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

Good afternoon, ladies and gentlemen, and welcome to your Imagin Medical Fiscal 2020 Second Quarter Results Investor call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to Stephen Kilmer, Investor Relations. 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 to 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 will now turn the call over to Jim.

Thank you, Steve. And good afternoon, everyone, and thanks for taking the time to join us for our second quarter 2020 conference call. Today, I will give you a corporate update, then John will discuss our financial results for the quarter, I'll close by discussing our future milestones, then we'll open this -- our conversation up for any questions. So during the quarter, we've been focused on adapting our business, trying to get in line with the conditions that have been caused by the pandemic. I'm sure nobody is surprised by that. I mean it really is a major business issue, but we're just going to push forward. Our business core operations are in Massachusetts, the third most-affected state in the United States. And as many of you know, we are doing all our development work, and I'm on my way back from Rochester, New York right now. And obviously, New York is the epicenter of the pandemic in the United States. So we just have to put that out there. We've taken social distancing measures and travel restrictions. And we've made our ongoing -- that's really made the ongoing i/Blue engineering process very challenging. The supply chains have been interrupted. And I'll just give you one example, whether you want to say we've had a pandemic for 60 days or 90 days, when we get a product in and it's the wrong product that we needed, and we send it back, we're all on Zoom meetings, but you can't do incoming inspection on a Zoom conference call. You've got to have someone in the building and it's just last week in New York state that these people have been allowed to be back into the business. These COVID-19-related challenges, they're absolutely beyond our control. But we put a lot of initiatives in place to better position ourselves in this environment. And these include freezing employee travel. This is the first trip I've taken in about 90 days. We've reduced nonessential expenses. Everybody's salary, the FDA people are on furlough until we absolutely need them, and all their salaries have been cut. Doing everything we can to extend the cash the runway. Now while the duration of the pandemic impacts are unknown, we're very focused on progressing the i/Blue system as best we can towards commercialization. So let me just describe a couple of the initiatives that are underway. Last week, you probably saw a news release reported -- we reported that we have i/Blue functional units. This is a really big deal. This allows us to keep moving in the marketplace. And we got those from our contract design company. They've been tested for electrical safety, traceability. And we're going to take 2 of these units, and we've been lining up some first-in-human work, where it's been -- obviously, it's not easy to get into a hospital today, but we're lining that work up to get this product on to a human, might take a little bit longer, but we want to successfully show live tissue and the cancer fluorescing. We have the ability to make 5 additional units, which I think is very significant for us. And once these clinicals are established in the hospitals, I think it's probably going to take towards the end of the summer into the fall. We'll get these products in human beings. This is a major, major step that I think will get us a lot of recognition. In the meantime, we're setting up 2 potential places to do some animal studies if we actually need to do that. We're going to use the remainder of these functional units for virtual investor presentations, and those are being lined up as we speak as well as we're going to use them on private medical professional demonstrations, and we've got a couple of those meetings already lined up. We're going to use these units to make videos. That's what I was doing in Rochester today on my way home from Rochester, made an interesting video, hope to see that and get that all edited within the next week or so. And as many of you know, we were very excited to be down in Washington D.C., that would have been 1.5 weeks ago. We had dinner set up with 12 of the most significant urologists in the United States. We had a 20x20-foot booth that was a private booth. We had people lined up that come and expand ourselves, but we can convert from the AUA, the American Urology Association meeting to doing this, and we've got most of these people lined up to come meet us on a virtual basis. That's part of the video that we were just working on today. And I think we can just move forward even though when we're all learning to do this. We've been doing this on the phone with our investors for a while. But we'll just continue to build our relationships in the marketplace as we go. Finally, we're continuing to assemble the necessary product documentation to support the discussions with the FDA once the whole normal operations get back underway. We've got plans to clarify a number of the clinical studies, how many clinical studies are we going to be doing? It's kind of a $64,000 question. And so we're excited to push on that. And now I'd like to turn this meeting over to John Vacha, our CFO, to talk a little bit about the financing, then I'll come back and discuss the milestones we can get done over the next quarter. John?

Thank you, Jim. Today, I'd like to discuss our financial results for the second fiscal quarter of 2020, which ended on March 31, 2020. First, I'll review the balance sheet. In the asset section, our Q2 2020 ending cash position was $904,000 versus $1 million in the previous quarter. The net change in cash position was a reduction of approximately $142,000, which is driven by our net loss for the quarter. As everyone knows, we are not generating revenue at this point. This was almost entirely offset by the $1.9 million in gross proceeds from the nonbroker private placement we completed in January. The intangible asset balance on the balance sheet of $166,000 represents the capitalized fees associated with the foundational licenses we exclusively hold from Lawrence Livermore labs, with the only change from the previous quarter being our annual license fees less depreciation. On the liability section of the balance sheet, our accounts payable balance was $332,000 which was $42,000 lower than prior quarter and consisted primarily of development and equipment costs, FDA, consulting and legal fees from our regulatory counsel. These are the normal types of transactions and fees that we would expect at this stage of the company, and there are no unusual transactions in the accounts payable. The net result of the balance sheet transactions was an increase of $21,000 in shareholder equity compared to the prior quarter. Moving on to the consolidated statement of loss and comprehensive loss, or P&L statement. Here are the selected financial highlights. Total operating expenses for the quarter were $1.8 million compared with $971,000 for the same quarter in 2019 and consisted primarily of research and development expenses, or R&D, as well as some G&A expenses. Our R&D expenses for the second quarter were $1.3 million compared to $439,000 in the same quarter of 2019. It is worth noting that nearly half of the total research and development spending in the quarter was related to the receipt of equipment that is necessary for testing and comparative studies that are required to be performed as part of our safety and efficacy testing. The remainder or other half of the total R&D spending is attributable to the normal work performed by our outsourced design and engineering firm, regulatory consultants, FDA, legal and quality consultants for the design and development of the i/Blue system. Backing out the onetime purchases for equipment, the R&D spending was much more in line with the previous quarter spending. G&A expenses for the second quarter of 2020 were $352,000 compared with $421,000 in the same quarter of 2019. The decrease in G&A expenses was primarily attributable to decreases in business development and consultant fees. Net loss for the 3 months ended March 31, 2020, was $1.9 million or $0.01 loss per common share compared to a net loss of $926,000 or $0.01 loss per common share for the 3 months ended March 31, 2019. With that, I'll turn the call back over to Jim for his closing remarks. Jim?

No, I appreciate that, John. And it's a very interesting thing when you start to slow down your spending. We had to buy many -- various, various endoscopes, 3 from this company, 3 from that company, we have to do all the testing. We need all the competitive products. So we had bought those products before the pandemic set in. And due to the relationships we have with hospitals that helped us get these products that bill had to be paid. So that's why we have that blip. On the other hand, we need that equipment to do the bench testing to get through the FDA. So that's just the reality of running the business. And while I would say to you, a lot has certainly changed in the last few months, the one key that hasn't changed is the i/Blue value proposition absolutely remains the same. People will buy this product. It is a breakthrough technology. Just real quick, when you put 2 images simultaneous on a monitor that side-by-side, the white and the blue, these urologists have never seen this kind of imaging of bladder cancer. So they don't have to toggle, go between the 2 images. We show that cancer in context, and they're going to be able -- we truly believe and we are told that they're going to visualize the cancer and have a better resection. The other very significant thing is in this market, you have to buy a scope from 1 manufacturer in Germany, and that has to be a brand-new scope even if you own 18 of their scopes today to use blue light. Our camera head, and that's the dual-view camera head, which is, we think, magic, you can put that on to Olympus. You can put that on to KARL STORZ. You can put that on to Wolf. That just dramatically, and our calculation is about, expands the market about 67%. And in terms of price, we'll be able, as technology moves forward, we all know it tends to get less expensive. So it is a state-of-the-art function and the cost of this -- of our manufacturing cost will be significantly below the old product. So we continue to really see some issues. We're managing to them. But the one thing that hasn't changed is we've got a product that we absolutely believe is a breakthrough product that obsoletes the competition. We can fundamentally change the way urologists visualize and resect bladder cancer, and this has been confirmed by every doctor we continue to talk to. So we want to get this product and then -- and we've got products. Now, that's a huge accomplishment, and we can move from just big academic medical centers where we can switch products in and out, but move this into the more community hospital setting. It's also important to note that with the development of this product coming to an end, as we move to a manufacturing phase, it is going to be very -- and I don't want to use the word easy, but the bulk of the work to have a product that could be used in the abdominal cavity, i.e., laparoscopic surgery where you're using different types of fluorescent imaging agents, basically 90% of that work is done. So when we start to chain these products together, big manufacturers, these are the companies, the names that you know that have major sales forces, so 185 people, 225 people, they're always looking for new state-of-the-art products that's why they maintain themselves as they do, we will have interest from these big companies. So in the near term, we're going to focus on dragging the i/Blue system forward towards the market approval situation. Our time line to accomplish this -- obviously, they've been pushed back, and we're just doing everything we can to get a handle on where the momentum of this is going to be, and we will look forward to updating all of the investors, not just the people on the phone today, on our redefined time lines after we get a better handle on this. So before I take any questions, open this thing up for John and I, for any questions that you make -- you might have, I just like -- everyone, and I know some of you that are on the phone today, were very concerned about the stock price. We think we're -- I don't want to put an adjunctive in front of it, but we think we're undervalued versus where we should be in the marketplace. And I know many of you are supporting us, and we appreciate that. We've got a real program. You saw 2 weeks ago, 2 news releases, you saw the news release last week on the products that are available. We're working with a group the New York FinancialBuzz that will get that news release talked about through their network with short 1-minute videos that are going out. You know we're advertising on Stockhouse. We did a podcast earlier this week that's just gone up. We'll get a news release out on the video we just made and those podcasts. I won't go through detail, but we've got 2 newsletter writers for the month of June. And the video that I mentioned, I think, is something we can really use to start getting people excited about this business. So we're making every effort we can. And I know a number of you have been trying to help us, and we are appreciative of that. So with that said, why don't we open up the call for any questions that you might have. Operator?

[Operator Instructions] And I'm showing no questions from the phone lines at this time. So I'll turn it back to you, Jim Hutchens, for any closing remarks.

Listen, I'd just like to thank everyone for joining. I have a sense of who's on the call. I look forward to talking to all of you. Just thank you once again for joining us on the call. We appreciate your continued interest, and we will continue to update you as we go forward. Operator, you may disconnect now. Thank you.