TIDMSMD
RNS Number : 2093E
Spectral MD Holdings, Ltd.
28 June 2023
Spectral MD Holdings, Ltd
("Spectral MD" or the "Company")
Unaudited results for the Quarter Ended 31 March 2023
Filing of Updated Form S-4 by Rosecliff Acquisition Corp I
LONDON, U.K. AND DALLAS, TX, U.S. -Spectral MD Holdings, Ltd.
(AIM: SMD), an artificial intelligence (AI) company focused on
medical diagnostics for faster and more accurate treatment
decisions in wound care, notes that Rosecliff Acquisition Corp I
("Rosecliff", Nasdaq: RCLF) has filed on 27 June 2023 an amended
Form S-4 filing (the "Filing"). Included in the Filing, the Company
has prepared unaudited financial statements for the quarter ended
31 March 2023 alongside a management discussion and analysis. The
Filing is available to view on the U.S. Securities and Exchange
Commission (the "SEC") website here.
Financial highlights for the quarter ended 31 March 2023
The Company is reporting R&D revenue of $5.1 million, down
from $5.8 million in the first three months of 2022, and gross
profit of $2.2 million, down from $2.4 million primarily due to the
Company completing enrollment and transitioning to the closeout
phase of the BARDA burn study. Gross Margin continues to remain
strong as the Company reported gross margin of 42.9% which is up
from 40.9% for the corresponding period in 2022 primarily due to
increased engineering payroll as a portion of total revenue.
Lastly, our operating loss of $3.6 million and adjusted EBITDA loss
of $3.3 million were higher than for the corresponding three-month
period in 2022 ($0.6 million and $0.2 million, respectively) due to
the expanded work completed by the Company in additional
indications of its technology.
Operational highlights (including post period events)
-- Entered into a Business Combination Agreement with Rosecliff
Acquisition Corp I valuing the Company at an enterprise value of
$170 million, which is expected to complete in Q3 2023. Upon
completion of the Transaction, the Combined Company expects to
operate under the expected name Spectral AI and to be listed on
Nasdaq under the symbol MDAI.
-- $4.0 million grant awarded from the Medical Technology
Enterprise Consortium to accelerate the development of DeepView
SnapShot(R) M, a fully handheld version of DeepView(R).
-- Completion of enrollment for US Burn AI Training Study
performed across 12 leading US burn centers, with data collected
from adult and pediatric subjects used to finalize DeepView
AI(R)-Burn algorithm and make sample size determinations for its US
Burn AI Validation Study.
-- US DFU clinical study is on track with additional sites
incorporated in Q1 2023, providing data to support FDA and UKCA
regulatory submissions.
-- Successful interim results for the DFU Indication showing AI
diagnostic accuracy improvement from 81% to 86%.
-- Initiated EU clinical study for DFU Indication with the Royal
College of Surgeons in Ireland conducted at Connolly Hospital in
Dublin, Ireland.
The full unaudited quarterly results and discussion document are
included in this announcement.
On April 11, 2023, Spectral MD announced that it had entered
into a business combination agreement with Rosecliff, a special
purpose acquisition company listed on Nasdaq (the "Transaction").
The Filing S-4 provides extensive information on the business
combination agreement including financial statements, risk factors
and the full terms of the Transaction to facilitate informed
decision-making by shareholders and potential investors.
As part of the filing, Rosecliff is expected to mail the
definitive proxy statement to Rosecliff stockholders in due course
ahead of a special meeting to approve the Transaction. Spectral MD
anticipates sending a Circular to shareholders ahead of a general
meeting to approve the Transaction in Q3 2023.
Market Abuse Regulation (MAR) Disclosure
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 as it forms part of
UK domestic law by virtue of the European Union (Withdrawal) Act
2018 ("MAR"). Upon the publication of this announcement via
Regulatory Information Service ("RIS"), this inside information is
now considered to be in the public domain.
Additional Information and Where to Find It
This press release is provided for informational purposes only
and contains information with respect to a proposed business
combination among Spectral MD, Rosecliff, Ghost Merger Sub I Inc.,
a wholly-owned subsidiary of Rosecliff and Ghost Merger Sub II LLC,
a wholly-owned subsidiary of Rosecliff (the "Transaction"). In
connection with the proposed Transaction, Rosecliff filed an
amended registration statement on Form S-4 with the SEC, which
includes a preliminary proxy statement/prospectus (as amended from
time to time, the "Registration Statement"). A full description of
the proposed Transaction has been included in the Registration
Statement filed by Rosecliff with the SEC. Rosecliff's
stockholders, investors and other interested persons are advised to
read the Registration Statement as well as other documents that
have been filed or will be filed with the SEC, as these documents
will contain important information about Rosecliff, Spectral MD,
and the proposed Transaction. The Registration Statement has not
yet been declared effective by the SEC. If and when the
Registration Statement is declared effective by the SEC, the proxy
statement/prospectus and other relevant documents for the proposed
Transaction will be mailed to stockholders of Rosecliff as of a
record date to be established for voting on the proposed
Transaction. Rosecliff investors and stockholders will also be able
to obtain copies of the proxy statement/prospectus and other
documents filed with the SEC, without charge, once available, at
the SEC's website at www.sec.gov.
Participants in the Solicitation
Rosecliff, Spectral MD and certain of their respective
directors, executive officers, other members of management and
employees may, under SEC rules, be deemed participants in the
solicitation of proxies from Rosecliff's stockholders with respect
to the proposed Transaction. Investors and security holders may
obtain more detailed information regarding the names and interests
in the proposed Transaction of Rosecliff's directors and officers
in Rosecliff's filings with the SEC, including Rosecliff's
definitive proxy statement, the Registration Statement and other
documents filed with the SEC. Such information with respect to
Spectral MD's directors and executive officers has also been
included in the Registration Statement.
No Offer or Solicitation
This press release and the information contained herein do not
constitute (i) (a) a solicitation of a proxy, consent or
authorization with respect to any securities or in respect of the
proposed Transaction or (b) an offer to sell or the solicitation of
an offer to buy any security, commodity or instrument or related
derivative, nor shall there be any sale of securities in any
jurisdiction in which the offer, solicitation or sale would be
unlawful prior to the registration or qualification under the
securities laws of any such jurisdiction or (ii) an offer or
commitment to lend, syndicate or arrange a financing, underwrite or
purchase or act as an agent or advisor or in any other capacity
with respect to any transaction, or commit capital, or to
participate in any trading strategies. No offer of securities in
the United States or to or for the account or benefit of U.S.
persons (as defined in Regulation S under the U.S. Securities Act
of 1933 (the "Securities Act") shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act, or an exemption therefrom. Investors should consult with their
counsel as to the applicable requirements for a purchaser to avail
itself of any exemption under the Securities Act.
Forward Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. This includes, without limitation, all statements regarding
(i) the proposed Transaction with Rosecliff, including statements
regarding anticipated timing of the proposed Transaction, (ii)
redemptions of Rosecliff common stock, (iii) valuation of the
proposed Transaction, (iv) the closing of the proposed Transaction,
(v) the ability to regain compliance with Nasdaq Capital Market
listing requirements and to maintain listing, or for the Combined
Company to be listed, on the Nasdaq Capital Market, (vi) Rosecliff
and Spectral MD's managements' expectations and expected synergies
of the proposed Transaction and the Combined Company, (vii) the use
of proceeds from the proposed Transaction, (viii) potential
government contracts, and (ix) expected beneficial outcomes and
synergies of the proposed Transaction, (x) Spectral MD's U.S.
government contracts and future awards, (xi) FDA, CE and UKCA
regulatory submissions and approvals, (xii) target markets of burn
wounds and diabetic foot ulcers, (xiii) possible competitors, (xiv)
future clinical indications and use of BARDA, (xv) potential PIPE
transaction and amount raised, (xvi) future applications of
Spectral MD products, (xvii) potential indications and areas of
interest supported by BARDA, (xviii) future and pending U.S. patent
applications and foreign and international patent applications,
(xvix) the AIM delisting and its effects for U.K. Spectral MD
shareholders, (xxx) the development of DeepView(R) technology and
tools; (xxxi) the effectiveness of the DeepView(R) platform in
assessing burn wounds, (xxxii) the reliability of any studies
performed by Spectral MD, and (xxxiii) the completion of any
certifications. Generally, statements that are not historical
facts, including statements concerning our possible or assumed
future actions, business strategies, events or results of
operations, are forward-looking statements. These statements may be
preceded by, followed by or include the words
"believes," "estimates," "expects," "projects," "forecasts,"
"may," "will," "should," "seeks," "plans," "scheduled,"
"anticipates" or "intends" or similar expressions. Such
forward-looking statements involve risks and uncertainties that may
cause actual events, results or performance to differ materially
from those indicated by such statements. These forward-looking
statements are expressed in good faith, and Spectral MD and
Rosecliff believe there is a reasonable basis for them. However,
there can be no assurance that the events, results or trends
identified in these forwardlooking statements will occur or be
achieved. Forward-looking statements speak only as of the date they
are made, and neither Spectral MD nor Rosecliff is under any
obligation, and expressly disclaim any obligation, to update, alter
or otherwise revise any forward-looking statement, whether as a
result of new information, future events or otherwise, except as
required by law.
Forward-looking statements are inherently subject to risks,
uncertainties and assumptions. In addition to risk factors
previously disclosed in Rosecliff's reports filed with the SEC and
those identified elsewhere in this press release, the following
factors, among others, could cause actual results to differ
materially from forward-looking statements or historical
performance: (i) risks associated with product development and
regulatory review, including the time, expense and uncertainty of
obtaining clearance, approval or De Novo classification for
Spectral MD's DeepView technology, (ii) Spectral MD's ability to
obtain additional funding when needed and its dependence on
government funding, (iii) expectations regarding Spectral MD's
strategies and future financial performance, including its future
business plans or objectives, prospective performance and
opportunities and competitors, revenues, products and services,
pricing, operating expenses, market trends, liquidity, cash flows
and uses of cash, capital expenditures, and Spectral MD's ability
to invest in growth initiatives and pursue acquisition
opportunities; (iv) the risk that the proposed Transaction may not
be completed in a timely manner at all, which may adversely affect
the price of Rosecliff's securities; (v) the failure to satisfy the
conditions to the consummation of the proposed Transaction,
including the adoption of the business combination agreement by the
stockholders of Rosecliff and the stockholders of Spectral MD, and
the receipt of certain governmental and regulatory approvals; (vi)
the lack of third party valuation in determining whether or not to
pursue the proposed Transaction; (vii) the ability of Rosecliff to
regain compliance with Nasdaq Capital Market listing requirements
and to maintain listing, or for the Combined Company to be listed,
on the Nasdaq Capital Market; (viii) the occurrence of any event,
change or other circumstances that could give rise to the
termination of the business combination agreement; (ix) the outcome
of any legal proceedings that may be instituted against Rosecliff
or Spectral MD following announcement of the proposed Transaction;
(x) the risk that the proposed Transaction may not be completed by
Rosecliff's business combination deadline and the potential failure
to obtain an extension of the business combination deadline; (xi)
the effect of the announcement or pendency of the proposed
Transaction on Spectral MD's business relationships, operating
results, and business generally; (xii) volatility in the price of
Rosecliff's securities due to a variety of factors, including
changes in the competitive and regulated industries in which
Rosecliff plans to operate or Spectral MD operates, variations in
operating performance across competitors, changes in laws and
regulations affecting Rosecliff's or Spectral MD's business,
Spectral MD's inability to implement its business plan or meet or
exceed its financial projections and changes in the combined
capital structure; (xiii) Rosecliff's ability to raise capital as
needed; (ixv) the ability to implement business plans, forecasts,
and other expectations after the completion of the proposed
Transaction and identify and realize additional opportunities; (xv)
the risk that the announcement and consummation of the proposed
Transaction disrupts Spectral MD's current operations and future
plans; (xvi) the ability to recognize the anticipated benefits of
the proposed Transaction; (xvii) unexpected costs related to the
proposed Transaction; (xviii) the amount of any redemptions by
existing holders of the Rosecliff common stock being greater than
expected; (xix) limited liquidity and trading of Rosecliff's
securities; (xx) geopolitical risk and changes in applicable laws
or regulations; (xxi) the possibility that Rosecliff and/or
Spectral MD may be adversely affected by other economic, business,
and/or competitive factors; (xxii) operational risk; and (xxiii)
changes in general economic conditions, including as a result of
the COVID-19 pandemic. The foregoing list of factors is not
exhaustive. You should carefully consider the foregoing factors and
the other risks and uncertainties described in the "Risk Factors"
sections of the Rosecliff's Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, the Registration Statement and the other
documents filed by Rosecliff from time to time with the SEC. These
filings identify and address other important risks and
uncertainties that could cause actual events and results to differ
materially from those contained in the forward-looking
statements.
Readers are cautioned not to put undue reliance on
forward-looking statements, and neither Spectral MD nor Rosecliff
assumes any obligation and do not intend to update or revise these
forward-looking statements, whether as a result of new information,
future events, or otherwise, except as required by securities and
other applicable laws. Neither Spectral MD nor Rosecliff gives any
assurance that it will achieve its expectations.
For further information please contact:
Spectral MD Holdings, Ltd. IR@Spectralmd.com
Christine Marks, VP of Marketing and Commercialization
SP Angel Corporate Finance LLP (NOMAD and Joint Broker for Spectral MD) Tel: +44 (0)20 3470 0470
Stuart Gledhill / Harry Davies-Ball (Corporate Finance)
Vadim Alexandre / Rob Rees (Sales & Broking)
The Equity Group Inc. (US Investor Relations) dsullivan@equityny.com
Devin Sullivan, Managing Director Tel: 212-836-9608
Walbrook PR Ltd (UK Media & Investor Relations) spectralmd@walbrookpr.com
Paul McManus / Louis Ashe-Jepson /Alice Woodings Tel: +44 (0)20 7933
About Spectral MD
Spectral MD is a predictive AI company focused on medical
diagnostics for faster and more accurate treatment decisions in
wound care for burn, DFU, and future clinical applications. At
Spectral MD, we are a dedicated team of forward-thinkers striving
to revolutionize the management of wound care by "Seeing the
Unknown"(R) with our DeepView(R) Wound Diagnostics System. The
Company's DeepView(R) platform is the only predictive diagnostic
device that offers clinicians an objective and immediate assessment
of a wound's healing potential prior to treatment or other medical
intervention. With algorithm-driven results that substantially
exceed the current standard of care, Spectral MD's diagnostic
platform is expected to provide faster and more accurate treatment
insight, significantly improving patient care and clinical
outcomes. For more information, visit the Company at:
www.spectralmd.com.
About Rosecliff Acquisition Corp I
Rosecliff is a blank check company formed for the purpose of
effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with
one or more businesses. Its principals possess public and private
market investing experience and operational knowledge to bring
value added benefits to Spectral MD. The Rosecliff team has
substantial experience investing in rapidly growing and disruptive
technologies across the financial, consumer, healthcare and
software industries, as well as a long-term track record in
creatively structuring transactions to unlock and maximize
value.
SPECTRAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated or the context otherwise requires,
references in this section to "we," "our," "us" or other similar
terms refer to the business and operations of Spectral MD Holdings,
Ltd., and its subsidiaries prior to the Business Combination. The
following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the
sections titled "Selected Historical Consolidated Financial
Information of Spectral" and our audited annual consolidated
financial statements as of and for the years ended December 31,
2022 and 2021 and unaudited quarterly condensed consolidated
financial statements as of March 31, 2023 and for the three months
ended March 31, 2023 and 2022, and the respective related notes
included elsewhere in this proxy statement/prospectus. In addition
to historical data, this discussion contains forward-looking
statements about our business, results of operations, cash flows,
financial condition and prospects based on current expectations
that involve risks, uncertainties and assumptions. Our actual
results could differ materially from such forward-looking
statements. Factors that could cause or contribute to those
differences include, but are not limited to, those identified below
and those discussed in the sections titled "Risk Factors" and
"Cautionary Note Regarding Forward-Looking Statements" included
elsewhere in this proxy statement/prospectus. Additionally, our
historical results are not necessarily indicative of the results
that may be expected for any period in the future.
Overview
We are an AI company focused on predictive medical diagnostics.
We operate in one segment. We are devoting substantially all of our
efforts towards research and development of our DeepView System, an
internally developed MSI device which has designated FDA BDD
status. Our DeepView System uses proprietary algorithms to
distinguish between damaged and healthy human tissue invisible to
the naked eye, providing "Day One" healing assessments. DeepView's
output is specifically engineered to allow the physician to make a
more accurate, timely and informed decision regarding the treatment
of the patient's wound. Our focus from 2013 through 2021 was on the
burn indication. In 2022 and 2023, we expanded our focus to include
the DFU indication.
In the case of DFUs, a non-healing assessment would provide the
physician with the appropriate justifications to use an advanced
wound care therapy on "Day One", in seconds, as opposed to the
current approach that involves waiting up to 30 days to see how the
wound develops before making such clinical assessment. The accuracy
of DeepView is 86% for DFUs compared to current clinical accuracy
of 50% by physicians as set forth in industry literature. For burn
wounds, a non-healing assessment could aid the clinician in making
an immediate and objective determination for appropriate candidates
for surgery as well as determining what specific areas of the burn
wound will require excision and skin grafting. DeepView's current
accuracy for burn wounds is 92% for adults and 88% for pediatrics,
compared with current physician accuracy of 50% to 70%,
respectively, at best, as set forth in industry literature. In
head-to-head clinical study evaluations, our DeepView System
provides higher accuracy to "ground truth" on burn wound analysis
than the accuracy of burn physicians.
We have not generated any product revenue to date. We have
received substantial support from the U.S. government for our
DeepView System's application for burn wounds, including from
agencies such as BARDA, which is part of the HHS Office of the
Assistant Secretary for Preparedness and Response in the United
States, established to aid in securing the United States from
chemical, biological, radiological, and nuclear threats, as well as
from pandemic influenza and emerging infectious diseases. We have
also received funding from the NSF, NIH and the DHA. Since 2013, we
have received approximately $130.0 million in funding from
government contracts, primarily from BARDA, which accounts for
$122.8 million. This has allowed us to develop our technology and
further our clinical trials. We are currently in our second
contract with BARDA, referred to as BARDA Burn II, which was signed
in July 2019 and is due to be completed in July 2024. Under this
contract, we expect to further the DeepView System design, develop
the AI algorithm, and take the necessary steps to obtain FDA
approval for our DeepView GEN 3 System. In August 2022, we also
received the Option 1B extension of the BARDA Burn II contract,
which is valued at an additional $8.2 million, bringing the total
funding received from Option 1 of the BARDA Burn II contract to a
total of $47.6 million from July 2021, to execute the adult and
pediatric multi-center clinical training study. This grant funding
is non-dilutive to our shareholders, and we believe it validates
the important nature of its mission and technology.
In April 2023, we received a $4.0 million grant award from the
Medical Technology Enterprise Consortium ("MTEC"), which, building
on prior awards from DHA, is to be used to support military
battlefield burn evaluation via a handheld DeepView.
We anticipate that the DeepView System will have two revenue
streams, a SaMD (software as a medical device), and an imaging
device component. The SaMD model applies a SaaS treatment for the
DeepView System which will feature a software licensing fee that
includes maintenance, image hosting, and access to algorithm
updates. The proprietary imaging device accesses artificial
intelligence algorithms and is a universal platform to house
multiple clinical applications. Pricing for these components will
be evaluated and strategically set per country and site-of-service
for heightened customer adoption.
Proposed Business Combination
On April 11, 2023, we entered into the Business Combination
Agreement with Rosecliff Acquisition Corp I ("RCLF"), Ghost Merger
Sub I Inc. ("Merger Sub I") and Ghose Merger Sub II LLC ("Merger
Sub II"). Pursuant to the Business Combination Agreement, on the
Closing, in sequential order: (a) Ghost Merger Sub I will merge
with and into Spectral, with Spectral continuing as the surviving
company and a wholly owned subsidiary of Spectral (the "Spectral
Merger") and then, (b) Spectral will merge with and into Ghost
Merger Sub II (the "SPAC Merger", together with the Spectral Merger
(the "Mergers")), with Ghost Merger Sub II surviving the SPAC
Merger as a direct wholly-owned subsidiary of Rosecliff. Ghost
Merger Sub II will be renamed Spectral AI (the "Combined Company"),
(the "Business Combination"). It is intended that the Combined
Company's common stock and its public warrants will continue to be
listed on Nasdaq and trade under the ticker symbols "SPAI" and
"SPAIW," respectively.
The Business Combination will be accounted for as a reverse
recapitalization in accordance with GAAP. Under the guidance in
Accounting Standards Codification ("ASC") 805, Business
Combinations, RCLF, which is the legal acquirer, will be treated as
the "acquired" company for financial reporting purposes and
Spectral will be treated as the accounting acquirer. This
determination was primarily based on the following:
(i) Spectral expecting to have a majority of the voting power of the Combined Company;
(ii) Spectral's senior management comprising all of the senior
management of the Combined Company;
(iii) Spectral's relative size compared to RCLF; and
(iv) Spectral's operations comprising the ongoing operations of the post-combination company.
Accordingly, for accounting purposes, the Business Combination
will be treated as the equivalent of a capital transaction in which
we are issuing stock for the net assets of RCLF. The net assets of
RCLF will be stated at historical cost, with no goodwill or other
intangible assets recorded. Operations prior to the Business
Combination will be ours.
The most significant changes in our future reported financial
position and results are expected to be a net decrease in cash (as
compared to our consolidated balance sheet as of March 31, 2023) of
between a net decrease of approximately $6.5 million, assuming
maximum stockholder redemptions permitted under the Business
Combination Agreement, and a net decrease of $1.8 million, assuming
no additional stockholder redemptions. Spectral is seeking to raise
up to an additional $30.0 million in funding through the issuance
of equity securities in a PIPE transaction in connection with the
Business Combination. There can be no assurance that Spectral will
be successful in raising any additional capital.
Public Company Costs
Upon consummation of the Business Combination, the Combined
Company is expected to continue as an SEC-registered and
Nasdaq-listed company. We expect to hire additional staff and
implement new processes and procedures to address public company
requirements in anticipation of and following the completion of the
Business Combination. We also expect to incur substantial
additional expenses for, among other things, directors' and
officers' liability insurance, director fees, internal control
compliance, and additional costs for investor relations,
accounting, audit, legal and other functions.
Key Operating and Financial Metrics
We regularly review a number of metrics, including the following
key operating and financial metrics, to evaluate our business,
measure our performance, identify trends in our business, prepare
financial projections and make strategic decisions. We believe the
operating and financial metrics presented are useful in evaluating
our operating performance, as they are similar to measures by our
public competitors and are regularly used by security analysts,
institutional investors, and other interested parties in analyzing
operating performance and prospects. Adjusted EBITDA is a non-GAAP
measure, as it is not a financial measure calculated in accordance
with GAAP and should not be considered as a substitute for net
(loss) income, calculated in accordance with GAAP. See "- Non-GAAP
Financial Measures" for additional information on adopted non-GAAP
financial measures and a reconciliation of these non-GAAP measures
to the most comparable GAAP measures.
The following table sets forth these metrics for the three
months ended March 31, 2023 and 2022 and the years ended December
31, 2022 and 2021:
Three Months Ended Year Ended
March 31, December 31,
--------------------------------- -------------------------- ------------------------
2023 2022 2022 2021
--------------------------------- -------------- ---------- ----------- -----------
Research and development revenue $ 5,078 $5,844 $25,368 $15,239
Gross profit 2,181 2,390 10,837 7,052
Gross margin 42.9% 40.9% 42.7% 46.3%
Operating income (loss) (3,637) (621) (2,647) (4,179)
Net loss (3,609) (528) (2,912) (3,988)
Adjusted EBITDA (3,335) (284) (1,481) (2,813)
Research and development revenue
We define research and development revenue as revenue generated
from the research, testing and development of the DeepView System
as utilized in connection with our burn indication. This research
and development revenue reflects applied research and experimental
development costs relating to our burn application as developed in
connection with our BARDA and DHA contracts.
The 13% decrease for the three months ended March 31, 2023
versus the comparative period in 2022 is primarily the result of
the decrease in research and development activities for the
DeepView burn indication and the handheld prototype DeepView
SnapShot.
