Financial Performance - The company has incurred a net loss of $5,547,464 and used $6,955,081 of cash in operating activities during the six months ended June 30, 2024, with an accumulated deficit of $28,503,111 as of the same date[147]. - Net loss for the three months ended June 30, 2024, was $1,248,874, a decrease of $81,140 compared to a net loss of $1,330,014 in the same period in 2023[179]. - Revenue increased by $1,710,852 to $1,714,035 for the three months ended June 30, 2024, compared to $3,183 for the same period in 2023, primarily due to the sale of four QT Breast Scanners[175]. - Revenue for the six months ended June 30, 2024, increased by $3,065,451 to $3,076,198 from $10,747 in 2023, primarily due to the sale of seven QT Breast Scanners[186]. - Cost of revenue increased by $836,363 to $839,484 for the three months ended June 30, 2024, from $3,121 in the same period in 2023, driven by the sale of four QT Breast Scanners[176]. - Cost of revenue for the six months ended June 30, 2024, increased by $1,391,869 to $1,441,567 from $49,698 in 2023, driven by the sale of seven QT Breast Scanners[189]. - Selling, general and administrative expenses increased by $1,320,710 to $2,169,541 for the three months ended June 30, 2024, from $848,831 in 2023, attributed to higher professional services and employee compensation costs[178]. - Selling, general and administrative expenses for the six months ended June 30, 2024, increased by $5,725,156 to $7,865,752 from $2,140,596 in 2023, largely due to non-recurring transaction expenses related to the business combination[191]. - Interest expense, net increased by $1,432,139 to $1,694,009 for the six months ended June 30, 2024, from $261,870 in 2023, primarily due to increased amortization of debt discount[194]. Financing Activities - The company raised a private secured convertible bridge financing of $1,000,000 on November 10, 2023, with four of the five investors opting for cash repayment totaling $960,000, while one investor converted $200,000 into 100,000 shares of common stock[151][152]. - On November 15, 2023, the company entered into a Standby Equity Purchase Agreement allowing the sale of up to $50 million of common stock over 36 months following the Business Combination[155]. - The company received a Pre-Paid Advance of $9,025,000 from Yorkville, accruing interest at 6%, with a potential increase to 18% upon default[155]. - The company raised $1,000,000 through a private secured convertible bridge financing, with $960,000 paid to four of the five Bridge Loan holders on the Merger Date[203]. - Net cash provided by financing activities was $11,398,512 for the six months ended June 30, 2024, primarily due to proceeds from the Yorkville Pre-Paid Advance and the Cable Car Loan[215]. - The company received a Pre-Paid Advance of $9,025,000 from Yorkville and $1,500,000 from Cable Car, with an additional $40 million available through the Standby Equity Purchase Agreement[197]. - The outstanding amount of the Cable Car Loan as of June 30, 2024, was $1,138,668, net of issuance costs[206]. - The company issued convertible notes with a total outstanding amount of $3,143,725 as of June 30, 2024, with accrued interest of $463,629[208]. Research and Development - The company expects research and development expenses to increase substantially as it invests in the QT Breast Scanner and a full-body scanner for orthopedic and pediatric use[170]. - The company expects to continue investing in product development, which may significantly affect future research and development costs[171]. - The company anticipates that its cost of revenue will increase in absolute dollars but decrease as a percentage of revenues over time due to new manufacturing processes[169]. - The company plans to engage in a good faith discussion to develop a binding Original Equipment Manufacturer (OEM) agreement with Canon Medical Systems, targeting execution in the second half of 2024[146]. - The company has entered into a Feasibility Study Agreement with Canon Medical Systems to evaluate the business, technical, and clinical values of the QT Breast Scanner, which will remain in force until the end of December 2024[145]. - The company aims to improve healthcare quality and access through disruptive innovation in medical imaging technology, including artificial intelligence and smart physics[142]. Operational Challenges - The company has been operating with negative cash flows since inception and will need to continue raising additional capital to achieve profitability[147]. - The company’s future capital requirements will depend on growth rate and spending for research and development, with potential challenges in raising additional financing[198]. - Future funding requirements will depend on factors such as cash availability for debt obligations, manufacturing expansion, and regulatory clearance costs[219]. - If financing is not available at acceptable levels, the company may need to reduce operating expenses or delay development programs[218]. - The company is subject to risks that could significantly increase operating capital requirements, including costs associated with product sales and regulatory reviews[219]. Internal Controls and Compliance - The company identified a material weakness in internal control over financial reporting due to lack of segregation of duties around key accounting processes, attributed to limited personnel resources[243]. - A second material weakness was identified related to technical accounting aspects of certain material transactions during the review of condensed consolidated financial statements for the three months ended March 31, 2024[243]. - Remedial measures have been initiated, including implementing technology, hiring personnel, and engaging external resources to address the identified weaknesses[243]. - No misstatements were found in the condensed consolidated financial statements as of June 30, 2024, despite the identified material weaknesses[244]. - There were no changes in internal control over financial reporting that materially affected the company's internal controls during the three months ended June 30, 2024[245]. - The effectiveness of internal control systems is subject to inherent limitations, including the exercise of judgment and resource constraints[246]. - The company plans to continue monitoring and upgrading internal controls as necessary but cannot assure that improvements will be sufficient for effective internal control over financial reporting[246]. Legal and Regulatory Matters - The company is not currently subject to any material legal proceedings, nor are any threatened against it or its officers[248]. - The company is classified as an emerging growth company, allowing it to delay adopting new accounting standards until certain conditions are met[225]. - Recent accounting standards updates adopted by the company had no material impact on its financial statements[237]. - The company is evaluating the impact of new accounting standards on its financial disclosures, effective for fiscal years beginning after December 15, 2023[238][239]. - The company is a smaller reporting company and is not required to provide certain market risk disclosures[240]. Manufacturing and Distribution - The company has focused on small-scale manufacturing internally while partnering for large-scale manufacturing to support market expansion[142]. - The company entered into a Distribution Agreement with NXC Imaging, appointing NXC as the exclusive reseller of QT Breast Scanners in the U.S. and U.S. territories, with four QT Breast Scanners delivered to NXC's customers as of June 30, 2024[142][144]. - The company entered into a Distribution Agreement with NXC, appointing them as the exclusive reseller for certain equipment in the U.S. until December 31, 2025[167]. - The company leases its operating facilities in Novato, California, under a non-cancelable lease through May 31, 2027[223].
QT Imaging(QTI) - 2024 Q2 - Quarterly Report