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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-03-28 · 48 added, 49 removed, 81 unchanged (54% 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 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 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 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 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.

We are developing a thermo-acoustic medical device designed specifically for accurate liver fat measurement for metabolic disease detection and management and GLP-1 drug eligibility and management.

Our goal is to create the next-generation enhanced ultrasound technology platform designed to establish key biomarkers for metabolic diseases management and emerging GLP-1 therapies.

Our business model will primarily be a low barrier-to-entry, multi-year, subscription-based business model with monthly recurring revenue (MRR), while also offering a traditional product sale with annual upgrade and maintenance fees.

These sales are expected to be made by a direct sales force to four markets:

Pharmaceutical Companies and Clinical Research Organizations (“CROs”) - to assist them in the efficient screening & monitoring subjects for new GLP-1, NASH/MASH and Insulin Sensitizers clinical trials.

High-End Primary Care Clinics - to assist them screening patients for obesity, diabetes and liver disease as well as monitor response to lifestyle changes and drug therapies.

Bariatric and Metabolic Clinics - for obesity and other metabolic diseases detection and therapies response monitoring

Primary & Internal Medicine at Large - to screen patients for obesity, diabetes and liver disease and monitor response to lifestyle change and drug therapy

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

Financial Operations Overview

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Research and Development Expenses

Our research and development expenses primarily include wages, fees and equipment for the development of our TAEUS technology platform and the proposed applications.

Our research and development expenses primarily include wages, fees and equipment for the development of our TAEUS technology platform.

Additionally, we incur certain costs associated with the protection of our products and inventions through a combination of patents, licenses, applications and disclosures.

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employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead related expenses and travel-related expenses for our research and development personnel;

expenses incurred under agreements with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”) as well as consultants that support the implementation of our clinical and non-clinical studies;

expenses incurred under agreements with CROs, contract manufacturing organizations (“CMOs”) as well as consultants that support the implementation of our clinical and non-clinical studies;

manufacturing and packaging costs in connection with conducting clinical trials;

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costs for sponsored research.

We plan to incur research and development expenses for the foreseeable future as we expect to continue the development of TAEUS and pursue FDA approval of the NAFLD TAEUS system.

We plan to incur research and development expenses for the foreseeable future as we expect to continue the development of TAEUS and pursue FDA approval.

At this time, due to the inherently unpredictable nature of clinical development and regulatory approvals, we are unable to estimate with certainty the costs we will incur and the timelines we will require in our continued development efforts.

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Sales and marketing expenses consist primarily of headcount and consulting costs, and marketing and tradeshow expenses.

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

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, 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.

Currently, our sales and marketing efforts are primarily business development - generating awareness through meetings with research institutions, our website and attendance of key industry meetings and conferences.

As of December 31, 2024, we had a full-time sales engineer in France and a part-time, contracted, business development executive in Germany.

Upon FDA approval, we will expand our sales & marketing efforts, primarily by adding a direct sales force and related expenses and costs.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related expenses for our management and personnel, and professional fees, such as for accounting, consulting and legal services.

We anticipate that our general and administrative expenses will increase in the future as we support our continued research and development activities, expand our sales and marketing operations, and continue as a public company.

In 2024, general and administrative expenses also included a $2.4 million inventory reserve discussed further in Results of Operations.

Excluding this one-time charge, we anticipate that our general and administrative expenses will increase in the future as we support our continued research and development activities, expand our sales and marketing operations, and continue as a public company.

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.

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Actual results could differ from those estimates.

Management makes estimates that affect certain accounts including inventory reserve, deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies.

Management makes estimates that affect certain accounts including inventory reserve, deferred income tax assets, accrued expenses, fair value of equity instruments, warrant liability and reserves for any other commitments or contingencies.

Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.

Share-based Compensation

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.

The Company’s 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.

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, 2025, the pool of shares issuable under the Omnibus Plan automatically increased by 178,033 shares from 1,738 shares to 179,474 shares.

As of December 31, 2023, there were 663,633 shares of common stock remaining available for issuance under the Omnibus Plan.

As of December 31, 2024, prior to such increase, there were 1,441 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 expenses were $3,190,293 for the year ended December 31, 2024, as compared to $5,003,695 for the year ended December 31, 2023, a decrease of $1,813,402 or 36%.

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.

The costs include primarily wages, fees, consultants, contractors 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 ensuring the clinical trials.

Sales and Marketing

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

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

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

Sales and marketing expenses decreased largely due to the reduction of Sales & Marketing personnel until the clinical trials are complete.

General and Administrative

Our general and administrative expenses for the year ended December 31, 2023 were $4,696,486, compared to $5,174,215 for the year ended December 31, 2022, a decrease of $477,729, or 9%.

Our wage and related expenses for the year ended December 31, 2023 were $1,554,670, compared to $2,123,291 for the year ended December 31, 2022.

Wage and related expenses in the year ended December 31, 2023 included $339,696 of stock compensation expense related to the issuance and vesting of options, compared to $416,508 of stock compensation expense related to the issuance and vesting of options, for the year ended December 31, 2022.

Our professional fees, which include legal, audit, and investor relations, for the year ended December 31, 2023 were $1,980,464, compared to $2,047,964 for the year ended December 31, 2022.

Other income for the year ended December 31, 2023 was $460,485, and resulted mostly from the Employer Retention Tax Credit for employee retention in 2021 and 2022 of $413,844.

Our general and administrative expenses for the year ended December 31, 2024 were $7,055,814, compared to $4,696,486 for the year ended December 31, 2023, an increase of $2,359,328, or 50%.

The primary driver of this increase was our inventory reserve.

In 2024, in connection with a strategic shift under the direction of our new management team, we determined that we needed to redesign our TAEUS liver system to require less space, be simpler to use and be more cost effective.

As a result, we performed a thorough assessment of the valuation of inventory as of December 31, 2024 and determined to record a non-cash charge to reserve against all inventory, as it may not be usable in connection with our redesigned system.

This reserve totaled $2,525,179 as of December 31, 2024.

Our reserve was $138,045 as of December 31, 2023.

Also included in general and administrative expenses for the years ended December 31, 2024 and 2023 were wages and related expenses of $1,365,860 and $1,554,670, respectively, and professional fees of $2,177,046 and $1,980,464, respectively.

Other Expenses

Other expenses were $690,800 for the year ended December 31, 2024 primarily driven by non-cash warrant expense, changes in fair value of warrant liability and gain on settlement on warrant exercise.

For the year ended December 31, 2023, we had other income of $460,485 which was primarily the result of the Employer Retention Tax Credit for employee retention in 2021 and 2022

As a result of the foregoing, for the year ended December 31, 2024, we recorded a net loss of $11,507,947, compared to a net loss of $10,060,250 for the year ended December 31, 2023.

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If we are unable to obtain adequate financing or financings in the near term on terms satisfactory to us, or at all, we may be forced to undertake additional measures, which may include delaying or reducing our product development programs and commercialization efforts, materially curtailing or eliminating our operations, selling or disposing of our rights or assets, pursuing sale or other strategic transactions, or undergoing restructuring or insolvency proceedings.

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

We need additional capital to allow us to continue to execute our clinical trials and commercialization plans through the 2025 and beyond.

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

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As reflected in the accompanying consolidated financial statements, during the year ended December 31, 2024, we incurred net losses of $11,507,947 and used cash in operations of $7,400,547.

In light of our cash balance as of December 31, 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.

In light of our cash balance as of December 31, 2024, we will need to raise additional capital in order to fund operations through the next twelve months.

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, 2024, we used $7,400,547 of cash in operating activities primarily as a result of our net loss of $11,507,947, offset by a non-cash charge for inventory reserve of $2,387,134, share-based compensation of $571,924, the net effect of warrants of $799,284 (which includes warrant expense of $7,323,685, changes in fair value of warrant liability of ($3,447,737) and gain on settlement on warrant exercise of ($3,076,664)), amortization of right of use assets of 159,683, depreciation expense of $46,489, fixed assets write-off of $8,808, and net changes in operating assets and liabilities of $134,079.

During the year ended December 31, 2023, we used $9,548,775 of cash in operating activities primarily as a result of our net loss of $10,060,250, offset by share-based compensation of $996,430, amortization of right of use assets of $151,725, inventory reserve of $138,045, depreciation expense of $123,726, fixed assets write-off of $24,868, and net changes in operating assets and liabilities of $(923,319).

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, amortization of right of use assets of $137,597, depreciation expense of $96,661, fixed assets write-off of $1,391, and net changes in operating assets and liabilities of $(1,025,766).

Investing Activities

During the year ended December 31, 2024, we used $16,000 in investing activities related to purchases of fixed assets, and received $3,204 in proceeds from sale of fixed assets.

During the year ended December 31, 2022, we used $202,577 in investing activities related to purchases of equipment.

During the year ended December 31, 2023, we used $33,844 in investing activities related to purchases of fixed assets, and received $9,163 in proceeds from sale of fixed assets.

Financing Activities

During the year ended December 31, 2023, our financing activities provided $6,483,393 in proceeds from issuances of common stock $20,053 in proceeds from issuances of common stock warrants, and $1,014,859 in proceeds from warrant exercises.

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, 2024, our financing activities provided $1,148,470 in proceeds from issuances of common stock and warrants, $6,688,930 in proceeds from warrant issuances and exercises.

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

During the year ended December 31, 2023, our financing activities provided $6,483,393 in proceeds from issuances of common stock and warrants, $1,014,859 in proceeds from warrant exercises and $20,053 in proceeds from issuances of common stock warrants.

Long-Term Liquidity

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We expect to continue to incur significant expenses for the foreseeable future.

We anticipate that our expenses will increase substantially as we:

We anticipate that our expenses may increase as we:

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, 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;

expand marketing of our NAFLD TAEUS application;

advance development of our other TAEUS applications;

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

complete regulatory filings required for marketing approval in the United States, including clinical studies to support our planned De Novo application with the FDA;

seek to hire a sales and marketing team to market and sell our products;

advance development of other applications;

add operational, financial and management information systems and personnel, including personnel to support our product development, planned commercialization efforts and our operation as a public company.

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 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.

We have no committed external sources of funds except for the February 2024 ATM Agreement, the use of which is 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 TAEUS application or to complete the development of any other TAEUS application and we will need to raise 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.

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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