What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-14 · 48 added, 67 removed, 114 unchanged (50% 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 developing a next-generation enhanced ultrasound devices to develop technology for characterizing tissue non-invasively, at the point of patient care, 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”), 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 and other types of capital equipment, 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.

The first-generation TAEUS application is a standalone ultrasound accessory designed to cost-effectively quantify fat in the liver and stage progression of nonalcoholic fatty liver disease (“NAFLD”), which can otherwise only be achieved today with impractical surgical biopsies or MRI scans.

Subsequent TAEUS offerings are expected to be implemented via a second-generation hardware platform that can run multiple clinical software applications that we will offer TAEUS users for a one-time licensing fee-adding ongoing customer value to the TAEUS platform and a growing software revenue stream for our Company.

Subsequent TAEUS offerings are expected to be implemented via a second-generation hardware platform that can run multiple clinical software applications that we will offer TAEUS users for a licensing fee-adding ongoing customer value to the TAEUS platform and a growing software revenue stream for our Company.

Each of our TAEUS platform applications will require regulatory approvals before we are able to sell or license the application.

Based on certain factors, such as the installed base of ultrasound systems, availability of other imaging technologies, such as CT and MRI, economic strength and applicable regulatory requirements, we intend to seek initial approval of our applications for sale in the European Union (the “EU”) and the United States, followed by China.

In March 2020, we received CE mark approval for our TAEUS FLIP (“Fatty Liver Imaging Probe”) System, enabling its marketing and sales in the EU and other CE mark geographies, including the 27 EU member states.

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 reclassification and clearance of our TAEUS® FLIP System through the FDA’s “de novo” process.

We subsequently voluntarily withdrew our 510(k) application, and on August 14, 2023, we announced the submission of a de novo request for the TAEUS system to the FDA.

In March 2020, we received CE mark approval for our TAEUS FLIP (“Fatty Liver Imaging Probe”) System, enabling its marketing and sales in the European Union and other CE mark geographies, including the 27 EU member states.

In June 2020, we submitted a 510(k) Application to the FDA for our TAEUS Fatty Live Imaging Probe (“FLIP”) System.

In February 2022, we announced that we would pursue FDA reclassification and clearance of our TAEUS FLIP System through the FDA’s “de novo” process.

We subsequently voluntarily withdrew our 510(k) Application submitted a de novo request for the TAEUS system to the FDA in the third quarter of 2023.

In the fourth quarter of 2023, the FDA sent us an AI request related to our de novo application.

Since we received the AI request, we have had several interactions with the FDA and have provided additional information.

In order to fully respond to the FDA’s questions, we will need to compile additional clinical data, provide additional device test data, and respond to cybersecurity related questions in a new de novo submission.

We have a scheduled in-person pre-submission meeting with the FDA in the second quarter of 2024.

We currently anticipate completing the necessary clinical studies by the fourth quarter of 2024 and submitting the new de novo request to the FDA in the first half of 2025.

Financial Operations Overview

No revenue has been generated by our TAEUS technology, which we have not commercially sold as of September 30, 2023.

No revenue has been generated by our TAEUS technology, which we have not commercially sold as of March 31, 2024.

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, 2023, 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, in each case as our financial resources permit.

As of March 31, 2024, we had a full-time sales representative in each of the United Kingdom, France and Germany.

We expect to add to our sales representation and support headcount for operations in the EU as resources permit in the future, 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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On January 1, 2024, the pool of shares issuable under the Omnibus Plan automatically increased by 1,717,783 shares from 1,322,169 shares to 3,039,952 shares.

As of September 30, 2023, there were 675,520 shares of common stock remaining available for issuance under the Omnibus Plan.

As of March 31, 2024, there were 2,360,665 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 fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends, and the resulting charge is expensed using the straight-line attribution method over the vesting period.

Stock compensation expense recognized during the period is based on the value of share-based awards that were expected to vest during the period adjusted for estimated forfeitures.

The estimated fair value of grants of stock options and warrants to non-employees is charged to expense, if applicable, in the financial statements.

Recent Accounting Pronouncements

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Results of Operations

Three months ended September 30, 2023 and 2022

We had no revenue during the three months ended September 30, 2023 and 2022.

Cost of Goods Sold

We had no cost of goods sold during the three months ended September 30, 2023 and 2022.

Research and Development

Research and development expenses were $1,632,849 for the three months ended September 30, 2023, as compared to $1,830,297 for the three months ended September 30, 2022, a decrease of $197,448, or 11%.

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 began focusing our spending on commercialization of the product that has been developed.

Sales and Marketing

Sales and marketing expenses were $243,332 for the three months ended September 30, 2023, as compared to $420,439 for the three months ended September 30, 2022, a decrease of $177,107, or 42%.

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 three months ended September 30, 2023 were $1,252,881, compared to $1,166,480 for the three months ended September 30, 2022, an increase of $86,401, or 7%.

Our wage and related expenses for the three months ended September 30, 2023 were $565,639, compared to $479,228 for the three months ended September 30, 2022.

Wage and related expenses in the three months ended September 30, 2023 included $67,932 for accrued bonuses and $86,883 of stock compensation expense related to the issuance and vesting of options, compared to $67,932 for bonuses and $111,861 of stock compensation expense related to the issuance and vesting of options, for the three months ended September 30, 2022.

Our professional fees, which include legal, audit, and investor relations, for the three months ended September 30, 2023 were $447,515, compared to $454,707 for the three months ended September 30, 2022.

As a result of the foregoing, for the three months ended September 30, 2023, we recorded a net loss of $3,100,836, compared to a net loss of $3,440,227 for the three months ended September 30, 2022.

Nine months ended September 30, 2023 and 2022

We had no revenue during the nine months ended September 30, 2023 and 2022.

Three months ended March 31, 2024 and 2023

We had no revenue during the three months ended March 31, 2024 and 2023.

Cost of Goods Sold

We had no cost of goods sold during the nine months ended September 30, 2023 and 2022.

We had no cost of goods sold during the three months ended March 31, 2024 and 2023.

Research and Development

Research and development expenses were $4,424,345 for the nine months ended September 30, 2023, as compared to $4,890,879 for the nine months ended September 30, 2022, a decrease of $466,534, or 10%.

Research and development expenses were $1,041,526 for the three months ended March 31, 2024, as compared to $1,391,314 for the three months ended March 31, 2023, a decrease of $349,788 or 25%.

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

Research and development expenses decreased from the prior year as we completed development of our initial TAEUS product and began focusing our spending on commercialization of the product that has been developed.

Sales and Marketing

Sales and marketing expenses were $672,721 for the nine months ended September 30, 2023, as compared to $1,102,381 for the nine months ended September 30, 2022, a decrease of $429,660, or 39%.

Sales and marketing expenses were $238,660 for the three months ended March 31, 2024, as compared to $181,616 for the three months ended March 31, 2023, an increase of $57,044, or 31%.

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.

Sales and marketing expenses increased largely due to the increase in consulting fees.

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, 2023 were $3,965,889, compared to $3,850,918 for the nine months ended September 30, 2022, an increase of $114,971, or 3%.

Our wage and related expenses for the nine months ended September 30, 2023 were $1,735,526, compared to $1,600,240 for the nine months ended September 30, 2022.

Wage and related expenses in the nine months ended September 30, 2023 included $203,796 for accrued bonuses and $252,948 of stock compensation expense related to the issuance and vesting of options, compared to $181,407 for bonuses and $312,636 of stock compensation expense related to the issuance and vesting of options, for the nine months ended September 30, 2022.

Our professional fees, which include legal, audit, and investor relations, for the nine months ended September 30, 2023 were $1,471,850, compared to $1,503,816 for the nine months ended September 30, 2022.

Other income for the nine months ended September 30, 2023, was $462,241, and resulted mostly from the completion of the Employer Retention Tax Credit for employee retention in 2021 and 2022 of $413,844.

As a result of the foregoing, for the nine months ended September 30, 2023, we recorded a net loss of $8,600,714, compared to a net loss of $9,889,496 for the nine months ended September 30, 2022.

Our general and administrative expenses for the three months ended March 31, 2024 were $1,500,355, compared to $1,366,398 for the three months ended March 31, 2023, an increase of $133,957, or 10%.

