GUIDED THERAPEUTICS INC - Annual Report: 2016 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark
One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended December 31,
2016.
OR
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ____________ to ____________
Commission
file number: 0-22179
GUIDED THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
(State
or other jurisdiction of incorporation or
organization)
|
|
58-2029543
(I.R.S.
Employer Identification No.)
|
|
5835 Peachtree Corners East, Suite D
Norcross, Georgia
(Address
of principal executive offices)
|
|
30092
(Zip
Code)
|
Registrant’s
telephone number (including area code):
(770) 242-8723
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Act: Common Stock, $0.001 par
value
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes [X] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X ] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
Large accelerated
filer [ ]
Accelerated filer [ ]
Non-accelerated
filer [ ]
Smaller reporting
company [X]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes [ ] No [X]
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates was approximately $580,000 as of June 30,
2016 (the last business day of the registrant’s most recently
completed second fiscal quarter). As of March 6, 2017, the
registrant had 1,105,012 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. None.
TABLE OF CONTENTS
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PART I
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3
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|
Item
1. Business
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3
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Item
1A. Risk Factors
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9
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Item
1B. Unresolved Staff Comments
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17
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Item
2. Properties
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17
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Item
3. Legal Proceedings
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17
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Item
4. Mine Safety Disclosures
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17
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PART II
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18
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Item
5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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18
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Item
6. Selected Financial Data
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18
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Item
7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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19
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Item
7A. Quantitative and Qualitative Disclosures about Market
Risk.
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25
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Item
8. Financial Statements and Supplementary Data
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26
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Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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49
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Item
9A. Controls and Procedures
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49
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Item
9B. Other Information
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49
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PART III
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50
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Item
10. Directors, Executive Officers and Corporate
Governance
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50
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Item
11. Executive Compensation
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52
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Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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53
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Item
13. Certain Relationships and Related Transactions and Director
Independence
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54
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Item
14. Principal Accountant Fees and Services
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56
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PART IV
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57
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Item
15. Exhibits and Financial Statement Schedules
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57
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Item
16. Form 10-K Summary
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59
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SIGNATURES
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60
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2
PART I
Overview
We are a medical technology company focused on developing
innovative medical devices that have the potential to improve
healthcare. Our primary focus is the sales and marketing of our
LuViva® Advanced Cervical Scan non-invasive cervical cancer
detection device. The underlying technology of LuViva primarily
relates to the use of biophotonics for the non-invasive detection
of cancers. LuViva is designed to identify cervical cancers and
precancers painlessly, non-invasively and at the point of care by
scanning the cervix with light, then analyzing the reflected and
fluorescent light.
LuViva provides a less invasive and painless alternative to
conventional tests for cervical cancer screening and detection.
Additionally, LuViva improves patient well-being not only because
it eliminates pain, but also because it is convenient to use and
provides rapid results at the point of care. We focus on two
primary applications for LuViva: first, as a cancer screening tool
in the developing world, where infrastructure to support
traditional cancer-screening methods is limited or non-existent,
and second, as a triage following traditional screening in the
developed world, where a high number of false positive results
cause a high rate of unnecessary and ultimately costly follow-up
tests.
Screening for cervical cancer represents one of the most
significant demands on the practice of diagnostic medicine. As
cervical cancer is linked to a sexually transmitted
disease—the human papillomavirus (HPV)—every woman
essentially becomes “at risk” for cervical cancer
simply after becoming sexually active. In the developing world,
there are approximately 2.0 billion women aged 15 and older who are
potentially eligible for screening with LuViva. Guidelines for
screening intervals vary across the world, but U.S. guidelines call
for screening every three years. Traditionally, the Pap smear
screening test, or Pap test, is the primary cervical cancer
screening methodology in the developed world. However, in
developing countries, cancer screening using Pap tests is expensive
and requires infrastructure and skill not currently existing, and
not likely to be developed in the near future, in these
countries.
We believe LuViva is the answer to the developing world’s
cervical cancer screening needs. Screening for cervical cancer in
the developing world often requires working directly with foreign
governments or non-governmental agencies (NGOs). By partnering with
governments or NGOs, we can provide immediate access to cervical
cancer detection to large segments of a nation’s population
as part of national or regional governmental healthcare programs,
eliminating the need to develop expensive and resource-intensive
infrastructures.
In the developed world, we believe LuViva offers a more accurate
and ultimately cost-effective triage medical device, to be used
once a traditional Pap test or HPV test indicates the possibility
of cervical cancer. Due to the high number of false positive
results from Pap tests, traditional follow-on tests entail
increased medical treatment costs. We believe these costs can be
minimized by utilizing LuViva as a triage to determine whether
follow-on tests are warranted.
We believe our non-invasive cervical cancer detection technology
can be applied to the early detection of other cancers as well. In
2013, we announced a license agreement with Konica Minolta,
Inc. allowing us to manufacture and develop a non-invasive
esophageal cancer detection product from Konica Minolta based on
our biophotonic technology platform.
Early market analyses of our biophotonic technology indicated that
skin cancer detection was also promising, but currently we are
focused primarily on the large-scale commercialization of
LuViva.
Cancer
Cancer
is a group of many related diseases. All forms of cancer involve
the out-of-control growth and spread of abnormal cells. Normal
cells grow, divide, and die in an orderly fashion. Cancer cells,
however, continue to grow and divide and can spread to other parts
of the body. In America, half of all men and one-third of all women
will develop some form of cancer during their lifetimes. According
to the American Cancer Society, the sooner a cancer is found and
treatment begins, the better a patient’s chances are of being
cured. We began investigating the applications of our biophotonic
technology to cancer detection before 1997, when we initiated a
preliminary market analysis. We concluded that our biophotonic
technology had applications for the detection of a variety of
cancers through the exposure of tissue to light. We selected
detection of cervical cancer and skin cancer from a list of the ten
most promising applications to pursue initially, and ultimately
focused primarily on our LuViva cervical cancer detection
device.
Cervical
cancer is a cancer that begins in the lining of the cervix (which
is located in the lower part of the uterus). Cervical cancer forms
over time and may spread to other parts of the body if left
untreated. There is generally a gradual change from a normal cervix
to a cervix with precancerous cells to cervical cancer. For some
women, precancerous changes may go away without any treatment.
While the majority of precancerous changes in the cervix do not
advance to cancer, if precancers are treated, the risk that they
will become cancers can be greatly reduced.
3
The Developing World
According
to the most recent data published by the World Health Organization
(WHO), cervical cancer is the fourth most frequent cancer in women
worldwide, with an estimated 530,000 new cases in 2012. For women
living in less developed regions, however, cervical cancer is the
second most common cancer, with an estimated 445,000 new cases in
2012 (84% of the new cases worldwide). In 2012, approximately
270,000 women died from cervical cancer; more than 85% of these
deaths occurring in low- and middle-income countries.
As
noted by the WHO, in developed countries, programs are in places
that enable women to get screened, making most pre-cancerous
lesions identifiable at stages when they can easily be treated.
Early treatment prevents up to 80% of cervical cancers in these
countries. In developing countries, however, limited access to
effective screening means that the disease is often not identified
until it is further advanced and symptoms develop. In addition,
prospects for treatment of such late-stage disease may be poor,
resulting in a higher rate of death from cervical cancer in these
countries.
We
believe that the greatest need and market opportunity for LuViva
lies in screening for cervical cancer in developing countries where
the infrastructure for traditional screening may be limited or
non-existent.
We are
actively working with distributors in the following countries to
implement government-sponsored screening programs: Turkey,
Bangladesh, Indonesia, Kenya and Nigeria. The number of screening
candidates in those countries is approximately 246 million and
represents 3 of the 10 most populous countries in the
world.
The Developed World
The Pap
test, which involves a sample of cervical tissue being placed on a
slide and observed in a laboratory, is currently the most common
form of cervical cancer screening. Since the introduction of
screening and diagnostic methods, the number of cervical cancer
deaths in the developed world has declined dramatically, due mainly
to the increased use of the Pap test. However, the Pap test has a
wide variation in sensitivity, which is the ability to detect the
disease, and specificity, which is the ability to exclude false
positives. A study by Duke University for the U.S. Agency for
Health Care Policy and Research published in 1999 showed Pap test
performance ranging from a 22%-95% sensitivity and 78%-10%
specificity, although new technologies improving the sensitivity
and specificity of the Pap test have recently been introduced and
are finding acceptance in the marketplace. About 60 million Pap
tests are given annually in the United States, at an average price
of approximately $26 per test.
After a
Pap test returns a positive result for cervical cancer, accepted
protocol calls for a visual examination of the cervix using a
colposcope, usually followed by a biopsy, or tissue sampling, at
one or more locations on the cervix. This method looks for visual
changes attributable to cancer. There are about two million
colposcope examinations annually in the United States and Europe.
