GUIDED THERAPEUTICS INC
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended
December 31, 2018
.
OR
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ____________ to ____________
Commission file
number: 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 B
Norcross,
Georgia
(Address of
principal executive offices)
|
|
30092
(Zip
Code)
|
Registrant’s
telephone number (including area
code):
(770) 242-8723
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Act:
Common Stock, $0.001 par
value
(Title of class)
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes [X] No [ ]
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. 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. Large accelerated filer [ ] Accelerated filer [
]
Non-accelerated
filer [
] Smaller
reporting company
[X] Emerging
growth company [ ]
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes [ ] No [X]
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates was approximately $800,000 as of December
31, 2018 (the last business day of the registrant’s most
recently completed fiscal quarter).
As of
April 15, 2019, the registrant had 3,319,486 shares of common stock
outstanding. The registrant completed a 1:800 reverse split on
March 29, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
.
None.
TABLE
OF CONTENTS
|
PART
I
|
3
|
|
Item 1. Business
|
3
|
|
Item 1A. Risk Factors
|
10
|
|
Item 1B. Unresolved Staff Comments
|
20
|
|
Item 2. Properties
|
20
|
|
Item 3. Legal Proceedings
|
20
|
|
Item 4. Mine Safety Disclosures
|
20
|
|
PART
II
|
21
|
|
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
|
21
|
|
Item 6. Selected Financial Data
|
21
|
|
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
22
|
|
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.
|
34
|
|
Item 8. Financial Statements and Supplementary
Data
|
35
|
|
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
|
71
|
|
Item 9A. Controls and Procedures
|
71
|
|
Item 9B. Other Information
|
72
|
|
PART
III
|
73
|
|
Item 10. Directors, Executive Officers and Corporate
Governance
|
73
|
|
Item 11. Executive Compensation
|
75
|
|
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
|
78
|
|
Item 13. Certain Relationships and Related Transactions and
Director Independence
|
79
|
|
Item 14. Principal Accountant Fees and Services
|
80
|
|
PART
IV
|
81
|
|
Item 15. Exhibits and Financial Statement
Schedules
|
81
|
|
Item 16. Form 10-K Summary
|
84
|
|
SIGNATURES
|
85
|
2
PART
I
Item
1. Business
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.
Screening
for cervical cancer represents one of the most significant demands
on the practice of diagnostic medicine. As cervical cancer is
linked to a sexually transmitted disease—the human
papillomavirus (HPV)—every woman essentially becomes
“at risk” for cervical cancer simply after becoming
sexually active. In the developing world, there are approximately
2.0 billion women aged 15 and older who are potentially eligible
for screening with LuViva. Guidelines for screening intervals vary
across the world, but U.S. guidelines call for screening every
three years. Traditionally, the Pap smear screening test, or Pap
test, is the primary cervical cancer screening methodology in the
developed world. However, in developing countries, cancer screening
using Pap tests is expensive and requires infrastructure and skill
not currently existing, and not likely to be developed in the near
future, in these countries.
We
believe LuViva is the answer to the developing world’s
cervical cancer screening needs. Screening for cervical cancer in
the developing world often requires working directly with foreign
governments or non-governmental agencies (NGOs). By partnering with
governments or NGOs, we can provide immediate access to cervical
cancer detection to large segments of a nation’s population
as part of national or regional governmental healthcare programs,
eliminating the need to develop expensive and resource-intensive
infrastructures.
In
the developed world, we believe LuViva offers a more accurate and
ultimately cost-effective triage medical device, to be used once a
traditional Pap test or HPV test indicates the possibility of
cervical cancer. Due to the high number of false positive results
from Pap tests, traditional follow-on tests entail increased
medical treatment costs. We believe these costs can be minimized by
utilizing LuViva as a triage to determine whether follow-on tests
are warranted.
We believe our non-invasive cervical cancer
detection technology can be applied to the early detection of other
cancers as well. In 2013, we announced a license agreement with
Konica Minolta, Inc.
allowing us to manufacture and develop
a non-invasive esophageal cancer detection product from Konica
Minolta based on our biophotonic technology platform
. Early market analyses of our biophotonic
technology indicated that skin cancer detection was also promising,
but currently we are focused primarily on the large-scale
commercialization of LuViva.
Cancer
Cancer
is a group of many related diseases. All forms of cancer involve
the out-of-control growth and spread of abnormal cells. Normal
cells grow, divide, and die in an orderly fashion. Cancer cells,
however, continue to grow and divide and can spread to other parts
of the body. In America, half of all men and one-third of all women
will develop some form of cancer during their lifetimes. According
to the American Cancer Society, the sooner a cancer is found and
treatment begins, the better a patient’s chances are of being
cured. We began investigating the applications of our biophotonic
technology to cancer detection before 1997, when we initiated a
preliminary market analysis. We concluded that our biophotonic
technology had applications for the detection of a variety of
cancers through the exposure of tissue to light. We selected
detection of cervical cancer and skin cancer from a list of the ten
most promising applications to pursue initially, and ultimately
focused primarily on our LuViva cervical cancer detection
device.
3
Cervical cancer is
a cancer that begins in the lining of the cervix (which is located
in the lower part of the uterus). Cervical cancer forms over time
and may spread to other parts of the body if left untreated. There
is generally a gradual change from a normal cervix to a cervix with
precancerous cells to cervical cancer. For some women, precancerous
changes may go away without any treatment. While the majority of
precancerous changes in the cervix do not advance to cancer, if
precancers are treated, the risk that they will become cancers can
be greatly reduced.
The Developing World
According to the
most recent data published by the World Health Organization (WHO),
cervical cancer is the fourth most frequent cancer in women
worldwide, with an estimated 570,000 new cases in 2018, an increase
of 40,000 cases from 2012. For women living in less developed
regions, however, cervical cancer is the second most common cancer,
and 9 out of 10 women who die from cervical cancer reside in low-
and middle-income countries. In 2012, the most recent year reported
for global cervical cancer mortality rates, approximately 270,000
women died from cervical cancer, with more than 85% of these deaths
occurring in low- and middle-income countries.
As
noted by the WHO, in developed countries, programs are in place
that enable women to get screened, making most pre-cancerous
lesions identifiable at stages when they can easily be treated.
Early treatment prevents up to 80% of cervical cancers in these
countries. In developing countries, however, limited access to
effective screening means that the disease is often not identified
until it is further advanced and symptoms develop. In addition,
prospects for treatment of such late-stage disease may be poor,
resulting in a higher rate of death from cervical cancer in these
countries.
We
believe that the greatest need and market opportunity for LuViva
lies in screening for cervical cancer in developing countries where
the infrastructure for traditional screening may be limited or
non-existent.
We are
actively working with distributors in the following countries to
implement government-sponsored screening programs: Turkey,
Indonesia, and Nigeria. The number of screening candidates in those
countries is approximately 131 million and Indonesia and Nigeria
represent 2 of the 10 most populous countries in the
world.
The Developed World
The Pap
test, which involves a sample of cervical tissue being placed on a
slide and observed in a laboratory, is currently the most common
form of cervical cancer screening. Since the introduction of
screening and diagnostic methods, the number of cervical cancer
deaths in the developed world has declined dramatically, due mainly
to the increased use of the Pap test. However, the Pap test has a
wide variation in sensitivity, which is the ability to detect the
disease, and specificity, which is the ability to exclude false
positives. A study by Duke University for the U.S. Agency for
Health Care Policy and Research published in 1999 showed Pap test
performance ranging from a 22%-95% sensitivity and 78%-10%
specificity, although new technologies improving the sensitivity
and specificity of the Pap test have recently been introduced and
are finding acceptance in the marketplace. About 60 million Pap
tests are given annually in the United States, at an average price
of approximately $26 per test.
After a
Pap test returns a positive result for cervical cancer, accepted
protocol calls for a visual examination of the cervix using a
colposcope, usually followed by a biopsy, or tissue sampling, at
one or more locations on the cervix. This method looks for visual
changes attributable to cancer. There are about two million
colposcope examinations annually in the United States and Europe.
In 2003, the average cost of a stand-alone colposcope examination
in the United States was $185 and the average cost of a colposcopy
with biopsy was $277.
Given
this landscape, we believe that there is a material need and market
opportunity for LuViva as a triage device in the developed world
where LuViva represents a more cost-effective method of verifying a
positive Pap test than the alternatives.
The
LuViva
Advanced Cervical
Scan
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 light reflected from the cervix. The
information presented by the light would be used to indicate the
likelihood of cervical cancer or precancers. Our product, in
addition to detecting the structural changes attributed to cervical
cancer, is also designed to detect the biochemical changes that
precede the development of visual lesions. In this way, cervical
cancer may be detected earlier in its development, which should
increase the chances of effective treatment. In addition to the
device itself, operation of LuViva requires employment of our
single-use, disposable calibration and alignment cervical
guide.
4
To
date, thousands of women in multiple international clinical
settings have been tested with LuViva. As a result, more than 25
papers and presentations have been published regarding LuViva in a
clinical setting, including at the International Federation of
Gynecology and Obstetrics Congress in London in 2015 and at the
Indonesian National Obstetrics and Gynecology (POGI) Meeting in
Solo in 2016.
Internationally, we
contract with country-specific or regional distributors. We believe
that the international market will be significantly larger than the
U.S. market due to the international demand for cervical cancer
screening. We have executed formal distribution agreements covering
54 countries and still have active contracts in place for countries
that cover roughly half of the world’s population, including
China and Southeast Asia (including Indonesia), Eastern Europe and
Russia as well as the Middle East (including Turkey). In 2019, we
intend to focus on other large markets such as India, Western
Europe and certain Latin American countries, such as
Mexico.
We have
previously obtained regulatory approval to sell LuViva in Europe
under our Edition 3 CE Mark. Additionally, LuViva has also obtained
marketing approval from Health Canada, COFEPRIS in Mexico, Ministry
of Health in Kenya and the Singapore Health Sciences Authority. In
addition, in 2018, we were approved for sales and marketing in
India. We currently are seeking regulatory approval to market
LuViva in the United States but have not yet received approval from
the U.S. Food and Drug Administration (FDA). As of December 31,
2018, we have sold 139 LuViva devices and approximately 76,640
single-use-disposable cervical guides to international
distributors.
We believe our non-invasive cervical cancer
detection technology can be applied to the early detection of other
cancers as well.
From 2008 to early 2013, we worked with
Konica Minolta to explore the feasibility of adapting our
microporation and biophotonic cancer detection technology to other
areas of medicine and to determine potential markets for these
products in anticipation of a development agreement. In February
2013, we replaced our existing agreements with Konica Minolta with
a new agreement, pursuant to which, subject to the payment of a
nominal license fee due upon FDA approval, Konica Minolta has
granted us a five-year, world-wide, non-transferable and
non-exclusive right and license to manufacture and to develop a
non-invasive esophageal cancer detection product from Konica
Minolta and based on our biophotonic technology platform. The
license permits us to use certain related intellectual property of
Konica Minolta. In return for the license, we have agreed to pay
Konica Minolta a royalty for each licensed product we sell. We
continue to seek new collaborative partners to further develop our
biophotonic technology.
Manufacturing,
Sales Marketing and Distribution
We
manufacture LuViva at our Norcross, Georgia facility. Most of the
components of LuViva are custom made for us by third-party
manufacturers. We adhere to ISO 13485:2003 quality standards in our
manufacturing processes. Our single-use cervical guides are
manufactured by a vendor that specializes in injection molding of
plastic medical products. On January 22, 2017, we entered into a
license agreement with Shandong Yaohua Medical Instrument
Corporation (“SMI”) pursuant to which we granted SMI an
exclusive global license to manufacture the LuViva device and
related disposables (subject to a carve-out for manufacture in
Turkey). On December 18, 2018, we entered into a co-development
agreement with Newmars Technologies, Inc. (“NTI”),
whereby NTI will perform final assembly of the LuViva device for
its contracted distribution countries in Eastern Europe and Russia
at its ISO 13485 facility in Hungary. This additional carve out has
been agreed to by SMI.
We rely
on distributors to sell our products. Distributors can be country
exclusive or cover multiple countries in a region. We manage these
distributors, provide them marketing materials and train them to
demonstrate and operate LuViva. We seek distributors that have
experience in gynecology and in introducing new technology into
their assigned territories.
We
have only limited experience in the production planning, quality
system management, facility development, and production scaling
that will be needed to bring production to increased sustained
commercial levels. We will likely need to develop additional
expertise in order to successfully manufacture, market, and
distribute any future products.
Research,
Development and Engineering
We have
been engaged primarily in the research, development and testing of
our LuViva non-invasive cervical cancer detection product and our
core biophotonic technology. Since 2013, we have incurred
approximately $7.7 million in research and development expenses,
net of about $927,000 reimbursed through collaborative arrangements
and government grants. Research and development costs were
approximately $0.2 and $0.3 million in 2018 and 2017,
respectively.
Since
2013, we have focused our research and development and our
engineering resources almost exclusively on development of our
biophotonic technology, with only limited support of other programs
funded through government contracts or third-party funding. Because
our research and clinical development programs for other cancers
are at a very early stage, substantial additional research and
development and clinical trials will be necessary before we can
produce commercial prototypes of other cancer detection
products.
5
Several
of the components used in LuViva currently are available from only
one supplier, and substitutes for these components could not be
obtained easily or would require substantial modifications to our
products.
Patents
We have
pursued a course of developing and acquiring patents and patent
rights and licensing technology. Our success depends in large part
on our ability to establish and maintain the proprietary nature of
our technology through the patent process and to license from
other’s patents and patent applications necessary to develop
our products. As of December 31, 2018, we have 16 granted U.S.
patents relating to our biophotonic cancer detection technology
that were developed in-house and are owned by the Company.
Currently we do not own third party patents nor do we make any
outside payments for patents.
|
Patent
No.
|
Title
|
Ctry
|
Grant
Date
|
Expiration
Date
|
|
6,400,875
|
Method
for Protecting A Fiber Optic Probe And The Resulting Fiber Optic
Probe
|
US
|
06/04/2002
|
11/01/2019
|
|
6,577,391
|
Apparatus And
Method For Determining Tissue Characteristics
|
US
|
06/10/2003
|
03/24/2020
|
|
6,590,651
|
Apparatus and
Method for Determining Tissue Characteristics
|
US
|
07/08/2003
|
11/16/2020
|
|
6,792,982
|
Vacuum
Source For Harvesting Substances
|
US
|
09/21/2004
|
07/23/2023
|
|
6,870,620
|
Apparatus And
Method For Determining Tissue Characteristics
|
US
|
03/22/2005
|
03/24/2020
|
|
6,975,889
|
Multi-Modal Optical
Cancer Diagnostic System
|
US
|
12/13/2005
|
03/09/2021
|
|
7,006,220
|
Apparatus and
Method for Determining Tissue Characteristics
|
US
|
02/28/2006
|
11/16/2020
|
|
7,174,927
|
Vacuum
Source For Harvesting Substances
|
US
|
02/13/2007
|
09/03/2024
|
|
7,301,629
|
Apparatus and
Method for Determining Tissue Characteristics
|
US
|
11/27/2007
|
07/03/2023
|
|
7,335,166
|
System
And Methods For Fluid Extractions And Monitoring
|
US
|
02/26/2008
|
05/22/2023
|
|
8,644,912
|
Method
and Apparatus For Determining Tissue Characteristics
|
US
|
02/04/2014
|
11/16/2020
|
|
8,781,560
|
Method
and Apparatus For Rapid Detection and Diagnosis of Tissue
Abnormalities
|
US
|
07/15/2014
|
07/14/2031
|
|
9,561,003
|
Method
and Apparatus For Rapid Detection and Diagnosis of Tissue
Abnormalities
|
US
|
02/07/2017
|
07/14/2031
|
|
D714453
|
Mobile
Cart and Hand Held Unit for Diagnostics of Measurement
|
US
|
09/30/2014
|
09/30/2028
|
|
D724199
|
Medical
Diagnostic Stand Off Tube
|
US
|
03/10/2015
|
03/10/2029
|
|
D746475
|
Mobile
Cart and Hand Held Unit for Diagnostics or Measurement
|
US
|
12/29/2015
|
12/29/2029
|
I
n addition to the patents listed above, the
Company owns four additional corresponding foreign patents and has
applied for an two additional US patents, although there is no
assurance that these patents will be granted. The
Company’s strategy is to continue improving its products and
filing new patents to protect those
improvements.
In
the United States, additional years of patent protection may be
added (on a case by case basis) beyond the standard patent
terms under the 1984 Drug Price Competition and Patent Term
Restoration Act, also known as the Hatch-Waxman Act. The
Hatch-Waxman act includes Section 156, which provides for the
extension of the term of a granted patent (PTE) under certain
circumstances. The intent behind Section 156 is to extend patent
life to compensate patent holders for patent term lost while
developing their product and awaiting FDA approval. The
Company’s patents qualify under Section 156 because LuViva
has not yet been commercialized in the United States and it is
being regulated by FDA as a Class III Medical Device.
Competition
The
medical device industry in general and the markets for cervical
cancer detection in particular, are intensely competitive. If
successful in our product development, we will compete with other
providers of cervical cancer detection and prevention
products.
Current
cervical cancer screening and diagnostic tests, primarily the Pap
test, HPV test, and colposcopy, are well established and pervasive.
Improvements and new technologies for cervical cancer detection and
prevention, such as Thin-Prep from Hologic and HPV testing from
Qiagen, have led to other new competitors. In addition, there are
other companies attempting to develop products using forms of
biophotonic technologies in cervical cancer detection, such as
Spectrascience, which has a very limited U.S. FDA approval to
market its device for detection of cervical cancers, but has not
yet entered the market. The approval limits use of the
Spectrascience device only after a colposcopy, as an adjunct. In
addition to the Spectrascience device, there are other technologies
that are seeking to enter the market as adjuncts to colposcopy,
including devices from Dysis and Zedco. While these technologies
are not direct competitors to LuViva, modifications to them or
other new technologies will require us to develop devices that are
more accurate, easier to use or less costly to administer so that
our products have a competitive advantage.
6
In
April 2014, the U.S. FDA approved the use of the Roche cobas HPV
test as a primary screener for cervical cancer. Using a sample of
cervical cells, the cobas HPV test detects DNA from 14 high-risk
HPV types. The test specifically identifies HPV 16 and HPV 18,
while concurrently detecting 12 other types of high-risk HPVs. This
could make HPV testing a competitor to the Pap test. However, due
to its lower specificity, we believe that screening with HPV will
increase the number of false positive results if widely
adopted.
In June
2006, the U.S. FDA approved the HPV vaccine Gardasil from drug
maker Merck. Gardasil is a prophylactic HPV vaccine, meaning that
it is designed to prevent the initial establishment of HPV
infections. For maximum efficacy, it is recommended that girls
receive the vaccine prior to becoming sexually active. Since
Gardasil will not block infection with all of the HPV types that
can cause cervical cancer, the vaccine should not be considered a
substitute for routine Pap tests. On October 16, 2009,
GlaxoSmithKline PLC was granted approval in the United States for a
similar preventive HPV vaccine, known as Cervarix. Due to the
limited availability and lack of 100% protection against all
potentially cancer-causing strains of HPV, we believe that the
vaccines will have a limited impact on the cervical cancer
screening and diagnostic market for many years.
Government
Regulation
The
medical devices that we manufacture are subject to regulation by
numerous regulatory bodies, including the CFDA, the U.S. FDA, and
comparable international regulatory agencies. These agencies
require manufacturers of medical devices to comply with applicable
laws and regulations governing the development, testing,
manufacturing, labeling, marketing and distribution of medical
devices. Devices are generally subject to varying levels of
regulatory control, the most comprehensive of which requires that a
clinical evaluation program be conducted before a device receives
approval for commercial distribution.
In the
European Union, medical devices are required to comply with the
Medical Devices Directive and obtain CE Mark certification in order
to market medical devices. The CE Mark certification, granted
following approval from an independent “Notified Body,”
is an international symbol of adherence to quality assurance
standards and compliance with applicable European Medical Devices
Directives. During 2018 and 2017 we were unable to pay the annual
registration fees to maintain our ISO 13485:2003 certification and
our CE Mark. Once our financing is completed, we will make the
required payments and reobtain both certifications. In addition,
our December 21, 2018 agreement with Newmars, described above, will
allow final assembly at their ISO 13485:2003 accredited
facility.
China
has a regulatory regime similar to that of the European Union, but
due to interaction with the U.S. regulatory regime, the CFDA also
shares some similarities with its U.S. counterpart. Devices are
classified by the CFDA’s Center for Medical Device Evaluation
(CMDE) into three categories based on medical risk, with the level
of regulatory oversight determined by degree of risk and
invasiveness. CMDE’s device classifications and definitions
are as follows:
●
Class I device: The
safety and effectiveness of the device can be ensured through
routine administration.
●
Class II device:
Further control is required to ensure the safety and effectiveness
of the device.
●
Class III device:
The device is implanted into the human body; used for life support
or sustenance; or poses potential risk to the human body, and thus
must be strictly controlled in respect to safety and
effectiveness.
Based
on the above definitions and several discussions with regulatory
consultants and potential partners, we believe that LuViva is most
likely to be classified as a Class II device, however, this is not
certain and the CFDA may determine that LuViva requires a Class III
registration. Class III registrations are granted by the national
CFDA office while Class I and II registrations occur at the
provincial level. Typically, registration granted at the provincial
level allows a medical device to be marketed in all of
China’s provinces.
While
Class I devices usually do not require clinical trial data from
Chinese patients and Class III devices almost always do, Class II
medical devices sometimes do and sometimes do not require Chinese
clinical trials, and this determination may depend on the claim for
the device and quality of clinical trials conducted outside of
China. If clinical trials conducted in China are required, they
usually are less burdensome for Class II devices than Class III
devices.
CFDA
labs also conduct electrical, mechanical and electromagnetic
emission safety testing for medical devices similar to those
required for the CE Mark. As is the case with the U.S. FDA,
manufacturers in China undergo periodic inspections and must comply
with international quality standards such as ISO 13485 for medical
devices. As part of our agreement with SMI, SMI will underwrite the
cost of securing approval of LuViva with the CFDA.
7
In the
United States, permission to distribute a new device generally can
be met in one of two ways. The first process requires that a
pre-market notification (510(k) Submission) be made to the U.S. FDA
to demonstrate that the device is as safe and effective as, or
substantially equivalent to, a legally marketed device that is not
subject to premarket approval (PMA). A legally marketed device is a
device that (1) was legally marketed prior to May 28, 1976, (2) has
been reclassified from Class III to Class II or I, or (3) has been
found to be substantially equivalent to another legally marketed
device following a 510(k) Submission. The legally marketed device
to which equivalence is drawn is known as the
“predicate” device. Applicants must submit descriptive
data and, when necessary, performance data to establish that the
device is substantially equivalent to a predicate device. In some
instances, data from human clinical studies must also be submitted
in support of a 510(k) Submission. If so, these data must be
collected in a manner that conforms with specific requirements in
accordance with federal regulations. The U.S. FDA must issue an
order finding substantial equivalence before commercial
distribution can occur. Changes to existing devices covered by a
510(k) Submission which do not significantly affect safety or
effectiveness can generally be made by us without additional 510(k)
Submissions.
The
second process requires that an application for premarket approval
(PMA) be made to the U.S. FDA to demonstrate that the device is
safe and effective for its intended use as manufactured. This
approval process applies to most Class III devices, including
LuViva. In this case, two steps of U.S. FDA approval are generally
required before marketing in the United States can begin. First,
investigational device exemption (IDE) regulations must be complied
with in connection with any human clinical investigation of the
device in the United States. Second, the U.S. FDA must review the
PMA application, which contains, among other things, clinical
information acquired under the IDE. The U.S. FDA will approve the
PMA application if it finds that there is a reasonable assurance
that the device is safe and effective for its intended
purpose.
We
completed enrollment in our U.S. FDA pivotal trial of LuViva in
2008 and, after the U.S. FDA requested two-years of follow-up data
for patients enrolled in the study, the U.S. FDA accepted our
completed PMA application on November 18, 2010, effective September
23, 2010, for substantive review. On March 7, 2011, we announced
that the U.S. FDA had inspected two clinical trial sites and
audited our clinical trial data base systems as part of its review
process and raised no formal compliance issues. On January 20,
2012, we announced our intent to seek an independent panel review
of our PMA application after receiving a
“not-approvable” letter from the U.S. FDA. On November
14, 2012 we filed an amended PMA with the U.S. FDA. On September 6,
2013, we received a letter from the U.S. FDA with additional
questions and met with the U.S. FDA on May 8, 2014 to discuss our
response. On July 25, 2014, we announced that we had responded to
the U.S. FDA’s most recent questions.
We
received a “not-approvable” letter from the U.S. FDA on
May 15, 2015. We had a follow up meeting with the U.S. FDA to
discuss a path forward on November 30, 2015, at which we agreed to
submit a detailed clinical protocol for U.S. FDA review so that
additional studies can be completed. These studies will not be
completed in 2019, although we intend to pursue FDA approval and
start studies in 2019 once funds are available. We remain committed
to obtaining U.S. FDA approval, but we are focused on international
sales growth, where we believe the commercial opportunities are
larger and the clinical need is more significant.
The
process of obtaining clearance to market products is costly and
time-consuming in virtually all of the major markets in which we
sell, or expect to sell, our products and may delay the marketing
and sale of our products. Countries around the world have recently
adopted more stringent regulatory requirements, which are expected
to add to the delays and uncertainties associated with new product
releases, as well as the clinical and regulatory costs of
supporting those releases. No assurance can be given that our
products will be approved on a timely basis in any particular
jurisdiction, if at all. In addition, regulations regarding the
development, manufacture and sale of medical devices are subject to
future change. We cannot predict what impact, if any, those changes
might have on our business. Failure to comply with regulatory
requirements could have a material adverse effect on our business,
financial condition and results of operations.
Noncompliance with
applicable requirements can result in import detentions, fines,
civil penalties, injunctions, suspensions or losses of regulatory
approvals or clearances, recall or seizure of products, operating
restrictions, denial of export applications, governmental
prohibitions on entering into supply contracts, and criminal
prosecution. Failure to obtain regulatory approvals or the
restriction, suspension or revocation of regulatory approvals or
clearances, as well as any other failure to comply with regulatory
requirements, would have a material adverse effect on our business,
financial condition and results of operations.
Regulatory
approvals and clearances, if granted, may include significant
labeling limitations and limitations on the indicated uses for
which the product may be marketed. In addition, to obtain
regulatory approvals and clearances, the U.S. FDA and some foreign
regulatory authorities impose numerous other requirements with
which medical device manufacturers must comply. U.S. FDA
enforcement policy strictly prohibits the marketing of approved
medical devices for unapproved uses. Any products we manufacture or
distribute under U.S. FDA clearances or approvals are subject to
pervasive and continuing regulation by the U.S. FDA. The U.S. FDA
also requires us to provide it with information on death and
serious injuries alleged to have been associated with the use of
our products, as well as any malfunctions that would likely cause
or contribute to death or serious injury.
8
The
U.S. FDA requires us to register as a medical device manufacturer
and list our products. We are also subject to inspections by the
U.S. FDA and state agencies acting under contract with the U.S. FDA
to confirm compliance with good manufacturing practice. These
regulations require that we manufacture our products and maintain
documents in a prescribed manner with respect to manufacturing,
testing, quality assurance and quality control activities. The U.S.
FDA also has promulgated final regulatory changes to these
regulations that require, among other things, design controls and
maintenance of service records. These changes will increase the
cost of complying with good manufacturing practice
requirements.
Distributors of
medical devices may also be required to comply with other foreign
regulatory agencies, and we or our distributors currently have
marketing approval for LuViva from Health Canada, COFEPRIS in
Mexico, the Ministry of Health in Kenya, and the Singapore Health
Sciences Authority. The time required to obtain these foreign
approvals to market our products may be longer or shorter than that
required in China or the United States, and requirements for those
approvals may differ from those required by the CFDA or the U.S.
FDA.
We are
also subject to a variety of other controls that affect our
business. Labeling and promotional activities are subject to
scrutiny by the U.S. FDA and, in some instances, by the U.S.
Federal Trade Commission. The U.S. FDA actively enforces
regulations prohibiting marketing of products for unapproved users.
We are also subject, as are our products, to a variety of state and
local laws and regulations in those states and localities where our
products are or will be marketed. Any applicable state or local
regulations may hinder our ability to market our products in those
regions. Manufacturers are also subject to numerous federal, state
and local laws relating to matters such as safe working conditions,
manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous
substances. We may be required to incur significant costs to comply
with these laws and regulations now or in the future. These laws or
regulations may have a material adverse effect on our ability to do
business.
Although our
marketing and distribution partners around the world assist in the
regulatory approval process, ultimately, we are be responsible for
obtaining and maintaining regulatory approvals for our products.
The inability or failure to comply with the varying regulations or
the imposition of new regulations would materially adversely affect
our business, financial condition and results of
operations.
Employees
and Consultants
As of
December 31, 2018, we had nine regular employees and one consultant
to provide services to us on a full- or part-time basis. Of the
ten-people employed or engaged by us, 2 are engaged in engineering,
manufacturing and development, 4 are engaged in sales and marketing
activities, 1 is engaged in clinical testing and regulatory
affairs, and 3 are engaged in administration and accounting. No
employees are covered by collective bargaining agreements, and we
believe we maintain good relations with our employees.
Our
ability to operate successfully and manage our potential future
growth depends in significant part upon the continued service of
key scientific, technical, managerial and finance personnel, and
our ability to attract and retain additional highly qualified
personnel in these fields. Two of these key employees have an
employment contract with us; none are covered by key person or
similar insurance. In addition, if we are able to successfully
develop and commercialize our products, we likely will need to hire
additional scientific, technical, marketing, managerial and finance
personnel. We face intense competition for qualified personnel in
these areas, many of whom are often subject to competing employment
offers. The loss of key personnel or our inability to hire and
retain additional qualified personnel in the future could have a
material adverse effect on our business, financial condition and
results of operations.
Corporate
History
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.”
Our
principal executive and operations facility is located at 5835
Peachtree Corners East, Suite B, Norcross, Georgia 30092, and our
telephone number is (770) 242-8723.
9
Item
1A. Risk Factors
In addition to the other information in this annual report on Form
10-K, the following risk factors should be considered carefully in
evaluating us.
Risks
Related to Our Business
Although we will be required to raise additional funds in 2019,
there is no assurance that such funds can be raised on terms that
we would find acceptable, on a timely basis, or at
all.
Additional debt or
equity financing will be required for us to continue as a going
concern. We may seek to obtain additional funds for the financing
of our cervical cancer detection business through additional debt
or equity financings and/or new collaborative arrangements.
Management believes that additional financing, if obtainable, will
be sufficient to support planned operations only for a limited
period. Management has implemented operating actions to reduce cash
requirements. Any required additional funding may not be available
on terms attractive to us, on a timely basis, or at all. If we
cannot obtain additional funds or achieve profitability, we may not
be able to continue as a going concern.
Because
we must obtain additional funds through financing transactions or
through new collaborative arrangements in order to grow the
revenues of our cervical cancer detection product line, there
exists substantial doubt about our ability to continue as a going
concern. Therefore, it will be necessary to raise additional funds.
There can be no assurance that we will be able to raise these
additional funds. If we do not secure additional funding when
needed, we will be unable to conduct all of our product development
efforts as planned, which may cause us to alter our business plan
in relation to the development of our products. Even if we obtain
additional funding, we will need to achieve profitability
thereafter.
Our
independent registered public accountants’ report on our
consolidated financial statements as of and for the year ended
December 31, 2018, indicated that there was substantial doubt about
our ability to continue as a going concern because we had suffered
recurring losses from operations and had an accumulated deficit of
$137.6 million at December 31, 2018 summarized as
follows:
|
Accumulated
deficit, from inception to 12/31/2016
|
|
|
$127.6
million
|
|
Preferred
dividends
|
|
|
$
0.2 million
|
|
Net
Loss for fiscal year 2017, ended 12/31/2017
|
|
|
$
10.7 million
|
|
Accumulated
deficit, from inception to 12/31/2017
|
|
|
$138.5
million
|
|
Preferred
dividends
|
|
|
$
0.1 million
|
|
Net
Profit for year to date ended 12/31/2018
|
|
|
$
(1.0) million
|
|
Accumulated
deficit, from inception to 12/31/2018
|
|
|
$137.6
million
|
Our
management has implemented reductions in operating expenditures and
reductions in some development activities. We have determined to
make cervical cancer detection the focus of our business. We are
managing the development of our other programs only when funds are
made available to us via grants or contracts with government
entities or strategic partners. However, there can be no assurance
that we will be able to successfully implement or continue these
plans.
If we cannot obtain additional funds when needed, we will not be
able to implement our business plan.
We
require substantial additional capital to develop our products,
including completing product testing and clinical trials, obtaining
all required regulatory approvals and clearances, beginning and
scaling up manufacturing, and marketing our products. We have
historically financed our operations though the public and private
sale of debt and equity, funding from collaborative arrangements,
and grants. Any failure to achieve adequate funding in a timely
fashion would delay our development programs and could lead to
abandonment of our business plan. To the extent we cannot obtain
additional funding, our ability to continue to manufacture and sell
our current products, or develop and introduce new products to
market, will be limited. Further, financing our operations through
the public or private sale of debt or equity may involve
restrictive covenants or other provisions that could limit how we
conduct our business or finance our operations. Financing our
operations through collaborative arrangements generally means that
the obligations of the collaborative partner to fund our
expenditures are largely discretionary and depend on a number of
factors, including our ability to meet specified milestones in the
development and testing of the relevant product. We may not be able
to obtain an acceptable collaboration partner, and even if we do,
we may not be able to meet these milestones, or the collaborative
partner may not continue to fund our expenditures.
10
We do not have a long operating history, especially in the cancer
detection field, which makes it difficult to evaluate our
business.
Although we have
been in existence since 1992, we have only recently begun to
commercialize our cervical cancer detection technology. Because
limited historical information is available on our revenue trends
and manufacturing costs, it is difficult to evaluate our
business. Our prospects must be considered in light of the
substantial risks, expenses, uncertainties and difficulties
encountered by entrants into the medical device industry, which is
characterized by increasing intense competition and a high failure
rate.
We have a history of losses, and we expect losses to
continue.
We have
never been profitable and we have had operating losses since our
inception. We expect our operating losses to continue 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. The
further development and commercialization of our products will
require substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. We have only generated
limited revenues from product sales. Our accumulated deficit was
approximately $137.6 million at December 31, 2018.
We are currently delinquent with our federal and applicable state
tax returns filings. Some of the federal income tax returns are
currently under examination by the U.S. Internal Revenue Service
(“IRS”). Therefore, we may incur additional taxes and
costs. At this time, we are not yet able to determine whether or
not such additional taxes or costs would have a material adverse
effect on the company or our net operating losses, as discussed
below.
Although we have
been experiencing recurring losses, we are obligated to file tax
returns for compliance with IRS regulations and that of applicable
state jurisdictions. At December 31, 2018 and 2017, we have
approximately $77.2 and $82.9 million of net operating losses,
respectively. This net operating loss will be eligible to be
carried forward for tax purposes at federal and applicable states
level, but the use of such net operating losses may be subject to
restrictions under applicable tax law. A full valuation allowance
has been recorded related to the deferred tax assets generated from
the net operating losses.
Our ability to sell our products is controlled by government
regulations, and we may not be able to obtain any necessary
clearances or approvals.
The
design, manufacturing, labeling, distribution and marketing of
medical device products are subject to extensive and rigorous
government regulation in most of the markets in which we sell, or
plan to sell, our products, which can be expensive and uncertain
and can cause lengthy delays before we can begin selling our
products in those markets.
In foreign countries, including European countries, we are subject
to government regulation, which could delay or prevent our ability
to sell our products in those jurisdictions.
In
order for us to market our products in Europe and some other
international jurisdictions, we and our distributors and agents
must obtain required regulatory registrations or approvals. We must
also comply with extensive regulations regarding safety, efficacy
and quality in those jurisdictions. We may not be able to obtain
the required regulatory registrations or approvals, or we may be
required to incur significant costs in obtaining or maintaining any
regulatory registrations or approvals we receive. Delays in
obtaining any registrations or approvals required for marketing our
products, failure to receive these registrations or approvals, or
future loss of previously obtained registrations or approvals would
limit our ability to sell our products internationally. For
example, international regulatory bodies have adopted various
regulations governing product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. These regulations vary from country to
country. In order to sell our products in Europe, in 2018 we must
undergo an inspection and re-file for ISO 13485:2003 and the CE
Mark, which is an international symbol of quality and compliance
with applicable European medical device directives. Failure to
maintain ISO 13485:2003 certification or CE mark certification or
other international regulatory approvals would prevent us from
selling in some countries in the European Union.
In the United States, we are subject to regulation by the U.S. FDA,
which could prevent us from selling our products
domestically.
In
order for us to market our products in the United States, we must
obtain clearance or approval from the U.S. Food and Drug
Administration, or U.S. FDA. We cannot be sure that:
●
we, or any
collaborative partner, will make timely filings with the U.S.
FDA;
●
the U.S. FDA will
act favorably or quickly on these submissions;
●
we will not be
required to submit additional information or perform additional
clinical studies; or
●
we will not face
other significant difficulties and costs necessary to obtain U.S.
FDA clearance or approval.
11
It can
take several years from initial filing of a PMA application and
require the submission of extensive supporting data and clinical
information. The U.S. FDA may impose strict labeling or other
requirements as a condition of its clearance or approval, any of
which could limit our ability to market our products domestically.
Further, if we wish to modify a product after U.S. FDA approval of
a PMA application, including changes in indications or other
modifications that could affect safety and efficacy, additional
clearances or approvals will be required from the U.S. FDA. Any
request by the U.S. FDA for additional data, or any requirement by
the U.S. FDA that we conduct additional clinical studies, could
result in a significant delay in bringing our products to market
domestically and require substantial additional research and other
expenditures. Similarly, any labeling or other conditions or
restrictions imposed by the U.S. FDA could hinder our ability to
effectively market our products domestically. Further, there may be
new U.S. FDA policies or changes in U.S. FDA policies that could be
adverse to us.
Even if we obtain clearance or approval to sell our products, we
are subject to ongoing requirements and inspections that could lead
to the restriction, suspension or revocation of our
clearance.
We, as
well as any potential collaborative partners, will be required to
adhere to applicable regulations in the markets in which we operate
and sell our products, regarding good manufacturing practice, which
include testing, control, and documentation requirements. Ongoing
compliance with good manufacturing practice and other applicable
regulatory requirements will be strictly enforced applicable
regulatory agencies. Failure to comply with these regulatory
requirements could result in, among other things, warning letters,
fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure to obtain
premarket clearance or premarket approval for devices, withdrawal
of approvals previously obtained, and criminal prosecution. The
restriction, suspension or revocation of regulatory approvals or
any other failure to comply with regulatory requirements would
limit our ability to operate and could increase our
costs.
We depend on a limited number of distributors and any reduction,
delay or cancellation of an order from these distributors or the
loss of any of these distributors could cause our revenue to
decline.
Each
year we have had one or a few distributors that have accounted for
substantially all of our limited revenues. As a result, the
termination of a purchase order with any one of these distributors
may result in the loss of substantially all of our revenues. We are
constantly working to develop new relationships with existing or
new distributors, but despite these efforts we may not be
successful at generating new orders to maintain similar revenues as
current purchase orders are filled. In addition, since a
significant portion of our revenues is derived from a relatively
few distributors, any financial difficulties experienced by any one
of these distributors, or any delay in receiving payments from any
one of these distributors, could have a material adverse effect on
our business, results of operations, financial condition and cash
flows.
To successfully market and sell our products internationally, we
must address many issues with which we have limited
experience.
All of
our sales of LuViva to date have been to distributors outside of
the United States. We expect that substantially all of our business
will continue to come from sales in foreign markets, through
increased penetration in countries where we currently sell LuViva,
combined with expansion into new international markets. However,
international sales are subject to a number of risks,
including:
●
difficulties in
staffing and managing international operations;
●
difficulties in
penetrating markets in which our competitors’ products may be
more established;
●
reduced or no
protection for intellectual property rights in some
countries;
●
export
restrictions, trade regulations and foreign tax laws;
●
fluctuating foreign
currency exchange rates;
●
foreign
certification and regulatory clearance or approval
requirements;
●
difficulties in
developing effective marketing campaigns for unfamiliar, foreign
countries;
●
customs clearance
and shipping delays;
●
political and
economic instability; and
●
preference for
locally produced products.
If one
or more of these risks were realized, it could require us to
dedicate significant resources to remedy the situation, and even if
we are able to find a solution, our revenues may still
decline.
12
To market and sell LuViva internationally, we depend on
distributors and they may not be successful.
We
currently depend almost exclusively on third-party distributors to
sell and service LuViva internationally and to train our
international distributors, and if these distributors terminate
their relationships with us or under-perform, we may be unable to
maintain or increase our level of international revenue. We will
also need to engage additional international distributors to grow
our business and expand the territories in which we sell LuViva.
Distributors may not commit the necessary resources to market, sell
and service LuViva to the level of our expectations. If current or
future distributors do not perform adequately, or if we are unable
to engage distributors in particular geographic areas, our revenue
from international operations will be adversely
affected
Risks Related to Our Intellectual Property
Our success largely
depends on our ability to maintain and protect the proprietary
information on which we base our products.
Our
success depends in large part upon our ability to maintain and
protect the proprietary nature of our technology through the patent
process, as well as our ability to license from other’s
patents and patent applications necessary to develop our products.
If any of our patents are successfully challenged, invalidated or
circumvented, or our right or ability to manufacture our products
was to be limited, our ability to continue to manufacture and
market our products could be adversely affected. In addition to
patents, we rely on trade secrets and proprietary know-how, which
we seek to protect, in part, through confidentiality and
proprietary information agreements. The other parties to these
agreements may breach these provisions, and we may not have
adequate remedies for any breach. Additionally, our trade secrets
could otherwise become known to or be independently developed by
competitors.
As of
December 31, 2018, we have been issued, or have rights to, 16 U.S.
patents (including those under license). In addition, we have filed
for, or have rights to, four U.S. patents (including those under
license) that are still pending. We also have three granted patents
that apply to our interstitial fluid analysis system as well as
seven international patents that apply to our noninvasive
technologies. There are additional international patents and
pending applications. One or more of the patents we hold directly
or license from third parties, including those for our cervical
cancer detection products, may be successfully challenged,
invalidated or circumvented, or we may otherwise be unable to rely
on these patents. These risks are also present for the process we
use or will use for manufacturing our products. In addition, our
competitors, many of whom have substantial resources and have made
substantial investments in competing technologies, may apply for
and obtain patents that prevent, limit or interfere with our
ability to make, use and sell our products, either in the United
States or in international markets.
The
medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property
rights. In addition, the U.S. Patent and Trademark Office, or
USPTO, may institute interference proceedings. The defense and
prosecution of intellectual property suits, USPTO proceedings and
related legal and administrative proceedings are both costly and
time consuming. Moreover, we may need to litigate to enforce our
patents, to protect our trade secrets or know-how, or to determine
the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings involving us may
require us to incur substantial legal and other fees and expenses
and may require some of our employees to devote all or a
substantial portion of their time to the proceedings. An adverse
determination in the proceedings could subject us to significant
liabilities to third parties, require us to seek licenses from
third parties or prevent us from selling our products in some or
all markets. We may not be able to reach a satisfactory settlement
of any dispute by licensing necessary patents or other intellectual
property. Even if we reached a settlement, the settlement process
may be expensive and time consuming, and the terms of the
settlement may require us to pay substantial royalties. An adverse
determination in a judicial or administrative proceeding or the
failure to obtain a necessary license could prevent us from
manufacturing and selling our products.
We may be unable to commercialize our products if we are unable to
protect our proprietary rights, and we may be liable for
significant costs and damages if we face a claim of intellectual
property infringement by a third party.
Our
near and long-term prospects depend in part on our ability to
obtain and maintain patents, protect trade secrets and operate
without infringing upon the proprietary rights of others. In the
absence of patent and trade secret protection, competitors may
adversely affect our business by independently developing and
marketing substantially equivalent or superior products and
technology, possibly at lower prices. We could also incur
substantial costs in litigation and suffer diversion of attention
of technical and management personnel if we are required to defend
ourselves in intellectual property infringement suits brought by
third parties, with or without merit, or if we are required to
initiate litigation against others to protect or assert our
intellectual property rights. Moreover, any such litigation may not
be resolved in our favor.
13
Although
we and our licensors have filed various patent applications
covering the uses of our product candidates, patents may not be
issued from the patent applications already filed or from
applications that we might file in the future. Moreover, the patent
position of companies in the pharmaceutical industry generally
involves complex legal and factual questions and has been the
subject of much litigation. Any patents we own or license, now or
in the future, may be challenged, invalidated or circumvented. To
date, no consistent policy has been developed in the U.S. Patent
and Trademark Office (the “PTO”) regarding the breadth
of claims allowed in biotechnology patents.
In
addition, because patent applications in the U.S. are maintained in
secrecy until patent applications publish or patents issue, and
because publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, we cannot be
certain that we and our licensors are the first creators of
inventions covered by any licensed patent applications or patents
or that we or they are the first to file. The PTO may commence
interference proceedings involving patents or patent applications,
in which the question of first inventorship is contested.
Accordingly, the patents owned or licensed to us may not be valid
or may not afford us protection against competitors with similar
technology, and the patent applications licensed to us may not
result in the issuance of patents.
It
is also possible that our owned and licensed technologies may
infringe on patents or other rights owned by others, and licenses
to which may not be available to us. We may be unable to obtain a
license under such patent on terms favorable to us, if at all. We
may have to alter our products or processes, pay licensing fees or
cease activities altogether because of patent rights of third
parties.
In
addition to the products for which we have patents or have filed
patent applications, we rely upon unpatented proprietary technology
and may not be able to meaningfully protect our rights with regard
to that unpatented proprietary technology. Furthermore, to the
extent that consultants, key employees or other third parties apply
technological information developed by them or by others to any of
our proposed projects, disputes may arise as to the proprietary
rights to this information, which may not be resolved in our
favor.
We may be involved in lawsuits to protect or enforce our patents,
which could be expensive and time consuming.
The
pharmaceutical industry has been characterized by extensive
litigation regarding patents and other intellectual property
rights, and companies have employed intellectual property
litigation to gain a competitive advantage. We may become subject
to infringement claims or litigation arising out of patents and
pending applications of our competitors, or additional interference
proceedings declared by the PTO to determine the priority of
inventions. The defense and prosecution of intellectual property
suits, PTO proceedings, and related legal and administrative
proceedings are costly and time-consuming to pursue, and their
outcome is uncertain. Litigation may be necessary to enforce our
issued patents, to protect our trade secrets and know-how, or to
determine the enforceability, scope, and validity of the
proprietary rights of others. An adverse determination in
litigation or interference proceedings to which we may become a
party could subject us to significant liabilities, require us to
obtain licenses from third parties, or restrict or prevent us from
selling our products in certain markets. Although patent and
intellectual property disputes might be settled through licensing
or similar arrangements, the costs associated with such
arrangements may be substantial and could include our paying large
fixed payments and ongoing royalties. Furthermore, the necessary
licenses may not be available on satisfactory terms or at
all.
Competitors
may infringe our patents, and we may file infringement claims to
counter infringement or unauthorized use. This can be expensive,
particularly for a company of our size, and time-consuming. In
addition, in an infringement proceeding, a court may decide that a
patent of ours is not valid or is unenforceable or may refuse to
stop the other party from using the technology at issue on the
grounds that our patents do not cover its technology. An adverse
determination of any litigation or defense proceedings could put
one or more of our patents at risk of being invalidated or
interpreted narrowly.
Also,
a third party may assert that our patents are invalid and/or
unenforceable. There are no unresolved communications, allegations,
complaints or threats of litigation related to the possibility that
our patents are invalid or unenforceable. Any litigation or claims
against us, whether or not merited, may result in substantial
costs, place a significant strain on our financial resources,
divert the attention of management and harm our reputation. An
adverse decision in litigation could result in inadequate
protection for our product candidates and/or reduce the value of
any license agreements we have with third parties.
Interference
proceedings brought before the PTO may be necessary to determine
priority of invention with respect to our patents or patent
applications. During an interference proceeding, it may be
determined that we do not have priority of invention for one or
more aspects in our patents or patent applications and could result
in the invalidation in part or whole of a patent or could put a
patent application at risk of not issuing. Even if successful, an
interference proceeding may result in substantial costs and
distraction to our management.
14
Furthermore,
because of the substantial amount of discovery required in
connection with intellectual property litigation or interference
proceedings, there is a risk that some of our confidential
information could be compromised by disclosure. In addition, there
could be public announcements of the results of hearings, motions
or other interim proceedings or developments. If investors perceive
these results to be negative, the price of our common stock could
be adversely affected.
If we infringe the rights of third parties, we could be prevented
from selling products, forced to pay damages, and defend against
litigation.
If
our products, methods, processes and other technologies infringe
the proprietary rights of other parties, we could incur substantial
costs and we may have to: obtain licenses, which may not be
available on commercially reasonable terms, if at all; abandon an
infringing product candidate; redesign our products or processes to
avoid infringement; stop using the subject matter claimed in the
patents held by others; pay damages; and/or defend litigation or
administrative proceedings which may be costly whether we win or
lose, and which could result in a substantial diversion of our
financial and management resources.
Risks
Related to Our Sales Strategy
We may not be able to generate sufficient sales revenues to sustain
our growth and strategy plans.
Our
cervical cancer diagnostic activities have been financed to date
through a combination of government grants, strategic partners and
direct investment. Growing revenues for this product are the main
focus of our business. In order to effectively market the cervical
cancer detection product, additional capital will be
needed.
Additional product
lines involve the modification of the cervical cancer detection
technology for use in other cancers. These product lines are only
in the earliest stages of research and development and are
currently not projected to reach market for several years. Our goal
is to receive enough funding from government grants and contracts,
as well as payments from strategic partners, to fund development of
these product lines without diverting funds or other necessary
resources from the cervical cancer program.
Because our products, which use different technology or apply
technology in different ways than other medical devices, are or
will be new to the market, we may not be successful in launching
our products and our operations and growth would be adversely
affected.
Our
products are based on new methods of cancer detection. If our
products do not achieve significant market acceptance, our sales
will be limited and our financial condition may suffer. Physicians
and individuals may not recommend or use our products unless they
determine that these products are an attractive alternative to
current tests that have a long history of safe and effective use.
To date, our products have been used by only a limited number of
people, and few independent studies regarding our products have
been published. The lack of independent studies limits the ability
of doctors or consumers to compare our products to conventional
products.
If we are unable to compete effectively in the highly competitive
medical device industry, our future growth and operating results
will suffer.
The
medical device industry in general and the markets in which we
expect to offer products in particular, are intensely competitive.
Many of our competitors have substantially greater financial,
research, technical, manufacturing, marketing and distribution
resources than we do and have greater name recognition and
lengthier operating histories in the health care industry. We may
not be able to effectively compete against these and other
competitors. A number of competitors are currently marketing
traditional laboratory-based tests for cervical cancer screening
and diagnosis. These tests are widely accepted in the health care
industry and have a long history of accurate and effective use.
Further, if our products are not available at competitive prices,
health care administrators who are subject to increasing pressures
to reduce costs may not elect to purchase them. Also, a number of
companies have announced that they are developing, or have
introduced, products that permit non-invasive and less invasive
cancer detection. Accordingly, competition in this area is expected
to increase.
Furthermore, our
competitors may succeed in developing, either before or after the
development and commercialization of our products, devices and
technologies that permit more efficient, less expensive
non-invasive and less invasive cancer detection. It is also
possible that one or more pharmaceutical or other health care
companies will develop therapeutic drugs, treatments or other
products that will substantially reduce the prevalence of cancers
or otherwise render our products obsolete.
15
We have limited manufacturing experience, which could limit our
growth.
We do
not have manufacturing experience that would enable us to make
products in the volumes that would be necessary for us to achieve
significant commercial sales, and we rely upon our suppliers. In
addition, we may not be able to establish and maintain reliable,
efficient, full scale manufacturing at commercially reasonable
costs in a timely fashion. Difficulties we encounter in
manufacturing scale-up, or our failure to implement and maintain
our manufacturing facilities in accordance with good manufacturing
practice regulations, international quality standards or other
regulatory requirements, could result in a delay or termination of
production. In the past, we have had substantial difficulties in
establishing and maintaining manufacturing for our products and
those difficulties impacted our ability to increase sales.
Companies often encounter difficulties in scaling up production,
including problems involving production yield, quality control and
assurance, and shortages of qualified personnel.
Since we rely on sole source suppliers for several of the
components used in our products, any failure of those suppliers to
perform would hurt our operations.
Several
of the components used in our products or planned products, are
available from only one supplier, and substitutes for these
components could not be obtained easily or would require
substantial modifications to our products. Any significant problem
experienced by one of our sole source suppliers may result in a
delay or interruption in the supply of components to us until that
supplier cures the problem or an alternative source of the
component is located and qualified. Any delay or interruption would
likely lead to a delay or interruption in our manufacturing
operations. For our products that require premarket approval, the
inclusion of substitute components could require us to qualify the
new supplier with the appropriate government regulatory
authorities. Alternatively, for our products that qualify for
premarket notification, the substitute components must meet our
product specifications.
Because we operate in an industry with significant product
liability risk, and we have not specifically insured against this
risk, we may be subject to substantial claims against our
products.
The
development, manufacture and sale of medical products entail
significant risks of product liability claims. We currently have no
product liability insurance coverage beyond that provided by our
general liability insurance. Accordingly, we may not be adequately
protected from any liabilities, including any adverse judgments or
settlements, we might incur in connection with the development,
clinical testing, manufacture and sale of our products. A
successful product liability claim, or series of claims brought
against us that result in an adverse judgment against or settlement
by us in excess of any insurance coverage could seriously harm our
financial condition or reputation. In addition, product liability
insurance is expensive and may not be available to us on acceptable
terms, if at all.
The availability of third party reimbursement for our products is
uncertain, which may limit consumer use and the market for our
products.
In the
United States and elsewhere, sales of medical products are
dependent, in part, on the ability of consumers of these products
to obtain reimbursement for all or a portion of their cost from
third-party payors, such as government and private insurance plans.
Any inability of patients, hospitals, physicians and other users of
our products to obtain sufficient reimbursement from third-party
payors for our products, or adverse changes in relevant
governmental policies or the policies of private third-party payors
regarding reimbursement for these products, could limit our ability
to sell our products on a competitive basis. We are unable to
predict what changes will be made in the reimbursement methods used
by third-party health care payors. Moreover, third-party payors are
increasingly challenging the prices charged for medical products
and services, and some health care providers are gradually adopting
a managed care system in which the providers contract to provide
comprehensive health care services for a fixed cost per person.
Patients, hospitals and physicians may not be able to justify the
use of our products by the attendant cost savings and clinical
benefits that we believe will be derived from the use of our
products, and therefore may not be able to obtain third-party
reimbursement.
Reimbursement and
health care payment systems in international markets vary
significantly by country and include both government-sponsored
health care and private insurance. We may not be able to obtain
approvals for reimbursement from these international third-party
payors in a timely manner, if at all. Any failure to receive
international reimbursement approvals could have an adverse effect
on market acceptance of our products in the international markets
in which approvals are sought.
We have a substantial amount of indebtedness, which may adversely
affect our cash flow and our ability to operate our
business.
Our
outstanding indebtedness, which is considered ordinary course
payables and accrued payroll liabilities, was $6.3 million at
December 31, 2018.
The
terms of our indebtedness could have negative consequences to us,
such as:
●
we may be unable to
obtain additional financing to fund working capital, operating
losses, capital expenditures or acquisitions on terms acceptable to
us, or at all;
16
●
the amount of our
interest expense may increase if we are unable to make payments
when due;
●
our assets might be
subject to foreclosure if we default on our secured debt (see
“—
We have outstanding
debt that is collateralized by a general security interest in all
of our assets, including our intellectual property. If we were to
fail to repay the debt when due, the holders would have the right
to foreclose on these assets.
”);
●
our vendors or
employees may, and some have, instituted proceedings to collect on
amounts owed them;
●
we have to use a
substantial portion of our cash flows from operations to repay our
indebtedness, including ordinary course accounts payable and
accrued payroll liabilities, which reduces the amount of money we
have for future operations, working capital, inventory, expansion,
or general corporate or other business activities; and
●
we may be unable to
refinance our indebtedness on terms acceptable to us, or at
all.
Our
ability to meet our expenses and debt obligations will depend on
our future performance, which will be affected by financial,
business, economic, regulatory and other factors. We will be unable
to control many of these factors, such as economic conditions. We
cannot be certain that our earnings will be sufficient to allow us
to pay the principal and interest on our debt and meet any other
obligations. If we do not have enough money to service our debt, we
may be required, but unable, to refinance all or part of our
existing debt, sell assets, borrow money or raise equity on terms
acceptable to us, if at all.
We have outstanding debt that is collateralized by a general
security interest in all of our assets, including our intellectual
property. If we were to fail to repay the debt when due, the
holders would have the right to foreclose on these
assets.
At May
2, 2019, we had notes outstanding that are collateralized by a
security interest in our current and future inventory and accounts
receivable. We also had a note outstanding that is collateralized
by a security interest in all of our assets, including our
intellectual property. When the debt is repaid, the holders’
security interests on our assets will be extinguished. However, if
an event of default occurs under the notes prior to their
repayment, the holders may exercise their rights to foreclose on
these secured assets for the payment of these obligations. Under
“cross-default” provisions in each of the notes, an
event of default under one note is automatically an event of
default under the other notes. Any such default and resulting
foreclosure would have a material adverse effect on our business,
financial condition and results of operations.
We are subject to restrictive covenants under the terms of our
outstanding secured debt. If we were to default under the terms of
these covenants, the holders would have the right to foreclose on
the assets that secure the debt.
The
instruments governing our outstanding secured debt contain
restrictive covenants. For example, our senior secured convertible
note prohibits us from incurring additional indebtedness for
borrowed money, repurchasing any outstanding shares of our common
stock, or paying any dividends on our capital stock, in each case
without the note holder's prior written consent, If we were to
breach any of these covenants, the holder could declare an event of
default on the note, and exercise its rights to foreclose on the
assets securing the note.
Our success depends on our ability to attract and retain
scientific, technical, managerial and finance
personnel.
Our
ability to operate successfully and manage our future growth
depends in significant part upon the continued service of key
scientific, technical, managerial and finance personnel, as well as
our ability to attract and retain additional highly qualified
personnel in these fields. We may not be able to attract and retain
key employees when necessary, which would limit our operations and
growth. In addition, if we are able to successfully develop and
commercialize our products, we will need to hire additional
scientific, technical, marketing, managerial and finance personnel.
We face intense competition for qualified personnel in these areas,
many of whom are often subject to competing employment
offers.
Certain provisions of our certificate of incorporation that
authorize the issuance of additional shares of preferred stock may
make it more difficult for a third party to effect a change in
control.
Our
certificate of incorporation authorizes our board of directors to
issue up to 5.0 million shares of preferred stock. Our undesignated
shares of preferred stock may be issued in one or more series, the
terms of which may be determined by the board without further
stockholder action. These terms may include, among other terms,
voting rights, including the right to vote as a series on
particular matters, preferences as to liquidation and dividends,
repurchase rights, conversion rights, redemption rights and sinking
fund provisions. The issuance of any preferred stock could diminish
the rights of holders of our common stock, and therefore could
reduce the value of our common stock. In addition, specific rights
granted to future holders of preferred stock could be used to
restrict our ability to merge with or sell assets to a third party.
The ability of our board to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly
to acquire or effect a change in control, which in turn could
prevent our stockholders from recognizing a gain in the event that
a favorable offer is extended and could materially and negatively
affect the market price of our common stock.
17
Risks
Related to Our Common Stock
On March 29, 2019, 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
March 29, 2019,
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 were 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.
The number of shares of our common stock issuable upon the
conversion of our outstanding convertible debt and preferred stock
or exercise of outstanding warrants and options is
substantial.
As of
May 2, 2019, our outstanding convertible debt was convertible into
an aggregate of 43,360,044 shares of our common stock, and the
outstanding shares of our Series C, Series C1 and Series C2
preferred stock were convertible into an aggregate of 2,324,214
shares of common stock. Also, as of that date we had warrants
outstanding that were exercisable for an aggregate of 23,589,630
shares, contractual obligations to issue 2,132 shares, and
outstanding options to purchase 50 shares. The shares of common
stock issuable upon conversion or exercise of these securities
would have constituted approximately 96.0% of the total number of
shares of common stock then issued and outstanding. However, please
refer to
Footnote 11 - CONVERTIBLE
DEBT IN DEFAULT
in the paragraph: Debt Restructuring for
more information regarding our warrants.
Further, under the
terms of our convertible debt and preferred stock, as well as
certain of our outstanding warrants, the conversion price or
exercise price, as the case may be, could be adjusted downward,
causing substantial dilution. See “—
Adjustments to the conversion price for our
convertible debt and preferred stock, and the exercise price for
certain of our warrants, will dilute the ownership interests of our
existing stockholders
.”
18
Adjustments to the conversion price of our convertible debt and
preferred stock, and the exercise price for certain of our
warrants, will dilute the ownership interests of our existing
stockholders.
Under
the terms of a portion of our convertible debt, the conversion
price fluctuates with the market price of our common stock.
Additionally, under the terms of our Series C preferred stock, any
dividends we choose to pay in shares of our common stock will be
calculated based on the then-current market price of our common
stock. Accordingly, if the market price of our common stock
decreases, the number of shares of our common stock issuable upon
conversion of the convertible debt or upon payment of dividends on
our outstanding Series C preferred stock will increase, and may
result in the issuance of a significant number of additional shares
of our common stock.
Under
the terms of our preferred stock and certain of our convertible
notes and outstanding warrants, the conversion price or exercise
price will be lowered if we issue common stock at a per share price
below the then-conversion price or then-exercise price for those
securities. Reductions in the conversion price or exercise price
would result in the issuance of a significant number of additional
shares of our common stock upon conversion or exercise, which would
result in dilution in the value of the shares of our outstanding
common stock and the voting power represented thereby.
Our stock is thinly traded, so you may be unable to sell at or near
ask prices or at all.
The
shares of our common stock are dually quoted on the OTCBB and the
OTCQB. Shares of our common stock are thinly traded, meaning that
the number of persons interested in purchasing our common shares at
or near ask prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of
factors, including:
●
we
are a small company that is relatively unknown to stock analysts,
stock brokers, institutional investors and others in the investment
community that generate or influence sales volume; and
●
stock
analysts, stock brokers and institutional investors may be
risk-averse and be reluctant to follow a company such as ours that
faces substantial doubt about its ability to continue as a going
concern or to purchase or recommend the purchase of our shares
until such time as we became more viable.
As a
consequence, our stock price may not reflect an actual or perceived
value. Also, there may be periods of several days or more when
trading activity in our shares is minimal or non-existent, as
compared to a seasoned issuer that has a large and steady volume of
trading activity that will generally support continuous sales
without an adverse effect on share price. A broader or more active
public trading market for our common shares may not develop or if
developed, may not be sustained. Due to these conditions, you may
not be able to sell your shares at or near ask prices or at all if
you need money or otherwise desire to liquidate your
shares.
Trading in our common stock is subject to special sales practices
and may be difficult to sell.
Our
common stock is subject to the Securities and Exchange
Commission’s “penny stock” rule, which imposes
special sales practice requirements upon broker-dealers who sell
such securities to persons other than established distributors or
accredited investors. Penny stocks are generally defined to be an
equity security that has a market price of less than $5.00 per
share. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and
receive the purchaser’s written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell our securities and also may affect the
ability of our stockholders to sell their securities in any market
that might develop.
Stockholders should
be aware that, according to Securities and Exchange Commission, the
market for penny stocks has suffered from patterns of fraud and
abuse. Such patterns include:
●
control
of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
●
manipulation
of prices through prearranged matching of purchases and sales and
false and misleading press releases;
●
“boiler
room” practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales
persons;
●
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
●
the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices
and with consequent investor losses.
Our
management is aware of the abuses that have occurred historically
in the penny stock market. Although we do not expect to be in a
position to dictate the behavior of the market or of broker-dealers
who participate in the market, management will strive within the
confines of practical limitations to prevent the described patterns
from being established with respect to our common
stock.
Our need to raise additional capital in the near future or to use
our equity securities for payments could have a dilutive effect on
your investment.
In
order to continue operations, we will need to raise additional
capital. We may attempt to raise capital through the public or
private sale of our common stock or securities convertible into or
exercisable for our common stock. In addition, from time to time we
have issued our common stock or warrants in lieu of cash payments.
If we sell additional shares of our common stock or other equity
securities, or issue such securities in respect of other claims or
indebtedness, such sales or issuances will further dilute the
percentage of our equity that you own. Depending upon the price per
share of securities that we sell or issue in the future, if any,
your interest in us could be further diluted by any adjustments to
the number of shares and the applicable exercise price required
pursuant to the terms of the agreements under which we previously
issued convertible securities.
19
FORWARD LOOKING STATEMENTS
Statements
in this report, which express “belief,”
“anticipation” or “expectation,” as well as
other statements that are not historical facts, are forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, or Securities Act, and Section 21E of the Securities
Exchange Act of 1934, or Exchange Act. These forward-looking
statements are subject to risks and uncertainties that could cause
actual results to differ materially from historical results or
anticipated results, including those identified in the foregoing
“Risk Factors” and elsewhere in this report. Examples
of these uncertainties and risks include, but are not limited
to:
●
access
to sufficient debt or equity capital to meet our operating and
financial needs;
●
the
effectiveness and ultimate market acceptance of our
products;
●
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
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.
Forward-looking
statements should not be read as a guarantee of future performance
or results, and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be
achieved. Forward-looking information is based on information
available at the time and/or management’s good faith belief
with respect to future events, and is subject to risks and
uncertainties that could cause actual performance or results to
differ materially from those expressed in the
statements.
Forward-looking
statements speak only as of the date the statements are made. We
assume no obligation to update forward-looking statements to
reflect actual results, changes in assumptions or changes in other
factors affecting forward-looking information except to the extent
required by applicable securities laws. If we update one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect thereto or with respect
to other forward-looking statements.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
Our
corporate offices, which also comprise our administrative, research
and development, marketing and production facilities, are located
at 5835 Peachtree Corners East, Suite B, Norcross, Georgia 30092,
where we lease approximately 12,800 square feet under a lease that
expires in March 2021.
Item
3. Legal Proceedings
We are
subject to claims and legal actions that arise in the ordinary
course of business. However, we are not currently subject to any
claims or actions that we believe would have a material adverse
effect on our financial position or results of
operations.
Item
4. Mine Safety Disclosures
Not
applicable.
20
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity
Securities
Market
for Common Stock; Holders
Our
common stock is dually listed on the OTC Bulletin Board (OTCBB) and
the OTCQB quotation systems
under the ticker symbol
“GTHP.” The number of record holders of our common
stock at April 15, 2019 was 210.
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on March 29, 2019. As a result of the reverse
stock split, every 800 shares of issued and outstanding common
stock were 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
high and low common stock share prices for the second quarter of
2019 and calendar years 2018 and 2017, as reported by the OTCBB,
are as set forth in the following table. All share prices set forth
in the table have been retroactively adjusted to reflect the
reverse stock split (as discussed above) for all periods
presented.
|
|
2019
|
2018
|
2017
|
|||
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|
First
Quarter
|
$
1.45
|
$
0.02
|
$
26.00
|
$
4.48
|
$
1,700.00
|
$
248.00
|
|
Second
Quarter*
|
$
0.24
|
$
0.01
|
$
12.80
|
$
2.40
|
$
320.00
|
$
120.00
|
|
Third
Quarter
|
|
|
$
3.20
|
$
0.64
|
$
144.00
|
$
23.64
|
|
Fourth
Quarter
|
|
|
$
3.04
|
$
0.08
|
$
44.00
|
$
10.12
|
*Through April 15,
2019.
Dividend
Policy
We have
not paid any dividends on our common stock since our inception and
do not intend to pay any dividends in the foreseeable
future.
Securities
Authorized for Issuance Under Equity Compensation
Plans
All the
securities we have provided our employees, directors and
consultants have been issued under our stock option plans, which
are approved by our stockholders. We have issued common stock to
other individuals that are not employees or directors, in lieu of
cash payments, that are not part of any plan approved by our
stockholders.
Securities
authorized for issuance under equity compensation plans as of
December 31, 2018:
|
Plan
category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number of
securities
remaining
available for future issuance under equity compensation plans
(excluding securities reflected in column(a))
|
|
|
(a)
|
(b)
|
( c
)
|
|
Equity compensation
plans approved by security holders
|
50
|
$
44,786,278
|
-
|
|
Equity compensation
plans not approved by security holders
|
-
|
-
|
-
|
|
TOTAL
|
50
|
$
44,786,278
|
-
|
Item
6. Selected Financial Data
Not
applicable.
21
Item
7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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.
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 December 31, 2018 we have an accumulated deficit of
approximately $137.6 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 for the foreseeable future 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 2018, the majority
of our revenues were from the sale of LuViva devices and
disposables. We expect that the majority of our revenue in 2019
will be derived from revenue from the sale of LuViva devices and
disposables.
Current
Demand for LuViva
Based
on discussions with our distributors, we expect to generate
purchase orders for approximately $1.5 to $2.0 million in LuViva
devices and disposables in 2019 and expect those purchase orders to
result in actual sales of $0.5 to $1.0 million in 2019,
representing what we view as current demand for our products. We
cannot be assured that we will generate all or any of these
additional purchase orders, or that existing orders will not be
canceled by the distributors or that parts to build product will be
available to meet demand, such that existing orders will result in
actual sales. Because we have a short history of sales of our
products, we cannot confidently predict future sales of our
products beyond this time frame and cannot be assured of any
particular amount of sales. Accordingly, we have not identified any
particular trends with regard to sales of our
products.
22
Recent
Developments
On
December 18, 2018, we entered into a co-development agreement with
Newmars Technologies, Inc. (“NTI”), whereby NTI will
perform final assembly of the LuViva device for its contracted
distribution countries in Eastern Europe and Russia at its ISO
13485 facility in Hungary.
The agreement enables
Newmars to manufacture LuViva® Advance Cervical Scan devices
in Hungary for distribution in the nine Central and Eastern
European countries for which Newmars has distribution rights.
Guided Therapeutics will manufacture sub-assemblies and sell these
and other parts to Newmars and will receive an additional $2,000
royalty for each device sold in those countries, which include
Russia, Ukraine, Poland, Romania, Hungary, Moldova, Kazakhstan,
Belarus and Armenia, subject to certain minimum royalty payments
and parts orders.
The additional carve out for these
territories has been agreed to by SMI. The Agreement with Newmars
does not allow them to manufacture single use Cervical Guides,
which the Company will continue to supply.
We received Regulatory Approval from the Indian Ministry of Health
& Family Welfare to allow commercialization of the LuViva
device and disposables. The Ministry concluded that the LuViva
device is “Non Invasive” and as such is “not
regulated under the Drugs and Cosmetics Act 1940 and Medical Device
Rules 2017 thereunder.” As a result, LuViva can now be
commercialized in India.
On
August 31, 2018, we entered into agreements with certain holders of
the our Series C1 preferred stock, par value $0.001 per share (the
“Series C1 Preferred Stock”), including John Imhoff,
the chairman of our board of directors, and Mark Faupel, the Chief
Operating Officer and a director of our company (the
“Exchange Agreements”), pursuant to which those holders
separately agreed to exchange each share of the Series C1 Preferred
Stock held for one (1) share of our newly created Series C2
preferred stock, par value $0.001 per share (the “Series C2
Preferred Stock”). In total, for 3,262 shares of Series C1
Preferred Stock to be surrendered, we issued 3,262 shares of Series
C2 Preferred Stock.
On
October 19, 2018, we held our 2018 Annual Meeting of Stockholders
(the “Annual Meeting”). As described in the our
Definitive Proxy Statement on Schedule 14A, as amended, originally
filed with the Securities and Exchange Commission on October 11,
2018, at the Annual Meeting, stockholders voted and approved the
following proposals: (1) the election of the director-nominees (the
“Directors”) of our board of directors (the
“Board”), with the five Directors receiving the highest
number of affirmative votes cast by holders of shares of common
stock and holders of Series C2 Preferred Stock, voting as a single
class; (2) the ratification of the appointment of UHY LLP as our
independent registered public accounting firm by a majority of the
votes cast by the holders of common stock and of Series C2
Preferred Stock, voting as a single class; (3) an amendment to the
Restated Certificate of Incorporation, as amended (the
“Certificate of Incorporation”), to enable a potential
reverse split of the issued and outstanding shares of common stock
at a ratio of between 1-for-25 and 1-for-800, with such ratio to be
determined at the sole discretion of the Board and with such
reverse split to be effected at such time and date on or before
March 31, 2019, if at all, as determined by the Board in its sole
discretion (the “Reverse Split Amendment”) by a
majority of the issued and outstanding common stock and Series C2
Preferred Stock voting as a single class; (4) the adoption of an
amendment to the Certificate of Incorporation, to, among other
things, increase our authorized common stock from 1,000,000,000
shares to 3,000,000,000 shares; and (5) the adoption of our 2018
Stock Option Plan and the material terms thereunder (the
“Plan”) by a majority of the votes cast by the holders
of common stock and of Series C2 Preferred Stock, voting as a
single class.
On
November 7, 2018, we increased the number of common stock shares
authorized from one billion to three billion.
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on March 29, 2019. As a result of the reverse
stock split, every 800 shares of issued and outstanding common
stock were 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.
Critical
Accounting Policies
Our
material accounting policies, which we believe are the most
critical to 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.
23
Revenue
Recognition:
ASC 606
Revenue from Contracts with Customers establishes a single and
comprehensive framework which sets out how much revenue is to be
recognized, and when. The core principle is that a vendor should
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the vendor expects to be entitled in exchange for those
goods or services. Revenue will now be recognized by a vendor when
control over the goods or services is transferred to the customer.
In contrast, Revenue based revenue recognition around an analysis
of the transfer of risks and rewards; this now forms one of a
number of criteria that are assessed in determining whether control
has been transferred. The application of the core principle in ASC
606 is carried out in five steps: Step 1 – Identify the
contract with a customer: a contract is defined as an agreement
(including oral and implied), between two or more parties, that
creates enforceable rights and obligations and sets out the
criteria for each of those rights and obligations. The contract
needs to have commercial substance and it is probable that the
entity will collect the consideration to which it will be entitled.
Step 2 – Identify the performance obligations in the
contract: a performance obligation in a contract is a promise
(including implicit) to transfer a good or service to the customer.
Each performance obligation should be capable of being distinct and
is separately identifiable in the contract. Step 3 –
Determine the transaction price: transaction price is the amount of
consideration that the entity can be entitled to, in exchange for
transferring the promised goods and services to a customer,
excluding amounts collected on behalf of third parties. Step 4
– Allocate the transaction price to the performance
obligations in the contract: for a contract that has more than one
performance obligation, the entity will allocate the transaction
price to each performance obligation separately, in exchange for
satisfying each performance obligation. The acceptable methods of
allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and, the residual
approach in limited circumstances. Discounts given should be
allocated proportionately to all performance obligations unless
certain criteria are met and reallocation of changes in standalone
selling prices after inception is not permitted. Step 5 –
Recognize revenue as and when the entity satisfies a performance
obligation: the entity should recognize revenue at a point in time,
except if it meets any of the three criteria, which will require
recognition of revenue over time: the entity’s performance
creates or enhances an asset controlled by the customer, the
customer simultaneously receives and consumes the benefit of the
entity’s performance as the entity performs, and the entity
does not create an asset that has an alternative use to the entity
and the entity has the right to be paid for performance to
date.
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.
Beneficial Conversion Features of Convertible
Securities:
Conversion options that are not bifurcated as a
derivative pursuant to ASC 815 and not accounted for as a separate
equity component under the cash conversion guidance are evaluated
to determine whether they are beneficial to the investor at
inception (a beneficial conversion feature) or may become
beneficial in the future due to potential adjustments. The
beneficial conversion feature guidance in ASC 470-20 applies to
convertible stock as well as convertible debt which are outside the
scope of ASC 815. A beneficial conversion feature is defined as a
nondetachable conversion feature that is in the money at the
commitment date. The beneficial conversion feature guidance
requires recognition of the conversion option’s in-the-money
portion, the intrinsic value of the option, in equity, with an
offsetting reduction to the carrying amount of the instrument. The
resulting discount is amortized as a dividend over either the life
of the instrument, if a stated maturity date exists, or to the
earliest conversion date, if there is no stated maturity date. If
the earliest conversion date is immediately upon issuance, the
dividend must be recognized at inception. When there is a
subsequent change to the conversion ratio based on a future
occurrence, the new conversion price may trigger the recognition of
an additional beneficial conversion feature on
occurrence.
Allowance for Accounts
Receivable:
We estimate
losses from the inability of our distributors to make required
payments and periodically review the payment history of each of our
distributors, as well as their financial condition, and revise our
reserves as a result.
Inventory
Valuation:
All inventories
are stated at lower of cost or net realizable value, 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.
24
Reverse Stock
Split:
On March 29, 2019,
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 were 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
2,135,478,405 shares of Common Stock to 2,669,348 shares as of that
date.
Results
of Operations
Comparison
of 2018 and 2017
Sales Revenue, Cost of
Sales and Gross Loss from Devices and Disposables:
Revenues
from the sale of LuViva devices for 2018 and 2017 were
approximately $57,000 and $244,000, respectively. Revenues in 2018
were approximately, $187,000 or 77% lower when compared to the same
period in 2017, due to lack of funding to support sales and
marketing efforts. Related costs of sales were approximately
$89,000 and $530,000 in 2018 and 2017, respectively. Costs of sales
in 2018, were approximately, $441,000 or 83% lower when compared to
the same period in 2017, due to increase in the inventory costs.
This resulted in a gross loss of approximately $32,000 on the sales
of devices and disposables for 2018 compared with a gross loss of
approximately $286,000 for the same period in 2017.
Research and Development
Expenses:
Research and development expenses for 2018,
decreased to approximately $244,000, from approximately $334,000 in
2017. The decrease of $90,000, or 27%, was primarily due to cost
reduction plans in research and development payroll
expenses.
Sales and Marketing
Expenses:
Sales and marketing expenses for 2018, decreased
to approximately $195,000, compared to $245,000 in 2017. The
decrease, of approximately $50,000, or 20% was primarily due to
Company-wide expense reduction and cost savings
efforts.
General and Administrative
Expense:
General and administrative expenses for 2018,
decreased to approximately $1,077,000, compared to $2,256,000 for
the same period in 2017. The decrease of approximately $1,179,000,
or 52%, was primarily related to lower compensation and option
expenses incurred during the same period. For 2018, general and
administrative expenses consisted primarily of professional fees,
insurance, and paid and accrued compensation costs.
Other Income:
Other
income was approximately $54,000 in 2018, compared to $18,000 in
the same period in 2017, an increase of $36,000 or 200%. Other
income consists of refunds from prior years for insurance
policies.
Interest Expense:
Interest expense for 2018 increased to approximately $1,763,000,
compared to $1,106,000 for the same period in 2017. The increase of
approximately $657,000, or 59%, was primarily related to
amortization expense of and interest recorded for the value of the
beneficial conversion feature on convertible debt outstanding and
amortization of debt issuance costs.
Fair Value of Warrants
Recovery and Expense:
Fair value of warrants recovery for
2018, increased to approximately $3,234,000 compared to fair value
of warrants expense of $6,487,000 for the same period in 2017. The
increase of approximately $9,721,000, or 150% was primarily due to
the favorable significant changes in warrant conversion prices and
decrease in stock price, in the fiscal year ended December 31,
2018.
Gain from extinguishment of
debt:
Gain from the restructuring and exchange of debt due
to officers for 2018 increased to approximately $1,039,000,
compared to nil for the same period in 2017.
Net Profit / Loss:
Net profit attributable to common stockholders increased to
approximately $900,000, or $1.95 per share, in 2018, from a net
loss of $10,974,000, or $997.64 per share, in 2017. The decrease in
the net loss of $11,874,000, or 108% was for reasons outlined
above. As stated previously, our net profit for the year ended
December 31, 2018 was primarily realized due to a $3.2 million gain
in the fair value of warrants recorded in 2018 and a $1.0 million
gain from extinguishment of debt.
There
was no income tax benefit recorded for 2018 or 2017, due to
recurring net operating losses.
25
Liquidity
and Capital Resources
Since
our inception, we have raised capital through the public and
private sale of debt and equity, funding from collaborative
arrangements, and grants. At December 31, 2018, we had cash of less
than $1,000 and a negative working capital of approximately
$10,530,000.
Our
major cash flows for the year ended December 31, 2018 consisted of
cash out-flows of $1.4 million from operations, including
approximately $1.0 million of net profit, and a net change from
financing activities of $1.4 million, which primarily represented
the proceeds received from issuance of common stock and warrants,
and proceeds from debt financing. Our net profit for the year ended
December 31, 2018 was primarily realized due to a $3.2 million gain
in the fair value of warrants recorded in 2018.
On June
5, 2016, we entered into a license agreement with Shenghuo Medical,
LLC pursuant to which we granted Shenghuo an exclusive license to
manufacture, sell and distribute LuViva in Taiwan, Brunei
Darussalam, Cambodia, Laos, Myanmar, Philippines, Singapore,
Thailand, and Vietnam. Shenghuo was already our exclusive
distributor in China, Macau and Hong Kong, and the license extended
to manufacturing in those countries as well. Under the terms of the
license agreement, once Shenghuo was capable of manufacturing
LuViva in accordance with ISO 13485 for medical devices, Shenghuo
would pay us a royalty equal to $2.00 or 20% of the distributor
price (subject to a discount under certain circumstances),
whichever is higher, per disposable distributed within
Shenghuo’s exclusive territories. In connection with the
license grant, Shenghuo would underwrite the cost of securing
approval of LuViva with Chinese Food and Drug Administration. At
its option, Shenghuo also would provide up to $1.0 million in
furtherance of our efforts to secure regulatory approval for LuViva
from the U.S. Food and Drug Administration, in exchange for the
right to receive payments equal to 2% of our future sales in the
United States, up to an aggregate of $4.0 million. Pursuant to the
license agreement, Shenghuo had the option to have a designee
appointed to our board of directors (and Richard Blumberg is that
designee). As partial consideration for, and as a condition to, the
license, and to further align the strategic interests of the
parties, we have 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 $300,000, expected to be
due the earlier of 90 days from issuance and consummation of any
capital raising transaction by us with net cash proceeds of at
least $1.0 million. 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 our common stock at a conversion price
per share of $11,137, subject to customary anti-dilution
adjustment. The note will be unsecured, and is expected to provide
for customary events of default. We will also issue Shenghuo a
five-year warrant exercisable immediately for approximately 22
shares of common stock at an exercise price equal to the conversion
price of the note, subject to customary anti-dilution adjustment.
On January 22, 2017, we entered into a license agreement with SMI,
pursuant to which we granted SMI an exclusive global license to
manufacture the LuViva device and related disposables (subject to a
carve-out for manufacture in Turkey) and exclusive distribution
rights in the Peoples Republic of China, Macau, Hong Kong and
Taiwan. In order to facilitate the SMI agreement, immediately prior
to its execution we entered into an agreement with Shenghuo,
regarding the previous license to Shenghuo. Under the terms of the
new agreement, Shenghuo agreed to relinquish its manufacturing
license and its distribution rights in SMI’s territories, and
to waive its rights under the original Shenghuo agreement, all for
as long as SMI performs under the SMI agreement. See
“—Recent Developments.”
Between
June 13, 2016 and June 14, 2016, we entered into various agreements
with holders of certain warrants (including John Imhoff, one of our
directors) originally issued in May 2013, and with GPB Debt
Holdings II LLC, holder of a warrant issued February 12, 2016,
pursuant to which each holder separately agreed to exchange
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.
As a result of the exchanges, we effectively eliminate any
potential exponential increase in the number of underlying shares
issuable upon exercise of our outstanding warrants. In total, for
surrendered warrants then-exercisable for an aggregate of
22,460,938 shares of common stock (but subject to exponential
increase upon operation of certain anti-dilution provisions), we
issued or are obligated to issue 21 shares of common stock and new
warrants that, if exercised as of June 14, 2016, would have been
exercisable for an aggregate of 4,511 shares of common stock. In
certain circumstances, in lieu of presently issuing all of the
shares (for each holder that opted for shares of common stock), we
and the holder further agreed that we 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 our next
public offering. 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 offering, subject to
customary “downside price protection” for as long as
our common stock is not listed on a national securities exchange,
and will expire five years from the date of issuance.
26
On
September 6, 2016, we entered into a royalty agreement with one of
our directors, John Imhoff, and another stockholder, Dolores
Maloof, pursuant to which we sold to them a royalty of future sales
of single-use cervical guides for LuViva. Under the terms of the
royalty agreement, and for consideration of $50,000, we will pay
them an aggregate perpetual royalty initially equal to $0.10, and
from and after October 2, 2016, equal to $0.20, for each disposable
that we sell (or that is sold by a third party pursuant to a
licensing arrangement with us).
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 preferred stock. Pursuant
to the agreement, upon the effectiveness of the 1:800 reverse stock
split and continuing for 45 days after, GHS and its affiliates were
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 owned. 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 of the same type that we separately issue in the next
qualifying financing we undertake, on a dollar-for-dollar basis in
a private placement exchange.
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on November 7, 2016. As a result of the
reverse stock split, every 800 shares of issued and outstanding
common stock were 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
December 7, 2016, we entered into an exchange agreement with GPB
Debt Holdings II LLC with regard to the $1,525,000 in outstanding
principal amount of senior secured convertible note originally
issued to GPB on February 11, 2016, and the $306,863 in outstanding
principal amount of our secured promissory note that GPB holds.
Pursuant to the exchange agreement, upon completion of the next
financing resulting in at least $1 million in cash proceeds, GPB
will exchange both securities for a new convertible note in
principal amount of $1,831,863. The new convertible note will
mature on the second anniversary of issuance and will accrue
interest at a rate of 19% per year. We will pay monthly interest
coupons and, beginning one year after issuance, will pay amortized
quarterly principal payments. Subject to resale restrictions under
Federal securities laws and the availability of sufficient
authorized but unissued shares of our common stock, the new
convertible note will be convertible at any time, in whole or in
part, at the holder’s option, into shares of our common
stock, at a conversion price equal to the price offered in the
qualifying financing that triggers the exchange, subject to certain
customary adjustments and anti-dilution provisions contained in the
new convertible note. The new convertible note will include
customary event of default provisions and a default interest rate
of the lesser of 21% or the maximum amount permitted by law. Upon
the occurrence of an event of default, GPB will be entitled to
require us to redeem the new convertible note at 120% of the
outstanding principal balance. The new convertible note will be
secured by a lien on all of our assets, including our intellectual
property, pursuant to the security agreement entered into by us and
GPB in connection with the issuance of the original senior secured
convertible note. We further agreed to amend the warrant issued
with the original senior secured convertible note, to adjust the
number of shares issuable upon exercise of the warrant to equal the
number of shares that will initially be issuable upon conversion of
the new convertible note (without giving effect to any beneficial
ownership limitations set forth in the terms of the new convertible
note). As an inducement to GPB to enter into these transactions, we
agreed to increase the royalty payable to GPB pursuant to its
consulting agreement with us from 3.5% to 3.85% of revenues from
the sales of our products.
On
December 28, 2016, we entered into a securities purchase agreement
with an investor for the issuance and sale to investor of up to
$330,000 in aggregate principal amount of 10% original issuance
discount convertible promissory notes, for an aggregate purchase
price of $300,000. On that date, we issued to the investor a note
in the principal amount of $222,000, for a purchase price of
$200,000. The note matures six months from their date of issuance
and, in addition to the 10% original issue discount, accrue
interest at a rate of 10% per year. We may prepay the notes, in
whole or in part, for 115% of outstanding principal and interest
until 30 days from issuance, for 125% of outstanding principal and
interest at any time from 31 to 60 days from issuance, and for 130%
of outstanding principal and interest at any time from 61 days from
issuance until immediately prior to the maturity date. After six
months from the date of issuance (i.e., if we fails to repay all
principal and interest due under the notes at the maturity date),
the investor may convert the notes, at any time, in whole or in
part, into shares of our common stock, at a conversion price equal
to 60% of the lowest volume weighted average price of our common
stock during the 20 trading days prior to conversion, subject to
certain customary adjustments and anti-dilution provisions
contained in the note. As of December 31, 2018, we have fully
amortized debt issuance costs $30,000 and original issue discount
of $22,000. As of December 31, 2018, the balance due to the
investor for the December 28, 2016 note, is zero.
27
On
February 13, 2017, we entered into a securities purchase agreement
with Auctus Fund, LLC for the issuance and sale to Auctus of
$170,000 in aggregate principal amount of a 12% convertible
promissory note for an aggregate purchase price of $156,400
(representing a $13,600 original issue discount). On February 13,
2017, we issued the note to Auctus. Pursuant to the purchase
agreement, we also issued to Auctus a warrant exercisable to
purchase an aggregate of 250 shares of our common stock. The
warrant is exercisable at any time, at an exercise price per share
equal to $4.11 (110% of the closing price of the common stock on
the day prior to issuance), subject to certain customary
adjustments and price-protection provisions contained in the
warrant. The warrant has a five-year term. The note matured nine
months from the date of issuance and, in addition to the original
issue discount, accrues interest at a rate of 12% per year. We
could have prepaid the note, in whole or in part, for 115% of
outstanding principal and interest until 30 days from issuance, for
125% of outstanding principal and interest at any time from 31 to
60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance to 180 days from
issuance. After six months from the date of issuance, Auctus may
convert the note, at any time, in whole or in part, into shares of
our common stock, at a conversion price equal to the lower of the
price offered in our next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require us to redeem the note (or
convert it into shares of common stock) at 150% of the outstanding
principal balance plus accrued and unpaid interest. In connection
with the transaction, we agreed to reimburse Auctus for $30,000 in
legal and diligence fees, of which we paid $10,000 in cash and
$20,000 in restricted shares of common stock, valued at $320 per
share (a 42.86% discount to the closing price of the common stock
on the day prior to issuance). We allocated proceeds of $90,000 to
the warrants and common stock issued in connection with the
financing. As of December 31, 2018, we have net debt of
$76,664.
On May
17, 2017, we entered into a securities purchase agreement with
Eagle Equities, LLC, providing for the purchase by Eagle of two
convertible redeemable notes in the aggregate principal amount of
$88,000, with the first note being in the amount of $44,000, and
the second note being in the amount of $44,000. The first note was
fully funded on May 19, 2017, upon which we received $40,000 of net
proceeds (net of a 10% original issue discount). The second note
was issued on December 21, 2017 and was initially paid for by the
issuance of an offsetting $40,000 secured note issued by Eagle.
Eagle was required to pay the principal amount of its secured note
in cash and in full prior to executing any conversions under the
second note we issued. The notes bear an interest rate of 8%, and
are due and payable on May 17, 2018. The notes may be converted by
Eagle at any time after five months from issuance into shares of
our common stock (as determined in the notes) calculated at the
time of conversion, except for the second note, which also requires
full payment by Eagle of the secured note it issued to us before
conversions may be made. The conversion price of the notes will be
equal to 60% of the lowest trading price of the common stock for
the 20 prior trading days including the day upon which we receive a
notice of conversion. The notes may be prepaid in accordance with
the terms set forth in the notes. The notes also contain certain
representations, warranties, covenants and events of default
including if we are delinquent in our periodic report filings with
the SEC, and increases in the amount of the principal and interest
rates under the notes in the event of such defaults. In the event
of default, at Eagle’s option and in its sole discretion,
Eagle may consider the notes immediately due and payable. As of
December 31, 2018, we have net debt of $41,322, including
unamortized original issue discount of $5,214, unamortized and debt
issuance costs of $11,160.
On May
17, 2017, we entered into a securities purchase agreement with Adar
Bays, LLC, providing for the purchase by Adar of two convertible
redeemable notes in the aggregate principal amount of $88,000, with
the first note being in the amount of $44,000, and the second note
being in the amount of $44,000. The first note was fully funded on
May 19, 2017, upon which we received $40,000 of net proceeds (net
of a 10% original issue discount). The second note was issued on
December 21, 2017 and was initially paid for by the issuance of an
offsetting $40,000 secured note issued by Adar. Adar was required
to pay the principal amount of its secured note in cash and in full
prior to executing any conversions under the second note we issued.
The notes bear an interest rate of 8%, and are due and payable on
May 17, 2018. The notes may be converted by Adar at any time after
five months from issuance into shares of our common stock (as
determined in the notes) calculated at the time of conversion,
except for the second note, which also requires full payment by
Adar of the secured note it issued to us before conversions may be
made. The conversion price of the notes will be equal to 60% of the
lowest trading price of the common stock for the 20 prior trading
days including the day upon which we receive a notice of
conversion. The notes may be prepaid in accordance with the terms
set forth in the notes. The notes also contain certain
representations, warranties, covenants and events of default
including if we are delinquent in our periodic report filings with
the SEC, and increases in the amount of the principal and interest
rates under the notes in the event of such defaults. In the event
of default, at Adar’s option and in its sole discretion, Adar
may consider the notes immediately due and payable. As of December
31, 2018, we have net debt of $42,216, including unamortized
original issue discount of $5,214, unamortized and debt issuance
costs of $11,160.
28
On May
18, 2017, we entered into a securities purchase agreement with GHS
Investments, LLC, an existing investor, providing for the purchase
by GHS of a convertible promissory note in the aggregate principal
amount of $66,000, for $60,000 in net proceeds (representing a 10%
original issue discount). The transaction closed on May 19, 2017.
The note matures upon the earlier of our receipt of $100,000 from
revenues, loans, investments, or any other means (other than the
Eagle and Adar bridge financings) and December 31, 2018. In
addition to the 10% original issue discount, the note accrues
interest at a rate of 8% per year. We may prepay the note, in whole
or in part, for 110% of outstanding principal and interest until 30
days from issuance, for 120% of outstanding principal and interest
at any time from 31 to 60 days from issuance and for 140% of
outstanding principal and interest at any time from 61 days to 180
days from issuance. The note may not be prepaid after 180 days.
After six months from the date of issuance, the note will become
convertible, at any time thereafter, in whole or in part, at the
holder’s option, into shares of our common stock, at a
conversion price equal to 60% of the lowest trading price during
the 25 trading days prior to conversion. The note includes
customary event of default provisions and a default interest rate
of the lesser of 20% per year or the maximum amount permitted by
law. Upon the occurrence of an event of default, the holder of the
note may require us to redeem the note (or convert it into shares
of common stock) at 150% of the outstanding principal balance. As
of December 31, 2018, we have net debt of $66,000.
On
August 18, 2017, we entered into a securities purchase agreement
with Power Up Lending Group Ltd., providing for the purchase by
Power Up of a convertible note in the aggregate principal amount of
$53,000. The note bears an interest rate of 12%, and is due and
payable on May 19, 2018. The note may be converted by Power Up at
any time after 180 days from issuance into shares of
Company’s common stock at a conversion price equal to 58% of
the average of the lowest two-day trading prices of the common
stock during the 15 trading days prior to conversion. The note may
be prepaid in accordance with its terms, at premiums ranging from
15% to 40%, depending on the time of prepayment. The note contains
certain representations, warranties, covenants and events of
default, including if we are delinquent in its periodic report
filings with the SEC, and provides for increases in principal and
interest in the event of such defaults. As of December 31, 2018, we
have a net debt of $46,405, including unamortized debt issuance
costs of $6,595.
On
October 12, 2017, we entered into a securities purchase agreement
with Power Up Lending Group Ltd. (“Power Up”),
providing for the purchase by Power Up of a convertible note in the
aggregate principal amount of $53,000. The note bears an interest
rate of 12%, and is due and payable on July 20, 2018. The note may
be converted by Power Up at any time after 180 days from issuance
into shares of Company’s common stock at a conversion price
equal to 58% of the average of the lowest two-day trading prices of
the common stock during the 15 trading days prior to conversion.
The note may be prepaid in accordance with its terms, at premiums
ranging from 15% to 40%, depending on the time of prepayment. The
note contains certain representations, warranties, covenants and
events of default, including if we are delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, 2018, we have a net debt of $47,288, including
unamortized debt issuance costs of $5,722.
On
December 11, 2017, we entered into a securities purchase agreement
with Power Up Lending Group Ltd. (“Power Up”),
providing for the purchase by Power Up of a convertible note in the
aggregate principal amount of $53,000. The note bears an interest
rate of 12%, and is due and payable on September 20, 2018. The note
may be converted by Power Up at any time after 180 days from
issuance into shares of Company’s common stock at a
conversion price equal to 58% of the average of the lowest two-day
trading prices of the common stock during the 15 trading days prior
to conversion. The note may be prepaid in accordance with its
terms, at premiums ranging from 15% to 40%, depending on the time
of prepayment. The note contains certain representations,
warranties, covenants and events of default, including if we are
delinquent in its periodic report filings with the SEC, and
provides for increases in principal and interest in the event of
such defaults. As of December 31, 2018, we have a net debt of
$45,565, including unamortized debt issuance costs of
$7,435.
On
August 7, 2017, we entered into a forbearance agreement with GPB,
with regard to the senior secured convertible note. Under the
forbearance agreement, GPB has agreed to forbear from exercising
certain of its rights and remedies (but not waive such rights and
remedies), arising as a result of our failure to pay the monthly
interest due and owing on the note. In consideration for the
forbearance, we agreed to waive, release, and discharge GPB from
all claims against GPB based on facts existing on or before the
date of the forbearance agreement in connection with the note, or
the dealings between we and GPB, or our equity holders and GPB, in
connection with the note. Pursuant to the forbearance agreement, we
have reaffirmed our obligations under the note and related
documents and executed a confession of judgment regarding the
amount due under the note, which GPB may file upon any future event
of default by us. During the forbearance period, we must continue
to comply will all the terms, covenants, and provisions of the note
and related documents.
29
The
“Forbearance Period” shall mean the period beginning on
the date hereof and ending on the earliest to occur of: (i) the
date on which Lender delivers to Company a written notice
terminating the Forbearance Period, which notice may be delivered
at any time upon or after the occurrence of any Forbearance Default
(as hereinafter defined), and (ii) the date Company repudiates or
asserts any defense to any Obligation or other liability under or
in respect of this Agreement or the Transaction Documents or
applicable law, or makes or pursues any claim or cause of action
against Lender; (the occurrence of any of the foregoing clauses (i)
and (ii), a “Termination Event”). As used herein, the
term “Forbearance Default” shall mean: (A) the
occurrence of any Default or Event of Default other than the
Specified Default; (B) the failure of Company to timely comply with
any material term, condition, or covenant set forth in this
Agreement; (C) the failure of any representation or warranty made
by Company under or in connection with this Agreement to be true
and complete in all material respects as of the date when made; or
(D) Lender’s reasonable belief that Company: (1) has ceased
or is not actively pursuing mutually acceptable restructuring or
foreclosure alternatives with Lender; or (2) is not negotiating
such alternatives in good faith. Any Forbearance Default will not
be effective until one (1) Business Day after receipt by Company of
written notice from Lender of such Forbearance Default. Any
effective Forbearance Default shall constitute an immediate Event
of Default under the Transaction Documents.
2018 Items
On
August 29, 2018, we issued a promissory note to an investor for
$150,000 in aggregate principal amount of a 6% promissory note for
an aggregate purchase price of $157,500 (representing a $7,500
original issue discount). Pursuant to the promissory note the
entire unpaid principal balance on the promissory note together
with all accrued and unpaid interest and loan origination fees, if
any, at the choice of the investor, shall be due and payable in
full from the funds received by us from a financing of at least
$2,000,000, or at the option of the investor, to be included in our
financing under the same terms as the new investors with the most
favorable terms making a cash investment. If we do not complete a
financing of at least $2,000,000 within 90 days of the execution of
this promissory note, any unpaid amounts shall be due in full to
the investor and shall accrue interest at 12% (instead of 6%) per
annum from the date thereof (90 days after execution), if not paid
in full. In addition, the investor will be granted 1,500,000
warrants under this promissory note. The warrants shall be issued
and vest upon the financing of at least $2,000,000 and expire on
the third anniversary of said financing. The warrant exercise price
shall be set at the same price as for warrants granted to the
investors with the most favorable terms as part of any $2,000,000
or more financing or $0.25, whichever is lower. The warrants shall
have standard anti-dilution features to protect the holder from
dilution due to down rounds of financing. As of December 31, 2018,
we had not repaid the note and therefore the accrued interest rate
increased to 12%.
On
September 19, 2018, we issued a promissory note to an investor for
$50,000 in aggregate principal amount of a 6% promissory note for
an aggregate purchase price of $52,500 (representing a $2,500
original issue discount). Pursuant to the promissory note the
entire unpaid principal balance on the promissory note together
with all accrued and unpaid interest and loan origination fees, if
any, at the choice of the investor, shall be due and payable in
full from the funds received from a financing of at least
$2,000,000, or at the option of the investor, to be included in the
our financing under the same terms as the new investors with the
most favorable terms making a cash investment. If we do not
complete a financing of at least $2,000,000 within 90 days of the
execution of this promissory note, any unpaid amounts shall be due
in full to the investor and shall accrue interest at 12% (instead
of 6%) per annum from the date thereof (90 days after execution),
if not paid in full. In addition, the investor will be granted
500,000 warrants under this promissory note. The warrants shall be
issued and vest upon the financing of at least $2,000,000 and
expire on the third anniversary of said financing. The warrant
exercise price shall be set at the same price as for warrants
granted to the investors with the most favorable terms as part of
any $2,000,000 or more financing or $0.25, whichever is lower. The
warrants shall have standard anti-dilution features to protect the
holder from dilution due to down rounds of financing. As of
December 31, 2018, we had not repaid the note and therefore the
accrued interest rate increased to 12%.
On July
20, 2018, we entered into an exchange agreement and promissory note
with Dr. Cartwright. The agreements were entered into in order to
extinguish and restructure current amounts owed to Dr. Cartwright.
In the exchange agreement Dr. Cartwright, agreed to exchange
outstanding amounts due to him for loans, interest, bonus, salary
and vacation pay in the amount of $1,621,499 for a $319,204
promissory note. Pursuant to the exchange agreement the note will
bear interest at 6%. In addition, Dr. Cartwright will receive 125
stock options, with 31 vesting immediately and the remaining
vesting monthly over three years. As a result of the exchange
agreement, we recorded a gain for extinguishment of debt of
$840,391 and a capital contribution of $431,519. As of December 31,
2018, Dr. Cartwright’s total undiscounted cash flow amount
due was approximately $349,590 including interest. The schedule
below summarizes the detail of the outstanding
amounts:
30
For
Dr. Cartwright:
|
|
2018
|
|
Salary
|
$
337
|
|
Bonus
|
675
|
|
Vacation
|
-
|
|
Interest on
compensation
|
59
|
|
Loans to
Company
|
528
|
|
Interest on
loans
|
22
|
|
Total
outstanding
|
$
1,621
|
|
Amount
forgiven
|
1,302
|
|
Promissory
note issued in exchange
|
319
|
On July
24, 2018, we entered into an exchange agreement and promissory note
with Dr. Faupel. The agreements were entered into in order to
extinguish and restructure current amounts owed to Dr. Faupel. In
the exchange agreement Dr. Faupel, agreed to exchange outstanding
amounts due to him for loans, interest, bonus, salary and vacation
pay in the amount of $660,895 for $207,111 promissory note.
Pursuant to the exchange agreement the note will bear interest at
6%. In addition, Dr. Faupel will receive 94 stock options, with 31
vesting immediately and the remaining vesting monthly over three
years. Dr. Faupel will also receive 560 options at $200.00 or
market price, whichever is less; contingent on shareholder vote and
board approval. If the options are not granted, we shall owe Dr.
Faupel $113,000. As a result of the exchange agreement, we recorded
a gain for extinguishment of debt of $199,079 and a capital
contribution of $234,990. As of December 31, 2018, Dr.
Faupel’s total undiscounted cash flow amount due was
approximately $256,825 including interest. The schedule below
summarizes the detail of the outstanding amounts:
For Dr.
Faupel:
|
|
2018
|
|
Salary
|
$
134
|
|
Bonus
|
20
|
|
Vacation
|
95
|
|
Interest on
compensation
|
67
|
|
Loans to
Company
|
196
|
|
Interest on
loans
|
149
|
|
Total
outstanding
|
$
661
|
|
Amount
forgiven
|
454
|
|
Promissory
note issued in exchange
|
207
|
On
February 12, 2018, we entered into a securities purchase agreement
with Adar Bays, LLC, providing for the purchase by Adar of three
convertible redeemable notes in the aggregate principal amount of
$285,863, with the first note being in the amount of $95,288, and
the second and third note being in the same amount. The first note
was fully funded on February 13, 2018, upon which we received
$75,000 of net proceeds (net of a 10% original issue discount). The
notes bear an interest rate of 8% and were due and payable on
October 12, 2018. The notes may be converted by Adar at any time
after eight months from issuance into shares of our common stock
(as determined in the notes) calculated at the time of conversion,
except for the second note, which also requires full payment by
Adar of the secured note it issued to us before conversions may be
made. The conversion price of the notes will be equal to 60% of the
lowest trading price of the common stock for the 20 prior trading
days including the day upon which we receive a notice of
conversion. The notes may be prepaid in accordance with the terms
set forth in the notes. The notes also contain certain
representations, warranties, covenants and events of default
including if we are delinquent in our periodic report filings with
the SEC and increases in the amount of the principal and interest
rates under the notes in the event of such defaults. In the event
of default, at Adar’s option and in its sole discretion, Adar
may consider the notes immediately due and payable. As of December
31, 2018, the note had been converted and no balance remained
outstanding, as compared we had a net debt of $69,761, including
unamortized debt issuance costs of $576, and unamortized discount
of $430 and accrued interest of $3,617.
On
February 22, 2018, we entered into a securities purchase agreement
with Power Up, providing for the purchase by Power Up of a
convertible note in the aggregate principal amount of $53,000. The
note bears an interest rate of 12% and is due and payable on
November 30, 2018. The note may be converted by Power Up at any
time after 180 days from issuance into shares of our common stock
at a conversion price equal to 58% of the average of the lowest
two-day trading prices of the common stock during the 15 trading
days prior to conversion. The note may be prepaid in accordance
with its terms, at premiums ranging from 15% to 40%, depending on
the time of prepayment. The note contains certain representations,
warranties, covenants and events of default, including if we are
delinquent in its periodic report filings with the SEC, and
provides for increases in principal and interest in the event of
such defaults. As of December 31, the note had been converted and
no balance remained outstanding.
31
On
March 12, 2018, we entered into a securities purchase agreement
with Eagle Equities, LLC, providing for the purchase by Eagle of a
convertible redeemable note in the principal amount of $66,667. The
note was fully funded on March 14, 2018, upon which we received
$51,000 of net proceeds (net of a 10% original issue discount and
other expenses). The note bears an interest rate of 8% and are due
and payable on March 12, 2019. The note may be converted by Eagle
at any time after twelve months from issuance into shares of our
common stock (as determined in the notes) calculated at the time of
conversion, except for the second note, which also requires full
payment by Eagle of the secured note it issued to us before
conversions may be made. The conversion price of the notes will be
equal to 60% of the lowest trading price of the common stock for
the 20 prior trading days including the day upon which we receive a
notice of conversion. The notes may be prepaid in accordance with
the terms set forth in the notes. The notes also contain certain
representations, warranties, covenants and events of default
including if we are delinquent in our periodic report filings with
the SEC and increases in the amount of the principal and interest
rates under the notes in the event of such defaults. In the event
of default, at Eagle’s option and in its sole discretion,
Eagle may consider the notes immediately due and payable. As of
December 31, 2018, the outstanding balance was $3,312, including
unamortized debt issuance costs of $1,751, and unamortized discount
of $1,297 and accrued interest of $177.
On
March 20, 2018, we entered into a securities purchase agreement
with Auctus Fund, LLC for the issuance and sale to Auctus of
$150,000 in aggregate principal amount of a 12% convertible
promissory note. On March 20, 2018, we issued the note to Auctus.
Pursuant to the purchase agreement, we also issued to Auctus a
warrant exercisable to purchase an aggregate of 4,262 shares of the
Company’s common stock. The warrant is exercisable at any
time, at an exercise price per share equal to $1.82 (110% of the
closing price of the common stock on the day prior to issuance),
subject to certain customary adjustments and price-protection
provisions contained in the warrant. The warrant has a five-year
term. The note matures nine months from the date of issuance and
accrues interest at a rate of 12% per year. We could have prepaid
the note, in whole or in part, for 115% of outstanding principal
and interest until 30 days from issuance, for 125% of outstanding
principal and interest at any time from 31 to 60 days from
issuance, and for 130% of outstanding principal and interest at any
time from 61 days from issuance to 180 days from issuance. After
nine months from the date of issuance, Auctus may convert the note,
at any time, in whole or in part, into shares of the our common
stock, at a conversion price equal to the lower of the price
offered in the our next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require us to redeem the note (or
convert it into shares of common stock) at 150% of the outstanding
principal balance plus accrued and unpaid interest. As of December
31, 2018, we had a net debt of $133,870 and accrued interest of
$635.
On
March 30, 2018, we entered into a securities purchase agreement
with GHS Investments, LLC, an existing investor, providing for the
purchase by GHS of a convertible promissory note in the aggregate
principal amount of $15,000. The note matures on November 30, 2018.
The note accrues interest at a rate of 10% per year. The note
includes customary event of default provisions and a default
interest rate of the lesser of 20% per year or the maximum amount
permitted by law. Upon the occurrence of an event of default, the
holder of the note may require us to redeem the note. As of
December 31, 2018, we had a net debt of $15,000 and accrued
interest of $1,262.
On
April 30, 2018, we entered into a securities purchase agreement
with Power Up, providing for the purchase by Power Up of a
convertible note in the aggregate principal amount of $103,000. The
note bears an interest rate of 12% and is due and payable on
February 15, 2019. The note may be converted by Power Up at any
time after 180 days from issuance into shares of our common stock
at a conversion price equal to 58% of the average of the lowest
two-day trading prices of the common stock during the 15 trading
days prior to conversion. The note may be prepaid in accordance
with its terms, at premiums ranging from 15% to 40%, depending on
the time of prepayment. The note contains certain representations,
warranties, covenants and events of default, including if we are
delinquent in its periodic report filings with the SEC, and
provides for increases in principal and interest in the event of
such defaults. As of December 31, the note had been converted and
no balance remained outstanding.
On May
17, 2018, we entered into a securities purchase agreement with GHS
Investments, LLC, an existing investor, providing for the purchase
by GHS of a convertible promissory note in the aggregate principal
amount of $9,250 (with $750 representing a 10% original issue
discount and $1,000 for transaction costs). The note matures on
June 17, 2019. In addition to the 10% original issue discount, the
note accrues interest at a rate of 10% per year. We may prepay the
note, in whole or in part, for 110% of outstanding principal and
interest until 30 days from issuance, for 120% of outstanding
principal and interest at any time from 31 to 60 days from issuance
and for 140% of outstanding principal and interest at any time from
61 days to 180 days from issuance. The note may not be prepaid
after 180 days. After nine months from the date of issuance, the
note will become convertible, at any time thereafter, in whole or
in part, at the holder’s option, into shares of our common
stock, at a conversion price equal to 30% of the lowest trading
price during the 25 trading days prior to conversion (if note
cannot be converted due to issues with DTC then rate increases to
40%). The note includes customary event of default provisions and a
default interest rate of the lesser of 20% per year or the maximum
amount permitted by law. Upon the occurrence of an event of
default, the holder of the note may require us to redeem the note
(or convert it into shares of common stock) at 150% of the
outstanding principal balance. As of December 31, 2018, we had a
net debt of $14,187 (which includes $4,937 for a default penalty),
including unamortized debt issuance costs of $424, unamortized
discount of $318 and accrued interest of $1,135.
32
On June
7, 2018, we entered into a securities purchase agreement with Power
Up, providing for the purchase by Power Up of a convertible note in
the aggregate principal amount of $53,000. The note bears an
interest rate of 12% and is due and payable on March 30, 2019. The
note may be converted by Power Up at any time after 180 days from
issuance into shares of our common stock at a conversion price
equal to 58% of the average of the lowest two-day trading prices of
the common stock during the 15 trading days prior to conversion.
The note may be prepaid in accordance with its terms, at premiums
ranging from 15% to 40%, depending on the time of prepayment. The
note contains certain representations, warranties, covenants and
events of default, including if we are delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, 2018, the note had been fully converted.
On June
22, 2018, we entered into a securities purchase agreement with GHS
Investments, LLC, an existing investor, providing for the purchase
by GHS of a convertible promissory note in the aggregate principal
amount of $68,000 (with $6,000 representing a 10% original issue
discount and $2,000 for transaction costs). The note matures on
June 22, 2019. In addition to the 10% original issue discount, the
note accrues interest at a rate of 10% per year. We may prepay the
note, in whole or in part, for 110% of outstanding principal and
interest until 30 days from issuance, for 120% of outstanding
principal and interest at any time from 31 to 60 days from issuance
and for 140% of outstanding principal and interest at any time from
61 days to 180 days from issuance. The note may not be prepaid
after 180 days. After nine months from the date of issuance, the
note will become convertible, at any time thereafter, in whole or
in part, at the holder’s option, into shares of our common
stock, at a conversion price equal to 30% of the lowest trading
price during the 25 trading days prior to conversion (if note
cannot be converted due to issues with DTC then rate increases to
40%). The note includes customary event of default provisions and a
default interest rate of the lesser of 20% per year or the maximum
amount permitted by law. Upon the occurrence of an event of
default, the holder of the note may require us to redeem the note
(or convert it into shares of common stock) at 150% of the
outstanding principal balance. As of December 31, 2018, we had a
net debt of $103,285 (which includes $35,285 for a default
penalty), including unamortized debt issuance costs of $3,318,
unamortized discount of $2,844 and accrued interest of
$8,263.
On July
3, 2018, we entered into a securities purchase agreement with
Auctus Fund, LLC for the issuance and sale to Auctus of $89,250 in
aggregate principal amount of a 12% convertible promissory note. On
July 3, 2018, we issued the note to Auctus. The note matures on
April 3, 2019 and accrues interest at a rate of 12% per year. We
could have prepaid the note, in whole or in part, for 115% of
outstanding principal and interest until 30 days from issuance, for
125% of outstanding principal and interest at any time from 31 to
60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance to 180 days from
issuance. After nine months from the date of issuance, Auctus may
convert the note, at any time, in whole or in part, into shares of
the our common stock, at a conversion price equal to the lower of
the price offered in the our next public offering or a 40% discount
to the average of the two lowest trading prices of the common stock
during the 20 trading days prior to the conversion, subject to
certain customary adjustments and price-protection provisions
contained in the note. The note includes customary events of
default provisions and a default interest rate of 24% per year.
Upon the occurrence of an event of default, Auctus may require us
to redeem the note (or convert it into shares of common stock) at
150% of the outstanding principal balance plus accrued and unpaid
interest. As of December 31, 2018, we had a net debt of $81,528,
including unamortized original issue discount of $1,443,
unamortized debt issuance costs of $6,279 and accrued interest of
$5,385.
See
“—Recent Developments” for information regarding
capital-raising activities since December 31, 2018.
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 2019. 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.
Generally,
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. Based on discussions with our distributors, we expect
to generate purchase orders for approximately $2 million in LuViva
devices and disposables in 2019 and expect those purchase orders to
result in actual sales of $1.5 million in 2019, representing what
we view as current demand for our products. We cannot be assured
that we will generate all or any of these additional purchase
orders, or that existing orders will not be canceled by the
distributors or that parts to build product will be available to
meet demand, such that existing orders will result in actual sales.
Because we have a short history of sales of our products, we cannot
confidently predict future sales of our products beyond this time
frame and cannot be assured of any particular amount of sales.
Accordingly, we have not identified any particular trends with
regard to sales of our products.
33
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, 2018.
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
7A. Quantitative and Qualitative Disclosures about Market
Risk.
Not
applicable.
34
Item
8. Financial Statements and Supplementary Data
35
|
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
|
||
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (in thousands)
|
||
|
AS
OF DECEMBER 31,
|
||
|
|
|
|
|
ASSETS
|
2018
|
2017
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
$
-
|
$
1
|
|
Accounts
receivable, net of allowance for doubtful accounts of $157 and $160
at December 31, 2018 and 2017, respectively
|
13
|
3
|
|
Inventory,
net of reserves of $767 and $716 at December 31, 2018 and 2017,
respectively
|
114
|
182
|
|
Other
current assets
|
69
|
111
|
|
Total
current assets
|
196
|
297
|
|
|
|
|
|
Property
and equipment, net
|
21
|
49
|
|
Other
assets
|
19
|
60
|
|
Total
noncurrent assets
|
40
|
109
|
|
|
|
|
|
TOTAL
ASSETS
|
236
|
406
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Notes
payable in default, including related parties
|
700
|
1,091
|
|
Short-term
notes payable, including related parties
|
899
|
447
|
|
Convertible
notes in default
|
2,778
|
2,321
|
|
Convertible
notes payable, net
|
380
|
783
|
|
Accounts
payable
|
3,013
|
3,019
|
|
Accrued
liabilities
|
3,156
|
4,164
|
|
Customer
deposits
|
66
|
21
|
|
Total
current liabilities
|
10,992
|
11,846
|
|
|
|
|
|
Warrants,
at fair value
|
4,728
|
7,962
|
|
Long-term
debt-related parties
|
340
|
-
|
|
Total
long-term debt
|
5,068
|
7,962
|
|
|
|
|
|
TOTAL
LIABILITIES
|
16,060
|
19,808
|
|
|
|
|
|
COMMITMENTS & CONTINGENCIES (Note 8)
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT:
|
|
|
|
Series
C convertible preferred stock, $.001 par value; 9.0 shares
authorized, 0.3 and 0.9 shares issued and outstanding as of
December 31, 2018 and 2017, respectively. (Liquidation preference
of $286 and $970 at December 31, 2018 and 2017,
respectively).
|
105
|
355
|
|
Series
C1 convertible preferred stock, $.001 par value; 20.3 shares
authorized, 1.0 and 4.3 shares issued and outstanding as of
December 31, 2018 and 2017, respectively. (Liquidation preference
of $1,049 and $4,312 at December 31, 2018 and 2017,
respectively).
|
170
|
701
|
|
Series
C2 convertible preferred stock, $.001 par value; 5,000 shares
authorized, 3.3 and nil shares issued and outstanding as of
December 31, 2018 and 2017, respectively. (Liquidation preference
of $3,263 and nil at December 31, 2018 and 2017,
respectively).
|
531
|
-
|
|
Common
stock, $.001 par value; 1,000,000 shares authorized, 2,669 and 62
shares issued and outstanding as of December 31, 2018 and 2017,
respectively
|
2,877
|
791
|
|
Additional
paid-in capital
|
118,259
|
117,416
|
|
Treasury
stock, at cost
|
(132
)
|
(132
)
|
|
Accumulated
deficit
|
(137,634
)
|
(138,533
)
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
(15,824
)
|
(19,402
)
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
236
|
$
406
|
The
accompanying notes are an integral part of these consolidated
statements.
36
|
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
|
||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS (in thousands)
|
||
|
FOR
THE YEARS ENDED DECEMBER 31,
|
||
|
|
|
|
|
|
2018
|
2017
|
|
REVENUE:
|
|
|
|
Sales – devices and disposables, net
|
$
57
|
$
244
|
|
Cost
of goods sold
|
89
|
530
|
|
Gross
loss
|
(32
)
|
(286
)
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Research
and development
|
244
|
334
|
|
Sales
and marketing
|
195
|
245
|
|
General
and administrative
|
1,077
|
2,256
|
|
Total
operating expenses
|
1,516
|
2,835
|
|
|
|
|
|
Operating
loss
|
(1,548
)
|
(3,121
)
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
Other
income
|
54
|
18
|
|
Interest
expense
|
(1,763
)
|
(1,106
)
|
|
Gain
from extinguishment of debt
|
1,039
|
-
|
|
Change
in fair value of warrants
|
3,234
|
(6,487
)
|
|
Total
other income (expenses)
|
2,564
|
(7,575
)
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
1,016
|
(10,696
)
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
-
|
-
|
|
|
|
|
|
NET
INCOME (LOSS)
|
1,016
|
(10,696
)
|
|
|
|
|
|
DEEMED
DIVIDENDS
|
-
|
-
|
|
|
|
|
|
PREFERRED
STOCK DIVIDENDS
|
(116
)
|
(278
)
|
|
|
|
|
|
NET
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$
900
|
$
(10,974
)
|
|
|
||
|
NET
INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS
|
||
|
BASIC
|
|
|
|
BASIC
|
$
1.95
|
$
997.64
|
|
DILUTED
|
$
0.0138
|
$
997.64
|
|
|
||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
||
|
BASIC
|
462
|
11
|
|
DILUTED
|
65,227
|
11
|
The
accompanying notes are an integral part of these consolidated
statements.
37
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In
Thousands)
|
|
Preferred
Stock
Series
C
|
Preferred Stock
Series C1
|
Preferred Stock
Series
C2
|
Common
Stock
|
Additional
Paid-In
|
Treasury
|
Accumulated
|
|
||||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stock
|
Deficit
|
TOTAL
|
|
BALANCE, January 1,
2017
|
2
|
$
601
|
4
|
$
701
|
-
|
$
-
|
1
|
$
742
|
$
116,380
|
$
(132
)
|
$
(127,558
)
|
$
(9,266
)
|
|
Preferred
dividends
|
-
|
-
|
-
|
-
|
|
|
-
|
-
|
-
|
-
|
(2
)
|
(2
)
|
|
Conversion of Series C preferred
stock to common stock
|
(1
)
|
(246
)
|
-
|
-
|
|
|
22
|
17
|
506
|
-
|
(277
)
|
-
|
|
Conversion of debt into common
stock
|
-
|
-
|
-
|
-
|
|
|
39
|
32
|
436
|
-
|
-
|
468
|
|
Issuance of common stock for note
agreement
|
-
|
-
|
-
|
-
|
|
|
-
|
-
|
35
|
-
|
-
|
35
|
|
Stock-based
compensation
|
|
|
|
|
|
|
-
|
-
|
59
|
-
|
-
|
59
|
|
Net loss
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
(10,696
)
|
(10,696
)
|
|
BALANCE, December 31,
2017
|
1
|
$
355
|
4
|
$
701
|
-
|
$
-
|
62
|
$
791
|
$
117,416
|
$
(132
)
|
$
(138,533
)
|
$
(19,402
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants with
debt
|
-
|
-
|
-
|
-
|
|
|
-
|
-
|
20
|
-
|
-
|
20
|
|
Conversion of Series C preferred
stock to common stock
|
(1
)
|
(250
)
|
-
|
-
|
|
|
160
|
128
|
409
|
-
|
(117
)
|
170
|
|
Conversion of debt into common
stock
|
-
|
-
|
-
|
-
|
|
|
2,359
|
1,888
|
(963
)
|
-
|
-
|
925
|
|
Issuance of common
stock
|
-
|
-
|
-
|
-
|
|
|
88
|
70
|
(23
)
|
-
|
-
|
47
|
|
Exchange of Series C1 for C2
preferred stock
|
-
|
-
|
(3
)
|
(531
)
|
3
|
531
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Beneficial conversion feature for
convertible debt
|
|
|
|
|
|
|
-
|
-
|
44
|
-
|
-
|
44
|
|
Stock-based
compensation
|
|
|
|
|
|
|
-
|
-
|
689
|
-
|
-
|
689
|
|
Forgiveness of
debt
|
|
|
|
|
|
|
-
|
-
|
667
|
-
|
-
|
667
|
|
Net income
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
1,016
|
1,016
|
|
BALANCE,
December 31, 2018
|
-
|
$
105
|
1
|
$
170
|
3
|
$
531
|
2,669
|
$
2,877
|
$
118,259
|
$
(132
)
|
$
(137,634
)
|
$
(15,824
)
|
The accompanying notes are an integral part of
these consolidated statements.
38
|
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
|
||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||
|
FOR
THE YEARS ENDED DECEMBER 31,
|
||
|
(In
Thousands)
|
||
|
|
2018
|
2017
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
income (loss)
|
$
1,016
|
$
(10,696
)
|
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
Bad
debt expense
|
1
|
174
|
|
Depreciation
|
27
|
213
|
|
Amortization
of debt issuance costs and discounts
|
190
|
-
|
|
Amortization
of beneficial conversion feature
|
645
|
-
|
|
Stock
based compensation
|
44
|
59
|
|
Change
in fair value of warrants
|
(3,234
)
|
6,487
|
|
Gain
on extinguishment of debt
|
(1,039
)
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(10
)
|
(9
)
|
|
Inventory
|
151
|
508
|
|
Other
current assets
|
42
|
152
|
|
Other
assets
|
41
|
260
|
|
Accounts
payable
|
(6
)
|
420
|
|
Deferred
revenue
|
45
|
(13
)
|
|
Accrued
liabilities
|
722
|
1,301
|
|
Total
adjustments
|
(2,382
)
|
9,552
|
|
|
|
|
|
Net
cash used in operating activities
|
(1,365
)
|
(1,144
)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds
from debt financing, net of discounts and debt issuance
costs
|
1,386
|
-
|
|
Payments
made on notes and loans payable
|
(192
)
|
(441
)
|
|
Proceeds
for future issuance of common stock
|
126
|
-
|
|
Net
proceeds from issuance of common stock and warrants
|
44
|
1,572
|
|
|
|
|
|
Net
cash provided by financing activities
|
1,364
|
1,131
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(1
)
|
(13
)
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
1
|
14
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of year
|
$
-
|
$
1
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF:
|
|
|
|
Cash paid
for:
|
|
|
|
Interest
|
$
116
|
$
46
|
|
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
Issuance
of common stock as debt repayment
|
$
925
|
$
468
|
|
Dividends
on preferred stock
|
$
116
|
$
278
|
The
accompanying notes are an integral part of these consolidated
statements.
39
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018 AND 2017
1.
ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Guided
Therapeutics, Inc. (formerly SpectRx, Inc.), together with its
wholly owned subsidiary, InterScan, Inc. (formerly Guided
Therapeutics, Inc.), collectively referred to herein as the
“Company”, is
a medical
technology company focused on developing innovative medical devices
that have the potential to improve healthcare. The Company’s
primary focus is the continued commercialization of its LuViva
non-invasive cervical cancer detection device and extension of its
cancer detection technology into other cancers, including
esophageal. The Company’s technology, including products in
research and development, primarily relates to biophotonics
technology for the non-invasive detection of
cancers.
Basis
of Presentation
All
information and footnote disclosures included in the consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United
States.
A 1:800
reverse stock split of all of the Company’s issued and
outstanding common stock was implemented on March 29, 2019. As a
result of the reverse stock split, every 800 shares of issued and
outstanding common stock were 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 2,652,309,322 shares to 3,319,486 shares as of
that date with rounding. See Note 4, Stockholders’ Deficit.
Unless otherwise specified, all per share amounts are reported on a
post-stock split basis, as of December 31, 2018.
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 December 31, 2018, it had
an accumulated deficit of approximately $137.6 million. To date,
the Company has engaged primarily in research and development
efforts and the early stages of marketing its products. The Company
may not be successful in growing sales for its products. Moreover,
required regulatory clearances or approvals may not be obtained in
a timely manner, or at all. The Company’s products may not
ever gain market acceptance and the Company may not ever generate
significant revenues or achieve profitability. The development and
commercialization of the Company’s products requires
substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. The Company expects operating
losses to continue for the foreseeable future as it continues to
expend substantial resources to complete development of its
products, obtain regulatory clearances or approvals, build its
marketing, sales, manufacturing and finance capabilities, and
conduct further research and development.
Certain
prior year amounts have been reclassified in order to conform to
the current year presentation.
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.
At
December 31, 2018, the Company had a negative working capital of
approximately $10.8 million, accumulated deficit of $137.6 million,
and incurred a net profit of $1.0 million for the year then ended
(the net profit for the year ended December 31, 2018 was primarily
realized due to a $3.2 million gain in the fair value of warrants
recorded in 2018 and a $1.0 million gain on the forgiveness of debt
from officers). Stockholders’ deficit totaled approximately
$15.8 million at December 31, 2018, primarily due to recurring net
losses from operations, deemed dividends on warrants and preferred
stock, offset by proceeds from the exercise of options and warrants
and proceeds from sales of stock.
40
The
Company’s capital-raising efforts are ongoing and the Company
has taken the following steps to increase the likelihood of a
successful financing: 1) Debt has been significantly reduced and
additional agreements are in place, contingent on a successful
financing, to reduce debt even further either by forgiveness of
debt and/or exchanges of debt for equity 2) Monthly operating
expenses have been reduced by nearly 50% since the beginning of
2017 and 3) Variable rate loans for the most part have either been
paid off or converted to equity. If sufficient capital cannot be
raised during 2019, the Company will continue its plans of
curtailing operations by reducing discretionary spending and
staffing levels and attempting to operate by only pursuing
activities for which it has external financial support. However,
there can be no assurance that such external financial support will
be sufficient to maintain even limited operations or that the
Company will be able to raise additional funds on acceptable terms,
or at all. In such a case, the Company might be required to enter
into unfavorable agreements or, if that is not possible, be unable
to continue operations, and to the extent practicable, liquidate
and/or file for bankruptcy protection.
The
Company had warrants exercisable for approximately 23.6 million
shares of its common stock outstanding at December 31, 2018, with
exercise prices ranging between $0.06 and $32.0 million per share.
Exercises of these warrants would generate a total of approximately
$6.2 million in cash, assuming full exercise, although the Company
cannot be assured that holders will exercise any warrants.
Management may obtain additional funds through the public or
private sale of debt or equity, and grants, if available. However,
please refer to Footnote 11 - CONVERTIBLE DEBT IN DEFAULT in the
paragraph: Debt Restructuring for more information regarding our
warrants.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Significant areas where estimates are used include the
allowance for doubtful accounts, inventory valuation and input
variables for Black-Scholes, Monte Carlo simulations and binomial
calculations. The Company uses the Monte Carlo simulations and
binomial calculations in the calculation of the fair value of the
warrant liabilities and the valuation of embedded conversion
options and freestanding warrants.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts
of Guided Therapeutics, Inc. and its wholly owned subsidiary. All
intercompany transactions are eliminated.
Accounting
Standard Updates
Implemented
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued ASU 2014-09, “Revenue from Contracts with Distributors
(Topic 606),” (“ASU 2014-09”). ASU 2014-09
outlines a new, single comprehensive model for entities to use in
accounting for revenue arising from contracts with distributors 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 requires revenue recognition to depict
the transfer of promised goods or services to distributors in an
amount that reflects the consideration a company expects to
receive. ASU 2014-09 also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments
and changes in judgments and assets recognized from costs incurred
to obtain or fulfill a contract. 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 will be the
first quarter of fiscal year 2018 with early adoption permitted in
the first quarter of fiscal year 2017. Subsequently, the FASB has
issued the following standards related to ASU 2014-09: ASU 2016-08,
“Revenue from Contracts with Distributors (Topic 606),
Principal versus Agent Considerations (Reporting Revenue Gross
versus Net),” (“ASU 2016-08”); ASU 2016-10,
“Revenue from Contracts with Distributors (Topic 606),
Identifying Performance Obligations and Licensing,”
(“ASU 2016-10”); ASU 2016-12, “Revenue from
Contracts with Distributors (Topic 606) Narrow-Scope Improvements
and Practical Expedients,” (“ASU 2016-12”); and
ASU 2016-20, “Technical Corrections and Improvements to Topic
606, Revenue from Contracts with Distributors,” (“ASU
2016-20”), which are intended to provide additional guidance
and clarity to ASU 2014-09. The Company must adopt ASU 2016-08, ASU
2016-10, ASU 2016-12 and ASU 2016-20 along with ASU 2014-09
(collectively, the “New Revenue Standards”). The New
Revenue Standards may be applied using one of two retrospective
application methods: (1) a full retrospective approach for all
periods presented, or (2) a modified retrospective approach that
presents a cumulative effect as of the adoption date and additional
required disclosures. The Company has evaluated the adoption of
this guidance and has taken a modified retrospective approach to
the presentation of revenue from contracts with distributors. The
Company adopted this standard on January 1, 2018, using the
modified retrospective method, with no impact on its 2018 financial
statements. The cumulative effect of initially applying the new
guidance had no impact on its financial statements in future
periods.
41
In July
2015, the FASB issued ASU 2015-11, “Simplifying the
Measurement of Inventory,” (“ASU 2015-11”). ASU
2015-11 requires inventory be measured at the lower of cost and net
realizable value and options that currently exist for market value
be eliminated. ASU 2015-11 defines net realizable value as
estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and
transportation. The guidance is effective for reporting periods
beginning after December 15, 2016 and interim periods within those
fiscal years with early adoption permitted. ASU 2015-11 should be
applied prospectively. The Company has adopted this guidance during
the year ended December 31, 2017 on a prospective basis. The
adoption of this guidance did not have a significant impact on the
operating results for the period ended December 31,
2017.
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 adopted this guidance during the quarter
ended March 31, 2018 on a prospective basis. The adoption of this
guidance did not have a significant impact on the operating results
for the year ended December 31, 2018.
In
November 2016, the FASB issued ASU 2016-18, “Statement of
Cash Flows (Topic 230) - Restricted Cash,” (“ASU
2016-18”). ASU 2016-18 requires a statement of cash flows to
explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-year and end-of-year total amounts shown on the
statement of cash flows. The guidance is effective for annual
periods, and interim periods within those annual periods beginning
after December 15, 2017, with early adoption permitted. The Company
adopted this guidance during the quarter ended March 31, 2018 on a
prospective basis. The adoption of this guidance did not have a
significant impact on the operating results for the year ended
December 31, 2018.
In May
2017, the FASB issued ASU 2017-09, “Compensation –
Stock Compensation (Topic 718), Scope of Modification
Accounting)” (“ASU 2017-09”) which clarifies when
changes to the terms or conditions of a share-based payment award
must be accounted for as modifications. The new guidance will
reduce diversity in practice and result in fewer changes to the
terms of an award being accounted for as modifications. ASU 2017-09
will be applied prospectively to awards modified on or after the
adoption date. The guidance is effective for annual periods, and
interim periods within those annual periods beginning after
December 15, 2017, with early adoption permitted. The Company
adopted this guidance during the quarter ended March 31, 2018 on a
prospective basis. The adoption of this guidance did not have a
significant impact on the operating results for the year ended
December 31, 2018.
In March 2018, the FASB
issued ASU
2018-04,
Investments
– Debt Securities (Topic 320) and Regulated Operations (Topic
980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 117 and SEC Release
No. 33-9273.
The amendment of
ASU
2018-04
adds, amends and
supersedes various paragraphs that contain SEC guidance in ASC
320,
Investments-Debt
Securities
and ASC
980,
Regulated
Operations
. The amendments in
this update were effective upon issuance in March 2018. The
adoption of this new standard did not have a material impact on the
Company’s consolidated financial
statements.
In March 2018, the FASB issued
ASU 2018-05,
Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118
. The
amendment of ASU 2018-05 adds various paragraphs that
contain SEC guidance in ASC 740,
Income
Taxes
and SEC Staff
Accounting Bulletin No. 118. The amendments in this update
were effective upon issuance in March 2018. The adoption of this
new standard did not have a material impact on its consolidated
financial statements.
In June 2018, the FASB issued
ASU 2018-07,
Compensation – Stock
Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment Accounting
, which is
intended to improve the usefulness of the information provided to
the users of financial statements while reducing cost and
complexity in financial reporting. Under the new standard,
nonemployee share-based payment awards within the scope of Topic
718 are measured at grant-date fair value of the equity instruments
that an entity is obligated to issue when conditions necessary to
earn the right to benefit from the instruments have been satisfied.
These equity-classified non-employee share-based payment
awards are measured at the grant date. Consistent with the
accounting for employee share-based payment awards, an entity
considers the probability of satisfying performance conditions when
nonemployee share-based payment awards contain such conditions. The
new standard also eliminates the requirement to reassess
classification of such awards upon vesting. The new standard is
effective for annual periods, and interim periods within those
annual periods, beginning after December 15, 2018. Early
adoption is permitted, but no earlier than an entity’s
adoption date of Topic 606. The Company early adopted
ASU 2018-07 effective January 1, 2018. The adoption
of this new standard did not have a material impact on its
consolidated financial statements.
42
In July 2018, FASB issued ASU
2018-09
,
“Codification Improvements.”
This guidance affects a wide variety of topics in
the codification and represents changes to clarify, correct errors
in, or make minor improvements to the codification. The amendments
make the codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments apply to all reporting entities within the scope of the
affected accounting guidance. Some of the amendments in ASU 2018-09
do not require transition guidance and will be effective upon
issuance. However, many of the amendments do have transition
guidance with effective dates for annual periods beginning after
December 15, 2018, for public business entities. Adoption of this
guidance did not have a significant impact on the Company’s
consolidated financial statements.
Not Implemented
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic
842)” that requires lessees to recognize on the balance sheet
the assets and liabilities associated with the rights and
obligations created by those leases. Under the new guidance, a
lessee will be required to recognize assets and liabilities for
leases with lease terms of more than 12 months. 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 finance or operating
lease. The update is effective for reporting periods beginning
after December 15, 2018. Adoption is not expected to have a
material effect on the Company’s consolidated financial
statements.
In June
2016, the FASB issued ASU 2016-13, “Financial Instruments -
Credit Losses,” (“ASU 2016-13”). ASU 2016-13 sets
forth a “current expected credit loss” model which
requires the Company to measure all expected credit losses for
financial instruments held at the reporting date based on
historical experience, current conditions and reasonable
supportable forecasts. The guidance in this new standard replaces
the existing incurred loss model and is applicable to the
measurement of credit losses on financial assets measured at
amortized cost and applies to some off-balance sheet credit
exposures. The effective date will be the first quarter of fiscal
year 2020. The Company is evaluating the impact that adoption of
this new standard will have on its consolidated financial
statements.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment,” (“ASU 2017-04”). ASU 2017-04
eliminates Step 2 from the goodwill impairment test. Instead, an
entity should perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its
carrying amount. An entity should recognize an impairment charge
for the amount by which the carrying amount exceeds the reporting
unit’s fair value, if any. The loss recognized should not
exceed the total amount of goodwill allocated to that reporting
unit. Additionally, an entity should consider income tax effects
from any tax-deductible goodwill on the carrying amount of the
reporting unit when measuring the goodwill impairment. The
effective date will be the first quarter of fiscal year 2020, with
early adoption permitted in 2017. Adoption is not expected to have
a material effect on the Company’s consolidated financial
statements.
In February 2018, the
FASB issued ASU
2018-02,
Income
Statement – Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income
. The amendment of
ASU
2018-02
states an entity
may elect to reclassify the income tax effects of the Tax Cuts and
Jobs Act of 2017 (the “Tax Cuts and Jobs Act”) on items
within accumulated other comprehensive income to retained earnings.
The amendments in this update are effective for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2018. Early adoption is permitted.
Adoption is not expected to have a material effect on the
Company’s consolidated financial statements.
In August 2018, the FASB issued
ASU 2018-13,
Fair Value Measurement (Topic
820)
. The new standard modifies
the disclosure requirements on fair value measurements in Topic
820, Fair Value Measurement, including removals of, modification
to, and additional disclosure requirements from Topic 820. The
amendment of ASU 2018-13 removes disclosure requirements
from Topic 820 in the areas of (1) the amount of and reasons
for transfers between Level 1 and Level 2 of the fair
value hierarchy; (2) the policy for timing of transfers
between levels, and (3) the valuation processes for
Level 3 fair value measurements. The amendments in this update
are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019. Except for
certain amendments related to Level 3 fair value measurements,
all the other amendments should be applied retrospectively to all
periods presented upon their effective date. Early adoption is
permitted upon issuance of the ASU 2018-13. The Company
believes that the adoption of this new standard will have no
material impact on its consolidated financial position or results
of operations and has not elected to early adopt the
amendment.
43
In August 2018, the FASB issued
ASU 2018-15,
Intangibles – Goodwill
and Other – Internal-Use Software
(Subtopic 350-40), Customer’s Accounting for
Implementation Costs Incurred in a Cloud
Computing
Arrangement That Is a Service
Contract
(or
ASU 2018-15). ASU 2018-15 requires a customer that
is a party to a cloud computing service contract to follow
the internal-use software guidance in
Subtopic 350-40 to determine which implementation costs
to capitalize and which costs to expense. The amendments in this
update are effective for annual reporting periods beginning after
December 15, 2019, and interim periods within those fiscal
years. Early adoption of the amendments in this update is
permitted. The amendments in this update should
be applied either
retrospectively or prospectively to all implementation costs
incurred after the date of adoption.
The Company believes that the adoption of this new
standard will have no material impact on its consolidated financial
position or results of operations and has not elected to early
adopt the amendment.
Except
as noted above, the guidance issued by the FASB during the current
year is not expected to have a material effect on the
Company’s consolidated financial statements.
Cash
Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be a cash
equivalent.
Accounts
Receivable
The
Company performs periodic credit evaluations of its
distributors’ 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.
Concentrations
of Credit Risk
The
Company, from time to time during the years covered by these
consolidated financial statements, may have bank balances in excess
of its insured limits. Management has deemed this a normal business
risk.
The
Company performs periodic credit evaluations of its
distributors’ 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.
Inventory
Valuation
All
inventories are stated at lower of cost or net realizable value,
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
incurred. At December 31, 2018 and 2017, our inventories were as
follows (in thousands):
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
Raw
materials
|
$
783
|
$
789
|
|
Work in
process
|
81
|
82
|
|
Finished
goods
|
17
|
27
|
|
Inventory
reserve
|
(767
)
|
(716
)
|
|
Total
|
$
114
|
$
182
|
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 amortized at the shorter of the
useful life of the asset or the remaining lease term. Depreciation
and amortization 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 December 31, 2018 and 2017 (in
thousands):
44
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
Equipment
|
$
1,378
|
$
1,378
|
|
Software
|
740
|
740
|
|
Furniture and
fixtures
|
124
|
124
|
|
Leasehold
Improvement
|
199
|
199
|
|
|
2,441
|
2,441
|
|
Less accumulated
depreciation
|
(2,420
)
|
(2,392
)
|
|
Total
|
$
21
|
$
49
|
Debt
Issuance Costs
Debt
issuance costs are capitalized and amortized over the term of the
associated debt. Debt issuance costs are presented in the balance
sheet as a direct deduction from the carrying amount of the debt
liability consistent with the debt discount.
Other
Assets
Other
assets primarily consist of short- and long-term deposits for
various tooling inventory that are being constructed for the
Company.
Patent
Costs (Principally Legal Fees)
Costs
incurred in filing, prosecuting, and maintaining patents are
recurring, and expensed as incurred. Maintaining patents are
expensed as incurred as the Company has not yet received U.S. FDA
approval and recovery of these costs is uncertain. Such costs
aggregated approximately $11,000 and $15,000 in 2018 and 2017,
respectively.
Accrued
Liabilities
Accrued
liabilities are summarized as follows at December 31, 2018 and 2017
(in thousands):
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
Compensation
|
$
1,030
|
$
2,122
|
|
Professional
fees
|
203
|
223
|
|
Interest
|
892
|
511
|
|
Warranty
|
2
|
39
|
|
Vacation
|
53
|
152
|
|
Preferred
dividends
|
120
|
291
|
|
Stock subscription
for licenses
|
692
|
705
|
|
Other accrued
expenses
|
164
|
121
|
|
Total
|
$
3,156
|
$
4,164
|
45
Revenue
Recognition
The
Company follows, ASC 606 Revenue from Contracts with Customers
establishes a single and comprehensive framework which sets out how
much revenue is to be recognized, and when. The core principle is
that a vendor should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the vendor expects to be entitled in
exchange for those goods or services. Revenue will now be
recognized by a vendor when control over the goods or services is
transferred to the customer. In contrast, Revenue based revenue
recognition around an analysis of the transfer of risks and
rewards; this now forms one of a number of criteria that are
assessed in determining whether control has been transferred. The
application of the core principle in ASC 606 is carried out in five
steps: Step 1 – Identify the contract with a customer: a
contract is defined as an agreement (including oral and implied),
between two or more parties, that creates enforceable rights and
obligations and sets out the criteria for each of those rights and
obligations. The contract needs to have commercial substance and it
is probable that the entity will collect the consideration to which
it will be entitled. Step 2 – Identify the performance
obligations in the contract: a performance obligation in a contract
is a promise (including implicit) to transfer a good or service to
the customer. Each performance obligation should be capable of
being distinct and is separately identifiable in the contract. Step
3 – Determine the transaction price: transaction price is the
amount of consideration that the entity can be entitled to, in
exchange for transferring the promised goods and services to a
customer, excluding amounts collected on behalf of third parties.
Step 4 – Allocate the transaction price to the performance
obligations in the contract: for a contract that has more than one
performance obligation, the entity will allocate the transaction
price to each performance obligation separately, in exchange for
satisfying each performance obligation. The acceptable methods of
allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and, the residual
approach in limited circumstances. Discounts given should be
allocated proportionately to all performance obligations unless
certain criteria are met and reallocation of changes in standalone
selling prices after inception is not permitted. Step 5 –
Recognize revenue as and when the entity satisfies a performance
obligation: the entity should recognize revenue at a point in time,
except if it meets any of the three criteria, which will require
recognition of revenue over time: the entity’s performance
creates or enhances an asset controlled by the customer, the
customer simultaneously receives and consumes the benefit of the
entity’s performance as the entity performs, and the entity
does not create an asset that has an alternative use to the entity
and the entity has the right to be paid for performance to
date.
Revenue
by product line:
|
|
Year Ended December
31,
|
|
|
|
2018
|
2017
|
|
Devices
|
$
17
|
$
177
|
|
Disposables
|
32
|
54
|
|
Other
|
1
|
3
|
|
Warranty
|
7
|
10
|
|
Total
|
$
57
|
$
244
|
Revenue
by geographic location:
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017*
|
|
Asia
|
$
49
|
$
288
|
|
Africa
|
8
|
(15
)
|
|
Europe
|
-
|
(14
)
|
|
North
America
|
-
|
(5
)
|
|
South
America
|
-
|
(10
)
|
|
Total
|
$
57
|
$
244
|
*During
2017, the Company had a buyback program on devices sold in prior
years that totaled $54,000.
Significant
Distributors
In 2018
and 2017, the majority of the Company’s revenues were from
one and two distributors, respectively. Revenue from these
distributors totaled approximately $40,750 or 82% and approximately
$277,625 or 88% of gross revenue for the year ended December 31,
2018 and 2017, respectively. There were no amounts due from these
distributors as of December 31, 2018 and 2017.
46
Deferred
revenue
The
Company defers payments received as revenue until earned based on
the related contracts and applying ASC 606 as required. As of
December 31, 2018, and 2017, the Company did not have deferred
revenue, respectively.
Customer
deposits
The
Company follows the same principal as explained in Revenue
Recognition and ASC 606. As of December 31, 2018, and 2017, the
Company has received prepayments for devices and disposables and
recorded this as customer deposits in the amount of $66,000 and
$21,000, respectively.
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.
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 currently delinquent with its federal and applicable
state tax return filings, payments and certain Federal and State
Unemployment Tax filings. Some of the federal income tax returns
are currently under examination by the U.S. Internal Revenue
Service (“IRS”). The Company has entered into an agreed
upon payment plan with the IRS for delinquent payroll taxes. The
Company is currently in process of setting up a payment arrangement
for its delinquent state income taxes with the State of Georgia and
the returns are currently under review by state authorities.
Although the Company has been experiencing recurring losses, it is
obligated to file tax returns for compliance with IRS regulations
and that of applicable state jurisdictions. At December 31, 2018
and 2017, the Company has approximately $77.2 and $82.9 million of
net operating losses, respectively. This net operating loss will be
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.
Corporate tax rates
in the U.S. have decreased from 34% to 21%.
Uncertain
Tax Positions
The
Company assesses 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 December
31, 2018 and 2017 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.
47
For the
years ended December 31, 2018 and 2017, share-based compensation
for options attributable to employees, officers and Board members
were approximately $44,000 and $59,000, respectively. These amounts
have been included in the Company’s statements of operations.
Compensation costs for stock options which vest over time are
recognized over the vesting period. As of December 31, 2018, the
Company had approximately $7,000 of unrecognized compensation costs
related to granted stock options to be recognized over the
remaining vesting period of approximately one year.
Beneficial
Conversion Features of Convertible Securities
Conversion options
that are not bifurcated as a derivative pursuant to ASC 815 and not
accounted for as a separate equity component under the cash
conversion guidance are evaluated to determine whether they are
beneficial to the investor at inception (a beneficial conversion
feature) or may become beneficial in the future due to potential
adjustments. The beneficial conversion feature guidance in ASC
470-20 applies to convertible stock as well as convertible debt
which are outside the scope of ASC 815. A beneficial conversion
feature is defined as a nondetachable conversion feature that is in
the money at the commitment date. The beneficial conversion feature
guidance requires recognition of the conversion option’s
in-the-money portion, the intrinsic value of the option, in equity,
with an offsetting reduction to the carrying amount of the
instrument. The resulting discount is amortized as a dividend over
either the life of the instrument, if a stated maturity date
exists, or to the earliest conversion date, if there is no stated
maturity date. If the earliest conversion date is immediately upon
issuance, the dividend must be recognized at inception. When there
is a subsequent change to the conversion ratio based on a future
occurrence, the new conversion price may trigger the recognition of
an additional beneficial conversion feature on
occurrence.
Derivatives
The
Company reviews the terms of convertible debt issued to determine
whether there are embedded derivative instruments, including
embedded conversion options, which are required to be bifurcated
and accounted for separately as derivative financial instruments.
In circumstances where the host instrument contains more than one
embedded derivative instrument, including the conversion option,
that is required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative
instrument
Bifurcated embedded
derivatives are initially recorded at fair value and are then
revalued at each reporting date with changes in the fair value
reported as non-operating income or expense. When the equity or
convertible debt instruments contain embedded derivative
instruments that are to be bifurcated and accounted for as
liabilities, the total proceeds received are first allocated to the
fair value of all the bifurcated derivative instruments. The
remaining proceeds, if any, are then allocated to the host
instruments themselves, usually resulting in those instruments
being recorded at a discount from their face value. The discount
from the face value of the convertible debt, together with the
stated interest on the instrument, is amortized over the life of
the instrument through periodic charges to interest
expense.
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:
●
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 December 31, 2018. 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.
48
The
following table presents the fair value for those liabilities
measured on a recurring basis as of December 31, 2018 and
2017:
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
December 31, 2018
|
|||
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
Warrants issued in
connection with Distributor Debt
|
-
|
-
|
(114
)
|
(114
)
|
|
Warrants issued in
connection with Senior Secured Debt
|
-
|
-
|
(4,614
|
(4,614
)
|
|
Total
long-term liabilities at fair value
|
$
-
|
$
-
|
$
(4,728
|
$
(4,728
)
|
|
|
Fair Value at
December 31, 2017
|
|||
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
Warrants issued in
connection with Distributor Debt
|
-
|
-
|
(114
)
|
(114
)
|
|
Warrants issued in
connection with Short-Term Loans
|
-
|
-
|
(11
)
|
(114
)
|
|
Warrants issued in
connection with Senior Secured Debt
|
-
|
-
|
(7837
)
|
(7,837
)
|
|
Total
long-term liabilities at fair value
|
$
-
|
$
-
|
(7,962
)
|
$
(7,962
)
|
The
following is a summary of changes to Level 3 instruments during the
year ended December 31, 2018:
|
|
Fair Value
Measurements Using Significant Unobservable Inputs (Level
3)
|
|||
|
|
Short Term
Loans
|
Senior Secured
Debt
|
Distributor
Debt
|
Total
|
|
|
|
|
|
|
|
Balance,
December 31, 2017
|
$
(11
)
|
$
(7,837
)
|
$
(114
)
|
$
(7,962
)
|
|
Warrants
issued during the year
|
-
|
-
|
-
|
-
|
|
Change
in fair value during the year
|
11
|
3,223
|
-
|
3,234
|
|
Balance, December
31, 2018
|
$
-
|
$
(4,614
)
|
$
(114
)
|
$
(4,728
)
|
As of
December 31, 2018, the fair value of warrants was approximately
$4.7 million. A net change of approximately $3.2 million has been
recorded to the accompanying statement of operations for the year
ended.
4.
STOCKHOLDER’S DEFICIT
Common
Stock
The
Company has authorized 1,000,000,000 shares of common stock with
$0.001 par value, of which 2,669,348 were issued and outstanding as
of December 31, 2018. For the year ended December 31, 2017, there
were 1,000,000,000 authorized shares of common stock, of which
61,954 were issued and outstanding.
49
For the
year ended December 31, 2018, the Company issued 2,607,394 shares
of common stock as listed below:
|
Series C Preferred
Stock Conversions
|
107,974
|
|
Series C Preferred
Stock Dividends
|
52,450
|
|
Equity Financing
Conversions
|
87,500
|
|
Convertible Debt
Conversions
|
2,359,470
|
|
Total
|
2,607,394
|
|
Balance at December
31, 2017
|
61,954
|
|
Issued in
2018
|
2,607,394
|
|
Balance at December
31, 2018
|
2,669,348
|
On
January 22, 2017, the Company entered into a license agreement with
Shandong Yaohua Medical Instrument Corporation, or SMI, pursuant to
which the Company granted SMI an exclusive global license to
manufacture the LuViva device and related disposables (subject to a
carve-out for manufacture in Turkey) and exclusive distribution
rights in the Peoples Republic of China, Macau, Hong Kong and
Taiwan. In exchange for the license, SMI will pay a $1.0 million
licensing fee, payable in five installments through November 2017,
as well as a royalty on each disposable sold in the territories. As
of December 31, 2018, SMI had paid $750,000. SMI will also
underwrite the cost of securing approval of LuViva with the Chinese
Food and Drug Administration, or CFDA. Pursuant to the SMI
agreement, SMI must become capable of manufacturing LuViva in
accordance with ISO 13485 for medical devices by the second
anniversary of the SMI agreement, or else forfeit the license.
Based on the agreement, SMI must purchase no fewer than ten devices
(with up to two devices pushed to 2018 if there is a delay in
obtaining approval from the CFDA). SMI purchased five devices in
2017 and have not purchased any in 2018. In the three years
following CFDA approval, SMI must purchase a minimum of 3,500
devices (500 in the first year, 1,000 in the second, and 2,000 in
the third) or else forfeit the license. As manufacturer of the
devices and disposables, SMI will be obligated to sell each to us
at costs no higher than our current costs. 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
$1.0 million in shares of its common stock to SMI, in five
installments through October 2017, at a price per share equal to
the lesser of the average closing price for the five days prior to
issuance and $1.25. These shares have not been issued as of
December 31, 2018.
In
order to facilitate the SMI agreement, immediately prior to its
execution the Company entered into an agreement with Shenghuo
Medical, LLC, regarding its previous license to Shenghuo (see Note
7, Commitments and Contingencies). Under the terms of the new
agreement, Shenghuo agreed to relinquish its manufacturing license
and its distribution rights in SMI’s territories, and to
waive its rights under the original Shenghuo agreement, all for as
long as SMI performs under the SMI agreement. As consideration, the
Company agreed to split with Shenghuo the licensing fees and net
royalties from SMI that the Company will receive under the SMI
agreement. Should the SMI agreement be terminated, the Company have
agreed to re-issue the original license to Shenghuo under the
original terms. The Company’s COO and director, Mark Faupel,
is a shareholder of Shenghuo, and another director, Richard
Blumberg, is a managing member of Shenghuo.
During
2018, the Company had exercised its rights under the $10,000,000
GHS Equity Financing Agreement entered into on March 1, 2018, to
exercise puts of $47,320 for the issuance of 87,500 common stock
shares. Pursuant to the agreement a put maybe executed for a price
that is 80% of the “market price” which is the average
of the two lowest volume weighted average prices of the
Company’s common stock for 15 consecutive trading days
preceding the put date.
Preferred
Stock
The
Company has authorized 5,000,000 shares of preferred stock with a
$.001 par value. The board of directors has the authority to issue
these shares and to set dividends, voting and conversion rights,
redemption provisions, liquidation preferences, and other rights
and restrictions. The board of directors designated 525,000 shares
of preferred stock redeemable convertible preferred stock, none of
which remain outstanding, 33,000 shares of preferred stock as
Series B Preferred Stock, none of which remain outstanding, 9,000
shares of preferred stock as Series C Convertible Preferred Stock,
(the “Series C1 Preferred Stock”), of which 286 and 970
were issued and outstanding at December 31, 2018 and 2017,
respectively, and 20,250 shares of preferred stock as Series C1
Preferred Stock, of which 1,050 and 4,312 shares were issued and
outstanding at December 31, 2018 and 2017,
respectively.
50
On
August 31, 2018, the Company entered into agreements with certain
holders of the Company’s Series C1 Preferred Stock, including
the chairman of the Company’s board of directors, and the
Chief Operating Officer and a director of the Company (the
“Exchange Agreements”), pursuant to which those holders
separately agreed to exchange each share of the Series C1 Preferred
Stock held for one (1) share of the Company’s newly created
Series C2 preferred stock, par value $0.001 per share (the
“Series C2 Preferred Stock”). In total, for 3,262.25
shares of Series C1 Preferred Stock to be surrendered, the Company
issued 3,262.25 shares of Series C2 Preferred Stock.
Series C Convertible Preferred Stock
On June
29, 2015, the Company entered into a securities purchase agreement
with certain accredited investors, including John Imhoff and Mark
Faupel, members of the Board, for the issuance, exchange 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. Additionally, during October 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. For a total of Series C
convertible preferred stock issued of 7,903 shares. Of the 7,903
Series C convertible preferred stock issued, 1,835 were issued in
exchange of Series B convertible preferred stock. Therefore 6,068
Series C preferred stock were issued at a purchase price of $750
for gross proceeds of $4,551,000. The Company received net cash
proceeds of $3,698,000, after cash and non-cash expenses of
$853,000.
Pursuant to the
Series C certificate of designations, shares of Series C preferred
stock are convertible into common stock by their holder at any time
and may be mandatorily convertible upon the achievement of
specified average trading prices for the Company’s common
stock. At December 31, 2018, there were 286 shares outstanding with
a conversion price of $2.099 per share, such that each share of
Series C preferred stock would convert into approximately 476
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 number of unpaid dividends through the
Dividend End Date on the converted shares. At December 31, 2018,
the “make-whole payment” for a converted share of
Series C preferred stock would convert to 200 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 1 share 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
December 31, 2018, the exercise price per share was
$512,000.
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 directors John Imhoff and Mark Faupel, 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 29 shares of common stock. At December 31, 2018, there
were 1,050 shares outstanding with a conversion price of $2.099 per
share, such that each share of Series C preferred stock would
convert into approximately 381,098 shares of the Company’s
common stock.
51
On August 31, 2018, 3,262.25 shares of Series C1
Preferred Stock were surrendered, and the Company issued 3,262.25
shares of Series C2 Preferred Stock. At
December
31
, 2018, shares of Series C2 had a
conversion price of $2.099 per share, such that each share of
Series C preferred stock would convert into approximately 476
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.
Series C2 Convertible Preferred Stock
On
August 31, 2018, the Company entered into agreements with certain
holders of the Company’s Series C1 Preferred Stock, including
the chairman of the Company’s board of directors, and the
Chief Operating Officer and a director of the Company pursuant to
which those holders separately agreed to exchange each share of the
Series C1 Preferred Stock held for one (1) share of the
Company’s newly created Series C2 Preferred Stock. In total,
for 3,262.25 shares of Series C1 Preferred Stock to be surrendered,
the Company issued 3,262.25 shares of Series C2 Preferred
Stock.
The
terms of the Series C2 Preferred Stock are substantially the same
as the Series C1 Preferred Stock, except that (i) shares of Series
C1 Preferred Stock may not be convertible into the Company’s
common stock by their holder for a period of 180 days following the
date of the filing of the Certificate of Designation (the
“Lock-Up Period”); (ii) the Series C2 Preferred Stock
has the right to vote as a single class with the Company’s
common stock on an as-converted basis, notwithstanding the Lock-Up
Period; and (iii) the Series C2 Preferred Stock will automatically
convert into that number of securities sold in the next Qualified
Financing (as defined in the Exchange Agreement) determined by
dividing the stated value ($1,000 per share) of such share of
Series C2 Preferred Stock by the purchase price of the securities
sold in the Qualified Financing.
Warrants
The
following table summarizes transactions involving the
Company’s outstanding warrants to purchase common stock for
the year ended December 31, 2018:
|
|
Warrants
(Underlying
Shares)
|
|
Outstanding,
January 1, 2018
|
367,611
|
|
Issuances
|
23,184,246
|
|
Exercised
|
-
|
|
Canceled /
Expired
|
-
|
|
Outstanding,
December 31, 2018
|
23,551,857
|
52
The
Company had the following shares reserved for the warrants as of
December 31, 2018:
|
Warrants(Underlying
Shares)
|
|
|
Exercise
Price
|
|
Expiration
Date
|
|
13
|
|
(1)
|
$60,000.00 per
share
|
|
June
14, 2021
|
|
3
|
|
(2)
|
$32,000,000.00 per
share
|
|
April
23, 2019
|
|
7
|
|
(3)
|
$28,800,000.00 per
share
|
|
May 22,
2019
|
|
3
|
|
(4)
|
$24,320,000.00 per
share
|
|
September 10,
2019
|
|
1
|
|
(5)
|
$29,491,840.00 per
share
|
|
September 27,
2019
|
|
4
|
|
(6)
|
$18,003,200.00 per
share
|
|
December 2,
2019
|
|
2
|
|
(7)
|
$5,760,000.00 per
share
|
|
December 2,
2020
|
|
2
|
|
(8)
|
$7,040,000.00 per
share
|
|
December 2,
2020
|
|
1
|
|
(9)
|
$7,603,200.00 per
share
|
|
June
29, 2020
|
|
13
|
|
(9)
|
$512,000.00 per
share
|
|
September 21,
2020
|
|
24
|
|
(10)
|
$512,000.00 per
share
|
|
June
29, 2020
|
|
12
|
|
(11)
|
$512,000.00 per
share
|
|
September 4,
2020
|
|
1
|
|
(12)
|
$7,603,200.00 per
share
|
|
September 4,
2020
|
|
1
|
|
(13)
|
$512,000.00 per
share
|
|
October
23, 2020
|
|
1
|
|
(14)
|
$7,603,200.00 per
share
|
|
October
23, 2020
|
|
22,460,938
|
|
(15)
|
$0.06
per share
|
|
June
14, 2021
|
|
1,078,125
|
|
(16)
|
$0.06
per share
|
|
February 21,
2021
|
|
22
|
|
(17)
|
$11,137.28 per
share
|
|
June 6,
2021
|
|
250
|
|
(18)
|
$1.82
per share
|
|
February 13,
2022
|
|
25
|
|
(19)
|
$144.00
per share
|
|
May 16,
2022
|
|
688
|
|
(20)
|
$15.20
per share
|
|
November 16,
2020
|
|
250
|
|
(21)
|
$15.20
per share
|
|
December 28,
2020
|
|
75
|
|
(22)
|
$16.08
per share
|
|
January
10, 2021
|
|
4,262
|
|
(23)
|
$1.82
per share
|
|
March
19, 2021
|
|
1,875
|
|
(24)
|
$16.08
per share
|
|
March
20, 2021
|
|
63
|
|
(25)
|
$48.00
per share
|
|
April
30, 2021
|
|
125
|
|
(26)
|
$48.00
per share
|
|
May 17,
2021
|
|
125
|
|
(27)
|
$48.00
per share
|
|
May 25,
2021
|
|
500
|
|
(28)
|
$48.00
per share
|
|
June 1,
2021
|
|
1,875
|
|
(29)
|
$200.00
per share
|
|
August
22, 2021
|
|
625
|
|
(30)
|
$200.00
per share
|
|
September 18,
2021
|
|
1,250
|
|
(31)
|
$1.12
per share
|
|
October
23, 2021
|
|
19
|
|
(32)
|
$0.64
per share
|
|
November 20,
2021
|
|
375
|
|
(33)
|
$0.32
per share
|
|
December 5,
2021
|
|
100
|
|
(34)
|
$0.16
per share
|
|
December 19,
2021
|
|
188
|
|
(35)
|
$0.24
per share
|
|
December 23,
2021
|
|
14
|
|
(36)
|
$0.24
per share
|
|
December 27,
2021
|
|
23,551,857*
|
|
|
|
|
|
*
However, please refer to
Footnote 11 - CONVERTIBLE DEBT IN
DEFAULT
in the paragraph: Debt Restructuring for more
information regarding our warrants.
|
|
|
|
|
(1)
|
Issued
in June 2015 in exchange for warrants originally issued as part of
a May 2013 private placement.
|
|
|
(2)
|
Issued
to a placement agent in conjunction with an April 2014 private
placement.
|
|
|
(3)
|
Issued
to a placement agent in conjunction with a September 2014 private
placement.
|
|
|
(4)
|
Issued
as part of a September 2014 Regulation S offering.
|
|
|
(5)
|
Issued
to a placement agent in conjunction with a 2014 public
offering.
|
|
|
(6)
|
Issued
in June 2015 in exchange for warrants originally issued as part of
a 2014 public offering.
|
|
|
(7)
|
Issued
as part of a March 2015 private placement.
|
|
53
|
(8)
|
Issued
to a placement agent in conjunction with a June 2015 private
placement.
|
|
(9)
|
Issued
as part of a June 2015 private placement.
|
|
(10)
|
Issued
as part of a June 2015 private placement.
|
|
(11)
|
Issued
as part of a June 2015 private placement.
|
|
(12)
|
Issued
to a placement agent in conjunction with 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 February 2016 private placement.
|
|
(16)
|
Issued
to a placement agent in conjunction with a February 2016 private
placement.
|
|
(17)
(18)
|
Issued
pursuant to a strategic license agreement.
Issued
as part of a February 2017 private placement.
|
|
(19)
|
Issued
as part of a May 2017 private placement.
|
|
(20)
|
Issued
to investors for a loan in November 2017.
|
|
(21)
|
Issued
to investors for a loan in December 2017.
|
|
(22)
|
Issued
to investors for a loan in January 2018.
|
|
(23)
|
Issued
to investors for a loan in March 2018.
|
|
(24)
|
Issued
to investors for a loan in March 2018.
|
|
(25)
|
Issued
to investors for a loan in April 2018.
|
|
(26)
|
Issued
to investors for a loan in May 2018.
|
|
(27)
|
Issued
to investors for a loan in May 2018.
|
|
(28)
|
Issued
to investors for a loan in June 2018
|
|
(29)
|
Issued
to investors for a loan in August 2018
|
|
(30)
|
Issued
to investors for a loan in September 2018
|
|
(31)
|
Issued
to investors for a loan in October 2018
|
|
(32)
|
Issued
to investors for a loan in November 2018
|
|
(33)
|
Issued
to investors for a loan in December 2018
|
|
(34)
|
Issued
to investors for a loan in December 2018
|
|
(35)
|
Issued
to investors for a loan in December 2018
|
|
(36)
|
Issued
to investors for a loan in December 2018
|
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 (8). In addition, warrants subject to footnotes (1) and
(9)-(11), (13), and (15) – (36) 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 (1),
(15) and (16) in the table above, 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.
For the
warrants to footnote (15), the Company further agreed to amend the
warrant issued with the original senior secured convertible note,
to adjust the number of shares issuable upon exercise of the
warrant to equal the number of shares that will initially be
issuable upon conversion of the new convertible note (without
giving effect to any beneficial ownership limitations set forth in
the terms of the new convertible note).
The
warrants subject to footnote (1) 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 U.S.
FDA for LuViva and the date on which the common stock achieves an
average market price for 20 consecutive trading days of at least
$832,000.00 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 $103,680,000.00
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 (1) in the table above. The holders of the warrants
subject to footnote (1) 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.
The
warrants subject to footnote (4) 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
$73,728.00.
54
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 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.
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 1,482 shares of common stock
(but subject to exponential increase upon operation of certain
anti-dilution provisions), the Company issued or is obligated to
issue 21 shares of common stock and new warrants that, if exercised
as of the date hereof, would be exercisable for an aggregate of 271
shares of common stock. As of December 31, 2018, the Company had
issued 18 shares of common stock and rights to common stock shares
for 3. 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.
INCOME TAXES
The
Company has incurred net operating losses ("NOLs") since inception.
As of December 31, 2018, the company had NOL carryforwards
available through 2037 of approximately $77.2 million to offset its
future income tax liability. The company has recorded deferred tax
assets but reserved against, due to uncertainties related to
utilization of NOLs as well as calculation of effective tax rate.
Utilization of existing NOL carryforwards may be limited in future
years based on significant ownership changes. The company is in the
process of analyzing their NOL and has not determined if the
company has had any change of control issues that could limit the
future use of NOL. NOL carryforwards that were generated after 2017
may only be used to offset 80% of taxable income and are carried
forward indefinitely. Components of deferred taxes are as follow at
December 31 (in thousands):
|
|
2018
|
2017
|
|
Deferred tax
assets:
|
|
|
|
Warrant
liability
|
$
1,182
|
$
1,990
|
|
Accrued executive
compensation
|
498
|
447
|
|
Reserves and
other
|
488
|
301
|
|
Net operating loss
carryforwards
|
19,297
|
20,726
|
|
|
21,465
|
23,464
|
|
Valuation
allowance
|
(21,465
)
|
(23,464
)
|
|
Net deferred tax
assets
|
$
0
|
$
0
|
55
The
following is a summary of the items that caused recorded income
taxes to differ from taxes computed using the statutory federal
income tax rate for the years ended December 31:
|
|
2018
|
2017
|
|
Statutory federal
tax rate
|
21
%
|
34
%
|
|
State taxes, net of
federal benefit
|
4
|
4
|
|
Nondeductible
expenses
|
-
|
-
|
|
Valuation
allowance
|
(25
)
|
(38
)
|
|
Effective tax
rate
|
0
%
|
0
%
|
On
December 22, 2017, the U.S. government enacted comprehensive tax
reform commonly referred to as the Tax Cuts and Jobs Act
(“TCJA”). Under ASC 740, the effects of changes in tax
rates and laws are recognized in the period which the new
legislation is enacted. Among other things, the TCJA (1) reduces
the U.S. statutory corporate income tax rate from 34% to 21%
effective January 1, 2018 (2) eliminates the corporate alternative
minimum tax (3) eliminates the Section 199 deduction (4) changes
rules related to uses and limitations of net operating loss
carryforwards beginning after December 31, 2018.
The
Company applies the applicable authoritative guidance which
prescribes a comprehensive model for the manner in which a company
should recognize, measure, present and disclose in its financial
statements all material uncertain tax positions that the Company
has taken or expects to take on a tax return. As of December 31,
2018, the Company has no uncertain tax positions. There are no
uncertain tax positions for which it is reasonably possible that
the total amounts of unrecognized tax benefits will significantly
increase or decrease within twelve months from December 31,
2018.
The
Company files federal income tax returns and income tax returns in
various state tax jurisdictions with varying statutes of
limitations.
The
provision for income taxes as of the dates indicated consisted of
the following (in thousands) December 31:
|
|
2018
|
2017
|
|
Current
|
$
-
|
$
-
|
|
Deferred
|
-
|
-
|
|
Deferred
provision
|
-
|
-
|
|
Impact of change in
enacted tax rates
|
-
|
12,139
|
|
Change in valuation
allowance
|
-
|
(12,139
)
|
|
Total provision for
income taxes
|
$
-
|
$
-
|
In
2018, our effective tax rate differed from the U.S. federal
statutory rate due to the valuation allowance over our deferred tax
assets.
In
2017, our effective tax rate differed from the U.S. federal
statutory rate primarily due to re-measuring deferred income taxes
at the new statutory tax rate and the related change of the
valuation allowance over our deferred tax assets. At the date of
enactment of the Tax Cuts and Jobs Act, we re-measured our deferred
tax assets and liabilities using a rate of 21%, which is the rate
expected to be in place when such deferred assets and liabilities
are expected to reverse in the future. The re-measurement reduced
our net deferred tax assets by $12,139,043. The remeasurement was
offset by a change in our valuation allowance, resulting in there
being no impact on our deferred tax assets.
6.
STOCK OPTIONS
The
Company’s 1995 Stock Plan (the “Plan”) has
expired pursuant to its terms, so zero shares remained available
for issuance at December 31, 2018 and 2017. 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.
Due to
the 1:800 reverse stock split of all of the Company’s issued
and outstanding common stock was implemented on March 29, 2019. As
a result of the reverse stock split, every 800 shares of issued and
outstanding common stock were converted into 1 share of common
stock. This resulted in the number of stock options outstanding to
be zero.
56
7.
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 year.
As of
December 31, 2018, and 2017, there was no accrual recorded for any
potential losses related to pending litigation.
8.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
December 2009, the Company moved its offices, which comprise its
administrative, research and development, marketing and production
facilities to 5835 Peachtree Corners East, Suite B, Norcross,
Georgia 30092. The Company leased approximately 23,000 square feet
under a lease that expired in June 2017. In July 2017, the Company
leased the offices on a month to month basis. On February 23, 2018,
the Company modified its lease to reduce its occupancy to 12,835
square feet. The fixed monthly lease expense will be: $13,859 each
month for the period beginning January 1, 2018 and ending March 31,
2018; $8,022 each month for the period beginning April 1, 2018 and
ending March 31, 2019; $8,268 each month for the period beginning
April 1, 2019 and ending March 31, 2020; and $8,514 each month for
the period beginning April 1, 2020 and ending March 31, 2021. The
Company recognizes rent expense on a straight-line basis over the
estimated lease term. Future minimum rental payments at December
31, 2018 under non-cancellable operating leases for office space
and equipment are as follows (in thousands):
|
Year
|
Amount
|
|
2019
|
98
|
|
2020
|
101
|
|
2021
|
26
|
Related
Party Contracts
On June
5, 2016, the Company entered into a license agreement with Shenghuo
Medical, LLC pursuant to which the Company granted Shenghuo an
exclusive license to manufacture, sell and distribute LuViva in
Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar, Philippines,
Singapore, Thailand, and Vietnam. Shenghuo was already the
Company’s exclusive distributor in China, Macau and Hong
Kong, and the license extended to manufacturing in those countries
as well. Under the terms of the license agreement, once Shenghuo
was capable of manufacturing LuViva in accordance with ISO 13485
for medical devices, Shenghuo would pay the Company a royalty equal
to $2.00 or 20% of the distributor price (subject to a discount
under certain circumstances), whichever is higher, per disposable
distributed within Shenghuo’s exclusive territories. In
connection with the license grant, Shenghuo was to underwrite the
cost of securing approval of LuViva with Chinese Food and Drug
Administration. At its option, Shenghuo also would provide up to
$1.0 million in furtherance of the Company’s efforts to
secure regulatory approval for LuViva from the U.S. Food and Drug
Administration, in exchange for the right to receive payments equal
to 2% of the Company’s future sales in the United States, up
to an aggregate of $4.0 million. Pursuant to the license agreement,
Shenghuo had the option to have a designee appointed to the
Company’s board of directors (director Richard Blumberg is
that designee). 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 $300,000,
expected to be due the earlier of 90 days from issuance and
consummation of any capital raising transaction by the Company with
net cash proceeds of at least $1.0 million. 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 $11,137, 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 approximately 22 shares of common stock at an
exercise price equal to the conversion price of the note, subject
to customary anti-dilution adjustment. On January 22, 2017, the
Company entered into a license agreement with Shandong Yaohua
Medical Instrument Corporation, or SMI, pursuant to which the
Company granted SMI an exclusive global license to manufacture the
LuViva device and related disposables (subject to a carve-out for
manufacture in Turkey) and exclusive distribution rights in the
Peoples Republic of China, Macau, Hong Kong and Taiwan. In order to
facilitate the SMI agreement, immediately prior to its execution
the Company entered into an agreement with Shenghuo Medical, LLC,
regarding its previous license to Shenghuo. Under the terms of the
new agreement, Shenghuo agreed to relinquish its manufacturing
license and its distribution rights in SMI’s territories, and
to waive its rights under the original Shenghuo agreement, all for
as long as SMI performs under the SMI agreement.
57
On
September 6, 2016, the Company entered into a royalty agreement
with one of its directors, John Imhoff, and another stockholder,
Dolores Maloof, pursuant to which the Company sold to them a
royalty of future sales of single-use cervical guides for LuViva.
Under the terms of the royalty agreement, and for consideration of
$50,000, the Company will pay them an aggregate perpetual royalty
initially equal to $0.10, and from and after October 2, 2016, equal
to $0.20, for each disposable that the Company sells (or that is
sold by a third party pursuant to a licensing arrangement with the
Company).
9.
NOTES PAYABLE
As of
December 31, 2018, there have been no principal or interest
payments; however, Dr. Faupel and Dr. Cartwright did forgive debt.
In the July 24, 2018 exchange agreement, Dr Faupel, agreed to
exchange outstanding amounts due to him for loans, interest, bonus,
salary and vacation pay in the amount of $660,895 for a $207,111
promissory note. In the July 20, 2018 exchange agreement, Dr,
Cartwright, agreed to exchange outstanding amounts due to him for
loans, interest, bonus, salary and vacation pay in the amount of
$1,621,499 for a $319,204 promissory note. Debt due to officers has
been allocated to short-term and long-term debt, of which $266,286
and $353,957 was allocated to short-term debt, for December 31,
2018 and 2017, respectively. At December 31, 2018, $340,129 was
allocated to long-term debt and nil for December 31, 2017. At
December 31, 2018 the total undiscounted cash flow amount due was
$349,590 for Dr. Cartwright and $256,825 for Dr. Faupel. The
schedule below summarizes the detail of the outstanding
amounts:
For Dr.
Cartwright:
|
|
2018
|
|
Salary
|
$
337
|
|
Bonus
|
675
|
|
Vacation
|
-
|
|
Interest on
compensation
|
59
|
|
Loans to
Company
|
528
|
|
Interest on
loans
|
22
|
|
Total
outstanding
|
$
1,621
|
|
Amount
forgiven
|
1,302
|
|
Promissory
note issued in exchange
|
319
|
|
Unpaid
interest on promissory note
|
10
|
|
Allocated
to short-term debt
|
143
|
|
Allocated
to long-term debt
|
206
|
For Dr.
Faupel:
|
|
2018
|
|
Salary
|
$
134
|
|
Bonus
|
20
|
|
Vacation
|
95
|
|
Interest on
compensation
|
67
|
|
Loans to
Company
|
196
|
|
Interest on
loans
|
149
|
|
Total
outstanding
|
$
661
|
|
Amount
forgiven
|
454
|
|
Promissory
note issued in exchange
|
207
|
|
Unpaid
interest on promissory note
|
5
|
|
Allocated
to short-term debt
|
123
|
|
Allocated
to long-term debt
|
134
|
Notes
Payable in Default
At
December 31, 2018 and 2017, the Company maintained notes payable to
both related and non-related parties totaling $700,000 and
$1,091,000, respectively. These notes are short term, straight-line
amortizing notes. The notes carry annual interest rates between 0%
and 10%
and have default
rates as high a 20%.
The
Company is accruing interest at the default rate of 18.0% on two of
the loans.
58
On
March 30, 2018, the Company entered into a securities purchase
agreement with GHS Investments, LLC, an existing investor,
providing for the purchase by GHS of a promissory note in the
aggregate principal amount of $15,000. The note matured on November
30, 2018. The note accrues interest at a rate of 10% per year. The
note includes customary event of default provisions and a default
interest rate of the lesser of 20% per year or the maximum amount
permitted by law. Upon the occurrence of an event of default, the
holder of the note may require us to redeem the note. As of
December 31, 2018, the Company has net debt of $15,000 and accrued
interest of $1,262. In addition, at December 31, 2018, the Company
recorded a $6,429 beneficial conversion feature which was fully
amortized at year end.
The
following table summarizes the
Notes payable in default, including related
parties
:
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
Dr.
Imhoff
|
$
199
|
$
49
|
|
Dr.
Cartwright
|
2
|
327
|
|
Dr.
Faupel
|
-
|
304
|
|
Ms.
Rosenstock
|
50
|
50
|
|
Mr.
Fowler
|
26
|
26
|
|
Mr.
Mermelstein
|
211
|
180
|
|
GHS
|
15
|
-
|
|
GPB
|
17
|
17
|
|
Aquarius
|
108
|
107
|
|
Mr.
Blumberg
|
70
|
30
|
|
Mr.
James
|
2
|
1
|
|
Notes
payable in default, including related parties
|
$
700
|
$
1,091
|
Short
Term Notes Payable
At
December 31, 2018 and 2017, the Company maintained short term notes
payable to both related and non-related parties totaling $649,000
and $447,000, respectively. These notes are short term,
straight-line amortizing notes. The notes carry annual interest
rates between 5% and 10%.
In July
2018, the Company entered into a premium finance agreement to
finance its insurance policies totaling $112,094. The note requires
monthly payments of $12,711, including interest at 4.91% and
matures in May 2019. As of December 31, 2018, a balance of $50,535
remained. The balance due on insurance policies totaled $93,000 at
December 31, 2017.
On
August 22, 2018, the Company issued a promissory note to an
investor for $150,000 in aggregate principal amount of a 6%
promissory note for an aggregate purchase price of $157,500
(representing a $7,500 original issue discount). Pursuant to the
promissory note the entire unpaid principal balance on the
promissory note together with all accrued and unpaid interest and
loan origination fees, if any, at the choice of the investor, shall
be due and payable in full from the funds received by the Company
from a financing of at least $2,000,000, or at the option of the
investor, to be included in the Company’s financing under the
same terms as the new investors with the most favorable terms
making a cash investment. If the Company does not complete a
financing of at least $2,000,000 within 90 days of the execution of
this promissory note, any unpaid amounts shall be due in full to
the investor and shall accrue interest at 12% (instead of 6%) per
annum from the date thereof (90 days after execution), if not paid
in full. In addition, the investor will be granted 1,500,000
warrants under this promissory note. The warrants shall be issued
and vest upon the financing of at least $2,000,000 and expire on
the third anniversary of said financing. The warrant exercise price
shall be set at the same price as for warrants granted to the
investors with the most favorable terms as part of any $2,000,000
or more financing of the Company or $0.25, whichever is lower. The
warrants shall have standard anti-dilution features to protect the
holder from dilution due to down rounds of financing. As of
December 31, 2018, the Company had not repaid the note and
therefore the accrued interest rate increased to 12%.
59
On
September 19, 2018, the Company issued a promissory note to an
investor for $50,000 in aggregate principal amount of a 6%
promissory note for an aggregate purchase price of $52,500
(representing a $2,500 original issue discount). Pursuant to the
promissory note the entire unpaid principal balance on the
promissory note together with all accrued and unpaid interest and
loan origination fees, if any, at the choice of the investor, shall
be due and payable in full from the funds received by the Company
from a financing of at least $2,000,000, or at the option of the
investor, to be included in the Company’s financing under the
same terms as the new investors with the most favorable terms
making a cash investment. If the Company does not complete a
financing of at least $2,000,000 within 90 days of the execution of
this promissory note, any unpaid amounts shall be due in full to
the investor and shall accrue interest at 12% (instead of 6%) per
annum from the date thereof (90 days after execution), if not paid
in full. In addition, the investor will be granted 500,000 warrants
under this promissory note. The warrants shall be issued and vest
upon the financing of at least $2,000,000 and expire on the third
anniversary of said financing. The warrant exercise price shall be
set at the same price as for warrants granted to the investors with
the most favorable terms as part of any $2,000,000 or more
financing of the Company or $0.25, whichever is lower. The warrants
shall have standard anti-dilution features to protect the holder
from dilution due to down rounds of financing. As of December 31,
2018, the Company had not repaid the note and therefore the accrued
interest rate increased to 12%.
On July
20, 2018, the Company entered into an exchange agreement and
promissory note with Dr. Cartwright. The agreements were entered
into in order to extinguish and restructure current amounts owed to
Dr. Cartwright. In the exchange agreement Dr. Cartwright, agreed to
exchange outstanding amounts due to him for loans, interest, bonus,
salary and vacation pay in the amount of $1,621,499 for $319,204
promissory note. Pursuant to the exchange agreement the note will
bear interest at 6%. In addition, Dr. Cartwright will receive 125
stock options, with 31 vesting immediately and the remaining
vesting monthly over three years. As a result of the exchange
agreement, the Company recorded a gain for extinguishment of debt
of $840,391 and a capital contribution of $431,519. As of December
31, 2018, Dr. Cartwright’s total undiscounted cash flow
amount due was approximately $349,590 including
interest.
On July
24, 2018, the Company entered into an exchange agreement and
promissory note with Dr. Faupel. The agreements were entered into
in order to extinguish and restructure current amounts owed to Dr.
Faupel. In the exchange agreement Dr. Faupel, agreed to exchange
outstanding amounts due to him for loans, interest, bonus, salary
and vacation pay in the amount of $660,895 for $207,111 promissory
note. Pursuant to the exchange agreement the note will bear
interest at 6%. In addition, Dr. Faupel will receive 94 stock
options, with 31 vesting immediately and the remaining vesting
monthly over three years. Dr. Faupel will also receive 560 options
at $200.00 or market price, whichever is less; contingent on
shareholder vote and board approval. If the options are not
granted, the Company shall owe Dr. Faupel $113,000. As a result of
the exchange agreement, the Company recorded a gain for
extinguishment of debt of $199,079 and a capital contribution of
$234,990. As of December 31, 2018, Dr. Faupel’s total
undiscounted cash flow amount due was approximately $256,825
including interest.
The
following table summarizes the
Short-term notes payable, including related
parties
:
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
Dr.
Imhoff
|
$
135
|
$
33
|
|
Dr.
Cartwright
|
144
|
296
|
|
Dr.
Faupel
|
123
|
-
|
|
Mr.
Maloof
|
25
|
25
|
|
Mr.
Case
|
150
|
-
|
|
Mr.
Gould
|
50
|
-
|
|
K2
|
177
|
-
|
|
Premium
Finance (insurance)
|
50
|
93
|
|
Mr.
Blumberg
|
45
|
-
|
|
Short-term
notes payable, including related parties
|
$
899
|
$
447
|
60
The
following table summarizes the
Long-term notes payable, including related
parties
:
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
Dr.
Cartwright
|
206
|
-
|
|
Dr.
Faupel
|
134
|
-
|
|
Long-term
notes payable, including related parties
|
$
340
|
$
296
|
10.
SHORT-TERM CONVERTIBLE DEBT
Related
Party Convertible Note Payable – Short-Term
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.
As of December 31, 2018, the Company had a note due of $432,000.
The note accrues 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
$11,137.28, 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 22 shares of common stock at an
exercise price equal to the conversion price of the note, subject
to customary anti-dilution adjustment.
Convertible
Note Payable – Short-Term
On
December 28, 2016, the Company entered into a securities purchase
agreement with an investor for the issuance and sale to investor of
up to $330,000 in aggregate principal amount of 10% original
issuance discount convertible promissory notes, for an aggregate
purchase price of $300,000. On that date, the Company issued to the
investor a note in the principal amount of $222,000, for a purchase
price of $200,000. The note matures six months from their date of
issuance and, in addition to the 10% original issue discount,
accrue interest at a rate of 10% per year. The Company may prepay
the notes, in whole or in part, for 115% of outstanding principal
and interest until 30 days from issuance, for 125% of outstanding
principal and interest at any time from 31 to 60 days from
issuance, and for 130% of outstanding principal and interest at any
time from 61 days from issuance until immediately prior to the
maturity date. After six months from the date of issuance (i.e., if
the Company fails to repay all principal and interest due under the
notes at the maturity date), the investor may convert the notes, at
any time, in whole or in part, into shares of the Company’s
common stock, at a conversion price equal to 60% of the lowest
volume weighted average price of our common stock during the 20
trading days prior to conversion, subject to certain customary
adjustments and anti-dilution provisions contained in the note. The
convertible promissory note was paid off during 2017. As of
December 31, 2018, and 2017 the note had been converted and no
balance remained outstanding.
On
February 13, 2017, the Company entered into a securities purchase
agreement with Auctus Fund, LLC for the issuance and sale to Auctus
of $170,000 in aggregate principal amount of a 12% convertible
promissory note for an aggregate purchase price of $156,400
(representing a $13,600 original issue discount). On February 13,
2017, the Company issued the note to Auctus. Pursuant to the
purchase agreement, the Company also issued to Auctus a warrant
exercisable to purchase an aggregate of 250 shares of the
Company’s common stock. The warrant is exercisable at any
time, at an exercise price per share equal to $4.11 (110% of the
closing price of the common stock on the day prior to issuance),
subject to certain customary adjustments and price-protection
provisions contained in the warrant. The warrant has a five-year
term. The note matured nine months from the date of issuance and,
in addition to the original issue discount, accrues interest at a
rate of 12% per year. The Company could have prepaid the note, in
whole or in part, for 115% of outstanding principal and interest
until 30 days from issuance, for 125% of outstanding principal and
interest at any time from 31 to 60 days from issuance, and for 130%
of outstanding principal and interest at any time from 61 days from
issuance to 180 days from issuance. After six months from the date
of issuance, Auctus may convert the note, at any time, in whole or
in part, into shares of the Company’s common stock, at a
conversion price equal to the lower of the price offered in the
Company’s next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require the Company to redeem the
note (or convert it into shares of common stock) at 150% of the
outstanding principal balance plus accrued and unpaid interest. In
connection with the transaction, the Company agreed to reimburse
Auctus for $30,000 in legal and diligence fees, of which we paid
$10,000 in cash and $20,000 in restricted shares of common stock,
valued at $320.00 per share (a 42.86% discount to the closing price
of the common stock on the day prior to issuance). The Company
allocated proceeds of $90,000 to the warrants and common stock
issued in connection with the financing. As of December 31, 2018,
the notes had been converted and no balance remained outstanding as
compared to net debt and accrued interest of $76,664 for the period
ended December 31, 2017.
61
On May
17, 2017, the Company entered into a securities purchase agreement
with Eagle Equities, LLC, providing for the purchase by Eagle of
two convertible redeemable notes in the aggregate principal amount
of $88,000, with the first note being in the amount of $44,000, and
the second note being in the amount of $44,000. The first note was
fully funded on May 19, 2017, upon which the Company received
$40,000 of net proceeds (net of a 10% original issue discount). The
second note was issued on December 21, 2017 and was initially paid
for by the issuance of an offsetting $40,000 secured note issued by
Eagle. Eagle was required to pay the principal amount of its
secured note in cash and in full prior to executing any conversions
under the second note the Company issued. The notes bear an
interest rate of 8%, and are due and payable on May 17, 2018. The
notes may be converted by Eagle at any time after five months from
issuance into shares of our common stock (as determined in the
notes) calculated at the time of conversion, except for the second
note, which also requires full payment by Eagle of the secured note
it issued to us before conversions may be made. The conversion
price of the notes will be equal to 60% of the lowest trading price
of the common stock for the 20 prior trading days including the day
upon which the Company receive a notice of conversion. The notes
may be prepaid in accordance with the terms set forth in the notes.
The notes also contain certain representations, warranties,
covenants and events of default including if the Company are
delinquent in our periodic report filings with the SEC, and
increases in the amount of the principal and interest rates under
the notes in the event of such defaults. In the event of default,
at Eagle’s option and in its sole discretion, Eagle may
consider the notes immediately due and payable. As of December 31,
2018, the notes had been converted and no balance remained
outstanding, as compared to net debt of $41,322, including
unamortized original issue discount of $5,214, unamortized and debt
issuance costs of $11,160 for the period ended December 31, 2017.
In addition, at December 31, 2018, the Company recorded a $29,333
beneficial conversion feature which was fully amortized at year
end.
On May
17, 2017, the Company entered into a securities purchase agreement
with Adar Bays, LLC, providing for the purchase by Adar of two
convertible redeemable notes in the aggregate principal amount of
$88,000, with the first note being in the amount of $44,000, and
the second note being in the amount of $44,000. The first note was
fully funded on May 19, 2017, upon which the Company received
$40,000 of net proceeds (net of a 10% original issue discount). The
second note was issued on December 21, 2017 and was initially paid
for by the issuance of an offsetting $40,000 secured note issued by
Adar. Adar was required to pay the principal amount of its secured
note in cash and in full prior to executing any conversions under
the second note the Company issued. The notes bear an interest rate
of 8%, and are due and payable on May 17, 2018. The notes may be
converted by Adar at any time after five months from issuance into
shares of our common stock (as determined in the notes) calculated
at the time of conversion, except for the second note, which also
requires full payment by Adar of the secured note it issued to us
before conversions may be made. The conversion price of the notes
will be equal to 60% of the lowest trading price of the common
stock for the 20 prior trading days including the day upon which
the Company receive a notice of conversion. The notes may be
prepaid in accordance with the terms set forth in the notes. The
notes also contain certain representations, warranties, covenants
and events of default including if the Company are delinquent in
our periodic report filings with the SEC, and increases in the
amount of the principal and interest rates under the notes in the
event of such defaults. In the event of default, at Adar’s
option and in its sole discretion, Adar may consider the notes
immediately due and payable. As of December 31, 2018, the notes had
been converted and no balance remained outstanding, as compared to
net debt of $42,216, including unamortized original issue discount
of $5,214, unamortized and debt issuance costs of $11,160 for the
period ended December 31, 2017. In addition, at December 31, 2018,
the Company recorded a $29,333 beneficial conversion feature which
was fully amortized at year end.
On
August 18, 2017, the Company entered into a securities purchase
agreement with Power Up Lending Group Ltd., providing for the
purchase by Power Up from the Company of a convertible note in the
aggregate principal amount of $53,000. The note bears an interest
rate of 12%, and is due and payable on May 19, 2018. The note may
be converted by Power Up at any time after 180 days from issuance
into shares of Company’s common stock at a conversion price
equal to 58% of the average of the lowest two-day trading prices of
the common stock during the 15 trading days prior to conversion.
The note may be prepaid in accordance with its terms, at premiums
ranging from 15% to 40%, depending on the time of prepayment. The
note contains certain representations, warranties, covenants and
events of default, including if the Company is delinquent in its
periodic report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, 2018, the notes had been converted and no balance
remained outstanding as compared to a net debt of $46,405,
including unamortized debt issuance costs of $6,595 at December 31,
2017. In addition, at December 31, 2018, the Company recorded a
$38,379 beneficial conversion feature which was fully amortized at
year end.
On
October 12, 2017, the Company entered into a securities purchase
agreement with Power Up Lending Group Ltd. (“Power
Up”), providing for the purchase by Power Up from the Company
of a convertible note in the aggregate principal amount of $53,000.
The note bears an interest rate of 12%, and is due and payable on
July 20, 2018. The note may be converted by Power Up at any time
after 180 days from issuance into shares of Company’s common
stock at a conversion price equal to 58% of the average of the
lowest two-day trading prices of the common stock during the 15
trading days prior to conversion. The note may be prepaid in
accordance with its terms, at premiums ranging from 15% to 40%,
depending on the time of prepayment. The note contains certain
representations, warranties, covenants and events of default,
including if the Company is delinquent in its periodic report
filings with the SEC, and provides for increases in principal and
interest in the event of such defaults. As of December 31, 2018,
the note had been converted and no balance remained outstanding, as
compared to net debt of $47,288, including unamortized debt
issuance costs of $5,722 for the period ended December 31, 2017. In
addition, at December 31, 2018, the Company recorded a $38,379
beneficial conversion feature which was fully amortized at year
end.
62
On
December 11, 2017, the Company entered into a securities purchase
agreement with Power Up Lending Group Ltd. (“Power
Up”), providing for the purchase by Power Up from the Company
of a convertible note in the aggregate principal amount of $53,000.
The note bears an interest rate of 12%, and is due and payable on
September 20, 2018. The note may be converted by Power Up at any
time after 180 days from issuance into shares of Company’s
common stock at a conversion price equal to 58% of the average of
the lowest two-day trading prices of the common stock during the 15
trading days prior to conversion. The note may be prepaid in
accordance with its terms, at premiums ranging from 15% to 40%,
depending on the time of prepayment. The note contains certain
representations, warranties, covenants and events of default,
including if the Company is delinquent in its periodic report
filings with the SEC, and provides for increases in principal and
interest in the event of such defaults. As of December 31, 2018,
the note had been converted and no balance remained outstanding, as
compared to net debt of $45,565, including unamortized debt
issuance costs of $7,435 for the period ended December 31,
2017.
On
February 12, 2018, the Company entered into a securities purchase
agreement with Adar Bays, LLC, providing for the purchase by Adar
of three convertible redeemable notes in the aggregate principal
amount of $285,863, with the first note being in the amount of
$95,288, and the second and third note being in the same amount.
The first note was fully funded on February 13, 2018, upon which
the Company received $75,000 of net proceeds (net of a 10% original
issue discount). The notes bear an interest rate of 8% and were due
and payable on October 12, 2018. The notes may be converted by Adar
at any time after eight months from issuance into shares of our
common stock (as determined in the notes) calculated at the time of
conversion, except for the second note, which also requires full
payment by Adar of the secured note it issued to us before
conversions may be made. The conversion price of the notes will be
equal to 60% of the lowest trading price of the common stock for
the 20 prior trading days including the day upon which the Company
receive a notice of conversion. The notes may be prepaid in
accordance with the terms set forth in the notes. The notes also
contain certain representations, warranties, covenants and events
of default including if the Company are delinquent in our periodic
report filings with the SEC and increases in the amount of the
principal and interest rates under the notes in the event of such
defaults. In the event of default, at Adar’s option and in
its sole discretion, Adar may consider the notes immediately due
and payable. As of December 31, 2018, the note had been converted
and no balance remained outstanding. In addition, at December 31,
2018, the Company recorded a $63,525 beneficial conversion feature
which was fully amortized at year end.
On
February 22, 2018, the Company entered into a securities purchase
agreement with Power Up, providing for the purchase by Power Up
from the Company of a convertible note in the aggregate principal
amount of $53,000. The note bears an interest rate of 12% and is
due and payable on November 30, 2018. The note may be converted by
Power Up at any time after 180 days from issuance into shares of
Company’s common stock at a conversion price equal to 58% of
the average of the lowest two-day trading prices of the common
stock during the 15 trading days prior to conversion. The note may
be prepaid in accordance with its terms, at premiums ranging from
15% to 40%, depending on the time of prepayment. The note contains
certain representations, warranties, covenants and events of
default, including if the Company is delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, the note had been converted and no balance remained
outstanding. In addition, at December 31, 2018, the Company
recorded a $38,379 beneficial conversion feature which was fully
amortized at year end.
On
March 12, 2018, the Company entered into a securities purchase
agreement with Eagle Equities, LLC, providing for the purchase by
Eagle of a convertible redeemable note in the principal amount of
$66,667. The note was fully funded on March 14, 2018, upon which
the Company received $51,000 of net proceeds (net of a 10% original
issue discount and other expenses). The note bears an interest rate
of 8% and are due and payable on March 12, 2019. The note may be
converted by Eagle at any time after twelve months from issuance
into shares of our common stock (as determined in the notes)
calculated at the time of conversion, except for the second note,
which also requires full payment by Eagle of the secured note it
issued to us before conversions may be made. The conversion price
of the notes will be equal to 60% of the lowest trading price of
the common stock for the 20 prior trading days including the day
upon which the Company receive a notice of conversion. The notes
may be prepaid in accordance with the terms set forth in the notes.
The notes also contain certain representations, warranties,
covenants and events of default including if the Company are
delinquent in our periodic report filings with the SEC and
increases in the amount of the principal and interest rates under
the notes in the event of such defaults. In the event of default,
at Eagle’s option and in its sole discretion, Eagle may
consider the notes immediately due and payable. As of December 31,
2018, the outstanding balance was $3,095, including unamortized
debt issuance costs of $1,751, and unamortized discount of $1,297
and accrued interest of $177. In addition, at December 31, 2018,
the Company recorded a $44,444 beneficial conversion feature which
$35,701 was amortized leaving and unamortized balance of
$8,743.
63
On
April 30, 2018, the Company entered into a securities purchase
agreement with Power Up, providing for the purchase by Power Up
from the Company of a convertible note in the aggregate principal
amount of $103,000. The note bears an interest rate of 12% and is
due and payable on February 15, 2019. The note may be converted by
Power Up at any time after 180 days from issuance into shares of
Company’s common stock at a conversion price equal to 58% of
the average of the lowest two-day trading prices of the common
stock during the 15 trading days prior to conversion. The note may
be prepaid in accordance with its terms, at premiums ranging from
15% to 40%, depending on the time of prepayment. The note contains
certain representations, warranties, covenants and events of
default, including if the Company is delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, the note had been converted and no balance remained
outstanding. In addition, at December 31, 2018, the Company
recorded a $74,586 beneficial conversion feature which was fully
amortized at year end.
On June
7, 2018, the Company entered into a securities purchase agreement
with Power Up, providing for the purchase by Power Up from the
Company of a convertible note in the aggregate principal amount of
$53,000. The note bears an interest rate of 12% and is due and
payable on March 30, 2019. The note may be converted by Power Up at
any time after 180 days from issuance into shares of
Company’s common stock at a conversion price equal to 58% of
the average of the lowest two-day trading prices of the common
stock during the 15 trading days prior to conversion. The note may
be prepaid in accordance with its terms, at premiums ranging from
15% to 40%, depending on the time of prepayment. The note contains
certain representations, warranties, covenants and events of
default, including if the Company is delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, 2018, the note had been fully converted. In addition,
at December 31, 2018, the Company recorded a $38,379 beneficial
conversion feature which was fully amortized at year
end.
The
following table summarizes the
Convertible notes payable
:
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
Shenghuo
|
$
432
|
$
357
|
|
Eagle
|
3
|
88
|
|
Auctus
|
-
|
91
|
|
Debt Discount to be
amortized
|
(10
)
|
-
|
|
Debt Discount
related to Beneficial Conversion
|
(45
)
|
-
|
|
Power
Up
|
-
|
159
|
|
Adar
|
-
|
88
|
|
Convertible
notes payable
|
$
380
|
$
783
|
11.
CONVERTIBLE NOTES IN DEFAULT
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) $20,000.00 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
$12,000.00, 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.
64
The
balance due on the note was $151,974 and $184,245 at December 31,
2018 and December 31, 2017, respectively. The balance was reduced
by $306,863 as part of a debt restructuring on December 7,
2016.
Total
debt issuance costs as originally capitalized were approximately
$130,000. This amount was amortized over nine months and was fully
amortized as of December 31, 2015. The original issue discount of
$560,000 was fully amortized as of December 31, 2015.
On
November 2, 2016, the Company entered into a lockup and exchange
agreement with GHS Investments, LLC, holder of approximately
$221,000 in outstanding principal amount of the Company’s
secured promissory note and all the outstanding shares of the its
Series C preferred stock. Pursuant to the agreement, upon the
effectiveness of the 1:800 reverse stock split and continuing for
45 days after, GHS and its affiliates were prohibited from
converting any portion of the secured promissory note or any of the
shares of Series C preferred stock or selling any of the
Company’s securities that they beneficially owned. The
Company agreed that, upon consummation of its next financing, the
Company 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 of the same type that the Company
separately issue in the next qualifying financing it undertakes, on
a dollar-for-dollar basis in a private placement
exchange.
Senior Secured Promissory Note
On
February 11, 2016, the Company entered into a securities purchase
agreement with GPB Debt Holdings II LLC 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, GPB 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 is required to pay
monthly interest coupons and beginning nine months after issuance,
the Company 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 $640.00 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 GPB 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 the lesser of 22% or the maximum
permitted by law. The Company has accrued $117,000 for past due
interest payments at December 31, 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 December 31, 2018, had not done so). As of December 31, 2018,
the balance due on the convertible debt was $2,198,236 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
$366,373. In addition, the Company has accrued $699,743 of interest
expense for the year ended December 31, 2018. As of December 31,
2017, the balance due on the convertible debt was $2,136,863 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. In addition, the Company has accrued $498,91043 of
interest expense for the year ended December 31, 2017. The
convertible note is secured by a lien on all the Company’s
assets, including its intellectual property, pursuant to a security
agreement entered into by the Company and GPB.
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 December 31, 2018,
the exercise price had been adjusted to $0.06 and the number of
common stock shares exchangeable for was 22,460,938. As of December
31, 2018, the effective interest rate considering debt costs was
29%.
65
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 GPB 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 December 31, 2018, and December 31, 2017, GPB had
earned approximately $31,000 and $29,000 in royalties,
respectively.
Debt Restructuring
On December 7, 2016, the Company entered into an
exchange agreement with GPB with regard to the $1,525,000 in
outstanding principal amount of senior secured convertible note
originally issued to GPB on February 11, 2016, and the $306,863 in
outstanding principal amount of the Company’s secured
promissory note that GPB holds (see “—Secured
Promissory Note”). Pursuant to the exchange agreement, upon
completion of the next financing resulting in at least $1 million
in cash proceeds, GPB will exchange both securities for a new
convertible note in principal amount of $1,831,863. The new
convertible note will mature on the second anniversary of issuance
and will accrue interest at a rate of 19% per year. The Company
will pay monthly interest coupons and, beginning one year after
issuance, will pay amortized quarterly principal payments. Subject
to resale restrictions under Federal securities laws and the
availability of sufficient authorized but unissued shares of the
Company’s common stock, the new convertible note will be
convertible at any time, in whole or in part, at the holder’s
option, into shares of common stock, at a conversion price equal to
the price offered in the qualifying financing that triggers the
exchange, subject to certain customary adjustments and
anti-dilution provisions contained in the new convertible note. The
new convertible note will include customary event of default
provisions and a default interest rate of the lesser of 21% or the
maximum amount permitted by law. Upon the occurrence of an event of
default, GPB will be entitled to require the Company to redeem the
new convertible note at 120% of the outstanding principal balance.
The new convertible note will be secured by a lien on all the
Company’s assets, including its intellectual property,
pursuant to the security agreement entered into by the Company and
GPB in connection with the issuance of the original senior secured
convertible note.
Additionally, the Company further agreed to amend
the warrant issued with the original senior secured convertible
note, to adjust the number of shares issuable upon exercise of the
warrant to equal the number of shares that will initially be
issuable upon conversion of the new convertible note (without
giving effect to any beneficial ownership limitations set forth in
the terms of the new convertible note). As an inducement to GPB to
enter into these transactions, the Company agreed to increase the
royalty payable to GPB pursuant to its consulting agreement with us
on December 7, 2016 from 3.5% to 3.85% of revenues from the sales
of the Company’s products.
On
August 8, 2017, the Company entered into a forbearance agreement
with GPB, with regard to the senior secured convertible note. Under
the forbearance agreement, GPB has agreed to forbear from
exercising certain of its rights and remedies (but not waive such
rights and remedies), arising as a result of the Company’s
failure to pay the monthly interest due and owing on the note. In
consideration for the forbearance, the Company agreed to waive,
release, and discharge GPB from all claims against GPB based on
facts existing on or before the date of the forbearance agreement
in connection with the note, or the dealings between the Company
and GPB, or the Company’s equity holders and GPB, in
connection with the note. Pursuant to the forbearance agreement,
the Company has reaffirmed its obligations under the note and
related documents and executed a confession of judgment regarding
the amount due under the note, which GPB may file upon any future
event of default by the Company. During the forbearance period, the
Company must continue to comply will all the terms, covenants, and
provisions of the note and related documents.
The
“Forbearance Period” shall mean the period beginning on
the date hereof and ending on the earliest to occur of: (i) the
date on which Lender delivers to Company a written notice
terminating the Forbearance Period, which notice may be delivered
at any time upon or after the occurrence of any Forbearance Default
(as hereinafter defined), and (ii) the date Company repudiates or
asserts any defense to any Obligation or other liability under or
in respect of this Agreement or the Transaction Documents or
applicable law, or makes or pursues any claim or cause of action
against Lender; (the occurrence of any of the foregoing clauses (i)
and (ii), a “Termination Event”). As used herein, the
term “Forbearance Default” shall mean: (A) the
occurrence of any Default or Event of Default other than the
Specified Default; (B) the failure of Company to timely comply with
any material term, condition, or covenant set forth in this
Agreement; (C) the failure of any representation or warranty made
by Company under or in connection with this Agreement to be true
and complete in all material respects as of the date when made; or
(D) Lender’s reasonable belief that Company: (1) has ceased
or is not actively pursuing mutually acceptable restructuring or
foreclosure alternatives with Lender; or (2) is not negotiating
such alternatives in good faith. Any Forbearance Default will not
be effective until one (1) Business Day after receipt by Company of
written notice from Lender of such Forbearance Default. Any
effective Forbearance Default shall constitute an immediate Event
of Default under the Transaction Documents.
66
Other
Convertible Debt in Default
On May
18, 2017, the Company entered into a securities purchase agreement
with GHS Investments, LLC, an existing investor, providing for the
purchase by GHS of a convertible promissory note in the aggregate
principal amount of $66,000, for $60,000 in net proceeds
(representing a 10% original issue discount). The transaction
closed on May 19, 2017. The note matures upon the earlier of our
receipt of $100,000 from revenues, loans, investments, or any other
means (other than the Eagle and Adar bridge financings) and
December 31, 2017. In addition to the 10% original issue discount,
the note accrues interest at a rate of 8% per year. The Company may
prepay the note, in whole or in part, for 110% of outstanding
principal and interest until 30 days from issuance, for 120% of
outstanding principal and interest at any time from 31 to 60 days
from issuance and for 140% of outstanding principal and interest at
any time from 61 days to 180 days from issuance. The note may not
be prepaid after 180 days. After six months from the date of
issuance, the note will become convertible, at any time thereafter,
in whole or in part, at the holder’s option, into shares of
our common stock, at a conversion price equal to 60% of the lowest
trading price during the 25 trading days prior to conversion. The
note includes customary event of default provisions and a default
interest rate of the lesser of 20% per year or the maximum amount
permitted by law. Upon the occurrence of an event of default, the
holder of the note may require us to redeem the note (or convert it
into shares of common stock) at 150% of the outstanding principal
balance. As of December 31, 2018, the Company’s total
outstanding amount was $94,411, (which includes $37,926 for a
default penalty) and accrued interest of $517. GHS converted
$29,642 of principal and accrued interest payable. This was
compared to net debt of $66,000 for the period ended December 31,
2017.
On
March 20, 2018, the Company entered into a securities purchase
agreement with Auctus Fund, LLC for the issuance and sale to Auctus
of $150,000 in aggregate principal amount of a 12% convertible
promissory note. On March 20, 2018, the Company issued the note to
Auctus. Pursuant to the purchase agreement, the Company also issued
to Auctus a warrant exercisable to purchase an aggregate of 4,262
shares of the Company’s common stock. The warrant is
exercisable at any time, at an exercise price per share equal to
$1.82 (110% of the closing price of the common stock on the day
prior to issuance), subject to certain customary adjustments and
price-protection provisions contained in the warrant. The warrant
has a five-year term. The note matures nine months from the date of
issuance and accrues interest at a rate of 12% per year. The
Company could have prepaid the note, in whole or in part, for 115%
of outstanding principal and interest until 30 days from issuance,
for 125% of outstanding principal and interest at any time from 31
to 60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance to 180 days from
issuance. After nine months from the date of issuance, Auctus may
convert the note, at any time, in whole or in part, into shares of
the Company’s common stock, at a conversion price equal to
the lower of the price offered in the Company’s next public
offering or a 40% discount to the average of the two lowest trading
prices of the common stock during the 20 trading days prior to the
conversion, subject to certain customary adjustments and
price-protection provisions contained in the note. The note
includes customary events of default provisions and a default
interest rate of 24% per year. Upon the occurrence of an event of
default, Auctus may require the Company to redeem the note (or
convert it into shares of common stock) at 150% of the outstanding
principal balance plus accrued and unpaid interest. As of December
31, 2018, the Company has net debt of $133,870 and accrued interest
of $635. In addition, at December 31, 2018, the Company recorded a
$97,685 beneficial conversion feature which was fully amortized at
year end.
Upon the occurrence of an
event of default, Auctus may require the Company to redeem the note
(or convert it into shares of common stock) at 150% of the
outstanding principal balance plus accrued and unpaid interest,
this has not occurred as of May 6, 2019.
On May
17, 2018, the Company entered into a securities purchase agreement
with GHS Investments, LLC, an existing investor, providing for the
purchase by GHS of a convertible promissory note in the aggregate
principal amount of $9,250 (with $750 representing a 10% original
issue discount and $1,000 for transaction costs). The note matures
on June 17, 2019. In addition to the 10% original issue discount,
the note accrues interest at a rate of 10% per year. The Company
may prepay the note, in whole or in part, for 110% of outstanding
principal and interest until 30 days from issuance, for 120% of
outstanding principal and interest at any time from 31 to 60 days
from issuance and for 140% of outstanding principal and interest at
any time from 61 days to 180 days from issuance. The note may not
be prepaid after 180 days. After nine months from the date of
issuance, the note will become convertible, at any time thereafter,
in whole or in part, at the holder’s option, into shares of
our common stock, at a conversion price equal to 30% of the lowest
trading price during the 25 trading days prior to conversion (if
note cannot be converted due to issues with DTC then rate increases
to 40%). The note includes customary event of default provisions
and a default interest rate of the lesser of 20% per year or the
maximum amount permitted by law. Upon the occurrence of an event of
default, the holder of the note may require us to redeem the note
(or convert it into shares of common stock) at 150% of the
outstanding principal balance. As of December 31, 2018, the Company
has net debt of $14,187 (which includes $4,937 for a default
penalty), including unamortized debt issuance costs of $424,
unamortized discount of $318 and accrued interest of $1,135. In
addition, at December 31, 2018, the Company recorded a $3,964
beneficial conversion feature which $2,280 was amortized leaving
and unamortized balance of $1,685.
67
On June
22, 2018, the Company entered into a securities purchase agreement
with GHS Investments, LLC, an existing investor, providing for the
purchase by GHS of a convertible promissory note in the aggregate
principal amount of $68,000 (with $6,000 representing a 10%
original issue discount and $2,000 for transaction costs). The note
matures on June 22, 2019. In addition to the 10% original issue
discount, the note accrues interest at a rate of 10% per year. The
Company may prepay the note, in whole or in part, for 110% of
outstanding principal and interest until 30 days from issuance, for
120% of outstanding principal and interest at any time from 31 to
60 days from issuance and for 140% of outstanding principal and
interest at any time from 61 days to 180 days from issuance. The
note may not be prepaid after 180 days. After nine months from the
date of issuance, the note will become convertible, at any time
thereafter, in whole or in part, at the holder’s option, into
shares of our common stock, at a conversion price equal to 30% of
the lowest trading price during the 25 trading days prior to
conversion (if note cannot be converted due to issues with DTC then
rate increases to 40%). The note includes customary event of
default provisions and a default interest rate of the lesser of 20%
per year or the maximum amount permitted by law. Upon the
occurrence of an event of default, the holder of the note may
require us to redeem the note (or convert it into shares of common
stock) at 150% of the outstanding principal balance. As of December
31, 2018, the Company has net debt of $103,285 (which includes
$35,285 for a default penalty), including unamortized debt issuance
costs of $3,318, unamortized discount of $2,844 and accrued
interest of $8,263. In addition, at December 31, 2018, the Company
recorded a $29,143 beneficial conversion feature which $15,288 was
amortized leaving and unamortized balance of $13,855.
On July
3, 2018, the Company entered into a securities purchase agreement
with Auctus Fund, LLC for the issuance and sale to Auctus of
$89,250 in aggregate principal amount of a 12% convertible
promissory note. On July 3, 2018, the Company issued the note to
Auctus. The note matures on April 3, 2019 and accrues interest at a
rate of 12% per year. The Company could have prepaid the note, in
whole or in part, for 115% of outstanding principal and interest
until 30 days from issuance, for 125% of outstanding principal and
interest at any time from 31 to 60 days from issuance, and for 130%
of outstanding principal and interest at any time from 61 days from
issuance to 180 days from issuance. After nine months from the date
of issuance, Auctus may convert the note, at any time, in whole or
in part, into shares of the Company’s common stock, at a
conversion price equal to the lower of the price offered in the
Company’s next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require the Company to redeem the
note (or convert it into shares of common stock) at 150% of the
outstanding principal balance plus accrued and unpaid interest. As
of December 31, 2018, the Company has net debt of $81,528,
including unamortized original issue discount of $1,443,
unamortized debt issuance costs of $6,279 and accrued interest of
$5,385. In addition, at December 31, 2018, the Company recorded a
$59,500 beneficial conversion feature which $39,233 was amortized
leaving and unamortized balance of $20,267.
Upon the occurrence of an event of default, Auctus
may require the Company to redeem the note (or convert it into
shares of common stock) at 150% of the outstanding principal
balance plus accrued and unpaid interest, this has not occurred as
of May 6, 2019.
The
following table summarizes the
Convertible notes in
default
:
|
|
Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
GPB
|
$
2,198
|
$
2,137
|
|
GHS
|
364
|
184
|
|
Auctus
|
223
|
-
|
|
Debt Discount to be
amortized
|
(7
)
|
-
|
|
Convertible
notes in default
|
$
2,778
|
$
2,321
|
12.
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
year.
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 year,
plus Series C convertible preferred stock, convertible debt,
convertible preferred dividends and warrants convertible into
common stock shares.
68
The
following table sets forth pertinent data relating to the
computation of basic and diluted net loss per share attributable to
common shareholders.
|
In
thousands
|
December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Net income (loss)
|
$
900
|
$
(10,974
)
|
|
Basic weighted average number of shares outstanding
|
462
|
11
|
|
Net income (loss) per share (basic)
|
$
1.95
|
$
997.64
|
|
Diluted weighted average number of shares outstanding
|
65,227
|
-
|
|
Net income (loss) per share (diluted)
|
$
0.0138
|
-
|
|
|
|
|
|
Dilutive equity instruments (number of equivalent
units):
|
|
|
|
Stock options
|
-
|
-
|
|
Preferred stock
|
-
|
-
|
|
Convertible debt
|
42,226
|
-
|
|
Warrants
|
22,530
|
-
|
|
Total Dilutive instruments
|
65,227
|
-
|
13. SUBSEQUENT
EVENTS
On
January 7, 2019 the Company entered into a promissory note for
$25,000 with Richard Blumberg. The entire unpaid principal balance
due on this Promissory Note (this "Note"), together with all
accrued and unpaid interest and fees, if any, at the choice of Mr.
Blumberg, shall be due and payable in full from the funds received
by the Company from a financing of at least $1,000,000 or to be
included as part of the Company's financing. Should the Company not
complete a financing of at least $1,000,000 within 90 days of the
execution of this Promissory Note, any unpaid amounts shall be due
in full to the Mr. Blumberg and shall accrue 6% annual interest
from the date thereof if not paid in full. In addition, Mr.
Blumberg shall be granted ten common stock warrants for each dollar
loaned to the Company under this Promissory Note, representing 313
warrants. The warrants shall vest upon the financing of at least
$1,000,000 and expire on the third anniversary of said financing.
The warrant exercise price shall be set at market price as defined
by the five-day volume adjusted weighted price (VWAP), or
alternatively the same as for warrants granted to investors as part
of any $1 million dollar or more financing of the
Company.
On
January 17, 2019 the Company entered into a promissory note for
$15,000 with Bryan Mamula. The entire unpaid principal balance due
on this Promissory Note (this "Note"), together with all accrued
and unpaid interest and fees, if any, at the choice of Mr. Mamula,
shall be due and payable in full from the funds received by the
Company from a financing of at least $1,000,000 or to be included
as part of the Company's financing. Should the Company not complete
a financing of at least $1,000,000 within 90 days of the execution
of this Promissory Note, any unpaid amounts shall be due in full to
Mr. Mamula and shall accrue 6% annual interest from the date
thereof if not paid in full. In addition, Mr. Mamula shall be
granted ten common stock warrants for each dollar loaned to the
Company under this Promissory Note, representing 188 warrants. The
warrants shall vest upon the financing of at least $1,000,000 and
expire on the third anniversary of said financing. The warrant
exercise price shall be set at market price as defined by the
five-day volume adjusted weighted price (VWAP), or alternatively
the same as for warrants granted to investors as part of any $1
million dollar or more financing of the Company.
On
January 30, 2019 the Company entered into a promissory note for
$35,000 with Richard Blumberg. The entire unpaid principal balance
due on this Promissory Note (this "Note"), together with all
accrued and unpaid interest and fees, if any, at the choice of Mr.
Blumberg, shall be due and payable in full from the funds received
by the Company from a financing of at least $1,000,000 or to be
included as part of the Company's financing. Should the Company not
complete a financing of at least $1,000,000 within 90 days of the
execution of this Promissory Note, any unpaid amounts shall be due
in full to Mr. Blumberg and shall accrue 6% annual interest from
the date thereof if not paid in full. In addition, Mr. Blumberg
shall be granted ten common stock warrants for each dollar loaned
to the Company under this Promissory Note, representing 438
warrants. The warrants shall vest upon the financing of at least
$1,000,000 and expire on the third anniversary of said financing.
The warrant exercise price shall be set at market price as defined
by the five-day volume adjusted weighted price (VWAP), or
alternatively the same as for warrants granted to investors as part
of any $1 million dollar or more financing of the
Company.
69
On
February 14, 2019, the Company entered into a Purchase and Sale
Agreement with Everest Business Funding for the sale of its
accounts receivable. The transaction provided the Company with
$48,735 after $1,265 in bank costs for a total purchase amount of
$50,000, in which the Company would have to repay $68,500. At a
minimum the Company would need to pay $535.16 per day or 20.0% of
the future collected accounts receivable or
“receipts.”
On
February 8, 2019, a note payable in default as reported in
Footnote 9: Notes payable –
Note payable in default
, was exchanged for a note with a
convertible option. The note amount was for $145,544. At the sole
discretion of the Company, rather than paying the holder in cash,
the note can be exchanged for equity in the new financing of at
least $1,000,000. The debt will be exchanged for C3 preferred
shares. If the Company elects to pay the balance in cash, the note
shall accrue simple interest of 6% per annum commencing on the date
of the new financing of at least $1,000,000.
On
February 15, 2019 the Company entered into a promissory note for
$50,000 with John Gould. The entire unpaid principal balance due on
this Promissory Note (this "Note"), together with all accrued and
unpaid interest and fees, if any, at the choice of Mr. Gould, shall
be due and payable in full from the funds received by the Company
from a financing of at least $1,000,000 or to be included as part
of the Company's financing. Should the Company not complete a
financing of at least $1,000,000 within 90 days of the execution of
this Promissory Note, any unpaid amounts shall be due in full to
the Mr. Gould and shall accrue 6% annual interest from the date
thereof if not paid in full. In addition, Mr. Gould shall be
granted ten common stock warrants for each dollar loaned to the
Company under this Promissory Note, representing 625 warrants. The
warrants shall vest upon the financing of at least $1,000,000 and
expire on the third anniversary of said financing. The warrant
exercise price shall be set at market price as defined by the
five-day volume adjusted weighted price (VWAP), or alternatively
the same as for warrants granted to investors as part of any $1
million dollar or more financing of the Company.
During
March 2019, the Company entered into promissory notes for $46,000
with Richard Blumberg. The entire unpaid principal balance due on
this Promissory Note (this "Note"), together with all accrued and
unpaid interest and fees, if any, at the choice of Mr. Blumberg,
shall be due and payable in full from the funds received by the
Company from a financing of at least $1,000,000 or to be included
as part of the Company's financing. Should the Company not complete
a financing of at least $1,000,000 within 90 days of the execution
of this Promissory Note, any unpaid amounts shall be due in full to
the Mr. Gould and shall accrue 6% annual interest from the date
thereof if not paid in full.
On
March 29, 2019, the Company entered into a securities purchase
agreement with Auctus Fund, LLC for the issuance and sale to Auctus
of $65,000 in aggregate principal amount of a 12% convertible
promissory note. On March 29, 2019, the Company issued the note to
Auctus. Pursuant to the purchase agreement, the Company also issued
to Auctus a warrant exercisable to purchase an aggregate of 325,000
shares of the Company’s common stock. The warrant is
exercisable at any time, at an exercise price per share equal to
$0.176 (110% of the closing price of the common stock on the day
prior to issuance), subject to certain customary adjustments and
price-protection provisions contained in the warrant. The warrant
has a five-year term. The note matures nine months from the date of
issuance and accrues interest at a rate of 12% per year. The
Company could have prepaid the note, in whole or in part, for 115%
of outstanding principal and interest until 30 days from issuance,
for 125% of outstanding principal and interest at any time from 31
to 60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance to 180 days from
issuance. After nine months from the date of issuance, Auctus may
convert the note, at any time, in whole or in part, into shares of
the Company’s common stock, at a conversion price equal to
the lower of the price offered in the Company’s next public
offering or a 40% discount to the average of the two lowest trading
prices of the common stock during the 20 trading days prior to the
conversion, subject to certain customary adjustments and
price-protection provisions contained in the note. The note
includes customary events of default provisions and a default
interest rate of 24% per year. Upon the occurrence of an event of
default, Auctus may require the Company to redeem the note (or
convert it into shares of common stock) at 150% of the outstanding
principal balance plus accrued and unpaid interest.
On
April 16, 2019, the Company entered into a promissory note for
$20,000 with Richard Blumberg. The entire unpaid principal balance
due on this Promissory Note (this "Note"), together with all
accrued and unpaid interest and fees, if any, at the choice of Mr.
Blumberg, shall be due and payable in full from the funds received
by the Company from a financing of at least $1,000,000 or to be
included as part of the Company's financing. Should the Company not
complete a financing of at least $1,000,000 within 90 days of the
execution of this Promissory Note, any unpaid amounts shall be due
in full to the Mr. Blumberg and shall accrue 6% annual interest
from the date thereof if not paid in full.
70
On
April 26, 2019, the Company entered into a promissory note for
$50,000 with Fred Grimm. The entire unpaid principal balance due on
this Promissory Note (this "Note"), together with all accrued and
unpaid interest and fees, if any, at the choice of Mr. Grimm, shall
be due and payable in full from the funds received by the Company
from a financing of at least $1,000,000 or to be included as part
of the Company's financing. Should the Company not complete a
financing of at least $1,000,000 within 90 days of the execution of
this Promissory Note, any unpaid amounts shall be due in full to
the Mr. Grimm and shall accrue 6% annual interest from the date
thereof if not paid in full. If upon financing Mr. Grimm decides to
exchange any amount remaining under this promissory note into
equity as part of the Company’s financing, Mr. Grimm shall
receive a minimum of two common shares of the Company’s
common stock and warrants to purchase two additional common stock
shares of the Company’s common stock. In addition, Mr. Grimm
shall be granted four common stock shares and four common stock
warrants for each dollar loaned to the Company under this
Promissory Note, representing 200,000 warrants. The warrants shall
vest upon the financing of at least $1,000,000 and expire on the
third anniversary of said financing. The warrant exercise price
shall be set at market price as defined by the five-day volume
adjusted weighted price (VWAP), or alternatively the same as for
warrants granted to investors as part of any $1 million dollar or
more financing of the Company.
The
Company was not able to meet its filing date deadline for the 10K
due to financial issues.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item
9A. Controls and Procedures
We
maintain a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) is recorded, processed,
summarized, and reported, within the time periods specified in
Securities and Exchange Commission (“Commission”) rules
and forms. We carried out an evaluation under the supervision and
with the participation of our management, including the Chief
Executive Officer/Acting Chief Financial Officer, Gene Cartwright,
of the effectiveness of its disclosure controls and procedures.
Based on that evaluation, the Chief Executive Officer/Acting Chief
Financial Officer has concluded that our disclosure controls and
procedures were ineffective as of December 31, 2018, due to the
existence of a material weakness in our internal control over
financial reporting, described below, that we have yet to fully
remediate.
Management’s
Annual Report on Internal Control over Financial Reporting: Our
management, including our Chief Executive Officer/Acting Chief
Financial Officer, is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is a process designed by, or under
the supervision of, our Chief Executive Officer/Chief Financial
Officer and implemented by our board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and
procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorization
of our management and directors; and (ii) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements. Because of their
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Under
the supervision and with the participation of our management,
including our Principal Executive Officer/Principal Financial
Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the 2013 version
of the Internal Control – Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.
Based
on our evaluation, our management concluded that our internal
control over financial reporting was ineffective as of December 31,
2018, due to the existence of the material weakness described
below:
The
Company lacks the resources to properly research and account for
complex transactions. This deficiency has resulted in a material
weakness in our internal control over financial
reporting.
71
This
annual report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by our independent registered public
accounting firm pursuant to rules of the Commission that permit
non-accelerated filers to provide only the management’s
report in their annual reports on Form 10-K.
Except
as described above, there were no changes to the Company’s
internal controls over financial reporting occurred during the year
ended December 31, 2018 that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Item
9B. Other Information
None.
72
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
Our
executive officers are elected by and serve at the discretion of
our board of directors. The following table lists information about
our directors and executive officers:
|
Name
|
Age
|
Position with Guided Therapeutics
|
|
Gene
S. Cartwright, Ph.D.
|
64
|
Chief
Executive Officer, President, Acting Chief Financial Officer and
Director
|
|
Mark
Faupel, Ph.D.
|
63
|
Chief
Operating Officer and Director
|
|
Richard
L. Fowler
|
62
|
Senior
Vice President of Engineering
|
|
Richard
P. Blumberg
|
62
|
Director
|
|
John
E. Imhoff, M.D.
|
69
|
Director
|
|
Michael
C. James
|
60
|
Chairman
and Director
|
Except
as set forth below, all of the executive officers have been
associated with us in their present or other capacities for more
than the past five years. Officers are elected annually by the
board of directors and serve at the discretion of the board. There
are no family relationships among any of our executive officers and
directors.
Gene S. Cartwright, Ph.D.
joined us in
January 2014 as the President, Chief Executive Officer and Acting
Chief Financial Officer. He was elected as a director on January
11, 2014. His most recent position was with Omnyx, LLC, a Joint
Venture between GE Healthcare and the University of Pittsburgh
Medical Center, where, as CEO for over four years he founded and
managed the successful development of products for the field of
Digital Pathology. Prior to his work with Omnyx, LLC, he was
President of Molecular Diagnostics for GE Healthcare. Prior to GE,
Dr. Cartwright was Divisional Vice President/General Manager for
Abbott Diagnostics’ Molecular Diagnostics business. In his
24-year career at Abbott, he also served as Divisional Vice
President for U.S. Marketing for five years. He received a Master
of Management degree from Northwestern’s Kellogg School of
Management and also holds a Ph.D. in chemistry from Stanford
University and an AB from Dartmouth College.
Dr.
Cartwright brings over 30 years of experience working in the IVD
diagnostics industry. He has great experience in the diagnostics
market both in the development and introduction of new diagnostics
technologies, as well as extensive successful commercial experience
with global businesses. With his background and experience, Dr.
Cartwright, as President and Chief Executive Officer, as well as
Acting Chief Financial Officer, works with and advises the board as
to how we can successfully market and build LuViva international
sales.
Mark Faupel, Ph.D.
, rejoined us as
Chief Operating Officer and director on December 8, 2016. He
previously served on our board of directors through 2013 and has
more than 30 years of experience in developing non-invasive
alternatives to surgical biopsies and blood tests, especially in
the area of cancer screening and diagnostics. Dr. Faupel was one of
our co-founders and also served as our Chief Executive Officer from
May 2007 through 2013. Prior thereto was our Chief Technical
Officer from April 2001 to May 2007. Dr. Faupel has served as a
National Institutes of Health reviewer, is the inventor on 26 U.S.
patents and has authored numerous scientific publications and
presentations, appearing in such peer-reviewed journals as The
Lancet. Dr. Faupel earned his Ph.D. in neuroanatomy and physiology
from the University of Georgia. Dr. Faupel is also a shareholder of
Shenghuo Medical, LLC. See Item 13, Certain Relationships and
Related Transactions and Director Independence
Rick Fowler
, Senior Vice President of
Engineering is an accomplished Executive with significant
experience in the management of businesses that sell, market,
produce and develop sophisticated medical devices and
instrumentation. Mr. Fowler’s 25 plus years of experience
includes assembling and managing teams, leading businesses and
negotiating contracts, conducting litigation, and developing ISO,
CE, FDA QSR, GMP and GCP compliant processes and products. He is
adept at providing product life cycle management through effective
process definition and communication - from requirements gathering,
R&D feasibility, product development, product launch,
production startup and support. Mr. Fowler combines outstanding
analytical, out-of-the-box, and strategic thinking with strong
leadership, technical, and communication skills and he excels in
dynamic, demanding environments while remaining pragmatic and
focused. He is able to deliver high risk projects on time and under
budget as well as enhance operational effectiveness through
outstanding cross-functional team leadership (R&D, marketing,
product development, operations, quality assurance, sales, service,
and finance). In addition, Mr. Fowler is well versed in global
medical device regulatory and product compliance
requirements.
73
Richard P. Blumberg
was appointed to
the Board of Directors on November 10, 2016 and resigned on March
27, 2019. Mr. Blumberg has been a long-time investor in the
Company. Since 1978, Mr. Blumberg has been a Principal at Webster,
Mrak & Blumberg, a medical-legal and class action labor
litigation firm. He is also currently the Managing Member of
Elysian Medical, LLC, a company with world-wide rights for certain
breast cancer detection technology. He served from 2004 to 2007 as
Chief Executive Officer of Energy Logics, a wind power company that
developed projects in Alberta, Canada and Montana. Mr. Blumberg
holds a B.S. in Electrical Engineering and Computer Science from
the University of Illinois and received a J. D. from Stanford
University. He also brings extensive experience as a venture
capitalist specializing in high-tech and life science companies.
Mr. Blumberg is also a Managing Member of Shenghuo Medical, LLC.
See Item 13, Certain Relationships and Related Transactions and
Director Independence.
John E. Imhoff, M.D.
has served as a
member of our Board of Directors since April 2006. Dr. Imhoff is an
ophthalmic surgeon who specializes in cataract and refractive
surgery. He is one of our principal stockholders and invests in
many other private and public companies. He has a B.S. in
Industrial Engineering from Oklahoma State University, an M.D. from
the University of Oklahoma and completed his ophthalmic residency
at the Dean A. McGee Eye Institute. He has worked as an ophthalmic
surgeon and owner of Southeast Eye Center since 1983.
Dr.
Imhoff has experience in clinical trials and in other technical
aspects of a medical device company. His background in industrial
engineering is especially helpful to us, especially as Dr. Imhoff
can combine this knowledge with clinical applications. His
experience in the investment community is invaluable to a public
company often undertaking capital raising efforts.
Michael C. James
has served as
a member of our Board of Directors since March 2007 and as Chairman
of the Board since October 2013. Mr. James is also the Managing
Partner of Kuekenhof Capital Management, LLC, a private investment
management company, Chief Executive Officer and the Chief Financial
Officer of Inergetics, Inc., a nutraceutical supplements company
and also the Chief Financial Officer of Terra Tech Corporation,
which is a hydroponic and agricultural company. He also holds the
position of Managing Director of Kuekenhof Equity Fund, L.P. and
Kuekenhof Partners, L.P. Mr. James currently sits on the Board of
Directors of Inergetics; Inc. Mr. James was Chief Executive
Officer of Nestor, Inc. from January 2009 to September 2009
and served on their Board of Directors from July 2006 to June 2009.
He was employed by Moore Capital Management, Inc., a private
investment management company from 1995 to 1999 and held position
of Partner. He was employed by Buffalo Partners, L.P., a private
investment management company from 1991 to 1994 and held the
position of Chief Financial and Administrative Officer. He began
his career in 1980 as a staff accountant with Eisner LLP. Mr. James
received a B.S. degree in Accounting from Farleigh Dickinson
University in 1980.
Mr.
James has experience both in the areas of company finance and
accounting, which is invaluable to us during financial audits and
offerings. Mr. James has extensive experience in the management of
both small and large companies and his entrepreneurial background
is relevant as we develop as a company.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers and persons who beneficially
own more than 10% of a registered class of our equity securities to
file reports of ownership and reports of changes in ownership with
the Securities and Exchange Commission. These persons are required
by regulations of the Securities and Exchange Commission to furnish
us with copies of all Section 16(a) forms they file.
Based
solely on our review of the copies of these forms received by us,
we believe that, with respect to fiscal year 2018, our officers,
directors were in compliance with all applicable filing
requirements.
Code
of Ethics
We have
adopted a code of ethics that applies to all of our directors,
officers and employees. To obtain a copy without charge, contact
our Corporate Secretary, Guided Therapeutics, Inc., 5835 Peachtree
Corners East, Suite B, Norcross, Georgia 30092. If we amend our
code of ethics, other than a technical, administrative or
non-substantive amendment, or we grant any waiver, including any
implicit waiver, from a provision of the code that applies to our
principal executive officer, principal financial officer, principal
accounting officer or controller, we will disclose the nature of
the amendment or waiver on our website, www.guidedinc.com, under
the “Investor Relations” tab under the tab “About
Us.” Also, we may elect to disclose the amendment or waiver
in a report on Form 8-K filed with the Securities and Exchange
Commission.
Material
Changes to Security Holders Nomination Procedure
There
has been no material change to the procedures by which security
holders may recommend nominees to the registrant’s board of
directors, since the last disclosure.
74
Item
11. Executive Compensation
Summary
Compensation Table
The
following table lists specified compensation we paid or accrued
during each of the fiscal years ended December 31, 2018 and 2017 to
the Chief Executive Officer and our two other most highly
compensated executive officers, collectively referred to as the
“named executive officers,” in 2018:
2018
and 2017 Summary Compensation Table
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)(1)
|
Total
($)
|
|
Gene S.
Cartwright, Ph.D.
President, CEO,
Acting CFO and Director (2)
|
2018
2017
|
-
-
|
-
-
|
-
-
|
-
-
|
|
Mark
Faupel, Ph.D.
COO and Director
(3)
|
2018
2017
|
-
-
|
-
-
|
-
-
|
-
-
|
|
Richard
Fowler,
Senior
Vice President of Engineering
|
2018
2017
|
62,019
107,500
|
-
-
|
-
-
|
62,019
107,500
|
(1)
See Note 4 to the
audited consolidated financial statements that accompany this
prospectus.
(2)
All amounts
reported as accrued. Dr. Cartwright has elected to get paid partial
salary, due to our cash position.
(3)
On December 8,
2016, the board of directors appointed Dr. Faupel as our new COO
and director.
For
2018 and 2017, Dr. Cartwright did not receive salary compensation.
As previously disclosed, on July 20, 2018, the Company entered into
an exchange agreement and promissory note with Dr. Cartwright. The
agreements were entered into in order to extinguish and restructure
current amounts owed to Dr. Cartwright. In the exchange agreement
Dr. Cartwright, agreed to exchange outstanding amounts due to him
for loans, interest, bonus, salary and vacation pay in the amount
of $1,621,499 for $319,204 promissory note. Pursuant to the
exchange agreement the note will bear interest at 6%. In addition,
Dr. Cartwright will receive 125 stock options, with 31 vesting
immediately and the remaining vesting monthly over three years. As
a result of the exchange agreement, the Company recorded a gain for
extinguishment of debt of $840,391 and a capital contribution of
$431,519. As of December 31, 2018, Dr. Cartwright’s total
undiscounted cash flow amount due was approximately $349,590
including interest. The schedule below summarizes the detail of
outstanding amounts:
For Dr.
Cartwright:
|
|
2018
|
|
Salary
|
$
337
|
|
Bonus
|
675
|
|
Vacation
|
-
|
|
Interest on
compensation
|
59
|
|
Loans to
Company
|
528
|
|
Interest on
loans
|
22
|
|
Total
outstanding
|
$
1,621
|
|
Amount
forgiven
|
1,302
|
|
Promissory
note issued in exchange
|
319
|
Dr.
Faupel’s 2018 and 2017 compensation consisted of a base
salary of zero and $132,577, respectively, plus usual and customary
company benefits. He received no bonus in the years ended December
31, 2018 and 2017. As previously disclosed, on July 24, 2018, the
Company entered into an exchange agreement and promissory note with
Dr. Faupel. The agreements were entered into in order to extinguish
and restructure current amounts owed to Dr. Faupel. In the exchange
agreement Dr. Faupel, agreed to exchange outstanding amounts due to
him for loans, interest, bonus, salary and vacation pay in the
amount of $660,895 for $207,111 promissory note. Pursuant to the
exchange agreement the note will bear interest at 6%. In addition,
Dr. Faupel will receive 94 stock options, with 31 vesting
immediately and the remaining vesting monthly over three years. Dr.
Faupel will also receive 560 options at $200.00 shall owe Dr.
Faupel $113,000. As a result of the exchange agreement, the Company
recorded a gain for extinguishment of debt of $199,079 and a
capital contribution of $234,990. As of December 31, 2018, Dr.
Faupel’s total undiscounted cash flow amount due was
approximately $256,825 including interest. The schedule below
summarizes the detail of outstanding amounts:
75
For Dr.
Faupel:
|
|
2018
|
|
Salary
|
$
134
|
|
Bonus
|
20
|
|
Vacation
|
95
|
|
Interest on
compensation
|
67
|
|
Loans to
Company
|
196
|
|
Interest on
loans
|
149
|
|
Total
outstanding
|
$
661
|
|
Amount
forgiven
|
454
|
|
Promissory
note issued in exchange
|
207
|
For
2018, Mr. Fowler accrued base salary of $62,019. On March 2016, Mr.
Fowler began working half-time and agreed to reduce his base salary
compensation to $107,500 from $215,000 in 2015. For both years he
received the usual and customary company benefits. He received no
bonus in the years ended December 31, 2018 and 2017. In 2015, he
received options to purchase 2 shares of common stock, which vest
over 48 months. As of December 31, 2018, Mr. Fowler’s total
deferred salary plus interest was approximately
$496,631.
76
Outstanding
Equity Awards to Officers at December 31, 2018
|
|
Option
Awards
|
||||
|
Name and
Principal
Position
|
Number
of
Securities
Underlying
Options
Exercisable
(#)(1)
|
Number of
Securities Underlying
Options Un-exercisable
(#)
|
Equity Incentive
Plan Awards: Number of Securities Under-
lying
Unexercised
Unearned Options
(#)
|
Option
Exercise
Price
($)(2)
|
Option
Expiration
Date
|
|
Gene S. Cartwright,
Ph.D.
President, CEO,
Acting CFO and Director
|
2
|
-
|
2
|
22,688,000
|
12/31/2024
|
|
Mark Faupel,
Ph.D.
COO and
Director
|
12
|
-
|
2
|
48,581,000
|
12/31/2024
|
|
Richard
Fowler
Senior Vice
President of Engineering
|
5
|
-
|
2
|
39,987,000
|
12/31/2024
|
(1)
Represents fully
vested options.
(2)
Based on all
outstanding options.
Outstanding
Equity Awards to Directors at December 31, 2018
|
|
Option
Awards
|
|
|
Name and
Principal Position
|
Option
Awards
(#)
|
Exercise
Price
($)
|
|
Ronald W. Hart,
Ph.D., Director (resigned as of December 11, 2015)
|
6
|
45,013,000
|
|
John E. Imhoff,
M.D., Director
|
7
|
45,714,000
|
|
Michael C. James,
Chairman and Director
|
6
|
45,013,000
|
Risk
Oversight
Our
board as a whole has responsibility for risk oversight, with
reviews of certain areas being conducted by the relevant board
committees that report on their deliberations to the full board, as
further described below. Given the small size of the board, the
board feels that this structure for risk oversight is appropriate
(except for those risks that require risk oversight by independent
directors only). The audit committee is specifically charged with
discussing risk management (primarily financial and internal
control risk), and receives regular reports from management and
independent auditors on risks related to, among others, our
financial controls and reporting. The compensation committee
reviews risks related to compensation and makes recommendations to
the board with respect to whether the Company’s compensation
policies are properly aligned to discourage inappropriate
risk-taking, and is regularly advised by management. In addition,
the Company’s management regularly communicates with the
board to discuss important risks for their review and oversight,
including regulatory risk, and risks stemming from periodic
litigation or other legal matters in which we are
involved.
77
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
following table lists information regarding the beneficial
ownership of our equity securities as of April 15, 2019 by (1) each
person whom we know to beneficially own more than 5% of the
outstanding shares of our common stock, (2) each director, (3) each
officer named in the summary compensation table below, and (4) all
directors and executive officers as a group. Unless otherwise
indicated, the address of each officer and director is 5835
Peachtree Corners East, Suite B, Norcross, Georgia
30092.
|
|
Common Stock
(2)
|
Series
C
Preferred Stock
(3)
|
Series
C1
Preferred Stock
(4)
|
Series
C2
Preferred Stock
(5)
|
||||
|
Name and Address
of Beneficial Owner (1)
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
|
John E. Imhoff
(6)
|
1,177,187
|
26.18
%
|
-
|
-
|
-
|
-
|
2,400.75
|
73.57
%
|
|
Lynne Imhoff
(7)
|
321,562
|
8.83
%
|
-
|
-
|
675.00
|
64.33
%
|
-
|
-
|
|
Michael C. James/Kuekenhof Equity
Fund, LLP (8)
|
12
|
*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Gene Cartwright
(9)
|
93
|
*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Richard L. Fowler
(10)
|
5
|
*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Richard P. Blumberg
(11)
|
2,771
|
*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Mark L. Faupel
(12)
|
141,950
|
4.10
%
|
|
|
-
|
-
|
300.00
|
9.19
%
|
|
All directors and executive
officers as a group (4 persons) (13)
|
1,322,025
|
28.48
%
|
-
|
-
|
-
|
-
|
2,700.75
|
82.77
%
|
|
(*)
|
Less
than 1%.
|
|
|
|
(1)
|
Except
as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all
shares of common stock.
|
||
|
(2)
|
Percentage
ownership is based on 3,319,486 shares of common stock outstanding
as of April 15, 2019. Beneficial ownership is determined in
accordance with the rules of the SEC, based on factors that include
voting and investment power with respect to shares. Shares of
common stock subject to convertible securities convertible or
exercisable within 60 days after the record date, are deemed
outstanding for purposes of computing the percentage ownership of
the person holding those securities but are not deemed outstanding
for purposes of computing the percentage ownership of any other
person. Note that certain of our outstanding securities, including
certain warrants and the shares of Series C1 preferred stock held
by the persons listed in this table, have anti-dilution
“ratchet” or “price-protection”
provisions that, when triggered, will increase the number of shares
of common stock underlying such securities. Subject to customary
exceptions, these provisions are triggered anytime we issue shares
of common stock to third parties at a price lower than the
then-current conversion price or exercise price of the subject
securities. As a result, the beneficial ownership reported in this
table is only as of the date presented, and the beneficial
ownership amounts of the persons in this table may increase on a
future date, even though such persons have not actually acquired
any additional shares of common stock.
|
||
|
(3)
|
As of
April 15, 2019, there were 286 shares of Series C preferred stock
outstanding, and each such share was convertible into approximately
476 shares of common stock.
|
||
|
(4)
|
As of
April 15, 2019, there were 1,049.25 shares of Series C1 preferred
stock outstanding, and each such share was convertible into
approximately 476 shares of common stock. Three shareholders
elected to convert 3,263.00 of their Series C1 preferred stock for
Series C2 preferred stock.
|
||
|
(5)
|
As of
April 15, 2019, there were 3,262.25 shares of Series C2 preferred
stock outstanding, and each such share was convertible into
approximately 476 shares of common stock.
|
||
|
(6)
|
Shares
of common stock consist of 17 shares of common stock directly held,
33,513 shares issuable upon exercise of warrants, 7 shares subject
to options, and 1,143,650 shares issuable upon conversion of
2,400.75 shares of Series C2 preferred stock. Dr. Imhoff is on the
board of directors.
|
||
|
(7)
|
Shares
of common stock consist of 5 shares of common stock directly held,
6 shares issuable upon exercise of warrants, and 321,551 shares
issuable upon conversion of 675.00 shares of Series C1 preferred
stock.
|
||
|
(8)
|
Shares
of commons stock consist of 1 shares of common stock directly held,
5 shares issuable upon exercise of warrants, and 6 shares subject
to options. Mr. James is on the board of directors.
|
||
|
(9)
|
Shares of commons stock consist of 1
shares of common stock directly held, 90 shares issuable upon
exercise of warrants, and 2 shares subject to options.
Dr. Cartwright is the CEO and on the board of
directors.
|
||
|
(10)
|
Shares
of commons stock consist of 1 shares of common stock directly held
and 4
shares subject
to options.
|
||
|
(11)
|
Shares
of common stock consist of 2 shares of common stock directly held
and 2,769 shares issuable upon exercise of warrants. Mr. Blumberg
was on the board of directors.
|
||
|
(12)
|
Shares
of common stock consist of 2 shares of common stock directly held,
17 shares issuable upon exercise of warrants, 12 shares subject to
options, and 141,919 shares issuable upon conversion of 300.00
shares of Series C2 preferred stock. Dr. Faupel is the COO and on
the board of directors.
|
||
|
(13)
|
Shares of commons stock consists of 24 shares of common stock
directly held, 36,381 shares issuable upon exercise of
warrants, 31 shares subject to options, and 1,285,569 shares
issuable upon conversion of 2,700.75 shares of Series C2 preferred
stock.
|
||
See
Item 5 of this report for information regarding Securities
Authorized for Issuance under Equity Compensation
Plans.
78
Item
13. Certain Relationships and Related Transactions and Director
Independence
Our
board recognizes that related person transactions present a
heightened risk of conflicts of interest. The audit committee has
the authority to review and approve all related party transactions
involving our directors or executive officers.
Under
the policy, when management becomes aware of a related person
transaction, management reports the transaction to the audit
committee and requests approval or ratification of the transaction.
Generally, the audit committee will approve only related party
transactions that are on terms comparable to those that could be
obtained in arm’s length dealings with an unrelated third
person. The audit committee will report to the full board all
related person transactions presented to it. Based on the
definition of independence of the NASDAQ Stock Market, the board
has determined that Mr. James and Dr. Imhoff are independent
directors.
John E.
Imhoff is one of our directors. In June 2015, Dr. Imhoff agreed to
exchange certain of his warrants, originally issued in December
2014 and exercisable for 1 share of our common stock, for two new
warrants that, unlike the original warrant, do not contain any
price or share reset provisions. Each new warrant is exercisable
for the same number of shares of our common stock as the original
warrant, at any time until December 2, 2020. The exercise price of
the first new warrant is $57,600 per share and the second new
warrant is $70,400 per share but, aside from the exercise price,
the new warrants are identical in terms to each other. As
additional consideration, we issued Dr. Imhoff an additional 1
share of common stock. Dr. Imhoff participated on terms equal to
those of other holders of the December 2014 warrants. As a result
of these transactions, Dr. Imhoff’s beneficial ownership of
our common stock increased from approximately 11.7% immediately
prior to the exchange, to approximately 11.8% immediately
afterward.
In
September 2015, Dr. Imhoff participated in our Series C preferred
stock issuance by exchanging all of his shares of Series B
preferred stock and investing $300,000 in cash, for a total of
1,067 shares of Series C preferred stock and warrants to purchase
211 shares of common stock. Dr. Imhoff participated on terms equal
to those of other Series C investors. As a result of these
transactions, Dr. Imhoff’s beneficial ownership of our common
stock increased from approximately 14% immediately prior to his
first acquisition of shares of Series C preferred stock, to 25%
immediately afterward.
On
March 11, 2016, Dr. Imhoff received 1 share of common stock as a
dividend on his Series B preferred stock (previously accrued but
unpaid), in accordance with the terms of the Series B preferred
stock.
In
April 2016, Dr. Imhoff exchanged his shares of Series C preferred
stock for a total of 2,400.75 shares of Series C1 preferred stock
and 16 shares of common stock. Dr. Imhoff participated on terms
equal to those of other Series C1 investors. As a result of this
transaction, Dr. Imhoff’s beneficial ownership of our common
stock increased from approximately 25% immediately prior to the
transaction, to 77% immediately afterward.
In June
2016, Dr. Imhoff agreed to exchange certain of his warrants,
exercisable for 6 shares of our common stock and subject to certain
anti-dilution provisions, in exchange for new warrants, exercisable
for 11 shares of our common stock, but without those anti-dilution
provisions. Dr. Imhoff will be required to surrender his old
warrants upon consummation of our next financing resulting in net
cash proceeds to us 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 our common stock is not listed on
a national securities exchange, and will expire five years from the
date of issuance.
On
September 6, 2016, we entered into a royalty agreement with Dr.
Imhoff and another party. Pursuant to the royalty agreement, in
exchange for a payment of $50,000 by Dr. Imhoff and the other
party, we granted them a royalty on future sales of our single-use
cervical guides. The royalty rate was initially $0.10 per
disposable, until October 2, 2016, at which point the royalty rate
increased to $0.20 per disposable. Any royalty payments will be
split evenly between Dr. Imhoff and the other party.
Lynne
Imhoff (no relation) currently beneficially owns in excess of 10%
of our outstanding common stock. In September 2015, Ms. Imhoff
participated in our Series C preferred stock issuance by exchanging
all of her shares of Series B preferred stock and investing
$125,000 in cash, for a total of 300 shares of Series C preferred
stock and warrants to purchase 1 shares of common stock. Ms. Imhoff
participated on terms equal to those of other Series C investors.
As a result of these transactions, Ms. Imhoff’s beneficial
ownership of our common stock increased from approximately 2%
immediately prior to her first acquisition of shares of Series C
preferred stock, to 4% immediately afterward.
79
In
April 2016, Ms. Imhoff exchanged her shares of Series C preferred
stock for a total of 675 shares of Series C1 preferred stock and 5
shares of common stock. Ms. Imhoff participated on terms equal to
those of other Series C1 investors. As a result of this
transaction, Ms. Imhoff’s beneficial ownership of our common
stock increased from approximately 4% immediately prior to the
transaction, to 45% immediately afterward.
In June
2016, Ms. Imhoff agreed to exchange certain of her warrants,
exercisable for 1 share of our common stock and subject to certain
anti-dilution provisions, in exchange for new warrants, exercisable
for 2 shares of our common stock, but without those anti-dilution
provisions. Ms. Imhoff will be required to surrender her old
warrants upon consummation of our next financing resulting in net
cash proceeds to us 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 our common stock is not listed on
a national securities exchange, and will expire five years from the
date of issuance.
Mark
Faupel is one of our directors and our Chief Operating Officer, and
Richard Blumberg is another one of our directors. Dr. Faupel is a
shareholder of Shenghuo, and Mr. Blumberg, is a managing member of
Shenghuo. We entered into a license agreement with Shenghuo
pursuant to which we granted Shenghuo an exclusive license to
manufacture, sell and distribute our LuViva Advanced Cervical
Cancer device and related disposables in Taiwan, Brunei Darussalam,
Cambodia, Laos, Myanmar, Philippines, Singapore, Thailand, and
Vietnam. Shenghuo has been our 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 our board
of directors. As partial consideration for, and as a condition to,
the license, and to further align the strategic interests of the
parties, we 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 $300,000, expected to be
due the earlier of 90 days from issuance and consummation of any
capital raising transaction by us with net cash proceeds of at
least $1.0 million. 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 our common stock at a conversion price
per share of $11,136, subject to customary anti-dilution
adjustment. The note will be unsecured, and is expected to provide
for customary events of default. We will also issue Shenghuo a
five-year warrant exercisable immediately for 22 shares of common
stock at an exercise price equal to the conversion price of the
note, subject to customary anti-dilution adjustment. As of December
31, 2018, the balance was $432,000.
In
September 2015, Dr. Faupel participated in our Series C preferred
stock issuance by investing $100,000 in cash, for a total of 133
shares of Series C preferred stock and warrants to purchase 1 share
of common stock. Dr. Faupel participated on terms equal to those of
other Series C investors. In April 2016, Dr. Faupel exchanged his
shares of Series C preferred stock for a total of 300 shares of
Series C1 preferred stock and 2 shares of common stock. Dr. Faupel
participated on terms equal to those of other Series C1
investors.
Item
14. Principal Accountant Fees and Services
UHY LLP
is our current independent registered public accounting firm.
Representatives of UHY LLP are expected to attend the annual
meeting of stockholders, will have the opportunity to make a
statement if they desire, and will be available to respond to
appropriate questions.
We were
billed by UHY LLP $168,405 and $147,000 during the fiscal years
ended December 31, 2018 and 2017, respectively, for professional
services, which include fees associated with the annual audit of
financial statements and review of our quarterly reports on Form
10-Q, and other SEC filings.
|
|
2018
|
2017
|
|
Audit
fees
|
$
150,000
|
$
116,000
|
|
Audit related
fees
|
12,500
|
24,000
|
|
Tax
fees
|
5,905
|
7,000
|
|
Total
Fees
|
$
168,405
|
$
147,000
|
Audit Committee Pre-Approval Policy and Permissible Non-Audit
Services of Independent Registered Public Accounting
Firm
Our
Audit Committee pre-approves all audit and permissible non-audit
services provided by our independent registered public accounting
firm. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is
generally provided for up to one year, and any pre-approval is
detailed as to the particular service or category of services and
is generally subject to a specific budget. Our independent
registered public accounting firm and management are required to
periodically report to the Audit Committee regarding the extent of
services provided by the independent registered public accounting
firm in accordance with the pre-approval, and the fees for the
services performed to date. The Audit Committee may also
pre-approve particular services on a case-by-case
basis.
80
PART
IV
Item
15. Exhibits and Financial Statement Schedules
The
consolidated financial statements included in Item 8 of this report
are filed as part of this report.
The
exhibits listed below are filed as part hereof, or incorporated by
reference into, this Report. All documents referenced below were
filed pursuant to the Securities and Exchange Act of 1934 by Guided
Therapeutics, Inc. (f/k/a SpectRx, Inc.), file number 0-22179,
unless otherwise indicated.
EXHIBIT
INDEX
|
EXHIBIT
NO.
|
DESCRIPTION
|
|
3.1
|
Restated
Certificate of Incorporation, as amended through November 3,
2016
|
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.1 to
the current report on Form 8-K, filed March 23, 2012)
|
|
|
Specimen Common
Stock Certificate (incorporated by reference to Exhibit 4.1 to the
amended registration statement on Form S-1/A (No. 333-22429) filed
April 24, 1997)
|
|
|
Secured
Promissory Note, dated September 10, 2014 (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
September 10, 2014)
|
|
|
Amendment #1 to
Secured Promissory Note, dated March 10, 2015 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
March 19, 2015)
|
|
|
4.4
|
Amendment #2 to
Secured Promissory Note, dated May 4, 2015 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
May 7, 2015)
|
|
Amendment #3 to
Secured Promissory Note, dated June 1, 2015 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
June 5, 2015)
|
|
|
Amendment #4 to
Secured Promissory Note, dated June 16, 2015 (incorporated by
reference to Exhibit 10.4 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
Amendment #5 to
Secured Promissory Note, dated June 29, 2015 (incorporated by
reference to Exhibit 10.5 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
Amendment #6 to
Secured Promissory Note, dated January 20, 2016 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
February 16, 2016)
|
|
|
Amendment #7 to
Secured Promissory Note, dated February 11, 2016 (incorporated by
reference to Exhibit 10.2 to the current report on Form 8-K filed
February 16, 2016)
|
|
|
Amendment #8 to
Secured Promissory Note, dated March 7, 2016 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
March 7, 2016)
|
|
|
Senior
Secured Convertible Note, dated February 12, 2016 (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
February 12, 2016)
|
|
|
Form of
Exchange Note (GPB) (incorporated by reference to Exhibit 4.1 to
the current report on Form 8-K filed December 7, 2016)
|
|
|
10% OID
Convertible Promissory Note (incorporated by reference to Exhibit
4.1 to the current report on Form 8-K filed December 30,
2016)
|
|
|
Convertible
Promissory Note (incorporated by reference to Exhibit 4.1 to the
current report on Form 8-K filed February 16, 2017)
|
|
|
Form of
Warrant (Standard Form) (incorporated by reference to Exhibit 4.1
to the current report on Form 8-K, filed September 14,
2010)
|
|
|
Form of
Warrant (InterScan) (incorporated by reference to Exhibit 4.13 to
the annual report on Form 10-K for the year ended December 31,
2013, filed March 27, 2014)
|
|
|
Form of
Warrant (November 2011 Private Placement) (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K/A, filed
November 28, 2011)
|
|
|
Form of
Warrant (Series B-Tranche A) (incorporated by reference to Exhibit
10.2 to amendment no. 1 to the current report on Form 8-K, filed
May 23, 2013)
|
|
|
Form of
Warrant (Series B-Tranche B) (incorporated by reference to Exhibit
10.3 to amendment no. 1 to the current report on Form 8-K, filed
May 23, 2013)
|
81
|
Form of
Warrant (Regulation S) (incorporated by reference to Exhibit 4.1 to
the current report on Form 8-K, filed September 8,
2014)
|
||
|
Form of
Warrant (2014 Public Offering Placement Agent) (incorporated by
reference to Exhibit 4.2 to the current report on Form 8-K filed
December 4, 2014)
|
||
|
Form of
Warrant (2014 Public Offering Warrant Exchanges) (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
June 30, 2015)
|
||
|
Form of
Warrant (Series C) (incorporated by reference to Exhibit 4.3 to the
current report on Form 8-K filed June 30, 2015)
|
||
|
Form of
Warrant (Senior Secured Convertible Note) (incorporated by
reference to Exhibit 10.5 to the current report on Form 8-K filed
February 12, 2016)
|
||
|
Form of
Warrant (Series B-Tranche B Exchanges; GPB Exchange) (incorporated
by reference to Exhibit 4.1 to the current report on Form 8-K filed
June 14, 2016)
|
||
|
Common
Stock Purchase Warrant (Convertible Promissory Note) (incorporated
by reference to Exhibit 4.2 to the current report on Form 8-K filed
February 16, 2017)
|
||
|
1995
Stock Plan and form of Stock Option Agreement (incorporated by
reference to Exhibit 10.2 to the registration statement on Form S-1
(No. 333-22429) filed February 27, 1997)
|
|
|
|
2005
Amendment to 1995 Stock Plan (incorporated by reference to Appendix
1 to the proxy statement on Schedule 14A, filed May 10,
2005)
|
||
|
2010
Amendment to 1995 Stock Plan (incorporated by reference to Exhibit
10.3 to the registration statement on Form S-8 (File No.
333-178261), filed December 1, 2011)
|
||
|
2012
Amendment to 1995 Stock Plan (incorporated by reference to Annex 1
to the proxy statement on Schedule 14A, filed April 30,
2012)
|
||
|
Agreement and
Release, dated August 30, 2011 (incorporated by reference to 10.2
to the current report on Form 8-K, filed September 2,
2011)
|
||
|
Employment
Agreement between the Company and Mark Faupel dated March 24, 2013
(incorporated by reference to Exhibit 10.10 to the annual report on
Form 10-K for the year ended December 31, 2013, filed March 27,
2014)
|
||
|
Employment
Agreement between the Company and Gene Cartwright, dated January 6,
2014 (incorporated by reference to Exhibit 10.11 to the annual
report on Form 10-K for the year ended December 31, 2013, filed
March 27, 2014).
|
||
|
Employment
Agreement between the Company and Rick L. Fowler, automatically
renewed on May 9, 2013 (incorporated by reference to Exhibit 10.12
to the annual report on Form 10-K for the year ended December 31,
2013, filed March 27, 2014)
|
||
|
Consulting
Agreement between the Company and GPB Debt Holdings II LLC, dated
February 12, 2016 (incorporated by reference to Exhibit 10.6 to the
current report on Form 8-K filed February 12, 2016)
|
||
|
Securities Purchase
Agreement (Magna Note), dated April 23, 2014, by and between the
Company and Hanover Holdings I, LLC (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K, filed April 24,
2014).
|
||
|
Registration Rights
Agreement (Magna Note), dated April 23, 2014, by and between the
Company and Hanover Holdings I, LLC (incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K, filed April 24,
2014)
|
||
|
Standstill
Agreement (Magna Note), dated as of November 6, 2014, by and
between the Company and Magna Equities II, LLC (incorporated by
reference to Exhibit 19 to the registration statement on Form S-1
(No. 333-198733) filed November 10, 2014)
|
||
|
Exchange Agreement
(Magna Note), dated as of June 25, 2015 (incorporated by reference
to Exhibit 10.3 to the current report on Form 8-K filed June 30,
2015)
|
||
|
Subscription
Agreement (Regulation S), accepted September 2, 2014 (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K,
filed September 8, 2014)
|
||
|
Form of
Registration Rights Agreement (Regulation S), dated September 8,
2014 by and between the Company and the investor party thereto
(incorporated by reference to Exhibit 10.2 to the current report on
Form 8-K, filed September 8, 2014)
|
||
|
Note
Purchase Agreement (Secured Promissory Note), dated as of September
10, 2014, by and between the Company and Tonaquint, Inc.
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K, filed September 10, 2014)
|
||
82
|
Security Agreement
(Secured Promissory Note), dated as of September 10, 2014, by the
Company and Tonaquint, Inc. (incorporated by reference to Exhibit
10.2 to the current report on Form 8-K, filed September 10,
2014)
|
|
|
Form of
Securities Purchase Agreement (2014 Public Offering) (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K
filed December 4, 2014)
|
|
|
Placement Agent
Agreement (2014 Public Offering), by and between the Company and
Olympus Securities, LLC (incorporated by reference to Exhibit 10.2
to the current report on Form 8-K filed December 4,
2014)
|
|
|
Amendment to
Securities Purchase Agreement (2014 Public Offering), dated as of
June 26, 2015 (incorporated by reference to Exhibit 10.2 to the
current report on Form 8-K filed June 30, 2015)
|
|
|
Form of
Letter Agreement (2014 Public Offering Warrant Exchanges)
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed June 30, 2015)
|
|
|
Securities Purchase
Agreement (Series C), dated June 29, 2015 (incorporated by
reference to Exhibit 10.6 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
Registration Rights
Agreement (Series C), dated June 29, 2015 (incorporated by
reference to Exhibit 10.7 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
Form of
Joinder Agreement (Series C) (incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed July 13,
2015)
|
|
|
Interim
Securities Purchase Agreement (Series C), dated September 3, 2015
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed September 3, 2015)
|
|
|
Securities Purchase
Agreement (Senior Secured Convertible Note), dated February 11,
2016 (incorporated by reference to Exhibit 10.3 to the current
report on Form 8-K filed February 12, 2016)
|
|
|
Security Agreement
(Senior Secured Convertible Note), dated February 11, 2016
(incorporated by reference to Exhibit 10.4 to the current report on
Form 8-K filed February 12, 2016)
|
|
|
Rollover and
Amendment Agreement, dated April 27, 2016, by and between the
Company and Aquarius Opportunity Fund (incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K filed May 3,
2016)
|
|
|
Form of
Letter Agreement (Series C Exchanges) (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K filed May 3,
2016)
|
|
|
License
Agreement, dated June 5, 2016 (incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed June 8,
2016)
|
|
|
Form of
Warrant Exchange Agreement (Warrant-for-Shares) (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
June 14, 2016)
|
|
|
Form of
Warrant Exchange Agreement (Warrant-for-Warrant) (incorporated by
reference to Exhibit 10.2 to the current report on Form 8-K filed
June 14, 2016)
|
|
|
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)
|
|
|
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)
|
|
|
Exchange Agreement,
dated December 7, 2016, between the Company and GPB Debt Holdings
II LLC (incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K filed December 7, 2016)
|
|
|
Amendment to
Consulting Agreement, dated December 7, 2016, between the Company
and GPB Debt Holdings II LLC (incorporated by reference to Exhibit
10.2 to the current report on Form 8-K filed December 7,
2016)
|
|
|
Securities Purchase
Agreement, dated December 28, 2016, between the Company and
RedDiamond (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K filed December 30, 2016)
|
|
|
Agreement between
Shandong Yaohua Medical Instrument Corporation and Guided
Therapeutics, Inc., Confidential, Final 22 January 2017
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed January 26, 2017)
|
|
|
Guided
Therapeutics-Shenghuo Medical Agreement, 22 Jan 2017 (incorporated
by reference to Exhibit 10.2 to the current report on Form 8-K
filed January 26, 2017)
|
|
|
Securities Purchase
Agreement, dated as of February 13, 2017, by and between Guided
Therapeutics, Inc. and Auctus Fund, LLC (incorporated by reference
to Exhibit 10.2 to the current report on Form 8-K filed February
16, 2017)
|
83
|
Securities Purchase
Agreement, dated as of March 17, 2017, by and between Guided
Therapeutics, Inc. and Eagle Equities LLC and Adar Bays LLC and on
May 18, 2017 with GHS Investments LLC (incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K filed May 24,
2017)
|
|
|
Forbearance
Agreement, dated as of August 8, 2017, by and between Guided
Therapeutics, Inc. and GPB Debt Holdings II LLC (incorporated by
reference to Exhibit 10.2 to the current report on Form 8-K filed
August 14, 2017)
|
|
|
Securities Purchase
Agreement, dated as of August 18, 2017, by and between Guided
Therapeutics, Inc. and Power Up Lending Group LTD (incorporated by
reference to Exhibit 10.2 to the current report on Form 8-K filed
August 24, 2017)
|
|
|
Securities Purchase
Agreement, dated as of October 12, 2017, by and between Guided
Therapeutics, Inc. and Power Up Lending Group LTD (incorporated by
reference to Exhibit 10.2 to the current report on Form 8-K filed
October 25, 2017)
|
|
|
Subsidiaries
(incorporated by reference to Exhibit 21.1 to the registration
statement on Form S-1 (No. 333-169755) filed October 5,
2010)
|
|
|
23.1
*
|
Consent
of UHY LLP
|
|
101.1*
|
Interactive Data
File
|
|
*Filed
herewith
|
|
Item
16. Form 10-K Summary
None.
84
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
GUIDED THERAPEUTICS,
INC.
|
|
|
|
|
|
|
|
|
Date:
May 8,
2019
|
By:
|
/s/
Gene S.
Cartwright
|
|
|
|
|
Gene S.
Cartwright
|
|
|
|
|
President, Chief Executive Officer and
Acting
Chief
Financial Officer
|
|
In
accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
|
|
May 8,
2019
|
|
/s/ Gene S. Cartwright
|
|
President,
Chief Executive Officer, Acting Chief Financial Officer (Principal
Executive Officer and Principal Financial and Accounting
Officer)
|
|
Gene
S. Cartwright
|
||||
|
|
|
|
|
|
|
May 8,
2019
|
|
/s/ Michael C. James
|
|
Chairman
of the Board and Director
|
|
|
|
Michael
C. James
|
|
|
|
|
|
|
|
|
|
May 8,
2019
|
|
/s/ John E. Imhoff
|
|
Director
|
|
|
|
John
E. Imhoff
|
|
|
|
|
|
|
|
|
|
May 8,
2019
|
|
/s/ Mark Faupel
|
|
Chief
Operating Officer and Director
|
|
|
|
Mark
Faupel
|
|
|
85
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of EquityItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary