REG - Spectral MD Holdings - Half-year Report
13/09/2021 07:00
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RNS Number : 4873L Spectral MD Holdings, Ltd. 13 September 2021
Spectral MD Holdings, Ltd
("Spectral MD" or the "Company")
Half-Year Report
Spectral MD has achieved all the project milestones it set to be achieved by
this time in 2021 and has achieved other important milestones ahead of
schedule, including early receipt of increased U.S. Government grant funding
of
c. US$20 million post-IPO and progress on new burn and DFU patient studies
Revolutionary technology to transform the future of wound care
LONDON, U.K. AND DALLAS, TX, U.S - Spectral MD Holdings, Ltd. (AIM: SMD), a
predictive analytics company that develops proprietary AI algorithms and
optical technology for faster and more accurate treatment decisions in wound
care, announces its unaudited results for the six-month period ended 30 June
2021, and provides an update on further development of the DeepView(®) Wound
Imaging Solution.
Wensheng Fan, Chief Executive Officer of Spectral MD, said: "I am delighted by
Spectral MD's progress in the first half of 2021. We have exceeded the
commercial milestones we set for the Company in our admission document, which
we believe will position the Company for success in the important and growing
wound care market. The Company has begun the next phase of our U.S. Government
contract with BARDA and received the recently announced accelerated approval
of BARDA's Option 1B funding. This brings our total funding committed from
BARDA since 2013 to over US$92.8 million, including US$39.4 million of
commitment in 2021 year to date. We have successfully initiated a 250 patient
multi-center burn clinical study to further develop and enhance the DeepView®
Wound Imaging Solution and look forward to providing further updates as
enrollment progresses. Spectral MD is on target for its second half 2021
milestones, including current enrollment of 143 patients in our DFU study, and
we are on track to complete the study of 150 patients by the end of 2021.
Critically, the Company is positioned to achieve milestones that are
foundational for our planned regulatory approvals and commercialization plans
in 2022 and 2023. I am particularly proud of the Spectral MD team which we
continue to build so we can further position the Company for future success.
"We are thankful for the support you have shown in our AIM IPO, and we will
endeavor to continue to meet or exceed the objectives we have set for the
Company."
Half Year Operational highlights:
· Accuracy of DeepView(®)'s artificial intelligence (AI) algorithms in
development is currently 91 percent for burn indication and 83 percent for
diabetic foot ulcers (DFU) indication, with expected further improvements
· Completed an Expanded Proof-of-Concept (ePOC) for DeepView(®) burn
application on 124 subjects at Wake Forest Baptist Medical Center
Winston-Salem, NC; University Medical Center New Orleans, LA; and Medstar
Washington Hospital Center Washington D.C.
· Entered into a US$20.6 million U.S. Government contract (Option 1A)
with Biomedical Advanced Research and Development Authority (BARDA) as a
result of the successful ePOC outcome
· Enrolled 117 (increased to 143 since 30 June 2021) of the targeted
150 subjects into the AI training study for 'Day One' DFU healing assessment
and on schedule to complete the study by the end of 2021
· Increased burn and DFU data to 8.1 terabytes and 66.7 billion pixels
for the deep learning algorithms training and to build a proprietary,
market-leading wound image database
· Awarded a US$1.1 million contract with U.S. Department of Defense's
Defense Health Agency (DHA) to miniaturize DeepView(®) for U.S. military use
· Secured a total of six U.S. patents and four foreign and
international patents for the DeepView(®) imaging technology
· Hired 17 new employees in support of the Company's growth and
development plans, as anticipated in the IPO
Half Year Financial highlights (unaudited):
· Raised £11.3 million (approximately US$16.0 million) in an
oversubscribed placing and entire share capital admitted to trading on AIM on
22 June 2021
· Gross revenue of US$7.0 million
· Net loss before tax of US$0.9 million
· Cash on hand of US$18.5 million as of 30 June 2021
Post-period highlights:
· On 29 July, the Company began a multi-center clinical study to
further develop its DeepView® Wound Imaging Solution for the burn
application, which is anticipated to include 10 sites and 250 patients
· On 6 September, the Company announced early entry into the next phase
of U.S. Government contract (Option 1B) with BARDA. This Option 1B funding
totals US$18.8 million, bringing the total U.S. Government funding since
inception to US$93 million, including US$40.5 million in 2021
· The DFU clinical study has enrolled an additional 21 subjects (making
a total of 143 subjects) across six clinical study sites in the U.S.
· The hiring of our first General Counsel who will lead the legal,
compliance, ethics, corporate secretary, and human resources functions, and
will support intellectual property workstreams; a lead data scientist; and
additional hires anticipated to facilitate future growth
For further information please contact:
Spectral MD Holdings, Ltd. investors.spectralmd.com
Wensheng Fan, Chief Executive Officer via Walbrook PR
Wan Lung Eng, Chief Financial Officer
SP Angel Corporate Finance LLP (Nominated Tel: +44 (0)20 3470 0470
Advisor & Broker)
Stuart Gledhill/Caroline Rowe (Corporate Finance)
Vadim Alexandre/Rob Rees (Sales & Broking)
Walbrook PR Ltd (Media & Investor Relations) Tel: +44 (0)20 7933 8780 or spectralMD@walbrookpr.com
(mailto:spectralMD@walbrookpr.com)
Paul McManus/Sam Allen Mob: +44 (0)7980 541 893 / +44 (0)7502 558 258
Alice Woodings +44 (0)7407 804 654
About Spectral MD Holdings, Ltd. (www.spectralmd.com
(http://www.spectralmd.com) )
Using its DeepView(®) Wound Imaging Solution, an internally developed AI
technology and multispectral imaging solution that has received FDA
Breakthrough Designation for the burn indication, Spectral MD is able to
distinguish between non-healing and healing human tissue invisible to the
naked eye. Spectral MD currently is able to provide 'Day One' healing
assessments for burn wounds and diabetic foot ulcers with other applications
being explored.