In 2003, the average cost of a stand-alone colposcope examination
in the United States was $185 and the average cost of a colposcopy
with biopsy was $277.
Given
this landscape, we believe that there is a material need and market
opportunity for LuViva as a triage device in the developed world
where LuViva represents a more cost-effective method of verifying a
positive Pap test than the alternatives.
The LuViva Advanced Cervical
Scan
LuViva
is designed to identify cervical cancers and precancers painlessly,
non-invasively and at the point of care by scanning the cervix with
light, then analyzing the light reflected from the cervix. The
information presented by the light would be used to indicate the
likelihood of cervical cancer or precancers. Our product, in
addition to detecting the structural changes attributed to cervical
cancer, is also designed to detect the biochemical changes that
precede the development of visual lesions. In this way, cervical
cancer may be detected earlier in its development, which should
increase the chances of effective treatment. In addition to the
device itself, operation of LuViva requires employment of our
single-use, disposable calibration and alignment cervical
guide.
To
date, thousands of women in multiple international clinical
settings have been tested with LuViva. As a result, more than 25
papers and presentations have been published regarding LuViva in a
clinical setting, including at the International Federation of
Gynaecology and Obstetrics Congress in London in 2015 and at the
Indonesian National Obstetrics and Gynecology (POGI) Meeting in
Solo in 2016.
4
Internationally,
we contract with country-specific or regional distributors. We
believe that the international market will be significantly larger
than the U.S. market due to the international demand for cervical
cancer screening. We have formal distribution agreements in place
covering 54 countries and plan on adding additional countries in
2017.
We have
previously obtained regulatory approval to sell LuViva in Europe
under our Edition 3 CE Mark. Additionally, LuViva has also obtained
marketing approval from Health Canada, COFEPRIS in Mexico, Ministry
of Health in Kenya and the Singapore Health Sciences Authority. We
currently are seeking regulatory approval to market LuViva in the
United States, but have not yet received approval from the U.S.
Food and Drug Administration (FDA). As of December 31, 2016, we
have sold 121 LuViva devices and approximately 64,000
single-use-disposable cervical guides to international
distributors.
We believe our non-invasive cervical cancer detection technology
can be applied to the early detection of other cancers as
well. From 2008 to early 2013, we worked with Konica Minolta
to explore the feasibility of adapting our microporation and
biophotonic cancer detection technology to other areas of medicine
and to determine potential markets for these products in
anticipation of a development agreement. In February 2013, we
replaced our existing agreements with Konica Minolta with a new
agreement, pursuant to which, subject to the payment of a nominal
license fee due upon FDA approval, Konica Minolta has granted us a
five-year, world-wide, non-transferable and non-exclusive right and
license to manufacture and to develop a non-invasive esophageal
cancer detection product from Konica Minolta and based on our
biophotonic technology platform. The license permits us to use
certain related intellectual property of Konica Minolta. In return
for the license, we have agreed to pay Konica Minolta a royalty for
each licensed product we sell. We continue to seek new
collaborative partners to further develop our biophotonic
technology.
Manufacturing, Sales Marketing and Distribution
We
manufacture LuViva at our Norcross, Georgia facility. Most of the
components of LuViva are custom made for us by third-party
manufacturers. We adhere to ISO 13485:2003 quality standards in our
manufacturing processes. Our single-use cervical guides are
manufactured by a vendor that specializes in injection molding of
plastic medical products. On January 22, 2017, we entered into a
license agreement with Shandong Yaohua Medical Instrument
Corporation (“SMI”) pursuant to which we granted SMI an
exclusive global license to manufacture the LuViva device and
related disposables (subject to a carve-out for manufacture in
Turkey).
We rely
on distributors to sell our products. Distributors can be country
exclusive or cover multiple countries in a region. We manage these
distributors, provide them marketing materials and train them to
demonstrate and operate LuViva. We seek distributors that have
experience in gynecology and in introducing new technology into
their assigned territories.
We have only limited experience in the production planning, quality
system management, facility development, and production scaling
that will be needed to bring production to increased sustained
commercial levels. We will likely need to develop additional
expertise in order to successfully manufacture, market, and
distribute any future products.
Research, Development and Engineering
We have
been engaged primarily in the research, development and testing of
our LuViva non-invasive cervical cancer detection product and our
core biophotonic technology. Since 2013, we have incurred about
$7.2 million in research and development expenses, net of about
$927,000 reimbursed through collaborative arrangements and
government grants. Research and development costs were
approximately $0.7 and 1.5 million in 2016 and 2015,
respectively.
Since
2013, we have focused our research and development and our
engineering resources almost exclusively on development of our
biophotonic technology, with only limited support of other programs
funded through government contracts or third party funding. Because
our research and clinical development programs for other cancers
are at a very early stage, substantial additional research and
development and clinical trials will be necessary before we can
produce commercial prototypes of other cancer detection
products.
Several of the components used in LuViva currently are available
from only one supplier, and substitutes for these components could
not be obtained easily or would require substantial modifications
to our products.
Patents
We have
pursued a course of developing and acquiring patents and patent
rights and licensing technology. Our success depends in large part
on our ability to establish and maintain the proprietary nature of
our technology through the patent process and to license from
others patents and patent applications necessary to develop our
products. As of December 31, 2016, we have 24 granted U.S. patents
relating to our biophotonic cancer detection technology and six
pending U.S. patent applications. We also have three granted
patents that apply to our interstitial fluid analysis
system.
5
Competition
The
medical device industry in general and the markets for cervical
cancer detection in particular, are intensely competitive. If
successful in our product development, we will compete with other
providers of cervical cancer detection and prevention
products.
Current
cervical cancer screening and diagnostic tests, primarily the Pap
test, HPV test, and colposcopy, are well established and pervasive.
Improvements and new technologies for cervical cancer detection and
prevention, such as Thin-Prep from Hologic and HPV testing from
Qiagen, have led to other new competitors. In addition, there are
other companies attempting to develop products using forms of
biophotonic technologies in cervical cancer detection, such as
Spectrascience, which has a very limited U.S. FDA approval to
market its device for detection of cervical cancers, but has not
yet entered the market. The approval limits use of the
Spectrascience device only after a colposcopy, as an adjunct. In
addition to the Spectrascience device, there are other technologies
that are seeking to enter the market as adjuncts to colposcopy,
including devices from Dysis and Zedco. While these technologies
are not direct competitors to LuViva, modifications to them or
other new technologies will require us to develop devices that are
more accurate, easier to use or less costly to administer so that
our products have a competitive advantage.
In
April 2014, the U.S. FDA approved the use of the Roche cobas HPV
test as a primary screener for cervical cancer. Using a sample of
cervical cells, the cobas HPV test detects DNA from 14 high-risk
HPV types. The test specifically identifies HPV 16 and HPV 18,
while concurrently detecting 12 other types of high-risk HPVs. This
could make HPV testing a competitor to the Pap test. However, due
to its lower specificity, we believe that screening with HPV will
increase the number of false positive results if widely
adopted.
In June
2006, the U.S. FDA approved the HPV vaccine Gardasil from drug
maker Merck. Gardasil is a prophylactic HPV vaccine, meaning that
it is designed to prevent the initial establishment of HPV
infections. For maximum efficacy, it is recommended that girls
receive the vaccine prior to becoming sexually active. Since
Gardasil will not block infection with all of the HPV types that
can cause cervical cancer, the vaccine should not be considered a
substitute for routine Pap tests. On October 16, 2009,
GlaxoSmithKline PLC was granted approval in the United States for a
similar preventive HPV vaccine, known as Cervarix. Due to the
limited availability and lack of 100% protection against all
potentially cancer-causing strains of HPV, we believe that the
vaccines will have a limited impact on the cervical cancer
screening and diagnostic market for many years.
Government Regulation
The
medical devices that we manufacture are subject to regulation by
numerous regulatory bodies, including the CFDA, the U.S. FDA, and
comparable international regulatory agencies. These agencies
require manufacturers of medical devices to comply with applicable
laws and regulations governing the development, testing,
manufacturing, labeling, marketing and distribution of medical
devices. Devices are generally subject to varying levels of
regulatory control, the most comprehensive of which requires that a
clinical evaluation program be conducted before a device receives
approval for commercial distribution.
In the
European Union, medical devices are required to comply with the
Medical Devices Directive and obtain CE Mark certification in order
to market medical devices. The CE Mark certification, granted
following approval from an independent “Notified Body,”
is an international symbol of adherence to quality assurance
standards and compliance with applicable European Medical Devices
Directives. We have maintained ISO 13485:2003 certification since
2014 and until the end of 2016, which has allowed us to issue our
Edition 3 CE Mark and sell LuViva in the European Union and other
markets. In order to continue marketing in those territories, we
must undergo an inspection and re-file for ISO 13485:2003 and the
CE Mark in 2017.
China
has a regulatory regime similar to that of the European Union, but
due to interaction with the U.S. regulatory regime, the CFDA also
shares some similarities with its U.S. counterpart. Devices are
classified by the CFDA’s Center for Medical Device Evaluation
(CMDE) into three categories based on medical risk, with the level
of regulatory oversight determined by degree of risk and
invasiveness. CMDE’s device classifications and definitions
are as follows:
●
Class I device: The
safety and effectiveness of the device can be ensured through
routine administration.
●
Class II device:
Further control is required to ensure the safety and effectiveness
of the device.
●
Class III device:
The device is implanted into the human body; used for life support
or sustenance; or poses potential risk to the human body, and thus
must be strictly controlled in respect to safety and
effectiveness.
6
Based
on the above definitions and several discussions with regulatory
consultants and potential partners, we believe that LuViva is most
likely to be classified as a Class II device, however, this is not
certain and the CFDA may determine that LuViva requires a Class III
registration. Class III registrations are granted by the national
CFDA office while Class I and II registrations occur at the
provincial level. Typically, registration granted at the provincial
level allows a medical device to be marketed in all of
China’s provinces.
While
Class I devices usually do not require clinical trial data from
Chinese patients and Class III devices almost always do, Class II
medical devices sometimes do and sometimes do not require Chinese
clinical trials, and this determination may depend on the claim for
the device and quality of clinical trials conducted outside of
China. If clinical trials conducted in China are required, they
usually are less burdensome for Class II devices than Class III
devices.
CFDA
labs also conduct electrical, mechanical and electromagnetic
emission safety testing for medical devices similar to those
required for the CE Mark. As is the case with the U.S. FDA,
manufacturers in China undergo periodic inspections and must comply
with international quality standards such as ISO 13485 for medical
devices. As part of our agreement with SMI, SMI will underwrite the
cost of securing approval of LuViva with the CFDA.
In the
United States, permission to distribute a new device generally can
be met in one of two ways. The first process requires that a
pre-market notification (510(k) Submission) be made to the U.S. FDA
to demonstrate that the device is as safe and effective as, or
substantially equivalent to, a legally marketed device that is not
subject to premarket approval (PMA). A legally marketed device is a
device that (1) was legally marketed prior to May 28, 1976, (2) has
been reclassified from Class III to Class II or I, or (3) has been
found to be substantially equivalent to another legally marketed
device following a 510(k) Submission. The legally marketed device
to which equivalence is drawn is known as the
“predicate” device. Applicants must submit descriptive
data and, when necessary, performance data to establish that the
device is substantially equivalent to a predicate device. In some
instances, data from human clinical studies must also be submitted
in support of a 510(k) Submission. If so, these data must be
collected in a manner that conforms with specific requirements in
accordance with federal regulations. The U.S. FDA must issue an
order finding substantial equivalence before commercial
distribution can occur. Changes to existing devices covered by a
510(k) Submission which do not significantly affect safety or
effectiveness can generally be made by us without additional 510(k)
Submissions.
The
second process requires that an application for premarket approval
(PMA) be made to the U.S. FDA to demonstrate that the device is
safe and effective for its intended use as manufactured. This
approval process applies to most Class III devices, including
LuViva. In this case, two steps of U.S. FDA approval are generally
required before marketing in the United States can begin. First,
investigational device exemption (IDE) regulations must be complied
with in connection with any human clinical investigation of the
device in the United States. Second, the U.S. FDA must review the
PMA application, which contains, among other things, clinical
information acquired under the IDE. The U.S. FDA will approve the
PMA application if it finds that there is a reasonable assurance
that the device is safe and effective for its intended
purpose.
We
completed enrollment in our U.S. FDA pivotal trial of LuViva in
2008 and, after the U.S. FDA requested two-years of follow-up data
for patients enrolled in the study, the U.S. FDA accepted our
completed PMA application on November 18, 2010, effective September
23, 2010, for substantive review. On March 7, 2011, we announced
that the U.S. FDA had inspected two clinical trial sites and
audited our clinical trial data base systems as part of its review
process and raised no formal compliance issues. On January 20,
2012, we announced our intent to seek an independent panel review
of our PMA application after receiving a
“not-approvable” letter from the U.S. FDA. On November
14, 2012 we filed an amended PMA with the U.S. FDA. On September 6,
2013, we received a letter from the U.S. FDA with additional
questions and met with the U.S. FDA on May 8, 2014 to discuss our
response. On July 25, 2014, we announced that we had responded to
the U.S. FDA’s most recent questions.
We
received a “not-approvable” letter from the U.S. FDA on
May 15, 2015. We had a follow up meeting with the U.S. FDA to
discuss a path forward on November 30, 2015, at which we agreed to
submit a detailed clinical protocol for U.S. FDA review so that
additional studies can be completed. These studies will not be
completed in 2017, although we intend to pursue FDA approval and
start studies in 2017 once funds are available. We remain committed
to obtaining U.S. FDA approval, but we are focused on international
sales growth, where we believe the commercial opportunities are
larger and the clinical need is more significant.
The
process of obtaining clearance to market products is costly and
time-consuming in virtually all of the major markets in which we
sell, or expect to sell, our products and may delay the marketing
and sale of our products. Countries around the world have recently
adopted more stringent regulatory requirements, which are expected
to add to the delays and uncertainties associated with new product
releases, as well as the clinical and regulatory costs of
supporting those releases. No assurance can be given that our
products will be approved on a timely basis in any particular
jurisdiction, if at all. In addition, regulations regarding the
development, manufacture and sale of medical devices are subject to
future change. We cannot predict what impact, if any, those changes
might have on our business. Failure to comply with regulatory
requirements could have a material adverse effect on our business,
financial condition and results of operations.
7
Noncompliance
with applicable requirements can result in import detentions,
fines, civil penalties, injunctions, suspensions or losses of
regulatory approvals or clearances, recall or seizure of products,
operating restrictions, denial of export applications, governmental
prohibitions on entering into supply contracts, and criminal
prosecution. Failure to obtain regulatory approvals or the
restriction, suspension or revocation of regulatory approvals or
clearances, as well as any other failure to comply with regulatory
requirements, would have a material adverse effect on our business,
financial condition and results of operations.
Regulatory
approvals and clearances, if granted, may include significant
labeling limitations and limitations on the indicated uses for
which the product may be marketed. In addition, to obtain
regulatory approvals and clearances, the U.S. FDA and some foreign
regulatory authorities impose numerous other requirements with
which medical device manufacturers must comply. U.S. FDA
enforcement policy strictly prohibits the marketing of approved
medical devices for unapproved uses. Any products we manufacture or
distribute under U.S. FDA clearances or approvals are subject to
pervasive and continuing regulation by the U.S. FDA. The U.S. FDA
also requires us to provide it with information on death and
serious injuries alleged to have been associated with the use of
our products, as well as any malfunctions that would likely cause
or contribute to death or serious injury.
The
U.S. FDA requires us to register as a medical device manufacturer
and list our products. We are also subject to inspections by the
U.S. FDA and state agencies acting under contract with the U.S. FDA
to confirm compliance with good manufacturing practice. These
regulations require that we manufacture our products and maintain
documents in a prescribed manner with respect to manufacturing,
testing, quality assurance and quality control activities. The U.S.
FDA also has promulgated final regulatory changes to these
regulations that require, among other things, design controls and
maintenance of service records. These changes will increase the
cost of complying with good manufacturing practice
requirements.
Distributors
of medical devices may also be required to comply with other
foreign regulatory agencies, and we or our distributors currently
have marketing approval for LuViva from Health Canada, COFEPRIS in
Mexico, the Ministry of Health in Kenya, and the Singapore Health
Sciences Authority. The time required to obtain these foreign
approvals to market our products may be longer or shorter than that
required in China or the United States, and requirements for those
approvals may differ from those required by the CFDA or the U.S.
FDA.
We are
also subject to a variety of other controls that affect our
business. Labeling and promotional activities are subject to
scrutiny by the U.S. FDA and, in some instances, by the U.S.
Federal Trade Commission. The U.S. FDA actively enforces
regulations prohibiting marketing of products for unapproved users.
We are also subject, as are our products, to a variety of state and
local laws and regulations in those states and localities where our
products are or will be marketed. Any applicable state or local
regulations may hinder our ability to market our products in those
regions. Manufacturers are also subject to numerous federal, state
and local laws relating to matters such as safe working conditions,
manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous
substances. We may be required to incur significant costs to comply
with these laws and regulations now or in the future. These laws or
regulations may have a material adverse effect on our ability to do
business.
