QT IMAGING HOLDINGS INC

Previous wording

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek,” “may,” “might,” “plan,” “possible,” “potential,” “should, “would” and similar words and expressions are intended to identify such forward-looking statements. Such forward‑looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the “Risk Factors” section in Part II, Item 1A. of this Quarterly Report, the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 25, 2024 (our “Annual Report”) and in any more recent filings with the SEC. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Current wording

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, and statements in “Unregistered Sales of Equity Securities and Use of Proceeds” regarding the intended use of proceeds from the Private Placement (as such term is defined below), are forward-looking statements and the expected date of closing of the Private Placement. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek,” “may,” “might,” “plan,” “possible,” “potential,” “should, “would” and similar words and expressions are intended to identify such forward-looking statements. Such forward‑looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the “Risk Factors” section in Part II, Item 1A. of this Quarterly Report, the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 25, 2024 (our “Annual Report”) and in any more recent filings with the SEC. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

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

Current 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.

Previous 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.

Current wording

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

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.

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 September 30, 2024, we have delivered six 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 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.

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 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

Upon successful conclusion of the feasibility study, we and CMSC intend to engage in a good faith discussion to develop a binding Original Equipment Manufacturer (“OEM”) agreement with CMSC, with such agreement targeted for execution in the second half of 2024. Under the contemplated OEM agreement, CMSC will commercialize and service the QT Breast Scanner worldwide, with Canon-branded systems to be sold exclusively through Canon global channels, including by NXC as provided for in the NXC Agreement, and a license fee to be mutually agreed upon to be paid to us for each system sold by Canon or its partners. The parties also intend that CMSU will leverage the contemplated OEM agreement to source QT Breast Scanners for sale in the U.S. on terms to be mutually agreed upon.

Current wording

Upon successful conclusion of the feasibility study, we and CMSC intend to engage in a good faith discussion to develop a binding Original Equipment Manufacturer (“OEM”) agreement with CMSC, with such agreement targeted for execution in the fourth quarter of 2024. Under the contemplated OEM agreement, CMSC will commercialize and service the QT Breast Scanner worldwide, with Canon-branded systems to be sold exclusively through Canon global channels, including by NXC as provided for in the NXC Agreement, and a license fee to be mutually agreed upon to be paid to us for each system sold by Canon or its partners. The parties also intend that CMSU will leverage the contemplated OEM agreement to source QT Breast Scanners for sale in the U.S. on terms to be mutually agreed upon.

Previous 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.

Current wording

We have incurred net operating losses and negative cash flows from operations since our inception and had an accumulated deficit of $32,122,605 as of September 30, 2024. During the nine months ended September 30, 2024, we incurred a net loss of $9,166,958 and used $8,806,402 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 15, 2023, we entered into a Standby Equity Purchase Agreement with GigCapital5 and Yorkville Advisors Global, LP (“Yorkville”), pursuant to which, upon the closing of the Business Combination, QTI Holdings can sell to Yorkville up to $50.0 million of QTI Holdings common stock at QTI Holdings’ request any time during the 36 months following the closing of the Business Combination. In addition, we can also request a pre-paid advance from Yorkville up to an amount of $10.0 million at the closing of the Business Combination (the “Pre-Paid Advance”) as evidenced by a convertible promissory note (the “Yorkville Note”). As consideration for the Pre-Paid Advance, immediately prior to, and substantially concurrently with, the Closing of the Business Combination, we 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. On March 4, 2024, we received the Pre-Paid Advance of $9,025,000 from Yorkville that is due 15 months from the date of issuance, and accrues interest 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.

Current wording

On November 15, 2023, we entered into the SEPA with GigCapital5 and Yorkville, pursuant to which, upon the closing of the Business Combination, QTI Holdings can sell to Yorkville up to $50.0 million of QTI Holdings common stock at QTI Holdings’ request any time during the 36 months following the closing of the Business Combination. In addition, pursuant to the SEPA, we were entitled to and did request the Pre-Paid Advance from Yorkville and issued Yorkville the Yorkville Note in the amount of $10.0 million at the closing of the Business Combination for such Pre-Paid Advance. As consideration for the Pre-Paid Advance, immediately prior to, and substantially concurrently with, the Closing of the Business Combination, we issued to Yorkville the Company Shares which were 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. On March 4, 2024, we received the Pre-Paid Advance of $9,025,000 from Yorkville and issued Yorkville the Yorkville Note that was originally due 15 months from the date of issuance, and accrues interest 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.

Previous 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.

Current wording

Revenue increased by $931,313 to $955,970 for the three months ended September 30, 2024 from $24,657 for the three months ended September 30, 2023. The increase in revenue was primarily attributable to the sale of two QT Breast Scanners in the third quarter of 2024 as compared with no scanners sold in the third 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 $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.

Current wording

Cost of revenue increased by $326,868 to $350,667 for the three months ended September 30, 2024 from $23,799 for the three months ended September 30, 2023. The increase in cost of revenue was primarily attributable to the sale of two QT Breast Scanners in the third quarter of 2024 as compared with no scanners sold in the third quarter of 2023.

Previous wording

Research and development expenses increased by $796,084 to $1,567,628 for the six months ended June 30, 2024 from $771,544 for the six months ended June 30, 2023. The increase in research and development expenses was primarily attributable to an increase in employee compensation costs of $441,807 and professional and outside services costs of $273,965.

Current wording

Research and development expenses increased by $613,385 to $925,214 for the three months ended September 30, 2024 from $311,829 for the three months ended September 30, 2023. The increase in research and development expenses was primarily attributable to an increase in employee compensation costs of $380,731 and professional and outside services costs of $153,529 and a decrease in grant income from the National Institute of Health of $137,827, which was partially offset by a decrease in depreciation and amortization expense of $97,717.

Previous wording

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 for the three months ended June 30, 2023. This change was primarily attributable to an increase in professional and outside services cost of $332,064, insurance costs of $232,074, and employee compensation costs of $578,694.

Current wording

Selling, general and administrative expenses increased by $1,075,153 to $2,007,277 for the three months ended September 30, 2024 from $932,124 for the three months ended September 30, 2023. This change was primarily attributable to an increase in employee compensation costs of $688,243, insurance costs of $231,277, and information technology cost of $101,381.

Previous wording

Other expenses, net increased by $208,325 during the six months ended June 30, 2024. There were no other expenses during the six 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.

Current wording

Other income (expense), net increased by $16,995 during the three months ended September 30, 2024. There were no other income (expense) during the three months ended September 30, 2023. This increase was primarily due to the sublease of our equipment and office with a related party and effective date of April 1, 2024.

Previous 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.

Current wording

Change in fair value of warrant liability was $8,805 during the three months ended September 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 the publicly traded price per warrant during the three months ended September 30, 2024.

Previous 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.

Current wording

Change in the fair value of derivative liability was $87,200 during the three months ended September 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 September 30, 2024.

Previous 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.

Current wording

Change in the fair value of earnout liability was $50,000 during the three months ended September 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 September 30, 2023.

Previous wording

Interest expense, net increased by $963,462 to $1,095,050 for the three months ended June 30, 2024 from $131,588 for the three months ended June 30, 2023. This change is primarily driven by an increase in the amortization of debt discount of $902,065 for the Pre-Paid Advance and the Cable Car Promissory Note and accrued interest expense of $149,589 for the Pre-Paid Advance.

Current wording

Interest expense, net increased by $1,322,462 to $1,455,306 for the three months ended September 30, 2024 from $132,844 for the three months ended September 30, 2023. This change is primarily driven by an increase in the amortization of debt discount of $1,203,363 for the Pre-Paid Advance and the Cable Car Promissory Note and interest expense of $149,676 for the Pre-Paid Advance.

Previous wording

Comparison of the six months ended June 30, 2024 and 2023

Current wording

Comparison of the nine months ended September 30, 2024 and 2023

Previous wording

Revenue increased by $3,065,451 to $3,076,198 for the six months ended June 30, 2024 from $10,747 for the six months ended June 30, 2023. The increase in revenue was primarily attributable to the sale of seven QT Breast Scanners in the first and second quarters of 2024 as compared with no scanners sold in the first six months 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 $3,996,764 to $4,032,168 for the nine months ended September 30, 2024 from $35,404 for the nine months ended September 30, 2023. The increase in revenue was primarily attributable to the sale of nine QT Breast Scanners in the first nine months of 2024 as compared with no scanners sold in the first nine months 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 $1,391,869 to $1,441,567 for the six months ended June 30, 2024 from $49,698 for the six months ended June 30, 2023. The increase in cost of revenue was primarily attributable to the sale of seven QT Breast Scanners in the first and second quarters of 2024 as compared with no scanners sold in the first six months of 2023, which was partially offset by inventory write-offs in the first six months of 2023.

Current wording

Cost of revenue increased by $1,718,737 to $1,792,234 for the nine months ended September 30, 2024 from $73,497 for the nine months ended September 30, 2023. The increase in cost of revenue was primarily attributable to the sale of nine QT Breast Scanners in the first nine months of 2024 as compared with no scanners sold in the first nine months of 2023, which was partially offset by inventory write-offs in the first nine months of 2023.

Previous 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.

Current wording

Research and development expenses increased by $1,409,469 to $2,492,842 for the nine months ended September 30, 2024 from $1,083,373 for the nine months ended September 30, 2023. The increase in research and development expenses was primarily attributable to an increase in employee compensation costs of $822,538 and professional and outside services costs of $427,494, and decrease in grant income from the National Institute of Health of $207,603.

Previous 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.

Current wording

Selling, general and administrative expenses increased by $6,800,309 to $9,873,029 for the nine months ended September 30, 2024 from $3,072,720 for the nine months ended September 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 $363,432, non-recurring recruiting and employee conversion costs of $143,000, employee compensation costs of $1,314,537, insurance costs of $545,530, information technology costs of $200,769, and travel costs of $94,123.

Previous 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.

Current wording

Other income (expense), net increased by $191,330 during the nine months ended September 30, 2024. There were no other income (expense) during the nine months ended September 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 $190,819 during the six 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 six months ended June 30, 2024.

Current wording

Change in fair value of warrant liability was $199,624 during the nine months ended September 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 the publicly traded price per warrant during the nine months ended September 30, 2023.

Previous wording

Change in the fair value of derivative liability was $4,712,800 during the six 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 six months ended June 30, 2024.

Current wording

Change in the fair value of derivative liability was $4,800,000 during the nine months ended September 30, 2024. The change in fair value of derivatives was primarily driven by the decline in the value of our common stock during the nine months ended September 30, 2023.

Previous wording

Change in the fair value of earnout liability was $750,000 during the six 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 six months ended June 30, 2023.

Current wording

Change in the fair value of earnout liability was $700,000 during the nine months ended September 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 nine months ended September 30, 2023.

Previous 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.

Current wording

Interest expense, net increased by $2,754,601 to $3,149,315 for the nine months ended September 30, 2024 from $394,714 for the nine months ended September 30, 2023. This change is primarily driven by an increase in the amortization of debt discount of $2,404,031 for the Bridge Loans, the Pre-Paid Advance, the Cable Car Promissory Note and the Extension Note, an increase in interest expense of $343,648 for the Pre-Paid Advance, and an increase in interest of $160,000 paid in cash related to the Bridge Loans, partially offset by decrease in interest expense of $66,442 related to the US Capital Note.

Previous 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.

Current wording

Since our inception, we have incurred significant operating losses and negative cash flows. As of September 30, 2024 and December 31, 2023, we had an accumulated deficit of $32,122,605 and $17,770,145, respectively. As of September 30, 2024 and December 31, 2023, we had cash and restricted cash and cash equivalents of $1,564,169 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

In connection with the Business Combination, we entered into various agreements to obtain financing through the issuance of debt and through stock subscription agreements. In March of 2024, we received the Pre-Paid Advance net of issuance costs of $9,025,000 from Yorkville pursuant to the SEPA, $500,000 of cash proceeds from an investor related to a stock subscription agreement, and $1,500,000 in cash proceeds through a note payable from Cable Car. The Standby Equity Purchase Agreement provides us with access to an additional $40 million of potential capital through the issuance of common stock to Yorkville. During the time we have a balance under the Pre-Paid Advance, advances can be received with written consent of Yorkville or upon a trigger event, which occurs when the daily volume-weighted average price is less than $2.00 per share for five consecutive trading days. We believe that the additional cash received and financing arrangements at the closing of the Business Combination will be sufficient to fund our current operating plan for at least the next 12 months.

