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UNITED STATES
SECURITIES ANDEXCHANGE COMMISSION
Washington, D.C. 20549
FORM
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended
Commission File No.
(Exact Name of Registrant as Specified in Its Charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| 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 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 Exchange Act. Yes
As of May 10, 2022, the registrant had
PART I — FINANCIAL INFORMATION
|
| Page |
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3 |
| ||
| Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021 | 3 |
|
| Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (Unaudited) | 4 |
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| 5 |
| |
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (Unaudited) | 7 |
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| 8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 |
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| 34 |
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| 36 |
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| 38 |
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| 35 |
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| 37 |
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39 |
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39 |
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40 |
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40 |
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40 |
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40 |
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Item 4. | Mine Safety Disclosures | 40 |
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Item 5. | Other Information | 40 |
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40 |
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| 41 |
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| 2 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
| 2021 |
| |||
|
| (unaudited) |
|
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|
| ||
ASSETS |
| |||||||
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Current Assets: |
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Cash and cash equivalents |
| $ |
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| $ |
| ||
Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventory, net of reserves of $ |
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Other current assets |
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Total current assets |
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Non-Current Assets: |
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Property and equipment, net |
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Operating lease right-of-use assets, net of amortization |
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Other assets |
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Total non-current assets |
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TOTAL ASSETS |
| $ |
|
| $ |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
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Current Liabilities: |
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Accounts payable |
| $ |
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| $ |
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Accounts payable, related parties |
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Accrued liabilities |
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Deferred revenue |
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Current portion of lease liability |
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Current portion of long-term debt |
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Current portion of long-term debt, related parties |
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Short-term notes payable |
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Short-term notes payable, related parties |
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Convertible notes payable in default |
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Short-term convertible notes payable |
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Derivative liability |
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Total current liabilities |
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Long-Term Liabilities |
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Long-term lease liabilities |
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Derivative liability |
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Long-term convertible debt |
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Long-term debt |
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Long-term debt, related parties |
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Total long-term liabilities |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (Note 7) |
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STOCKHOLDERS’ DEFICIT: |
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Series C convertible preferred stock, $ |
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Series C1 convertible preferred stock, $ |
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Series C2 convertible preferred stock, $ |
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Series D convertible preferred stock, $ |
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Series E convertible preferred stock, $ |
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Series F convertible preferred stock, $ |
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Series F-2 convertible preferred stock, $ |
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Series G convertible preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock at cost |
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| ( | ) |
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| ( | ) |
Accumulated deficit |
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| ( | ) |
|
| ( | ) |
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Total stockholders’ deficit |
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| ( | ) |
|
| ( | ) |
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated statements.
| 3 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
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| 2022 |
|
| 2021 |
| ||
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| ||
Sales - devices and disposables |
| $ |
|
| $ |
| ||
Cost of goods sold |
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| ||
Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Loss from operations |
|
| ( | ) |
|
| ( | ) |
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Other income (expenses): |
|
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Interest expense |
|
| ( | ) |
|
| ( | ) |
Change in fair value of derivative liability |
|
| ( | ) |
|
| ( | ) |
Gain from extinguishment of debt |
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| ||
Change in fair value of warrants |
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| ||
Other expenses |
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| ||
Total other income (expense) |
|
| ( | ) |
|
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| |
|
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Loss before income taxes |
|
| ( | ) |
|
| ( | ) |
Provision for income taxes |
|
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| ||
|
|
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|
Net loss |
|
| ( | ) |
|
| ( | ) |
Preferred stock dividends |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
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|
|
|
|
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS |
|
|
|
|
|
|
|
|
Basic |
| $ | ( | ) |
| $ | ( | ) |
Diluted |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
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|
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| ||
Diluted |
|
|
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|
|
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2022
(unaudited, in thousands)
|
| Preferred Stock |
|
| Preferred Stock |
|
| Preferred Stock |
|
| Preferred Stock |
| ||||||||||||||||||||
Series C | Series C1 | Series C2 | Series D | |||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
| ||||||||
Balance at December 31, 2021 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
| |||||||
Common stock warrants exercised |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Issuance of common stock for payment of Series D preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Issuance of common stock for payment of Series E preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Issuance of common stock for payment of Series F preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Issuance of common stock for payment of Series F-2 preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Issuance of common stock for payment of interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Issuance of common stock for Series F and Series F-2 one-time 15% dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Conversion of Series E preferred stock to common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Conversion of Series F preferred stock to common stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Expense for warrants issued to consultants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||
Balance at March 31, 2022 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
| |||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Preferred Stock |
| |||||||||||||||
Series E | Series F | Series F2 | ||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
| ||||||
Balance at December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| 3 |
|
| $ |
| |||||
Common stock warrants exercised |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Issuance of common stock for payment of Series D preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| ||
Issuance of common stock for payment of Series E preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Issuance of common stock for payment of Series F preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ||
Issuance of common stock for payment of Series F-2 preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| ||
Issuance of common stock for payment of interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| ||
Issuance of common stock for Series F and Series F-2 one-time 15% dividends |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ||
Conversion of Series E preferred stock to common stock |
|
| ( | ) |
|
| (725 | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Conversion of Series F preferred stock to common stock |
|
| - |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| - |
| |
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Expense for warrants issued to consultants |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Balance at March 31, 2022 |
|
| 1 |
|
| $ | 914 |
|
|
| 1 |
|
| $ |
|
|
| 3 |
|
| $ | 2,963 |
| |
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Common Stock |
|
| Paid-In |
|
| Treasury |
|
| Accumulated |
|
|
| ||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Stock |
|
| Deficit |
|
| Total |
| ||||||
Balance at December 31, 2021 |
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||
Common stock warrants exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of common stock for payment of Series D preferred dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of common stock for payment of Series E preferred dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of common stock for payment of Series F preferred dividends |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of common stock for payment of Series F-2 preferred dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of common stock for payment of interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of common stock for Series F and Series F-2 one-time 15% dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Conversion of Series E preferred stock to common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
| |||||
Conversion of Series F preferred stock to common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| 44 |
|
|
|
|
|
|
|
|
| 44 |
| |||
Expense for warrants issued to consultants |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Balance at March 31, 2022 |
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||
The accompanying notes are an integral part of these consolidated statements.
