QT Imaging(QTI) - 2022 Q4 - Annual Report

Part I Business GigCapital5, a SPAC, entered a definitive business combination agreement with QT Imaging, Inc., navigating extensions and redemptions while applying a "Mentor-Investor" philosophy - GigCapital5 is a SPAC formed to effect a business combination and has entered into a definitive agreement with QT Imaging, Inc., a medical device company, on December 8, 2022[15][20] - The company employs a "Mentor-Investor" philosophy, intending to provide financial, operational, and executive mentoring to accelerate the target company's growth from a private to a public entity[17] - The company obtained two extensions for its business combination deadline, resulting in the redemption of approximately 82.5% of shares in September 2022 and another 4.3% in March 2023[29][31][32] Sponsor Loans for Extensions and Working Capital (as of March 28, 2023) | Loan Type | Purpose | Total Principal Amount | Conversion Terms | | :--- | :--- | :--- | :--- | | Extension Note | Fund deposits into the trust account to extend the combination period | $1,060,000 | Non-convertible, non-interest bearing, unsecured promissory note | | Working Capital Note | Provide additional working capital | $805,000 | Convertible at Sponsor's election upon business combination into 80,500 units at $10.00 per unit | - If an initial business combination is not completed by the September 28, 2023 deadline, the company will cease operations, redeem 100% of outstanding public shares, and dissolve[61][62] Risk Factors The company faces significant investment risks, including its blank check nature, going concern doubts, potential conflicts of interest, and substantial post-merger stockholder dilution General Risk Factors General risks include the company's lack of operating history, auditor's going concern doubt, and potential adverse impacts from inflation and geopolitical events - The company is a blank check entity with no operating history or revenues, providing no basis for investors to evaluate its ability to achieve business objectives[90] - The independent auditor's report expresses substantial doubt about the company's ability to continue as a "going concern" due to its working capital deficit and reliance on completing a business combination[114] - The company's warrants are accounted for as derivative liabilities and recorded at fair value, with changes reported in earnings, which may adversely affect the stock price[117] - Recent increases in inflation and the military conflict in Ukraine could create economic disruptions and uncertainty, making it more difficult to consummate a business combination[128][129] Risks Relating to the Business Combination Risks include significant stockholder dilution, Sponsor's controlling vote, potential cash reduction from redemptions, and the absence of an independent fairness opinion for the business combination - Public stockholders will experience immediate and significant dilution, with an anticipated ownership of approximately 11.1% of the Combined Company post-combination, assuming no further redemptions and a PIPE investment[133][134] - The Sponsor's agreement to vote its shares, approximately 68.3% of outstanding shares, means the proposed business combination can be approved even if all public stockholders vote against it[139][140][141] - The company did not obtain a fairness opinion from an independent investment banking firm, requiring stockholders to rely on the Board of Directors' judgment regarding merger consideration fairness[193][195] - A new 1% U.S. federal excise tax on stock repurchases could be imposed on redemptions after December 31, 2022, potentially reducing available cash, though the company expects share issuance to offset this liability[242][243] Risks Relating to the Post-Business Combination Company Post-merger risks include potential asset write-downs, increased public company operating costs, stock price volatility, and challenges in maintaining NYSE listing standards - Post-combination, the company may be forced to write-down or write-off assets, restructure operations, or incur impairment charges that could result in losses and negatively affect the stock price[255][256] - The Sponsor paid a nominal price of approximately $0.0044 per Founder Share, while public stockholders paid $10.00 per unit, allowing the Sponsor to profit even if public stockholders incur losses[262][265] - Following the merger, the combined company will face increased legal, accounting, and administrative costs associated with being a public company, which could adversely affect its financial condition[261] - There is no guarantee that the combined company's common stock will be approved for listing or be able to maintain its listing on the NYSE, which could lead to reduced liquidity and other adverse consequences[271] Risks Relating to Management Management risks include potential conflicts of interest due to external affiliations, limited time commitment, and financial incentives that may not align with public stockholders' best interests - Officers and directors are not required to commit their full time to the company's affairs and are involved in other businesses, which may create conflicts of interest in allocating their time[281] - The Sponsor and management team will lose their entire investment if a business combination is not consummated, creating a conflict of interest that may incentivize them to complete a deal on terms less favorable to public stockholders[200][302] - Certain officers and directors are affiliated with other SPACs and operating companies (Kaleyra, UpHealth, BigBear.ai), which could create conflicts in determining which entity should be presented with a particular business opportunity[287][289] - QT Imaging's management has limited experience operating a public company, which could pose challenges in complying with regulatory oversight and reporting obligations[308] Risks Relating to Securities Securities risks include warrants potentially expiring worthless, NYSE delisting, adverse warrant term amendments, and limited public stockholder rights to trust account funds - The company's warrants have an exercise price of $11.50 per share, with no guarantee they will ever be "in the money," potentially expiring worthless[316] - The NYSE may delist the company's securities if it fails to meet continued listing requirements, which could limit liquidity and subject the stock to "penny stock" rules[312][313] - The terms of the warrants can be amended with the approval of holders of at least 50% of the then-outstanding public warrants, which could adversely affect the interests of other holders[317] - If the company liquidates, holders of warrants will not receive any liquidating distributions, and the warrants will expire worthless[320] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[342] Properties The company's corporate offices in Palo Alto are provided by a Sponsor affiliate for a monthly fee of $30,000, covering space and administrative services - The company's principal executive office is located in Palo Alto, California, provided by an affiliate of the Sponsor for a monthly fee of $30,000, which also covers administrative and support services[343] Legal Proceedings The company reports no legal proceedings to which it is a party - None[344] Mine Safety Disclosures This item is not applicable to the company - None[345] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section details the market for the company's NYSE-listed securities, including 2022 trading prices, dividend policy, and recent sales of unregistered securities to the Sponsor and management 2022 Quarterly High and Low Sales Prices | Quarter Ended | Units (GIA.U) High/Low | Common Stock (GIA) High/Low | Warrants (GIA.WS) High/Low | | :--- | :--- | :--- | :--- | | March 31, 2022 | $10.82 / $10.12 | $10.00 / $9.81 | $0.60 / $0.19 | | June 30, 2022 | $10.36 / $10.03 | $10.13 / $9.96 | $0.28 / $0.05 | | September 30, 2022 | $10.19 / $10.03 | $10.34 / $10.01 | $0.08 / $0.02 | | December 31, 2022 | $10.54 / $10.09 | $10.28 / $10.09 | $0.05 / $0.01 | - The company has not paid any cash dividends on its common stock and does not intend to before completing a business combination[352] - The company conducted several sales of unregistered securities, including 5,735,000 Founder Shares to the Sponsor for $25,000 and 795,000 Private Placement Units to the Sponsor for $7.95 million[355][357] - The company issued a convertible Working Capital Note to the Sponsor, which had a collective principal amount of $805,000 as of March 28, 2023, convertible into units at $10.00 per unit upon business combination[361] Management's Discussion and Analysis of Financial Condition and Results of Operations The MD&A details the company's financial condition and operational results, including a $2.8 million net loss in 2022, significantly reduced Trust Account balance due to redemptions, and substantial doubt about its going concern ability Results of Operations | Period | Loss from Operations | Interest Income (Trust) | Net Loss | | :--- | :--- | :--- | :--- | | Year Ended Dec 31, 2022 | ($4,279,100) | $1,630,398 | ($2,774,307) | | Inception (Jan 19, 2021) to Dec 31, 2021 | ($1,081,298) | $5,978 | ($1,107,730) | Trust Account Balance | Date | Cash and Marketable Securities in Trust Account | | :--- | :--- | | December 31, 2022 | $41,561,656 | | December 31, 2021 | $232,304,005 | - Stockholder redemptions have significantly reduced the funds in the Trust Account, with a $192.1 million withdrawal in September 2022 and a further $10.4 million in March 2023[383][384] - The company's ability to continue as a going concern is in substantial doubt, as it is dependent on completing a business combination by its September 28, 2023 deadline[408] Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure is limited, as Trust Account funds are invested in short-term U.S. treasuries, minimizing interest rate risk - As of December 31, 2022, the $41,561,656 held in the Trust Account was invested in money market funds holding U.S. treasuries, which management believes minimizes exposure to interest rate risk[422][423] Financial Statements and Supplementary Data This section presents the company's audited financial statements, including Balance Sheets and Statements of Operations, with the auditor highlighting a "Going Concern Uncertainty" - The independent auditor's report explicitly states that conditions such as lack of revenue and dependence on a business combination "raise substantial doubt about the Company's ability to continue as a going concern"[430] Key Balance Sheet Data (As of Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cash and marketable securities in Trust Account | $41,561,656 | $232,304,005 | | Total Assets | $41,945,571 | $233,632,998 | | Total Liabilities | $13,418,199 | $10,247,041 | | Common stock subject to possible redemption | $41,606,846 | $232,304,195 | | Total stockholders' deficit | ($13,079,474) | ($8,918,238) | Key Operations Data | Metric | Year Ended Dec 31, 2022 | Period from Jan 19, 2021 to Dec 31, 2021 | | :--- | :--- | :--- | | Loss from operations | ($4,279,100) | ($1,081,298) | | Net loss and comprehensive loss | ($2,774,307) | ($1,107,730) | | Net loss per share, non-redeemable common stock | ($0.60) | ($0.14) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[543] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Based on an evaluation as of December 31, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[545] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[549] Part III Directors, Executive Officers and Corporate Governance This section details the company's leadership, including five directors and two executive officers, board committee structure, and potential conflicts of interest arising from management's external affiliations - The company's leadership includes Executive Chairman Dr. Avi S. Katz and CEO Dr. Raluca Dinu, who have co-founded and led multiple prior GigCapital SPACs[555][556][557] - The Board of Directors consists of five members, three of whom (Dorothy D. Hayes, Karen Rogge, and Raanan I. Horowitz) are deemed independent[565][568] - The Board has established Audit, Compensation, and Nominating and Corporate Governance committees, each composed entirely of independent directors[570] - Significant potential conflicts of interest exist due to executive officers' and directors' involvement with other companies, including Kaleyra, Inc., UpHealth, Inc., and BigBear.ai Holdings, Inc., which are previous GigCapital SPACs[581][583][589] Executive Compensation This section details executive and director compensation, noting that Executive Chairman and CEO received advisory fees, the CFO received a salary, and an affiliate received $30,000 monthly for services 2022 Management Compensation | Name and Principal Position | Salary | All Other Compensation (Advisory Fees) | Total | | :--- | :--- | :--- | :--- | | Dr. Avi S. Katz, Executive Chairman | $0 | $120,000 | $120,000 | | Dr. Raluca Dinu, CEO & President | $0 | $120,000 | $120,000 | | Brad Weightman, CFO & Treasurer | $120,000 | $0 | $120,000 | - GigManagement, LLC, an affiliate of the Executive Chairman and CEO, receives $30,000 per month for office space and administrative services[594] - Independent directors are compensated with advisory fees for their board and committee service, with all such fees for 2022 remaining unpaid as of December 31, 2022[596][602] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial ownership of common stock, showing the Sponsor and management collectively own approximately 68.4%, granting them effective control over stockholder matters Beneficial Ownership of Common Stock (as of March 28, 2023) | Name of Beneficial Owner | Number of Shares Beneficially Owned | Approximate Percentage of Outstanding Common Stock | | :--- | :--- | :--- | | GigAcquisitions5, LLC (Sponsor) | 6,530,000 | 68.3% | | Dr. Avi S. Katz | 6,530,000 | 68.3% | | All directors and officers as a group (6 individuals) | 6,535,000 | 68.4% | - Due to their collective ownership of approximately 68.4%, the Founder and management team can effectively influence the outcome of all matters requiring stockholder approval[606] Certain Relationships and Related Transactions, and Director Independence This section outlines related-party transactions, including Sponsor's purchase of Founder Shares and Private Placement Units, unsecured loans, and the company's policy for approving such transactions - The Sponsor purchased 5,735,000 Founder Shares for $25,000 and 795,000 Private Placement Units for $7.95 million[607][610] - The Sponsor has provided significant loans, including an Extension Note totaling $1,060,000 and a Working Capital Note totaling $805,000 as of March 28, 2023[620][621] - The company has a policy requiring all related-party transactions exceeding $120,000 to be reviewed and approved by the audit committee or a majority of disinterested independent directors[634][635] Principal Accounting Fees and Services This section discloses fees billed by the independent accounting firm, totaling $95,540 for 2022, primarily for audit and tax services, with audit committee pre-approval required Accountant Fees | Fee Type | Year Ended Dec 31, 2022 | Period from Jan 19, 2021 to Dec 31, 2021 | | :--- | :--- | :--- | | Audit Fees | $87,740 | $221,740 | | Tax Fees | $7,800 | $0 | | Total | $95,540 | $221,740 | Part IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Annual Report on Form 10-K, including financial statements and an index of key exhibits - Key exhibits filed with the report include the Business Combination Agreement with QT Imaging, Inc., the Amended and Restated Certificate of Incorporation, and promissory notes related to extension and working capital loans[645] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[647]