The 67% increase for the year ended December 31, 2022 versus the
comparative period in 2021 is primarily the result of the increase
in research and development activities for the DeepView burn
indication and the handheld prototype DeepView SnapShot.
Gross Profit and Gross Margin
We define gross profit as research and development revenue, less
cost of revenue, and define gross margin, expressed as a
percentage, as the ratio of gross profit to revenue. Gross profit
and margin can be used to understand our financial performance and
efficiency and allows investors to evaluate our pricing strategy
and compare against our competitors. Our management uses these
metrics to make strategic decisions, pricing decisions, identifying
areas for improvement, set targets for future performance and make
informed decisions about how to allocate resources going
forward.
For the three months ended March 31, 2023, our gross profit was
approximately $2.2 million compared to approximately $2.4 million
in the three months ended March 31, 2022. This is entirely
associated with BARDA research and development contract activities,
which are invoiced to BARDA monthly and paid at a cost-plus basis
to us. The increase in gross margin to 42.9% for the three months
ended March 31, 2023 from 40.9% for the three months ended March
31, 2022 is primarily attributable to higher direct labor costs
associated with BARDA in the three months ended March 31, 2023
compared to the three months ended March 31, 2022. BARDA direct
labor costs have a higher gross margin that other BARDA direct
costs.
For the year ended December 31, 2022, our gross profit was
approximately $10.8 million compared to approximately $7.1 million
in the year ended December 31, 2021. This is entirely associated
with BARDA research and development contract activities, which are
invoiced to BARDA monthly and paid at a cost-plus basis to us. The
decrease in gross margin from 46.3% for the year ended December 31,
2021 to 42.7% for the year ended December 31, 2022 is primarily
attributable to lower direct labor cost associated with BARDA in
the year ended December 31, 2022 compared to the year ended
December 31, 2021.
Adjusted EBITDA
We define adjusted earnings before interest, tax, depreciation
and amortization ("Adjusted EBITDA") as net loss excluding income
taxes, depreciation of property, plant and equipment (including any
related impairment charges), amortization of intangible assets
(including any related impairment charges), interest expense, stock
compensation, any non-operating financial income and expense. See
"- Non-GAAP Financial Measures" for a reconciliation of GAAP net
loss to Adjusted EBITDA.
For the three months ended March 31, 2023, Adjusted EBITDA was a
loss of approximately $3.3 million compared to a loss of
approximately $0.3 million in the three months ended March 31,
2022, representing decreased research and development costs and
related revenues relating to the continued development of our DFU
indication, AI-3D and other indications for the DeepView System.
Additionally, transaction costs associated with the proposed
Business Combination are driving the lower Adjusted EBITDA in the
three months ended March 31, 2023 compared to the three months
ended March 31, 2022.
For the year ended December 31, 2022, Adjusted EBITDA was a loss
of approximately $1.5 million compared to a loss of approximately
$2.8 million in representing the excess research and development
costs relating to the continued development of our DFU indication,
AI-3D and other indications for the DeepView System.
Key Factors that May Influence Future Results of Operations
Our financial results of operations may not be comparable from
period to period due to several factors. Key factors affecting our
results of operations are summarized below.
Revenue Sources. As a pre-commercialization company, we
currently generate revenue almost exclusively from two U.S.
governmental agencies. We are highly dependent upon the
continuation of the existing U.S. governmental contract awards as
well as future governmental procurement or other awards. Our
operating results may not be comparable between periods as the
timing and amount of awards or procurements from the U.S.
government may be inconsistent with the timing of prior awards. In
addition, it is possible that, depending on the outcome of our SSN
application to BARDA, we may receive additional and potentially
significant U.S. government awards. Our revenues may continue to be
almost exclusively dependent upon the terms of those awards.
Gross Margin. As we begin commercial sales of the DeepView
System, it is possible that our underlying assumptions for our
revenue modeling will not be acceptable to the general marketplace.
We may need to adjust our pricing and incentives to accelerate
adoption and implementation of the DeepView System, which may
negatively impact future revenue and gross margin percentages.
Managing our Supply Chain. We are reliant on contract
manufacturers and suppliers to produce our components. While we
have not been subject to any disruptions in our current production,
there remain global supply chain challenges and logistics
constraints, including component shortages, which may cause delays
in critical components and inventory, longer lead times, increased
costs and delays in product shipments. Our ability to grow depends,
in part, on the ability of our contract manufacturers and suppliers
to provide high quality services and deliver components and
finished products on time and at reasonable costs. While we do not
maintain sole-source suppliers, there is a concentration of
suppliers which could lead to supply shortages, long lead times for
components and supply changes. In the event we are unable to
mitigate the impact of delays and/or price increases in raw
materials, electronic components and freight, it could delay the
manufacturing and installation of our products, which would
adversely impact our cash flows and results of operations,
including revenue and gross margin.
Components of Consolidated Statements of Operations
Research and Development Revenue
Our primary source of revenue is research and development
revenue. Currently, we are highly dependent upon the reimbursement
from BARDA for the burn diagnostic testing of our DeepView System.
Our research and development revenue is affected by the amount of
research and development that is expended each month with respect
to our contract with BARDA. Our revenue growth is dependent on a
number of factors including expanding the research and development
expense under the BARDA contract, research and development
reimbursed expenses relating to other contract awards from U.S.
governmental agencies and the intended future commercial sales of
our DeepView System.
Cost of Revenue
Our cost of revenues consists primarily of direct and indirect
costs associated with the research and development expenses
relating to the BARDA contract. Our revenue costs are affected by
the extent of research and development expenses as well as
expansion of work on other U.S. governmental projects and the
expanded applications for our DeepView System.
Gross Profit
Gross profit may vary from period-to-period and is primarily
affected by the current reimbursement rates under the BARDA
contract and other U.S. governmental contract awards. These
reimbursement rates are fixed under each contact award. Our gross
profit represents this reimbursement rate plus a variable component
relating to non-reimbursed expenses incurred in connection with the
work completed on these contracts.
Operating Costs and Expenses
Operating costs and expenses consist of general and
administrative expenses. These expenses relate to our operating
expenses that are not reimbursed as part of the research and
development revenue and reflect our organization's support and
operations staff. General and administrative expense consist
primarily of salaries and benefits for this group of our employees
and has increased from prior three months based on the increase in
our personnel in these functions.
Other income (expense)
Other income (expenses) primarily consists of interest expense,
change in fair value of warrant liabilities, foreign exchange
transaction gains/losses, and the recognition of income from recent
accounting pronouncements. Historic foreign exchange transaction
loss primarily relates to the reduced exchange rate between the
U.S. dollar and the British pound sterling for our deposit accounts
that are denominated in British pound sterling. In addition, this
amount includes costs associated with buying British pound sterling
for payment of our employees and vendors in the UK.
Results of Operations
Three Months Ended March 31, 2023 Compared to Three Months Ended
March 31, 2022
The following table sets forth a summary of our consolidated
statements of operations for the periods presented:
Three Months Ended
March 31,
------------------------------------------- ----------------------------
2023 2022
US$ US$
------------------------------------------- ------------ --------------
Research and development revenue 5,078 5,844
Cost of revenue (2,897) (3,454)
----------- -----------
Gross profit 2,181 2,390
----------- -----------
Operating costs and expenses:
General and administrative 5,818 3,011
----------- -----------
Total operating costs and expenses 5,818 3,011
----------- -----------
Operating loss (3,637) (621)
----------- -----------
Other income (expense):
Net interest income (expense) 45 (4)
Change in fair value of warrant liability 16 66
Foreign exchange transaction gain 13 28
Other expense - (2)
----------- -----------
Total other income 74 88
----------- -----------
Loss before income taxes (3,563) (533)
----------- -----------
(Provision) benefit for income taxes (46) 5
----------- -----------
Net loss (3,609) (528)
----------- -----------
Net loss per share of common stock
Basic and Diluted (0.03) (0.00)
----------- -----------
Weighted average common shares outstanding
Basic and Diluted 135,995,446 135,159,564
----------- -----------
Research and development revenue
Three Months Ended
March 31, Change in
--------------------------------- -------------------- ------------------------
2023 2022 $ %
--------- --------- --------- -------------
(In thousands, except percentages)
--------------------------------- ----------------------------------------------
Research and development revenue $ 5,078 $ 5,844 $ (766) (13.1)%
Research and development revenue decreased by 13.1%, or
approximately $0.8 million, for the three months ended March 31,
2023, as compared to the three months ended March 31, 2022,
primarily due to decreased research and development work performed
pursuant to the BARDA Burn II contract. New patient enrollments in
our BARDA clinical study decreased in the three months ended March
31, 2023 compared to the three months ended March 31, 2022 as the
Company is completing enrollment and transitioning to the closeout
phase of the study.
For the three months ended March 31, 2023 and 2022, the
Company's revenues disaggregated by the major sources was as
follows (in thousands):
Three Months Ended
March 31, Change in
--------------------------------------- --------------------------- -----------------
2023 2022
US$ US$ US$ %
--------------------------------------- -------------- ----------- ------ ---------
(In thousands, except percentages)
--------------------------------------- ----------------------------------------------
BARDA $ 4,943 $ 5,709 $(766) (13.4)%
Other U.S. governmental authorities 135 135 - -
--- --------- ------- ---- -----
Total research and development revenue $ 5,078 $ 5,844 $(766) (13.1)%
--- --------- ------- ---- -----
Cost of Revenues and Gross Profit
Three Months Ended
March 31, Change in
---------------- ----------------------------- -----------------
2023 2022
US$ US$ US$ %
---------------- ----------------- ---------- ------ ---------
(In thousands, except percentages)
---------------- ------------------------------------------------
Cost of revenue $ 2,897 $3,454 $(557) (16.1)%
Gross profit 2,181 2,390 (209) (8.7)%
Gross margin 42.9% 40.9%
Cost of revenue decreased by 16.1%, or approximately $0.6
million, for the three months ended March 31, 2023, as compared to
the three months ended March 31, 2022, primarily due to decreased
activity to fulfill our U.S. governmental contracts, represented by
increased engineering payroll and benefits expense.
Gross margin increased by 2.0 basis points for the three months
ended March 31, 2023, as compared to the three months ended March
31, 2022. The increase in gross margin was primarily attributable
to the expanded work completed by the Company with respect to DFU
and other indications of our DeepView System, as a percentage of
total research and development revenue, which are not reimbursed on
a cost-plus basis as part of our U.S. governmental contracts.
General and Administrative
Three Months Ended
March 31, Change in
--------------------------- -------------------------------- ----------------
2023 2022
US$ US$ US$ %
--------------------------- ----------------- ------------- ------ --------
(In thousands, except percentages)
--------------------------- --------------------------------------------------
General and administrative $ 5,818 $ 3,011 $2,807 93.2%
Percentage of revenue, net 114.6% 51.5%
General and administrative expense increased by 93.2%, or
approximately $2.8 million, for the three months ended March 31,
2023, as compared to the three months ended March 31, 2022. The
increase was primarily due to an increase in our administrative
staffing since 2022. Our headcount grew from 54 employees as of
March 31, 2022 to 77 full-time employees as of March 31, 2023.
Additionally, R&D activities outside of BARDA have increased in
the three months ended March 31, 2023 compared to the three months
ended March 31, 2022.
Other income (expense)
Three Months Ended
March 31, Change in
------------------------------------------ ------------------------------ ----------------
2023 2022
US$ US$ US$ %
------------------------------------------ -------------- -------------- ----- ---------
(In thousands, except percentages)
------------------------------------------ ------------------------------------------------
Net interest income (expense) $ 45 $ (4) $ 49 *
Change in fair value of warrant liability 16 66 (50) (75.8)%
Foreign exchange transaction gain 13 28 (15) (53.6)%
Other expense - (2) 2 *
------ ------ --- ----- --- -----
Total other income $ 74 $ 88 $(14) (15.9)%
------ ------ --- ----- --- -----
____________
* Not meaningful
Net interest income (expense) for the three months ended March
31, 2023 primarily relates to cash interest received by us from our
deposit accounts.
Change in the fair value of warrant liability decreased by
approximately $50,000 for the three months ended March 31, 2023, as
compared to the three months ended March 31, 2022. The gain during
the three months ended March 31, 2023, was primarily due to the
reduced present value calculation of the warrants issued to SP
Angel Corporate Finance LLP ("SP Angel") as part of the Offering
(defined below) in 2021. In conjunction with the closing of the
Offering, we issued 762,712 warrants, with a strike price of $0.89
per share and a five-year life, to SP Angel, who acts as our
nominated advisor ("NOMAD") and joint broker. As of March 31, 2023,
the strike price of the warrants was $0.73 per share. The change in
the strike price is due to the change in exchange rates, as the
warrants will settle in shares denominated in British pound
sterling. As our stock price had a greater decline for the three
months ended March 31, 2022 as compared to the three months ended
March 31, 2023, the fair value of the warrants correspondingly had
a greater decrease in the three months ended March 31, 2022.
Foreign exchange transaction gain remained relatively consistent
between the three months ended March 31, 2023, as compared to the
three months ended March 31, 2022.
Year Ended December 31, 2022 Compared to Year Ended December 31,
2021
The following table sets forth a summary of our consolidated
statements of operations for the periods presented:
Year Ended
December 31,
--------------------------------------------- ---------------------
2022 2021
--------------------------------------------- --------- ----------
(in thousands)
--------------------------------------------- ---------------------
Research and development revenue $ 25,368 $15,239
Cost of revenue (14,531) (8,187)
------- ------
Gross profit 10,837 7,052
------- ------
Operating expenses:
General and administrative 13,484 11,231
------- ------
Total operating costs and expenses 13,484 11,231
------- ------
Operating income (loss) (2,647) (4,179)
------- ------
Other income (expense):
Net interest income (expense) 21 (17)
Change in fair value of warrant liability 57 298
Foreign exchange transaction loss (253) (188)
Other income 16 -
Total other income (expense) (159) 93
(Loss) income before income taxes (2,806) (4,086)
(Provision) benefit for income taxes (106) 98
Dividends - 1,259
------- ------
Net (loss) income (2,912) (3,988)
======= ======
Research and development revenue
Year Ended
December 31, Change in
--------------------------------- -------------------- ------------------------
2022 2021 $ %
--------------------------------- --------- --------- --------- -------------
(In thousands, except percentages)
--------------------------------- ----------------------------------------------
Research and development revenue $ 25,368 $ 15,239 $ 10,129 66.5%
Research and development revenue increased by 66.5%, or
approximately $10.1 million, for the year ended December 31, 2022,
as compared to the year ended December 31, 2021, primarily due to
increased research and development work performed pursuant to the
BARDA Burn II contract. In 2022, with our larger staffing, we were
able to perform significantly more research and development work
for our government procured contracts than in prior years.
For the years ended December 31, 2022 and 2021, the Company's
revenues disaggregated by the major sources was as follows (in
thousands):
Year Ended
December 31, Change in
--------------------------------------- ------------------------- -------------------
2022 2021 $ %
--------------------------------------- ------------ ----------- -------- ---------
(In thousands, except percentages)
--------------------------------------- ----------------------------------------------
BARDA $ 24,827 $ 14,968 $ 9,859 65.9%
Other U.S. governmental authorities 541 271 270 99.6%
-------- ------- ------- -----
Total research and development revenue 25,368 15,239 10,129 66.5%
-------- ------- ------- -----
Cost of Revenues and Gross Profit
Year Ended
December 31, Change in
---------------- -------------------------------- ----------------
2022 2021 $ %
---------------- ----------------- ------------- ------ --------
(In thousands, except percentages)
---------------- --------------------------------------------------
Cost of revenue $ 14,531 $ 8,187 $6,344 77.5%
Gross profit 10,837 7,052 3,785 53.7%
Gross margin 74.6% 86.1%
Cost of revenue increased by 77.5%, or approximately $6.3
million, for the year ended December 31, 2022, as compared to the
year ended December 31, 2021, primarily due to increased activity
to fulfill our U.S. governmental contracts, represented by
increased engineering payroll and benefits expense.
Gross margin decreased by (11.5) basis points for the year ended
December 31, 2022, as compared to the year ended December 31, 2021.
The decrease in gross margin was primarily attributable to the
expanded work completed by the Company with respect to DFU and
other indications of our DeepView System, which are not reimbursed
on a cost-plus basis as part of our U.S. governmental
contracts.
General and Administrative
Year Ended
December 31, Change in
--------------------------- -------------------------------- ----------------
2022 2021 $ %
--------------------------- ---------------- -------------- ------ --------
(In thousands, except percentages)
--------------------------- --------------------------------------------------
General and administrative $ 13,484 $ 11,231 $2,253 20.1%
Percentage of revenue, net 53.2% 73.7%
General and administrative expense increased by 20.1%, or
approximately $2.3 million, for the year ended December 31, 2022,
as compared to the year ended December 31, 2021. The increase was
primarily due to an increase in our administrative staffing since
2021. Our headcount grew from 55 employees to 71 full-time
employees as of December 31, 2022, which includes an increase in
our general and administrative employees from 23 to 36 full-time
employees.
Other income (expense)
Year Ended
December 31, Change in
------------------------------------------ ------------------------ --------------------
2022 2021 $ %
------------------------------------------ --------------- ------- ------- -----------
(In thousands, except percentages)
------------------------------------------ ----------------------------------------------
Net interest income (expense) $ 21 $ (17) $ 38 (223.5)%
Change in fair value of warrant liability 57 298 (241) (80.1)%
Foreign exchange transaction loss (253) (188) (65) (34.6)%
Other income 16 - 16 -
--- ------ ----- ----- -------
Total other income (expense) (159) 93 (252) (271.0)%
--- ------ ----- ----- -------
Net interest income (expense) for the year ended December 31,
2022 primarily relates to approximately $37,000 of cash interest
received by us from our deposit accounts, resulting from our
conservative treasury policy implemented in 2022 to generate some
cash interest on our large deposit accounts as interest rates
significantly increase from 2021 to 2022. This is partially offset
by interest expense of $12,000 which includes the interest
obligations relating to our 2022 Insurance Note (defined below).
Interest expense of $17,000 for the year ended December 31, 2021
includes the interest obligations relating to our 2021 Insurance
Note (defined below).
Change in the fair value of warrant liability decreased by
approximately $241,000 for the year ended December 31, 2022, as
compared to the year ended December 31, 2021. The gain during the
year ended December 31, 2022 was primarily due to the reduced
present value calculation of the warrants issued to SP Angel as
part of the Offering (defined below) in 2021. In conjunction with
the closing of the Offering, we issued 762,712 warrants, with a
strike price of $0.89 per share and a five-year life, to SP Angel,
who acts as our nominated advisor ("NOMAD") and joint broker. As of
December 31, 2022, the strike price of the warrants was $0.71 per
share. The change in the strike price is due to the change in
exchange rates, as the warrants will settle in shares denominated
in British pound sterling. As our stock price declined throughout
much of 2022, the fair value of the warrants correspondingly
decreased from 2021.
Foreign exchange transaction loss primarily relates to the
reduced exchange rate between the U.S. dollar and the British pound
sterling through much of 2022 for our deposit accounts that are
denominated in British pound sterling. In addition, this amount
includes costs associated with buying British pound sterling for
payment of our employees and vendors in the UK.
Non-GAAP Financial Measures
We use Adjusted EBITDA as a non-GAAP metric when measuring
performance, including when measuring current period results
against prior periods' Adjusted EBITDA. This non-GAAP financial
measure should be considered in addition to results prepared in
accordance with GAAP and should not be considered as a substitute
for, or superior to, GAAP results. In addition, Adjusted EBITDA
should not be construed as an indicator of our operating
performance, liquidity or cash flows generated by operating,
investing and financing activities, as there may be significant
factors or trends that it fails to address.
Because of their non-standardized definitions, non-GAAP measures
(unlike GAAP measures) may not be comparable to the calculation of
similar measures of other companies. We caution investors that
non-GAAP financial information, by its nature, departs from
traditional accounting conventions. Supplemental non-GAAP measures
are presented solely to permit investors to more fully understand
how Spectral management assesses underlying performance.
Adjusted EBITDA
We define Adjusted EBITDA as net income/(loss) excluding income
taxes, depreciation of property, plant and equipment (including any
related impairment charges), amortization of intangible assets
(including any related impairment charges), interest expense, stock
compensation, any non-operating financial income and expense.
The following table presents our Adjusted EBITDA for the three
months ended March 31, 2023 and 2022 and the years ended December
31, 2022 and December 31, 2021:
Three Months Ended Year Ended
March 31, December 31,
--------------------------------------------- ---------------------- --------------------
2023 2022 2022 2021
------------- ------- -------- ----------
(in thousands)
--------------------------------------------- --------------------------------------------
Net loss $ (3,609) $ (528) $(2,912) $(3,988)
Adjust:
Depreciation expense 2 4 11 1
Provision (benefit) for income taxes 46 (5) 106 (98)
Net interest (income) expense (45) 4 (21) 17
-------- ----- ------ ------
EBITDA (3,606) (525) (2,816) (4,068)
Additional Adjustments:
Stock based compensation 300 333 1,155 1,365
Change in fair value of warrant liability (16) (66) (57) (298)
Foreign exchange transaction (gain) loss (13) (28) 253 188
Other loss (income) - 2 (16) -
-------- ----- ------ ------
Adjusted EBITDA (3,335) (284) (1,481) (2,813)
======== ===== ====== ======
Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2023, December 31, 2022 and 2021, we had
approximately $10.3 million, $14.2 million and $16.1 million,
respectively, in cash, and an accumulated deficit of approximately
$15.5 million, $11.9 million and $9.0 million, respectively.
Prior to our initial public offering (the "Offering") on the AIM
Market of the London Stock Exchange in June, 2021, we historically
funded our operations through the issuance of notes and the sale of
preferred stock and common stock. We raised approximately $17.0
million from the oversubscribed Offering on the AIM market to fund
the development of the DFU indication for our Deepview System.
During 2022, we were awarded additional funding of $8.2 million
associated with option 1B of our contract with BARDA. During 2021,
we executed Options 1A and 1B of the contract with BARDA for
funding of $39.4 million and during 2022 we were awarded additional
funding of $8.2 million associated with option 1B of the BARDA
contract, resulting in aggregate funding for Options 1A and 1B of
$47.6 million, of which $8.4 million remains as of March 31, 2023.
The purpose of the BARDA contract funding is to execute the
clinical training study of our DeepView System for burn wound
healing assessment. See "Research and Development Revenue" above.
With the proceeds from closing of our Offering during 2021 and the
remaining funding under the BARDA contract, we believe that we have
sufficient working capital to fund operations for at least 12
months beyond the release date of the consolidated financial
statements. Additionally, our contract with BARDA has a potential
funding of up to $96.9 million, in the aggregate, for Option 1A, 1B
and 2, if all future options are executed.
Our future capital requirements will depend on many factors,
including the revenue growth rate, the success of future product
development and capital investment required, and the timing and
extent of spending to support further sales and marketing and
research and development efforts. In addition, we expect to incur
additional costs as a result of operating as a U.S. public company.
We believe that the $4.5 million in the trust assets of RCLF will
remain in RCLF through the Business Combination. In addition, we
are seeking to raise up to an additional $30.0 million in funding
through the issuance of equity securities in a PIPE transaction in
connection with the Business Combination. If we are unable to
secure additional capital through the PIPE transaction, we may seek
alternative financing arrangements to support our future growth.
There can be no assurance that we will be successful in raising any
additional capital. If additional financing is required from
outside sources, we cannot be sure that any additional financing
will be available to us on acceptable terms, if at all. If we are
unable to raise additional capital when desired, our business,
operating results, and financial condition could be adversely
affected.
Cash Flows
The following table summarizes our cash flows for the three
months ended March 31, 2023 and 2022:
Three Months Ended
March 31,
-------------------------------------- ------------------------
2023 2022
-------------------------------------- ------------ ----------
(In thousand)
-------------------------------------- ------------------------
Net cash used in operating activities $ (3,754) $(1,168)
Net cash used in financing activities (104) (477)
Cash Flows Used in Operating Activities
Net cash used in operating activities increased by approximately
$2.6 million for the three months ended March 31, 2023, as compared
to the three months ended March 31, 2022, resulting primarily from
a decrease in net income, adjusted for non-cash items of
approximately $3.0 million, partially offset by a decrease in cash
used in accrued expenses of $0.5 million resulting from higher
accrued expenses as of December 31, 2021 as compared to December
31, 2022. There was also a decrease in cash provided by accounts
receivable of $1.5 million which was offset by an increase in cash
used by accounts payable of $1.6 million due to lower research and
development revenue and related cost of revenue.
Cash Flows Used in Financing Activities
Net cash used in financing activities decreased approximately
$0.4 million for the three months ended March 31, 2023 compared to
the three months ended March 31, 2022. This was primarily
attributable to repayment of the Company's Paycheck Protection
Program Loan during the three months ended March 31, 2022.
The following table summarizes our cash flows for the years
ended December 31, 2022 and 2021:
Year Ended
December 31,
---------------------------------------------------- --------------------
2022 2021
---------------------------------------------------- -------- ----------
(in thousands)
---------------------------------------------------- --------------------
Net cash used in operating activities $(1,162) $(2,918)
Net cash used in investing activities - (7)
Net cash (used in) provided by financing activities (785) 13,921
Cash Flows Used in Operating Activities
Net cash used in operating activities decreased by approximately
$1.8 million for the year ended December 31, 2022, as compared to
the year ended December 31, 2021, resulting primarily from a
decrease in administrative expenses as compared to research and
development expenses as our research and development revenue grew
significantly between 2021 and 2022.
Cash Flows Used in Investing Activities
Net cash used in investing activities increased by $7,000 for
the year ended December 31, 2022, compared to the year ended
December 31, 2021, primarily due to the capitalization of certain
back-office software licensing obligations.
Cash Flows (Used In) Provided by Financing Activities
Net cash (used in) provided by financing activities decreased
approximately $12.9 million for the year ended December 31, 2022
compared to the year ended December 31, 2021. This was primarily
attributable to the Offering in 2021 and the receipt and subsequent
repayment of the Paycheck Protection Program Loan provided to us in
2021.
Current Indebtedness
As of March 31, 2023, we do not have any long-term debt. We have
$0.1 million of current indebtedness obligation relating to our
D&O insurance. In June 2022, we entered into a financing
arrangement for a portion of our insurance premium for
approximately $0.4 million (the "Note"). The Note bears interest at
6.7% per annum and is payable in equal monthly payments of
principal and interest, maturing in May 2023.
Related Party Transactions
For the three months ended March 31, 2023 and 2022 and the years
ended December 31, 2022 and 2021, we did not have any transactions
with related parties.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any off-balance
sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.
Critical Accounting Policies
The preparation of our consolidated financial statements and
related notes requires us to make judgments, estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities.
We have based our estimates on historical experience and on
various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates due to risks and uncertainties,
including uncertainty in the current economic environment due to
the global impact of COVID-19, inflation, and supply chain issues.
As of the date of issuance of these financial statements, we are
not aware of any specific event or circumstance that would require
us to update our estimates, judgments or revise the carrying value
of our assets or liabilities. For a description of our significant
accounting policies, see Note 2, "Summary of Significant Accounting
Policies," in our audited financial statements included elsewhere
in this proxy statement/prospectus. An accounting policy is
considered to be critical if it requires an accounting estimate to
be made based on assumptions about matters that are highly
uncertain at the time the estimate is made, and if different
estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur
periodically, could materially impact the consolidated financial
statements. We believe the following critical accounting policies
reflect the more significant estimates and assumptions used in the
preparation of our consolidated financial statements.
Research and Development Revenue Recognition
We generate research and development revenue primarily from
cost-plus-fee contracts associated with development of certain
product candidates. Revenues from reimbursable contracts are
recognized as costs are incurred, generally based on allowable
costs incurred during the period, plus any recognizable earned fee.
We use the input method to measure progress as the customer has the
benefit of access to the development research under these projects
and therefore benefits from the Company's performance incrementally
as research and development activities occur under each project. We
consider fixed fees under cost-plus-fee contracts to be earned in
proportion to the allowable costs incurred in performance of the
contract. Revenue for long-term development contracts is considered
variable consideration because the deliverable is dependent on the
successful completion of development and is generally recognized
based upon the cost-to-cost measure of progress; provided that we
meet the criteria associated with satisfying the performance
obligation over time.
Equity-Based Compensation
We measure expense all stock-based payments to employees and
non-employees, including grants of stock options, restricted stock
awards ("RSAs") and stock options with non-market performance
conditions ("PSOs") based on their respective grant date fair
values. We estimate the fair value of stock option grants and PSOs
using the Black-Scholes option pricing model. The RSAs are valued
based on the fair value of our common stock on the date of grant.
We recognize expense for stock-based compensation related to stock
options and RSAs over the requisite service period on a
straight-line basis. As the PSOs have performance conditions,
compensation expense is recognized for each award if and when our
management deems it probable that the performance conditions will
be satisfied. Forfeitures are recorded as they occur.
The assumptions used in calculating the fair value of our stock
and stock-based awards represent management's best estimates and
involve inherent uncertainties and the application of management's
judgment. Our common stock became publicly traded on July 22, 2021
and lacks company-specific historical and implied volatility
information. Therefore, we estimate its expected stock volatility
based on the historical volatility of a publicly traded set of peer
companies. Due to the lack of historical exercise history, the
expected term of our stock options for employees has been
determined utilizing the "simplified" method for awards. The
expected term of stock options granted to non-employees is equal to
the contractual term of the option award. The risk-free interest
rate is determined by reference to the US. Treasury yield curve in
effect at the time of grant of the award for time periods
approximately equal to the expected term of the award. Expected
dividend yield is zero based on the fact that we have never paid
cash dividends and does not expect to pay any cash dividends in the
foreseeable future.
Leases
We account for our leases in accordance with Accounting
Standards Codification ("ASC") 842, Leases, following the U.S. GAAP
implementation of the new accounting standard. Our leases are
classified as operating leases and are included on our consolidated
balance sheets as both a right of use asset and a lease liability,
calculated by discounting fixed lease payments at the rate implicit
in the lease or our incremental borrowing rate factoring the term
of the lease. The incremental borrowing rate is an estimate of the
interest rate we would incur to borrow an amount equal to the lease
payments on a collateralized basis over the term of the lease.
Because we do not generally borrow on a collateralized basis, we
use the interest rate we pay on our noncollateralized borrowings as
an input to deriving an appropriate incremental borrowing rate,
adjusted for the amount of lease payments, the lease term and the
effect on that rate of designating specific collateral with a value
equal to the unpaid lease payments for that lease. Lease
liabilities are increased by interest and reduced by payments each
period, and the right of use asset is amortized over the lease
term. For operating leases, interest on the lease liability and the
amortization of the right of use asset results in straight-line
rent expense over the lease term. Variable lease expenses are
recorded when incurred.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income
Taxes, which provides for deferred taxes using an asset and
liability approach. We recognize deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse Valuation allowances
are provided if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets
will not be realized. We have recorded a full valuation allowance
to reduce our net deferred income tax assets to zero. In the event
we were to determine that we would be able to realize some or all
of our deferred income tax assets in the future, an adjustment to
the deferred income tax asset valuation allowance would increase
income in the period such determination was made.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, of the
notes to our consolidated financial statements included elsewhere
in this proxy/prospectus for recently adopted accounting standards
and recently issued accounting standards as of the dates of the
statement of financial position included in this
proxy/prospectus.
Emerging Growth Company
We are an emerging growth company, as defined in the JOBS Act.
The JOBS Act provides that an emerging growth company can take
advantage of an extended transition period for complying with new
or revised accounting standards. This provision allows an emerging
growth company to delay the adoption of some accounting standards
until those standards would otherwise apply to private companies.
We have elected to use the extended transition period under the
JOBS Act for the adoption of certain accounting standards until the
earlier of the date we (i) are no longer an emerging growth company
or (ii) affirmatively and irrevocably opt out of the extended
transition period provided in the JOBS Act. As a result, our
financial statements may not be comparable to companies that comply
with new or revised accounting pronouncements as of public company
effective dates.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our
business. These risks primarily include interest rate, foreign
exchange, credit and inflation risks.
Interest Rate Sensitivity
We maintain a large amount of our assets in cash and cash
equivalents. Our cash and cash equivalents are held primarily in
cash deposits. The fair value of our cash and cash equivalents
would not be significantly affected by either an increase or
decrease in interest rates due mainly to the short-term nature of
these instruments. Additionally, changes to interest rates will
impact on the cost of our future borrowings. With respect to our
current "borrowings", the interest rate on the Note for insurance
premiums is fixed. Changes in prevailing interest rates could have
a material impact on our results of operations.
Foreign Currency Risk
Our revenue is denominated in U.S. dollars. Our expenses are
generally denominated in the currencies in which our operations are
located, which is primarily in the United States and UK, with an
insignificant portion of expenses incurred in our wholly owned
subsidiaries in the UK and denominated in British pound
sterling.
We do not generally use derivative instruments to hedge
exposures to cash flow, market, or foreign currency. During the six
months ended June 30, 2021, we entered into one derivative
instrument, to set a foreign currency exchange rate, that settled
in July 2021. For the 2022 fiscal year, we did not have any
derivative instruments, Any foreign currency forward contracts
entered in the future will be accounted for as derivatives whereby
the fair value of the contracts will be reported as other current
assets or current liabilities, and gains and losses resulting from
changes in the fair value will be reported in other income
(expense), net, in the accompanying consolidated statements of
operations.
Credit Risk
Financial instruments that subject us to concentrations of
credit risk consist primarily of cash, cash equivalents and
accounts receivable. The vast majority of our cash and cash
equivalents are held in U.S. financial institutions which, at
times, exceed federally insured limits. We have not recognized any
losses from credit risks on such accounts. We believe we are not
exposed to significant credit risk on cash and cash
equivalents.
Additional credit risk is related to our concentration of
receivables and revenues. One customer (which is a U.S. government
agency) represents the majority of our research and development
revenue and accounts receivable.
Inflation Risk
The recent increase in inflation partially contributed to the
increase in the cost of our products as well as operating costs. If
the cost of our products, employee costs, or other costs continue
to be subject to significant inflationary pressures, such
inflationary pressure may have an adverse effect on our ability to
maintain current levels of gross margin and selling, general and
administrative expenses. Further, we may not be able to offset
these increased costs through price increases. As a result, our
inability to quickly respond to inflation could harm its cash flows
and results of operations in the future.