Spectral MD has to date received substantial support from the U.S. government
with contracts from institutions such as Biomedical Advanced Research and
Development Authority, National Science Foundation, National Institute of
Health and Defense Health Agency in support of the burn application for its
DeepView(®) solution, with total grant funding received to date from all of
these organizations of over $93 million, including $40.5 million received in
2021. This grant funding is non-dilutive to our shareholders and the Company
believes it validates the important nature of our mission and technology. The
Company leverages this funding to support R&D efforts that are applicable
to burn, DFU and potentially other indications where DeepView can play an
important role in Day 1 wound healing assessment.
The Company has two principal trading subsidiaries, Spectral MD, Inc. and
Spectral MD UK Limited.
DeepView(®)
DeepView(®) is a predictive analytics platform that integrates proprietary AI
algorithms and advanced optical technology for wound healing predictions. It
is non-invasive, non-radiation, non-laser and does not require the use of
injectable dye. This integration can be characterised into four distinct
components: DeepView(®) imaging, data extraction, AI model building and AI
wound healing prediction.
· The DeepView(®) imaging technology consists of patented,
proprietary, multi-spectral optics and sensors that can classify wound tissue
physiology and capture the viability of various biomarkers within the skin.
The imaging technology extracts appropriate clinical data, processes the
image, and displays a comparison of the original image next to an image with a
colour overlay of the non-healing portions of the wound. The image acquisition
takes 0.2 seconds, and the output takes approximately 20 to 25 seconds.
· The DeepView(®) data extraction consists of proprietary optics that
are able to collect millions of data points from each raw image. This
information is then used to build and continually improve the AI model, which
is trained and tested against a proprietary database of more than 66.7 billion
pixels with an ever-growing input of clinically validated data points.
· The AI algorithm then produces a predictive wound healing assessment
in the form of an objective, accurate, and immediate binary wound healing
prediction. This prediction is graphically represented to the clinician
through a coloured overlay of the original image that annotates the
non-healing portion of the wound.
DeepView(®) is designed to allow clinicians to make a more accurate, timely
and informed decision regarding the treatment of the patient's wound. In the
case of DFUs, a non-healing assessment would provide the clinician with the
appropriate justification to use an advanced wound care therapy on 'Day One'
as opposed to waiting 30 days and potentially losing the patient to lack of
patient follow-up or risking patient noncompliance with standard wound
therapy. For burn wounds, the clinician can make an immediate and objective
determination to identify appropriate candidates for surgery as well as
determining what specific areas of the burn wound will require skin grafting.
DeepView(®)'s current accuracy for determining the healing potential of burn
wounds is 91 percent, compared with current physician accuracy of 50 to 70
percent. The current clinical accuracy of DeepView(®) is 83 percent for DFUs.
Both of these accuracy percentages are expected to increase with additional
R&D efforts, including clinical studies.
CEO statement
It is a privilege to present the first half year report for Spectral MD. For
the first six months of 2021, the Company has made substantial progress
towards the goal of commercializing the DeepView(®) Wound Imaging Solution to
provide 'Day One' healing assessments for burn wounds and diabetic foot ulcers
(DFU).
Background
Spectral MD Inc. was established through the technology transfer department of
the University of Texas Southwestern Medical Center, and incorporated in the
State of Delaware, in 2009. The Company's initial focus was to provide
clinicians with the ability to evaluate and predict pressure ulcers for
bed-ridden patients. After seeing the greater market need, the Company shifted
focus towards burns, DFU and other peripheral vascular disease indications.
From 2013 to 2021, the Company engaged in contracts with the US Department of
Health and Human Services' Biomedical Advanced Research and Development
Authority (BARDA) to investigate the use of its technology as an assessment
and triage tool for burn victims in mass casualty events. In 2018, the FDA
designated the DeepView(®) technology with Breakthrough Device status for its
burn indication.
Burn application
Since first entering into a contract with BARDA in 2013 and receiving the
initial BARDA funding of US$26 million, the Company has used this funding to
develop DeepView(®) for its burn indication and leveraged development to
explore additional indications. Under the terms of the BARDA contracts,
Spectral MD is reimbursed for qualifying spending as it enrolls subjects and
progresses its clinical objectives. The Company entered into a new contract
with BARDA in July 2019 that anticipated funding of up to US$92 million across
various phases and provided initial funding of US$27.3 million for an Expanded
Proof-of-Concept (ePOC) study. In February 2021 the Company completed the ePOC
for the DeepView(®) burn application at three clinical sites with 124 adult
and pediatric participants. Despite COVID-19, this complex ePOC study was
executed successfully and on schedule across leading clinical sites - Wake
Forest Baptist Medical Center in Winston-Salem, NC; University Medical Center
in New Orleans, LA; and Medstar Washington Hospital Center in Washington, D.C.
The results from this study, as well as the 2019 Expanded Proof-of-Concept
study, have enabled the continued improvement and training of the AI algorithm
as an aid in assessing the healing potential of burn wounds.
On May 1, 2021, the Company entered into the next phase of the BARDA contract
(Option 1A) providing funding of US$20.6 million to begin a clinical training
study of the DeepView(®) Wound Imaging Solution for burn wound healing
assessment with approximately 100 subjects at five clinical sites. With our
recently announced Option 1B funding of US$18.8 million, the Company now
intends to enroll a total of approximately 250 subjects before the end of 2022
across ten clinical sites. The Company has officially started enrolling
patients into the study and is on track to meet its enrollment objectives.
The Research & Development revenue recognized from the BARDA contract is
dependent on the timing of, among other things, invoicing from participating
institutions with a small amount of expected 2021 R&D revenue now expected
to be recognized in 2022.
DFU application
In December 2020, the Company began a Wound Assessment using Spectral Imaging
to Predict Healing (WASP) clinical study for DeepView(®)'s DFU application
across six clinical sites with a goal of enrolling 150 participants. The
study's purpose is to collect DFU wound images to build a database for the
development of a Machine Learning (ML) algorithm for DFU healing assessment,
and to explore other DFU characteristics and physiology using images and
clinical data obtained with the DeepView(®) technology. During the first six
months of the study, the Company enrolled 117 subjects at six sites with 57
patients having completed the study. The Company has enrolled 143 subjects
year to date. As each patient completes the study, the Company organizes,
assesses, and integrates the data to refine the algorithm, which progressively
increases DeepView(®)'s prediction accuracy. The Company has made substantial
progress in the DFU study in 2021, allowing the study to stay on schedule, and
anticipates completion of this DFU study later this year.
Defense Health Agency (DHA)
On 23 June 2021, the Company was awarded a two-year, US$1.1 million,
Sequential Phase II Small Business Technology Transfer (STTR) contract by the
Defense Health Agency within the U.S. Department of Defense. This funding
allows the Company to research and develop a fully portable, handheld version
of the DeepView(®) solution. The Company has previously been awarded STTR
Phase I and Phase II contracts from the DHA. On 23 July 2021, the Company
held a kick-off meeting with DHA to review the two-year project timeline. It
is anticipated that Stage One of the study will focus on system development,
Stage Two will develop a fully handheld prototype and Stage Three will be a
clinical study with the Burn Center at University Medical Center New Orleans
to validate the system prototype. The Sequential Phase II contract will fund
all three referenced stages. The Company is on track to meet the milestones
for the study.
Proprietary and Clinically Validated Wound Image Database for AI Development
As of 30 June 2021, approximately 8.1 terabytes and 66.7 billion pixels worth
of proprietary DFU and burn data have been acquired and utilized for the deep
learning algorithms training.
Intellectual Property (IP) Development
The Company places a significant emphasis on obtaining and protecting its
intellectual property. As of 30 June 2021, the Company has successfully
secured a total of six U.S. patents and four foreign and international patents
and has seven pending U.S. applications and 21 pending foreign and
international applications. The Company has the following eight active patent
application families
· Burn/Wound classification on Multi-spectral Imaging (MSI) and
Photoplethysmography (PPG)
· Tissue classification on MSI and PPG
· Amputation site analysis on MSI, machine learning and healthcare
matrix
· DFU healing potential prediction and wound assessment on MSI, machine
learning and healthcare matrix
· High-precision, multi-aperture, MSI snapshot imaging
· Wound assessment on MSI, optical biomarkers, and machine learning
· Burn/Histology assessment on MSI and machine learning
· High-precision single-aperture snapshot imaging with multiplexed
illumination
People and Organization
The Company added 17 employees during the first half of 2021 and currently has
48 full-time employees in the US and UK and has and will continue to make
additional hires over the course of 2021 and beyond. The new hires will be
made in all areas, including senior personnel such as our recently hired
General Counsel, which will permit the Company to execute and realize its
corporate objectives and position the Company to meet its technology, IP,
clinical, regulatory, and commercial goals in 2022 and 2023.
Following the successful IPO in June, our CFO Wan Lung Eng will leave the
company in due course to pursue other career interests. The Company has
retained the recruitment firm Heidrick & Struggles and initiated a search
process for a new CFO, and it is expected that the transition from Mr. Eng to
the new CFO will be complete by the end of December 2021.
Financial review
IPO
On 22 June 2021, the Company's shares were admitted to trading on the AIM
market of the London Stock Exchange. The IPO was successful and
oversubscribed. The Company received gross proceeds of £11.3 million
(approximately US$16.0 million) from the placing of new common stock. The
admission to AIM is an important step in the Company's growth. The proceeds
are being used to develop the DFU application, build a European presence, and
provide working capital for the Company.
Results
The results presented cover the period from 1 January 2021 to 30 June 2021.
The Company's revenue for the first half of 2021 was US$7.0 million (H1 2020:
US$7.1 million). In the first half of 2021, the direct expenses were US$3.8
million (H1 2020: US$3.3 million), which relate to the development of burn
and DFU applications for DeepView(®). The Company's operating expenses for
the first half of 2021 were US$4.2 million, (H1 2020: US$2.0 million). Major
items in operating expenses include US$2.0 million in salaries and stock-based
compensation resulting from an increase in headcount to develop the burn and
DFU applications, and US$1.1 million in professional services expenses. As of
30 June 2021, the Company held US$18.5 million in cash (December 31,
2020: US$5.1 million), including the US$14.6 million net proceeds raised
from the IPO placing. The strong cash position is anticipated to provide the
Company with sufficient resources to fund the ongoing development of
DeepView(®)'s applications.
Business Outlook
The Company continues to believe that Spectral MD has developed a unique
diagnostic imaging solution that has no direct competition in the assessment
of wound healing potential. Given the large addressable market of DFUs and the
potential of the BARDA contract, the Company is optimistic that DeepView(®)
has the potential to disrupt current treatment pathways and improve the
standard of care for many patients across multiple geographical markets, and
in multiple applications.
Burn
The Company has initiated the key clinical studies under its Option 1A BARDA
contract and is optimistic about achieving all future milestones and
enrollments to complete Options 1A and 1B of the BARDA contract. Spectral MD
continues to believe that successful completion of the BARDA contract has the
potential to lead to a sizeable procurement contract from the U.S. Government
for the widespread distribution of DeepView(®)'s burn application into
emergency rooms throughout the U.S..
DFU
Spectral MD's goal is to complete the currently anticipated 150 patient DFU
study in 2021 and commence the validation study in Q1 2022. The Company is on
track to achieve the necessary milestones to commercialize DeepView(®)'s DFU
application in the U.S. towards the end of 2022. Upon completion of the DFU
validation study and FDA clearance, the Company will explore sales and/or
distribution models focused initially on selling DeepView(®) to the US
Veterans Administration Health System and podiatry clinics across the U.S..
The Company is optimistic about the potential to accelerate the development of
the DFU application and expand into the UK and EU.
DHA
The Company believes the recently awarded DHA contract has potential for U.S.
Government procurement by the U.S. military and first responders. A fully
hand-held version of DeepView(®) expands the market to the U.S. military and
has the potential to enable in-home use for DFU and other consumer
applications, beyond anticipated DHA applications.
Commercialization
The IPO proceeds enable the Company to advance its commercialization efforts
of the DeepView(®) Wound Imaging Solution. The Company's primary focus for
the second half of 2021 is on the continued training of the AI algorithm for
the burn application, and on completing the enrollment of subjects for DFU
clinical trials. The Company expects that each milestone will create
significant value for the Company.
Financial
In the first half of 2021, the Company demonstrated the financial value and
stability it can generate even during a pandemic environment. The Company will
continue to build on the Option 1A and 1B funding under the BARDA contract for
the rest of 2021 and into 2022 to drive the clinical training study of the
DeepView® Wound Imaging Solution for burn wound healing assessment. The
Company has a strong current cash position which is expected to enable the
Company to pursue its objectives and to enhance the prospects of its future
success. As noted at the time of the Company's IPO, revenue for 2021 is
expected to be weighted toward the second half of 2021 given the increasing
clinical activity in particular.
Closing Comments
We believe a critical metric in this phase of our Company history is ongoing
government grant support, primarily from BARDA, but also from other sources.
This non-dilutive grant funding, US$93 million of which has been received
since the Company's inception and US$40.5 million of which has been obtained
in 2021, enables Spectral MD to conduct important R&D efforts and to
develop and improve the Company's AI and optical technology and technology
performance. We will then seek to leverage this technology across other
indications, including DFU. We believe that these efforts also materially
enhance the likely success of our future regulatory and commercial prospects.
Our primary focus is on achieving the core business objectives we set out for
the Company in the IPO communications. We continue to opportunistically
evaluate additional indications, market opportunities and other initiatives
that may enhance our potential for commercial success and shareholder value.
Wensheng Fan
Chief Executive Officer
13 September 2021
Business Risks
The Company continues to assess, monitor, and mitigate the risks in the
business. The principal risks, as reported in the corporate governance section
of the AIM admission document, remain unchanged. The principal risks, current
assessment of the risk status and mitigation effectiveness are listed in the
table below.
Risk Description Risk Status Mitigation Mitigation Effectiveness
BARDA Burn development is heavily dependent on BARDA funding Unchanged Maintaining strong relationships and project focus Effective - entered Option 1A commencing May 2021
DHA Development of a handheld device is reliant on funding Unchanged Maintaining strong relationships and project focus Effective - entered Phase II contract in June 2021
Loss of a major customer No commercial sales have been made; almost all revenue from fixed fees Unchanged Maintaining a strong relationship with BARDA and expect diversification of Effective - entered Option 1A commencing May 2021
customers in future years
and costs payable by BARDA
Commercial The DeepView(®) system has yet to be launched into the U.S., UK, EU and other Unchanged Maintaining strong relationships and project focus Effective - expanding London office
markets and so adoption and market penetration can only be estimated
Research and development Complex scientific research is necessary in the life sciences and medical Unchanged Recruiting and retaining highly skilled employees Effective - hired 17 new employees with world leading capabilities in the
device development sector first half of 2021
Product development timelines Unpredictability of the rate of patient recruitment into clinical trials Unchanged Maintaining strong relationships and project focus Effective - on schedule with trials
Regulatory approvals and compliance Obtain various regulatory approvals (including the FDA and EMA approvals) Unchanged Conducting thorough clinical and product market research and maintain strong Effective - engaged in regular discussion to update FDA and established
relationship with regulatory authorities partnerships with world leading expert teams of scientific
and regulatory affairs staff
Technological change Changing customer requirements and the introduction of products or services or Unchanged Continues to invest in technical developments and apply for patents Effective - issued additional patents in the first half of 2021
enhancements embodying new technology
Reimbursement Pending Medicare approval of the Medicare coverage of innovative technologies Unchanged Continue to monitor Medicare's assessment process which we expect approval on Effective - provides a guaranteed pathway for coding, coverage and payment for
(MCIT) reimbursement pathway for FDA breakthrough designated devices December 15, 2021 DeepView(®)'s burn application
Spectral MD Holdings, Ltd.
Unaudited Consolidated Balance Sheets
June 30, December 31,
2021 2020
US$ US$
Assets
Current assets:
Cash and cash equivalents 18,483,914 5,124,639
Accounts receivable, net 1,271,074 2,690,911
Prepaid expenses and other current assets 206,869 92,868
Total current assets 19,961,857 7,908,418
Non-current assets:
Other noncurrent assets 33,695 31,046
Total Assets 19,995,552 7,939,464
Liabilities, stockholders' equity and temporary equity
Current liabilities:
Accounts payable 1,457,018 3,799,208
Accrued expenses 1,198,329 1,122,129
Notes payable 768,575 -
Warrant liability 443,182 -
Total current liabilities 3,867,104 4,921,337
Non-current liabilities:
Notes payable - 768,575
Total non-current liabilities - 768,575
Total Liabilities 3,867,104 5,689,912
Series A preferred stock (US$0.001 par value); 10,000,000 shares authorized; 0 - 1,113,987
and 4,324,330 shares issued and outstanding as of June 30, 2021, and December
31, 2020, respectively
June 30, December 31,
2021 2020
US$ US$
Stockholders' Equity
Common stock (US$0.001 par value); 400,000,000 shares authorized; 134,639,566 134,640 61,347
shares and 61,347,000 shares issued and outstanding as of June 30, 2021, and
December 31, 2020, respectively
Additional paid-in capital 21,913,715 6,096,178
(5,919,907) (5,021,960)
Accumulated deficit
Total stockholders' equity 16,128,448 1,135,565
Total Liabilities, Stockholders' Equity and Temporary Equity 19,995,552 7,939,464
See accompanying notes to the consolidated financial statements
Spectral MD Holdings, Ltd.
Unaudited Consolidated Statements of Operations
for the six months ended June 30, 2021, and 2020
Six Months Six Months
Ended Ended
June 30, 2021 June 30, 2020
US$ US$
Research and development revenue 7,023,319 7,066,182
Cost of revenue (3,770,047) (3,292,242)
Gross profit 3,253,272 3,773,940
Operating costs and expenses:
General and administrative 4,167,823 2,022,874
Total operating costs and expenses 4,167,823 2,022,874
Operating income (loss) (914,551) 1,751,066
Other income (expenses):
Interest expense (3,842) (26,758)
Change in fair value of warrant liability 40,321 -
Other income - 425
Total other income (expense) 36,479 (26,333)
Income (loss) before income taxes (878,072) 1,724,733
Provision for income taxes (7,547) (87,313)
Net income (loss) ($885,619) $1,637,420
Dividend on Series A preferred stock (1,258,959) -
Net Income (Loss) Applicable to Common Stockholders (2,144,578) 1,637,420
Net income (loss) per common share
Basic (0.02) 0.03
Diluted (0.02) 0.03
Weighted average common shares outstanding
Basic 130,409,618 54,454,301
Diluted 130,409,618 54,454,301
See accompanying notes to the consolidated financial statements
Spectral MD Holdings, Ltd.
Unaudited Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 2021, and 2020
Additional Total
Paid-in Accumulated Stockholders'
Preferred Stock Common Stock Capital Deficit Equity
Shares Amount Shares Amount
US$ US$ US$ US$ US$
Balance at December 31, 2020 4,324,330 $1,113,987 61,347,000 $61,347 $6,096,178 ($5,021,960) $1,135,565
Issuance of common stock for cash - - 19,067,797 19,068 15,594,808 - 15,613,876
Issuance cost, net of US$0.5 million warrant liability - - - - (1,505,901) - (1,505,901)
Cumulative dividend on Series A preferred stock - 1,258,959 - - (1,258,959) - (1,258,959)
Conversion of preferred stock to common stock (4,324,330) (2,372,946) 53,889,765 53,890 2,319,056 - 2,372,946
Stock option exercised for cash - - 22,500 22 2,303 - 2,325
Stock compensation - - 312,504 313 666,230 - 666,543
Other adjustments - - - - - (12,328) (12,328)
Net loss - - - - - (885,619) (885,619)
Balance at June 30, 2021 - - 134,639,566 $134,640 $21,913,715 ($5,919,907) $16,128,448
Additional Total
Paid-in Accumulated Stockholders'
Preferred Stock Common Stock Capital Deficit Deficit
Shares Amount Shares Amount
US$ US$ US$ US$ US$
Balance at December 31, 2019 4,324,330 $1,113,987 53,809,092 $53,809 $3,481,825 ($6,256,691) ($2,721,057)
Stock option exercised for cash - - 1,500,000 1,500 33,500 - 35,000
Stock compensation - - 3,428,118 3,428 525,450 - 528,878
Net income - - - - - 1,637,420 1,637,420
Balance at June 30, 2020 4,324,330 $1,113,987 58,737,210 $58,737 $4,040,775 ($4,619,271) ($519,759)
See accompanying notes to the consolidated financial statement
Spectral MD Holdings, Ltd.
Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 2021, and 2020
Six Months Six Months
Ended Ended
June 30, 2021 June 30, 2020
US$ US$
Cash flows from operating activities:
Net income (loss) (885,619) 1,637,420
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Stock based compensation 666,543 528,878
Change in fair value of warrant liability (40,321) -
Changes in operating assets and liabilities:
Accounts receivable 1,419,837 (1,513,259)
Prepaid expenses and other current assets (114,001) 101,448
Other assets (2,649) (11,884)
Accounts payable (2,342,190) 458,609
Accrued expenses 63,872 (755,676)
Net cash (used in) provided by operating activities ($1,234,528) $445,536
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance cost 14,591,478 -
Proceeds from PPP loan - 768,575
Proceeds from stock option exercise 2,325 35,000
Net cash provided by financing activities 14,593,803 803,575
Net increase in cash and cash equivalents 13,359,275 1,249,111
Cash and cash equivalents, beginning of period 5,124,639 770,292
Cash and cash equivalents, end of period 18,483,914 2,019,403
Six Months Six Months
Ended Ended
June 30, 2021 June 30, 2020
US$ US$
Supplemental cash flow information:
Cash paid for interest - -
Cash paid for income taxes - -
Noncash financing activities disclosure:
Cumulative dividend on Series A preferred stock 1,258,959 -
Conversion of preferred stock to common stock 2,372,946 -
See accompanying notes to the consolidated financial statements
Spectral MD Holdings, Ltd.
Notes to Consolidated Financial Statements
1. Organization, Nature of Business and Liquidity
Spectral MD, Inc., headquartered in Dallas, Texas, was incorporated in
Delaware on March 9, 2009.
On December 23, 2020, Spectral MD, Inc. formed its wholly owned subsidiary in
Delaware, "Spectral MD Holdings, Ltd.". The subsidiary had no activity through
December 31, 2020.
On June 21, 2021, Spectral MD Merger Sub, Inc. ("Merger Sub"), a Delaware
corporation and wholly owned subsidiary of Spectral MD Holdings, Ltd. (the
"Company"), merged with and into Spectral MD, Inc. Following the merger, the
separate corporate existence of Merger Sub ceased and Spectral MD, Inc.
continued as the surviving corporation and through the merger became a wholly
owned subsidiary of the Company. In connection with the merger, each share of
the Spectral MD, Inc.'s common stock and the Spectral MD, Inc.'s preferred
stock issued and outstanding immediately prior to the effective date were
exchanged for one share of Common Stock. All of the stockholders of the
Spectral MD, Inc. prior to the merger became stockholders of the Company
immediately following the merger. All existing Common Stock of the Company
held by the Spectral MD, Inc. were cancelled at the effective date of the
merger.
On June 22, 2021, the Company was listed and started trading on the AIM market
of the London Stock Exchange.
Effective June 21, 2021, all shares of the Company's common stock issued and
outstanding were combined and reclassified on a six for one basis. The effect
of this stock split has been retroactively applied to all periods presented.
The Company is a research organization specializing in wound care using
multispectral imaging and artificial intelligence. The Company's DeepView®
Wound Imaging System is a non-invasive advanced medical device that delivers
day one wound healing predictions for key indications.
The Company is devoting substantially all of its efforts towards research and
development of its DeepView® 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 June 30, 2021, and December 31, 2020, the Company had US$18.5 million
and US$5.1 million, respectively in cash, and an accumulated deficit of US$5.9
million and US$5.0 million, respectively. The Company has historically funded
its operations through the issuance of notes and the sale of preferred stock
and common stock. The Company received net proceeds of approximately US$14.6
million from its initial public offering on the AIM on June 22, 2021 (see Note
4). Additionally, the Company finalized its execution of Option 1A of the
contract with BARDA, which will provide the Company with an additional US$20.6
million to execute the clinical training study of DeepView® Wound Imaging
System for burn wound healing assessment. This contract option funding of
US$20.6 million follows the US$27.3 million contract received from BARDA in
July 2019 in the original award. In total, the contract has a potential
funding of up to US$92 million if all future options are executed.
The Company evaluated whether there are any conditions and events, considered
in the aggregate, that raise substantial doubt about its ability to continue
as a going concern within one year beyond the release date of the consolidated
financial statements. Based on such evaluation and the Company's current plans
as described above, management believes that the Company's existing working
capital as of June 30, 2021, will be sufficient to satisfy its operating cash
needs within one year beyond the release date of the consolidated financial
statements.
During the early months of 2020, COVID‑19 emerged and has subsequently
spread world‑wide. The World Health Organization has declared COVID‑19 a
pandemic resulting in federal, state, and local governments and private
entities mandating various restrictions, including travel restrictions,
restrictions on public gatherings, stay at home orders and advisories, and
quarantining people who may have been exposed to the virus. Management has
determined that there has been no significant impact to the Company's
operations, however management continues to monitor the situation.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company's consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
of America ("GAAP") as determined by the Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC").
Basis of Consolidation
The consolidated financial statements include the accounts of Spectral MD
Holdings, Ltd and its wholly owned subsidiary, Spectral MD, Inc. Significant
inter-company transactions and balances have been eliminated
in consolidation.
Use of Estimates
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the 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 sheet 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, 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 United States financial institutions.
Accounts Receivable
Accounts receivable represent amounts due from U.S. government agencies
pursuant to research and development contracts associated with the Company's
DeepView® Wound Imaging System. Accounts receivable amounted to US$1.3
million and US$2.7 million as of June 30, 2021, and December 31, 2020,
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 at June 30, 2021, and December 31, 2020.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist principally of cash and cash equivalents and accounts receivable. All
cash and cash equivalents are held in United States 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 June 30, 2021, and December 31, 2020, receivables were
concentrated from one customer representing 100% and 98% of total net
receivables, respectively. No allowance for doubtful accounts were recorded at
June 30, 2021, and December 31, 2020.
One customer accounted for 100% and 98% of the recognized research and
development revenue for the six months ended June 30, 2021, and 2020,
respectively.
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 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.
Derivative Liabilities
The Company does not use derivative instruments to hedge exposures to cash
flow, market, or foreign currency risks. The Company evaluates all of its
financial instruments, including issued stock purchase warrants, to determine
if such instruments are derivatives or contain features that qualify as
embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, "Derivatives
and Hedging" ("ASC 815"). The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is re-assessed at the end of each reporting period.
The Company accounts for its warrants issued to SP Angel, who acts as
nominated adviser and broker to the Company for the purposes of the AIM Rules
as derivative liabilities in accordance with ASC 815. Accordingly, the Company
recognizes the instruments as liabilities at fair value and adjusts the
instruments to fair value at the end of each reporting period. The liabilities
are subject to re-measurement at each consolidated balance sheet date until
exercised, and any change in fair value is recognized in the Company's
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 multi-year contracts in 2019 and 2021 by BARDA for the development
of the Company's DeepView® 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.
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 expenses stock-based compensation to employees over the requisite
service period based on the estimated grant-date fair value of the awards. The
Company accounts for forfeitures of equity awards as such forfeitures occur.
Compensation previously recorded for unvested equity awards that are forfeited
is reversed upon forfeiture.
The Company estimates the fair value of stock option and restricted stock
grants using the Black-Scholes option pricing model or 409A valuations, as
applicable. The Black-Scholes model requires the use of assumptions which
determine the fair value of stock-based awards, including the option's
expected term and the price volatility of the underlying stock. The
assumptions used in calculating the fair value of stock-based awards
represents management's best estimates and involve inherent uncertainties and
the application of management's judgement.
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
consolidated financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the consolidated
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 June 30, 2021, and December 31, 2020,
that qualify for either recognition or disclosure in the 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 statements of operations. There were no amounts accrued for
interest or penalties for the six months ended June 30, 2021, and 2020.
Net Income (Loss) per Share of Common Stock
Basic net income (loss) per share is computed by dividing the net income
(loss) attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during the period.
Diluted earnings (loss) per share adjusts basic earnings per share for the
potentially dilutive impact of stock options and warrants. 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 December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended
to simplify various aspects related to accounting for income taxes. ASU
2019-12 removes certain exceptions to the general principles in Topic 740 and
also clarifies and amends existing guidance to improve consistent application.
This guidance is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2020, with early adoption
permitted. The Company adoption of this standard did not have an effect on its
consolidated financial statements as it did not change the way collaborative
development services and the related costs of these services are reflected in
the Company's consolidated financial statements.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU
2016-02"). ASU 2016-02 requires an entity to recognize assets and liabilities
arising from a lease for both financing and operating leases. ASU 2016-02 will
also require new qualitative and quantitative disclosures to help investors
and other financial statement users better understand the amount, timing, and
uncertainty of cash flows arising from leases. ASU 2016-02 is effective for
fiscal years beginning after December 15, 2021, with early adoption permitted.
The Company is currently evaluating ASU 2016-02 and its impact on the
Company's consolidated financial statements.
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. With the
issuance of ASU 2019-10 in November 2019, the standard is effective for fiscal
years and interim periods within those fiscal years beginning after December
15, 2022. The Company will continue to assess the possible impact of this
standard, but currently does not expect the adoption of this standard will
have a significant impact on its consolidated financial statements, given its
limited history of bad debt expense relating to trade accounts receivable.
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 consolidated financial
statements and related disclosures.
