QT IMAGING HOLDINGS INC

Previous wording

Our current QT Breast Scanner is a Class II device subject to premarket notification and clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FDCA”). On August 23, 2016, we (formerly, QT Ultrasound LLC) submitted a Section 510(K) Summary of Safety and Effectiveness application for the QT Breast Scanner in accordance with 21 CFR 807.92 under 510(K) Number K162372. As part of meeting the general requirements for basic safety and essential performance of the QT Breast Scanner (formerly, QT Ultrasound Breast Scanner) pursuant to AAMI ES60601-1:2005/(R)2012 and A1:2012 Medical electrical equipment, testing was conducted by Intertek, an independent testing laboratory, located in Menlo Park, CA. Intertek also conducted applicable testing pursuant to IEC 60601-1-6 Edition 3.1 2013-10-Medical electrical equipment Part 1-6 General requirements for safety - Collateral Standard: Usability. In addition, we conducted, and Intertek witnessed, all applicable testing pertaining to the requirements for the safety of ultrasonic medical diagnostic and monitoring equipment and to demonstrate compliance with the “Acoustic Output Measurement Standard for Diagnostic Ultrasound Equipment”. This test on acoustic output was pursuant to IEC 60601-2-37 Edition 2.0.2007 Medical electrical equipment - Part 2-37: Particular requirements for the basic safety and essential performance of ultrasonic medical diagnostic and monitoring equipment. Finally, system verification testing was conducted to ensure that the QT Breast Scanner met all design and other requirements including but not limited to that no new issues of safety or effectiveness compared to the predicate device, SoftVue System manufactured by Delphinus Medical Technologies, were raised.

Current wording

Edition 3.1 2013-10-Medical electrical equipment Part 1-6 General requirements for safety - Collateral Standard: Usability. In addition, we conducted, and Intertek witnessed, all applicable testing pertaining to the requirements for the safety of ultrasonic medical diagnostic and monitoring equipment and to demonstrate compliance with the “Acoustic Output Measurement Standard for Diagnostic Ultrasound Equipment”. This test on acoustic output was pursuant to IEC 60601-2-37 Edition 2.0.2007 Medical electrical equipment - Part 2-37: Particular requirements for the basic safety and essential performance of ultrasonic medical diagnostic and monitoring equipment. Finally, system verification testing was conducted to ensure that the QT Breast Scanner met all design and other requirements including but not limited to that no new issues of safety or effectiveness compared to the predicate device, SoftVue System manufactured by Delphinus Medical Technologies, were raised.

Previous wording

•Create disruptive innovation—a dedication to using technology (software, artificial intelligence, and smart physics) to improve medical imaging and thus health care quality and access.

Current wording

•Create disruptive innovation using technology (software, artificial intelligence, and smart physics) to improve medical imaging and thus health care quality and access.

Previous wording

Consistent with our strategy, on May 31, 2023, we entered into a confidential Sales Agent Agreement (the “NXC Agreement”) with NXC Imaging (“NXC”), a wholly owned subsidiary of Canon Medical Systems USA, Inc. (“CMSU”), pursuant to which we appointed NXC as the non-exclusive agent for the sale of QT Imaging products and services in non-exclusive territories: the U.S., U.S. territories, and U.S. Department of Defense installations. Additionally, NXC was appointed as the exclusive servicer of QT Imaging products sold by NXC under the terms of the NXC Agreement. As of March 31, 2024, we have delivered one QT Breast Scanner to NXC's customer.

Current wording

Consistent with our strategy, on May 31, 2023, we entered into a confidential Sales Agent Agreement (the “NXC Agreement”) with NXC Imaging, Inc. (“NXC”), a wholly owned subsidiary of Canon Medical Systems USA, Inc. (“CMSU”), pursuant to which we appointed NXC as the non-exclusive agent for the sale of QT Imaging products and services in non-exclusive territories: the U.S., U.S. territories, and U.S. Department of Defense installations. Additionally, NXC was appointed as the exclusive servicer of QT Imaging products sold by NXC under the terms of the NXC Agreement. Effective June 10, 2024, the NXC Agreement was superseded by the Distribution Agreement that was entered into with NXC on June 18, 2024 (the “Distribution Agreement”). Under the Distribution Agreement, NXC is appointed as the exclusive reseller to market, advertise, and resell QT Breast Scanners in the U.S. and U.S. territories. NXC will purchase for the purpose of reselling, leasing or renting QT Breast Scanners directly to its customers, but is not obligated to purchase any particular quantity of QT Breast Scanners from us. We have reserved the right to sell directly to customers as an exception. Furthermore, we may, in our sole discretion, sell the QT Breast Sacnners to any other person or entity anywhere in the world without notice to NXC or NXC’s prior consent. NXC is also allowed to assign sales agents for the purpose of QT Breast Scanner sales. NXC’s purchases will be in accordance with an agreed upon product pricing schedule (subject to change upon 60 days’ prior written notice by us), provided that neither NXC nor its assigned sales agents may mark-up the cost of the QT Breast Scanners more than twenty percent (20%) unless otherwise mutually agreed to between NXC and us. Each order will include information reasonably requested by us and is subject to our acceptance, after which it becomes an approved order. Any such approved orders are non-cancellable and not subject to rescheduling after acceptance by us. Any orders not accepted by us in writing are deemed rejected. As of June 30, 2024, we have delivered four QT Breast Scanners to NXC’s customers pursuant to NXC Agreement and Distribution Agreement.

Previous wording

We have also entered into a non-binding letter of intent (the “Canon Letter of Intent”), with CMSU and Canon Medical Systems, Inc. (“CMSC”) pursuant to which four binding purchase orders delivered in January 2024 to QT Imaging for the acquisition by CMSC of two QT Breast Scanners, with 50% of the payment for the QT Breast Scanners having taken place on January 31, 2024 and the remaining payment and the shipment of the two QT Breast Scanners to occur by April 15, 2024, which were delivered to CMSU in March of 2024. CMSC will also use QT Breast scanners that it is acquiring to perform clinical trials towards the possibility of it pursuing the regulatory approval process in Japan.

Current wording

We have also entered into a non-binding letter of intent (the “Canon Letter of Intent”), with CMSU and Canon Medical Systems, Inc. (“CMSC”) pursuant to which four binding purchase orders delivered in January 2024 to QT Imaging for the acquisition by CMSC of two QT Breast Scanners, with 50% of the payment for the QT Breast Scanners having taken place on January 31, 2024 and the remaining payment and the shipment of the two QT Breast Scanners occurred by April 15, 2024, which were delivered to CMSU in March of 2024. CMSC will also use QT Breast scanners that it is acquiring to perform clinical trials towards the possibility of it pursuing the regulatory approval process in Japan.

Previous wording

On March 28, 2024, we entered into a Feasibility Study Agreement (the “Feasibility Study Agreement”) with CMSC, a company organized and existing under the laws of Japan (“Canon”). The term of the Feasibility Study Agreement commenced on March 28, 2024 and shall remain in force until the end of December 2024 or until the execution of a definitive agreement that clearly supersedes the Feasibility Study Agreement, whichever comes earlier. In connection with the Feasibility Study Agreement, Canon will initiate studies to evaluate the business, technical, and clinical values of our ultrasound QT Breast Scanner including product quality validation, development and manufacturing studies, clinical evaluation, regulatory investigation, and market validation. Canon has no right to reverse engineer the QT Breast Scanner and may only modify and disassemble the QT Breast Scanner as necessary to conduct the feasibility study.

Current wording

On March 28, 2024, we entered into a Feasibility Study Agreement (the “Feasibility Study Agreement”) with CMSC, a company organized and existing under the laws of Japan (“Canon”). The term of the Feasibility Study Agreement commenced on March 28, 2024 and shall remain in force until the end of December 2024 or until the execution of a definitive agreement that clearly supersedes the Feasibility Study Agreement, whichever comes earlier. In connection with the Feasibility Study Agreement, CMSC will initiate studies to evaluate the business, technical, and clinical values of our ultrasound QT Breast Scanner including product quality validation, development and manufacturing studies, clinical evaluation, regulatory investigation, and market validation. CMSC has no right to reverse engineer the QT Breast Scanner and may only modify and disassemble the QT Breast Scanner as necessary to conduct the feasibility study.

Previous wording

We have incurred net operating losses and negative cash flows from operations since our inception and had an accumulated deficit of $22,068,735 as of March 31, 2024. During the three months ended March 31, 2024, we incurred a net loss of $4,298,590 and used $5,975,515 of cash in operating activities, which includes repayment of net liabilities assumed from the business combination. We to continue to incur losses, and our ability to achieve and sustain profitability will depend on the achievement of sufficient revenues to support our cost structure. We may never achieve profitability and, unless and until we do, we will need to continue to raise additional capital.

Current wording

We have incurred net operating losses and negative cash flows from operations since our inception and had an accumulated deficit of $28,503,111 as of June 30, 2024. During the six months ended June 30, 2024, we incurred a net loss of $5,547,464 and used $6,955,081 of cash in operating activities, which includes the repayment of net liabilities assumed from the business combination. We continue to incur losses, and our ability to achieve and sustain profitability will depend on the achievement of sufficient revenues to support our cost structure. We may never achieve profitability and, unless and until we do, we will need to continue to raise additional capital.

Previous wording

On November 10, 2023, we entered into a Securities Purchase Agreement and raised a private secured convertible bridge financing in the aggregate amount of $1,000,000 (“Bridge Loan”) from five investors (“Bridge Lenders”) led by Meteora Capital Partners, LP (“Meteora”) and collateralized by all of our assets. The notes from the Bridge Loan are interest-free but at the option of the holder, (a) can be repaid at the Closing of the Business Combination by the QTI Holdings in cash in the amount of $240,000 to each investor, or (b) is convertible immediately prior to the Closing of the Business Combination into such number of shares of QT Imaging common stock that upon the completion of the Business Combination and the application of the exchange ratio was exchanged for such consideration as is provided for in the Business Combination Agreement, including that number of shares of our common stock as is equal in the aggregate to 500,000 shares of our common stock. On March 4, 2024, four of the five Bridge Lenders elected to be repaid in cash for an aggregate of $960,000 and one Bridge Lender converted $200,000 into 100,000 shares of our common stock.

Current wording

On November 10, 2023, we entered into a Securities Purchase Agreement and raised a private secured convertible bridge financing in the aggregate amount of $1,000,000 (“Bridge Loan”) from five investors (“Bridge Lenders”) led by Meteora Capital Partners, LP (“Meteora”) and collateralized by all of our assets. The notes from the Bridge Loan are interest-free but at the option of the holder, (a) can be repaid at the Closing of the Business Combination by the QTI Holdings in cash in the amount of $240,000 to each investor, or (b) is convertible immediately prior to the Closing of the Business Combination into such number of shares of QT Imaging common stock that upon the completion of the Business Combination and the application of the exchange ratio was exchanged for such consideration as is provided for in the Business Combination Agreement, including that number of shares of our common stock as is equal in the aggregate to

Previous wording

Imaging common stock as is equal in the aggregate to 1,200,000 shares of our common stock. Immediately prior to the close of the Business Combination, each subscriber received that number of shares of QT Imaging common stock that upon the completion of the Business Combination was exchanged for 50,000 shares of our common stock. In addition, as consideration for its services for the stock subscription agreements, Meteora received that number of shares of QT Imaging common stock that upon the completion of the Business Combination was exchanged for 50,000 shares of our common stock.

