Company Quick10K Filing
Guided Therapeutics
Price0.00 EPS1,780
Shares0 P/E0
MCap0 P/FCF-0
Net Debt0 EBIT7
TEV0 TEV/EBIT0
TTM 2019-03-31, in MM, except price, ratios
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GTHP 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregisterred Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-3.1 ex3one.htm
EX-31 ex31.htm
EX-32 ex32.htm

Guided Therapeutics Earnings 2016-03-31

Balance SheetIncome StatementCash Flow
4.4-0.5-5.4-10.2-15.1-20.02012201420172020
Assets, Equity
10.07.44.72.1-0.6-3.22012201420172020
Rev, G Profit, Net Income
2.61.91.30.6-0.0-0.72012201420172020
Ops, Inv, Fin

10-Q 1 gthp10q33116.htm GUIDED THERAPEUTICS, INC.

 

 

 


 

UNITED STATES SECURITIES AND

EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934

 

For the quarterly period ended March 31, 2016

Commission File No. 0-22179

 

 

GUIDED THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

(State or other jurisdiction of incorporation or organization)

 

58-2029543

(I.R.S. Employer Identification No.)

 

5835 Peachtree Corners East, Suite D

Norcross, Georgia 30092

(Address of principal executive offices) (Zip Code)

  

(770) 242-8723

(Registrant’s telephone number, including area code)     

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [ X ] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [ X ] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-12 of the Exchange Act (Check one):

 

Large Accelerated filer _____ Accelerated filer ____ Non-accelerated filer_____ Smaller Reporting Company X

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. 

Yes [   ]  No [X]

 

As of May 17, 2016, the registrant had outstanding 29,880,904 shares of Common Stock.

 

 1 
 

    

 

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

 

INDEX

 

 

Part I.  Financial Information  3
   
Item 1.     Financial Statements  3
   
                        Condensed Consolidated Balance Sheets – (Unaudited) as of  
                        March 31, 2016 and December 31, 2015  3
   
                        Condensed  Consolidated Statements of Operations (Unaudited)  
                        Three months ended March 31, 2016 and 2015  4
   
                        Condensed Consolidated Statements of Cash Flows (Unaudited) for the  
                        Three months ended March 31, 2016 and 2015  5
   
                        Notes to Condensed Consolidated Financial Statements (Unaudited)  6
   
Item 2.      Management's Discussion and Analysis of Financial Condition and Results of Operations 16
   
Item 3.     Quantitative and Qualitative Disclosures About Market Risk 21
   
Item 4.     Controls and Procedures 21
   
Part II. Other Information 22
   
       Item 1.     Legal Proceedings         22
   
       Item 1A.  Risk Factors 22
   
       Item 2.     Unregistered Sale of Equity Securities and Use of Proceeds.         22
   
       Item 3.     Defaults Upon Senior Securities     22
   
       Item 4.     Mine Safety Disclosures 22
   
       Item 5.     Other information 22
   
       Item 6.    Exhibits 22
   
Signatures 23
   

 

 

 

 2 
 

 

 PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (in Thousands)
 
ASSETS  March 31, 2016  December 31, 2015
CURRENT ASSETS:          
Cash and cash equivalents  $56   $35 
  Accounts receivable, net of allowance for doubtful accounts of $75 and $95 at March 31, 2016 and December 31, 2015, respectively   230    190 
Inventory, net of reserves of $156 and $118, at March 31, 2016 and December 31, 2015, respectively   1,253    1,119 
Prepaid expenses and deposits   509    780 
                    Total current assets   2,048    2,124 
           
Property and equipment, net   264    318 
Other assets   54    121 
                    Total noncurrent assets   318    439 
           
                    TOTAL ASSETS  $2,366   $2,563 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES:          
Short-term notes payable, including related parties  $259   $752 
Note payable in default, including related parties   590    133 
Convertible note – current portion   479    —   
Short-term convertible notes payable, net   591    686 
Accounts payable   1,977    1,824 
Accrued liabilities   2,069    1,907 
Deferred revenue   66    217 
                    Total current liabilities   6,031    5,519 
           
Warrants, at fair value   1,588    2,606 
 Long-term convertible notes payable, net   197    —   
                    Total long-term liabilities   1,785    2,606 
           
                    TOTAL LIABILITIES   7,816    8,125 
           
STOCKHOLDERS’ DEFICIT:          
Series C convertible preferred stock, $.001 par value; 9.0 shares authorized, 5.0 and 5.6 shares issued and outstanding as of March 31, 2016 and December 31, 2015, (Liquidation preference of $4,966 and $5,555 at March 31, 2016 and December 31, 2015)   1,817    2,052 
Common stock, $.001 Par value; 1,000,000 shares authorized, 5,322 and 2,371 shares issued and outstanding as of March, 31 2016 and December 31, 2015   297    236 
Additional paid-in capital   115,471    114,845 
Treasury stock, at cost   (132)   (132)
Accumulated deficit   (122,903)   (122,563)
           
                   TOTAL STOCKHOLDERS’ DEFICIT   (5,450)   (5,562)
           
                   TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $2,366   $2,563 
 
 The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 3 
 

 

 

GUIDED THERAPEUTICS INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in Thousands)
       
  

FOR THE THREE MONTHS

ENDED MARCH 31,

   2016  2015
REVENUE:          
          Sales – devices and disposables  $262   $127 
          Cost of goods sold   68    107 
                                     Gross profit   194    20 
           
OPERATING EXPENSES:          
         Research and development   290    373 
         Sales and marketing   117    172 
         General and administrative   917    963 
                                   Total operating expenses   1,324    1,508 
           
                                   Operating loss   (1,130)   (1,488)
           
OTHER INCOME (EXPENSES):          
         Other income   23    21 
         Interest expense   (158)   (492)
         Change in fair value of warrants   1,395    714 
                                 Total other income   1,260    243 
           
INCOME (LOSS)  FROM OPERATIONS   130    (1,245)
           
PROVISION FOR INCOME TAXES   —      —   
           
NET INCOME (LOSS)  $130   $(1,245)
           
PREFERRED STOCK DIVIDENDS   (470)   (31)
           
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS  $(340)  $(1,276)
           
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS          
      BASIC  $(0.11)  $(1.31)
      DILUTED  $(0.00)  $(1.31)
           
WEIGHTED AVERAGE SHARES OUTSTANDING          
      BASIC   3,084    973 
      DILUTED   109,899    973 

  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 4 
 

  

 

 

GUIDED THERAPEUTICS INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in Thousands)
 
  

FOR THE THREE MONTHS

ENDED MARCH 31,

   2016  2015
CASH FLOWS FROM OPERATING ACTIVITIES:          
     Net income (loss)  $130   $(1,245)
     Adjustments to reconcile net income (loss) to net cash used in operating activities:          
           Bad debt expense   17    —   
           Depreciation   54    72 
           Amortization   54    402 
           Stock based compensation   30    192 
           Change in fair value of warrants   (1,395)   (714)
 Changes in operating assets and liabilities:          
           Inventory   (135)   (20)
           Accounts receivable   (56)   31 
           Other current assets   271    47 
           Other assets   18    8 
           Accounts payable   153    (169)
           Deferred revenue   (151)   —   
           Accrued liabilities   55    508 
           Other long-term liabilities   —      262 
                         Total adjustments   (1,085)   619 
           
                         Net cash used in operating activities   (955)   (626)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
      Net proceeds from issuance of common stock and warrants, net   —      451 
      Proceeds from debt financing, net of discounts and debt issuance costs   1,029    62 
      Payments made on notes payable   (53)   (31)
           
                        Net cash provided by financing activities   976    482 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   21    (144)
CASH AND CASH EQUIVALENTS, beginning of year   35    162 
CASH AND CASH EQUIVALENTS, end of period  $56   $18 
SUPPLEMENTAL SCHEDULE OF:          
Cash paid for:          
     Interest  $1   $22 
NONCASH INVESTING AND FINANCING ACTIVITIES:          
  Issuance of common stock as debt repayment  $125   $50 
  Dividends on preferred stock  $470   $31 
           

  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 5 
 

 

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

1.   BASIS OF PRESENTATION

  

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X by Guided Therapeutics, Inc. (formerly SpectRx, Inc.), together with its wholly owned subsidiary InterScan, Inc., (“Interscan”) (formerly Guided Therapeutics, Inc.), collectively referred to herein as the “Company”. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. These statements reflect adjustments, all of which are of a normal, recurring nature, and which are, in the opinion of management, necessary to present fairly the Company’s financial position as of March 31, 2016, results of operations for the three months ended March 31, 2016 and 2015, and cash flows for the three months ended March 31, 2016 and 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results for a full fiscal year. Preparing financial statements requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

 

On February 24, 2016, the Company implemented a 1:100 reverse stock split of its issued and outstanding common stock. The reverse stock split decreased the Company’s issued and outstanding shares of common stock from 237,101,702 shares of Common Stock to 2,371,007 shares as of that date. See Note 4, Stockholders’ Deficit. Unless otherwise specified, all per share amounts are reported on a post-stock split basis, as of March 31, 2016.

 

The Company's prospects must be considered in light of the substantial risks, expenses and difficulties encountered by entrants into the medical device industry. This industry is characterized by an increasing number of participants, intense competition and a high failure rate. The Company has experienced net losses since its inception and, as of March 31, 2016, it had an accumulated deficit of approximately $122.9 million. Through March 31, 2016, the Company has devoted substantial resources to research and development efforts. The Company does not have significant experience in manufacturing, marketing or selling its products. The Company's development efforts may not result in commercially viable products and it may not be successful in introducing its products. Moreover, required regulatory clearances or approvals may not be obtained. The Company's products may not ever gain market acceptance and the Company may not ever achieve levels of revenue to sustain further development costs and support ongoing operations or achieve profitability. The development and commercialization of the Company's products will require substantial development, regulatory, sales and marketing, manufacturing and other expenditures. The Company expects operating losses to continue through the foreseeable future as it continues to expend substantial resources to complete development of its products, obtain regulatory clearances or approvals and conduct further research and development.

 

Going Concern

 

The Company’s consolidated financial statements have been prepared and presented on a basis assuming it will continue as a going concern. The factors below raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty. If the Company is unable to continue operations, it may have to the extent practicable, liquidate and/or file for bankruptcy protection.

 

Liquidity

 

At March 31, 2016, the Company had a working capital deficit of approximately $4.0 million and the stockholders’ deficit was approximately $5.5 million, primarily due to recurring net losses from operations and dividends on preferred stock, offset by proceeds from the exercise of options and warrants and proceeds from the sales of stock.

The Company’s plans with respect to its liquidity management include the following:

The Company has curtailed operations and reduced discretionary spending and staffing levels.
The Company is only pursuing activities where it has financial support. However, there can be no assurance that such external financial support will be sufficient to maintain even limited operations.
The Company is seeking additional capital in the private and/or public equity markets to continue operations and build sales, marketing, and distribution. The Company is currently evaluating additional equity and debt financing opportunities and may execute them when appropriate. However, there can be no assurances that the Company can consummate such a transaction, or consummate a transaction at favorable pricing.

 

 

 6 
 

 

 

 

The Company is seeking additional sources of cash flow with strategic businesses.
The Company had warrants exercisable for approximately 31.8 million shares of its common stock outstanding at March 31, 2016, with exercise prices of $0.09375 to $105.00 per share. Exercises of these warrants would generate a total of approximately $7.1 million in cash, assuming full exercise, although the Company cannot be assured that holders will exercise any warrants

 

2.   SIGNIFICANT ACCOUNTING POLICIES

 

The Company’s significant accounting policies were set forth in the audited financial statements and notes thereto for the year ended December 31, 2015 included in its annual report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”).

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant areas where estimates are used include the allowance for doubtful accounts, inventory valuation and input variables for Black-Scholes, Monte Carlo simulations and binomial calculations.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Guided Therapeutics, Inc. and its wholly owned subsidiary.

 

Accounting Standard Updates

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 amends current presentation guidance by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Prior to the issuance of ASU 2015-03 debt issuance costs were required to be presented as an asset in the balance sheet. On January 1, 2016, the Company adopted the provisions of ASU 2015-03 and prior period amounts have been reclassified to conform to the current period presentation

 

Accounts Receivable

 

The Company performs periodic credit evaluations of its customers’ financial conditions and generally does not require collateral. The Company reviews all outstanding accounts receivable for collectability on a quarterly basis. An allowance for doubtful accounts is recorded for any amounts deemed uncollectable. The Company does not accrue interest receivable on past due accounts receivable.

 

Revenue Recognition

 

Revenue from the sale of the Company’s products is recognized upon shipment of such products to its customers. The Company recognizes revenue from contracts on a straight line basis, over the terms of the contract. The Company recognizes revenue from grants based on the grant agreement, at the time the expenses are incurred.  

 

During the three months ended March 31, 2016, the majority of the Company’s revenues were from four customers. Revenue from these customers totaled approximately $262,000 or 100% for the period ended March 31, 2016 and approximately $127,000 or 73% of total revenue for the period ended March 31, 2015. Accounts receivable due from those customers represents 59% for the period ended March 31, 2016.

 

Deferred Revenue

The Company defers payments received as revenue until earned based on the related contracts on a straight line basis, over the terms of the contract.

 

 7 
 

 

Inventory Valuation

 

All inventories are stated at lower of cost or market, with cost determined substantially on a “first-in, first-out” basis.  Selling, general, and administrative expenses are not inventoried, but are charged to expense when purchased. At March 31, 2016 and December 31, 2015, our inventories were as follows (in thousands):

 

   March 31,  December 31,
   2016  2015
Raw materials  $827   $686 
Work in process   256    186 
Finished goods   326    365 
Inventory reserve   (156)   (118)
       Total  $1,253   $1,119 
           

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of three to seven years. Leasehold improvements are depreciated at the shorter of the useful life of the asset or the remaining lease term. Depreciation expense is included in general and administrative expense on the statement of operations. Expenditures for repairs and maintenance are expensed as incurred. Property and equipment are summarized as follows at March 31, 2016 and December 31, 2015 (in thousands):

 

   March 31,  December 31,
   2016  2015
Equipment  $1,377   $1,377 
Software   740    740 
Furniture and fixtures   124    124 
Leasehold Improvement   199    199 
    2,440    2,440 
Less accumulated depreciation   (2,174)   (2,122)
            Total  $264   $318 
           

Accrued Liabilities

 

Accrued liabilities are summarized as follows (in thousands):

  

March 31,

2016

  December 31,
2014
Accrued compensation  $1,249   $1,235 
Accrued professional fees   71    154 
Deferred rent   31    36 
Accrued warranty   70    82 
Accrued vacation   190    177 
Accrued interest   33    —   
Accrued dividends   332    167 
Other accrued expenses   93    56 
            Total  $2,069   $1,907 

 

Significant Customers

 

Research and Development

 

Research and development expenses consist of expenditures for research conducted by the Company and payments made under contracts with consultants or other outside parties and costs associated with internal and contracted clinical trials. All research and development costs are expensed as incurred.

 

 8 
 

  

Income Taxes

 

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Management provides valuation allowances against the deferred tax assets for amounts that are not considered more likely than not to be realized.

 

The Company is current with its federal and applicable state tax returns filings. Although we have been experiencing recurring losses, we are obligated to file tax returns for compliance with Internal Revenue Service (“IRS”) regulations and that of applicable state jurisdictions. As December 31, 2015, the Company has approximately $28.0 million of net operating loss eligible to be carried forward for tax purposes at federal and applicable states level. A full valuation allowance has been recorded related the deferred tax assets generated from the net operating losses.

 

None of the Company’s federal or state income tax returns are currently under examination by the IRS or state authorities.

 

Uncertain Tax Positions

 

Effective January 1, 2007 the Company adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At March 31, 2016 and December 31, 2015 there were no uncertain tax positions.

  

Warrants

The Company has issued warrants, which allow the warrant holder to purchase one share of stock at a specified price for a specified period of time. The Company records equity instruments including warrants issued to non-employees based on the fair value at the date of issue. The fair value of warrants classified as equity instruments at the date of issuance is estimated using the Black-Scholes Model. The fair value of warrants classified as liabilities at the date of issuance is estimated using the Monte Carlo Simulation or Binomial model.

 

Stock Based Compensation

 

The Company records compensation expense related to options granted to non-employees based on the fair value of the award.

 

Compensation cost is recorded as earned for all unvested stock options outstanding at the beginning of the first year based upon the grant date fair value estimates, and for compensation cost for all share-based payments granted or modified subsequently based on fair value estimates.

 

For the three ended March 31, 2016 and 2015 share-based compensation for options attributable to employees, officers and Board members were approximately $30,053 and $191,570. These amounts have been included in the Company’s statements of operations. Compensation costs for stock options which vest over time are recognized over the vesting period. As of March 31, 2016, the Company had approximately $202,000 of unrecognized compensation costs related to granted stock options that will be recognized over the remaining vesting period of approximately three years.

 

3.   FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The guidance for fair value measurements, ASC820, Fair Value Measurements and Disclosures, establishes the authoritative definition of fair value, sets out a framework for measuring fair value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy based upon observable and non-observable inputs as follow:

 

 9 
 

 

 

  · Level 1 – Quoted market prices in active markets for identical assets and liabilities;

 

  · Level 2 – Inputs, other than level 1 inputs, either directly or indirectly observable; and

 

  · Level 3 – Unobservable inputs developed using internal estimates and assumptions (there is little or no market date) which reflect those that market participants would use.
 

The Company records its derivative activities at fair value, which consisted of warrants as of March 31, 2016. The fair value of the warrants was estimated using the Binomial Simulation model. Gains and losses from derivative contracts are included in net gain (loss) from derivative contracts in the statement of operations. The fair value of the Company’s derivative warrants is classified as a Level 3 measurement, since unobservable inputs are used in the valuation.

 

The following table presents the fair value for those liabilities measured on a recurring basis as of March 31, 2016 and December 31, 2015:

 

FAIR VALUE MEASUREMENTS (In Thousands)

The following is summary of items that the Company measures at fair value on a recurring basis:

 

   Fair Value at March 31, 2016
             
    Level 1    Level 2    Level 3    Total 
                     
Warrants issued in connection with the issuance of Series C preferred stock  $—     $—     $(70)  $(70)
Warrants issued in connection with the issuance of Series B preferred stock   —      —      (612)   (612)
Warrants issued in connection with Senior Secured Debt   —      —      (906)   (906)
                     
            Total long-term liabilities at fair value  $—     $—     $(1,588)  $(1,588)
                     

 

  

 

Fair Value at December 31, 2015

             
    Level 1    Level 2    Level 3    Total 
                     
Warrants issued in connection with the issuance of Series C preferred stock  $—     $—     $(1,145)  $(1,145)
Warrants issued in connection with the issuance of Series B preferred stock   —      —      (1,461)   (1,461)
                     
            Total long-term liabilities at fair value  $—     $—     $(2,606)  $(2,606)
                     

The following is a summary of changes to Level 3 instruments during the three months ended March 31, 2016:

 

  

Fair Value Measurements Using Significant Unobservable

Inputs (Level 3)

    Senior Secured Debt    Series B Warrants    Series C Warrants    Total 
                     
Balance, December 31, 2015  $—     $(1,461)  $(1,145)   (2,606)
Warrants issued during the period   (377)   —      —      (377)
Change in fair value during the period   (529    849    1,075    1,395 
                     
Balance, March 31, 2016  $(906   $(612)  $(70)  $(1,588)

 

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As of March 31, 2016, the fair value of warrants was approximately $1.6 million. A net change of approximately $1.4 million has been recorded to the accompanying statement of operations for the three months ended.

 

4.  STOCKHOLDERS’ DEFICIT

 

Common Stock

 

The Company has authorized 1,000,000,000 shares of common stock with $0.001 par value, of which 5,322,003 were issued and outstanding as of March 31, 2016. For the year ended December 31, 2015, there were 1,000,000,000 authorized shares of common stock, of which 2,371,017 were issued and outstanding.

 

On February 24, 2016, the Company implemented a 1:100 reverse stock split of all of its issued and outstanding common stock. As a result of the reverse stock split, every 100 shares of issued and outstanding common stock of the Company were converted into 1 share. All fractional shares created by the reverse stock split were rounded to the nearest whole share. The number of the authorized shares did not change.

 

For the three months ended March 31, 2016, the Company issued 2,950,986 shares of common stock as listed below:

 

Series C Preferred Stock Conversions   1,511,350
Series C Preferred Stock Dividends   631,047
Convertible Debt Conversions   808,589
                                                     Total   2,950,986

 

Preferred Stock

 

The Company has authorized 5,000,000 shares of preferred stock with a $.001 par value. The board of directors has the authority to issue these shares and to set dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions. The board of directors designated 525,000 shares of preferred stock redeemable convertible preferred stock, none of which remain outstanding, 3,000 shares of preferred stock as Series B Preferred Stock, of which zero shares were issued and outstanding at both March 31, 2016 and December 31, 2015 and 9,000 shares of preferred stock as Series C Convertible Preferred Stock, of which 4,966 and 5,555 were issued and outstanding at March 31, 2016 and December 31, 2015, respectively.

 

On May 3, 2016, the board of directors designated 20,250 shares of preferred stock as Series C1 Convertible Preferred Stock. See Note 10, Subsequent Events.

Series C Convertible Preferred Stock

On June 29, 2015, the Company entered into a securities purchase agreement with certain accredited investors for the issuance and sale of an aggregate of 6,737 shares of Series C convertible preferred stock, at a purchase price of $750 per share and a stated value of $1,000 per share. On September 3, 2015 the Company entered into an interim agreement amending the securities purchase agreement to provide for certain of the investors to purchase an additional aggregate of 1,166 shares. Total cash and non-cash expenses were valued at $853,000, resulting in net proceeds of $3,698,000.

Pursuant to the Series C certificate of designations, shares of Series C preferred stock are convertible into common stock by their holder at any time, and may be mandatorily convertible upon the achievement of specified average trading prices for the Company’s common stock. At March 31, 2016, there were 4,966 shares outstanding with a conversion price of $0.09375 per share, such that each share of Series C preferred stock would convert into approximately 52,977,774 shares of the Company’s common stock, subject to customary adjustments, including for any accrued but unpaid dividends and pursuant to certain anti-dilution provisions, as set forth in the Series C certificate of designations. The conversion price will automatically adjust downward to 80% of the then-current market price of the Company’s common stock 15 trading days after any reverse stock split of the Company’s common stock, and 5 trading days after any conversions of the Company’s outstanding convertible debt.

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Holders of the Series C preferred stock are entitled to quarterly cumulative dividends at an annual rate of 12.0% until 42 months after the original issuance date (the “Dividend End Date”), payable in cash or, subject to certain conditions, the Company’s common stock. In addition, upon conversion of the Series C Preferred Stock prior to the Dividend End Date, the Company will also pay to the converting holder a “make-whole payment” equal to the amount of unpaid dividends through the Dividend End Date on the converted shares. The Series C preferred stock generally has no voting rights except as required by Delaware law. Upon the Company’s liquidation or sale to or merger with another corporation, each share will be entitled to a liquidation preference of $1,000, plus any accrued but unpaid dividends.

In addition, the purchasers of the Series C preferred stock received, on a pro rata basis, warrants exercisable to purchase an aggregate of approximately 1,247,737 shares of Company’s common stock. The warrants contain anti-dilution adjustments in the event that the Company issues shares of common stock, or securities exercisable or convertible into shares of common stock, at prices below the exercise price of such warrants. As a result of the anti-dilution protection, the Company is required to account for the warrants as a liability recorded at fair value each reporting period. At March 31, 2016, the exercise price per share was $0.09375.

Warrants

 

The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the quarter ended March 31, 2016:

 

Warrants

(Underlying Shares)

Outstanding, January 1, 2016   2,802,384  
Issuances   28,952,716  
Canceled / Expired   -  
Exercised   -  
Outstanding, March 31, 2016   31,755,100  

 

The Company had the following shares reserved for the warrants as of March 31, 2016:

 

Warrants
(Underlying Shares)

 

Exercise Price

Expiration Date

4,399 (1) $68.00 per share April 1, 2016
2,852 (2) $105.00 per share November 20, 2016
18,581 (3) $10.46 per share May 23, 2018
14,176,202 (3) $0.09375 per share May 23, 2018
2,000 (4) $50.00 per share April 23, 2019
5,618 (4) $45.00 per share May 22, 2019
1,842 (5) $38.00 per share September 10, 2019
3,255 (6) $46.081 per share September 27, 2019
7,553 (7) $28.13 per share December 2, 2019
83,927 (8) $9.00 per share December 2, 2020
83,927 (8) $11.00 per share December 2, 2020
20,000 (9) $25.50 per share March 30, 2018
17,547 (10) $11.88 per share June 29, 2020
526,421 (11) $1.03 per share June 29, 2020
273,684 (12) $1.03 per share September 4, 2020
289,737 (13) $1.03 per share September 21, 2020
5,163 (14) $11.88 per share September 4, 2020
157,895 (15) $1.03 per share October 23, 2020
5,163 (16) $11.88 per share October 23, 2020
16,069,333 (17) $0.09375 per share February 12, 2021
31,755,100      

(1) Issued in February 2014 as part of a buy-back of a minority interest in Interscan in December 2012.
(2) Issued as part of a November 2011 private placement.
(3)

Issued in June 2015 in exchange for warrants originally issued as part of a May 2013 private placement.

These warrants have anti-dilution and price protection and adjust periodically as described later in the notes.

(4) Issued to a placement agent in conjunction with an April 2014 private placement.
(5) Issued to a placement agent in conjunction with a September 2014 private placement.
(6) Issued as part of a September 2014 Regulation S offering.

 

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(7) Issued to a placement agent in conjunction with a 2014 public offering.
(8) Issued in June 2015 in exchange for warrants originally issued as part of a 2014 public offering.
(9) Issued as part of a March 2015 private placement.
(10) Issued to a placement agent in conjunction with a June 2015 private placement.
(11)     Issued as part of a June 2015 private placement.
(12) Issued as part of a June 2015 private placement.
(13) Issued as part of a June 2015 private placement.
(14) Issued to a placement agent in conjunction with a June 2015 private placement.
(15)   Issued as part of a June 2015 private placement.
(16) Issued to a placement agent in conjunction with a June 2015 private placement.
(17)

Issued to a placement agent and a senior secured convertible note holder.

These warrants have anti-dilution and price protection and adjust periodically as described later in the notes.

  

5.   STOCK OPTIONS

 

Under the Company’s 1995 Stock Plan (the “Plan”), a total of 26,616 shares remained available at March 31, 2016 and 98,451 shares were subject to stock options outstanding as of that date, bringing the total number of shares subject to stock options outstanding and those remaining available for issue to 132,552 shares of common stock as of March 31, 2016. The Plan allows the issuance of incentive stock options, nonqualified stock options, and stock purchase rights. The exercise price of options is determined by the Company’s board of directors, but incentive stock options must be granted at an exercise price equal to the fair market value of the Company’s common stock as of the grant date. Options historically granted have generally become exercisable over four years and expire ten years from the date of grant.

 

The fair value of stock options granted in the period ended March 31, 2015 were estimated using the Black-Scholes option pricing model. No options were issued during the period ended March 31, 2016. 

 

Stock option activity for March 31, 2016 as follows: 

    2016  
       

Weighted

Average

Exercise

 
    Shares   Price  
Outstanding at beginning of year     105,936     $ 45.00    
   Options granted     -     $ -    
   Options exercised     -     $ -    
   Options expired/forfeited     (7,485 )   $ 43.00    
Outstanding at end of year     98,451     $ 45.00    

 

6.   LITIGATION AND CLAIMS

 

From time to time, the Company may be involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the dispositions of these matters, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial condition. However, depending on the amount and timing of such disposition, an unfavorable resolution of some or all of these matters could materially affect the future results of operations or cash flows in a particular period.

 

As of March 31, 2016 and December 31, 2015, there was no accrual recorded for any potential losses related to pending litigation.

  

7.   NOTES PAYABLE

 

Short Term Notes Payable

 

At March 31, 2016 and December 31, 2015, the Company maintained notes payable and accrued interest to related parties totaling $241,000 and $682,000, respectively. These notes are short term, straight-line amortizing notes. The notes carry an annual interest rate of between 5% and 10%.

 

At March 31, 2016, the Company maintained a note payable to Premium Assignment Corporation, an insurance premium financing company, of approximately $17,500. This note is 10 month straight-line amortizing loan dated June 24, 2015. The note carries annual interest of 5.2%. The balance due to on the Premium Assignment note was approximately $17,500 and $70,000 at March 31, 2016 and December 31, 2015, respectively.

 

 

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Notes Payable in Default

 

At March 31, 2016, and December 31, 2015 the Company maintained notes payable and accrued interest to related and unrelated parties totaling $590,000 and $133,000, respectively. The notes carry interest at 5% to 10% and have default rates as high a 16.5%. As of March 31, 2016 the notes are accruing interest at the default rate.

 

8.  CONVERTIBLE DEBT

 

On September 10, 2014, the Company sold a secured promissory note to an accredited investor with an initial principal amount of $1,275,000, for a purchase price of $700,000 (an original issue discount of $560,000). The Company may prepay the note at any time. The note is secured by the Company’s current and future accounts receivable and inventory, pursuant to a security agreement entered into in connection with the sale. On March 10, 2015, May 4, 2015, June 1, 2015, June 16, 2015, June 29, 2015, January 21, January 29 and February 12, 2016 the Company amended the terms of the note to extend the maturity ultimately until August 31, 2016. During the extension, interest accrues on the note at a rate of the lesser of 18% per year or the maximum rate permitted by applicable law. On February 11, 2016, the Company consented to an assignment of the note to two accredited investors. In connection with the assignment, the holders waived an ongoing event of default under the notes related to the Company’s minimum market capitalization, and agreed to eliminate the requirement going forward. Pursuant to the terms of the amended note, the holder may convert the outstanding balance into shares of common stock at a conversion price per share equal to the lower of (1) $25.0 or (2) 75% of the lowest daily volume weighted average price of the common stock during the five days prior to conversion. If the conversion price at the time of any conversion is lower than $15.00, the Company has the option of delivering the conversion amount in cash in lieu of shares of common stock. On March 7, 2016, the Company further amended the notes to eliminate the volume limitations on sales of common stock issued or issuable upon conversion of the notes.

 

The balance due related to this note was $591,244 and $685,864 at March 31, 2016 and December 31, 2015, respectively.

 

Total debt issuance costs originally capitalized was approximately $130,000. This amount was being amortized over six months and is fully amortized as of March 31, 2015. Total amortized expense for the three months ended March 31, 2015 was approximately $49,000. For the three months ended March 31, 2015, the Company recorded amortization of approximately $213,000 on the discount.  The original issue discount of $560,000 was fully amortized as of March 31, 2015.

 

On February 11, 2016, the Company entered into a securities purchase agreement with an accredited investor for the issuance and sale on February 12, 2016 of $1.4375 million in aggregate principal amount of a senior secured convertible note for an aggregate purchase price of $1.15 million (a 20% original issue discount of $287,500) and a discount for debt issuance costs paid at closing of $121,000 for a total of $408,500. In addition, the investor received a warrant exercisable to purchase an aggregate of approximately 1,796,875 million shares of the Company’s common stock. The Company allocated proceeds totaling 359,555 to the fair value of the warrants at issuance. This was recorded as an additional discount on the debt. The convertible note matures on the second anniversary of issuance and, in addition to the 20% original issue discount, accrues interest at a rate of 17% per year. The Company will pay monthly interest coupons and, beginning six months after issuance, will pay amortized quarterly principal payments. If the Company does not receive, on or before the first anniversary after issuance, an aggregate of at least $3.0 million from future equity or debt financings or non-dilutive grants, then the holder will have the option of accelerating the maturity date to the first anniversary of issuance. The Company may prepay the convertible note, in whole or in part, without penalty, upon 20 days’ prior written notice. Subject to resale restrictions under Federal securities laws and the availability of sufficient authorized but unissued shares of the Company’s common stock, the convertible note is convertible at any time, in whole or in part, at the holder’s option, into shares of the Company’s common stock, at a conversion price equal to the lesser of $0.80 per share or 70% of the average closing price per share for the five trading days prior to issuance, subject to certain customary adjustments and anti-dilution provisions contained in the convertible note. As of March 31, 2016, the balance on the convertible debt was $676,110 (net of debt issuance costs of $44,540 and debt discount of $716,850).

 

The convertible note includes customary event of default provisions and a default interest rate of the lesser of 22% or the maximum amount permitted by law. Upon the occurrence of an event of default, the holder may require the Company to redeem the convertible note at 120% of the outstanding principal balance. The convertible note is secured by a lien on all of the Company’s assets, including its intellectual property, pursuant to a security agreement entered into by the Company and GPB in connection with the transaction.

 

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The warrant is exercisable at any time, pending availability of sufficient authorized but unissued shares of the Company’s common stock, at an exercise price per share equal to the conversion price of the convertible note, subject to certain customary adjustments and anti-dilution provisions contained in the warrant. The warrant has a five-year term. As of March 31, 2016, the exercise price had been adjusted to $0.09375 and the number of common stock shares exchangeable for was 15,333,333. As of March 31, 2016, the effective interest rate considering debt costs was 29%.

 

The Company used a placement agent in connection with the transaction. For its services, the placement agent received a cash placement fee equal to 4% of the aggregate gross proceeds from the transaction and a warrant to purchase shares of common stock equal to an aggregate of 6% of the total number of shares underlying the securities sold in the transaction, at an exercise price equal to, and terms otherwise identical to, the warrant issued to the investor. Finally, the Company agreed to reimburse the placement agent for its reasonable out-of-pocket expenses.

 

In connection with the transaction, on February 12, 2016, the Company and the investor entered into a four-year consulting agreement, pursuant to which the investor will provide management consulting services to the Company in exchange for a royalty payment, payable quarterly, equal to 3.5% of the Company’s revenues from the sale of products. As of March 31, 2016 the investor had earned approximately $3,000 of royalties.

 

9.  INCOME (LOSS) PER COMMON SHARE

 

Basic net income (loss) per share attributable to common stockholders amounts are computed by dividing the net income (loss) plus preferred stock dividends and deemed dividends on preferred stock by the weighted average number of shares outstanding during the period.

 

Diluted net income (loss) per share attributable to common stockholders amounts are computed by dividing the net income (loss) plus preferred stock dividends, deemed dividends on preferred stock, after-tax interest on convertible debt and convertible dividends by the weighted average number of shares outstanding during the period, plus Series C convertible preferred stock, convertible debt, convertible preferred dividends and warrants convertible into common stock shares.

 

10.  SUBSEQUENT EVENTS

 

Between April 27, 2016 and May 3, 2016, the Company entered into various agreements with certain holders of Series C preferred stock, including John Imhoff, the chairman of the Company’s board of directors, pursuant to which those holders separately agreed to exchange each share of Series C preferred stock held for 2.25 shares of the Company’s newly created Series C1 preferred stock and 9,600 shares of the Company’s common stock (the “Series C Exchanges”). In connection with the Series C Exchanges, each holder also agreed to roll over the $1,000 stated value per share of the holder’s shares of Series C1 preferred stock into the next qualifying financing undertaken by the Company on a dollar-for-dollar basis and, except in the event of an additional $50,000 cash investment in the Company by the holder, to execute a customary “lockup” agreement in connection with the financing. In total, for 1,916 shares of Series C preferred stock surrendered, the Company issued 4,312 shares of Series C1 preferred stock and 18,396,800 shares of common stock.

 

The Series C1 preferred stock has terms that are substantially the same as the Series C preferred stock, except that the Series C1 preferred stock does not pay dividends (unless and to the extent declared on the common stock) or at-the-market “make-whole payments.” Separately, on April 27, 2016, the Company entered into a Rollover and Amendment Agreement with another holder of Series C preferred stock pursuant to which the holder agreed to roll over any shares of Series C preferred stock (stated value plus make-whole dividend), as well as any remaining principal and accrued interest on the Company’s convertible promissory note the holder holds, into the Company’s next financing, all on a dollar-for-dollar basis, as long as the next financing involves at least $1 million in cash from investors unaffiliated with the holder. The holder also agreed to return to the Company for cancelation warrants exercisable for 7,148,813 shares of the Company’s common stock that it holds. Except in the event of an additional $50,000 cash investment by the holder in the Company’s next financing, the holder has agreed to execute a customary “lockup” agreement in connection with the financing. Finally, the holder, as the holder of a majority of the outstanding Series C preferred stock, agreed to amend the Series C stock purchase agreement to eliminate any participation rights held by the Series C shareholders and to waive operation of certain anti-dilution provisions of the Series C that would otherwise be triggered by the transactions. 

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On May 5, 2016 and May 9, 2016 respectively, Jonathan Niloff, age 62, and Linda Rosenstock, age 65, formally announced their decisions not to stand for reelection to the Company’s board of directors at the Company’s 2016 annual meeting of stockholders. Dr. Niloff was appointed to the board in 2010 and Dr. Rosenstock was appointed in 2012. Both of their decisions to resign were for personal reasons and were not a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. 

 

 

 

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Statements in this report which express "belief," "anticipation" or "expectation," as well as other statements which are not historical facts, are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those that may be set forth under "Risk Factors" below and elsewhere in this report, as well as in our annual report on Form 10-K for the year ended December 31, 2015 and subsequently filed quarterly reports on Form 10-Q. Examples of these uncertainties and risks include, but are not limited to:

 

· access to sufficient debt or equity capital to meet our operating and financial needs;
· the extent of dilution of the holdings of our existing stockholders upon the issuance, conversion or exercise of securities issued as part of our capital raising efforts;
· the effectiveness and ultimate market acceptance of our products and our ability to generate sufficient sales revenues to sustain our growth and strategy plans;
· whether our products in development will prove safe, feasible and effective;
· whether and when we or any potential strategic partners will obtain required regulatory approvals in the markets in which we plan to operate;
· our need to achieve manufacturing scale-up in a timely manner, and our need to provide for the efficient manufacturing of sufficient quantities of our products;
· the lack of immediate alternate sources of supply for some critical components of our products;
· our ability to establish and protect the proprietary information on which we base our products, including our patent and intellectual property position;
· the need to fully develop the marketing, distribution, customer service and technical support and other functions critical to the success of our product lines;
· the dependence on potential strategic partners or outside investors for funding, development assistance, clinical trials, distribution and marketing of some of our products; and
· other risks and uncertainties described from time to time in our reports filed with the SEC.

 

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report.

 

OVERVIEW

 

We are a medical technology company focused on developing innovative medical devices that have the potential to improve healthcare. Our primary focus is the sales and marketing of our LuViva® Advanced Cervical Scan non-invasive cervical cancer detection device. The underlying technology of LuViva primarily relates to the use of biophotonics for the non-invasive detection of cancers. LuViva is designed to identify cervical cancers and precancers painlessly, non-invasively and at the point of care by scanning the cervix with light, then analyzing the reflected and fluorescent light.

 

LuViva provides a less invasive and painless alternative to conventional tests for cervical cancer screening and detection. Additionally, LuViva improves patient well-being not only because it eliminates pain, but also because it is convenient to use and provides rapid results at the point of care. We focus on two primary applications for LuViva: first, as a cancer screening tool in the developing world, where infrastructure to support traditional cancer-screening methods is limited or non-existent, and second, as a triage following traditional screening in the developed world, where a high number of false positive results cause a high rate of unnecessary and ultimately costly follow-up tests.

We are a Delaware corporation, originally incorporated in 1992 under the name “SpectRx, Inc.,” and, on February 22, 2008, changed our name to Guided Therapeutics, Inc. At the same time, we renamed our wholly owned subsidiary, InterScan, which originally had been incorporated as “Guided Therapeutics.”

Since our inception, we have raised capital through the public and private sale of debt and equity, funding from collaborative arrangements, and grants.

 

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Our prospects must be considered in light of the substantial risks, expenses and difficulties encountered by entrants into the medical device industry. This industry is characterized by an increasing number of participants, intense competition and a high failure rate. We have experienced operating losses since our inception and, as of March 31, 2016 we have an accumulated deficit of about $122.9 million. To date, we have engaged primarily in research and development efforts and the early stages of marketing our products. We do not have significant experience in manufacturing, marketing or selling our products. We may not be successful in growing sales for our products. Moreover, required regulatory clearances or approvals may not be obtained in a timely manner, or at all. Our products may not ever gain market acceptance and we may not ever generate significant revenues or achieve profitability. The development and commercialization of our products requires substantial development, regulatory, sales and marketing, manufacturing and other expenditures. We expect our operating losses to continue through at least the end of 2016 as we continue to expend substantial resources to complete commercialization of our products, obtain regulatory clearances or approvals, build our marketing, sales, manufacturing and finance capabilities, and conduct further research and development.

Our product revenues to date have been limited. In 2015, the majority of our revenues were from the sale of LuViva devices and disposables, as well as some revenue from grants from the NIH and licensing agreement fees received. We expect that the majority of our revenue in 2016 will be derived from revenue from the sale of LuViva devices and disposables.

CRITICAL ACCOUNTING POLICIES

 

Our material accounting policies, which we believe are the most critical to an investors understanding of our financial results and condition, are discussed below. Because we are still early in our enterprise development, the number of these policies requiring explanation is limited. As we begin to generate increased revenue from different sources, we expect that the number of applicable policies and complexity of the judgments required will increase.

 

Revenue Recognition: We recognize revenue from contracts on a straight line basis, over the terms of the contract. We recognize revenue from grants based on the grant agreement, at the time the expenses are incurred. Revenue from the sale of the Company’s products is recognized upon shipment of such products to its customers.

Valuation of Deferred Taxes: We account for income taxes in accordance with the liability method. Under the liability method, we recognize deferred assets and liabilities based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.

Valuation of Equity Instruments Granted to Employee, Service Providers and Investors: On the date of issuance, the instruments are recorded at their fair value as determined using either the Black-Scholes valuation model or Monte Carlo Simulation model. See Note 4 to the consolidated financial statements accompanying this report for the assumptions used in the Black-Scholes valuation.

Allowance for Accounts Receivable: We estimate losses from the inability of our customers to make required payments and periodically review the payment history of each of our customers, as well as their financial condition, and revise our reserves as a result.

Inventory Valuation: All inventories are stated at lower of cost or market, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative expenses are not inventoried, but are charged to expense when purchased.

Reverse Stock Split: On February 24, 2016, we implemented a 1:100 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 100 shares of issued and outstanding common stock was converted into 1 share of common stock. All fractional shares created by the reverse stock split were rounded to the nearest whole share. The number of authorized shares of common stock did not change. (unless otherwise indicated, all per share amounts reported on a post-split basis)

 

RECENT DEVELOPMENTS

 

Between April 27, 2016 and May 3, 2016, we entered into various agreements with certain holders of our Series C preferred stock, including John Imhoff, the chairman of our board of directors, pursuant to which those holders separately agreed to exchange each share of Series C preferred stock held for 2.25 shares of our newly created Series C1 preferred stock and 9,600 shares of our common stock (the “Series C Exchanges”). In connection with the Series C Exchanges, each holder also agreed to roll over the $1,000 stated value per share of the holder’s shares of Series C1 preferred stock into the next qualifying financing we undertake on a dollar-for-dollar basis and, except in the event of an additional $50,000 cash investment in the Company by the holder, to execute a customary “lockup” agreement in connection with the financing. In total, for 1,916 shares of Series C preferred stock surrendered, we issued 4,312 shares of Series C1 preferred stock and 18,396,800 shares of common stock.

 

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The Series C1 preferred stock has terms that are substantially the same as our Series C preferred stock, except that the Series C1 preferred stock does not pay dividends (unless and to the extent declared on the common stock) or at-the-market “make-whole payments.” Separately, on April 27, 2016, we entered into a Rollover and Amendment Agreement with another holder of Series C preferred stock pursuant to which the holder agreed to roll over any shares of Series C preferred stock (stated value plus make-whole dividend), as well as any remaining principal and accrued interest on our convertible promissory note the holder holds, into our next financing, all on a dollar-for-dollar basis, as long as the next financing involves at least $1 million in cash from investors unaffiliated with the holder. The holder also agreed to return to the Company for cancelation warrants exercisable for 7,148,813 shares of our common stock that it holds. Except in the event of an additional $50,000 cash investment by the holder in our next financing, the holder has agreed to execute a customary “lockup” agreement in connection with the financing. Finally, the holder, as the holder of a majority of the outstanding Series C preferred stock, agreed to amend the Series C stock purchase agreement to eliminate any participation rights held by the Series C shareholders and to waive operation of certain anti-dilution provisions of the Series C that would otherwise be triggered by the transactions. 

On May 5, 2016 and May 9, 2016 respectively, Jonathan Niloff, age 62, and Linda Rosenstock, age 65, formally announced their decisions not to stand for reelection to our board of directors at our 2016 annual meeting of stockholders. Dr. Niloff was appointed to the board in 2010 and Dr. Rosenstock was appointed in 2012. Both of their decisions to resign were for personal reasons and were not a result of any disagreement with the Company on any matter relating to our operations, policies or practices. 

  

 

RESULTS OF OPERATIONS

 

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

 

Sales Revenue, Cost of Sales and Gross Loss from Devices and Disposables: Sales revenue from the sale of LuViva devices and disposables for the three months ended March 31, 2016, was $262,000, a 106% increase compared to the same period in 2015. Related costs of sales and net realizable value expenses were approximately $68,000, which resulted in a gross profit of approximately $194,000. Sales revenue for the three months ended March 31, 2015, was approximately $127,000. Related costs of sales were approximately $107,000, which resulted in a gross loss on the device and disposables of approximately $20,000. The increase was related to additional sales of devices and disposables with the Company’s primary distributor, which carry a higher profit margin than unit sales.

 

Research and Development Expenses:  Research and development expenses decreased to approximately $290,000 for the three months ended March 31, 2016, compared to $373,000 for the same period in 2015.  The decrease, of approximately $83,000, was primarily due to a slight decrease in payroll expenses.

 

Sales and Marketing Expenses:  Sales and marketing expenses were approximately $117,000 during the three months ended March 31, 2016, compared to $172,000 for the same period in 2015. The decrease was primarily due to the Company-wide expense reduction and cost savings efforts.

 

General and Administrative Expenses:  General and administrative expenses decreased to approximately $917,000 during the three months ended March 31, 2016, compared to approximately $963,000 for the same period in 2015.  The decrease of approximately $46,000, or 5.0%, is primarily related to lower compensation and option expenses incurred during the same period.

 

Other Income: Other income for the three months ended March 31, 2016, was approximately $23,000, compared to other income of approximately $21,000 for the three months ended March 31, 2015.

Interest Expense:  Interest expense decreased to approximately $158,000 for the three months ended March 31, 2016, as compared to approximately $492,000 for the same period in 2015, primarily due to amortization of debt discount and debt issuance costs that were higher for the same period in 2015.

 

Fair Value of Warrants Expense: Fair value of warrants expense recovery was approximately $1,395,000 for the three months ended March 31, 2016, as compared to approximately $714,000 for the same period in 2015.

 

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Net income was approximately $130,000 during the three months ended March 31, 2016, compared to a net loss of $1,245,000 for the same period in 2015, for the reasons outlined above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Since our inception, we have raised capital through the private sale of preferred stock and debt securities, public and private sales of common stock, funding from collaborative arrangements, and grants. At March 31, 2016, we had cash of approximately $56,000 and working capital deficit of approximately $4.0 million.

 

Our major cash flows in the quarter ended March 31, 2016, consisted of cash out-flows of approximately $955,000 from operations, no cash inflow nor outflow from investing activities and a net change from financing activities of $976,000, which primarily represents the proceeds received from the issuance of $1,437,500 in principal amount of a 17.0% senior secured convertible note, which resulted in net cash proceeds to the Company of $1,029,000.

 

We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements, as soon as possible. We cannot be certain that our existing and available capital resources will be sufficient to satisfy our funding requirements through the second quarter of 2016. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including loans.

 

Substantial capital will be required to develop our products, including completing product testing and clinical trials, obtaining all required U.S. and foreign regulatory approvals and clearances, and commencing and scaling up manufacturing and marketing our products. Any failure to obtain capital would have a material adverse effect on our business, financial condition and results of operations.

 

Our financial statements have been prepared and presented on a basis assuming we will continue as a going concern.  The above factors raise substantial doubt about our ability to continue as a going concern, as more fully discussed in Note 1 to the consolidated financial statements contained herein and in the report of our independent registered public accounting firm accompanying our financial statements contained in our annual report on Form 10-K for the year ended December 31, 2015.

 

Off-Balance Sheet Arrangements

 

We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value.

 

 

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

  

ITEM 4.   CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company under the supervision and with the participation of management, including the Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial officer), evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2016. The controls and System currently used by the Company to calculate and record inventory is not operating effectively. Additionally, the Company lacks the resources to properly research and account for complex transactions. The combination of these controls deficiencies have resulted in a material weakness in our internal control over financial reporting.

Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective as of March 31, 2016 to provide reasonable assurance that (1) information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

  

 

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PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

From time to time, the Company may be involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the disposition of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial condition. See Note 6 to the financial statements.

 

ITEM 1A.  RISK FACTORS

 

Please refer to Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year ended December 31, 2015, for information regarding factors that could affect our results of operations, financial condition and liquidity.

 

ITEM 2.  UNREGISTERRED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

ITEM 6.  EXHIBITS

 

EXHIBIT INDEX

 

EXHIBITS

 

Exhibit Number Exhibit Description
   
3.1 Restated Certificate of Incorporation, as amended through May 3, 2016
4.1 Senior Secured Convertible Note, dated February 12, 2016 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed February 12, 2016)
4.2 Form of Warrant (Senior Secured Convertible Note) (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K filed February 12, 2016)
10.1 Amendment #6 to Secured Promissory Note, dated January 20, 2016 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed February 16, 2016)
10.2 Amendment #7 to Secured Promissory Note, dated February 11, 2016 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed February 16, 2016)
10.3 Amendment #8 to Secured Promissory Note, dated March 7, 2016 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed March 7, 2016)
10.4 Securities Purchase Agreement (Senior Secured Convertible Note), dated February 11, 2016 (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K filed February 12, 2016)
10.5 Security Agreement (Senior Secured Convertible Note), dated February 11, 2016 (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K filed February 12, 2016)
10.6 Consulting Agreement between the Company and GPB Debt Holdings II LLC, dated February 12, 2016 (incorporated by reference to Exhibit 10.6 to the current report on Form 8-K filed February 12, 2016)
10.7 Amendment to Securities Purchase Agreements (Series C Preferred Stock), dated February 10, 2016 (incorporated by reference to Exhibit 10.7 to the current report on Form 8-K filed February 16, 2016)
31 Rule 13a-14(a)/15d-14(a) Certification
32 Section 1350 Certification
101 XBRL

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

GUIDED THERAPEUTICS, INC.
 
  /s/ Gene S. Cartwright

 

By:

 

Gene S. Cartwright

  President, Chief Executive Officer and
  Acting Chief Financial Officer

 

Date:

 

May 18, 2016

 

 

 

 

 

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