Unaudited Condensed Consolidated Balance Sheets as of March
31, 2023 and December 31, 2022
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 2023 and 2022
Unaudited Condensed Consolidated Statements of Changes
in Members' Deficit for the three months ended March 31,
2023 and 2022
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2023 and 2022
Notes to Unaudited Consolidated Financial Statements
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, December 31,
2023 2022
US$ US$
------------------------------------------------------------------------------ --- ---------- ---------------
Assets
Current assets:
Cash and cash equivalents 10,316 14,174
Accounts receivable, net 1,884 2,294
Unbilled revenue 388 618
Prepaid expenses and other current assets 741 601
--------- ------------
Total current assets 13,329 17,687
Non-current assets:
Property and equipment, net 19 21
Right-of-use assets 835 1,008
--------- ------------
Total Assets 14,183 18,716
========= ============
Commitments and contingencies (Note 7)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 2,018 2,759
Accrued expenses 2,361 2,631
Lease liabilities, short-term 791 680
Notes payable 71 175
Warrant liability 113 129
--------- ------------
Total current liabilities 5,354 6,374
Lease liabilities, long-term 142 346
--------- ------------
Total Liabilities 5,496 6,720
Stockholders' Equity
Common stock ($0.001 par value); 400,000,000 shares authorized; 136,076,515 and
135,409,564
shares issued and outstanding as of March 31, 2023 and December 31, 2022,
respectively 136 135
Additional paid-in capital 24,094 23,795
Accumulated deficit (15,543) (11,934)
--------- ------------
Total stockholders' equity 8,687 11,996
--------- ------------
Total Liabilities and Stockholders' Equity 14,183 18,716
========= ============
See accompanying notes to the condensed consolidated financial
statements
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
Three Months Ended March 31,
------------------------------------------- ----------------------------------
2023 2022
US$ US$
------------------------------------------- ----------------- ---------------
Research and development revenue 5,078 5,844
Cost of revenue (2,897) (3,454)
------------- ------------
Gross profit 2,181 2,390
------------- ------------
Operating costs and expenses:
General and administrative 5,818 3,011
------------- ------------
Total operating costs and expenses 5,818 3,011
------------- ------------
Operating loss (3,637) (621)
------------- ------------
Other income (expense):
Net interest income (expense) 45 (4)
Change in fair value of warrant liability 16 66
Foreign exchange transaction gain 13 28
Other expense - (2)
------------- ------------
Total other income 74 88
============= ============
Loss before income taxes (3,563) (533)
------------- ------------
(Provision) benefit for income taxes (46) 5
------------- ------------
Net loss (3,609) (528)
============= ============
Net loss per share of common stock
Basic and Diluted (0.03) (0.00)
============= ============
Weighted average common shares outstanding
Basic and Diluted 135,995,446 135,159,564
============= ============
See accompanying notes to the condensed consolidated financial
statements
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Statements of Changes in
Stockholders' Equity
(In thousands, except share data)
Additional Total
Paid-in Accumulated Stockholders'
Common Stock Capital Deficit Equity
----------------------------- ------------------- ---------- ----------- ----------------
Amount
Shares US$ US$ US$ US$
----------------------------- ----------- ------ ---------- ----------- ----------------
Balance at December 31, 2022 135,409,564 135 23,795 (11,934) 11,996
Stock-based compensation 562,500 1 299 - 300
Stock option exercises 104,451 - - - -
Net loss - - - (3,609) (3,609)
----------- ------ ---------- ---------- ------------
Balance at March 31, 2023 136,076,515 136 24,094 (15,543) 8,687
=========== ====== ========== ========== ============
Additional
Paid-in Total Stockholders'
Common Stock Capital Accumulated Deficit Equity
-------------------- ----------------------- ---------- --------------------- -------------------------
Shares Amount US$ US$ US$ US$
-------------------- ----------- ---------- ---------- --------------------- -------------------------
Balance at December
31, 2021 135,034,564 135 22,640 (9,022) 13,753
Stock-based
compensation 187,500 - 333 - 333
Net loss - - - (528) (528)
----------- ---------- ---------- ----------------- --------------------
Balance at March 31,
2022 135,222,064 135 22,973 (9,550) 13,558
=========== ========== ========== ================= ====================
See accompanying notes to the condensed consolidated financial
statements
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2023 and 2022
(in thousands)
Three Months Ended March 31,
----------------------------------------------------------------------------- ----------------------------------
2023 2022
US$ US$
----------------------------------------------------------------------------- ---------------- ----------------
Cash flows from operating activities:
Net loss (3,609) (528)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense 2 4
Stock-based compensation 300 333
Amortization of right-of-use assets 173 128
Change in fair value of warrant liability (16) (66)
Changes in operating assets and liabilities:
Accounts receivable 410 (1,100)
Unbilled revenue 230 (197)
Prepaid expenses and other current assets (140) 262
Other assets - 40
Accounts payable (741) 881
Accrued expenses (270) (773)
Lease liabilities (93) (152)
------------ ------------
Net cash used in operating activities (3,754) (1,168)
------------ ------------
Cash flows from financing activities:
Payments for notes payable (104) (477)
------------ ------------
Net cash used in financing activities (104) (477)
------------ ------------
Net decrease in cash and cash equivalents (3,858) (1,645)
Cash and cash equivalents, beginning of period 14,174 16,121
------------ ------------
Cash and cash equivalents, end of period 10,316 14,476
============ ============
Supplemental cash flow information:
Cash paid for interest 2 1
Noncash operating and financing activities disclosure:
Recognition of Right-of-use assets and related lease liabilities upon adoption
of ASC 842 - 609
See accompanying notes to the condensed consolidated financial
statements
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
1. ORGANIZATION, NATURE OF BUSINESS AND LIQUIDITY
Spectral MD Holdings, Ltd, (the "Company"), headquartered in
Dallas, Texas, was incorporated in Delaware on March 9, 2009. The
Company currently trades on the AIM market of the London Stock
Exchange (the "AIM").
The Company is devoting substantially all of its efforts towards
research and development of its DeepView(R) Wound Imaging System.
The Company has not generated any product revenue to date. The
Company currently generates revenue from contract development and
research services by providing such services to governmental
agencies, primarily to the Biomedical Advanced Research and
Development Authority ("BARDA"). The Company operates in one
segment.
Liquidity
As of March 31, 2023 and December 31, 2022, the Company had
approximately US$ 10.3 million and US$ 14.2 million, respectively
in cash, and an accumulated deficit of US$ 15.5 million and US$
11.9 million, respectively. The Company has historically funded its
operations through the issuance of notes and the sale of preferred
stock and common stock. During 2022, the Company was awarded
additional funding of $8.2 million associated with option 1B of the
contract with BARDA. During 2021, the Company executed Options 1A
and 1B of the contract with BARDA for funding of US$39.4 million
and during 2022 was awarded additional funding of $8.2 million
associated with option 1B, resulting in aggregated funding for
Options 1A and 1B of US$ 47.6 million, of which US$ 8.4 million is
remaining as of March 31, 2023. The BARDA contract funding is to
execute the clinical training study of DeepView(R) Wound Imaging
System for burn wound healing assessment. See Research and
Development Revenue below. With the Company's closing on its
initial public offering (the "IPO") during 2021 and the remaining
funding under the BARDA contract, the Company believes it will have
sufficient working capital to fund operations for at least one year
beyond the release date of the condensed consolidated financial
statements. Additionally, the contract with BARDA has a potential
funding of up to US$ 96.9 million, in aggregate for Option 1A, 1B
and 2, if all future options are executed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's condensed consolidated financial statements have
been prepared in conformity with accounting principles generally
accepted in the US ("GAAP") as determined by the Financial
Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC").
The accompanying condensed consolidated balance sheet as of
March 31, 2023, the condensed consolidated statements of
operations, shareholders' equity, and cash flows for the three
months ended March 31, 2023 and 2022 are unaudited. The interim
condensed consolidated financial statements have been prepared on
the same basis as the audited annual consolidated financial
statements and, in management's opinion, include all adjustments
consisting of only normal recurring adjustments necessary for the
fair statement of the Company's financial position as of March 31,
2023 and its results of operations and cash flows for the three
months ended March 31, 2023 and 2022. The results of operations for
the three months ended March 31, 2023 and 2022 are not necessarily
indicative of the results to be expected for the full fiscal year
or any other period.
These interim condensed consolidated financial statements should
be read in conjunction with the Company's annual consolidated
financial statements for the years ended December 31, 2023 and
2022.
Principles of Consolidation
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Spectral
MD, Inc. and Spectral MD UK. Significant inter-company transactions
and balances have been eliminated in consolidation.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Use of Estimates
The preparation of these condensed consolidated financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and accompanying notes.
The Company bases its estimates and judgments on historical
experience and on various other assumptions that it believes are
reasonable under the circumstances. The amounts of assets and
liabilities reported in the Company's balance sheets and the
amounts of expenses reported for each of the periods presented are
affected by estimates and assumptions, which are used for, but not
limited to, revenue recognition, warrant liability, stock-based
compensation expense, and income tax valuation allowances. Actual
results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash
equivalents. All cash and cash equivalents are held in US financial
institutions.
Accounts Receivable, Net and Unbilled Revenue
Accounts receivable represent amounts due from US government
agencies pursuant to research and development contracts associated
with the Company's DeepView(R) Wound Imaging System. Accounts
receivable amounted to approximately US$ 1.9 million and US$ 2.3
million As of March 31, 2023 and December 31, 2022,
respectively.
The Company evaluates the collectability of its receivables
based on a variety of factors, including the length of time the
receivables are past due, the financial health of its customers and
historical experience. Based upon the review of these factors, the
Company recorded no allowance for doubtful accounts as of March 31,
2023 and December 31, 2022.
The Company records unbilled revenue when revenue is recognized
prior to billing customers. Unbilled revenue amounted to
approximately US$ 0.4 million and US$ 0.6 million as of March 31,
2023 and December 31, 2022, respectively.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
credit risk consist principally of cash and cash equivalents and
accounts receivable. Primarily all cash and cash equivalents are
held in US financial institutions which, at times, exceed federally
insured limits. The Company has not recognized any losses from
credit risks on such accounts. The Company believes it is not
exposed to significant credit risk on cash and cash
equivalents.
Additional credit risk is related to the Company's concentration
of receivables. As of March 31, 2023 and December 31, 2022,
receivables were concentrated from one customer (which is a US.
government agency) representing 95% and 96% of total net
receivables, respectively. No allowance for doubtful accounts were
recorded as of March 31, 2023 and December 31, 2022.
One customer (which is a U.S. government agency) accounted for
97% and 98%, respectively, of the recognized research and
development revenue for the three months ended March 31, 2023 and
2022.
Fair Value
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants
at the measurement date. Assets and liabilities that are measured
at fair value are reported using
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
a three-level fair value hierarchy that prioritizes the inputs
used to measure fair value. This hierarchy maximizes the use of
observable inputs and minimizes the use of unobservable inputs. The
three levels of inputs used to measure fair value are as
follows:
Level 1 - Unadjusted quoted prices in active markets that are assessable at the measurement date for
identical, unrestricted assets or liabilities.
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly
or indirectly, for substantially the full term of the asset or liability; and
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (supported by little or no market activity).
Fair Value of Financial Instruments
Financial instruments, which include cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are
carried at cost, which management believes approximates fair value
due to the short-term nature of these instruments.
Foreign Currency
The reporting currency for the condensed consolidated financial
statements of the Company is the US dollar. The functional currency
of the Company and its wholly owned subsidiary Spectral MD, Inc. is
the US dollar. The functional currency of Spectral MD UK is its
local currency, the British pound. The assets and liabilities of
Spectral MD UK is translated into US. dollars at exchange rates in
effect at the end of each reporting period, and the revenues and
expenses are translated at average exchange rates in effect during
the applicable period. Translation adjustments are included in
accumulated other comprehensive income as a component of
stockholders' equity. As of March 31, 2023 and December 31, 2022,
the Company's translation adjustments are not material.
Monetary assets and liabilities denominated in currencies other
than the functional currency are translated at exchange rates in
effect at the balance sheet date. Resulting unrealized gains and
losses are included in other income, net in the condensed
consolidated statements of operations. For the three months ended
March 31, 2023 and 2022, the Company recorded approximately US$
13,000 and US$ 28,000 foreign exchange transaction gain,
respectively, primarily related to the Company's bank account
denominated in British Pounds and accounts payable denominated in
British Pounds, included in foreign exchange transaction loss in
the condensed consolidated statements of operations.
Leases
The Company accounts for its leases under ASC 842, Leases. Under
this guidance, arrangements meeting the definition of a lease are
classified as operating or financing leases and are recorded in the
condensed consolidated balance sheets as both a right of use asset
and a lease liability, calculated by discounting fixed lease
payments at the rate implicit in the lease or the Company's
incremental borrowing rate factoring the term of the lease. The
incremental borrowing rate used by the Company is an estimate of
the interest rate the Company would incur to borrow an amount equal
to the lease payments on a collateralized basis over the term of
the lease. Because the Company does not generally borrow on a
collateralized basis, it uses the interest rate it pays on its
noncollateralized borrowings as an input to deriving an appropriate
incremental borrowing rate, adjusted for the amount of lease
payments, the lease term and the effect on that rate of designating
specific collateral with a value equal to the unpaid lease payments
for that lease. Lease liabilities are increased by interest and
reduced by payments each period, and the right of use asset is
amortized over the lease term. For operating leases, interest on
the lease liability and the amortization of the right of use asset
results in straight-line rent expense over the lease term. Variable
lease expenses are recorded when incurred. For the three months
ended March 31, 2023 and 2022, the Company did not have any finance
leases.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company adopted ASC 842 using the modified retrospective
transition approach. The Company did not have a cumulative effect
of adoption as of January 1, 2022. The Company elected a package of
practical expedients, under which the Company does not need to
reassess (a) whether any expired or existing contracts are or
contain leases, (b) the lease classification for any expired or
existing leases, or (c) initial direct costs for any existing
leases. In calculating the right of use assets and lease
liabilities, the Company elects to combine lease and non-lease
components. The Company excludes short-term leases having initial
terms of 12 months or less from the new guidance as an accounting
policy election.
Warrant Liability
On June 22, 2021, in conjunction with the closing of the
Company's IPO, the Company issued 762,712 warrants, with strike
price of US$ 0.89 and a five-year life, to SP Angel Corporate
Finance LLP ("SP Angel"), who acts as nominated adviser and broker
to the Company for the purposes of the AIM Rules. As of March 31,
2023, there are 762,712 warrants outstanding with an exercise price
of US$ 0.73.
The Company accounts for its warrants issued to SP Angel as
derivative liabilities in accordance with ASC 815. Accordingly, the
Company recognizes the instruments as liabilities at fair value,
determined using the Black-Scholes option-pricing model, and
adjusts the instruments to fair value at the end of each reporting
period. The liabilities are subject to re-measurement at each
balance sheet date until exercised, and any change in fair value is
recognized in the Company's condensed consolidated statements of
operations.
Research and Development Revenue
The Company recognizes revenue when the Company's customers
obtain control of promised goods or services, in an amount that
reflects the consideration which the Company expects to receive in
exchange for those goods or services by analyzing the following
five steps: (1) identify the contract with a customer(s); (2)
identify the performance obligations in the contract; (3) determine
the transaction price; (4) allocate the transaction price to the
performance obligations in the contract; and (5) recognize revenue
when (or as) the Company satisfies a performance obligation. In
order to transfer control to the customer for contract development
and manufacturing services, the Company must have a present right
to payment, legal title must have passed to the customer, and the
customer must have the significant risks and rewards of ownership.
Research and development revenue contracts are generally recognized
based upon the cost-to-cost measure of progress, provided that the
Company meets the criteria associated with transferring control of
the good or service over time.
The Company generates research and development revenue primarily
from cost-plus-fee contracts associated with development of certain
product candidates. Revenues from reimbursable contracts are
recognized as costs are incurred, generally based on allowable
costs incurred during the period, plus any recognizable earned fee.
The Company uses this input method to measure progress as the
customer has the benefit of access to the development research
under these projects and therefore benefits from the Company's
performance incrementally as research and development activities
occur under each project. We consider fixed fees under
cost-plus-fee contracts to be earned in proportion to the allowable
costs incurred in performance of the contract. Revenue for
long-term development contracts is considered variable
consideration because the deliverable is dependent on the
successful completion of development and is generally recognized
based upon the cost-to-cost measure of progress, provided that the
Company meets the criteria associated with satisfying the
performance obligation over time. The Company was awarded multiyear
contracts in 2019 and 2021 (modified for additional funding in
2022) by BARDA for the development of the Company's DeepView(R)
Wound Imaging Solution. BARDA may award contracts that are less
than 12 months depending on the scope of work and deliverables.
Payments from customers are generally received within 30 days of
when the invoice is sent.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Because the Company's contracts have an expected duration of one
year or less, the Company has elected the practical expedient in
ASC 606-10-50-14(a) to not disclose information about its remaining
performance obligations.
Research and Development
The Company expenses research and development costs as operating
expenses as incurred. These expenses include salaries for research
and development personnel, consulting fees, product development,
pre-clinical studies, clinical trial costs, and other fees and
costs related to the development of the technology.
Stock-Based Compensation
The Company accounts for all stock-based payments to employees
and non-employees, including grants of stock options, restricted
stock awards ("RSAs") and stock options with non-market performance
conditions ("PSOs") to be recognized in the condensed consolidated
financial statements, based on their respective grant date fair
values. The Company estimates the fair value of stock option grants
and PSOs using the Black-Scholes option pricing model. The RSAs are
valued based on the fair value of the Company's common stock on the
date of grant. The assumptions used in calculating the fair value
of the Company's stock and stock-based awards represent
management's best estimates and involve inherent uncertainties and
the application of management's judgment. The Company expenses
stock-based compensation related to stock options and RSAs over the
requisite service period. As the PSOs have performance conditions,
compensation expense is recognized for each award if and when the
Company's management deems it probable that the performance
conditions will be satisfied. Forfeitures are recorded as they
occur. Compensation previously recorded for unvested equity awards
that are forfeited is reversed upon forfeiture. The Company
expenses stock-based compensation to employees over the requisite
service period, on a straight-line basis, based on the estimated
grant-date fair value of the awards.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income
Taxes ("ASC 740"), which provides for deferred taxes using an asset
and liability approach. The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events
that have been included in the condensed consolidated financial
statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. Valuation allowances are provided, if based upon the
weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance
with the provisions of ASC 740. When uncertain tax positions exist,
the Company recognizes the tax benefit of tax positions to the
extent that the benefit would more likely than not be realized
assuming examination by the taxing authority. The determination as
to whether the tax benefit will more likely than not be realized is
based upon the technical merits of the tax position as well as
consideration of the available facts and circumstances. The Company
has no uncertain tax positions As of March 31, 2023 and December
31, 2022 that qualify for either recognition or disclosure in the
condensed consolidated financial statements under this
guidance.
The Company's policy is to classify assessments, if any, for tax
related interest as interest expense and penalties as general and
administrative expenses in the condensed consolidated statements of
operations. There were no amounts accrued for interest or penalties
for the three months ended March 31, 2023 and 2022.
Comprehensive Loss
Comprehensive loss is equal to net loss as presented in the
condensed consolidated statements of operations, as the Company did
not have any material other comprehensive income or loss for the
periods presented.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Net Loss per Share of Common Stock
Basic net loss share of common stock is computed by dividing the
net loss attributable to common stockholders by the
weighted-average number of shares of common stock outstanding
during the period. Diluted net loss per share of common stock
adjusts basic earnings per share for the potentially dilutive
impact of unvested restricted stock, stock options, warrants and
preferred stock. Dilutive securities having an anti-dilutive effect
on diluted net earnings per share are excluded from the
calculation. The dilutive effect of the unvested restricted stock
and stock options is calculated using the treasury stock method.
For warrants that are liability-classified, during periods when the
impact is dilutive, the Company assumes share settlement of the
instruments as of the beginning of the reporting period and adjusts
the numerator to remove the change in fair value of the warrant
liability and adjusts the denominator to include the dilutive
shares calculated using the treasury stock method.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments - Credit Losses, which was subsequently amended by ASU
2018-19 and ASU 2019-10. This standard requires the measurement of
expected credit losses for financial instruments carried at
amortized cost held at the reporting date based on historical
experience, current conditions and reasonable forecasts. The
updated guidance also amends the current other-than-temporary
impairment model for available-for-sale debt securities by
requiring the recognition of impairments relating to credit losses
through an allowance account and limits the amount of credit loss
to the difference between a security's amortized cost basis and its
fair value. In addition, the length of time a security has been in
an unrealized loss position will no longer impact the determination
of whether a credit loss exists. The main objective of this ASU is
to provide financial statement users with more decision-useful
information about the expected credit losses on financial
instruments and other commitments to extend credit held by a
reporting entity at each reporting date. The Company adopted this
standard on January 1, 2023, with no impact on its condensed
consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity's
Own Equity, which simplifies accounting for convertible instruments
by removing major separation models required under current GAAP.
The ASU removes certain settlement conditions that are required for
equity contracts to qualify for the derivative scope exception, and
it also simplifies the diluted earnings per share calculation in
certain areas. The ASU is effective for the Company on January 1,
2024. Early adoption is permitted, but no earlier than January 1,
2021. The Company is currently evaluating the impact of this
standard on its condensed consolidated financial statements and
related disclosures.
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820
"Fair Value Measurement of Equity Securities Subject to Contractual
Sale Restrictions". The FASB is issuing this Update (1) to clarify
the guidance in Topic 820, Fair Value Measurement, when measuring
the fair value of an equity security subject to contractual
restrictions that prohibit the sale of an equity security, (2) to
amend a related illustrative example, and (3) to introduce new
disclosure requirements for equity securities subject to
contractual sale restrictions that are measured at fair value in
accordance with Topic 820. For public business entities, the
amendments in this Update are effective for fiscal years beginning
after December 15, 2023, and interim periods within those fiscal
years. Early adoption is permitted for both interim and annual
financial statements that have not yet been issued or made
available for issuance. The Company is still evaluating the impact
of this pronouncement on the condensed consolidated financial
statements.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
3. FAIR VALUE MEASUREMENTS
The following table presents information about the Company's
financial liabilities that are measured at fair value on a
recurring basis as of March 31, 2023 and December 31, 2022, by
level within the fair value hierarchy (in thousands):
Fair value measured as of March 31, 2023
--------------------------- --- --------------------------------------------------------------------------------
Significant
Quoted prices other Significant
Fair value at in active observable unobservable
March 31, markets inputs inputs
2023 (Level 1) (Level 2) (Level 3)
US$ US$ US$ US$
--------------------------- --- ---------------- ---------------- -------------- ----------------
Warrant liability $ 113 $ - $ - $ 113
Fair value measured as of December 31, 2022
--------------------------- --- --------------------------------------------------------------------------------
Significant
Quoted prices other Significant
Fair value at in active observable unobservable
December 31, markets inputs inputs
2022 (Level 1) (Level 2) (Level 3)
US$ US$ US$ US$
--------------------------- --- ---------------- ---------------- -------------- ----------------
Warrant liability $ 129 $ - $ - $ 129
There were no transfers between Level 1, 2 or 3 during the three
months ended March 31, 2023 and 2022.
The following table presents changes in Level 3 liabilities
measured at fair value for the three months ended March 31, 2023
and 2022 (in thousands).
US$
-------------------------- -------
Balance - January 1, 2023 $129
Change in fair value (16)
---
Balance - March 31, 2023 $113
===
Balance - January 1, 2022 $186
Change in fair value (66)
---
Balance - March 31, 2022 $120
===
Both observable and unobservable inputs were used to determine
the fair value of positions that the Company has classified within
the Level 3 category. Unrealized gains and losses associated with
liabilities within the Level 3 category include changes in fair
value that were attributable to both observable (e.g., changes in
market interest rates) and unobservable (e.g., changes in
unobservable long- dated volatilities) inputs.
The following table provides quantitative information regarding
Level 3 fair value measurements inputs at their measurement:
March 31, December 31,
2023 2022
-------------------------------- --- ------------ ---------------
Strike price (per share in US$) US$ 0.73 US$ 0.71
Contractual term (years) 4.2 4.5
Volatility (annual) 71.7% 72.6%
Risk-free rate 3.6% 4.0%
Dividend yield (per share) 0.0% 0.0%
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
4. RESEARCH AND DEVELOPMENT REVENUE
For the three months ended March 31, 2023 and 2022, the
Company's revenues disaggregated by the major sources was as
follows (in thousands):
Three Months Ended
March 31,
----------------------------------- --------------------
2023 2022
US$ US$
----------------------------------- --------- ---------
BARDA 4,943 5,709
Other U.S governmental authorities 135 135
--------- ---------
Total revenue 5,078 5,844
========= =========
5. ACCRUED EXPENSES
Accrued expenses consist of the following As of March 31, 2023
and December 31, 2022 (in thousands):
March 31, December 31,
2023 2022
US$ US$
--------------------------------- --- ---------- -------------
Salary and wages 733 1,135
Provision for operating expenses 646 736
Benefits 825 650
Franchise tax 157 110
---------- -------------
Total accrued expenses 2,361 2,631
========== =============
6. NOTES PAYABLE
Insurance Note
In June 2022 and 2021, the Company entered into financing
agreements for a portion of its insurance premium for approximately
US$ 0.4 million (the "2022 Insurance Note") and US$ 0.5 million
(the "2021 Insurance Note"), respectively. The 2022 Insurance Note
and 2021 Insurance Note bear interest at 6.7% per annum and 5.7%
per annum, respectively, and are each payable in equal monthly
payments of principal and interest maturing in May 2023 and
February 2022, respectively. The Company determined that the
carrying amounts of the 2022 Insurance Note and 2021 Insurance Note
approximate fair value due to the short-term nature of borrowings
and current market rates interest rates.
During the three months ended March 31, 2023, the Company repaid
approximately, US $0.1 million of principal and interest for the
2022 Insurance Note. As of March 31, 2023 and December 31, 2022,
the Company had an outstanding balance of $0.1 million and $0.2
million, respectively, for the 2022 Insurance Note.
During the three months ended March 31, 2022, the Company repaid
the remaining balance of approximately US $0.2 million for the 2021
Insurance Note. There was no outstanding balance for the 2021
Insurance Note as of December 31, 2022.