Current wording

We also entered into the stock subscription agreements dated November 10, 2023 with three of the Bridge Lenders as subscribers for the purchase of shares of QT Imaging common stock at an aggregate purchase price of $3,000,000 in such amount that upon the completion of the Business Combination and the application of the Exchange Ratio was exchanged for such consideration as is provided for in the Business Combination Agreement, including that number of shares of QT Imaging common stock as is equal in the aggregate to 1,200,000 shares of our common stock. Immediately prior to the close of the Business Combination, each subscriber received that number of shares of QT Imaging common stock that upon the completion of the Business Combination was exchanged for 50,000 shares of our common stock. In addition, as consideration for its services for the stock subscription agreements, Meteora received that number of shares of QT Imaging common stock that upon the completion of the Business Combination was exchanged for 50,000 shares of our common stock.

Previous wording

In February 2024, we entered into two additional subscription agreements with each of Donnelley Financial Solutions, LLC (“DFIN”) and IB Capital LLC (“iBankers”), dated as of February 23, 2024 and February 22, 2024, respectively (together, the “Subscription Agreements”), for the purchase of shares of QT Imaging common stock. Pursuant to the Subscription Agreements, we issued to each of DFIN and iBankers in satisfaction of $500,000 and $600,000 of fees owed to DFIN and iBankers, respectively, for their services, that number of shares of QT Imaging common stock which at

Current wording

In February 2024, we entered into two additional subscription agreements with each of Donnelley Financial Solutions, LLC (“DFIN”) and IB Capital LLC (“iBankers”), dated as of February 23, 2024 and February 22, 2024, respectively (together, the “Subscription Agreements”), for the purchase of shares of QT Imaging common stock. Pursuant to the Subscription Agreements, we issued to each of DFIN and iBankers in satisfaction of $500,000 and $600,000 of fees owed to DFIN and iBankers, respectively, for their services, that number of shares of QT Imaging common stock which at the completion of the Business Combination converted in accordance with the terms of the Business Combination Agreement into 200,000 and 240,000 respective shares of our common stock.

Previous wording

In February 2024, we entered into a Note Purchase Agreement (“Cable Car NPA”) with Funicular Funds, LP (“Cable Car”), pursuant to which Cable Car agreed to advance $1,500,000 at the closing of the Business Combination, as was evidenced by a promissory note that may be convertible in certain circumstances into shares of our common stock at a conversion price of $2.00 per share (the “Loan”) dated March 4, 2024 by and between us and Cable Car. The Loan does not bear interest, and is due and payable 13 months after issuance, unless the time for payment is accelerated as a result of an event of default. As full compensation to Cable Car for the Loan to us in lieu of any simple or in-kind interest on the Loan, we issued to Cable Car that number of shares of QT Imaging common stock which at the completion of the Business Combination were converted in accordance with the terms of the Business Combination Agreement into 180,000 shares of our common stock. QT Imaging, and its wholly owned subsidiary, QT Ultrasound Labs, Inc., at the closing also provided a guaranty (the “Cable Car Guaranty”), whereby each of them unconditionally guaranteed, as primary obligor and not merely as surety, the prompt and complete payment and performance when due, whether by demand, acceleration or otherwise, of our obligation under the Loan in the currency in which and as such obligations are to be paid or performed. Furthermore, we and the parties to the Cable Car Guaranty (the “Grantors”) granted a security interest in certain of their assets, which among other things, do not include their intellectual property assets, pursuant to the terms of a Security Agreement, dated March 4, 2024, by and between the Grantors and Cable Car.

Current wording

In February 2024, we entered into a Note Purchase Agreement with Funicular Funds, LP (“Cable Car”), pursuant to which Cable Car agreed to advance $1,500,000 at the closing of the Business Combination, as was evidenced by a promissory note that may be convertible in certain circumstances into shares of our common stock at a conversion price of $2.00 per share (the “Loan”) dated March 4, 2024 by and between us and Cable Car. The Loan does not bear interest, and is due and payable 13 months after issuance, unless the time for payment is accelerated as a result of an event of default. As full compensation to Cable Car for the Loan to us in lieu of any simple or in-kind interest on the Loan, we issued to Cable Car that number of shares of QT Imaging common stock which at the completion of the Business Combination were converted in accordance with the terms of the Business Combination Agreement into 180,000 shares of our common stock. QT Imaging, and its wholly owned subsidiary, QT Ultrasound Labs, Inc., at the closing also provided a guaranty (the “Cable Car Guaranty”), whereby each of them unconditionally guaranteed, as primary obligor and not merely as surety, the prompt and complete payment and performance when due, whether by demand, acceleration or otherwise, of our obligation under the Loan in the currency in which and as such obligations are to be paid or performed. Furthermore, we and the parties to the Cable Car Guaranty (the “Grantors”) granted a security interest in certain of their assets, which among other things, do not include their intellectual property assets, pursuant to the terms of a Security Agreement, dated March 4, 2024, by and between the Grantors and Cable Car.