Current wording

In connection with the Business Combination, we entered into various agreements to obtain financing through the issuance of debt and through stock subscription agreements. In March of 2024, we received the Pre-Paid Advance net of issuance costs of $9,025,000 from Yorkville pursuant to the SEPA and issued Yorkville the Yorkville Note in the amount of $10.0 million for such Pre-Paid Advance, $500,000 of cash proceeds from an investor related to a stock subscription agreement, and $1,500,000 in cash proceeds through a note payable from Cable Car. The SEPA provides us with access to an additional $40 million of potential capital through the issuance of common stock to Yorkville. During the time we have a balance under the Yorkville Note, advances can be received under the SEPA with written consent of Yorkville or upon a trigger event, which following the effectiveness of the Registration Statement on Form S-1 that we filed to register the shares to be issued pursuant to the SEPA occurs when the daily volume-weighted average price is less than the Floor Price

Previous wording

On February 24, 2021 and May 5, 2020, we received loans (“PPP Loans”) from US Bank to fund payroll, rent and utilities through the Paycheck Protection Program (“PPP”). We received partial forgiveness on the PPP Loans during fiscal year 2021. The remaining balances on the PPP Loans are being repaid on a monthly basis, with interest of 1% per annum and the final payment due in February 2026.

Current wording

On February 24, 2021 and May 5, 2020, we received PPP Loans from US Bank to fund payroll, rent and utilities through the Paycheck Protection Program. We received partial forgiveness on the PPP Loans during fiscal year 2021. The remaining balances on the PPP Loans are being repaid on a monthly basis, with interest of 1% per annum and the final payment due in February 2026.

Previous 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.

Current wording

As of September 30, 2024, the total principal outstanding under the PPP Loans was $128,699, of which $105,733 was current and $22,966 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 June 2021, we entered into a convertible promissory note agreement (the “Note”) with USCG for advances of up to $10,000,000. We could have made advances on the Note up to six months after the inception of the Note unless extensions for advances were mutually agreed between both parties. The Note bore interest at 12% per annum on any amounts drawn with maturity date of July 6, 2024. The Note was collateralized by all our assets and was guaranteed by QT Labs. The terms of the Note include non-financial covenants and, as of March 4, 2024 when the Note converted, we were in compliance with those covenants. Through December 31, 2023, we issued warrants in connection with the note to purchase a total of 5,091 shares of common stock which 3,540 shares are exercisable at a price of $12.40 per share and 1,551 shares are exercisable at a price of $11.67 per share. On March 4, 2024, these warrants were terminated in accordance with the Business Combination Agreement.

Current wording

In June 2021, we entered into a convertible promissory note agreement (the “Note”) with USCG for advances of up to $10,000,000. We could have made advances on the Note up to six months after the inception of the Note unless extensions for advances were mutually agreed between both parties. The Note bore interest at 12% per annum on any amounts drawn with a maturity date of July 6, 2024. The Note was collateralized by all our assets and was guaranteed by QT Labs. The terms of the Note include non-financial covenants and, as of March 4, 2024 when the Note converted, we were in compliance with those covenants. Through December 31, 2023, we issued warrants in connection with the note to purchase a total of 5,091 shares of common stock which 3,540 shares are exercisable at a price of $12.40 per share and 1,551 shares are exercisable at a price of $11.67 per share. On March 4, 2024, these warrants were terminated in accordance with the Business Combination Agreement.

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 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.

Current wording

In November 2023, we entered into a Securities Purchase Agreement and raised the private secured Bridge Loan 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

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.

Current wording

On March 4, 2024, we received the Pre-Paid Advance of $10,000,000 from Yorkville and issued Yorkville the Yorkville Note in the amount of $10.0 million for such Pre-Paid Advance that was originally 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

As of June 30, 2024, the outstanding amount of the Pre-Paid Advance was $3,030,909 net of the unamortized discount of $6,969,091 and accrued interest of $193,973.

Current wording

As of September 30, 2024, the outstanding amount of the Yorkville Note was $2,980,159 net of the unamortized discount of $5,874,434 and accrued interest of $24,744.

Previous 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.

Current wording

As of September 30, 2024, the outstanding amount of the Cable Car Loan was $1,247,374 net of issuance costs of $252,626.

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 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.

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 September 30, 2024, an aggregate of 250,224 shares of common stock would be issued if the entire principal and interest under the 2020 Notes was converted.

Previous 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.

Current wording

As of September 30, 2024 and December 31, 2023, the outstanding amount of the 2020 Notes was $3,143,725 and accrued interest of $507,029 and $377,772, respectively.

Previous wording

On May 3, 2023, we issued a promissory note (the “Working Capital Note”) to a stockholder for a principal amount of $250,000. The Working Capital Note was subsequently amended and restated six times on June 12, 2023 to add an additional principal amount of $100,000, August 15, 2023 to add an additional principal amount of $75,000, August 29, 2023 to add an additional principal amount of $100,000, September 12, 2023 to add an additional principal amount of $75,000, September 15, 2023 to add an additional principal amount of $50,000, and October 26, 2023 to add an additional principal amount of $55,000, for an aggregate principal amount outstanding as of December 31, 2023 under the Working Capital Note of $705,000. The Working Capital Note was issued to provide us with additional working capital during the period prior to consummation of the Business Combination Agreement with GigCapital5. The Working Capital Note is interest-free and originally matured on the earlier of (i) the date on which we consummated the Business Combination with GigCapital5, Inc.; (ii) the date we wind up; or (iii) December 31, 2023. On March 4, 2024, the Working Capital Note was agreed to be amended and subordinated pursuant to and in accordance with the terms of the Business Combination Agreement. Effective on the closing of the Business Combination, the Working Capital Note cannot be repaid prior to the repayment or conversion of the Pre-Paid Advance received from Yorkville.

Current wording

On May 3, 2023, we issued a promissory note (the “Working Capital Note”) to a stockholder for a principal amount of $250,000. The Working Capital Note was subsequently amended and restated six times on June 12, 2023 to add an additional principal amount of $100,000, August 15, 2023 to add an additional principal amount of $75,000, August 29, 2023 to add an additional principal amount of $100,000, September 12, 2023 to add an additional principal amount of $75,000, September 15, 2023 to add an additional principal amount of $50,000, and October 26, 2023 to add an additional principal amount of $55,000, for an aggregate principal amount outstanding as of December 31, 2023 under the Working Capital Note of $705,000. The Working Capital Note was issued to provide us with additional working capital during the period prior to consummation of the Business Combination Agreement with GigCapital5. The Working Capital Note is interest-free and originally matured on the earlier of (i) the date on which we consummated the Business Combination with GigCapital5, Inc.; (ii) the date we wind up; or (iii) December 31, 2023. On March 4, 2024, the Working Capital Note was agreed to be amended and subordinated pursuant to and in accordance with the terms of the Business Combination Agreement. Effective on the closing of the Business Combination, the Working Capital Note cannot be repaid prior to the repayment or conversion of the Yorkville Note issued to Yorkville.

Previous wording

On March 4, 2024, we assumed the $1,560,000 outstanding balance of the Extension Note from a related party and pursuant to the Business Combination Agreement. The Extension Note does not bear any interest and cannot be repaid prior to the repayment of the Pre-Paid Advance received from Yorkville.

Current wording

On March 4, 2024, we assumed the $1,560,000 outstanding balance of the Extension Note from a related party and pursuant to the Business Combination Agreement. The Extension Note does not bear any interest and cannot be repaid prior to the repayment of the Pre-Paid Advance received from Yorkville. On November 12, 2024, the holder of the Extension Note entered into the securities purchase agreement and will surrender the Extension Note for cancellation in its entirety in exchange for the purchase of shares of common stock and warrants for the purchase of common stock with a purchase price of $1,560,000.