| 5 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(unaudited, in thousands)
Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | |||||||||||||||||||||||||||||
Series C | Series C1 | Series C2 | Series D | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance at December 31, 2020 | - | $ | 1 | $ | $ | $ | ||||||||||||||||||||||||||
Series F preferred offering | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Conversion of debt and expenses for Series F preferred stock | - | - | - | - | - | - | ||||||||||||||||||||||||||
Issuance of warrants to finders | - | - | - | - | - | - | ||||||||||||||||||||||||||
Series G preferred offering | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Issuance of common stock for payment of Series D preferred dividends | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Issuance of warrants to consultants | - | - | - | - | - | - | ||||||||||||||||||||||||||
Conversions of warrants from liability to equity | - | - | - | - | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||
Accrued preferred dividends | - | - | - | - | - | - | ||||||||||||||||||||||||||
Net loss | - | - | - | - | ||||||||||||||||||||||||||||
Balance at March 31, 2021 | - | $ | 105 | $ | 170 | $ | 531 | $ | 276 | |||||||||||||||||||||||
|
| Preferred Stock |
|
| Preferred Stock |
|
| Preferred Stock |
| |||||||||||||||
Series E | Series F | Series G | ||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
| ||||||
Balance at December 31, 2020 |
|
| 2 |
|
| $ | 1,639 |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ |
| |
Series F preferred offering |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Conversion of debt and expenses for Series F preferred stock |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Issuance of warrants to finders |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Series G preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
| ||||
Issuance of common stock for payment of Series D preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Issuance of warrants to consultants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Conversions of warrants from liability to equity |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| |||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ||
Balance at March 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ | 4,226 |
|
|
|
|
| $ |
| |||||
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
| ||||||||||
|
| Common Stock |
|
| Paid-In |
|
| Treasury |
|
| Accumulated |
|
|
| ||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Stock |
|
| Deficit |
|
| Total | |||||||
Balance at December 31, 2020 |
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||
Series F preferred offering |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,667 |
| ||||
Conversion of debt and expenses for Series F preferred stock |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,559 |
| |||
Issuance of warrants to finders |
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| 151 |
| ||
Series G preferred offering |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of common stock for payment of Series D preferred dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of warrants to consultants |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Conversions of warrants from liability to equity |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stock-based compensation |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Net loss |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (517 | ) |
|
| ( | ) |
Balance at March 31, 2021 |
|
| 13,180 |
|
| $ |
|
| $ | 125,489 |
|
| $ | ( | ) |
| $ | (140,528 | ) |
| $ | (4,821 | ) | |
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
| Three Months Ended |
| |||||
March 31, |
| |||||||
|
| 2022 |
|
| 2021 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discounts |
|
|
|
|
|
| ||
Amortization of beneficial conversion feature |
|
|
|
|
|
| ||
Stock based compensation |
|
|
|
|
|
| ||
Change in fair value of warrants |
|
|
|
|
| ( | ) | |
Change in fair value of derivatives |
|
|
|
|
|
| ||
Amortization of lease right-of-use-asset |
|
|
|
|
|
| ||
Expense for warrants issued to consultants |
|
|
|
|
|
| ||
Gain from forgiveness of debt |
|
| ( | ) |
|
| ( | ) |
Other non-cash expenses (income) |
|
|
|
|
|
| ||
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
| ||
Inventory |
|
|
|
|
| ( | ) | |
Other current assets |
|
| ( | ) |
|
|
| |
Other non-current assets |
|
|
|
|
| ( | ) | |
Accounts payable and accrued liabilities |
|
|
|
|
|
| ||
Lease liabilities |
|
| ( | ) |
|
|
| |
Deferred revenue |
|
|
|
|
|
| ||
NET CASH USED IN OPERATING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| ( | ) |
|
| ( | ) |
NET CASH USED FOR INVESTING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from warrant exercises |
|
|
|
|
|
| ||
Payments made on notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from Series F offering, net of costs |
|
|
|
|
|
| ||
Proceeds from Series G offering, net of costs |
|
|
|
|
|
| ||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Dividends on preferred stock |
| $ |
|
| $ |
| ||
Common stock issued for payment of interest |
| $ |
|
| $ | - |
| |
Issuance of series F-2 preferred stock |
| $ |
|
| $ |
| ||
Issuance of warrants to finders in connection with Series F and Series F-2 preferred stock |
| $ |
|
| $ |
| ||
Common stock issued for payment of dividends |
| $ |
|
| $ |
| ||
Conversion of Series E Preferred Shares into Common Stock |
| $ |
|
| $ |
| ||
Conversion of Series F Preferred Shares into Common Stock |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
During the year ended December 31, 2021, the Board simultaneously approved a 1-for-20 reverse stock split of our common stock and decreased the total number of authorized common shares to
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934. The December 31, 2021 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2021. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company as of March 31, 2022 and December 31, 2021, and the consolidated results of operations and cash flows for the three-month periods ended March 31, 2022 and 2021 have been included.
The Company’s prospects must be considered in light of the substantial risks, expenses and difficulties encountered by entrants into the medical device industry. This industry is characterized by an increasing number of participants, intense competition and a high failure rate. The Company has experienced net losses since its inception and, as of March 31, 2022, it had an accumulated deficit of approximately $143.4 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.
| 8 |
| Table of Contents |
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment. The Company’s principal decision makers are the Chief Executive Officer and its Chief Financial Officer. Management believes that its business operates as one reportable segment because: a) the Company measures profit and loss as a whole; b) the principal decision makers do not review information based on any operating segment; c) the Company does not maintain discrete financial information on any specific segment; d) the Company has not chosen to organize its business around different products and services, and e) the Company has not chosen to organize its business around geographic areas.
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 March 31, 2022, the Company had a negative working capital of approximately $
During the three-month period ended March 31, 2022, the Company raised $
The Company had warrants exercisable for approximately
2. 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.
Accounting Standard Updates
A variety of proposed or otherwise potential accounting standards are currently under consideration by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, management has not yet determined the effect, if any that the implementation of such proposed standards would have on the Company’s consolidated financial statements.
| 9 |
| Table of Contents |
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. Uncollectibility is determined based on the determination that a distributor will not be able to make payment and the time frame has exceeded one year. The Company does not accrue interest receivables 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.
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. As of March 31, 2022 and December 31, 2021, our inventories were as follows:
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Raw materials |
| $ |
|
| $ |
| ||
Work-in-progress |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Inventory reserve |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Total inventory |
| $ |
|
| $ |
| ||
The company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.
| 10 |
| Table of Contents |
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 are included in general and administrative expense on the statement of operations. Expenditures for repairs and maintenance are expensed as incurred. Property and equipment are summarized as follows at March 31, 2022 and December 31, 2021:
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Equipment |
| $ |
|
| $ |
| ||
Software |
|
|
|
|
|
| ||
Furniture and fixtures |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Construction in progress |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
|
|
|
| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
| $ |
|
| $ |
| ||
Depreciation expense related to property and equipment for the three months ended March 31, 2022 and 2021 was not material.
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.
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 were not material for the three months ended March 31, 2022 and 2021.
Leases
A lease provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.
Where an operating lease contains extension options that the Company is reasonably certain to exercise, the extension period is included in the calculation of the right-of-use assets and lease liabilities.
The discount rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when that is not readily determinable, the Company utilizes its secured borrowing rate. Right-of-use assets include any lease payments required to be made prior to commencement and exclude lease incentives. Both right-of-use assets and lease liabilities exclude variable payments not based on an index or rate, which are treated as period costs. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants. See Note 7 – Commitments and Contingencies.
| 11 |
| Table of Contents |
Accrued Liabilities
Accrued liabilities as of March 31, 2022 and December 31, 2021 are summarized as follows:
|
| (in thousands) |
| |||||
| March 31, 2022 |
|
| December 31, 2021 |
| |||
|
|
|
|
|
|
| ||
Compensation |
| $ |
|
| $ |
| ||
Professional fees |
|
|
|
|
|
| ||
Stock Subscription Payable |
|
| - |
|
|
|
| |
Interest |
|
|
|
|
|
| ||
Vacation |
|
|
|
|
|
| ||
Preferred dividends |
|
|
|
|
|
| ||
Other accrued expenses |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
Stock Subscription Payable
Cash received from investors for common stock shares that have not yet been issued is recorded as a liability, which is presented within Accrued Liabilities on the consolidated balance sheet.
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. |
The Company did not recognize material revenues during the three-month periods ended March 31, 2022 or 2021. The Company’s revenues do not require significant estimates or judgments. The Company is not party to contracts that include multiple performance obligations or material variable consideration.
| 12 |
| Table of Contents |
Contract Balances
The Company defers payments received as revenue until earned based on the related contracts and applying ASC 606 as required. As of March 31, 2022 and December 31, 2021, the Company had $
Significant Distributors
As of March 31, 2022, accounts receivable outstanding was $
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 provision for income taxes is determined in accordance with ASC 740, “Income Taxes”. The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expense are expected to be settled in our income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company has filed its 2021 federal and state corporate tax returns. The Company has entered into an agreed upon payment plan with the IRS for delinquent payroll taxes. The Company has an established payment arrangement for its delinquent state income taxes with the State of Georgia. 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 March 31, 2022, the Company had approximately $
The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50.0% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations.
| 13 |
| Table of Contents |
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 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 accounts for its stock-based awards in accordance with ASC Subtopic 718, “Compensation – Stock Compensation”, which requires fair value measurement on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors. The Company determines the fair value of stock options using the Black-Scholes model. The fair value of restricted stock awards is based upon the quoted market price of the common shares on the date of grant. The fair value of stock-based awards is expensed over the requisite service periods of the awards. The Company accounts for forfeitures of stock-based awards as they occur.
The Black-Scholes option pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future.
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, ASC 820, 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. |
| 14 |
| Table of Contents |
The Company records its derivative activities at fair value. As of March 31, 2022 we had one instrument that we valued for the derivative liability associated with the bifurcated conversion option of the Auctus loan for $
The following tables present the fair value of those liabilities measured on a recurring basis as of March 31, 2022 and December 31, 2021:
|
| Fair Value at March 31, 2022 (in thousands) |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liability/bifurcated conversion option in connection with Auctus $400,000 loan on December 17, 2019 |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term liabilities at fair value |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||
|
| Fair Value at December 31, 2021 (in thousands) |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liability/bifurcated conversion option in connection with Auctus $400,000 loan on December 17, 2019 |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities at fair value |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||
The following is a summary of changes to Level 3 instruments during the three months ended March 31, 2022:
|
| (in thousands) |
| |||||||||
|
| Senior Secured Debt |
|
| Derivative |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance, December 31, 2021 |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Change in fair value during the period |
|
|
|
|
| ( | ) |
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022 |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
4. STOCKHOLDERS’ DEFICIT
Common Stock
The Company has authorized
| 15 |
| Table of Contents |
During the three months ended March 31, 2022, the Company issued 8,642,829 shares of common stock:
|
| Number of Shares |
| |
|
|
|
| |
Common stock warrants exercised |
|
|
| |
Issuance of common stock for payment of Series D preferred dividends |
|
|
| |
Issuance of common stock for payment of Series E preferred dividends |
|
|
| |
Issuance of common stock for payment of Series F preferred dividends |
|
| 158,662 |
|
Issuance of common stock for payment of Series F-2 preferred dividends |
|
|
| |
Issuance of common stock for payment of interest |
|
|
| |
Issuance of common stock for Series F one-time 15% dividend |
|
|
| |
Issuance of common stock for Series F-2 one-time 15% dividend |
|
|
| |
Conversion of Series E preferred stock to common stock |
|
|
| |
Conversion of Series F preferred stock to common stock |
|
|
| |
Issued during the three months ended March 31, 2022 |
|
|
| |
|
|
|
|
|
Summary table of common stock share transactions: |
|
|
|
|
Balance at December 31, 2021 |
|
|
| |
Issued in 2022 |
|
|
| |
Balance at March 31, 2022 |
|
|
| |
Preferred Stock
The Company has authorized
Series C Convertible Preferred Stock
The board designated
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. Unpaid accrued dividends were $120,120 as of March 31, 2022. 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 March 31, 2022 and December 31, 2021, the “make-whole payment” for a converted share of Series C preferred stock would convert to
| 16 |
| Table of Contents |
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 $
Series C1 Convertible Preferred Stock
The board designated
At March 31, 2022 and December 31, 2021, there were
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
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.
Series D Convertible Preferred Stock
The Board designated
| 17 |
| Table of Contents |
Each share of Series D Preferred is convertible, at any time for a period of 5 years after issuance, into that number of shares of Common Stock, determined by dividing the Stated Value by $
During the three months ended March 31, 2022, the Company issued
Series E Convertible Preferred Stock
The Board designated
Each share of Series E Preferred Stock has a par value of
Each holder of Series E Preferred Stock is entitled to receive cumulative dividends of 8% per annum, payable
annually in cash or, following the listing of the Company’s common stock on certain Canadian trading markets and at the option of the Company, shares of common stock.
During the three months ended March 31, 2022, the Company issued
During the three months ended March 31, 2022, the Company issued
Series F Convertible Preferred Stock
The Board designated
| 18 |
| Table of Contents |
Each share of Series F Preferred is convertible, at any time for a period of
During the three months ended March 31, 2022, the Company issued
During the three months ended March 31, 2022, the Company issued
Series F-2 Convertible Preferred Stock
The Company was oversubscribed for its Series F Convertible Preferred Stock, resulting in the requirement to file an additional Certificate of Designation for Series F-2 Convertible Preferred Stock with substantially the same terms as the Series F Convertible Preferred Stock. The Board designated
Each share of Series F-2 Preferred is convertible, at any time for a period of
During the three months ended March 31, 2022, the Company issued
| 19 |
| Table of Contents |
Powerup (Series G Convertible Preferred Stock)
During January 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $
During February 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $
Due to the mandatory redemption feature of the Series G preferred stock, the total amount of
| 20 |
| Table of Contents |
Warrants
The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the three months ended March 31, 2022:
|
| Warrants (Underlying Shares) |
|
| Weighted-Average Exercise Price Per Share |
| ||
|
|
|
|
| ||||
Outstanding, December 31, 2021 |
|
|
|
| $ |
| ||
Warrants exercised |
|
| ( | ) |
| $ |
| |
Outstanding, March 31, 2022 |
|
|
|
| $ |
| ||
5. STOCK OPTIONS
The new Stock Plan (the “Plan”) allows 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. The plan provides for stock options to be granted up to
There was no stock option activity during the three months ended March 31, 2022. The following table summarizes the Company’s outstanding and exercisable stock options as of March 31, 2022:
|
| Number of Shares |
|
| Weighted-Average Exercise Price Per Share |
|
| Weighted-Average Remaining Contractual Life |
| Aggregate Intrinsic Value of In-the-Money Options (in thousands) |
| |||
|
|
|
|
|
|
| ||||||||
Options outstanding as of March 31, 2022 |
|
|
|
| $ |
|
|
| $ |
| ||||
Options exercisable as of March 31, 2022 |
|
|
|
| $ |
|
|
| $ |
| ||||
The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price as of March 31, 2022 and the exercise price, multiplied by the number of options. As of March 31, 2022, there was $
The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The Black-Scholes option pricing model and the following weighted-average assumptions were used to estimate the fair value of awards granted during the three months ended March 31, 2021:
|
| March 31, |
| |
|
| 2021 |
| |
Expected term (years) |
|
| ||
Volatility |
|
| % | |
Risk-free interest rate |
|
| % | |
Dividend yield |
|
| % | |
| 21 |
| Table of Contents |
6. LITIGATION AND CLAIMS
From time to time, the Company may be involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the dispositions of these matters, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial condition. However, depending on the amount and timing of such disposition, an unfavorable resolution of some or all of these matters could materially affect the future results of operations or cash flows in a particular year.
As of March 31, 2022, and December 31, 2021, there was no accrual recorded for any potential losses related to pending litigation.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The below table presents total operating lease right-of-use assets and lease liabilities as of March 31, 2022:
|
| (in thousands) |
| |
|
| Three Months Ended March 31, |
| |
|
| 2022 |
| |
Operating lease right-of-use assets |
| $ |
| |
Operating lease liabilities |
| $ |
| |
The table below presents the maturities of operating lease liabilities as of March 31, 2022:
|
| (in thousands) |
| |
|
| Operating |
| |
Leases |
| |||
2022 (remaining) |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Total future lease payments |
|
|
| |
Less: discount |
|
| ( | ) |
Total lease liabilities |
| $ |
| |
The table below presents the weighted-average remaining lease term and discount rate used in the calculation of operating lease right-of-use assets and lease liabilities:
|
| Three Months Ended March 31, |
| |
|
| 2022 |
| |
Weighted average remaining lease term (years) |
|
|
| |
Weighted average discount rate |
|
| % | |
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
| 22 |
| Table of Contents |
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 $
On January 22, 2020, the Company entered into a promotional agreement with a related party, which is partially owned by Mr. Blumberg, to provide investor and public relations services for a period of two years. As compensation for these services, the Company will issue a total of
On March 10, 2021, the Company entered into a consulting agreement with Richard Blumberg. As a result of the consulting agreement Mr. Blumberg provided $
During the year ended December 31, 2021,
Other Commitments
On July 24, 2019, Shandong Yaohua Medical Instrument Corporation (“SMI”), agreed to modify its existing agreement. Under the terms of this modification, the Company agreed to grant (1) exclusive manufacturing rights, excepting the disposable cervical guides for the Republic of Turkey, and the final assembly rights for Hungary, and (2) exclusive distribution and sales for LuViva in jurisdictions, subject to the following terms and conditions. First, SMI shall complete the payment for parts, per the purchase order, for five additional LuViva devices. Second, in consideration for the $
| 23 |
| Table of Contents |
On August 12, 2021, the Company executed an amendment to its agreement with SMI, which established a payment schedule for the balance owed by SMI to the Company for outstanding purchase orders. The remaining balance owed for outstanding purchase orders was $
Contingencies
The current outbreak of the Coronavirus SARS-CoV-2, the pathogen responsible for COVID-19, which has already had an impact on financial markets, could result in additional repercussions to the Company’s operating business, including but not limited to, the sourcing of materials for product candidates, manufacture of supplies for preclinical and/or clinical studies, delays in clinical operations, which may include the availability or the continued availability of patients for trials due to such things as quarantines, conduct of patient monitoring and clinical trial data retrieval at investigational study sites.
The future impact of the outbreak is highly uncertain and cannot be predicted, and the Company cannot provide any assurance that the outbreak will not have a material adverse impact on the Company’s operations or future results or filings with regulatory health authorities. The extent of the impact to the Company, if any, will depend on future developments, including actions taken to contain the coronavirus.
The Russia-Ukraine conflict and the sanctions imposed in response to this crisis could result in repercussions to our operating business, including delays in obtaining regulatory approval to market our products in Russia. The future impact of the conflict is highly uncertain and cannot be predicted, and we cannot provide any assurance that the conflict will not have a material adverse impact on our operations or future results or filings with regulatory health authorities.
8. NOTES PAYABLE
Short Term Notes Payable
At March 31, 2022 and December 31, 2021, the Company maintained short term notes payable to related and non-related parties totaling approximately $
On July 4, 2021, the Company entered into a premium finance agreement to finance its insurance policies totaling $
During 2019, the Company issued promissory notes to Mr. Cartwright totaling $
On December 21, 2016 and January 19, 2017, the Company issued promissory notes to Mr. Fowler, in the amounts of approximately $
| 24 |
| Table of Contents |
The following table summarizes short-term notes payable, including related parties:
|
| Short-term notes payable, including related parties |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Dr. Cartwright |
| $ |
|
| $ |
| ||
Mr. Fowler |
|
|
|
|
|
| ||
Premium Finance (insurance) |
|
|
|
|
|
| ||
Short-term notes payable |
| $ |
|
| $ |
| ||
The short-term notes payable due to related parties was $
9. SHORT-TERM CONVERTIBLE DEBT
Short-term Convertible Notes Payable
Auctus
On December 17, 2019, the Company entered into a securities purchase agreement and convertible note with Auctus. The convertible note issued to Auctus will be for a total of $2.4 million. The first tranche of $700,000 was received in December 2019 and matured
In connection with the first tranche of $
| 25 |
| Table of Contents |
On May 27, 2020, the Company received the second tranche in the amount of $
Convertible Notes in Default
On March 31, 2020, we entered into a securities purchase agreement with Auctus Fund, LLC for the issuance and sale to Auctus of $
The following table summarizes the Short-term Convertible Notes Payable, including debt in default (in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Auctus Tranche 2 |
| $ |
|
| $ |
| ||
Auctus prepayment penalty |
|
|
|
|
|
| ||
Auctus (March 31, 2020 Note) |
|
|
|
|
|
| ||
Debt discount and issuance costs to be amortizaed |
|
| ( | ) |
|
| ( | ) |
Convertible notes payable - short-term |
| $ |
|
| $ |
| ||
On June 2, 2021, we entered into an exchange agreement with Auctus, which was amended on February 1, 2022. Pursuant to this agreement, Auctus agreed to exchange an aggregate of $
| 26 |
| Table of Contents |
10. LONG-TERM DEBT
Long-term Debt – Related Parties
On July 14, 2018, the Company entered into an exchange agreement with Dr. Faupel, whereby Dr. Faupel agreed to exchange outstanding amounts due to him for loans, interest, bonus, salary and vacation pay in the amount of $
On July 24, 2019, Dr. Faupel and Mr. Cartwright agreed to an addendum to the debt restructuring exchange agreement and to modify the terms of the original exchange agreement. Under this modification Dr. Faupel and Mr. Cartwright agreed to extend the note to be due in full on the third anniversary of that agreement.
On February 19, 2021, the Company entered into new promissory notes replacing the original notes from September 4, 2018, with Mark Faupel and Gene Cartwright. For Dr. Cartwright the principal amount on the new note was $
On February 19, 2021, the Company exchanged $
| 27 |
| Table of Contents |
The table below summarizes the detail of the exchange agreement:
For Dr. Faupel: |
|
|
| |
|
|
|
| |
Salary |
| $ |
| |
Bonus |
|
|
| |
Vacation |
|
|
| |
Interest on compensation |
|
|
| |
Loans to Company |
|
|
| |
Interest on loans |
|
|
| |
Total outstanding prior to exchange |
|
|
| |
|
|
|
|
|
Amount forgiven in prior years |
|
| ( | ) |
Amount exchanged for Series F-2 Preferred Stock |
|
| ( | ) |
Total interest accrued through December 31, 2021 |
|
|
| |
Balance outstanding at December 31, 2021 |
| $ |
| |
|
|
|
|
|
Interest accrued through March 31, 2022 |
|
|
| |
Balance outstanding at March 31, 2022 |
| $ |
| |
For Dr.Cartwright |
|
|
| |
|
|
|
| |
Salary |
| $ |
| |
Bonus |
|
|
| |
Loans to Company |
|
|
| |
Interest on loans |
|
|
| |
Total outstanding prior to exchange |
|
|
| |
|
|
|
|
|
Amount forgiven in prior years |
|
| ( | ) |
Amount exchanged for Series F-2 Preferred Stock |
|
| ( | ) |
Total interest accrued through December 31, 2021 |
|
|
| |
Balance outstanding at December 31, 2021 |
| $ |
| |
|
|
|
|
|
Interest accrued through March 31, 2022 |
|
|
| |
Balance outstanding at March 31, 2022 |
| $ |
| |
On March 22, 2021, the Company entered into an exchange agreement with Richard Fowler. As of December 31, 2020, the Company owed Mr. Fowler $
| 28 |
| Table of Contents |
Future debt obligations as shown below include: $
Year |
| Amount |
| |
2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
| |
Small Business Administration Loan
On May 4, 2020, the Company received a loan from the Small Business Administration (SBA) pursuant to the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the amount of $
10% Senior Unsecured Convertible Debenture
On May 17, 2021, the Company issued 10% Senior Unsecured convertible debentures to investors, which mature on
| 29 |
| Table of Contents |
At March 31, 2022 and December 31, 2021, the balance due on the 10% Senior Secured Convertible Debenture was $
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
10% Senior Unsecured Convertible Debentures |
| $ |
|
| $ |
| ||
Debt Issuance costs to be amortized |
|
| ( | ) |
|
| ( | ) |
Debt Discount |
|
| ( | ) |
|
| ( | ) |
Long-term convertible debt |
| $ |
|
| $ |
| ||
6% Unsecured Promissory Note
On July 9, 2020, we entered into an exchange agreement with Mr. Bill Wells (a former employee). In lieu of agreeing to dismiss approximately half of what was owed to him, or $
During the year ended December 31, 2021, the Company closed a financing round that exceeded the $
11. 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, Series D, Series E, Series F and Series F-2 convertible preferred stock, Series G preferred stock, convertible debt, convertible preferred dividends and warrants convertible into common stock shares.
| 30 |
| Table of Contents |
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, except for per-share data):
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
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For period of net loss, basic and diluted earnings per share are the same as the assumed exercise of warrants and the conversion of convertible debt are anti-dilutive.
Troubled Debt Restructurings - 2022
During the three months ended March 31, 2022, two of the Company’s creditors forgave $
Troubled Debt Restructurings - 2021
During the three months ended March 31, 2021, the Company restructured several debt agreements that met the criteria for troubled debt. The basic criteria are that the borrower is troubled, i.e., they are having financial difficulties, and a concession is granted by the creditor. As of March 31, 2022,
12. SUBSEQUENT EVENTS
Auctus Exchange Agreement
On April 14, 2022, we entered into an agreement with Auctus that extended the April 15, 2022 deadline to May 15, 2022. See Footnote 9 – “Short-Term Convertible Debt” for information on the exchange agreement.
Series D Exchange Agreements
Subsequent to March 31, 2022, the Company entered into various agreements with Series D Preferred shareholders, pursuant to which each holder separately agreed to exchange their Series D Preferred shares into the Company’s common shares (in accordance with their existing Series D Preferred Share Agreements). In addition, the holders agreed to exchange
Common Stock Issuances
Subsequent to March 31, 2022, we issued
Subsequent to March 31, 2022, we issued
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Subsequent to March 31, 2022, we issued
Subsequent to March 31, 2022, we issued
Subsequent to March 31, 2022, we issued
Subsequent to March 31, 2022, we
Subsequent to March 31, 2022, we issued
Subsequent to March 31, 2022, we issued
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act), which provides a “safe harbor” for forward-looking statements made by us. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends, and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, and projections will occur or can be can achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those that may be set forth under “Risk Factors” below and elsewhere in this report, as well as in our annual report on Form 10-K for the year ended December 31, 2021 and this quarterly report on Form 10-Q. Examples of these uncertainties and risks include, but are not limited to:
| · | access to sufficient debt or equity capital to meet our operating and financial needs; |
| · | the extent of dilution of the holdings of our existing stockholders upon the issuance, conversion or exercise of securities issued as part of our capital raising efforts; |
| · | the extent to which certain debt holders may call the notes to be paid; |
| · | the effectiveness and ultimate market acceptance of our products and our ability to generate sufficient sales revenues to sustain our growth and strategy plans; |
| · | whether our products in development will prove safe, feasible and effective; |
| · | whether and when we or any potential strategic partners will obtain required regulatory approvals in the markets in which we plan to operate; |
| · | our need to achieve manufacturing scale-up in a timely manner, and our need to provide for the efficient manufacturing of sufficient quantities of our products; |
| · | the lack of immediate alternate sources of supply for some critical components of our products; |
| · | our ability to establish and protect the proprietary information on which we base our products, including our patent and intellectual property position; |
| · | the current outbreak of the Coronavirus SARS-CoV-2, the pathogen responsible for COVID-19, which has already had an impact on financial markets, could result in additional repercussions in our operating business, including but not limited to, the sourcing of materials for product candidates, manufacture of supplies for preclinical and/or clinical studies, delays in clinical operations, which may include the availability or the continued availability of patients for trials due to such things as quarantines, conduct of patient monitoring and clinical trial data retrieval at investigational study sites; |
| · | The future impact of the outbreak is highly uncertain and cannot be predicted, and we cannot provide any assurance that the outbreak will not have a material adverse impact on our operations or future results or filings with regulatory health authorities. The extent of the impact, if any, we will depend on future developments, including actions taken to contain the coronavirus; |
| · | The impact of the conflict between Russia and Ukraine on economic conditions in general and on our business and operations; |
| · | 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. |
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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 March 31, 2022 we have an accumulated deficit of approximately $143.4 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 2021, the majority of our revenues were from the sale of components of our LuViva devices and disposables. We expect that the majority of our revenue in 2022 will be derived from revenue from the sale of LuViva devices and disposables.
Current Demand for LuViva
Based on discussions with our distributors, we currently hold and expect to generate additional purchase orders for approximately $1.0 to $1.5 million in LuViva devices and disposables in 2022 and expect those purchase orders to result in actual sales of $0.5 to $1.0 million in 2022, 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. In order to increase demand for LuViva, the Company in 2022 is focused on three primary markets: the United States, China and Europe.
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In the United States, the Company is actively pursuing FDA approval by initiating a clinical trial protocol involving approximately 400 study participants. The protocol was drafted with input from FDA and two prestigious clinical centers that will participate in enrolling the 400 women at multiple sites within their hospital systems. Clinical trial agreements have been drafted and agreed upon, the budget at one institution has been agreed upon and is under negotiation at the other institution. The LuViva devices have been prepared and have passed bench testing in order to begin the study. All requested materials have been submitted for review by the respective hospital institutional review boards (IRBs). Once the IRB’s have approved the study, enrollment may begin, which is expected prior to the end of 2022 and will last approximately three to eight months; however, there can be no assurance that the study will be completed by the end of 2022.
In China, the Chinese NMPA (National Medical Products Approval) study has begun at four clinical sites. According to enrollment tracking reports sent to us by our Chinese partner SMI on March 11, 2022, testing of 150 patients has been completed in the ongoing clinical trial for Chinese National Medical Products Administration (NMPA) approval. The trial is expected to be completed in the second quarter of this year and submitted for approval shortly thereafter, although there can be no assurance that the study will be completed within this time frame.
In Europe, the Company attended a meeting in Bucharest, Romania on November 3-4, 2021, hosted by our central Eastern and Russian distribution partner. The LuViva system was demonstrated for doctors at a local clinic and the head Ob-Gyn physician intends to keep the LuViva device and order additional Cervical Guides to test patients as part of her practice.
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. When we begin to generate revenue from different sources, we expect that the number of applicable policies and complexity of the judgments required will increase.
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.
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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.
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.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
Research and Development Expenses: Research and development expenses were $21,000 during the three months ended March 31, 2022, compared to $16,000 during the three months ended March 31, 2021, an increase of $5,000 or 31%. The increase was primarily due to higher research and development clinical costs and payroll-related expenses.
Sales and Marketing Expenses: Sales and marketing expenses were $40,000 during the three months ended March 31, 2022, compared to $36,000 during the three months ended March 31, 2021, an increase of $4,000 or 11%. The increase was primarily due to higher travel and payroll-related expenses.
General and Administrative Expense: General and administrative expenses were $386,000 for the three months ended March 31, 2022, compared to $771,000 during the three months ended March 31, 2021, a decrease of $385,000 or 50%. The decrease was primarily due to a prior-year charge of $398,000 recorded during the three months ended March 31, 2021 for warrants issued to Mr. Blumberg for consulting services.
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Interest Expense: Interest expense during the three months ended March 31, 2022 was $101,000, compared to $141,000 during the three months ended March 31, 2021, a decrease of $40,000, or 28%. The decrease was due a decrease in debt, resulting in lower interest recognized for outstanding notes payable and convertible debt during the three months ended March 31, 2022 versus the same period in the prior year.
Loss Due to Change in Fair Value of Derivative Liability: Loss due to change in fair value of the derivative liability during the three months ended March 31, 2022 was $6,000, compared to an $88,000 loss recorded during the three months ended March 31, 2021. The decrease was primarily due to changes to our stock price during each of the three-month periods, which impacted the fair value of the derivative liability.
Gain from extinguishment of debt: Gain from extinguishment of debt during the three months ended March 31, 2022 was $41,000, compared to a gain from extinguishment of debt of $87,000 during the three months ended March 31, 2021, a decrease of $46,000, or 53%. The decrease was due to a lower amount of debt forgiven.
Change in Fair Value of Warrants: Change in fair value of warrants during the three months ended March 31, 2022 was zero, compared to a $448,000 gain recorded during the three months ended March 31, 2021. The decrease was primarily due to (i) a change in the terms of the warrants during 2021, which resulted in reclassification of the warrant instruments from liabilities to equity and (ii) expiration of the warrants previously outstanding.
Preferred Stock Dividends: Expense related to preferred stock dividends during the three months ended March 31, 2022 was $548,000, compared to $55,000 of expense recorded during the three months ended March 31, 2021. The increase was primarily due to payment of a one-time, non-recurring 15% dividends to the Series F and Series F-2 Preferred shareholders, as required by the Series F and Series F-2 Certificate of Designations in the event the Company did not uplist to the NASDAQ stock exchange or file its clinical data intended for FDA approval of LuViva by December 31, 2021.
Net Loss: Net loss attributable to common stockholders was $1,055,000 for the three months ended March 31, 2022, compared to net loss of $572,000 for the three months ended March 31, 2021. The reasons for the fluctuation are outlined above.
There was no income tax benefit recorded for the three months ended March 31, 2022 and 2021, due to recurring net operating losses. A full valuation allowance has been recorded related the deferred tax assets generated from the net operating losses.
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. As of March 31, 2022, we had cash of approximately $725,000 and negative working capital of $3,662,000.
Our major cash flows for the three months ended March 31, 2022 consisted of cash used by operating activities of $179,000, cash used for investing activities of $14,000, and net cash provided by financing activities of $275,000, which primarily represented the proceeds received from warrant exercises.
Capital resources for 2021
During 2021, the Company received equity investments in the amount of $2,114,000 and incurred fees due on these investments of $139,000. The Company also issued the finders 98,000 of the Company’s common stock shares and 643,700 warrants for the Company’s common stock shares. These investors received a total of 1,436 and 3,237 shares of Series F and Series F-2 preferred stock, respectively. If the Investor elects to convert their Series F or Series F-2 preferred stock, each Series F or Series F-2 preferred stock shares converts into 4,000 shares of the Company’s common stock shares.
During 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $132,000, net to the Company is $125,000, for 153,000 shares of Series G preferred stock. As of March 31, 2022, all Series G preferred shares were redeemed.
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Contingencies
Based on the current outbreak of the Coronavirus SARS-CoV-2, the pathogen responsible for COVID-19, which has already had an impact on financial markets, there could be additional repercussions in our operating business, including but not limited to, the sourcing of materials for product candidates, manufacture of supplies for preclinical and/or clinical studies, delays in clinical operations, which may include the availability or the continued availability of patients for trials due to such things as quarantines, conduct of patient monitoring and clinical trial data retrieval at investigational study sites.
The future impact of the outbreak is highly uncertain and cannot be predicted, and we cannot provide any assurance that the outbreak will not have a material adverse impact on our operations or future results or filings with regulatory health authorities. The extent of the impact, if any, we will depend on future developments, including actions taken to contain the coronavirus.
The Russia-Ukraine conflict and the sanctions imposed in response to this crisis could result in repercussions to our operating business, including delays in obtaining regulatory approval to market our products in Russia. The future impact of the conflict is highly uncertain and cannot be predicted, and we cannot provide any assurance that the conflict will not have a material adverse impact on our operations or future results or filings with regulatory health authorities.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company under the supervision and with the participation of management, including the Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial officer), evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2018. The controls and system currently used by the Company to calculate and record inventory is not operating effectively. Additionally, the Company lacks the resources to properly research and account for complex transactions. The combination of these controls deficiencies has resulted in a material weakness in our internal control over financial reporting.
Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective as of March 31, 2022 to provide reasonable assurance that (1) information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may be involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the disposition of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial condition. See Note 6 to the financial statements for additional information.
ITEM 1A. RISK FACTORS
Not applicable for a smaller reporting company.
ITEM 2. UNREGISTERRED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. EXHIBITS
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| XBRL |
_____________
*Filed herewith
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SIGNATURES
Pursuant to the requirements 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. | ||
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By: | /s/ Gene S. Cartwright | |
Gene S. Cartwright | ||
President, Chief Executive Officer and Acting Chief Financial Officer | ||
Date: May 16, 2022
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