Previous wording

In February 2024, we and LionBay Ventures (“LionBay”) entered into a Settlement and Termination Agreement (“Termination Agreement”). Pursuant to the terms of the Termination Agreement, we terminated its Service Agreement with LionBay dated May 18, 2021 and the First Amendment of the Service Agreement dated September 9, 2021 (collectively as “Service Agreement”). In exchange for the termination of the Service Agreement and the termination of options to purchase 17,000 shares of QT Imaging common stock with a strike price of $8.50 per option that were issued as part of the Service Agreement, we agreed to issue 10,000 shares of our common stock.

Current wording

In February 2024, we and LionBay Ventures (“LionBay”) entered into a Settlement and Termination Agreement (the “Termination Agreement”). Pursuant to the terms of the Termination Agreement, we terminated the Service Agreement with LionBay dated May 18, 2021 and the First Amendment of the Service Agreement dated September 9, 2021 (collectively as the “Service Agreement”). In exchange for the termination of the Service Agreement and the termination of options to purchase 17,000 shares of QT Imaging common stock with a strike price of $8.50 per option that were issued as part of the Service Agreement, we agreed to issue 10,000 shares of our common stock.

Previous wording

On March 4, 2024, we terminated the QT Imaging Incentive Plan (the “Plan”) and cancelled 1,237,681 of outstanding options under the Plan in accordance with the terms of the Business Combination Agreement.

Current wording

On March 4, 2024, we terminated the QT Imaging Incentive Plan (the “2024 Incentive Plan”) and cancelled 1,237,681 of outstanding options under the 2024 Incentive Plan in accordance with the terms of the Business Combination Agreement.

Previous wording

On March 12, 2024, the Board of Directors (the “Board”) appointed Dr. Raluca Dinu, who is also a member of the Board, to be employed as our Acting Chief Executive Officer effective as of March 12, 2024. Dr. Dinu will report to the Board. On March 18, 2024, the Board approved an employment agreement (the “CEO Employment Agreement”) between Dr. Dinu and us, effective as of March 12, 2024, governing the terms of Dr. Dinu’s employment by us, which we and Dr. Dinu then entered into.

Current wording

On March 12, 2024, the Board of Directors (the “Board”) appointed Dr. Raluca Dinu, who is also a member of the Board, to be employed as our Acting Chief Executive Officer effective as of March 12, 2024. Dr. Dinu will report to the Board. On March 18, 2024, the Board approved an employment agreement between Dr. Dinu and us, effective as of March 12, 2024, governing the terms of Dr. Dinu’s employment by us, which we and Dr. Dinu then entered into.

Previous wording

On March 12, 2024, the Board ratified the prior appointment of Anastas Budagov as our Chief Financial Officer. Mr. Budagov will report to the Chief Executive Officer. On March 18, 2024, the Board approved an employment letter (the “CFO Employment Agreement”) between Mr. Budagov and the Company, effective as of March 12, 2024, governing the terms of Mr. Budagov’s employment by us, which we and Mr. Budagov then entered into.

Current wording

On March 12, 2024, the Board ratified the prior appointment of Anastas Budagov as our Chief Financial Officer. Mr. Budagov will report to the Chief Executive Officer. On March 18, 2024, the Board approved an employment letter between Mr. Budagov and the Company, effective as of March 12, 2024, governing the terms of Mr. Budagov’s employment by us, which we and Mr. Budagov then entered into.

Previous wording

On April 3, 2024, we entered into a Data Use and License Agreement with QT Imaging Center, a California sole proprietorship of Dr. Klock (the “Practice”), that conducts a medical practice and provides medical services, pursuant to which we were granted a license to use and disclose certain de-identified health information, as has been de-identified by the Practice in accordance with applicable law, for use in research and analytical processes in connection with with our development and commercialization of the QT Ultrasound Breast Scanner-1 and other technologies.

Current wording

On April 3, 2024, we entered into a Data Use and License Agreement with QT Imaging Center, a California sole proprietorship of Dr. Klock (the “Practice”), that conducts a medical practice and provides medical services, pursuant to which we were granted a license to use and disclose certain de-identified health information, as has been de-identified by the Practice in accordance with applicable law, for use in research and analytical processes in connection with our development and commercialization of the QT Ultrasound Breast Scanner-1 and other technologies.

Previous wording

On April 5, 2024, the Company entered into that certain Services Agreement (the “Services Agreement”) with the Practice dated as of April 1, 2024 pursuant to which the Practice agreed to provide its services us, including but not limited to providing healthcare services to patients, assisting with clinical trials and studies and assisting with drafting of institutional review board approved clinical protocols, assisting with the performance of research and development activities on our behalf, providing comprehensive multi-day training on the operation of breast imaging technology for radiologist customers and other customer staff such as technicians, performing clinical validation of imaging software changes which may include recruiting patients, training of personnel on the operation of our imaging technology, as well as other services as specified in the Services Agreement. The term of the Services Agreement is one year unless earlier terminated and shall auto-renew for successive one-year periods, unless otherwise terminated. However, the parties agree to review and possible revise the terms of the Service Agreement on July 1, 2024 if such terms are not satisfactory to either party.