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 June
30, 2021, by level within the fair value hierarchy:
Fair value measured at June 30, 2021
Quoted prices in active Significant other Significant
Fair value at markets observable inputs unobservable inputs
June 30, 2021 (Level 1) (Level 2) (Level 3)
Warrant liability $443,182 - - $443,182
There were no transfers between Level 1, 2 or 3 during the six-month period
ended June 30, 2021. There was no warrant liability in 2020.
The following table presents changes in Level 3 liabilities measured at fair
value for the six-month period ended June 30, 2021. 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.
Balance - January 1, 2021 -
Additional warrant liability 483,503
Change in fair value (40,321)
Balance - June 30, 2021 $443,182
The following table provides quantitative information regarding Level 3 fair
value measurements inputs at their measurement:
June 30, June 16,
2021 2021
Strike price £0.59 £0.59
Contractual term (years) 5.96 6.00
Volatility (annual) 85% 85%
Risk-free rate 0.9% 0.9%
Dividend yield (per share) 0.0% 0.0%
4. Initial Public Offering
The Company completed its initial public offering on AIM on June 22, 2021. The
Company issued 19,067,797 shares of common stock for net proceeds of
approximately US$14.6 million after deducting offering expenses of
approximately US$1.0 million incurred by the Company (the "Offering"). The
Company also issued 762,712 warrants to SP Angel, who acts as nominated
adviser and broker to the Company for the purposes of the AIM Rules. The
initial fair value of warrants was approximately US$0.4 million (see Note 3).
The proceeds of the Offering will be primarily used for Diabetic Foot Ulcer
("DFU") clinical trials in the United States (U.S.) and Europe, and FDA
clearance in the U.S. and CE Mark application and approval in Europe to use
DeepView for DFU application.
5. Research and Development Revenue
For the six months ended June 30, 2021 and 2020, the Company's revenues
disaggregated by the major sources was as follows:
Six Months Six Months
Ended Ended
June 30, 2021 June 30, 2020
US$ US$
Revenue by Customer Type
BARDA 7,023,319 6,920,015
Other U.S governmental authorities - 146,167
Total revenue 7,023,319 7,066,182
6. Accrued Liabilities
Accrued expenses consist of the following at June 30, 2021 and December 31,
2020:
June 30, December 31,
2021 2020
US$ US$
Salary and wages 608,218 619,510
Benefits 302,788 302,540
Income tax 111,184 161,637
Deferred rent 28,489 32,867
Accrued interest 9,417 5,575
Provision operating expenses 138,233 -
Total accrued expenses 1,198,329 1,122,129
7. Debt to Related Parties
2019 Notes Payble to Related Parties
On August 7, 2019, the Company entered into a promissory note (the "Note")
with Granicus IP, LLC, an entity owned by the Company's then Chairman of the
Board, for the amount of US$100,000. The Note bears interest at 10% per annum
and is due on demand.
On August 7, 2019, the Company entered into a promissory note (the "Note")
with John H and Marcia Kirk Stevens Family Trust, an entity owned by the
Company's then board member, for the amount of US$100,000. The Note bears
interest at 10% per annum and is due on demand.
In July 2020, the Company repaid principal and accrued interest of US$218,500
on the 2019 Notes payable to related parties.
2013 Notes Payble to Related Parties
On September 11, 2013, the Company entered into a demand note (the "Note")
with Mr. Erich Spangenberg, a shareholder of the Company, for the amount of
US$136,220. The Note bears interest at 7% per annum and is due on demand.
On October 1, 2013, the Company entered into a demand note (the "Note") with
LSC Holding, LLC, an entity affiliated with a shareholder of the Company, for
the amount of US$150,000. The Note bears interest at 8% per annum and is due
on demand.
On October 31, 2020, the Company issued 292,465 shares of its common stock to
related parties to extinguish outstanding principal and accrued interest of
US$359,732 on the 2013 Notes payable to related parties. Between November and
December 2020, the Company repaid US$80,000 on the 2013 Notes payable to
related parties.
The following table summarizes total interest expenses that the Company
recognized during the six months ended June 30, 2021 and 2020, respectively:
Six Months Six Months
Ended Ended
June 30, 2021 June 30, 2020
US$ US$
2019 Notes payable to related parties - 11,830
2013 Notes payable to related parties - 10,000
PPP loan 3,842 1,733
Interest charge on credit card - 3,195
Total interest expense 3,842 26,758
8. PPP Loan
On April 13, 2020, the Company received proceeds from a loan in the amount of
US$768,575 (the "PPP Loan") from 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"). The PPP Loan is evidenced by
a promissory note (the "Note"), which contains customary events of default
relating to, among other things, payment defaults and breaches of
representations, warranties or terms of the PPP Loan documents. The PPP Loan
matures on April 13, 2022 and bears interest at an annual rate of
approximately 1%. The payment deferral period was extended from six-month
deferral until August 8, 2021 pursuant to the U.S. Small Business
Administration ("SBA") guidance. After the deferral period, the Company is
required to make 18 equal monthly payments of principal and interest. The PPP
Loan may be prepaid by the Company at any time prior to maturity with no
prepayment penalties. The proceeds from the PPP Loan may only be used for
payroll costs (including benefits), rent and utility obligations, and interest
on certain of the Company's other debt obligations.
All or a portion of the PPP Loan may be forgiven by the SBA upon application
by the Company beginning 60 days but not later than 120 days after loan
approval and upon documentation of expenditures in accordance with the SBA
requirements. Under the CARES Act, loan forgiveness is available for the sum
of documented payroll costs, covered rent payments, covered mortgage interest
and covered utilities during the eight-week period beginning on the date of
loan approval. For purposes of the CARES Act, payroll costs exclude
compensation of an individual employee in excess of US$100,000, prorated
annually. Not more than 25% of the forgiven amount may be for non-payroll
costs. Forgiveness is reduced if the Company's full-time headcount declines,
or if salaries and wages for employees with salaries of US$100,000 or less
annually are reduced by more than 25%. In the event the PPP Loan, or any
portion thereof, is forgiven pursuant to the PPP, the amount forgiven is
applied to outstanding principal. No assurance can be given that the Company
will obtain forgiveness of the PPP Loan in whole or in part. In order to apply
for the PPP Loan, the Company certified that, among other things, the current
economic uncertainty made the PPP Loan request necessary to support its
ongoing operations. If it is determined that the Company was not eligible to
receive the PPP Loan, the Company may be subject to penalties and could be
required to repay the PPP Loan in its entirety.
9. Commitments
Legal Matters
The Company is not currently subject to any material legal proceedings;
however, the Company may from time to time become a party to various legal
proceedings arising in the ordinary course of the Company's business.
Leases
In August 2017, the Company assumed a lease for its principal office in
Dallas, Texas, which expires on March 1, 2023. Base rent in connection with
the lease is US$46,901 per month, as of June 30, 2021. Future minimum payments
under the Company's. lease agreement, as of June 30, 2021, and December 31,
2020, are as follows:
June 30, December 31,
2021 2020
US$ US$
2021 (remaining periods between July and December) 285,872 570,255
2022 579,189 579,189
2023 96,780 96,780
Total 961,841 1,246,224
10. Preferred Stock
Effective June 21, 2021, the Company increased its authorized shares for
preferred stock to 10,000,000 shares.
Immediately prior to the Offering, all outstanding shares of Series A
preferred stock and unpaid cumulative dividend were exchanged for 53,889,765
shares of common stock.
As of June 30, 2021, there were no outstanding preferred stock.
11. Stockholders' Equity
Effective June 21, 2021, the Company increased its authorized shares for
common stock to 400,000,000 shares.
The Company had 134,639,566 shares and 61,347,000 shares of common stock
issued and outstanding at June 30, 2021 and December 31, 2020, respectively.
During the six months ended June 30, 2021, the Company issued 19,067,797
shares of common stock for net proceeds of approximately US$14.6 million after
deducting offering expenses of approximately US$1.0 million incurred by the
Company.
During the six months ended June 30, 2021, the Company issued 22,500 shares of
common stock for aggregate proceeds of US$2,325 from stock option exercise.
During the six months ended June 30, 2020, the Company issued 1,500,000 shares
of common stock for aggregate proceeds of US$35,000 from stock option
exercise.
12. Stock-based Compensation
2012 Long Term Incentive Plan
On August 30, 2012, the Company's Board adopted the 2012 Long Term Incentive
Plan (the "2012 Plan"), which has a ten-year life for granting awards and
initially reserved 9,000,000 shares of common stock for awards.
Awards granted under the 2012 Plan may be 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 2012 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.
2018 Long Term Incentive Plan
On July 24, 2018, the Company's Board adopted the 2018 Long Term Incentive
Plan (the "2018 Plan"), which has a ten-year life for granting awards and
initially reserved 38,354,118 shares of common stock for awards.
Awards granted under the 2018 Plan may be 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 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.
Restricted Stock
As part of the restructuring (see Note 1), each share of the Spectral MD,
Inc.'s vested restricted stock was exchanged for one share of the Company's
common stock. A summary of restricted stock activities for the six months
ended June 30, 2021 is presented below.
Number of Shares Weighted Average Grant Date Fair Value per Share
Nonvested at January 1, 2021 1,750,002 US$0.10
Vested (375,000) US$0.10
Nonvested at June 30, 2021 1,375,002 US$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.
Until its IPO in June 2021, the Company was a private company 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 U.S. 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 during six months ended June
30, 2021 and 2020, respectively:
2021 2020
Exercise price US$0.21 US$0.21
Expected term (years) 5.0 5.0
Volatility (annual) 85% 85%
Risk-free rate 0% 0%
Dividend yield (per share) 0% 0%
A summary of stock options activity for the six months ended June 30, 2021 is
presented below:
Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value
Outstanding at January 1, 2021 27,604,500 US$0.15 8.8 US$1,604,758
Options granted 6,738,000 US$0.21 10.0
Options exercised (22,500) US$0.10
Options forfeited/expired (810,000) US$0.20
Outstanding at June 30, 2021 33,510,000 US$0.16 8.6 US$22,314,257
Options vested and exercisable at June 30, 2021 15,343,000 US$0.14 8.2 US$10,550,844
During the six months ended June 30, 2021, the Company issued 6,738,000 stock
options (the "2021 Options") to various employees under the 2018 Plan. The
2021 Options were issued at an exercise price of US$0.21 per share which is
exercisable in three annual installments.
The Company recognized stock-based compensation of approximately US$0.6
million for the for the six months ended June 30, 2021, which was all
recognized in general and administrative expenses.
As of June 30, 2021, there was approximately US$1.9 million of unrecognized
stock-based compensation related to stock option grants that will be amortized
over a weighted average period of 1.3 years.
As of June 30, 2021, there was approximately US$0.1 million of unrecognized
stock-based compensation related to restricted stock option grants that will
be amortized over a weighted average period of 1.2 years.
13. Related Party Transactions
There are no related party transactions or balances, other than as disclosed
in Note 7, above.
14. Income (Loss) Per Share
Basic income (loss) per share was calculated by dividing net income (loss) by
the weighted-average shares of common stock outstanding during the period.
Diluted income (loss) per share was calculated by dividing net income (loss)
by the weighted-average fully diluted shares of common stock outstanding
during the period using the treasury stock method or the two-class method,
whichever is more dilutive.
The table below summarizes potentially dilutive securities that were not
considered in the computation of diluted net loss per share because they would
be anti-dilutive.
Six Months Six Months
Ended Ended
June 30, 2021 June 30, 2020
Convertible preferred stock - 49,945,297
Common stock options 33,510,000 28,959,000
Common stock warrants 762,712 -
Restricted stock 9,763,123 11,138,125
Potentially dilutive securities 44,035,835 90,042,422
15. Subsequent Events
The Company evaluated subsequent events and transactions that occurred after
the unaudited consolidated balance sheet date up to the date unaudited
consolidated financial statements were issued. On September 6, 2021, the
Company announced it has been awarded Option 1B of the contract with BARDA,
which will provide the Company with an additional US$18.8 million to
accelerate initiation of the second stage of the clinical training study to
train the DeepView® AI algorithm.
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