Financial Performance - Research and development revenue for the nine months ended September 30, 2024, was $21.977 million, a significant increase from $12.769 million in the same period in 2023[6] - Net loss for the nine months ended September 30, 2024, was $7.573 million, compared to a net loss of $17.308 million in the same period in 2023[6] - Gross profit for the nine months ended September 30, 2024, was $9.926 million, up from $5.444 million in the same period in 2023[6] - Operating loss for the nine months ended September 30, 2024, was $5.471 million, an improvement from $10.055 million in the same period in 2023[6] - Total other expense, net for the nine months ended September 30, 2024, was $1.974 million, compared to $7.221 million in the same period in 2023[6] - Net loss for the nine months ended September 30, 2023, was $17.308 million[11] - Research and development revenue for the three months ended September 30, 2024, was $8,173,000, compared to $3,440,000 for the same period in 2023[6] - Net loss for the three months ended September 30, 2024, was $1,504,000, compared to $10,629,000 for the same period in 2023[6] - Net loss per share for the three months ended September 30, 2024, was $0.08, compared to $0.77 for the same period in 2023[6] - Total comprehensive loss for the nine months ended September 30, 2024, was $7,560,000, compared to $17,308,000 for the same period in 2023[6] Research and Development - The company recognized research and development expense of $5.2 million for the three months ended September 30, 2024, compared to $3.6 million for the same period in 2023[64] - For the nine months ended September 30, 2024, research and development expense was $14.9 million, up from $11.3 million in the same period in 2023[64] - $4.5 million of the R&D expenses for the three months ended September 30, 2024, were related to BARDA and MTEC contracts, compared to $2.0 million in the same period in 2023[64] - For the nine months ended September 30, 2024, $12.0 million of R&D expenses were related to BARDA and MTEC contracts, up from $7.3 million in the same period in 2023[64] Contracts and Grants - The company executed a multi-year Project BioShield contract with BARDA valued at up to $150.0 million, with an initial award of $54.9 million[20] - The company received a $4.0 million grant from MTEC in April 2023 for the development of a handheld version of the DeepView System, with the project expected to be completed by April 2025[21] - The MTEC award was increased to $4.9 million in August 2024, with an additional $0.9 million received in September 2024 for further development of the handheld device[21] - The company received an additional $0.5 million award from the Defense Health Agency in March 2024 for further development of the handheld device[21] - As of September 30, 2024, the company has $2.5 million and $0.2 million remaining to bill under the MTEC and DHA awards, respectively[21] Stock and Equity - Weighted average common shares outstanding for the nine months ended September 30, 2024, were 17,342,203, up from 13,410,287 in the same period in 2023[6] - Stock-based compensation for the nine months ended September 30, 2024, totaled $858,000[8] - Issuance of common stock under the SEPA for the nine months ended September 30, 2024, totaled $1.47 million[8] - The company issued 906,706 shares of common stock under the SEPA during the quarter ended September 30, 2024[8] - The company has 8,433,333 Public Warrants outstanding as of September 30, 2024, with an exercise price of $11.50 per share[56] - There are 73,978 SP Angel Warrants outstanding as of September 30, 2024, which were converted from Legacy Spectral warrants with a strike price of $7.32[57] - The company accounts for its Public Warrants and SP Angel Warrants as derivative liabilities, adjusting them to fair value at each reporting period[58] - The company entered into a Common Stock Purchase Agreement with B. Riley Principal Capital II, LLC in December 2023, allowing the company to sell up to $10.0 million in newly issued shares of Common Stock[25] - The company entered into a Standby Equity Purchase Agreement with YA II PN, LTD in March 2024, allowing the company to sell up to $30.0 million in shares of Common Stock, with $12.5 million advanced in convertible promissory notes[27] - The company issued 1,187,398 shares to B. Riley under the ELOC for $2.7 million in aggregate gross proceeds during the nine months ended September 30, 2024[113] - The company issued 906,706 shares as repayment of principal under the SEPA during the three and nine months ended September 30, 2024[114] - The 2023 Long Term Incentive Plan allows for the issuance of up to 8,000,000 shares, with an annual addition of up to 5% of outstanding shares from 2024 to 2033[119] - As of September 30, 2024, 3,786,191 shares were issuable upon exercise of outstanding options and 469,400 restricted stock units (RSUs) were issuable under the 2023 Plan[119] - The Company granted 450,000 RSUs in the nine months ended September 30, 2024, with a weighted-average grant date fair value of $2.16 per share[124] - Total unrecognized compensation expense related to RSUs was $0.8 million as of September 30, 2024, expected to be recognized over 1.8 years[124] - The Company granted 443,437 stock options in the nine months ended September 30, 2024, with a weighted average exercise price of $1.76 per share[128] - As of September 30, 2024, there was $0.8 million of unrecognized stock-based compensation related to stock option grants, to be amortized over 0.9 years[129] - The Company recorded stock-based compensation expense of $0.9 million for the nine months ended September 30, 2024[130] Cash and Liquidity - The company's cash balance at the end of September 30, 2023, was $7.348 million[11] - The company's net cash used in operating activities for the nine months ended September 30, 2023, was $10.865 million[11] - The company's net cash provided by financing activities for the nine months ended September 30, 2023, was $4.039 million[11] - As of September 30, 2024, the company had approximately $3.7 million in cash, an accumulated deficit of $40.4 million, and $5.0 million in short-term notes payable[24] - The company believes its cash and cash equivalents, along with various contracts and agreements, will be sufficient to fund operations for at least one year beyond the release date of the financial statements[29] - The company's cash and cash equivalents, along with the PBS BARDA Contract, MTEC Agreement, B. Riley ELOC, and Yorkville Transaction, are expected to fund operations for at least one year beyond the release date of the condensed consolidated financial statements[29] Business Combination and Subsidiaries - The company completed a Business Combination on September 11, 2023, resulting in the issuance of 14,094,450 shares of Company Common Stock at an exchange ratio of 10.31[16] - The Company recorded net liabilities of $2.4 million upon the Business Combination, with an offsetting decrease to additional paid-in capital[81] - Transaction costs related to the Business Combination totaled $7.6 million, including $1.9 million paid in cash and $4.4 million in Company Common Stock issued[82] - Prior to the Business Combination, the Company incurred $0.7 million in transaction costs for potential business combinations that did not occur[83] - The company formed a new wholly-owned subsidiary, Spectral IP, Inc., in March 2024, which received a $1.0 million investment for the development of its artificial intelligence intellectual property portfolio[22] - Spectral IP received a $1.0 million investment from an affiliate of its largest shareholder, structured as a note payable with an 8% interest rate and a one-year maturity[102] - The company announced its intent to spin off its Spectral IP Inc. subsidiary, expected to be completed within 90 days, subject to regulatory approvals[143] Revenue Recognition - Revenue from BARDA contracts is recognized as costs are incurred, with BARDA reimbursing the company based on allowable costs plus any recognizable earned fee[61] - Revenue from the MTEC Agreement is recognized over time based on the cost-to-cost measure of progress, with installment payments made after milestone completion[62] - The company elected not to adjust the transaction price for the effects of a significant financing component, as the period between performance and payment is one year or less[63] Accounting and Compliance - The company adopted ASU No. 2020-06 on January 1, 2024, which simplifies accounting for convertible instruments, with no impact on its financial statements[73] - The company adopted ASU 2022-03 on January 1, 2024, which clarifies fair value measurement of equity securities subject to contractual sale restrictions, with no impact on its financial statements[74] - The Company is evaluating the impact of adopting ASU 2023-07, ASU 2023-09, and ASU 2024-03 on its financial statements and disclosures[77][78][79] - The company received a notice from Nasdaq in June 2024 regarding non-compliance with the minimum market value of listed securities requirement of $35.0 million, with a 180-day period to regain compliance[28] DeepView System and Product Development - The company's DeepView System is focused on burn wounds and diabetic foot ulcer (DFU) indications, with no product revenue generated to date[19] - The Company's DeepView System uses proprietary AI algorithms to predict wound healing capacity, assisting physicians in treatment decisions[18] Leases and Operating Costs - The company amended its office lease in Dallas, Texas, extending the term to February 2028 and receiving a $0.3 million tenant improvement allowance[105] - Operating lease costs for the nine months ended September 30, 2024, totaled $857 thousand, with variable lease costs primarily attributable to utility charges, parking, and property taxes[109] - Future minimum payments under non-cancelable operating leases as of September 30, 2024, total $2.8 million, with operating lease liabilities of $2.1 million after adjustments[110] Notes Payable and Financing - The company entered into Yorkville Convertible Notes with a total amount financed of $11.5 million, of which $7.1 million is due by September 2024, and an outstanding balance of $4.4 million as of December 31, 2023[98] - The company received $4.6 million in cash from the first Pre-Paid Advance under the Yorkville Convertible Notes, net of an 8% original issue discount, with a fixed conversion price of $3.16[99] - As of September 30, 2024, the company has made aggregate installment payments on the Pre-Paid Advances totaling $8.3 million, with $7.2 million settled in cash and $1.1 million settled in shares[100] - The company recognized $0.2 million and $0.8 million in issuance costs related to the SEPA for the three and nine months ended September 30, 2024, respectively[101] - The fair value of short-term notes payable to Yorkville as of September 30, 2024, was $4.377 million, determined using Level 3 inputs[91] - The Company recognized no change in derivative liability fair value for the three and nine months ended September 30, 2024, related to the B. Riley ELOC and Yorkville SEPA[93] - The payment period for the remaining outstanding balance of Pre-Paid Advances was extended through February 2025[141] Tax and Compensation - The effective tax rate was 2.5% and 1.7% for the three and nine months ended September 30, 2024, respectively[132] - The Company's stock-based compensation for the nine months ended September 30, 2023, is $975[11] - The Company's issuance of common stock for transaction costs in 2023 is $1,800[11] Other Financial Metrics - The company's total balance at September 30, 2023, was $15,688,268[10] - The company's cumulative translation adjustment at September 30, 2023, was $(3)[10] - The Company's revenue for the nine months ended September 30, 2024, was $21.977 million, with $20.734 million from BARDA and $1.243 million from other U.S. governmental authorities[94] - Contract liabilities decreased from $2.311 million as of December 31, 2023, to $731 thousand as of September 30, 2024, due to reductions of $5.818 million[96] - Accrued expenses as of September 30, 2024, totaled $3.253 million, including $1.957 million in salary and wages and $504 thousand in operating expenses[97] - The fair value of warrant liabilities as of September 30, 2024, was $1,101 thousand, with $1,096 thousand classified as Level 1 and $5 thousand as Level 3[84] - The Company's potentially dilutive securities totaled 12,762,902 as of September 30, 2024, including 3,786,191 common stock options and 469,400 unvested RSUs[137] - The annual interest rate on the Related Party Note was reduced from 8% to 4%, with a conversion feature allowing conversion into shares at a 5% discount to the closing price of the Parent's common stock[140] - The company filed a shelf registration statement for the offering of up to $50,000,000 of Common Stock, declared effective by the SEC on October 31, 2024[142] - As of November 5, 2024, there were 18,588,073 shares of Common Stock issued and outstanding[4]
Spectral AI(MDAI) - 2024 Q3 - Quarterly Report