PPP Loan
On April 13, 2020, the Company entered into a promissory note
with JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck
Protection Program ("PPP") of the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act") for US$ 768,575 (the "PPP
Loan"). The PPP Loan, which matured on April 13, 2022 and bears
interest at 1% per annum, can be prepaid at any time prior to
maturity with no prepayment penalties. The Company
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
6. NOTES PAYABLE (cont.)
could defer interest and principal payments until September 13,
2021. Beginning on September 13, 2021, the Company was required to
make equal monthly payments of principal and interest until the
loan maturity on April 13, 2022. The PPP Loan is subject to
customary terms for payment defaults and breaches of
representations and warranties. The Company did not request the PPP
Loan to be forgiven. During the year ended December 31, 2022, the
Company repaid US$ 0.4 million of principal and interest for the
PPP Loan, of which $0.3 million was repaid during the three months
ended March 31, 2022. There was no outstanding balance for the PPP
Loan as of December 31, 2022.
7. Commitments and Contingencies
Legal Matters
In the ordinary course of business, the Company may be subject
to various pending or threatened legal actions. In 2022, the
Company was incorrectly named as a defendant in a lawsuit. On
January 13, 2023, the Company was properly removed as a defendant
in the above-mentioned matter. The Company is not currently subject
to any material legal proceedings.
8. Leases
The Company leases office space for its principal office in
Dallas, Texas, which was extended during 2022 to expire in May
2024. During 2022, the Company entered into a lease for office
space in the United Kingdom under a lease that expires in May
2023.
During 2023, the Company entered into a lease for office space
in the United Kingdom for annual payments of $0.1 million under a
lease that expires in March 2024. The lease has been excluded from
the tables below as the term is twelve months.
The following table summarizes quantitative information about
the Company's operating leases for the three months ended March 31,
2023 (US dollars in thousands):
Three Months Ended
March 31,
----------------------------------------------------------------------- --------------------------
2023 2022
US$ US$
----------------------------------------------------------------------- -------------- ----------
Operating cash flows from operating leases (in US$) $ 115 $ 155
Right-of-use assets exchanged for operating lease liabilities (in US$) $ - $ 609
Weighted average remaining lease term - operating leases (in years) 1.2 0.9
Weighted average discount rate - operating leases 8.5% 3.9%
The following table provides the components of the Company's
lease cost included in general and administrative expense in the
condensed consolidated statement of operations (in thousands):
Three Months Ended
March 31,
------------------------ ------------------------
2023 2022
US$ US$
------------------------ ------------ ----------
Operating leases
Operating lease cost $ 194 $ 132
Variable lease cost 59 70
--- ------- ------
Total rent expense $ 253 $ 202
=== ======= ======
Variable lease cost is primarily attributable to amounts paid to
lessors for utility charges and property taxes under an office
space lease.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
8. Leases (cont.)
As of March 31, 2023, future minimum payments under the
non-cancelable operating leases under ASC 842 were as follows (in
thousands):
US$
------------------------------------- -------
Nine months ending December 31, 2023 $629
Year ending December 31, 2024 354
---
Total 983
Less: imputed interest (50)
---
Operating lease liabilities $933
===
9. Stockholders' Equity
The Company was authorized to issue 400,000,000 shares of common
stock, par value US$0.001 per share, as of March 31, 2023 and
December 31, 2022, respectively. The Company had 136,076,515 and
135,409,564 shares of common stock issued and outstanding as of
March 31, 2023 and December 31, 2022, respectively. As of March 31,
2023, the Company was in the process of completing the issuance of
an additional 210,000 shares of stock through the exercise of
certain stock options by former Company employees.
10. Stock-based Compensation
2018 Long Term Incentive Plan
On July 24, 2018, the Company's Board adopted the 2018 Long Term
Incentive Plan (the "2018 Plan") which permits granting of
incentive stock options (they must meet all statutory
requirements), non-qualified stock options, stock appreciation
rights, restricted stock, stock units, performance shares,
performance units, incentive bonus awards, and other cash-based or
stock-based awards. In June 2021, in connection with the IPO, the
2018 Plan was amended so that stock issued pursuant to the 2018
Plan would be the common stock of the Company. Pursuant to the 2018
Plan, stock options must expire within 10 years and must be granted
with exercise prices of no less than the fair value of the common
stock on the grant date, as determined by the Board of Directors.
As of March 31, 2023, 38,354,118 shares of common stock were
authorized for issuance under the 2018 Plan, of which 2,027,618
remain available for issuance.
2022 Long Term Incentive Plan
On September 27, 2022, the Company's stockholders approved the
adoption of the 2022 Long Term Incentive Plan (the "2022 Plan")
which permits granting of incentive stock options (they must meet
all statutory requirements), non-qualified stock options, stock
appreciation rights, restricted stock, stock units, performance
shares, performance units, incentive bonus awards, and other
cash-based or stock-based awards. Pursuant to the 2022 Plan, stock
options must expire within 10 years and must be granted with
exercise prices of no less than the fair value of the common stock
on the grant date, as determined by the Board of Directors. As of
March 31, 2023, 20,000,000 shares of common stock were authorized
for issuance under the 2022 Plan, of which all remain available for
issuance.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
10. Stock-based Compensation (cont.)
Restricted Stock
The RSAs generally vest over four years. A summary of RSA
activities for the twelve months ended March 31, 2023 are presented
below:
Weighted
Average
Grant Date
Fair Value
Number of per Share
Shares US$
-------------------------------- --------- -------------
Nonvested as of January 1, 2023 312,502 $ 0.10
Vested (187,500) $ 0.10
--------
Nonvested as of March 31, 2023 125,002 $ 0.10
========
Stock Options
The fair value of each employee and non-employee stock option
grant is estimated on the date of grant using the Black-Scholes
option-pricing model. The Company's common stock became publicly
traded on July 22, 2021 and lacks company-specific historical and
implied volatility information. Therefore, it estimates its
expected stock volatility based on the historical volatility of a
publicly traded set of peer companies. Due to the lack of
historical exercise history, the expected term of the Company's
stock options for employees has been determined utilizing the
"simplified" method for awards. The expected term of stock options
granted to non-employees is equal to the contractual term of the
option award. The risk-free interest rate is determined by
reference to the US. Treasury yield curve in effect at the time of
grant of the award for time periods approximately equal to the
expected term of the award. Expected dividend yield is zero based
on the fact that the Company has never paid cash dividends and does
not expect to pay any cash dividends in the foreseeable future.
In applying the Black Scholes option pricing model, the Company
used the following assumptions for stock options granted in the
three months ended March 31, 2022:
Three Months
Ended
March 31,
2022
---------------------------------- --- -----------------
Exercise price (per share in US$) $ 0.48
Expected term (years) 6.0
Volatility (annual) 67%
Risk-free rate 1.7%
Dividend yield (per share) 0%
There were no stock options granted in the three months ended
March 31, 2023.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
10. Stock-based Compensation (cont.)
A summary of stock options activity for the three months ended
March 31, 2023 is presented below:
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic Value
Price Contractual Life US$
Stock Options US$ (in years) (in thousands)
------------------------------ --- -------------- ------------ ------------------ -----------------
Outstanding at January 1, 2023 36,124,000 $ 0.20 7.3 US$ 6,831
Options exercised (160,000) $ 0.17
-------------
Outstanding as of March 31, 2023 35,964,000 $ 0.20 7.1 US$ 6,076
=============
Options vested and exercisable as
of March 31, 2023 27,349,103 $ 0.16 6.7 US$ 5,384
-------------
For the three months ended March 31, 2023 and 2022, the Company
recorded stock-based compensation expense for stock options and
restricted stock of approximately US$ 0.3 million in both periods,
in general and administrative expenses in the condensed
consolidated statements of operations.
As of March 31, 2023, there was approximately US$ 1.3 million of
unrecognized stock-based compensation related to stock option
grants that will be amortized over a weighted average period of 1.0
years.
As of March 31, 2023, there was approximately US$ 6,000 of
unrecognized stock-based compensation related to restricted stock
grants that will be amortized over a weighted average period of 0.1
years.
During the year ended December 31, 2018, the Company granted of
10,039,926 stock options to investors (the "Investor Options") that
were approved by the Board of Directors outside of the 2018 Plan.
As of March 31, 2023, 9,681,354 Investor Options are outstanding
and will expire in November 2023. The Investor Options have an
exercise price of US$0.20 per share. As of March 31, 2023, there is
no unrecognized stock-based compensation expense related to the
Investor Options.
11. INCOME TAXES
The Company recorded a provision for income taxes of
approximately $46,000 for the three months ended March 31, 2023,
and a benefit for income taxes of $5,000 for the three months ended
March 31, 2022. The effective tax rate was (1.3)% for the three
months ended March 31, 2023, and the effective benefit tax rate was
0.9% for the three months ended March 31, 2022.
The tax provision for interim periods is determined using an
estimate of the Company's annual effective tax rate, adjusted for
discrete items arising in that quarter. The Company's effective tax
rate differs from the U.S. statutory tax rate in the three months
ended March 31, 2023 primarily due to changes in valuation
allowances on deferred tax assets as it is more likely than not
that some or all of the Company's deferred tax assets will not be
realized.
The Company evaluates its tax positions on a quarterly basis and
revises its estimate accordingly. There were no material changes to
the Company's uncertain tax positions, interest, or penalties
during the three months ended March 31, 2023.
Spectral MD Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2023
12. NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share attributable to
common stockholders are the same for the three months ended March
31, 2023 and 2022, since the inclusion of all potential shares of
common stock outstanding would have been anti-dilutive due to the
Company's net loss.
The table below summarizes potentially dilutive securities that
were excluded from the computation of net loss per common share as
of the periods presented because including them would be
anti-dilutive.
Three Months Ended
March 31,
-------------------------------- ----------------------
2023 2022
-------------------------------- ---------- ----------
Common stock options 45,645,354 45,352,259
Common stock warrants 762,712 762,712
Unvested restricted stock 125,000 875,000
---------- ----------
Potentially dilutive securities 46,533,066 46,989,971
========== ==========
13. RELATED PARTY TRANSACTIONS
For the three months ended March 31, 2023 and 2022, the Company
did not have any transactions with related parties.
14. SUBSEQUENT EVENTS
Proposed Business Combination
On April 11, 2023, the Company entered into a Business
Combination Agreement (as it may be amended, supplemented or
otherwise modified from time to time), by and among Rosecliff
Acquisition Corp I ("Rosecliff"), Rosecliff Ghost Merger Sub I Inc.
and Ghost Merger Sub II LLC, whereby all of the Company's shares
would be exchanged by Rosecliff for 17,000,000 ordinary shares of
Rosecliff with an aggregate equity value of $170.0 million.
Pursuant to the Business Combination Agreement, on the Closing,
in sequential order: (a) Ghost Merger Sub I will merge with and
into the Company, with the Company continuing as the surviving
company as a wholly owned subsidiary of Rosecliff (the "Spectral
Merger") and then, (b) the Company will merge with and into Ghost
Merger Sub II (the "SPAC Merger", together with the Spectral Merger
(the "Merger")), with Ghost Merger Sub II surviving the SPAC Merger
as a direct wholly-owned subsidiary of Rosecliff. Ghost Merger Sub
II will be renamed Spectral AI (the "Combined Company").
Both Rosecliff and the Company are required to obtain approval
of their respective stockholder for the Merger. Additionally, the
Company is required to obtain stockholder approval to delist its
shares from the AIM market of the London Stock Exchange. Rosecliff
and the Company will seek stockholder approval shortly after the
effective date of Rosecliff's S-4 Registration Statement to approve
the proposed transaction relating to the Mergers. The Merger is
expected to close in the third quarter 2023.
Revenue
In April 2023, the Company entered into a contract with the
Medical Technology Enterprise Consortium (MTEC) collaborating with
the U.S. Army Medical Material Development Activity (USAMMDA) which
is expected to provide $4.0 million of revenue to the Company for
further evaluation of its handheld DeepView(R) Wound Imaging
System.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
MSCEVLBLXQLFBBX
(END) Dow Jones Newswires
June 28, 2023 02:00 ET (06:00 GMT)
Spectral Md (LSE:SMD)
過去 株価チャート
から 4 2024 まで 5 2024
Spectral Md (LSE:SMD)
過去 株価チャート
から 5 2023 まで 5 2024