Current wording

On April 5, 2024, the Company entered into that certain Services Agreement (the “Services Agreement”) with the Practice dated as of April 1, 2024 pursuant to which the Practice agreed to provide its services us, including but not limited to providing healthcare services to patients, assisting with clinical trials and studies and assisting with drafting of institutional review board approved clinical protocols, assisting with the performance of research and development activities on our behalf, providing comprehensive multi-day training on the operation of breast imaging technology for radiologist customers and other customer staff such as technicians, performing clinical validation of imaging software changes which may include recruiting patients, training of personnel on the operation of our imaging technology, as well as other services as specified in the Services Agreement. The term of the Services Agreement is one year unless earlier terminated and shall auto-renew for successive one-year periods, unless otherwise terminated.

Previous wording

partner relationships, and the use of outside service providers such as insurers, consultants, lawyers, and accountants. We also expect selling expenses to increase in the near term as we promote our brand through marketing and advertising initiatives, expand market presence and hire additional personnel to drive penetration and generate leads.

Current wording

We anticipate that our selling, general and administrative expenses will increase to support our expanding headcount and operations, increased costs of operating as a public company, the development of a commercial infrastructure to support commercialization of our products and product candidates, increased support for existing and new distribution partner relationships, and the use of outside service providers such as insurers, consultants, lawyers, and accountants. We also expect selling expenses to increase in the near term as we promote our brand through marketing and advertising initiatives, expand market presence and hire additional personnel to drive penetration and generate leads.

Previous wording

Revenue increased by $1,354,599 to $1,362,163 for the three months ended March 31, 2024 from $7,564 for the three months ended March 31, 2023. The increase in revenue was primarily attributable to the sale of three QT Breast Scanners in the first quarter of 2024 as compared with no scanners sold in the first quarter of 2023 due to the timing of sales orders received, availability of scanners that were earmarked and ready for sale to customers, and the result of our ongoing commercialization effort in 2024.

Current wording

Revenue increased by $1,710,852 to $1,714,035 for the three months ended June 30, 2024 from $3,183 for the three months ended June 30, 2023. The increase in revenue was primarily attributable to the sale of four QT Breast Scanners in the second quarter of 2024 as compared with no scanners sold in the second quarter of 2023 due to the timing of sales orders received, availability of scanners that were earmarked and ready for sale to customers, and the result of our ongoing commercialization effort in 2024.

Previous wording

Cost of revenue increased by $555,506 to $602,083 for the three months ended March 31, 2024 from $46,577 for the three months ended March 31, 2023. The increase in cost of revenue was primarily attributable to the sale of three QT Breast Scanners in the first quarter of 2024 as compared with no scanners sold in the first quarter of 2023, which was partially offset by inventory write-offs in the first quarter of 2023.

Current wording

Cost of revenue increased by $836,363 to $839,484 for the three months ended June 30, 2024 from $3,121 for the three months ended June 30, 2023. The increase in cost of revenue was primarily attributable to the sale of four QT Breast Scanners in the second quarter of 2024 as compared with no scanners sold in the second quarter of 2023, which was partially offset by inventory write-offs in the second quarter of 2023.

Previous wording

Research and development expenses increased by $220,659 to $642,546 for the three months ended March 31, 2024 from $421,887 for the three months ended March 31, 2023. The increase in research and development expenses was primarily attributable to an increase in employee compensation costs of $176,398 and an increase in professional and outside services costs of of $45,461.

Current wording

Research and development expenses increased by $575,425 to $925,082 for the three months ended June 30, 2024 from $349,657 for the three months ended June 30, 2023. The increase in research and development expenses was primarily attributable to an increase in employee compensation costs of $265,408 and professional and outside services costs of $228,504.

Previous wording

Other expenses increased by $20,931 during the three months ended March 31, 2024. There were no other expenses during the three months ended March 31, 2023. This increase was primarily due to a structuring fee of $20,000 related to issuance of long-term debt.

Current wording

Other expenses, net increased by $187,394 during the three months ended June 30, 2024. There were no other expenses during the three months ended June 30, 2023. This increase was primarily due to a modification expense of $200,513 related to the decrease in exercise price of our private placement warrants and working capital note warrants.

Previous wording

Change in fair value of warrant liability was $23,123 during the three months ended March 31, 2024. The change in fair value of warrants during the three months ended March 31, 2024 relates to the liability classified private placement warrants to reflect the increase of publicly traded price per warrant from $0.01 as of March 4, 2024 to $0.04 as of March 31, 2024.

Current wording

Change in fair value of warrant liability was $213,942 during the three months ended June 30, 2024. The change in fair value of warrants relates to the liability classified private placement warrants and working capital note warrants and reflects the decrease of publicly traded price per warrant during the three months ended June 30, 2024.

Previous wording

Change in the fair value of derivative liability was $2,983,100 during the three months ended March 31, 2024. The change in fair value of derivatives during the three months ended March 31, 2024 was primarily driven by the decline in the value of our common stock from the issuance date of the Yorkville Note to March 31, 2024.

Current wording

Change in the fair value of derivative liability was $1,729,700 during the three months ended June 30, 2024. The change in fair value of derivatives was primarily driven by the decline in the value of our common stock during the three months ended June 30, 2024.

Previous wording

Change in the fair value of earnout liability was $1,060,000 during the three months ended March 31, 2024. Earnout liability relates to the contingent consideration for the Merger Earnout Consideration Shares pursuant to the Business Combination Agreement dated December 8, 2022, as amended in September of 2023. We did not have an earnout liability during the three months ended March 31, 2023.

Current wording

Change in the fair value of earnout liability was $310,000 during the three months ended June 30, 2024. The earnout liability relates to the contingent consideration for the Merger Earnout Consideration Shares pursuant to the Business Combination Agreement dated December 8, 2022, as amended in September of 2023. We did not have an earnout liability during the three months ended June 30, 2023.

Previous wording

Selling, general and administrative expenses increased by $4,404,446 to $5,696,211 for the three months ended March 31, 2024 from $1,291,765 for the three months ended March 31, 2023. This change was primarily attributable to an increases in transaction expenses of $3,944,924 related to the business combination, professional and outside services costs

Current wording

Selling, general and administrative expenses increased by $5,725,156 to $7,865,752 for the six months ended June 30, 2024 from $2,140,596 for the six months ended June 30, 2023. This change was primarily attributable to increases in non-recurring transaction expenses of $3,944,924 related to the business combination, professional and outside services costs of $362,865, non-recurring recruiting and employee conversion costs of $224,000, insurance costs of $314,253, employee compensation costs of $626,293, and information technology costs of $99,388.

Previous wording

Interest expense, net increased by $468,677 to $598,959 for the three months ended March 31, 2024 from $130,282 for the three months ended March 31, 2023. This change is primarily driven by an increase in the amortization of debt discount of $287,832 for the Bridge Loans, the Pre-Paid Advance, the Cable Car Promissory Note and the Extension Note and interest of $160,000 paid in cash related to the Bridge Loans.

Current wording

Interest expense, net increased by $1,432,139 to $1,694,009 for the six months ended June 30, 2024 from $261,870 for the six months ended June 30, 2023. This change is primarily driven by an increase in the amortization of debt discount of $1,200,669 for the Bridge Loans, the Pre-Paid Advance, the Cable Car Promissory Note and the Extension Note, an increase in accrued interest expense of $193,973 for the Pre-Paid Advance, and an increase in interest of $160,000 paid in cash related to the Bridge Loans.

Previous wording

To date, we have financed our operations primarily through the sale of equity securities, issuances of convertible notes, grants from the U.S. government, and other debt. Since our inception, we have incurred significant operating losses and negative cash flows. As of March 31, 2024 and December 31, 2023, we had an accumulated deficit of $22,068,735 and $17,770,145, respectively. As of March 31, 2024 and December 31, 2023, we had cash and restricted cash and cash equivalents of $5,640,231 and $184,686, respectively. Our primary uses of cash are for general working capital requirements, and capital expenditures. Cash flows from operations have been historically negative as we invested in product development, clinical trials, and manufacturing. We expect to be cash flow negative for the foreseeable future, although we may have quarterly results where cash flows from operations are positive.

Current wording

Since our inception, we have incurred significant operating losses and negative cash flows. As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of $28,503,111 and $17,770,145, respectively. As of June 30, 2024 and December 31, 2023, we had cash and restricted cash and cash equivalents of $4,601,140 and $184,686, respectively. Our primary uses of cash are for general working capital requirements, and capital expenditures. Cash flows from operations have been historically negative as we invested in product development, clinical trials, and manufacturing. We expect to be cash flow negative for the foreseeable future, although we may have quarterly results where cash flows from operations are positive.

Previous wording

As of March 31, 2024, the total principal outstanding under the PPP Loans was $193,878, of which $130,698 was current and $63,180 was noncurrent. As of December 31, 2023, the total principal outstanding under the PPP Loans was $226,348, of which $130,366 was current and $95,982 was noncurrent.

Current wording

As of June 30, 2024, the total principal outstanding under the PPP Loans was $161,330, of which $124,632 was current and $36,698 was noncurrent. As of December 31, 2023, the total principal outstanding under the PPP Loans was $226,348, of which $130,366 was current and $95,982 was noncurrent.

Previous wording

In November 2023, we entered into a Securities Purchase Agreement and raised a private secured convertible bridge financing in the aggregate amount of $1,000,000 (“Bridge Loan”) from five investors (“Bridge Lenders”). Each Bridge Loan of $200,000 bore no interest but had a cash option value at the date maturity of 120% or $240,000 of the Bridge Loan at each Bridge Lender’s option. The maturity date was the closing date of the Business Combination as defined in Note 1. The Bridge Loan conversion was at $2.00 per share on a post-business combination. On March 4, 2024, four of the five Bridge Loan holders elected the cash option and were paid an aggregate of $960,000 on the Merger Date.

Current wording

In November 2023, we entered into a Securities Purchase Agreement and raised a private secured convertible bridge financing in the aggregate amount of $1,000,000 from five investors. Each Bridge Loan of $200,000 bore no interest but had a cash option value at the date maturity of 120% or $240,000 of the Bridge Loan at each Bridge Lender’s option. The maturity date was the closing date of the Business Combination as defined in Note 1. The Bridge Loan conversion was at $2.00 per share on a post-business combination. On March 4, 2024,4 of the 5 Bridge Loan holders elected the cash option and were paid an aggregate of $960,000 on the Merger Date.

Previous wording

As of March 31, 2024, there was no amount outstanding for the Bridge Loan. As of December 31, 2023, the outstanding amount of the Bridge Loan, excluding the US Capital Note, was $774,337, net of unamortized debt issuance costs of $25,663.

Current wording

As of June 30, 2024, there was$0 amount outstanding for the Bridge Loan. As of December 31, 2023, the outstanding amount of the Bridge Loan, excluding the US Capital Note, was $774,337, net of unamortized debt issuance costs of $25,663.

