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
10-K 2020-12-31 Filed 2021-04-07
10-Q 2020-09-30 Filed 2020-11-05
S-1 2020-09-10 Public Filing
10-Q 2020-06-30 Filed 2020-08-20
10-Q 2020-03-31 Filed 2020-07-07
10-K 2019-12-31 Filed 2020-04-20
10-Q 2019-09-30 Filed 2020-03-09
10-Q 2019-06-30 Filed 2020-02-11
10-Q 2019-03-31 Filed 2019-07-11
10-K 2018-12-31 Filed 2019-05-08
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
S-1 2018-06-14 Public Filing
10-Q 2018-03-31 Filed 2018-05-21
10-K 2017-12-31 Filed 2018-04-17
10-Q 2017-09-30 Filed 2017-11-20
10-Q 2017-06-30 Filed 2017-08-18
10-Q 2017-03-31 Filed 2017-05-22
10-K 2016-12-31 Filed 2017-03-22
10-Q 2016-09-30 Filed 2016-12-05
10-Q 2016-06-30 Filed 2016-08-17
10-Q 2016-03-31 Filed 2016-05-19
10-K 2015-12-31 Filed 2016-03-15
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-13
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-25
10-Q 2014-09-30 Filed 2014-11-12
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-26
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-03-27
10-Q 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-14
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-30
10-Q 2010-09-30 Filed 2010-11-10
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-13
10-K 2009-12-31 Filed 2010-03-23
8-K 2020-09-16
8-K 2020-03-31
8-K 2020-03-31
8-K 2019-04-03
8-K 2018-11-14
8-K 2018-10-25
8-K 2018-08-31

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-31 ex31.htm
EX-32 ex32.htm

Guided Therapeutics Earnings 2016-09-30

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 gthp10q93016.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 September 30, 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 [  ] No [ X ]

 

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 November 30, 2016, the registrant had outstanding 570,707 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  
                        September 30, 2016 and December 31, 2015  3
   
                        Condensed  Consolidated Statements of Operations (Unaudited)  
                        Three and nine months ended September 30, 2016 and 2015  4
   
                        Condensed Consolidated Statements of Cash Flows (Unaudited) for the  
                        Nine months ended September 30, 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 20
   
Item 3.     Quantitative and Qualitative Disclosures About Market Risk 25
   
Item 4.     Controls and Procedures 25
   
Part II. Other Information 26
   
       Item 1.     Legal Proceedings 26
   
       Item 1A.  Risk Factors 26
   
       Item 2.     Unregistered Sale of Equity Securities and Use of Proceeds.         26
   
       Item 3.     Defaults Upon Senior Securities     26
   
       Item 4.     Mine Safety Disclosures 27
   
       Item 5.     Other information 27
   
       Item 6.    Exhibits 27
   
Signatures 28
   

  

 

 2 
 

 

 PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (in Thousands)
 
ASSETS  September 30, 2016  December 31, 2015
CURRENT ASSETS:          
Cash and cash equivalents  $4   $35 
Accounts receivable, net of allowance for doubtful accounts of $62 and $95 at September 30, 2016 and December 31, 2015, respectively   226    190 
Inventory, net of reserves of $121 and $118, at September 30, 2016 and December 31, 2015, respectively   1,171    1,119 
Prepaid expenses and deposits   463    780 
                    Total current assets   1,864    2,124 
           
Property and equipment, net   171    318 
Other assets   25    121 
                    Total noncurrent assets   196    439 
           
                    TOTAL ASSETS  $2,060   $2,563 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES:          
Short-term notes payable, including related parties  $580   $752 
Note payable in default, including related parties   602    133 
Convertible note – in default   1,830    —   
Related party short-term convertible note payable, net   193    —   
Short-term convertible notes payable, net   517    686 
Accounts payable   2,450    1,824 
Accrued liabilities   2,308    1,907 
Deferred revenue   69    217 
                    Total current liabilities   8,549    5,519 
           
Warrants, at fair value   821    2,606 
           
                    TOTAL LIABILITIES   9,370    8,125 
           
STOCKHOLDERS’ DEFICIT:          
Series C convertible preferred stock, $.001 par value; 9.0 shares authorized, 1.8 and 5.6 shares issued and outstanding as of September 30, 2016 and December 31, 2015, (Liquidation preference of $1,773 and $5,555 at September 30, 2016 and December 31, 2015)   649    2,052 
Series C1 convertible preferred stock, $.001 par value; 20.3 shares authorized, 4.3 shares issued and outstanding as of September 30, 2016 (Liquidation preference of $4,312 at September 30, 2016)   701    —   
Common stock, $.001 Par value; 1,000,000 shares authorized, 390 and 3 shares issued and outstanding as of September 30, 2016 and December 31, 2015   600    236 
Additional paid-in capital   116,337    114,845 
Treasury stock, at cost   (132)   (132)
Accumulated deficit   (125,465)   (122,563)
           
                   TOTAL STOCKHOLDERS’ DEFICIT   (7,310)   (5,562)
           
                   TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $2,060   $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

(Uaudited, in Thousands)

 
    

FOR THE THREE

MONTHS

ENDED SEPTEMBER 30,

     

FOR THE NINE

MONTHS

ENDED SEPTEMBER 30,

                       
    2016    2015      2016    2015 
REVENUE:                     
          Sales – devices and disposables  $95   $102     $486   $356 
          Cost of goods sold   85    230      185    544 
                                Gross profit (loss)   10    (128)     301    (188)
                       
OPERATING EXPENSES:                      
         Research and development   87    413      525    1,090 
         Sales and marketing   92    187      295    542 
         General and administrative   510    1,110      2,187    2,863 
                                 Total operating expenses   689    1,710      3,007    4,495 
                       
                                 Operating loss   (679)   (1,838)     (2,706)   (4,683)
                       
OTHER INCOME (EXPENSES):                      
         Other income   24    10      67    69 
         Interest expense   (226)   (404)     (1,597)   (1,240)
         Change in fair value of warrants   670    41      2,276    710 
                                 Total other income (expenses)   468    (353)     746    (461)
                       
LOSS FROM OPERATIONS   (211)   (2,191)     (1,960)   (5,144)
                       
PROVISION FOR INCOME TAXES   —      —        —      —   
                       
NET LOSS  $(211)  $(2,191)    $(1,960)  $(5,144)

 

PREFERRED STOCK DIVIDENDS

   (179)   (545)     (941)   (1,871)

 

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

  $(390)  $(2,736)    $(2,901)  $(7,015)
                       
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                      
      BASIC  $(0.0017)  $(1,753)    $(0.0319)  $(7,015)
      DILUTED  $(0.0017)  $(1.753)    $(0.0319)  $(7.015)
                       
WEIGHTED AVERAGE SHARES OUTSTANDING (post 1:800 reverse stock split)                      
      BASIC   226,434    2      90,807    1 
      DILUTED   226,434    2      90,807    1 

  

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 NINE MONTHS

ENDED SEPTEMBER 30,

   2016  2015
CASH FLOWS FROM OPERATING ACTIVITIES:          
     Net loss  $(1,960)  $(5,144)
     Adjustments to reconcile net loss to net cash used in operating activities:          
           Bad debt expense   4    —   
           Depreciation   148    213 
           Amortization   930    777 
           Stock based compensation   72    802 
           Change in fair value of warrants   (2,276)   (710)
 Changes in operating assets and liabilities:          
           Inventory   (40)   268 
           Accounts receivable   (53)   119 
           Other current assets   317    (497)
           Other assets   47    (390)
           Accounts payable   626    (267)
           Deferred revenue   (148)   9 
           Accrued liabilities   728    830 
                         Total adjustments   355    1,554 
           
                         Net cash used in operating activities   (1,605)   (3,590)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
     Additions to fixed assets   —      (2)
           
                        Net cash used in investing activities   —      (2)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
      Net proceeds from issuance of preferred stock and warrants, net   —      3,115 
      Net proceeds from issuance of common stock and warrants, net   —      720 
      Proceeds from debt financing, net of discounts and debt issuance costs   1,719    415 
      Proceeds from options and warrants exercised   —      141 
      Payments made on notes payable   (145)   (789)
           
                        Net cash provided by financing activities   1,574    3,602 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   (31)   10 
CASH AND CASH EQUIVALENTS, beginning of year   35    162 
CASH AND CASH EQUIVALENTS, end of period  $4   $172 
SUPPLEMENTAL SCHEDULE OF:          
Cash paid for:          
     Interest  $62   $76 
NONCASH INVESTING AND FINANCING ACTIVITIES:          
  Deemed dividend on beneficial conversion feature of Series C preferred stock  $—     $148 
  Deemed dividend on price changes for Series B preferred stock warrants  $—     $64 
  Deemed dividend on December 2014 public offering warrants  $—     $1,049 
  Term changes on Series B preferred stock and December 2014 public offering warrants resulting in transfer to equity  $—     $1,412 
  Issuance of common stock as debt repayment  $251   $902 
  Repayment of deferred compensation via issuance of preferred stock   —      100 
  Dividends on preferred stock  $941   $610 
           
           

 

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 September 30, 2016, results of operations for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015. The results of operations for the three and nine months ended September 30, 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 November 7, 2016, the Company implemented a 1:800 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 800 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. The reverse stock split decreased the Company’s issued and outstanding shares of common stock from 453,694,400 shares of Common Stock to 570,707 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 September 30, 2016. On February 24, 2016, the Company had also implemented a 1:100 reverse stock split of its issued and outstanding common stock.

 

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 September 30, 2016, it had an accumulated deficit of approximately $125.5 million. Through September 30, 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 September 30, 2016, the Company had a working capital deficit of approximately $6.7 million and the stockholders’ deficit was approximately $7.3 million, primarily due to recurring net losses from operations and dividends on preferred stock, offset by proceeds from sales of stock.

 

 6 
 

 

 

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.
The Company is seeking additional sources of cash flow with strategic businesses.

 

 

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 calculations, 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.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, deferral of the effective date, which amends ASU 2014-09. As a result, the effective date is the first quarter of 2018, with early adoption permitted. The Company is evaluating the impact that adoption of this guidance will have on the determination or reporting of its financial results.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months and disclose key information about leasing arrangements. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The update is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is in the process of evaluating the impact of this update on its consolidated financial statements.

 

 7 
 

 

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 is intended to simplify several aspects of accounting for share-based payment awards. The effective date will be the first quarter of fiscal year 2017, with early adoption permitted. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments,” (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice in financial reporting by clarifying existing principles in ASC 230, “Statement of Cash Flows,” and provides specific guidance on certain cash flow classification issues. The effective date for ASU 2016-15 will be the first quarter of fiscal year 2018 with early adoption permitted. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.

Except as noted above, the guidance issued by the FASB is not expected to have a material effect on the Company’s consolidated financial statements.

 

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 and nine months ended September 30, 2016, the majority of the Company’s revenues were from three customers. Revenue from these customers totaled approximately $369,000 or 76% for the period ended September 30, 2016. Accounts receivable due from those customers represents 77% of total receivables at September 30, 2016.

 

Deferred Revenue

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

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 September 30, 2016 and December 31, 2015, our inventories were as follows (in thousands):

 

   September 30,  December 31,
   2016  2015
Raw materials  $862   $686 
Work in process   271    186 
Finished goods   159    365 
Inventory reserve   (121)   (118)
       Total  $1,171   $1,119 
           

 

 

 8 
 

 

 

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 September 30, 2016 and December 31, 2015 (in thousands):

 

   September 30,  December 31,
   2016  2015
Equipment  $1,378   $1,377 
Software   740    740 
Furniture and fixtures   124    124 
Leasehold improvement   199    199 
            Total   2,441    2,440 
Less: accumulated depreciation   (2,270)   (2,122)
            Total  $171   $318 
           

Prepaid Expenses and Deposits

 

Prepaid expenses and deposits are summarized as follows (in thousands):

 

  

September 30,

2016

  December 31,
2015
Prepaid expenses  $12   $26 
Prepaid insurance   133    108 
Prepaid investor relations   —      275 
Deposits - equipment   316    368 
Deposits - other   2    3 
            Total  $463   $780 

 

Accrued Liabilities

 

Accrued liabilities are summarized as follows (in thousands):

  

September 30,

2016

  December 31,
2015
Accrued compensation  $1,521   $1,235 
Accrued professional fees   79    154 
Deferred rent   19    36 
Accrued warranty   63    82 
Accrued vacation   183    177 
Accrued interest   65    —   
Accrued dividends   266    167 
Other accrued expenses   112    56 
            Total  $2,308   $1,907 

 

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.

 

 9 
 

 

 

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. At 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 September 30, 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 nine months ended September 30, 2016 and 2015 share-based compensation for options attributable to employees, officers and Board members were approximately $72,000 and $802,000. These amounts have been included in the Company’s statements of operations. Compensation costs for stock options that vest over time are recognized over the vesting period. As of September 30, 2016, the Company had approximately $109,000 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:

 

 10 
 

 

 

  · 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 September 30, 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 September 30, 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 September 30, 2016
                 
      Level 1       Level 2       Level 3       Total  
                                 
Warrants issued in connection with the issuance of Series C preferred stock   $          —     $     $     $  
Warrants issued in connection with Senior Secured Debt                 (707 )     (707 )
Warrants to be issued in connection with distributor debt               (114 )     (114 )
                                 
            Total long-term liabilities at fair value   $     $ (821 )   $ (821 )
                                 

 

   

 

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 nine months ended September 30, 2016:

 

  

Fair Value Measurements Using Significant Unobservable

Inputs (Level 3)

    

Series C

Warrants 

    

Series B

Warrants

    

Senior

Secured Debt

    

Distributor

Debt

     Total 
                             
Balance, December 31, 2015  $(1,145)  $(1,461)  $  $  –     $(2,606)
Warrants issued during the period      –     (377)    (114 )  (491)
Change in fair value during the period   1,144    1,461   (330)     –      2,276 
                             
Balance, September 30, 2016  $  $  $(707)  $ (114 )   $(8211)

 

 

 11 
 

 

As of September 30, 2016, the fair value of warrants was approximately $0.8 million. A net change of approximately $2.3 million has been recorded to the accompanying statement of operations for the nine 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 389,914 were issued and outstanding as of September 30, 2016. For the year ended December 31, 2015, there were 1,000,000,000 authorized shares of common stock, of which 2,964 were issued and outstanding.

 

On November 7, 2016, the Company implemented a 1:800 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 800 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. On February 24, 2016, the Company had also implemented a 1:100 reverse stock split of its issued and outstanding common stock. The number of the authorized shares did not change.

 

For the nine months ended September 30, 2016, the Company issued 386,950 shares of common stock as listed below:

 

Series C Preferred Stock Conversions   206,626
Series C Preferred Stock Dividends   117,865
Common Stock Issued as Payment for Accrued Dividends   38
Convertible Debt Conversions   24,659
Series C Exchanges   22,996
Series B Tranche B Warrants Exchanges   14,766
                                                     Total   386,950

 

 

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 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, none of which remained outstanding, 9,000 shares of preferred stock as Series C Convertible Preferred Stock, of which 1,773 and 5,555 were issued and outstanding at September 30, 2016 and December 31, 2015, respectively, and 20,250 shares of Series C1 Convertible Preferred Stock, of which 4,312 and none were issued and outstanding at September 30, 2016 and December 31, 2015, respectively.

 

Series C Convertible Preferred Stock

On June 29, 2015, the Company entered into a securities purchase agreement with certain accredited investors, including John Imhoff, a member of the Board, 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.

 12 
 

 

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 September 30, 2016, there were 1,773 shares outstanding with a conversion price of $0.95 per share, such that each share of Series C preferred stock would convert into approximately 1,058 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.

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. At September 30, 2016, the “make-whole payment” for a converted share of Series C preferred stock would convert to 127 shares of the Company’s common stock. 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 150 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 September 30, 2016, the exercise price per share was $640.00.

On May 23, 2016, an investor canceled certain of these warrants, exercisable into 903 shares of common stock. The same investor also transferred certain of these warrants, exercisable for 150 shares of common stock, to two investors who also had participated in the 2015 Series C financing.

Series C1 Convertible Preferred Stock

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 12 (9,600 pre-split) 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 22,996 shares of common stock. At September 30, 2016, there were 4,312 shares outstanding with a conversion price of $0.95 per share, such that each share of Series C preferred stock would convert into approximately 1,058 shares of the Company’s 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” and, while it has the same anti-dilution protections afforded the Series C preferred stock, it does not automatically reset in connection with a reverse stock split or conversion of our outstanding convertible debt.

 

Warrants

 

The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the quarter ended September 30, 2016:

 

  

Warrants

(Underlying Shares)

Outstanding, January 1, 2016   3,503 
Issuances   1,894,212 
To be issued   17,239 
Canceled / Expired   (11,082)
Exercised   —   
Outstanding, September 30, 2016   1,903,872 

 

 

 13 
 

 

The Company had the following shares reserved for the warrants as of September 30, 2016:

 

Warrants
(Underlying Shares)

 

Exercise Price

Expiration Date

4 (1) $84,000.00 per share November 20, 2016
24 (2) $8,368.00 per share May 23, 2018
1,617 (3) $75.00 per share June 14, 2021
3 (4) $40,000.00 per share April 23, 2019
8 (5) $36,000.00 per share May 22, 2019
3 (5) $30,400.00 per share September 10, 2019
5 (6) $36,864.80 per share September 27, 2019
10 (7) $22,504.00 per share December 2, 2019
105 (8) $7,200.00 per share December 2, 2020
105 (8) $8,800.00 per share December 2, 2020
25 (9) $20,400.00 per share March 30, 2018
22 (10) $9,504.00 per share June 29, 2020
659 (11) $640.00 per share June 29, 2020
343 (12) $640.00 per share September 4, 2020
363 (13) $640.00 per share September 21, 2020
7 (14) $9,504.00 per share September 4, 2020
198 (15) $640.00 per share October 23, 2020
7 (16) $9,504.00 per share October 23, 2020
1,796,875 (17) $0.80 per share June 14, 2021
86,250 (18) $0.080 per share February 21, 2021
17,239 (19) $13.92 per share June 6, 2021
1,903,872      

 

(1) Issued as part of a November 2011 private placement.
(2) Issued in June 2015 in exchange for warrants originally issued as part of a May 2013 private placement.
(3) Issued in June 2015 in exchange for warrants originally issued as part of a May 2013 private placement.
(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.
(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 as part of a February 2016 private placement.
(18) Issued to a placement agent in conjunction with a February 2016 private placement.
(19) Contractually obligated to be issued pursuant to a strategic license agreement.

 All outstanding warrant agreements provide for anti-dilution adjustments in the event of certain mergers, consolidations, reorganizations, recapitalizations, stock dividends, stock splits or other changes in the Company’s corporate structure; except for (10). In addition, warrants subject to footnotes (3) and (11)-(13), (15), and (17) – (19) in the table above are subject to “lower price issuance” anti-dilution provisions that automatically reduce the exercise price of the warrants (and, in the cases of warrants subject to footnote (3) in the table above and footnote (17), increase the number of shares of common stock issuable upon exercise), to the offering price in a subsequent issuance of the Company’s common stock, unless such subsequent issuance is exempt under the terms of the warrants.

 14 
 

 

The warrants subject to footnote (3) are subject to a mandatory exercise provision. This provision permits the Company, subject to certain limitations, to require exercise of such warrants at any time following (a) the date that is the 30th day after the later of the Company’s receipt of an approvable letter from the FDA for LuViva and the date on which the common stock achieves an average market price for 20 consecutive trading days of at least $1,040.00 with an average daily trading volume during such 20 consecutive trading days of at least 250 shares, or (b) the date on which the average market price of the common stock for 20 consecutive trading days immediately prior to the date the Company delivers a notice demanding exercise is at least $129,600.00 and the average daily trading volume of the common stock exceeds 250 shares for such 20 consecutive trading days. If these warrants are not timely exercised upon demand, they will expire. Upon the occurrence of certain events, the Company may be required to repurchase these warrants, as well as the warrants subject to footnote (2) in the table above.

The warrants subject to footnote (6) in the table above are also subject to a mandatory exercise provision. This provision permits the Company, subject to certain limitations, to require the exercise of such warrants should the average trading price of its common stock over any 30 consecutive day trading period exceed $92.16.

The warrants subject to footnote (8) in the table above are also subject to a mandatory exercise provision. This provision permits the Company, subject to certain limitations, to require exercise of 50% of the then-outstanding warrants if the trading price of its common stock is at least two times the initial warrant exercise price for any 20-day trading period. Further, in the event that the trading price of the Company’s common stock is at least 2.5 times the initial warrant exercise price for any 20-day trading period, the Company will have the right to require the immediate exercise of 50% of the then-outstanding warrants. Any warrants not exercised within the prescribed time periods will be canceled to the extent of the number of shares subject to mandatory exercise.

The holders of the warrants subject to footnote (3) in the table above have agreed to surrender the warrants, upon consummation of a qualified public financing, for new warrants exercisable for 200% of the number of shares underlying the surrendered warrants, but without certain anti-dilution protections included with the surrendered warrants.

Series B Tranche B Warrants

As discussed in Note 3, Fair Value Measurements, between June 13, 2016 and June 14, 2016, the Company entered into various agreements with holders of the Company’s “Series B Tranche B” warrants, pursuant to which each holder separately agreed to exchange the warrants for either (1) shares of common stock equal to 166% of the number of shares of common stock underlying the surrendered warrants, or (2) new warrants exercisable for 200% of the number of shares underlying the surrendered warrants, but without certain anti-dilution protections included with the surrendered warrants. In total, for surrendered warrants then-exercisable for an aggregate of 1,185,357 shares of common stock (but subject to exponential increase upon operation of certain anti-dilution provisions), the Company issued or is obligated to issue 16,897 shares of common stock and new warrants that, if exercised as of the date hereof, would be exercisable for an aggregate of 216,707 shares of common stock. As of September 30, 2016, the Company had issued 10,390 shares of common stock and rights to common stock shares for 6,506. In certain circumstances, in lieu of presently issuing all of the shares (for each holder that opted for shares of common stock), the Company and the holder further agreed that the Company will, subject to the terms and conditions set forth in the applicable warrant exchange agreement, from time to time, be obligated to issue the remaining shares to the holder. No additional consideration will be payable in connection with the issuance of the remaining shares. The holders that elected to receive shares for their surrendered warrants have agreed that they will not sell shares on any trading day in an amount, in the aggregate, exceeding 20% of the composite aggregate trading volume of the common stock for that trading day. The holders that elected to receive new warrants will be required to surrender their old warrants upon consummation of the Company’s next financing resulting in net cash proceeds to the Company of at least $1 million. The new warrants will have an initial exercise price equal to the exercise price of the surrendered warrants as of immediately prior to consummation of the financing, subject to customary “downside price protection” for as long as the Company’s common stock is not listed on a national securities exchange, and will expire five years from the date of issuance.

5.   STOCK OPTIONS

 

The Company’s 1995 Stock Plan (the “Plan”) has expired pursuant to its terms, so zero shares remained available for issuance at September 30, 2016. The Plan allowed for the issuance of incentive stock options, nonqualified stock options, and stock purchase rights. The exercise price of options was determined by the Company’s board of directors, but incentive stock options were 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.

 

 15 
 

 

 

As of September 30, 2016, the Company has issued and outstanding options to purchase a total of 112 shares of common stock pursuant to the Plan, at a weighted average exercise price of $29,360.00 per share.  

The fair value of stock options granted in the period ended September 30, 2015 were estimated using the Black-Scholes option pricing model. No options were issued during the period ended September 30, 2016. 

 

Stock option activity for September 30, 2016 as follows: 

    2016
       

Weighted

Average

Exercise

    Shares   Price
Outstanding at beginning of year     132     $ 36,000.00
   Options granted     -     $ -
   Options exercised     -     $ -
   Options expired/forfeited     (21 )   $ 74,160.00
Outstanding at end of year     112     $ 29,376.00

 

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 September 30, 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 September 30, 2016 and December 31, 2015, the Company maintained notes payable and accrued interest to both related and non-related parties totaling $459,000 and $682,000, respectively. These notes are short term, straight-line amortizing notes. The notes carry annual interest rates between 5.0% and 10.0%.

 

In June 2016, the Company entered into a premium finance agreement to finance its insurance policies totaling $172,351. The note requires monthly payments of $17,622, including interest at 4.87% and matures in April 2017. The balance due on this note totaled $121,000 at September 30, 2016.

 

In June 2015, the Company entered into a similar short-term note payable for the financing of its insurance policies. This note required monthly payments of $17,614, including interest at 5.2% and matured in April 2016. The balance due on this note totaled $70,000 at December 31, 2015.

 

Notes Payable in Default

 

At September 30, 2016, and December 31, 2015 the Company maintained notes payable and accrued interest to related and unrelated parties totaling $602,000 and $133,000, respectively. The notes carry interest at 5% to 10% and have default rates as high a 16.5%. As of September 30, 2016 the notes are accruing interest at the default rate.

 

 

 16 
 

 

 

8.  CONVERTIBLE DEBT

 

Secured Promissory Note.

 

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, 2016, January 29, 2016, 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 note to eliminate the volume limitations on sales of common stock issued or issuable upon conversion. On July 13, 2016, the Company consented to the assignment by one of the accredited investors of its portion of the note of to a third accredited investor.

 

The balance due on the note was $516,501 and $685,864 at September 30, 2016 and December 31, 2015, respectively.

 

Total debt issuance costs as originally capitalized were approximately $130,000. This amount was amortized over nine months and was fully amortized as of September 30, 2015. Total amortized expense for the nine months ended September 30, 2015 was approximately $49,000. For the nine months ended September 30, 2015, the Company recorded amortization of approximately $213,000 on the discount. The original issue discount of $560,000 was fully amortized as of September 30, 2015.

 

Related Party Convertible Note Payable

 

On June 5, 2016, the Company entered into a license agreement with a distributor pursuant to which the Company granted the distributor an exclusive license to manufacture, sell and distribute the Company’s LuViva Advanced Cervical Cancer device and related disposables in Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar, Philippines, Singapore, Thailand, and Vietnam. The distributor was already the Company’s exclusive distributor in China, Macau and Hong Kong, and the license will extend to manufacturing in those countries as well.

 

As partial consideration for, and as a condition to, the license, and to further align the strategic interests of the parties, the Company agreed to issue a convertible note to the distributor, in exchange for an aggregate cash investment of $200,000. The note will provide for a payment to the distributor of $240,000, due upon consummation of any capital raising transaction by the Company within 90 days and with net cash proceeds of at least $1.0 million. Absent such a transaction, the payment will increase to $300,000 and will be payable by December 31, 2016. The note will accrue interest at 20% per year on any unpaid amounts due after that date. The note will be convertible into shares of the Company’s common stock at a conversion price per share of $13.92, subject to customary anti-dilution adjustment. The note will be unsecured, and is expected to provide for customary events of default. The Company will also issue the distributor a five-year warrant exercisable immediately for 17,239 shares of common stock at an exercise price equal to the conversion price of the note, subject to customary anti-dilution adjustment.

 

The Company allocated proceeds of $114,000 to the fair value of the warrants at September 30, 2016.

 

 

 17 
 

 

 

9.  CONVERTIBLE DEBT IN DEFAULT

 

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 2,246 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 is required to pay monthly interest coupons and, beginning nine months after issuance, will is required to 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. On May 28, 2016, in exchange for an additional $87,500 in cash from the holder to the Company, the principal balance was increased by the same amount. The Company is currently in default as they are past due on the required monthly interest payments. In the event of default, the Company shall accrue interest at a rate of the lesser of 22% or the maximum permitted by law. The Company has accrued $68,218 for past due interest payments at September 30, 2016. 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 (but as of September 30, 2016, had not done so). As of September 30, 2016, the balance due on the convertible debt was $1,830,000 as the Company has fully amortized debt issuance costs of $47,675 and the debt discount of $768,055 and recorded a 20% penalty totaling $305,000. 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 the accredited investor with the transaction holder.

 

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 September 30, 2016, the exercise price had been adjusted to $0.80 and the number of common stock shares exchangeable for was 1,796,875. As of September 30, 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 September 30, 2016 the investor had earned approximately $16,000 of royalties.

 

10.  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.

 

 18 
 

 

 

11.  SUBSEQUENT EVENTS

 

On November 2, 2016, the Company entered into a Lockup and Exchange Agreement with the holder of approximately $221,000 in outstanding principal amount of the Company’s secured promissory note and all of the outstanding shares of the Company’s Series C convertible preferred stock.

 

Pursuant to the agreement, upon the effectiveness of the Company’s 1:800 reverse stock split (see below) and continuing for 45 days after, the holder and its affiliates are prohibited from converting any portion of the secured promissory note or any of the shares of Series C preferred stock, or selling any securities of the Company that they beneficially own. In addition, the Company agreed that, upon consummation of its next financing, it would use $260,000 of net cash proceeds first, to repay the holder’s portion of the secured promissory note and second, with any remaining amount from the $260,000, to repurchase a portion of the holder’s shares of Series C preferred stock. In addition, the holder has agreed to exchange the stated value per share (plus any accrued but unpaid dividends) of its remaining shares of Series C preferred stock for new securities that the Company issues in the next qualifying financing it undertakes on a dollar-for-dollar basis.

 

On November 7, 2016, the Company implemented a 1:800 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 800 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.

 

 

 

 

 

 19 
 

 

 

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 and meet our existing debt-servicing requirements;

· 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.

 20 
 

 

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 September 30, 2016 we have an accumulated deficit of approximately $125.5 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 November 7, 2016, the Company implemented a 1:800 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 800 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. The reverse stock split decreased the Company’s issued and outstanding shares of common stock from 453,694,400 shares of Common Stock to 570,707 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 September 30, 2016. On February 24, 2016, the Company had also implemented a 1:100 reverse stock split of its issued and outstanding common stock. 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.

 

 21 
 

 

 

RECENT DEVELOPMENTS

 

On September 6, 2016, the Company entered into a royalty agreement with John E. Imhoff (“Imhoff”) and Dolores M. Maloof (“Maloof”) pursuant to which the Company sold to Imhoff and Maloof a royalty of future sales of the Company’s single-use cervical guides for its LuViva Advanced Cervical Scan non-invasive cervical cancer detection device (such guides, the “Disposables”). Under the terms of the royalty agreement, and for consideration of $50,000 received by the Company from Imhoff and Maloof, the Company shall pay to Imhoff and Maloof an aggregate perpetual royalty equal to $0.010 for each Disposable that the Company invoices and receives payment, or is sold by a third party pursuant to a licensing arrangement with the Company, from the date of this Agreement (either, a “Disposable Sale”), net of any returns of Disposables. The Company shall pay the royalty on a quarterly basis, no later than 45 days following the end of each fiscal quarter during the Royalty Term, based on Disposable Sales, net of returns of Disposables, for that quarter. At any time prior to October 2, 2016, the Company may, in its sole discretion, upon cash payment to Imhoff and Maloof of $50,000, permanently reduce the royalty rate per Disposable Sale $0.033. If payment is not made by October 2, 2016 the royalty rate per Disposable Sale shall permanently increase to $0.20. It should be noted that John E. Imhoff, is a member of the Board of Directors of the Company.

 

On November 2, 2016, we entered into a Lockup and Exchange Agreement with GHS Investments, LLC, holder of approximately $221,000 in outstanding principal amount of our secured promissory note and all of the outstanding shares of our Series C convertible preferred stock.

 

Pursuant to the agreement, upon the effectiveness of the 1:800 reverse stock split (see Item 8.01 to this current report) and continuing for 45 days after, GHS and its affiliates are prohibited from converting any portion of the secured promissory note or any of the shares of Series C preferred stock, or selling any of our securities that they beneficially own. In addition, we agreed that, upon consummation of our next financing, we would use $260,000 of net cash proceeds first, to repay GHS’s portion of the secured promissory note and second, with any remaining amount from the $260,000, to repurchase a portion of GHS’s shares of Series C preferred stock. In addition, GHS has agreed to exchange the stated value per share (plus any accrued but unpaid dividends) of its remaining shares of Series C preferred stock for new securities that we issue in the next qualifying financing we undertake on a dollar-for-dollar basis.

 

On November 7, 2016, the Company implemented a 1:800 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 800 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.

 

On November 10, 2016, the board of directors increased its size from three members to four and appointed Richard P. Blumberg to fill the newly created vacancy. Mr. Blumberg serves as a Managing Member of Shenghuo, holder of a license to manufacture our products in Asia. As previously disclosed in the Company current report on Form 8-K, filed June 8, 2016, on June 5, 2016, the Company entered into a license agreement with Shenghuo pursuant to which the Company granted Shenghuo an exclusive license to manufacture, sell and distribute the Company’s LuViva Advanced Cervical Cancer device and related disposables in Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Shenghuo has been the Company’s exclusive distributor in China, Macau and Hong Kong, and the license extends to manufacturing in those countries as well. Pursuant to the license agreement, Shenghuo had the option to have a designee appointed to the Company’s board of directors. As partial consideration for, and as a condition to, the license, and to further align the strategic interests of the parties, the Company agreed to issue a convertible note to Shenghuo, in exchange for an aggregate cash investment of $200,000. The note will provide for a payment to Shenghuo of $240,000, due upon consummation of any capital raising transaction by the Company within 90 days and with net cash proceeds of at least $1.0 million. Absent such a transaction, the payment will increase to $300,000 and will be payable by December 31, 2016. The note will accrue interest at 20% per year on any unpaid amounts due after that date. The note will be convertible into shares of the Company’s common stock at a conversion price per share of $13.92, subject to customary anti-dilution adjustment. The note will be unsecured, and is expected to provide for customary events of default. The Company will also issue Shenghuo a five-year warrant exercisable immediately for 17,239 shares of common stock at an exercise price equal to the conversion price of the note, subject to customary anti-dilution adjustment.

 

 22 
 

 

 

RESULTS OF OPERATIONS

 

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2016, was $95,000, a 7.0% decrease compared to the same period in 2015. Related costs of sales and net realizable value expenses for the three months ended September 30, 2016, were approximately $85,000, which resulted in a gross profit of approximately $10,000. Sales revenue for the three months ended September 30, 2015, was approximately $102,000. Related costs of sales in that period were approximately $230,000, which resulted in a gross loss on the device and disposables of approximately $128,000. The decrease of sales revenue for the third quarter of 2016 as compared to the third quarter of 2015 was related to a delay experienced at the end of the third quarter of 2016 in the shipments of devices and disposables; however gross profit did improve in the third quarter of 2016 due to a reduction of absorption costs.

 

Research and Development Expenses:  Research and development expenses decreased to approximately $87,000 for the three months ended September 30, 2016, compared to $413,000 for the same period in 2015.  The decrease, of approximately $326,000, or 79.0%, was primarily due to decreases in research and development payroll expenses.

 

Sales and Marketing Expenses:  Sales and marketing expenses were approximately $92,000 during the three months ended September 30, 2016, compared to $187,000 for the same period in 2015. The decrease, of approximately $95,000, or 51.0%, was primarily due to the continued Company-wide expense reduction and cost savings efforts.

 

General and Administrative Expenses:  General and administrative expenses decreased to approximately $510,000 during the three months ended September 30, 2016, compared to approximately $1,110,000 for the same period in 2015.  The decrease of approximately $600,000, or 54.0%, was primarily related to lower compensation and option expenses incurred during the same period.

 

Other Income: Other income for the three months ended September 30, 2016, was approximately $24,000, compared to other income of approximately $10,000 for the three months ended September 30, 2015. The increase, of approximately $14,000, or 138.0%, was primarily due to sales of supplies and expense reimbursements.

Interest Expense:  Interest expense decreased to approximately $226,000 for the three months ended September 30, 2016, as compared to approximately $404,000 for the same period in 2015. The decrease, of approximately $178,000, or 44.0%, was primarily due to amortization of debt discount, debt issuance costs and penalty on event default of convertible debt that were lower than the same period in 2015.

 

Fair Value of Warrants (Income) Expense: Fair value of warrants expense recovery was approximately $670,000 for the three months ended September 30, 2016, as compared to a warrant expense recovery of approximately $41,000 for the same period in 2015.

 

Net loss was approximately $211,000 during the three months ended September 30, 2016, compared to a net loss of $2,191,000 for the same period in 2015. The decrease in the net loss of $1,980,000, or 90.0%, was for the reasons outlined above.

 

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 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 nine months ended September 30, 2016 was $486,000, a 37.0% increase compared to the same period in 2015. Related costs of sales and net realizable value expenses for the nine months ended September 30, 2016 were approximately, $185,000, which resulted in a gross profit of approximately $301,000. Sales revenue for the nine months ended September 30, 2015, was approximately $356,000. Related costs of sales in that period were approximately $544,000, which resulted in a gross loss on the device and disposables of approximately $188,000. The increase in sales revenue for the first nine months of 2016 as compared to the first nine months of 2015 was related to additional sales of devices and disposables with the Company’s primary distributor, which carry a higher profit margin than unit sales.

 

 23 
 

 

 

Research and Development Expenses:  Research and development expenses decreased to approximately $525,000 or the nine months ended September 30, 2016, compared to $1,090,000 for the same period in 2015.  The decrease, of approximately $565,000, or 52.0% is primarily due to a decrease in payroll expenses.

 

Sales and Marketing Expenses:  Sales and marketing expenses were approximately $295,000 during the nine months ended September 30, 2016, compared to $542,000 for the same period in 2015. The decrease, of approximately $247,000, or 46.0% was primarily due to the Company-wide expense reduction and cost savings efforts.

 

General and Administrative Expenses:  General and administrative expenses decreased to approximately $2,187,000 during the nine months ended September 30, 2016, compared to approximately $2,863,000 for the same period in 2015.  The decrease of approximately $676,000, or 24.0%, was primarily related to lower compensation and option expenses incurred during the same period.

 

Other Income: Other income for the nine months ended September 30, 2016, was approximately $67,000, compared to other income of approximately $69,000 for the nine months ended September 30, 2015, a decrease of approximately $2,000, or 2.0%.

Interest Expense:  Interest expense increased to approximately $1,597,000 for the nine months ended September 30, 2016, as compared to approximately $1,240,000 for the same period in 2015. The increase of approximately $357,000, or 29.0%, was primarily due to amortization of debt discount, debt issuance costs and penalty on event default of convertible debt that were higher than the same period in 2015. 

 

Fair Value of Warrants Expense: Fair value of warrants expense recovery was approximately $2,276,000 for the nine months ended September 30, 2016, as compared to approximately $710,000 for the same period in 2015.

 

Net loss was approximately $1,960,000 during the nine months ended September 30, 2016, compared to a net loss of $5,144,000 for the same period in 2015. The decrease in the net loss of $3,184,000, or 62.0%, was 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 September 30, 2016, we had cash of approximately $4,000 and working capital deficit of approximately $6.7 million.

 

Our major cash flows in the quarter ended September 30, 2016, consisted of cash out-flows of approximately $66,000 from operations, no cash inflow nor outflow from investing activities and a net change from financing activities of $48,000, which primarily represents the proceeds received from short-term debt financings.

 

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 fourth 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.

 

 24 
 

 

 

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.

 

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 September 30, 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 September 30, 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 September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

  

 

 

 25 
 

 

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.

On November 7, 2016, a 1:800 reverse stock split of all of our issued and outstanding common stock was implemented. There are risks associated with a reverse stock split.

On November 7, 2016, a 1:800 reverse stock split of all of our issued and outstanding common stock was implemented. As a result of the reverse stock split, every 800 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.

There are certain risks associated with the reverse stock split, including the following:

• We have additional authorized shares of common stock that the board could issue in future without stockholder approval, and such additional shares could be issued, among other purposes, in financing transactions or to resist or frustrate a third-party transaction that is favored by a majority of the independent stockholders. This could have an anti-takeover effect, in that additional shares could be issued, within the limits imposed by applicable law, in one or more transactions that could make a change in control or takeover of us more difficult.

• There can be no assurance that the reverse stock split will achieve the benefits that we hope it will achieve. The total market capitalization of our common stock after the reverse stock split may be lower than the total market capitalization before the reverse stock split.

The reverse stock split may decrease the liquidity of the shares of our common stock.

The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that were outstanding immediately following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may have increased the number of stockholders who own odd lots of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.

 

 

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

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

 26 
 

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

ITEM 6.  EXHIBITS

 

EXHIBIT INDEX

 

EXHIBITS

 

Exhibit Number Exhibit Description
   
10.1 Royalty Agreement, dated September 6, 2016, between the Company and Imhoff and Maloof (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed September 8, 2016)
10.2 Lockup and Exchange Agreement, dated November 2, 2016, by the Company and GHS Investments, LLC (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed November 2, 2016)
31 Rule 13a-14(a)/15d-14(a) Certification
32 Section 1350 Certification
101 XBRL

 

 

 

 

 27 
 

 

 

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:

 

December 5, 2016

 

   

 

 

 

 28