What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 41 added, 40 removed, 162 unchanged (33% of the section changed)

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Information that is contained in and can be accessed through our website, Twitter posts and LinkedIn are not incorporated into, and do not form a part of, this Quarterly Report or any other report or document we file with the SEC.

We are leveraging experience with pre-clinical enhanced ultrasound devices to develop technology for increasing the capabilities of clinical diagnostic ultrasound, to broaden patient access to the safe diagnosis and treatment of a number of significant medical conditions in circumstances where expensive X-ray computed tomography (“CT”) and magnetic resonance imaging (“MRI”) technology, or other diagnostic technologies such as surgical biopsy, are unavailable or impractical.

We are leveraging experience with pre-clinical enhanced ultrasound devices to develop technology for increasing the capabilities of clinical diagnostic ultrasound, to broaden patient access to the safe diagnosis and treatment of a number of significant medical conditions in circumstances where expensive X-ray CT and MRI technology, or other diagnostic technologies such as surgical biopsy, are unavailable or impractical.

Building on our expertise in thermoacoustics, we have developed a next-generation technology platform - Thermo Acoustic Enhanced Ultrasound, or TAEUS - which is intended to enhance the capability of clinical ultrasound technology and support the diagnosis and treatment of a number of significant medical conditions that currently require the use of expensive CT or MRI imaging or where imaging is not practical using existing technology.

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In February 2022, we announced that we will pursue FDA approval of our TAEUS ® FLIP System through the FDA’s “de novo” process.

We voluntarily withdrew our 510(k) application and plan to submit an application for de novo review, which will include additional clinical data, in the third quarter of 2022.

We voluntarily withdrew our 510(k) application and plan to submit an application for de novo review, which will include additional clinical data, in the fourth quarter of 2022 or first quarter of 2023.

Financial Operations Overview

No revenue has been generated by our TAEUS technology, which we have not commercially sold as of June 30, 2022.

No revenue has been generated by our TAEUS technology, which we have not commercially sold as of September 30, 2022.

Research and Development Expenses

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In connection with the commercialization of our TAEUS applications, we are building a small sales and marketing team to train and support global ultrasound distributors, and expect to execute traditional marketing activities such as promotional materials, electronic media and participation in industry events and conferences.

As of June 30, 2022, we had one full-time sales representative in the United Kingdom, two representatives in France and one in Germany.

As of September 30, 2022, we had a full-time sales representative in each of the United Kingdom, France and Germany.

We expect to continue actively adding to our sales representation and support headcount for operations in the EU in the coming quarters, and plan to begin staffing our sales efforts in the United States once we have obtained FDA approval for the sale of the NAFLD TAEUS device in that region.

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Share-based Compensation

Our 2016 Omnibus Incentive Plan (as amended, the “Omnibus Plan”) permits the grant of stock options and other stock awards to our employees, consultants and non-employee members of our board of directors.

Our Omnibus Plan permits the grant of stock options and other stock awards to our employees, consultants and non-employee members of our board of directors.

Each January 1 the pool of shares available for issuance under the Omnibus Plan automatically increases by an amount equal to the lesser of (i) the number of shares necessary such that the aggregate number of shares available under the Omnibus Plan equals 25% of the number of fully-diluted outstanding shares on the increase date (assuming the conversion of all outstanding shares of preferred stock and other outstanding convertible securities and exercise of all outstanding options and warrants to purchase shares) and (ii) if the board of directors takes action to set a lower amount, the amount determined by the board.

On January 1, 2022, the pool of shares issuable under the Omnibus Plan automatically increased by 1,622,848 shares from 7,461,228 shares to 9,084,076.

As of June 30, 2022, there were 1,088,350 shares of common stock remaining available for issuance under the Omnibus Plan.

On January 1, 2022, the pool of shares issuable under the Omnibus Plan automatically increased by 1,622,848 shares from 7,461,228 shares to 9,084,076 shares.

As of September 30, 2022, there were 1,078,350 shares of common stock remaining available for issuance under the Omnibus Plan.

We record share-based compensation in accordance with the provisions of the Share-based Compensation Topic of the FASB Codification.

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Results of Operations

Three months ended June 30, 2022 and 2021

We had no revenue during the three months ended June 30, 2022 and 2021.

Three months ended September 30, 2022 and 2021

We had no revenue during the three months ended September 30, 2022 and 2021.

Cost of Goods Sold

We had no cost of goods sold during the three months ended June 30, 2022 and 2021.

We had no cost of goods sold during the three months ended September 30, 2022 and 2021.

Research and Development

Research and development expenses were $1,847,560 for the three months ended June 30, 2022, as compared to $1,744,925 for the three months ended June 30, 2021, an increase of $102,635, or 6%.

Research and development expenses were $1,830,297 for the three months ended September 30, 2022, as compared to $1,173,319 for the three months ended September 30, 2021, an increase of $656,978, or 56%.

The costs include primarily wages, fees and equipment for the development of our TAEUS product line.

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Sales and Marketing

Sales and marketing expenses were $342,039 for the three months ended June 30, 2022, as compared to $256,763 for the three months ended June 30, 2021, an increase of $ 85,276, or 33%.

Sales and marketing expenses were $420,439 for the three months ended September 30, 2022, as compared to $275,565 for the three months ended September 30, 2021, an increase of $144,874, or 53%.

The increase was primarily due to additional headcount and pre-selling activities for our TAEUS product line.

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General and Administrative

Our general and administrative expenses for the three months ended June 30, 2022 were $ 1,382,094, compared to $ 1,198,502 for the three months ended June 30, 2021, an increase of $ 183,592, or 15%.

Our wage and related expenses for the three months ended June 30, 2022 were $569,712, compared to $488,102 for the three months ended June 30, 2021.

Wage and related expenses in the three months ended June 30, 2022 included $67,932 for bonuses and $111,819 of stock compensation expense related to the issuance and vesting of options, compared to $52,230 for bonuses, $112,867 of stock compensation expense related to the issuance and vesting of options, for the three months ended June 30, 2021.

Our professional fees, which include legal, audit, and investor relations, for the three months ended June 30, 2022 were $545,614, compared to $500,046 for the three months ended June 30, 2021.

As a result of the foregoing, for the three months ended June 30, 2022, we recorded a net loss of $3,591,067, compared to a net loss of $3,199,104 for the three months ended June 30, 2021.

Six months ended June 30, 2022 and 2021

We had no revenue during the six months ended June 30, 2022 and 2021.

Our general and administrative expenses for the three months ended September 30, 2022 were $1,166,480, compared to $1,201,851 for the three months ended September 30, 2021, a decrease of $35,371, or 3%.

Our wage and related expenses for the three months ended September 30, 2022 were $479,228, compared to $517,831 for the three months ended September 30, 2021.

Wage and related expenses in the three months ended September 30, 2022 included $67,932 for bonuses and $111,861 of stock compensation expense related to the issuance and vesting of options, compared to $44,652 for bonuses, $136,008 of stock compensation expense related to the issuance and vesting of options, for the three months ended September 30, 2021.

Our professional fees, which include legal, audit, and investor relations, for the three months ended September 30, 2022 were $454,707, compared to $448,728 for the three months ended September 30, 2021.

As a result of the foregoing, for the three months ended September 30, 2022, we recorded a net loss of $3,440,227, compared to a net loss of $2,658,242 for the three months ended September 30, 2021.

Nine months ended September 30, 2022 and 2021

We had no revenue during the nine months ended September 30, 2022 and 2021.

Cost of Goods Sold

We had no cost of goods sold during the six months ended June 30, 2022 and 2021.

We had no cost of goods sold during the nine months ended September 30, 2022 and 2021.

Research and Development

Research and development expenses were $3,060,582 for the six months ended June 30, 2022, as compared to $2,886,411 for the six months ended June 30, 2021, an increase of $174,171, or 6%.

Research and development expenses were $4,890,879 for the nine months ended September 30, 2022, as compared to $4,059,730 for the nine months ended September 30, 2021, an increase of $831,149, or 20%.

The costs include primarily wages, fees and equipment for the development of our TAEUS product line.

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Sales and Marketing

Sales and marketing expenses were $ 681,942 for the six months ended June 30, 2022, as compared to $ 417,698 for the six months ended June 30, 2021, an increase of $264,244, or 63%.

Sales and marketing expenses were $1,102,381 for the nine months ended September 30, 2022, as compared to $693,263 for the nine months ended September 30, 2021, an increase of $409,118, or 59%.

The increase was primarily due to additional headcount and pre-selling activities for our TAEUS product line.

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General and Administrative

Our general and administrative expenses for the six months ended June 30, 2022 were $ 2,684,438, compared to $ 2,471,920 for the six months ended June 30, 2021, an increase of $ 212,518, or 9%.

Our wage and related expenses for the six months ended June 30, 2022 were $1,121,025, compared to $1,000,889 for the six months ended June 30, 2021.

Wage and related expenses in the six months ended June 30, 2022 included $113,475 for bonuses and $200,775 of stock compensation expense related to the issuance and vesting of options, compared to $104,460 for bonuses and $230,791 of stock compensation expense related to the issuance and vesting of options, for the six months ended June 30, 2021.

Our professional fees, which include legal, audit, and investor relations, for the six months ended June 30, 2022 were $1,049,109, compared to $1,078,147 for the six months ended June 30, 2021.

Our general and administrative expenses for the nine months ended September 30, 2022 were $3,850,918, compared to $3,673,771 for the nine months ended September 30, 2021, an increase of $177,147, or 5%.

Our wage and related expenses for the nine months ended September 30, 2022 were $1,600,240, compared to $1,518,718 for the nine months ended September 30, 2021.

Wage and related expenses in the nine months ended September 30, 2022 included $181,407 for bonuses and $312,636 of stock compensation expense related to the issuance and vesting of options, compared to $149,112 for bonuses and $366,799 of stock compensation expense related to the issuance and vesting of options, for the nine months ended September 30, 2021.

Our professional fees, which include legal, audit, and investor relations, for the nine months ended September 30, 2022 were $1,503,816, compared to $1,526,874 for the nine months ended September 30, 2021.

Gain on Extinguishment of Debt

During the six months ending June 30, 2021, we received notice that the U.S.

Small Business Administrative approved forgiveness of our loan received under the Paycheck Protection Program (the “PPP”) in accordance with the terms and provisions of the PPP, and recorded a gain on extinguishment of debt of $308,600.

As a result of the foregoing, for the six months ended June 30, 2022, we recorded a net loss of $6,449,269, compared to a net loss of $5,589,451 for the six months ended June 30, 2021.

During the nine months ending September 30, 2021, we received notice that the U.S.

SBA approved forgiveness of our loan received under the PPP in accordance with the terms and provisions of the PPP, and recorded a gain on extinguishment of debt of $308,600.

As a result of the foregoing, for the nine months ended September 30, 2022, we recorded a net loss of $9,889,496, compared to a net loss of $8,126,622 for the nine months ended September 30, 2021.

Near-Term Liquidity and Capital Resources

Since inception, we have incurred losses and expect to continue to incur losses for the foreseeable future.

As of June 30, 2022, we had an accumulated deficit of $75,140,079 and had $11,278,041 in cash.

As of September 30, 2022, we had an accumulated deficit of $78,580,306 and had $8,016,350 in cash.

To date we have funded our operations through private and public sales of our securities and will need to raise additional funds in order to execute on our business plan, fully commercialize our TAEUS technology, and generate revenues.

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commercialization upon FDA approval of our NAFLD TAEUS device.

We are considering potential financing options that may be available to us, including additional sales of our common stock through our At-The-Market Issuance Sales Agreement with Ascendiant Capital Markets, LLC, dated June 21, 2021 (the “June 2021 ATM Agreement”);

We are considering potential financing options that may be available to us, including additional sales of our common stock through our June 2021 ATM Agreement;

however, as of the date of this Quarterly Report, based on the market value of our public float, we are prevented from making additional sales under our shelf registration statement by General Instruction I.B.6 of Form S-3.

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The consolidated financial statements included in this Form 10-Q have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

As reflected in the accompanying consolidated financial statements, during the six months ended June 30, 2022, we incurred net losses of $6,449,269 and used cash in operations of $6,433,852.

While we maintain cash balances in excess of our anticipated needs for cash for the next twelve months, it is likely that we will need to raise additional capital prior to any ability to fund operations from revenue generated from the sale of our products.

As reflected in the accompanying consolidated financial statements, during the nine months ended September 30, 2022, we incurred net losses of $9,889,496 and used cash in operations of $9,680,682.

In light of our cash balance as of September 30, 2022, we will need to raise additional capital in order to fund operations through the next twelve months, and prior to any ability to fund operations from revenue generated from the sale of our products.

The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Operating Activities

During the six months ended June 30, 2022, we used $6,433,852 of cash in operating activities primarily as a result of our net loss of $6,449,269, offset by share-based compensation of $599,886, depreciation expense of $40,739, amortization of right of use assets of $67,158, and net changes in operating assets and liabilities of $(692,366).

During the six months ended June 30, 2021, we used $5,722,895 of cash in operating activities primarily as a result of our net loss of $5,468,380, offset by share-based compensation of $705,036, gain on extinguishment of debt of $308,600, depreciation expense of $65,154, amortization of right of use assets of $44,086, and net changes in operating assets and liabilities of $(760,191).

During the nine months ended September 30, 2022, we used $9,680,682 of cash in operating activities primarily as a result of our net loss of $9,889,496, offset by share-based compensation of $909,069, depreciation expense of $64,532, amortization of right of use assets of $101,957, and net changes in operating assets and liabilities of $(866,744).

During the nine months ended September 30, 2021, we used $8,469,658 of cash in operating activities primarily as a result of our net loss of $8,126,622, offset by share-based compensation of $1,032,840, gain on extinguishment of debt of $308,600, depreciation expense of $94,977, amortization of right of use assets of $75,768, and net changes in operating assets and liabilities of $(1,238,016).

Investing Activities

During the six months ended June 30, 2022, we used $149,153 in investing activities related to purchases of equipment.

During the six months ended June 30, 2021, we used $45,000 in investing activities related to purchases of equipment.

During the nine months ended September 30, 2022, we used $164,014 in investing activities related to purchases of equipment.

During the nine months ended September 30, 2021, we used $45,000 in investing activities related to purchases of equipment.

Financing Activities

During the six months ended June 30, 2022, our financing activities provided $8,399,512 in proceeds from issuances of common stock.

During the six months ended June 30, 2021, our financing activities provided $12,583,920, including $9,798,293 in proceeds from issuance of common stock, and $2,785,627 in proceeds from warrant exercises.

During the nine months ended September 30, 2022, our financing activities provided $8,399,512 in proceeds from issuances of common stock.

During the nine months ended September 30, 2021, our financing activities provided $13,080,526, including $10,294,899 in proceeds from issuance of common stock, and $2,785,627 in proceeds from warrant exercises.

Long-Term Liquidity

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We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.

Coronavirus (“COVID-19”) Pandemic

COVID-19 Pandemic

The COVID-19 pandemic has prompted governments and regulatory bodies throughout the world to issue “stay-at-home” or similar orders, and enact restrictions on the performance of “non-essential” services, public gatherings and travel.

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In the event that the Company is not able to cure the deficiency during the additional 180-day period, it may effect a reverse stock split in able to regain compliance with the Minimum Bid Price Requirement.

On October 17, 2022, the Company distributed to stockholders and filed with the SEC a definitive proxy statement relating to a special meeting scheduled for November 29, 2022 at which stockholders will vote on a proposal to approve an amendment to the Company’s certificate of incorporation to effect, at the discretion of the Company’s board of directors, a reverse stock split of the Company’s common stock at a stock split ratio between 1-for-2 and 1-for-30, with the ultimate ratio to be determined by the board of directors in its sole discretion, and the implementation and timing of which shall be subject to the discretion of the board of directors.

If we do not regain compliance with the Bid Price Rule and maintain compliance with other rules for continued listing on the Nasdaq, our common stock may be delisted.

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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-Q

Item 2. Management’s Discussion and Analysis