered probable and is recognizing related compensation expense over the period from the date of grant through the expected vest dates. The Interim Chief Executive Officer; Chief Financial Officer is eligible to receive between zero and 100% of the target number of shares of Bionik’s common stock at the end of the one, two and three-year periods, provided that the performance goals have been achieved and the recipient has continued performing services for Bionik. Fair value of the performance-based stock options is determined based on the fair market value of Bionik’s common stock at grant date. Bionik reevaluates at each reporting period whether the performance goals are probable of achievement and, if at any point in time, Bionik believes that achieving a performance goal is not probable, it will stop recognizing the related compensation expense and will adjust the previously recognized compensation expense prospectively.
Income taxes are computed in accordance with the provisions of ASC Topic 740, which requires, among other things, a liability approach to calculating deferred income taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in its consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company is required to make certain estimates and judgments about the application of tax law, the expected resolution of uncertain tax positions and other matters. In the event that uncertain tax positions are resolved for amounts different than the Company’s estimates, or the related statutes of limitations expire without the assessment of additional income taxes, the Company will be required to adjust the amounts of related assets and liabilities in the period in which such events occur. Such adjustment may have a material impact on the Company’s income tax provision and results of operations.
Net Loss Per Share
Basic and diluted loss per share has been determined by dividing the net loss available to shareholders for the applicable period by the basic and diluted weighted average number of shares outstanding, respectively. The diluted weighted average number of shares outstanding is calculated as if all dilutive options had been exercised or vested at the later of the beginning of the reporting period or date of grant, using the treasury stock method.
Loss per common share is computed by dividing the net loss by the weighted average number of shares of common shares outstanding during the period. Common share equivalents, options and warrants were excluded from the computation of diluted loss per share because their effect was anti-dilutive.
Recent Accounting Pronouncements
Accounting Standards Update 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: simplifies accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles (“GAAP”). Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have on the Company’s consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. It is effective from the first quarter of fiscal year 2022, with early adoption permitted in any interim period. If adopted early, the Company must adopt all the amendments in the same period. The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, depending on the specific change. The Company adopted ASU 2019-12 during the year ended March 31, 2022 and this new guidance did not have a material impact on the consolidated balance sheet and consolidated statement of operations and comprehensive loss.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef