REG - Spectral MD Holdings - Interim results for the six-months to 30 June 2022
20/09/2022 07:00
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RNS Number : 9324Z Spectral MD Holdings, Ltd. 20 September 2022
Spectral MD Holdings, Ltd
("Spectral MD" or the
"Company")
Interim results for the six-months ended 30 June 2022
Extensive solution validation; accelerating commercialization readiness
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 interim results for the six-months ended 30 June
2022 ("H1 2022").
Operational Highlights
· Enrollment on track in the Biomedical Advanced Research and Development
Authority ("BARDA") Burn AI Training Study: 145 of the targeted 190 adult
subjects (76%) and 25 of the targeted 60 pediatric subjects (41%).
· Burn Image Assessment Study ("BIAS") findings: burn specialists and
Emergency Department ("ED") physicians significantly less accurate in
assessing wound healing vs non-healing than DeepView™.
· Diabetic foot ulcer ("DFU") AI Model created post Clinical Training
Study with 81% accuracy. This is the live AI algorithm in use in the DFU
Clinical Validation Study.
· Initiated DFU Clinical Validation Study in June: up to 200 adult
subjects across seven potential clinical sites. Data expected to support
regulatory submission.
· Filled key positions in Regulatory, Operations, Marketing,
Administration, and Engineering to accelerate commercialization readiness.
· Won Best Technology Award at the European Mediscience Awards in June.
Criteria for winning technology: innovative, well-funded, capable of
significant commercial success.
Post-Period Highlights
· Awarded US$ 8.2 million US Government contract expansion with BARDA
to accelerate commercialization pathway for the DeepView™ technology,
bringing the total government funding commitment received by Spectral MD to
over $125 million since 2013.
· Strong DFU Clinical Validation study enrollment: 56/200 subjects
enrolled since June initiation, remaining on track to report results in early
2023. This represents an important study to support the Company as it prepares
FDA and CE mark submissions for DeepView®'s DFU indication, planned in 2023.
Financial Highlights
· R&D revenue up 76% to US$ 12.3 million (H1 2021: US$ 7.0 million):
accelerating BARDA funded studies.
· Cash on hand of US$ 15.6 million on 30 June 2022 (H1 2021: US$ 18.5
million)
· Removal of 'Regulation S' market trading restrictions from shares
following the first anniversary on AIM.
· Expanded Analyst research coverage to include Stifel and WH Ireland, in
addition to SP Angel's existing coverage.
Wensheng Fan, Chief Executive Officer of Spectral MD, said: "The Company has
made solid progress in H1 2022 and is on schedule regarding the development
of, and clinical studies for, Burn, DFU, and handheld applications. With the
recent addition of the US$ 8.2 million BARDA contract expansion, we believe
that the likelihood of potential federal procurement has increased, with an
expedited timeline to award.
"Over the balance of 2022 and 2023, we will remain focused on completing
enrollment in both Burn and DFU clinical studies and continuing to accelerate
investment into the Company's commercial readiness. We believe DeepView™ is
the market leading technology that has the potential to disrupt current
treatment pathways, and to improve the standard of care for many patients
across multiple geographical markets and applications. We remain confident in
our strategic approach and that our transformative technology is well
positioned for success in providing Day One wound healing assessments."
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.
For further information please contact:
Spectral MD Holdings, Ltd. Investors.spectralmd.com
Wensheng Fan, Chief Executive Officer via Walbrook PR
Nils Windler, Chief Financial Officer
SP Angel Corporate Finance LLP (NOMAD and Joint Broker) Tel: +44 (0)20 3470 0470
Stuart Gledhill/Caroline Rowe (Corporate Finance)
Vadim Alexandre/Rob Rees (Sales & Broking)
Stifel Nicolaus Europe Limited (Joint Broker) Tel: +44 (0)20 7710 7600
Charles Hoare / Ben Maddison / Nick Harland / Will Palmer-Brown
Walbrook PR Ltd (Media & Investor Relations) Tel: +44 (0)20 7933 8780 or spectralMD@walbrookpr.com
Paul McManus / Louis Ashe-Jepson Mob: +44 (0)7980 541 893 / +44 (0)7747 515 393
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 system which 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 (DFU) with other
applications being explored.
Spectral MD has to date received substantial support from the US government
with contracts from institutions such as Biomedical Advanced Research and
Development Authority (BARDA), National Science Foundation (NSF), National
Institute of Health (NIH) and Defense Health Agency (DHA) in support of the
burn application for its DeepView™ solution, with total grant received to
date of over US$ 101.5 million.
Spectral MD started trading on the AIM market of the London Stock Exchange on
June 22(nd), 2021, after raising US $16 million through an oversubscribed
initial public offering. The Company has two principal trading subsidiaries,
Spectral MD, Inc. and Spectral MD UK Limited.
To The Members of Spectral MD
I am pleased to present the interim results for the six months ended 30 June
2022, for Spectral MD Holdings, Ltd. Spectral MD continues to make significant
advances in the development of the DeepView™ Wound Imaging Technology for
both Burn and DFU indications towards commercialization.
The development of each software / AI application involves an initial study
for training the AI algorithm followed by a separate clinical validation
study, subsequently followed by regulatory submission. Below is an update /
outlook on each application, and on other key strategic elements.
Burn Indication (BARDA)
Update
Spectral MD has received substantial support from the US Government, with
contracts from institutions such as the Biomedical Advanced Research and
Development Authority ("BARDA"), National Science Foundation ("NSF"), National
Institute of Health ("NIH") and Defense Health Agency ("DHA") in support of
the Burn indication for its DeepView™ platform. Total grant funding awarded
to date from these organizations is over US$ 125 million, including the
recently awarded US$ 8.2 million contract expansion. Under the terms of the
BARDA contracts, Spectral MD is reimbursed for qualifying spending as it
enrolls subjects and progresses its clinical objectives.
This recent US$ 8.2 million contract expansion from BARDA will further
accelerate the commercialization pathway for the Company's DeepView™ Wound
Imaging System. The award expands the current clinical training study for burn
wounds, provides funds necessary to further increase DeepView™'s
interoperability with health systems' electronic health records ("EHR"), and
provides funds to support the Company's manufacturing capacity readiness.
In H1 2022, the Company passed the 150 subject enrollment mark in the Burn AI
Training Study (initiated in 2021), with 145/190 adult subjects and 25/60
pediatric subjects enrolled, totaling 170 subjects (31 December 2021: 39
subjects). The study is currently running at eight clinical sites, with four
additional sites in the engagement phase. The data collected during this study
will further expand Spectral MD's database of proprietary and clinically
validated burn wound data points, which is used to train the deep learning AI
algorithm. As of 30 June 2022, this database was composed of 3.5 terabytes
and 145 billion pixels. This database presents both a significant barrier to
entry to would-be competitors in wound care healing assessment, and a
potential additional commercial opportunity for the Company to develop further
in the future.
Conference/Publication Update
In April 2022, the Company attended two US national conferences: the American
Burn Association Conference and the American Academy of Emergency Medicine
Conference. The Company gave a podium presentation on its Expanded Proof of
Concept (ePoc) study results at the American Burn Association annual meeting.
The presentations were as follows:
· "Rise of the (Learning) Machines: Artificial Intelligence for the
Assessment of Adult Thermal Burns"
· "Iterative refinement of a histologic algorithm for burn depth
categorization based on 1142 consecutive burn wound biopsies"
· "Initial Experience Using Artificial Intelligence for the Assessment
of Pediatric Burn Depth"
Burn Image Assessment Study (BIAS) Update
The Company conducted the BIAS study at both the American Burn Association and
American Academy of Emergency Medicine Conference. The study demonstrated when
looking at burn wound images, burn specialists and Emergency Department ("ED")
physicians are less accurate in assessing the areas of healing vs non-healing
potential compared to the DeepView™ technology. Dr. Jeff Carter, Chief
Medical Consultant of Spectral MD, and Treasurer of the American Burn
Association ("ABA"), reiterated this point, as he stated: "It is surprising to
find that 29% of the study participants' clinical judgment suggested surgery
on burn wounds that will heal, which leads to unnecessary surgery and waste of
resources."
Outlook
In H2 2022, we look forward to building on the rapid enrollment progress we
experienced in H1. While the recent US$ 8.2 million expansion of Option 1B of
our current BARDA contract will extend the clinical study into 2023, the
Company and BARDA are optimistic about its potential to accelerate the
commercialization of Burn DeepView™ technology in the US.
The Company continues to be in regular communication with BARDA to further
develop our human resource leadership and infrastructure readiness for any
potential federal level commercial contract award. The Company is fully
committed to upscaling its operations and infrastructure in the near term to
support BARDA's procurement needs to distribute the DeepView® technology into
hospitals including EDs across the US from 2024.
While our commercial priority for the Burn indication continues to be BARDA,
the Company is also optimistic about the potential to accelerate the
commercialization of its Burn DeepView™ technology in the UK and EU and
looks forward to providing further updates on international expansion in due
course.
Diabetic Foot Ulcer ("DFU") Indication
Update
Building upon promising results from the DFU Clinical Training Study, the
Company successfully created a DFU AI Model in the first quarter of 2022, with
81% accuracy from a large and diverse population set.
In June 2022, Spectral MD initiated the Clinical Validation study to continue
the development of its DFU application for the DeepView™ Wound Imaging
System. The study will collect data from up to 200 adult subjects across
seven potential clinical sites to further develop DeepView™'s AI algorithm.
Patient enrollment for the validation study began in June and is expected to
be completed by end of 2022, with final analysis compilation of the algorithm
in early 2023.
The data collected from the validation study will be used to bolster the
Company's existing proprietary and clinically validated database of DFU images
and physiologic information, and to train and improve the DeepView™ AI
algorithm. Additionally, this study will collect data from a broader
population set of up to 200 subjects, increasing geographic and ethnic
diversity in the enrollment cohort. The data collected will provide important
clinical evidence, as the Company prepares FDA, CE and UKCA mark regulatory
submissions for DeepView™'s DFU indication, planned in 2023 - one of the
necessary milestones required to commercialize DeepView®'s DFU application.
Outlook
In June, the Company successfully initiated the DFU Clinical Validation study
and began patient enrollment. Post period end, we successfully enrolled 56
subjects, and we look forward to the continued enrollment progress which is
expected to conclude by the end of 2022.
In anticipation of the Company's plan to begin clinical studies in the EU and
UK, Spectral MD has engaged in a clinical partnership with the Royal College
of Surgeons Ireland, as well as other key opinion leaders to provide the
Company greater knowledge in the wound sector outside of the US.
The regulatory submissions are planned to take place in early 2023 with
expected clearances in the same year. Commercialization in the US is expected
to start in the second half of 2023, followed by the UK and EU.
Technology Miniaturization (Handheld device)
Update
On 23 June 2021, the Company was awarded a two-year Sequential Phase II Small
Business Technology 5 Transfer (STTR) contract for US$ 1.1 million by the DHA
within the US Department of Defense. This funding enables the Company to
research and develop a fully handheld and wireless version of the DeepView™
solution. The Company has previously been awarded STTR Phase I and Phase II
contracts from the DHA.
In the 6-month period ended 30 June 2022, the Company has made considerable
progress in the development of the miniaturized DeepView™ technology. The
Company has developed a fully functional prototype of the DeepView™
technology, with the key optical and computing capabilities now in a fully
handheld and wireless version.
Outlook
Building upon the progress made so far, the Company is working towards
initiating a clinical study that will utilize and validate the DeepView™
fully handheld and wireless technology.
People and Organization
Update
With the Company's accelerating development, much focus has been given to the
development, hiring, and retention of highly skilled and focused individuals.
In H1 2022, the Company saw headcount growth of +31% YoY with the addition of
14 full-time employees. The Company currently has 63 full-time employees in
the US and UK. The Company continues to prioritize recruitment in the areas of
operations, sales, marketing, government contracts, and product development,
which it believes will enable the Company to meet its technology, IP,
clinical, regulatory and commercialization readiness goals in 2022 and 2023.
In H1 2022, the Company successfully strengthened the leadership team by
appointing Christine Marks to VP of Marketing and Commercialization and Vince
Capone to General Counsel. Other key technical positions critical to
development and commercialization were also filled, including a Data Science
Manager, Algorithm Development Manager, Project Managers, Data Scientists, and
Software Engineering Manager.
Outlook
The Company expects to increase its customer facing personnel to include
clinical research staff, clinical educators, field service technicians and
product management.
Intellectual Property (IP) Development
Developing and protecting Spectral MD's intellectual property is one of the
Company's key priorities. In H1 2022, the Company filed a total of three new
applications, including one US divisional application (reflective mode
multi-spectral time-resolved optical imaging methods for tissue
classification), one international Patent Cooperation Treaty
application (high-precision, single-aperture, MSI snapshot imaging with
multiplexed illumination), and one new provisional application (topological
characterization and assessment of tissue).
Two new patents were allowed, including US patents in the MSI amputation
site analysis/tissue classification family and in the original MSI+
Photoplethysmography (PPG) tissue classification family. In addition, during
the period we have completed validation of our trademark registrations across
all future major commercial markets.
Financial Review
Revenue of US$ 12.3 million represents research and development revenue in H1
2022. This is realization of non-dilutive research and development contracts
with BARDA and DHA (H1 2021: US$ 7.0 million). This 76% increase versus 2021
arises from the increase in research and development activities under the
contracts in clinical training and validation studies.
The cost of sales in H1 2022 was US$ 7.1 million (H1 2021: US$ 3.8 million)
and gross profit was US$ 5.2 million (H1 2021: US$ 3.3 million). This is
entirely associated with BARDA and DHA research and development contract
activities.
During H1 2022, operating expenses increased US$ 1.4 million year over year to
US$ 5.6 million (H1 2021: US$ 4.2 million). This is predominantly driven by
the DFU indication development, and by development of organizational
infrastructure to support near term commercialization - in particular
additional personnel described above.
During H1 2022, the operating loss was US$ (0.5) million (H1 2021: loss of US$
(0.9) million). During H1 2022, adjusted EBITDA was a profit of US$ 0.2
million (H1 2021: loss of US$ (0.2) million).
Cash and cash equivalents totaled US$ 15.6 million at the end of H1 2022 (H1
2021: US$ 18.5 million). H1 2021 cash balance included proceeds from the AIM
listing on 22 June 2021. The H1 2022 cash figure represents a strong working
capital performance, as management has made permanent improvements in the
accounts receivable cycle.
Notes Payable totaled US$ 0.0 million [(H1 2021: US$ 0.8 million] at the end
of H1 2022. During H1 2022, the Company repaid the remaining balance of a
promissory note entered in 2020 with JPMorgan Chase Bank, N.A., as lender,
pursuant to the Paycheck Protection Program ("PPP") of the US government
COVID-19 small business stimulus.
In conjunction with the closing of Company's initial public offering on the
AIM market in 2021, the Company issued 762,712 warrants, with a strike price
of US$ 0.89 and a ten-year life, to SP Angel, who acts as nominated advisor
and joint broker to the Company. As of June 30, 2022, the strike price was
US$0.72. The change in the strike price is due to the change in exchange rates
as the warrants will settle in shares denominated in British pounds. The fair
value was calculated to be US$ 0.2 million (2021: US$ 0.5 million) at the end
of 2021.
Effective 1 January 2022, the Company accounts for its leases under Accounting
Standards Codification ("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 over the lease term at the rate implicit in the lease or the
Company's incremental borrowing rate. See additional discussion regarding
lease accounting in the in the Consolidated Financial Statements and Footnotes
Following the first anniversary of the Company's admission to the AIM market,
the 'Regulation S' market trading restrictions were removed from the shares of
common stock, save for those held by certain controlling shareholder thus
enabling wider market access to acquire and sell stock via multiple trading
platforms. Additionally, the removal of the charter restriction on the
Spangenberg entities' acquisition of further shares announced on 7 July 2022
provides further sources of potential market liquidity.
In H1 2022 and post period-end the Company widened its Research analyst
coverage, with new research published by Stifel and WH Ireland in addition to
SP Angel.
R&D Pipeline Strategy
The Company has begun to further assess other disease indications for
DeepView™, following initial investigation studies already completed prior
to the IPO in 2021. This exercise will result in an expanded and prioritized
pipeline of future commercial opportunities, using the common DeepView™
hardware platform. Plurality of indications' potential is an important
criterion in BARDA's evaluation of potential commercial contracts. The Company
will continue to evaluate and investigate the data commercialization strategy:
it will further expand its database of proprietary and clinically validated
wound data points and continue to work towards assessing additional monetary
value of this dataset.
Closing Statements
The Company has made solid progress on schedule in its development and
clinical studies for Burn, DFU, and handheld applications in H1 2022. With the
addition of the US$ 8.2 million BARDA contract expansion, we believe that the
likelihood of a potential federal procurement has increased, with an expedited
timeline to award.
Over the balance of 2022 and 2023, we will remain focused on completing
enrollment in both Burn and DFU clinical studies. We believe DeepView™ is
the market leading technology that has the potential to disrupt current
treatment pathways, and to improve the standard of care for many patients
across multiple geographical markets and applications. We remain confident in
our strategic approach and that our transformative technology is well
positioned for success in providing Day One wound healing assessments.
Wensheng Fan
Chief Executive Officer
Risk Management
The Company continues to assess, monitor, and mitigate the risks in the
business. The principal risks, and the 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 1B expansion to accelerate commercialization
pathway for the DeepView™ technology
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 and project is on schedule
to be completed in 2023 as planned
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 1B expansion to accelerate commercialization
customers in future years following commercialization pathway for the DeepView™ technology
and costs payable by BARDA
Commercial The DeepView(®) system has yet to be launched into the US, UK, EU and other Unchanged Maintaining strong relationships and project focus Effective - expanding London office, established an EU presence in
markets and so adoption and market penetration can only be estimated Dublin/Ireland, and engaged with Royal College of Scotland and other key
opinion leaders; hired a VP of Commercialization and Marketing, continue to
work with external consultants
Research and development Complex scientific research is necessary in the life sciences and medical Unchanged Recruiting and retaining highly skilled employees Effective - in H1 2022, the Company saw headcount growth of +30% YoY with the
device development sector addition of 20 full-time employees. The Company currently has 62 full-time
employees in the US and UK.
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 maintaining Effective - engaged in regular discussion to update FDA and established
strong relationships 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 H1 2022
enhancements embodying new technology
Non-GAAP measures as defined by the Company
The Company uses adjusted EBITDA as a non-GAAP metric when measuring
performance, including when measuring current period results against prior
periods adjusted EBITDA.
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. Supplemental non-GAAP measures are presented solely to permit
investors to more fully understand how Spectral MD management assesses
underlying performance. Supplemental non-GAAP measures are not, and should not
be viewed as, a substitute for GAAP measures.
Adjusted EBITDA
The Company defines adjusted earnings before interest, tax, depreciation and
amortization ("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.
Independent Auditors' Review Report
The Board of Directors Spectral MD Holdings, Ltd.
Results of Review of Consolidated Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of Spectral MD
Holdings, Ltd. and its subsidiaries (the Company) as of June 30, 2022, the
related consolidated statements of income and statements of changes in equity
for the six-month periods ended June 30, 2022 and 2021, and the related
consolidated statements of cash flows for the six-month periods ended June 30,
2022 and 2021, and the related notes (collectively referred to as the
consolidated interim financial information).
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial information
for it to be in accordance with U.S. generally accepted accounting principles.
Basis for Review Results
We conducted our reviews in accordance with auditing standards generally
accepted in the United States of America (GAAS) applicable to reviews of
interim financial information. A review of consolidated interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. A
review of consolidated interim financial information is substantially less in
scope than an audit conducted in accordance with GAAS, the objective of which
is an expression of an opinion regarding the financial information as a whole
and accordingly, we do not express such an opinion. We are required to be
independent of the Company and to meet our other ethical responsibilities in
accordance with the relevant ethical requirements relating to our reviews. We
believe that the results of the review procedures provide a reasonable basis
for our conclusion.
Emphasis of Matter
As discussed in note 2 to the consolidated interim financial information, as
of January 1, 2022, the Company adopted new accounting guidance, ASC Topic
842, Leases. Our review report is not modified with respect to this matter.
Responsibilities of Management for the Consolidated Interim Financial
Information
Management is responsible for the preparation and fair presentation of the
consolidated interim financial information in accordance with U.S. generally
accepted accounting principles and for the design, implementation, and
maintenance of internal control relevant to the preparation and fair
presentation of consolidated interim financial information that is free from
material misstatement, whether due to fraud or error.
Dallas, Texas
September 15, 2022
Spectral MD Holdings, Ltd.
Consolidated Balance Sheets
FOR THE PERIOD ENDED 30 JUNE 2022, and 31 DECEMBER 2021
UNAUDITED
30 JUN 2022 31 DEC 2021
US$ 000's US$ 000's
Assets
Current assets:
Cash and cash equivalents 15,577 16,121
Accounts receivable, net 1,866 1,435
Unbilled revenue 752 -
Prepaid expenses and other current assets 531 858
Total current assets 18,726 18,414
Non-current assets:
Property and equipment, net 26 32
Right-of-use assets 350 -
Other noncurrent assets - 40
Total Assets 19,102 18,486
Liabilities, temporary equity and stockholders' equity
Current liabilities:
Accounts payable 3,001 1,740
Accrued expenses 2,032 2,391
Lease liabilities 324 -
Notes payable - 583
Warrant liability 158 186
Total current liabilities 5,515 4,900
Total Liabilities 5,515 4,900
Stockholders' Equity
Common stock ($0.001 par value); 400,000,000 shares authorized; 135,559,564 136 135
and 135,034,564 shares issued and outstanding as of June 30, 2022 and
December 31, 2021, respectively
Additional paid-in capital 23,266 22,640
Accumulated deficit (9,815) (9,189)
Total Stockholders' equity 13,587 13,586
Total Liabilities, and Stockholders' Equity 19,102 18,486
See accompanying notes to the unaudited consolidated financial statements
See accompanying notes to the unaudited consolidated financial statements
Spectral MD Holdings, Ltd.
Consolidated Statements of Operations
FOR THE SIX MONTHS ENDED 30 JUNE 2022, and 2021
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS
ENDED ENDED
30 JUN 2022 30 JUN 2021
US$ 000's US$ 000's
Research and development revenue 12,305 7,023
Cost of revenue (7,132) (3,770)
Gross profit 5,173 3,253
Operating costs and expenses:
General and administrative 5,633 4,167
Total operating costs and expenses 5,633 4,167
Operating income (loss) (460) (914)
Other income (expense):
Interest expense (2) (4)
Change in fair value of warrant liability 28 40
Foreign exchange transaction loss (204) -
Other income 18 -
Total other income (expense) (160) 36
(Loss) income before income taxes (620) (878)
Benefit (provision) for income taxes (6) (8)
Net (loss) income (626) (886)
Dividend on Series A preferred stock - (1,259)
Net (loss) income applicable to common stockholders (626) (2,145)
Net (loss) income per share of common stock
Basic and Diluted (0.00) (0.02)
Weighted average common shares outstanding
Basic and Diluted 135,323,279 130,409,618
See accompanying notes to the unaudited consolidated financial statements
Spectral MD Holdings, Ltd.
Consolidated Statements of Cash Flows
FOR THE SIX MONTHS ENDED 30 JUNE 2022, and 2021
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS
ENDED ENDED
30 JUN 2022 30 JUN 2021
US$ 000's US$ 000's
Cash flows from operating activities:
Net (loss) income (626) (886)
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation expense 6 -
Stock based compensation 627 667
Amortization of right-of-use assets 251 -
Change in fair value of warrant liability (28) (40)
Changes in operating assets and liabilities:
Accounts receivable (431) 1,420
Unbilled revenue (752) -
Prepaid expenses and other current assets 327 (114)
Other assets 40 (3)
Accounts payable 1,261 (2,342)
Accrued expenses (336) 64
Lease liabilities (300) -
Net cash (used in) provided by operating activities 39 (1,234)
Cash flows from financing activities:
Proceeds from issuance of common stock and warrant, net of issuance costs - 14,591
Proceeds from stock option exercise - 2
Payments for notes payable (583) -
Net cash (used in) provided by financing activities (583) 14,593
Net increase (decrease) in cash and cash equivalents (544) 13,359
Cash and cash equivalents, beginning of period 16,121 5,125
Cash and cash equivalents, end of period 15,577 18,484
Supplemental cash flow information:
Cash paid for interest 11 -
Cash paid for income taxes -
Noncash financing activities disclosure:
Cumulative dividend on Series A preferred stock 1,259
Conversion of preferred stock to common stock 2,373
Right-of-use assets exchanged for lease liabilities 624 -
See accompanying notes to the unaudited consolidated financial statements
Spectral MD Holdings, Ltd.
