What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-20 compared with 2022-03-10 · 158 added, 225 removed, 54 unchanged (88% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

You should read the following

discussion and analysis together with our Consolidated Financial Statements and the notes thereto included elsewhere in this Annual Report

on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

For additional discussion,

see “CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS” above.

We are a late-stage pre-revenue

company focused on improving patient outcomes through a more cost efficient, rapid, near patient product for triage, diagnosis and monitoring

of disease progression.

We believe there is a market need for an on-site and rapid diagnostic system that can be employed for testing

and monitoring.

Our diagnostic system, which we refer to as “Symphony,” is an exclusively licensed, patented, low-cost, system

that consists of a small footprint instrument and single-use indication specific test cartridges, that we believe, if cleared, authorized,

or approved by the U.S.

Food and Drug Administration (“FDA”), can provide a solution to this market need with rapid laboratory

quality results in approximately 24 minutes, in the clinic, Intensive Care Unit (“ICU”), Emergency Room (“ER”)

and in other hospital and clinical setting settings where rapid and reliable results are required.

Currently, testing is generally performed

in a laboratory, and we estimate that the transportation and logistics of transporting the samples to the lab and obtaining the result

takes between 8-48 hours.

Our platform is a sample-to-result system that has been shown in a clinical study to provide results in 24 minutes.

Our business model is to generate revenue from the sale of the table-top Symphony instrument, and from the sale of single-use indication

specific cartridges that are used by the Symphony instrument for the diagnostic test.

Once the test material (generally a small volume

blood sample) is transferred to a single-use indication specific Symphony cartridge, no additional sample preparation or pre-processing

Since inception, we have incurred

net losses from operations each year and we expect to continue to incur losses for the foreseeable future.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and

analysis together with our Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-K.

This discussion

contains forward-looking statements that involve risks and uncertainties.

For additional discussion, see “CAUTIONARY NOTE REGARDING

FORWARD-LOOKING STATEMENTS” above.

We are a clinical-stage medical diagnostics company developing rapid,

tests using whole blood on our Symphony platform (“Symphony”) to improve patient outcomes in critical care settings.

technology platform is an exclusively licensed, patented system that consists of a mobile device and single-use test cartridges that if

cleared, authorized, or approved by the U.S.

Food and Drug Administration (“FDA”), can provide a solution to a significant

market need in the United States.

Clinical trials indicate Symphony produces laboratory-quality results in less than 20 minutes in critical

care settings, including Intensive Care Units (“ICUs”) and Emergency Rooms (“ERs”), where rapid and reliable results

are required.

Since inception, we have incurred net losses from

operations each year and we expect to continue to incur losses for the foreseeable future.

We incurred net losses of approximately $9.3

million and $3.5 million for the years ended December 31, 2022 and 2021, respectively.

We had negative cash flow from operating activities of approximately $4.4 million and $0.5 million for the years ended December 31, 2021

and 2020, respectively, and had an accumulated deficit of approximately $7.8 million as of December 31, 2021.

We had negative cash flow from operating

activities of approximately $7.8 million and $4.4 million for the years ended December 31, 2022 and 2021, respectively, and had an accumulated

deficit of approximately $17.0 million as of December 31, 2022.

Results of Operations

2 unchanged sentences

ended December 31, 2022 and 2021:

Cost of sales

Operating expenses:

5 unchanged sentences

Other income (expense):

Gain on forgiveness of note payable, Paycheck Protection Program

Derivative warrant liability gain (loss)

Interest expense, net of amortization of premium

Impairment of property and equipment

State grant revenue

Other income, net

Total other income (expense), net

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$ (3,488,298 )

Revenue and Gross Profit

Revenue and gross profit increased approximately

$250,000 and $49,000 respectively, for the year ended December 31, 2022, as compared to 2021.

We recognized a small, non-recurring sale

to a foreign development partner in the second quarter of 2022, which we do not consider an entry to the market or indicative of expected

As expected, there were no sales in the remainder of 2022.

Research and Development

Research and development expenses increased approximately

or 118%, for the year ended December 31, 2021, as compared to the same period of 2020.

The increase was primarily due to expenses incurred

totaling approximately $522,000 in connection with the clinical trials and manufacturing costs related to the Symphony analyzers.

General and Administrative

$3.0 million, or 262%, for the year ended December 31, 2022, as compared to 2021.

This was due primarily to an increase in personnel;

costs incurred for clinical trials necessary to support or our de novo FDA submission;

and product design, testing, and manufacturing

scale-up related to our Symphony device and cartridges.

General and Administrative

expenses increased approximately $1.2 million, or 201%, for the year ended December 31, 2021, as compared to the same period of 2020.

The increase was primarily attributable to increased operating expenses related to the company’s transition from a private to public

company, including the addition of accounting, legal and audit related expenses totaling approximately $670,000.

In addition, expenses

related to employee compensation and benefits increased by approximately $309,000 due to an increase in general and administrative headcount.

Expense for expiring inventory of approximately $85,000 was recorded in 2021, versus no such expense recorded during 2020.

Marketing and Business Development

General and administrative expenses increased

approximately $3.0 million, or 166%, for the year ended December 31, 2022, as compared to 2021.

The increase was primarily attributable

to administrative costs necessary to operate as a public company, totaling approximately $1.6 million.

In addition, employee compensation

and benefits increased by $1.3 million due to an increase in personnel.

Marketing and Business Development

expenses increased approximately $217,000, or 297%, for year end December 31, 2021, as compared to the same period of 2020.

was primarily attributable to increased expenses of approximately $218,000 paid to employees and consultants to expand the commercialization

of our Symphony platform.

Derivative Warrant Liability Gain (Loss)

Derivative warrant liability

gain (loss) increased by approximately $52,000, or 123%, for the year ended December 31, 2021 as compared to the same period of 2020,

resulting from the revaluation of the Series B Warrants accounted for as liability until their reclassification into equity in June 2021.

Interest Expense, Net of Amortization of Premium

Interest expense increased

by approximately $340,000, or 1,261%, for the year ended December 31, 2021 as compared to the same period of 2020.

The increase was primarily

related to the amortization of discount and accrued interest on the Convertible Debentures issued in 2021 totaling approximately $266,000

and $125,000, respectively.

This was partially offset by the lower interest expense recognized on the note payable issued in 2017 of $51,000

and increased premium amortization on the note payable issued in 2017 of approximately $29,000 driven by the conversion of those notes

payable into common stock.

Grant income increased by approximately

$75,000, or 100%, for the year ended December 31, 2021 as compared to the same period of 2020.

The increase was due to a $75,000 grant

received from Massachusetts Growth Capital Corporation

Marketing and business development expenses increased approximately

$162,000, or 56%, for year ended December 31, 2022, as compared to 2021.

The increase was primarily attributable to pre-launch activities,

including the attendance of various industry conferences in 2022 introducing our Symphony platform to the market.

Total Other Income (Expense), net

Total other income (expense) increased approximately

$279,000, or 108%, for the year ended December 31, 2022 as compared to 2021.

The increase primarily related to income earned under the

agreement with NanoHybrids, as discussed in Note 11, partially offset by an impairment charge recognized in September 2022 of $210,000

related to certain Allereye research and development equipment.

Liquidity and Capital Resources

Since our inception, we have

financed our operations primarily through proceeds from our IPO, debt financings, private placements, interest income earned on cash,

and cash equivalents, and grants.

Since our inception, we have financed our operations

primarily through proceeds from our IPO, debt financings, private placements, interest income earned on cash and cash equivalents, and

At December 31, 2022, we had cash and cash equivalents of approximately $10.1 million.

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$ (7,741,593 )

$ (4,366,758 )

Investing activities

Financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

$ (8,932,788 )

Net cash used in operating activities

During 2021, we used $4.4 million

in cash for operating activities, an increase of $3.9 million, as compared to approximately $509,000 in 2020.

The increase in the net

cash used in operations was primarily due to approximately $500,000 increase in cash paid for personnel costs, approximately $600,000

increase in cash paid for certain design services for the Symphony machine, $240,000 increase in cash paid to Toray for licensing fees,

and $1.6 million increase in cash spent on Directors and Officers insurance premiums due to our change from a private to a public company.

During 2022, we used $7.7 million in cash for operating activities,

an increase of $3.4 million from 2021.

The increase in net cash used in operating activities was primarily due to increases in personnel

costs, product development costs, and expenses incurred for public company operations.

Net cash used in investing activities

During 2021, we used approximately

$24,000 in cash for investing activities, a 100% increase from 2020.

The increase in cash used in investing activities was primarily

due to the purchase of lab equipment to support the development of the symphony product line.

During 2022, we used $1.2 million in cash for

investing activities, a $1.2 million increase from 2021.

The increase in cash used in investing activities was primarily due to the purchase

of lab and manufacturing equipment to support the development of the Symphony product line.

Net cash provided by financing activities

During 2021, we generated $22.5

million in cash from financing activities, as compared to $1.3 million in 2020.

The $21.2 million increase in cash generated from financing

activities was primarily due to our initial public offering in November 2021, which provided net proceeds of $18.9 million.

in 2021 we received $4.5 million from the issuance of convertible debentures, offset by issuance costs of approximately $563,000.

We believe that our available

cash resources will be sufficient to fund our planned operations and capital expenditure requirements for at least twelve months from

the date of this Annual Report on Form 10-K is filed with the SEC.

This evaluation is based on relevant conditions and events that are

currently known or reasonably knowable.

However, our forecast is a forward-looking statement that involves risks and uncertainties, and

actual results could vary materially.

We have based this estimate on assumptions that may prove to be wrong, and we could use our capital

resources sooner than we expect.

Our future capital requirements will depend on many factors, including:

● the costs and timing associated with the development

and commercialization of our Symphony analyzers and additional diagnostic tests;

● the costs of obtaining, maintaining and enforcing

our patents and other intellectual property rights;

● the costs and any production constraints of our

key contract manufacturers.

As a result, we could deplete our available capital

resources sooner than we currently expect.

We expect to continue to incur net losses for the foreseeable future and believe we will need

to raise substantial additional capital to accomplish our business plan over the next several years.

In order to fund continued business

development, to generate sales, to invest in further research and development and to otherwise satisfy obligations as they mature, we

may need to seek additional financing equity and/or debt financing.

Additional funding, however, may not be available to us on acceptable

terms, or at all.

If we are unable to access additional funds when needed, we will not be able to continue the development of our platform

and our tests, or we could be required to delay, scale back or eliminate some or all of our research and development programs and other

Any additional equity financing, if available to us, may not be available on favorable terms, will most likely be dilutive

to our current stockholders, and debt financing, if available, may involve restrictive covenants.

Any of these events could harm our business,

financial condition and prospects.

During 2022, we generated $8,000 in cash from

financing activities, as compared to approximately $22.5 million in 2021.

The $22.5 million decrease was primarily due to our IPO in November

2021, which provided net proceeds of $18.9 million.

Additionally in 2021, we received $4.5 million from the issuance of convertible

debentures, offset by issuance costs of approximately $563,000.

Contractual Obligations

See Note 12 to consolidated financial statements

for our lease obligations and Note 13 to the consolidated financial statements for our other non-cancellable contractual obligations.

Liquidity and Going Concern

We had cash and cash equivalents of $10.1 million

at December 31, 2022.

We continue to develop the Symphony device and its first cartridge for the measurement of IL-6.

We remain committed

to obtaining FDA clearance and have expanded clinical trials to obtain additional data to support our de novo FDA submission, while

also continuing to build our manufacturing operations with our CMOs.

Current cash resources and expected operating expenses are considered

in determining our liquidity requirement;

as well as $1.6 million of current liabilities on our balance sheet at December 31, 2022 and

capital commitments of approximately $2 million during 2023 (see Notes 12 and 13).

As of the filing of this report, we expect to need

additional capital to fund our planned operations for the next twelve months.

We may seek to raise such additional capital through

public or private equity offerings, grant financing and support from governmental agencies, convertible debt, collaborations, strategic

alliances and distribution arrangements.

Additional funds may not be available when we need them on terms that are acceptable to us, or

If adequate funds are not available, we may be required to delay or reduce the scope of our research or development programs,

our commercialization efforts or our manufacturing commitments and capacity.

In addition, if we raise additional funds through collaborations,

strategic alliances or distribution arrangements with third parties, we may have to relinquish valuable rights to its technologies or

future revenue streams.

If we are unsuccessful in our efforts to raise

additional capital, based on our current and expected levels of operating expenses, our current capital will not be sufficient to fund

our operations for the next twelve months.

These conditions raise substantial doubt about our ability to continue as a going concern.

Recent Financings

Series B Redeemable, Preferred Stock

In 2020, we issued 456 shares

of Series B redeemable, preferred stock (“Series B”) and 68 Series B warrants for gross proceeds of $50,000.

Subordinated Notes

On October 22, 2020, we

issued $154,000 of 8% subordinated promissory notes (“Subordinated Notes”) to related party shareholders, as well as warrants

to purchase 1,154,000 (prior to the stock dividend) shares of common stock at $0.10 per share, exercisable in cash or through cancellation

of the notes.

Series C Redeemable, Preferred Stock

In November 2020, we issued

636 shares of Series C redeemable, convertible preferred stock (“Series C”) at a purchase price of $1,578.50 per share

and received proceeds, net of issuance costs of approximately $995,000.

Paycheck Protection Program Loan

In 2020, we received loan proceeds

of $116,000 from a Paycheck Protection Program loan (“PPP loan”).

In November 2020, we received notice of forgiveness of $102,000

of principal of the PPP loan and, in February 2021, we received an adjustment which increased the forgiven balance by approximately $5,000

and repaid the $9,000 related to the unforgiven balance.

Convertible Debentures

On June 8, 2021, we entered

into an agreement to issue a total of $4.5 million of 7.5% Senior Secured Convertible Debentures (the “Debentures”) to

Sabby Volatility Master Fund, Ltd (“Sabby”), of which $3.0 million of the Debentures were issued at closing.

The agreement

provides for the purchase by Sabby of an additional $1.5 million of the Debentures after we file a registration statement for an

initial public offering.

On August 4, 2021 we issued an additional $1.5 million in principal amount of the Debentures to Sabby.

On June 8, 2021, we entered into an agreement

to issue a total of $4.5 million of 7.5% Senior Secured Convertible Debentures (the “Convertible Debentures”) to Sabby

Volatility Master Fund, Ltd (“Sabby”), of which $3.0 million of the Convertible Debentures were issued at closing and

$1.5 million in principal amount of the Convertible Debentures were issued in August 2021.

Initial Public Offering

We completed our initial public

offering (“IPO”) on November 10, 2021 (“IPO Date”), whereby we sold 2,160,000 Units, each Unit consisting of one

share of common stock, one warrant to purchase one share of common stock at an exercise price of $7.00 per share (“Class A Warrant”),

and one warrant to purchase one share of common stock at an exercise price of $10.00 (“Class B Warrant”) (collectively, a

Each Unit was sold at a price of $10.00.

Each warrant contained within the Units is exercisable until the fifth anniversary

of the IPO date.

Additionally, the underwriter exercised its overallotment option to purchase 324,000 of Class A and Class B Warrants.

The gross proceeds from the IPO were approximately $21.6 million.

The offering costs related to the IPO were approximately $2.8 million.

We completed our IPO on November 10, 2021, whereby

we sold 2,160,000 Units at a price of $10.00, with each Unit consisting of one share of common stock, one warrant to purchase one share

of common stock at an exercise price of $7.00 per share (“Class A Warrant”), and one warrant to purchase one share of common

stock at an exercise price of $10.00 (“Class B Warrant”) (collectively, a “Unit”).

Each warrant contained within

the Units is exercisable until the fifth anniversary of the IPO Date, however, holders of Class B Warrants may exercise such warrants

on a “cashless” basis after the earlier of:

(i) 10 trading days from closing date of the offering, or (ii) the time when $10.0

million of volume is traded in our common stock, if the volume weighted average price of our common stock on any trading day on or after

the closing date of the offering fails to exceed the exercise price of the Class B Warrants (subject to adjustments as described in the

warrant agreement).

Additionally, the underwriter of the IPO exercised their overallotment option, solely with respect to the Class A

Warrants and Class B Warrants, shortly after the IPO Date, which resulted in an additional issuance of 324,000 Class A Warrants and 324,000

Class B Warrants.

The gross proceeds from the IPO were approximately $21.6 million and were offset by $2.8 million in offering costs.

Indemnification

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Critical Accounting Policies and Estimates

Some of our critical accounting

policies require us to make difficult, subjective or complex judgments or estimates.

An accounting estimate is considered to be critical

if it meets both of the following criteria:

(i) the estimate requires assumptions about matters that are highly uncertain at the

time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that

are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes

in financial condition or results of operations.

As an emerging growth company,

we have elected to opt-in to the extended transition period for new or revised accounting standards.

As a result, our consolidated

financial statements may not be comparable to those of companies that comply with public company effective dates.

Some of our critical accounting policies require

us to make difficult, subjective or complex judgments or estimates.

An accounting estimate is considered to be critical if it meets both

of the following criteria:

(i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting

estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely

to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition

or results of operations.

As an emerging growth company, we have elected

to opt-in to the extended transition period for new or revised accounting standards.

As a result, our consolidated financial statements

may not be comparable to those of companies that comply with public company effective dates.

Stock-Based Compensation

Our stock-based compensation

expense for stock awards is estimated at the grant date based on the award’s fair value as determined by the consideration received

or as calculated by the Black-Scholes option pricing model, whichever is more readily measurable.

The Black-Scholes pricing model requires

various highly judgmental assumptions including expected volatility and expected term.

The expected volatility is based on the historical

stock volatilities of several similar public companies over a period equal to the expected terms of the awards as we do not have a sufficient

trading history to use the volatility of our own common stock.

To estimate the expected term, we have opted to use the simplified method,

which uses of the midpoint of the vesting term and the contractual term.

The Company recognizes the compensation cost of share-based awards

on a straight-line basis over the requisite service period, however, for stock awards for which vesting is subject to performance –

based milestones, the expense is recorded over the implied service period after the point when the achievement of the milestone is probable,

or the performance condition has been achieved.

If any of the assumptions used in the Black-Scholes pricing model changes significantly,

stock-based compensation expense may differ materially in the future from that recorded in the current period

Our stock-based compensation expense for stock

awards is estimated at the grant date based on the award’s fair value as determined by the consideration received or as calculated

by the Black-Scholes option pricing model, whichever is more readily measurable.

The Black-Scholes pricing model requires various highly

judgmental assumptions including expected volatility and expected term.

The expected volatility is based on the historical stock volatilities

of several similar public companies over a period equal to the expected terms of the awards as we do not have a sufficient trading history

to use the volatility of our own common stock.

To estimate the expected term, we have opted to use the simplified method, which uses of

the midpoint of the vesting term and the contractual term.

We recognize the compensation cost of share-based awards on a straight-line

basis over the requisite service period, however, for stock awards for which vesting is subject to performance – based milestones,

the expense is recorded over the implied service period after the point when the achievement of the milestone is probable, or the performance

condition has been achieved.

If any of the assumptions used in the Black-Scholes pricing model changes significantly, stock-based compensation

expense may differ materially in the future from that recorded in the current period

Recently Adopted Accounting Standards

In August 2020, FASB issued ASU 2020-06, Debt

— Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own

Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other

things, provides guidance on how to account for contracts on an entity’s own equity.

This ASU eliminates the beneficial conversion

and cash conversion accounting models for convertible instruments.

It also amends the accounting for certain contracts in an entity’s

own equity that are currently accounted for as derivatives because of specific settlement provisions.

In addition, this ASU modifies how

particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation.

amendments in this ASU are effective for public companies for fiscal years beginning on or 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.

The Company elected to adopt early this guidance in the first quarter of 2021.

The adoption of this standard had no material impact on

the Company’s consolidated financial statements.

See Note 2 to consolidated financial statements

(under the caption “Recently Issued Accounting Standards”).

Recently Issued Accounting Standards

In May 2021, the FASB

issued ASU 2021-04 Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock

Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting

for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues

Task Force) .

The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021,

including interim periods within those fiscal years.

Early application is permitted, including in an interim period as of the beginning

of the fiscal year that includes that interim period.

The Company is currently evaluating the adoption date of this ASU and the impact,

if any, adoption will have on its financial position and results of operations.

February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 , Leases.

new guidance requires the recognition of lease liabilities, representing future minimum lease payments, on a discounted basis, and corresponding

right-of-use assets on a balance sheet for most leases, along with requirements for enhanced disclosures to give financial statement users

the ability to assess the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

We adopted the provisions of

ASU 2016-02 on January 1, 2022 and elected to implement the transition package of practical expedients permitted within the new standard,

which included (i) not reassessing whether expired or existing contract contain leases, (ii) not reassessing lease classification, and

(iii) not revaluing initial direct costs for existing leases.

Adoption of the new standard resulted in the recording of initial right-of-use

assets and lease liabilities of approximately $200,000 as of January 1, 2022.

The new standard did not materially impact our consolidated

statements of operations or cash flows.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

Information requested by this

Item is not applicable as we are electing scaled disclosure requirements available to Smaller Reporting Companies with respect to this

See Note 2 to consolidated financial statements

(under the caption “Recently Issued Accounting Standards”).

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

Information requested by this Item is not applicable

as we are electing scaled disclosure requirements available to Smaller Reporting Companies with respect to this Item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Consolidated Financial

Statements and The Report of Independent Registered Public Accounting Firm are included in this Annual Report on Form 10-K on pages F-1

Our Consolidated Financial Statements and The

Report of Independent Registered Public Accounting Firm are included in this Form 10-K on pages F-1

through F-21.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis