What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 39 added, 80 removed, 123 unchanged (49% of the section changed)

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This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections.

Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable terms.

All statements other than statements of historical facts included in this Form 10-Q regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements.

Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable terms.

All statements other than statements of historical facts included in this Form 10-Q, including those regarding our strategies, prospects, financial condition, operations, costs, plans and objectives, are forward-looking statements.

Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals and product launches.

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Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control.

Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.

Our actual results and financial condition may differ materially from those indicated in, or implied by, the forward-looking statements.

Therefore, you should not rely on any of these forward-looking statements.

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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 CT and MRI technology, or other diagnostic technologies such as surgical biopsy, are unavailable or impractical.

We are developing a next-generation 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 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.

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

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

No revenue has been generated by our TAEUS technology, which we have not commercially sold as of March 31, 2023.

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 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.

As of March 31, 2023, we had a full-time sales representative in each of the United Kingdom, France and Germany.

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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On January 1, 2023, the pool of shares issuable under the Omnibus Plan automatically increased by 867,966 shares from 454,203 shares to 1,322,169 shares.

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

As of March 31, 2023, there were 675,521 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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The estimated fair value of grants of stock options and warrants to non-employees is charged to expense, if applicable, in the financial statements.

Debt Discount and Detachable Debt-Related Warrants

The Company accounts for debt discounts originating in connection with conversion features that are embedded in certain previously outstanding notes and warrants in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options .

These costs are classified on the consolidated balance sheet as a direct deduction from the debt liability.

The Company amortized these costs over the term of the securities as interest expense-debt discount in the consolidated statement of operations.

Debt discounts relate to the relative fair value of warrants issued in conjunction with the debt and are also recorded as a reduction to the debt balance and accreted over the expected term of the securities to interest expense.

Recent Accounting Pronouncements

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Results of Operations

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 September 30, 2022 and 2021.

Research and Development

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.

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

Sales and Marketing

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.

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

General and Administrative

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.

Three months ended March 31, 2023 and 2022

We had no revenue during the three months ended March 31, 2023 and 2022.

Cost of Goods Sold

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

We had no cost of goods sold during the three months ended March 31, 2023 and 2022.

Research and Development

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%.

Research and development expenses were $1,391,314 for the three months ended March 31, 2023, as compared to $1,213,022 for the three months ended March 31, 2022, an increase of $178,292, or 15%.

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 $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.

Sales and marketing expenses were $181,616 for the three months ended March 31, 2023, as compared to $339,903 for the three months ended March 31, 2022, a decrease of $158,287, or 47%.

The costs include primarily headcount and pre-selling activities for our TAEUS product line.

Sales and marketing expenses decreased due to the departure of our Chief Commercial Officer.

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

General and Administrative

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 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.

Our general and administrative expenses for the three months ended March 31, 2023 were $1,366,398, compared to $1,302,344 for the three months ended March 31, 2022, an increase of $64,054, or 5%.

Our wage and related expenses for the three months ended March 31, 2023 were $611,819, compared to $551,312 for the three months ended March 31, 2022.

Wage and related expenses in the three months ended March 31, 2023 included $67,932 for accrued bonuses and $77,865 of stock compensation expense related to the issuance and vesting of options, compared to $45,543 for bonuses and $88,956 of stock compensation expense related to the issuance and vesting of options, for the three months ended March 31, 2022.

Our professional fees, which include legal, audit, and investor relations, for the three months ended March 31, 2023 were $520,637, compared to $503,494 for the three months ended March 31, 2022.

As a result of the foregoing, for the three months ended March 31, 2023, we recorded a net loss of $2,942,746, compared to a net loss of $2,858,202 for the three months ended March 31, 2022.

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

As of March 31, 2023, we had an accumulated deficit of $84,812,648 and had $2,355,251 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 Quarterly Report, we believe that our cash on hand will be sufficient to fund our current operations into the first half of 2023.

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 U.S.

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 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.

In April 2023, we completed a public underwritten offering of 4,312,500 shares of our common stock and warrants to purchase an aggregate 2,156,250 shares of our common stock for aggregate net proceeds of $4.7 million.

However, we except that we will need additional capital to allow us to continue to execute our commercialization plans beyond the fourth quarter of 2023.

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

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.

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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 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.

As reflected in the accompanying consolidated financial statements, during the three months ended March 31, 2023, we incurred net losses of $2,942,746 and used cash in operations of $2,506,847.

In light of our cash balance as of March 31, 2023, and taking into account net proceeds from our underwritten offering of common stock and warrants in April 2023, 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 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).

During the three months ended March 31, 2023, we used $2,506,847 of cash in operating activities primarily as a result of our net loss of $2,942,746, offset by share-based compensation of $237,279, depreciation expense of $34,516, amortization of right of use assets of $36,526, and net changes in operating assets and liabilities of $127,578.

During the three months ended March 31, 2022, we used $3,098,870 of cash in operating activities primarily as a result of our net loss of $2,858,202, offset by share-based compensation of $288,537, depreciation expense of $19,038, amortization of right of use assets of $33,179, and net changes in operating assets and liabilities of $(581,422).

Investing Activities

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.

During the three months ended March 31, 2023, we used $27,000 in investing activities related to purchases of fixed assets.

During the three months ended March 31, 2022, we used $89,353 in investing activities related to purchases of fixed assets

Financing Activities

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.

During the three months ended March 31, 2023, there were no financing activities.

During the three months ended March 31, 2022, our financing activities provided $854,052 in proceeds from issuances of common stock.

Long-Term Liquidity

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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 Risk Factors section of our Annual Report on Form 10-K for the period ended December 31, 2021, as filed with the SEC on March 30, 2022.

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.

Additionally, a recession or other unfavorable market conditions, including economic slowdowns, recessions, inflation, instability in the banking system, rising interest rates and tightening of credit markets, 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.

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.

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

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 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.

If at any time before January 1, 2023, 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.

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.

If our common stock 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.

Off-Balance Sheet Transactions

At March 31, 2023, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Quantitative and Qualitative Disclosure About Market Risk

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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