Our wage and related expenses for the three months ended March 31, 2024 were $641,381, compared to $611,819 for the three months ended March 31, 2023.

Wage and related expenses in the three months ended March 31, 2024 included $165,121 of stock compensation expense related to the issuance and vesting of options, compared to $77,865 of stock compensation expense related to the issuance and vesting of options, for the three months ended March 31, 2023.

Our professional fees, which include legal, audit, and investor relations, for the three months ended March 31, 2024 were $639,872, compared to $520,637 for the three months ended March 31, 2023.

As a result of the foregoing, for the three months ended March 31, 2024, we recorded a net loss of $2,775,700, compared to a net loss of $2,942,746 for the three months ended March 31, 2023.

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, 2023, we had an accumulated deficit of $90,470,616 and had $3,334,536 in cash.

We are experiencing financial and operating challenges.

In the absence of immediate additional liquidity, we will be forced to delay or reduce our product development programs and commercialization efforts, materially curtail or cease our operations, sell or dispose of our rights or assets, pursue sale or other strategic transactions, or undergo restructuring or insolvency proceedings.

As of March 31, 2024, we had an accumulated deficit of $94,705,852 and had $1,134,701 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.

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.

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 expect 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.

We need additional capital to allow us to continue to execute our commercialization plans through the second quarter of 2024.

We are considering potential financing options that may be available to us, such as sales of our common stock, including through our at-the-market sales program (the “ATM Program”) with Ascendiant Capital Markets, LLC.

Except for the ATM Program, 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.

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, 2023, we incurred net losses of $8,600,714 and used cash in operations of $7,374,197.

In light of our cash balance as of September 30, 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.

As reflected in the accompanying consolidated financial statements, during the three months ended March 31, 2024, we incurred net losses of $2,775,700 and used cash in operations of $2,144,312.

In light of our cash balance as of March 31, 2024, 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, 2023, we used $7,374,197 of cash in operating activities primarily as a result of our net loss of $8,600,714, offset by share-based compensation of $745,873, depreciation expense of $101,839, amortization of right of use assets of $112,365, and net changes in operating assets and liabilities of $266,440.

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 three months ended March 31, 2024, we used $2,144,312 of cash in operating activities primarily as a result of our net loss of $2,775,700, offset by share-based compensation of $317,497, amortization of right of use assets of $40,376, inventory reserve of $142,733, depreciation expense of $15,300, fixed assets write-off of $8,808, and net changes in operating assets and liabilities of $106,674.

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.

Investing Activities

During the nine months ended September 30, 2023, we used $27,000 in investing activities related to purchases of fixed assets.

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

During the three months ended March 31, 2024, we used $27,000 in investing activities related to purchases of fixed assets, and received $3,204 in proceeds from sale of fixed assets.

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

Financing Activities

During the nine months ended September 30, 2023, our financing activities provided $5,846,635 in proceeds from issuances of common stock and warrants.

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

During the three months ended March 31, 2024, our financing activities provided $419,967 in proceeds from issuances of common stock, $77,419 in proceeds from warrant exercises.

We also used $28,484 to repay a loan from TD Bank under the Canadian Emergency Business Account.

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

Long-Term Liquidity

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We anticipate that our expenses will increase substantially as we:

advance the engineering design and development of our NAFLD TAEUS application;

advance the engineering design and development of our TAEUS technology;

acquire parts and build finished goods inventory of the TAEUS FLIP system;

complete regulatory filings required for marketing approval of our NAFLD TAEUS application in the United States;

complete regulatory filings required for marketing approval of our NAFLD TAEUS application in the United States, including clinical studies to advance our de novo application with the FDA;

seek to hire a small internal marketing team to engage and support channel partners and clinical customers for our NAFLD TAEUS application;

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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, the use of which may be limited due to registration statement rules relating to public float.

We have no committed external sources of funds except for the February 2024 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 Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 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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Additional funds may not be available when we need them on terms that are acceptable to us, or at all.

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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Off-Balance Sheet Transactions

At September 30, 2023, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

At March 31, 2024, 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