Unaudited Consolidated Statements of Changes in Equity
FOR THE SIX MONTHS ENDED 30 JUNE 2022, and 2021
Additional Total
Paid-in Accumulated Stockholders'
Preferred Stock Common Stock Capital Deficit Equity
Shares Amount Shares Amount
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
Balance at December 31, 2021 - - 135,034,564 135 22,640 (9,189) 13,586
Stock options exercised - cashless - - 150,000 - - - -
Stock compensation - - 375,000 1 626 - 627
Net loss - - - - - (626) (626)
Balance at June 30, 2022 - - 135,559,564 136 23,266 (9,815) 13,587
Additional Total
Paid-in Accumulated Stockholders'
Preferred Stock Common Stock Capital Deficit Equity
Shares Amount Shares Amount
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
Balance at December 31, 2020 4,324,330 1,114 61,347,000 61 6,096 (5,022) 1,135
Issuance of common stock for cash - - 19,067,797 19 15,595 - 15,614
Issuance cost, net of $0.5 million warrant liability - - - - (1,506) - (1,506)
Cumulative dividend on Series A preferred stock - 1,259 - - (1,259) - (1,259)
Conversion of preferred stock to common stock (4,324,330) (2,373) 53,889,765 54 2,319 - 2,373
Stock option exercised for cash - - 22,500 - 2 - 2
Stock compensation - - 312,504 1 666 - 667
Other adjustments - - - - - (12) (12)
Net loss - - - - - (886) (886)
Balance at June 30, 2021 - - 134,639,566 135 21,913 (5,920) 16,128
See accompanying notes to the unaudited 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 "Company").
On June 21, 2021, Spectral MD Merger Sub, Inc. ("Merger Sub"), a Delaware
corporation and wholly owned subsidiary of Spectral MD Holdings, Ltd., 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 converted into 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 (the "AIM").
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.
On July 22, 2021, the Company formed its wholly-owned subsidiary in the UK,
Spectral MD UK Ltd., ("Spectral MD UK") in order to prepare for and initiate
the regulatory approval process in the E.U. and U.K.
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, 2022 and December 31, 2021, the Company had approximately
US$15.6 million and US$16.1 million, respectively in cash, and an accumulated
deficit of US$9.8 million and US$9.2 million, respectively. The Company has
historically funded its operations through the issuance of notes and the sale
of preferred stock and common stock. During 2021, the Company executed Options
1A and 1B of the contract with BARDA for funding of US$39.4 million, of which
US$18.2 million is remaining as of June 30, 2022, to execute the clinical
training study of DeepView® Wound Imaging System for burn wound healing
assessment. With the Company's closing on its initial public offering (the
"Offering") during 2021 (see Note 3) 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$88.7 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 United
States of America ("GAAP") as determined by the Financial Accounting Standards
Board ("FASB") Accounting Standards Codification ("ASC").
The condensed consolidated balance sheet as of June 30, 2022, the condensed
consolidated statements of operations, stockholders' equity, and cash flows
for the six months ended June 30, 2022 and 2021, are unaudited. The interim
condensed consolidated financial statements have been prepared on the same
basis as the audited annual 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
June 30, 2022 and its results of operations and cash flows for the six months
ended June 30, 2022 and 2021. The results of operations for the six months
ended June 30, 2022 and 2021 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 financial statements for the year ended
December 31, 2021.
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.
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, measurement of the operating lease liabilities, 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. Most of the
Company's 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 approximately
US$1.9 million and US$1.4 million as of June 30, 2022 and December 31, 2021,
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 June 30, 2022 and December 31, 2021.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist principally of cash and cash equivalents and accounts receivable. Most
of the Company's 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, 2022 and December 31, 2021, receivables were
concentrated from one customer (which is a U.S. government agency)
representing 98% and 94% of total net receivables, respectively. No allowance
for doubtful accounts were recorded as of June 30, 2022 and December 31, 2021.
One customer (which is a U.S. government agency) accounted for 92% and 100% of
the recognized research and development revenue for the six months ended June
30, 2022 and 2021, 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.
Foreign Currency
The reporting currency for the condensed consolidated financial statements of
the Company is the U.S. dollar. The functional currency of the Company is the
U.S. dollar. The functional currency of the Company's subsidiaries is the
local currency of the subsidiaries. The assets and liabilities of this
subsidiary is translated into U.S. dollars at exchange rates in effect at the
end of each reporting period. Revenues and expenses for these subsidiaries are
translated at average exchange rates in effect during the applicable period.
Translation adjustments are included in accumulated other comprehensive income
(loss) as a component of stockholders' equity. As of June 30, 2022 and
December 31, 2021, 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
six months ended June 30, 2022, the Company recorded $0.2 million of foreign
exchange transaction loss, 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 on the condensed
consolidated statement of operations. The Company did not have any foreign
exchange transaction gains or losses for the six months ended June 30, 2021.
Leases
Effective January 1, 2022, the Company accounts for its leases under
Accounting Standards Codification ("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. 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 period ending June 30, 2022, the Company did
not have any finance leases.
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.
The Company accounted for leases prior to January 1, 2022 under ASC 840,
Leases. For the six months ended June 30, 2021, the Company recognized rent
payments in the Company's operating leases on a straight-line basis over the
lease term.
Derivative Liabilities
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, 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.
The Company does not generally use derivative instruments to hedge exposures
to cash flow, market, or foreign currency risks. During the six months ended
June 30, 2021, the Company entered into one derivative instrument, to set a
foreign currency exchange rate, that settled in July 2021. The accounting for
changes in fair value of derivatives depends on the intended use of the
derivative and resulting designation. The Company did not designate its
derivative instrument as a hedge for accounting purposes. As of June 30, 2021,
the change in fair value of the derivative instrument was immaterial when the
Company marked its derivative instrument to fair value. For the six months
ended June 30, 2022, the Company did not have any derivative instruments,
other than the stock purchase warrants, discussed above.
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 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.
The Company records unbilled revenue when revenue is recognized prior to
billing customers.
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 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
condensed 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'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 six months ended June 30,
2022 and 2021.
Comprehensive Loss
Comprehensive loss is equal to net loss as presented in the condensed
statement of operations, as the Company did not have any material
comprehensive income or loss for the periods presented.
Net Loss per Share of Common Stock
Basic net loss per 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 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 are 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. The Company applies the if-converted method to compute
the potentially dilutive effect of the Series A preferred stock.
Recently Adopted 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. The Company adopted ASU 2016-02
on January 1, 2022. The Company recorded a right-of-use asset and lease
liabilities each of US$0.6 million upon the adoption of ASU 2016-02. See Note
8.
Recently Issued 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. 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 condensed 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 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.
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, 2022 and December 31, 2021, by level within the fair value hierarchy (in
thousands):
Fair value measured at June 30, 2022
Quoted prices in Significant other Significant
Fair value at active markets observable inputs unobservable inputs
June 30, 2022 (Level 1) (Level 2) (Level 3)
US$ US$ US$ US$
Warrant liability $ 158 $ - $ - $ 158
Fair value measured at December 31, 2021
Quoted prices in Significant other Significant
Fair value at active markets observable inputs unobservable inputs
December 31, 2021 (Level 1) (Level 2) (Level 3)
US$ US$ US$ US$
Warrant liability $ 186 $ - $ - $ 186
There were no transfers between Level 1, 2 or 3 during the six months ended
June 30, 2022 and 2021.
The following table presents changes in Level 3 liabilities measured at fair
value for the six months ended June 30, 2022 (in thousands).
Balance - December 31, 2021 $ 186
Change in fair value (28)
Balance - June 30, 2022 $ 158
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:
June 30, December 31,
2022 2021
Strike price (per share in US$) $ 0.72 $ 0.80
Contractual term (years) 5.0 5.5
Volatility (annual) 69.9% 67.6%
Risk-free rate 3.0% 1.3%
Dividend yield (per share) 0.0% 0.0%
4. Research and Development Revenue
For the six months ended June 30, 2022 and 2021, the Company's revenues
disaggregated by the major sources was as follows (in thousands):
Six Months Six Months
Ended Ended
June 30, 2022 June 30, 2021
US$ US$
BARDA 11,282 7,023
Other U.S governmental authorities 1,023 -
Total revenue 12,305 7,023
5. Accrued Expenses
Accrued expenses consist of the following as of June 30, 2022 and December 31,
2021 (in thousands):
June 30, December 31,
2022 2021
US$ US$
Salary and wages 623 896
Provision operating expenses 610 700
Benefits 659 470
Franchise tax 140 291
Deferred rent - 23
Accrued interest - 11
Total accrued expenses 2,032 2,391
6. Notes Payable
Notes Payable
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$0.8 million (the "PPP Loan"). The PPP Loan, which matures 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 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 2021, the Company repaid approximately US$0.4 million of
principal and interest for the PPP Loan. During the six months ended June 30,
2022, the Company repaid the remaining US$0.4 million of principal and
interest for the PPP Loan. There was no outstanding balance as of June 30,
2022.
Insurance Note
On June 21, 2021, the Company entered into a financing agreement for a portion
of its insurance premium for approximate US$0.5 million ("Insurance Note").
The Insurance Note bears interest at 5.7% per annum and is payable in nine
equal monthly payments of principal and interest beginning on July 21, 2021
and maturing on February 1, 2022. During 2021, the Company repaid
approximately US$0.3 million of principal and interest for the Insurance Note.
During the six months ended June 30, 2022, the Company repaid the remaining
US$0.2 million of principal and interest for the Insurance Note. There was no
outstanding balance as of June 30, 2022.
7. Commitments and Contingencies
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.
8. Operating Leases
The Company leases office space for its principal office in Dallas, Texas,
which expires in February 2023. During 2022, the Company entered into a lease
for office space in the United Kingdom under a lease that expires in May 2023.
The following table summarizes quantitative information about the Company's
operating leases for the six months ended June 30, 2022 (US dollars in
thousands):
Six Months
Ended
June 30, 2022
Operating cash flows from operating leases $ 313
Right-of-use assets exchanged for operating lease liabilities $ 624
Weighted average remaining lease term - operating leases (in years) 0.7
Weighted average discount rate - operating leases 6.73%
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):
Six Months
Ended
June 30, 2022
Operating leases
Operating lease cost $ 264
Variable lease cost 93
Total rent expense $ 357
Variable lease cost is primarily attributable to amounts paid to lessors for
utility charges and property taxes under an office space lease.
As of June 30, 2022, future minimum payments under
the non-cancelable operating leases under ASC 842 were as follows (in
thousands):
Six months ending December 31, 2022 $ 282
Year ending December 31, 2023 50
Year ending December 31, 2024 -
Total 332
Less: imputed interest (8)
Operating lease liabilities $ 324
For the six months ended June 30, 2021, the Company recorded rent expense of
approximately US$0.4 million included in general and administrative expenses
in the condensed consolidated statement of operations in accordance with ASC
840. The future minimum lease minimum payments under the Company's lease
agreement as of December 31, 2021 are as follows (in thousands):
Year ending December 31, 2022 $ 579
Year ending December 31, 2023 97
Year ending December 31, 2024 -
Total 676
9. Preferred Stock
As of June 30, 2022 and December 31, 2021, there were no authorized or
outstanding shares of preferred stock. Immediately prior to the Offering, all
outstanding shares of Series A preferred stock and unpaid cumulative dividends
were converted into 53,889,765 shares of common stock.
10. Stockholders' Equity
The Company was authorized to issue 400,000,000 shares of common stock, par
value US$0.001 per share, as of June 30, 2022 and December 31, 2021,
respectively. The Company had 135,559,564 and 135,034,564 shares of common
stock issued and outstanding as of June 30, 2022 and December 31, 2021,
respectively. The Company is in the process of completing the issuance of an
additional 150,000 shares of stock through the exercise as of June 30, 2022 of
certain stock options by a few of the Company's former employees.
11. Stock-based Compensation
2018 Long Term Incentive Plan
On July 24, 2018, the Company's' Board adopted the 2018 Long Term Incentive
Plan (the "2018 Plan") which permits granting of incentive stock options (they
must meet all statutory requirements), non-qualified stock options, stock
appreciation rights, restricted stock, stock units, performance shares,
performance units, incentive bonus awards, and other cash-based or stock-based
awards. In June 2021, in connection with the IPO, the 2018 Plan was amended so
that stock issued pursuant to the 2018 Plan would be the common stock of
Spectral MD Holdings, Ltd. Pursuant to the 2018 Plan, stock options must
expire within 10 years and must be granted with exercise prices of no less
than the fair value of the common stock on the grant date, as determined by
the Board of Directors. As of June 30, 2022, 38,354,118 shares of common
stock were authorized for issuance under the 2022 Plan, of which 2,230,118
remain available for issuance under the 2018 Plan.
Restricted Stock
The RSAs generally vest over four years. A summary of RSA activities for the
six months ended June 30, 2022 are presented below.
Number of Shares Weighted Average Grant Date Fair Value per Share
US$
Nonvested at December 31, 2022 1,062,502 $ 0.10
Vested (375,000) $ 0.10
Nonvested at June 30, 2022 687,502 $ 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 June 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 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, 2022 and 2021, respectively:
2022 2021
Exercise price (per share in US$) $ 0.46 $ 0.21
Expected term (years) 6.0 5.0
Volatility (annual) 68% 85%
Risk-free rate 2.0% 0%
Dividend yield (per share) 0% 0%
Stock options generally vest over three years. A summary of stock options
activity for the six months ended June 30, 2022 is presented below:
Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value
US$
US$
(in thousands)
Outstanding at December 31, 2021 33,969,000 $ 0.17 8.1 $ 10,963
Options granted 3,130,000 $ 0.46 9.6
Options exercised (150,000) $ 0.16
Options forfeited/expired (825,000) $ 0.25
Outstanding at June 30, 2022 36,124,000 $ 0.19 7.8 $ 8,956
Options vested and exercisable at June 30, 2022 25,281,443 $ 0.14 7.3 $ 7,383
For the six months ended June 30, 2022 and 2021, the Company recorded
stock-based compensation expense of approximately US$0.6 million and US$0.7
million, respectively, in general and administrative expenses in the condensed
consolidated statements of operations.
As of June 30, 2022, 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, 2022, there was approximately US$0.1 million of unrecognized
stock-based compensation related to restricted stock grants that will be
amortized over a weighted average period of 0.6 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. The Investor Options have an
exercise price of US$1.20 per share and expire in November 2023. As of June
30, 2022, there is no unrecognized stock-based compensation expense related to
the Investor Options.
Warrants
On June 22, 2021, in conjunction with the closing of the Company's IPO, the
Company issued 762,712 warrants, with a strike price of US$0.89 and a ten year
life, to SP Angel, who acts as nominated adviser and broker to the Company for
the purposes of the AIM Rules. As of June 30, 2022, there are 762,712 warrants
outstanding with a strike price of US$0.72. The change in the strike price is
due to the change in exchange rates as the warrants will settle in shares
denominated in British pounds.
12. Net Loss Per Common Share
Basic and diluted net loss per common share attributable to common
stockholders are the same for the six months ended June 30, 2022 and 2021,
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 not
considered in the computation of diluted net loss per common share because the
effect would be anti-dilutive.
Six Months Ended Six Months Ended
June 30,2022 June 30,2021
Common stock options 36,124,000 33,510,000
Common stock warrants 762,712 762,712
Unvested restricted stock 687,502 9,763,123
Potentially dilutive securities 37,574,214 44,035,835
13. Subsequent Events
In September 2022, the Company signed an agreement with BARDA where the
Company received an additional $8.2 million in funding associated with Option
1B of the contract with BARDA. The additional award covers an expansion of the
burn training study to include additional pediatric sites and US Emergency
Departments ("EDs") as well as additional interoperability with health
systems' electronic health records ("EHR"), and provides funds to support the
Company's manufacturing capacity readiness.
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