Imagin Medical Inc. (IME) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to your Imagin Medical fiscal fourth quarter and full year results conference call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to Mr. Stephen Kilmer. Sir, the floor is yours.

Thank you. Good afternoon, everyone, and thank you for joining us. Before we begin, I would like to remind you that today's call may contain forward-looking information that represents our expectations as of today and are subject to change. Forward-looking statements can be identified by words such as expects, will and similar expressions, which reflect the company's current expectations regarding future events. The forward-looking statements involve risks and uncertainties that could cause the company's actual events to differ materially from those projected on the call. Investors should consult the company's ongoing quarterly filings and annual reports for additional information on risks and uncertainties relating to these forward-looking statements. I'd like to caution you not to rely on these forward-looking statements. The company disclaims any obligation to update these forward-looking statements, except as required by law. On the call today representing Imagin Medical are Jim Hutchens, our President and Chief Executive Officer; and John Vacha, our Chief Financial Officer. With that, I'll turn the call over to Jim.

Thank you. Good afternoon, everyone, and thank you all for taking the time to join us for our 2019 fiscal year conference call. I'm sure a number of you that are on the call have received the recent news release that's gone out. We certainly will cover those topics in this meeting. We're going to give you and provide you with a corporate update, a review of key developments from this past year. Then John will discuss our fiscal year financial results, and I'll close with our upcoming 2020 milestones before we open the call for questions. So let me begin by saying, during the past year, we made significant progress on the i/Blue Imaging Systems development at the beginning of 2019, our opto-electrical design from Optel. They completed the system's proof of principle phase of the new design and assembled our first working unit for demonstration purposes only. We also held our first meeting with the FDA to introduce ourselves and proactively discuss the Imaging -- the i/Blue Imaging regulatory path. So things were starting to happen in 2019. In April, we met a major product development milestone by completing an i/Blue working functional unit, which met our preestablished performance expectations. This achievement enabled us to have a select group of urologists assess the system at the American Urologic Association meeting last May in Chicago. That exercise provided valuable insight into the system's user needs and generated the most significant product feedback we had gathered to date. Once we integrated these user needs into the i/Blue design specifications, we met another major development milestone in July by progressing the system to the design verification stage. In September, we had our second meeting with the FDA to discuss the system's regulatory approval pathway. Based on this meeting, we plan to pursue approval of the i/Blue Imaging System through a regulatory pathway that demonstrates safety and effectiveness, but it is also the least burdensome approach for the company. Now also in September, we commenced our initial assembly of functional units, and you saw a news release in July and November updating you on our progress and had an independent lab -- and this is what is written about in the news release today if you haven't seen it -- an independent lab conducted an evaluation of the control unit confirming electrical safety, radiation emissions and many other topics that allow us to know we can build this product. This data, combined with the data from internal testing by Optel as well as engineering calculations, component suppliers and other competitive devices, one of the basis for our verification report, was completed on the last day of last year, 7 days ago. And that's what we announced today. Now we're currently preparing for 3 pilot manufacturing runs of the i/Blue system late the first quarter into next quarter. So it was a year of very significant progress and will line us up for 2020. Now I'll turn the call over to our Chief Financial Officer, John Vacha, to review the results from last year. John?

Thank you, Jim. Today, I'll discuss our financial results for the fiscal year 2019, which ended on September 30, 2019. To streamline things, all the numbers I will cite have been rounded and are therefore approximate. First, I'd like to review our balance sheet. Our 2019 ending cash position was $2.3 million versus $5.8 million in 2018. The net change in this cash position was a reduction of $3.5 million, which was driven by our net loss for the year. The intangible asset balance of $145,000 on our balance sheet represents the capitalized fees associated with the foundational licenses we exclusively hold from Lawrence Livermore Laboratory with the only change from 2018 being our annual license fees less depreciation. For liabilities, our accounts payable balance of $382,000 is $203,000 higher than the 2018 balance and consisted primarily of legal fees from our regulatory counsel, development fees and FDA consulting work as well as our annual financial audit fees, all fees that would be expected in the normal course of business. Moving on to the consolidated statement of loss and comprehensive loss or P&L. Here are the selected financial highlights. Total operating expenses for fiscal year 2019 were $4.5 million compared with $5 million in 2018 and consisted primarily of research and development, or R&D, and general and administrative, or G&A, expenses. R&D expenses for the fiscal year 2019 were $3.2 million compared to $807,000 in 2018. The increase in R&D was primarily attributable to our engineering, development, design, FDA and regulatory expenses. G&A expenses for fiscal year 2019 were $1.3 million compared to $3.8 million in 2018. The decrease in G&A expenses was primarily attributable to lower consulting fees as there were no expenses related to raising capital during fiscal year 2019. Net loss for the fiscal year ended September 30, 2019, was $4.5 million or $0.03 loss per common share compared to a net loss of $8 million or $0.07 loss per common share for fiscal year ended September 30, 2018. These are the financial highlights for the year. And with that, I'll turn the call back over to Jim for his closing remarks. Jim?

Okay. Thank you, John. I just -- as I've said, we're very pleased with the progress that we made in 2019 having advanced the i/Blue from a proof of concept to the final stages of design verification. But among other achievements during the last 12 months, I consider the physician feedback we received at the AUA meeting really to be the highlight. Not only did this exercise help refine the system's user needs but also spending time with and getting to know some of the top urologists in North America we consider absolutely invaluable for the company. Their feedback on the system as a whole was just overwhelmingly positive and encouraging. And my thinking is that we really move from our story situation to stepping into the marketplace, having key leaders confirm our technology and strategy. And now we have market visibility for the Blue -- the i/Blue system from leading institutions in North America. During these meetings, these doctors where we demonstrated this first working product that we had, they -- we talked about the i/Blue's ability to display and show simultaneous white and blue images, which capture the full landscape, as you heard before, the full landscape of the bladder and the location of the margins of the cancer all in real time. This is a major technological advancement, which eliminates the need to switch between images. These leading doctors told us that the most beneficial features of the i/Blue system was the simultaneous acquisition of the images and the ability to use our camera head on any -- on almost all of the top scope manufacturers that they had. Now not only did this feedback validate our strategy and the work we've done up to this point, but it also set us up on the path to commercializing a potentially new standard of care in bladder cancer imaging. So we're excited to continue down the path into 2020. We already have begun the device realization stage, and I'd just throw that out because it's a fancy phrase, which means the development process to create the pilot runs that are going to happen this quarter and into next quarter. We're looking forward to updating all of you, the shareholders, once we confirm the i/Blue systems regulatory path with the FDA. We're pretty excited about that, and also, we'll be providing additional information on the product validation. And I know we've been talking about verification, but moving from the verification, i.e. we can do it to actually doing it on a validated product. This will be the final step before we commit and send in our regulatory submission. Now on a final note, I'd like to discuss the current fundraising plan. And I know some people will have concern with this, but let me just review this situation before we open the line up for questions. We all know, and we've talked about this in every conference call that we had, that we were going to need money. The question is, how do we take it? Now many of you know that Paul and I, for over 6 months, have been building relationships up and down the East Coast, through Toronto out to Vancouver, and we've located over this time a number of strategic, and I want to emphasize strategic investors. We've talked with them for many months, and they were willing to support us when the stock was at $4 or $5 when many people weren't willing to do this. 4 weeks, for -- in the last 4 weeks, we really have seen the stock start to move up, and we jumped from this $5 price. But you need to understand that we have been talking to these people who were willing to support us before the last 3, 4 weeks when the stock started to move. And I want you to know that Paul and I had lined up various things such as a BioWorld journal reprint in Toronto. This happened just before Christmas. That article went out, and we sold 800,000 shares the next day in the stock. We have [ National Financial ] with their news release put out, and the clienteles of this group have to opt in. Then they get the report. We're having 30 opt-ins a day. That started 2 weeks ago. We have a news release -- excuse me, another newsletter from Streetwise. And I want to point out to you, you can go to the website and see these reports that we've put up yesterday for anyone who wants to review them. And with Paul's network and my network, we've lined up a number of individuals who've been buying the stock. So what happened? The stock started moving up about 3 weeks ago into significant levels, and we believe that we have certain commitments to people who were willing to help us when we didn't have the stock at 7.5, pushing to 9.5, pushing over, and we've been talking to them for months. So there -- to me, there's some sort of a commitment out there. They were willing to help us when other people weren't willing to help us. At first look now, we like the idea. Nobody -- we don't -- no one's going to like the idea of a $0.05 round. I don't like it, but commitments and thoughts of people who wanted to support there -- us were there. Now what will we get from these strategic investors? These people, I am convinced, will hold for the long term, which is a problem, and you all know this, that we've had with this phenomenal anonymous selling over the last 12 months. This group, this various group, various people within this group, they're used to and understand what this company is. They did real due diligence. They have the ability to buy in the marketplace, not just in a private placement, to buy in the marketplace and to support us as we go forward. They will execute the warrants. The deal is, fundamentally, we've got things lined up. We wanted to get that news release out before this call. And the way I see it, it's just onward and upward. But if we can get ourselves $1 million, push the financials out into the -- push the cash needs out into the summer, we can be building with some very serious strategic partners, some major stock increases potentially. So I just wanted to -- you to hear from me what was going on. And what I'll do now is open up the call for questions. And I want to divide the questions. There is the company. There's the major things that happened in putting together a verified product. We've got a big meeting this week with all the inside people up here in Rochester. I'm in Rochester right now, and we're going to drive this product. And we can talk about the financing if it's necessary. So operator, if you open the call to questions, we're happy to take them.

[Operator Instructions] Our first question comes from [ Mark Mastelyak ], a private investor.

Okay. Well, first and foremost, it's nice to hear everybody sounding so positive and upbeat. Fundamentally, I'm not unhappy. But I'm going to address the elephant in the room. I appreciate the fact that you're trying to mitigate the damage ahead of time, Jim. And I do understand that sometimes you make that commitment to certain investors, so fair enough. But this is a pretty juicy private placement done at a pretty significant discount. You're saying that, that was done and committed to prior to this run-up in the share price, correct? I just want to be clear.

Yes. No, I want to be very clear on this. To me, they would be -- there's an ethical obligation that we talk to people who are willing to work with us. We could be with you if you can go put some funding together. It's not as though we signed a contract. It's not as though -- we let them know about the company. They did serious due diligence. And now do we want them -- do we want to say to them, hey, come on in. We're doing this at 9 and not have their strategic value going forward. So that's the answer to your question.

Okay, fair enough. I understand that. And -- but I mean, at the same time, you've got a lot of shareholders that have been with you for a very long time, myself included, and I think you owe something too as well. In doing something this low when the majority of your shareholders are in so much higher, I mean I don't know. I'm going to reserve judgment and just say that I'm not happy with that. But okay, I understand that. They got us over a barrel. They basically dictated the terms and okay, fair enough. Now these same strategic investors, I don't want to take up too much time. I'll go very quickly. Can we also assume -- can we assume then that they've committed to the entire $1 million? Because you've got a pretty aggressive closing date of January 16, and I guess my question is, to me, as an outsider, that was very much late.

No, we -- yes, we don't have a commitment for the whole thing, but we're very, very close, but...

Are you -- okay. Good, that's what I wanted to hear because my fear is one of those investors -- yes, my fear is one of those investors that has held this a very long time and if that came back into the market to support it again recently is that, well, we've all seen it. This could potentially run right back down to the financing price because these same guys are going to be selling their shares and replacing them with a nice $0.05 share and full warrant. So I guess what I was looking for is, what sort of a commitment do you have? And are you close to closing it, do you think, with the commitments that you have from our strategic investors?

Well, I think the answer is that we're close, and we haven't closed it. An extra 100,000 here, we'd like to accommodate anyone that we can that's interested. And I think you and I know who the other guy is, and let's talk.

Okay. Actually, one last question...

Yes, let me just make it clear that if we had done this on December 1, we would have had a conversation about nobody else loves us. Today, all of a sudden, we got some people that are saying, "Hey, you guys look hot". We go up. We go down. And so I'm very concerned about people like yourself that have been with us and spend some time on us. So let's talk.

Okay. All right. Fair enough. And one last question, and I think this is probably on everybody's mind, is we're getting a lot of shares outstanding now. Is there any potential here for a rollback in the near term?

I don't have a strategy for rolling the stock back, although I would be very open with you that there are people who have said we should do that. But my attitude was guys like yourself, myself, we've been in this a long time. Let's see where we go.

Okay. But that -- okay, just so I'm clear, that was not part of the terms that our strategic investors sort of put on the table.

No, not at all. Not at all.

Okay. All right. Again, I don't want to take up too much time, but those are my questions. And I am happy with where the company is going fundamentally. But today is not a great day to be a shareholder in this company. I just hope you can turn it around.

Our next question comes from [ Don Nicholson ], a private investor.

I must admit, I didn't -- I don't know if Paul is in the room or not. But I didn't see that press release, so I'm getting this sort of second hand -- well, I'm getting it live. So that was good. So it sounds like there's a $1 million financing at $0.05 with -- and what's the strike price on the warrant?

$0.15.

$0.15. So my questions were a bit different from that. It was nice to see the stock start to move here, but I saw today it fell back a bit. The business plan in terms of the -- and please, if this is on the website in detail, just cut me off. The business plan in terms of the cost per unit, the margin and the markup per unit, are you anywhere near where you'll get a handle on those sorts of costs and profit margin in terms of the business plan like cost per unit and...

Yes. What I would say is we're very close to understanding. We're very comfortable that we'll have very reasonable margins in this product. So let me say that as an executive summary. The team is up here in Rochester today working with Optel, and that will be one of our discussion points. But we're all pretty darn confident we're going to be in good shape from a margin standpoint. And the concept is really as technology goes forward, prices -- products get smaller and prices come down. So I think we're in good shape.

And the -- it seems to me like $1 million isn't going to get you that far. The -- is the intent that, that gets you through to the summer and then where will that...

Yes, the price will be much higher, and then we -- the price will be much higher and then we'll protect ourselves from dilution.

Yes. And how will that dovetail with any FDA approvals?

I would like to have an FDA approval submitted before then, into the second quarter of next year, probably -- I mean, probably, next year. I guess we're already in next year. In late second quarter.

Right. And then they -- I know you've had a couple of meetings with them. Are they -- have they given any -- and forgive me if you can't say. Or have they given any indication whether they'll streamline the application because it's based on existing technologies and processes? Or are they saying it's kind of a new application or you can't say?

Well, no. What I can say is that there are laws that say and what we know is, clearly, we're a combination product. We have hardware-software that works with a drug with an imaging agent. And what we're really discussing is the nature of clinical studies. And I want to exaggerate this for any competitor that's on the phone, but are we doing 2,000, which is ridiculous, and are we doing none. So we're having very good conversations. We have a very good team of people that are competent in this area. And we're moving the ball along in that front. So it's going well. But I would say very openly to the investors, the FDA is -- always has some unknown variables. But I think we've done literally the best we can do to move this process forward. Now we need to make these final products, have the documentation and get our application in. And in these meetings we have -- these meetings we have are all about what zip code are we in. You don't want to think that you're in a Boston zip code when you're dealing in Beijing. So we're getting much, much closer to the FDA and Imagin Medical having a good understanding of what we need to do. We've got a story. They've got a story. We're getting it together.

So the FDA is really saying show us the product, right?

Show us the data on the product. Yes, show us the product but let's take it down to show us the tests that prove this, that and the other thing.