Previous wording

On March 4, 2024, we received the Pre-Paid Advance of $10,000,000 from Yorkville (“Pre-Paid Advance”) that will be due 15 months from the date of issuance, and interest shall accrue on the outstanding balance of the Yorkville Note at an annual rate equal to 6%, subject to an increase to 18% upon an event of default as described in the Yorkville Note. The Yorkville Note is convertible by Yorkville into shares of our common stock. As consideration for the Pre-Paid Advance, immediately prior to, and substantially concurrently with, the closing of the Business Combination, QT Imaging issued to Yorkville that number of QT Imaging shares which converted in the aggregate into 1,000,000 shares of our common stock upon the completion of the Business Combination.

Current wording

On March 4, 2024, we received the Pre-Paid Advance of $10,000,000 from Yorkville that will be due 15 months from the date of issuance, and interest shall accrue on the outstanding balance of the Yorkville Note at an annual rate equal to 6%, subject to an increase to 18% upon an event of default as described in the Yorkville Note. The Yorkville Note is convertible by Yorkville into shares of our common stock. As consideration for the Pre-Paid Advance, immediately prior to, and substantially concurrently with, the closing of the Business Combination, QT Imaging issued to Yorkville that number of QT Imaging shares which converted in the aggregate into 1,000,000 shares of our common stock upon the completion of the Business Combination.

Previous wording

In February 2024, GigCapital5 and we entered into a Cable Car Loan with Cable Car, pursuant to which Cable Car agreed to advance $1,500,000 at the closing of the Business Combination, as was evidenced by a promissory note that may be convertible in certain circumstances into shares of our common stock at a conversion price of $2.00 per share (the “Loan”), dated March 4, 2024, by and between us and Cable Car. The Loan does not bear interest, and is due and payable 13 months after issuance, unless the time for payment is accelerated as a result of an event of default. As full compensation to Cable Car for the Loan to us in lieu of any simple or in-kind interest on the Loan, QT Imaging issued to Cable Car that number of QT Imaging shares of common stock which at the completion of the Business Combination would be converted in accordance with the terms of the Business Combination Agreement into 180,000 shares of our common stock.

Current wording

In February 2024, we and GigCapital5 entered into the Cable Car Loan with Cable Car, pursuant to which Cable Car agreed to advance $1,500,000 at the closing of the Business Combination, as was evidenced by a promissory note that may be convertible in certain circumstances into shares of our common stock at a conversion price of $2.00 per share, dated March 4, 2024, by and between us and Cable Car. The Loan does not bear interest, and is due and payable 13 months after issuance, unless the time for payment is accelerated as a result of an event of default. As full compensation to Cable Car for the Loan to us in lieu of any simple or in-kind interest on the Loan, QT Imaging issued to Cable Car that number of QT Imaging shares of common stock which at the completion of the Business Combination would be converted in accordance with the terms of the Business Combination Agreement into 180,000 shares of our common stock.

Previous wording

As of March 31, 2024, the outstanding amount of the Cable Car Loan was $1,040,450 net of issuance costs of $459,550.

Current wording

As of June 30, 2024, the outstanding amount of the Cable Car Loan was $1,138,668 net of issuance costs of $361,332.

Previous wording

In July 2020, we issued three convertible notes to three of its stockholders for advances up to $3,500,000 in principal (the “2020 Notes”) and bearing annual interest of 5% on any amounts drawn. An additional note was issued in March 2022 as part of the 2020 Notes, but with an annual interest rate of 8%. All principal and interest payments are due on or before July 1, 2025. The 2020 Notes are convertible, at the holder’s option, into shares of common stock at the lower of $14.59 per share or the offering price in a financing of at least $5,000,000 in equity from unaffiliated parties. As of March 31, 2024, an aggregate of 244,308 shares of common stock would be issued if the entire principal and interest under the 2020 Notes was converted.

Current wording

In July 2020, we issued three convertible notes to three of its stockholders for advances up to $3,500,000 in principal (the “2020 Notes”) and bearing annual interest of 5% on any amounts drawn. An additional note was issued in March 2022 as part of the 2020 Notes, but with an annual interest rate of 8%. All principal and interest payments are due on or before July 1, 2025. The 2020 Notes are convertible, at the holder’s option, into shares of common stock at the lower of $14.59 per share or the offering price in a financing of at least $5,000,000 in equity from unaffiliated parties. As of June 30, 2024, an aggregate of 247,250 shares of common stock would be issued if the entire principal and interest under the 2020 Notes was converted.

Previous wording

As of March 31, 2024 and December 31, 2023, the outstanding amount of the 2020 Notes was $3,143,725 and accrued interest of $420,700 and $377,772, respectively.

Current wording

As of June 30, 2024 and December 31, 2023, the outstanding amount of the 2020 Notes was $3,143,725 and accrued interest of $463,629 and $377,772, respectively.

Previous wording

Net cash used in operating activities was $5,975,515 for the three months ended March 31, 2024 as compared to $992,716 for the three months ended March 31, 2023. The primary use of our cash was to fund research and development and general and administrative expenses. Net cash used for the three months ended March 31, 2024 consisted of a net loss of $4,298,590, adjusted for non-cash expenses primarily including depreciation and amortization of $98,873, stock-based compensation of $38,984, fair value of common stock issued in exchange for services and in connection with non-redemption agreements of $3,714,694, issuance of common stock in connection with a stock subscription agreement of $206,000, non-cash interest of $298,605, increase in warrant liability of $23,123, decrease in derivative liability of $2,983,100, increase in earnout liability of $1,060,000, and the net change in operating assets and liabilities of $4,130,025. The net change in operating assets and liabilities was primarily due an increase accounts receivable of $482,357, an increase in prepaid expenses and other current assets of $879,508, a decrease in accounts payable of $2,118,345, a decrease in accrued expenses and other current liabilities of $1,319,572, and a decrease of deferred revenue of $3,968, partially offset by a decrease in inventory of $586,413 and increase in other liabilities of $87,312.

Current wording

Net cash used in operating activities was $6,955,081 for the six months ended June 30, 2024 as compared to $1,521,397 for the six months ended June 30, 2023. The primary use of our cash was to fund research and development and general and administrative expenses. Net cash used for the six months ended June 30, 2024 consisted of a net loss of $5,547,464, adjusted for non-cash expenses primarily including depreciation and amortization of $184,775, stock-based compensation of $38,984, fair value of common stock issued in exchange for services and in connection with non-redemption agreements of $3,718,349, issuance of common stock in connection with a stock subscription agreement of $206,000, warrant modification expense of $200,513, non-cash interest of $1,200,670, decrease in warrant liability of $190,819, decrease in derivative liability of $4,712,800, increase in earnout liability of $750,000, and the net change in operating assets and liabilities of $2,792,703. The net change in operating assets and liabilities was primarily due an increase accounts receivable of $669,138, an increase in prepaid expenses and other current assets of $553,691, a decrease in accounts payable of $2,280,535, a decrease in other liabilities of $377,772, and a decrease of deferred revenue of $315,873, partially offset by a decrease in inventory of $1,352,734 and an increase in accrued expenses and other current liabilities of $51,572.

Previous wording

Net cash used for the three months ended March 31, 2023 consisted of a net loss of $1,882,947, adjusted for non-cash expenses including depreciation and amortization of $116,826, stock-based compensation of $208,628, non-cash interest of $10,773, and non-cash operating lease expense of $2,062, and the net change in operating assets and liabilities of $556,066. The net change in operating assets and liabilities was primarily due to a decrease in inventory of $49,051, an increase in accounts payable of $392,219, an increase in accrued expenses of $31,530, and an increase in other liabilities of $118,747, partially offset primarily by an increase in accounts receivable of $5,840 and an increase in prepaid expenses and other current assets of $34,641.

Current wording

Net cash used for the six months ended June 30, 2023 consisted of a net loss of $3,212,961, adjusted for non-cash expenses including depreciation and amortization of $232,861, stock-based compensation of $417,255, non-cash interest of $21,545, and non-cash operating lease expense of $4,124, and the net change in operating assets and liabilities of $1,023,903. The net change in operating assets and liabilities was primarily due to a decrease in inventory of $53,869, an increase in accounts payable of $785,744, a decrease in other assets of $10,000, and an increase in other liabilities of $238,814, partially offset primarily by an increase in prepaid expenses and other current assets of $40,550 and a decrease in accrued expenses and other current liabilities of $23,974.

Previous wording

During the three months ended March 31, 2024, net cash provided by financing activities was $11,431,060, primarily due to $10,525,000 of net proceeds received from issuance of long-term debt related to the Yorkville Pre-Paid Advance and the Cable Car Loan, net proceeds of $1,238,530 received from the Merger, and cash proceeds of $500,000 received from issuance of common stock pursuant to a subscription agreement, partially offset by repayment of the bridge loans of $800,000, and repayments against the PPP loans of $32,470.

Current wording

During the six months ended June 30, 2024, net cash provided by financing activities was $11,398,512, primarily due to $10,525,000 of net proceeds received from issuance of long-term debt related to the Yorkville Pre-Paid Advance and the Cable Car Loan, net proceeds of $1,238,530 received from the Merger, and cash proceeds of $500,000 received from issuance of common stock pursuant to a subscription agreement, partially offset by repayment of the bridge loans of $800,000, and repayments against the PPP loans of $65,018.

Previous wording

During the three months ended March 31, 2023, net cash provided by financing activities was $915,697, primarily due to $947,850 of net proceeds from the sale of QT Imaging common stock and QT Imaging warrants, partially offset by repayments against the PPP loans of $32,153.

Current wording

During the six months ended June 30, 2023, net cash provided by financing activities was $1,303,481, primarily due to $1,017,850 of net proceeds from the sale of QT Imaging common stock and QT Imaging warrants and $350,000 of proceeds received from a related party for the Working Capital Loan, partially offset by repayments against the PPP loans of $64,369.

Previous wording

We expect to incur increased significant expenses in connection with our ongoing activities, particularly as we continue the research and development of our products and product candidates, seek expanded regulatory clearances for the QT Breast Scanner, and build a U.S. sales and marketing team. As part of the effort to build the sales and marketing capabilities in the United States, QT Imaging entered into the NXC Agreement, pursuant to which QT Imaging appointed NXC as the non-exclusive agent for the sale of QT Imaging products and services in non-exclusive territories: the U.S., U.S. territories, and U.S. Department of Defense installations. Since our consummation of the Merger, we expect to incur additional costs associated with operating as a public company. Our future funding requirements, both short-and long-term, will depend on many factors, including, without limitation:

Current wording

We expect to incur increased significant expenses in connection with our ongoing activities, particularly as we continue the research and development of our products and product candidates, seek expanded regulatory clearances for the QT Breast Scanner, and build a U.S. sales and marketing team. As part of the effort to build the sales and marketing capabilities in the United States, QT Imaging entered into the Distribution Agreement, pursuant to which QT Imaging appointed NXC as the non-exclusive agent for the sale of QT Imaging products and services in non-exclusive territories: the U.S., U.S. territories, and U.S. Department of Defense installations. Since our consummation of the Merger, we expect to incur additional costs associated with operating as a public company. Our future funding requirements, both short-and long-term, will depend on many factors, including, without limitation: