What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-30 · 43 added, 59 removed, 107 unchanged (49% of the section changed)

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Please also see “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factor Summary” at the beginning of this Annual Report.

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 June 2020, we submitted a 510(k) Application to the FDA for our TAEUS FLIP System.

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

We plan to voluntarily withdraw our 510(k) application and subsequently submit an application for de novo review, which will include additional clinical data.

In February 2022, we announced that we will pursue FDA reclassification and clearance 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, as soon as practicable in 2023.

Financial Operations Overview

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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 December 31, 2021, we had one full-time sales representative in the United Kingdom, two representatives in France and one in Germany.

We expect to continue actively adding to our sales representation and support headcount for operations in the EU in the coming quarters, as well 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.

As of December 31, 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.

General and Administrative Expenses

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These increases would likely include increased costs related to the hiring of personnel, including compensation and employee-related expenses, including stock-based compensation, and fees to outside consultants, lawyers and accountants, among other expenses.

Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors and officers insurance, increased legal and accounting costs and investor relations costs.

Additionally, we anticipate continued costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors and officers insurance, increased legal and accounting costs and investor relations costs.

Critical Accounting Policies and Estimates

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Share-based Compensation

Our 2016 Omnibus Incentive Plan (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 December 31, 2021, prior to the 1,622,848-share increase, there were 2,212,018 shares of common stock remaining available for issuance under the Omnibus Plan.

On January 1, 2023, the pool of shares issuable under the Omnibus Plan automatically increased by 867,966 shares from 454,204 shares to 1,322,169 shares.

As of December 31, 2022, there were 62,302 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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Research and Development

Research and development expenses were $5,482,531 for the year ended December 31, 2021, as compared to $5,917,944 for the year ended December 31, 2020, a decrease of $435,413, or 7%.

Research and development expenses were $6,554,194 for the year ended December 31, 2022, as compared to $5,482,531 for the year ended December 31, 2021, an increase of $1,071,663, or 20%.

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

Research and development expenses decreased from the same period for the prior year as we completed development of our initial TAEUS product and allocated a portion of our spending on commercialization of the product that has been developed.

Research and development expenses increased from the same period due to increased wage and related expenses.

Sales and Marketing

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Currently, our marketing efforts are through our website and attendance of key industry meetings.

During the year ending December 31, 2021 we began hiring and training additional staff to support our sales efforts.

General and Administrative

Our general and administrative expenses for the year ended December 31, 2021 were $4,940,398, compared to $5,002,080 for the year ended December 31, 2020, a decrease of $61,682, or 1%.

Our general and administrative expenses for the year ended December 31, 2022 were $5,174,215, compared to $4,940,398 for the year ended December 31, 2021, an increase of $233,817, or 5%.

Our wage and related expenses for the year ended December 31, 2022 were $2,123,291, compared to $1,966,666 for the year ended December 31, 2021.

Wage and related expenses in the year ended December 31, 2021 included $193,764 for bonuses and $497,947 of stock compensation expense related to the issuance and vesting of options and RSU’s, compared to $215,988 for bonuses, $811,871 of stock compensation expense related to the issuance and vesting of options, for the year ended December 31, 2020.

Wage and related expenses in the year ended December 31, 2022 included $259,339 for accrued bonuses and $416,508 of stock compensation expense related to the issuance and vesting of options, compared to $193,764 for bonuses and $497,947 of stock compensation expense related to the issuance and vesting of options, for the year ended December 31, 2021.

Our professional fees, which include legal, audit, and investor relations, for the year ended December 31, 2022 were $2,047,964, compared to $2,050,351 for the year ended December 31, 2021.

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During the year ending December 31, 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.

Amortization of Debt Discount

During the year ended December 31, 2020, we incurred non-cash expenses of $232,426 related to the amortization of debt discount incurred as result of our issuance of our convertible notes and warrants issued in July 2019.

During the year ended December 31, 2021, we did not have such expense.

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 year ended December 31, 2022, we recorded a net loss of $13,179,092, compared to a net loss of $11,231,250 for the year ended December 31, 2021.

Liquidity and Capital Resources

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 December 31, 2021, we had an accumulated deficit of $68.7 million and had $9.5 million in cash.

As of December 31, 2022, we had an accumulated deficit of $81,869,902 and had $4,889,098 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.

As of the date of this Annual Report, we believe that our cash on hand at December 31, 2021 will be sufficient to fund our current operations into the second half of 2022.

We will need additional capital by such time to allow us to continue to execute our commercialization plans.

We continue to evaluate and manage our capital needs to support our clinical, regulatory and operational activities, progress EU commercialization, and prepare for US commercialization upon FDA approval of our NAFLD TAEUS device.

We continue to evaluate and manage our capital needs to support our clinical, regulatory and operational activities, progress EU commercialization, and prepare for U.S.

commercialization upon FDA approval of our NAFLD TAEUS device.

We need additional capital to allow us to continue to execute our commercialization plans beyond the second quarter of 2023.

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”);

However, except for the June 2021 ATM Agreement, we have no commitments to obtain any additional funds, and there can be no assurance funds will be available in sufficient amounts or on acceptable terms.

however, as of the date of this Annual 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.

Except for the June 2021 ATM Agreement, we have no commitments to obtain any additional funds, and there can be no assurance funds will be available in sufficient amounts or on acceptable terms.

If we are unable to obtain sufficient additional financing in a timely fashion and on terms acceptable to us, our financial condition and results of operations may be materially adversely affected and we may not be able to continue operations or execute our stated commercialization plan.

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As reflected in the accompanying consolidated financial statements, during the year ended December 31, 2022, we incurred net losses of $13,179,092 and used cash in operations of $12,769,371.

While we maintain cash balances in excess of our anticipated needs for cash for the next nine 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.

In light of our cash balance as of December 31, 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 year ended December 31, 2022, we used $12,769,371 of cash in operating activities primarily as a result of our net loss of $13,179,092, offset by share-based compensation of $1,199,838, depreciation expense of $96,661, amortization of right of use assets of $137,597, fixed assets write-off of $1,391, and net changes in operating assets and liabilities of $(1,025,766).

During the year ended December 31, 2021, we used $11,122,384 of cash in operating activities primarily as a result of our net loss of $11,231,250, offset by share-based compensation of $1,444,572, gain on extinguishment of debt of $308,600, depreciation expense of $116,238, amortization of right of use assets of $108,177, fixed assets write-off of $9,874, and net changes in operating assets and liabilities of $(1,261,395).

During the year ended December 31, 2020, we used $10,746,595 of cash in operating activities primarily as a result of our net loss of $11,725,501, offset by share-based compensation of $2,102,352, amortization of debt discount of $232,426, depreciation expense of $99,342, amortization of Right of Use assets of $65,907, and net changes in operating assets and liabilities of $(1,521,121).

Investing Activities

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Financing Activities

During the year ended December 31, 2022, our financing activities provided $8,399,512 in proceeds from issuances of common stock.

During the year ended December 31, 2021, our financing activities provided $13,401,602, including $10,615,975 in proceeds from issuances of common stock, and $2,785,627 in proceeds from warrant exercises.

During the year ended December 31, 2020, financing activities provided $11,875,037, including $6,780,942 in proceeds from issuances of common stock, $4,757,011 in proceeds from warrant exercises, and $337,084 in proceeds from loans.

Funding Requirements

Long-Term Liquidity

We have not completed the commercialization of any of our TAEUS technology platform applications.

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It is possible that we will not achieve the progress that we expect because the actual costs and timing of completing the development and regulatory approvals for a new medical device are difficult to predict and are subject to substantial risks and delays.

We have no committed external sources of funds except for the June 2021 ATM Agreement.

We have no committed external sources of funds except for the June 2021 ATM Agreement, the use of which may be limited due to registration statement rules relating to public float.

We do not expect that our existing cash will be sufficient for us to complete the commercialization of our NAFLD TAEUS application or to complete the development of any other TAEUS application and we will need to raise substantial additional capital for those purposes.

As a result, we will need to finance our future cash needs through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in the section of this Annual Report on Form 10-K entitled “Risk Factors”.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in the Risk Factors section of this Annual Report on Form 10-K.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

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As described below, the COVID-19 pandemic has impacted our business operations to some extent and is expected to continue to do so and, in light of the effect of such pandemic on financial markets, these impacts may include reduced access to capital.

Additionally, a recession or other unfavorable market conditions, including economic slowdowns, recessions, inflation, rising interest rates and tightening of credit markets caused by the ongoing COVID-19 pandemic, the conflict in Ukraine or otherwise, may limit our access to capital.

If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts or perhaps even cease the operation of our business.

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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

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.

These restrictions and other precautionary measures have continued to varying degrees based on local COVID-19 rates and increased infections caused by variants of the coronavirus that causes COVID-19.

Beginning in March 2020, we undertook precautionary measures intended to help minimize the risk of the virus to our employees, including requiring most employees to work remotely, pausing all non-essential travel worldwide for our employees, and limiting employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are continuing.

As a cash-conserving measure taken in light of the adverse economic conditions caused by the COVID-19 pandemic, in April 2020 we reduced the cash salaries of members of management by 33% for the remainder of 2020, including the salaries of our executive officers.

In lieu of cash, the Company paid this portion of management salaries in the form of restricted stock units that vested over the remainder of the year.

Additionally, we amended our Non-Employee Director Compensation Policy to provide that our non-employee directors’ annual retainers for the second, third and fourth fiscal quarters of 2020 would be paid in in the form of restricted stock units rather than cash.

To date we do not believe these actions have had a significant negative impact on our operations.

However, these actions or additional measures we may undertake may ultimately delay progress on our developmental goals or otherwise negatively affect our business.

In addition, third-party actions taken to contain its spread and mitigate its public health effects of COVID-19 may negatively affect our business.

The COVID-19 pandemic has impacted our clinical trial activities.

Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring.

COVID-19 has also had an effect on the business at the FDA and other health authorities by causing them to reallocate resources to addressing the pandemic, which has resulted in delays of reviews and approvals, including with respect to our NAFLD TAEUS application.

Although we believe conditions are improving in both the EU and United States, allowing us to travel and attend trade shows and conferences in-person and for our clinical trials to progress, it is not certain that these improvements will persist and we be restricted from travelling or need to limit in-person meetings in the future, or our clinical trials may need to be delayed in response to adverse developments in the COVID-19 pandemic.

Nasdaq Capital Market Listing

Our common stock and our public warrants are currently traded on the Nasdaq Capital Market.

The Nasdaq Capital Market imposes, among other requirements, listing maintenance standards including minimum bid price and stockholders’ equity requirements.

In particular, Nasdaq rules require a listed company’s primary equity securities to have a minimum bid price of at least $1.00 per share and that a listed company maintain a minimum of $2.5 million in stockholders’ equity.

On January 5, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”).

The notification has no immediate effect on the listing of the Company’s common stock.

In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company has a period of 180 calendar days from January 5, 2022, or until July 5, 2022, to regain compliance with the Minimum Bid Price Requirement.

If at any time before July 5, 2022, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.

The notification letter also disclosed that in the event the Company does not regain compliance with the Minimum Bid Price Requirement by July 5, 2022, the Company may be eligible for additional time.

To qualify for additional time, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

If the Company meets these requirements, Nasdaq will inform the Company that it has been granted an additional 180 calendar days to regain compliance.

However, if it appears to the staff of Nasdaq (the “Staff”) that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff would notify the Company that its securities will be subject to delisting.

In the event of such notification, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.

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

If our securities were delisted from the Nasdaq Capital Market, it could, among other things, lead to a number of negative implications, including reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing.

Nasdaq Capital Market Listing and Reverse Stock Split

On January 5, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”).

In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company had a period of 180 calendar days from January 5, 2022, or until July 5, 2022, to regain compliance with the Minimum Bid Price Requirement.

Prior to July 5, 2022, the Company applied for, and was provided, an additional 180-day period 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 voted 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 (the “Reverse Split Proposal”).

On November 29, 2022, the Company held a special meeting of stockholders at which the Company’s stockholders approved the Reverse Split Proposal.

Following the special meeting, the board of directors determined to effect the reverse stock split at a ratio of 1-for-20.

On December 8, 2022, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s Fourth Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of Delaware to effect a 1-for-20 reverse stock split of the shares of the Company’s Common Stock, effective as of December 9, 2022 (the “Reverse Stock Split”).

As a result of the Reverse Stock Split, every 20 shares of issued and outstanding Common Stock was automatically combined into one issued and outstanding share of Common Stock, without any change in the par value per share.

No fractional shares were issued as a result of the Reverse Stock Split.

Any fractional shares that would otherwise have resulted from the Reverse Stock Split were rounded up to the next whole number.

The number of authorized shares of Common Stock under the Certificate of Incorporation remained unchanged at 80,000,000 shares.

Proportionate adjustments were made to the per share exercise price and the number of shares of Common Stock that may be purchased upon exercise of outstanding stock options granted by the Company and the number of shares of Common Stock reserved for future issuance under the Company’s 2016 Omnibus Incentive Plan.

The Common Stock began trading on a reverse stock split-adjusted basis on The Nasdaq Capital Market on December 9, 2022.

As a result of the Reverse Stock Split, the Company regained compliance with the Minimum Bid Price Requirement.

Off-Balance Sheet Transactions

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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-K

Item 7. Management’s Discussion and Analysis