Although
our marketing and distribution partners around the world assist in
the regulatory approval process, ultimately we are be responsible
for obtaining and maintaining regulatory approvals for our
products. The inability or failure to comply with the varying
regulations or the imposition of new regulations would materially
adversely affect our business, financial condition and results of
operations.
Employees and Consultants
As of
December 31, 2016, we had ten regular employees and three
consultants to provide services to us on a full- or part-time
basis. Of the 13 people employed or engaged by us, 3 are engaged in
engineering, manufacturing and development, 3 are engaged in sales
and marketing activities, 3 are engaged in clinical testing and
regulatory affairs, 1 is engaged in research and development
activities, and 3 are engaged in administration and accounting. No
employees are covered by collective bargaining agreements, and we
believe we maintain good relations with our employees.
Our
ability to operate successfully and manage our potential future
growth depends in significant part upon the continued service of
key scientific, technical, managerial and finance personnel, and
our ability to attract and retain additional highly qualified
personnel in these fields. Two of these key employees have an
employment contract with us; none are covered by key person or
similar insurance. In addition, if we are able to successfully
develop and commercialize our products, we likely will need to hire
additional scientific, technical, marketing, managerial and finance
personnel. We face intense competition for qualified personnel in
these areas, many of whom are often subject to competing employment
offers. The loss of key personnel or our inability to hire and
retain additional qualified personnel in the future could have a
material adverse effect on our business, financial condition and
results of operations.
Corporate History
We are
a Delaware corporation, originally incorporated in 1992 under the
name “SpectRx, Inc.,” and, on February 22, 2008,
changed our name to Guided Therapeutics, Inc. At the same time, we
renamed our wholly owned subsidiary, InterScan, which originally
had been incorporated as “Guided
Therapeutics.”
Our
principal executive and operations facility is located at 5835
Peachtree Corners East, Suite D, Norcross, Georgia 30092, and our
telephone number is (770) 242-8723.
8
Item 1A. Risk Factors
In addition to the other information in this annual report on Form
10-K, the following risk factors should be considered carefully in
evaluating us.
Risks Related to Our Business
Although we will be required to raise additional funds in 2017,
there is no assurance that such funds can be raised on terms that
we would find acceptable, on a timely basis, or at
all.
Additional
debt or equity financing will be required for us to continue as a
going concern. We may seek to obtain additional funds for the
financing of our cervical cancer detection business through
additional debt or equity financings and/or new collaborative
arrangements. Management believes that additional financing, if
obtainable, will be sufficient to support planned operations only
for a limited period. Management has implemented operating actions
to reduce cash requirements. Any required additional funding may
not be available on terms attractive to us, on a timely basis, or
at all. If we cannot obtain additional funds or achieve
profitability, we may not be able to continue as a going
concern.
Because
we must obtain additional funds through financing transactions or
through new collaborative arrangements in order to grow the
revenues of our cervical cancer detection product line, there
exists substantial doubt about our ability to continue as a going
concern. Therefore, it will be necessary to raise additional funds.
There can be no assurance that we will be able to raise these
additional funds. If we do not secure additional funding when
needed, we will be unable to conduct all of our product development
efforts as planned, which may cause us to alter our business plan
in relation to the development of our products. Even if we obtain
additional funding, we will need to achieve profitability
thereafter.
Our
independent registered public accountants’ report on our
consolidated financial statements as of and for the year ended
December 31, 2016, indicated that there was substantial doubt about
our ability to continue as a going concern because we had suffered
recurring losses from operations and had an accumulated deficit of
$127.6 million at December 31, 2016 summarized as
follows:
|
Accumulated
deficit, from inception to 12/31/2014
|
$113.1
million
|
|
Preferred
dividends and deemed dividends
|
$ 2.6
million
|
|
Net
Loss for fiscal year 2015, ended 12/31/2015
|
$ 6.9
million
|
|
Accumulated
deficit, from inception to 12/31/2015
|
$122.6
million
|
|
Preferred
dividends
|
$ 1.0
million
|
|
Net
Loss for year to date ended 12/31/2016
|
$ 4.0
million
|
|
Accumulated
deficit, from inception to 12/31/2016
|
$127.6
million
|
Our
management has implemented reductions in operating expenditures and
reductions in some development activities. We have determined to
make cervical cancer detection the focus of our business. We are
managing the development of our other programs only when funds are
made available to us via grants or contracts with government
entities or strategic partners. However, there can be no assurance
that we will be able to successfully implement or continue these
plans.
If we cannot obtain additional funds when needed, we will not be
able to implement our business plan.
We
require substantial additional capital to develop our products,
including completing product testing and clinical trials, obtaining
all required regulatory approvals and clearances, beginning and
scaling up manufacturing, and marketing our products. We have
historically financed our operations though the public and private
sale of debt and equity, funding from collaborative arrangements,
and grants. Any failure to achieve adequate funding in a timely
fashion would delay our development programs and could lead to
abandonment of our business plan. To the extent we cannot obtain
additional funding, our ability to continue to manufacture and sell
our current products, or develop and introduce new products to
market, will be limited. Further, financing our operations through
the public or private sale of debt or equity may involve
restrictive covenants or other provisions that could limit how we
conduct our business or finance our operations. Financing our
operations through collaborative arrangements generally means that
the obligations of the collaborative partner to fund our
expenditures are largely discretionary and depend on a number of
factors, including our ability to meet specified milestones in the
development and testing of the relevant product. We may not be able
to obtain an acceptable collaboration partner, and even if we do,
we may not be able to meet these milestones, or the collaborative
partner may not continue to fund our expenditures.
We do not have a long operating history, especially in the cancer
detection field, which makes it difficult to evaluate our
business.
Although
we have been in existence since 1992, we have only recently begun
to commercialize our cervical cancer detection technology. Because
limited historical information is available on our revenue trends
and manufacturing costs, it is difficult to evaluate our
business. Our prospects must be considered in light of the
substantial risks, expenses, uncertainties and difficulties
encountered by entrants into the medical device industry, which is
characterized by increasing intense competition and a high failure
rate.
9
We have a history of losses, and we expect losses to
continue.
We have
never been profitable and we have had operating losses since our
inception. We expect our operating losses to continue as we
continue to expend substantial resources to complete
commercialization of our products, obtain regulatory clearances or
approvals; build our marketing, sales, manufacturing and finance
capabilities, and conduct further research and development. The
further development and commercialization of our products will
require substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. We have only generated
limited revenues from product sales. Our accumulated deficit was
approximately $127.6 million at December 31, 2016.
Our ability to sell our products is controlled by government
regulations, and we may not be able to obtain any necessary
clearances or approvals.
The
design, manufacturing, labeling, distribution and marketing of
medical device products are subject to extensive and rigorous
government regulation in most of the markets in which we sell, or
plan to sell, our products, which can be expensive and uncertain
and can cause lengthy delays before we can begin selling our
products in those markets.
In foreign countries, including European countries, we are subject
to government regulation, which could delay or prevent our ability
to sell our products in those jurisdictions.
In
order for us to market our products in Europe and some other
international jurisdictions, we and our distributors and agents
must obtain required regulatory registrations or approvals. We must
also comply with extensive regulations regarding safety, efficacy
and quality in those jurisdictions. We may not be able to obtain
the required regulatory registrations or approvals, or we may be
required to incur significant costs in obtaining or maintaining any
regulatory registrations or approvals we receive. Delays in
obtaining any registrations or approvals required for marketing our
products, failure to receive these registrations or approvals, or
future loss of previously obtained registrations or approvals would
limit our ability to sell our products internationally. For
example, international regulatory bodies have adopted various
regulations governing product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. These regulations vary from country to
country. In order to sell our products in Europe, in 2017 we must
undergo an inspection and re-file for ISO 13485:2003 and the CE
Mark, which is an international symbol of quality and compliance
with applicable European medical device directives. Failure to
maintain ISO 13485:2003 certification or CE mark certification or
other international regulatory approvals would prevent us from
selling in some countries in the European Union.
In the United States, we are subject to regulation by the U.S. FDA,
which could prevent us from selling our products
domestically.
In
order for us to market our products in the United States, we must
obtain clearance or approval from the U.S. Food and Drug
Administration, or U.S. FDA. We cannot be sure that:
●
we, or any
collaborative partner, will make timely filings with the U.S.
FDA;
●
the U.S. FDA will
act favorably or quickly on these submissions;
●
we will not be
required to submit additional information or perform additional
clinical studies; or
●
we will not face
other significant difficulties and costs necessary to obtain U.S.
FDA clearance or approval.
It can
take several years from initial filing of a PMA application and
require the submission of extensive supporting data and clinical
information. The U.S. FDA may impose strict labeling or other
requirements as a condition of its clearance or approval, any of
which could limit our ability to market our products domestically.
Further, if we wish to modify a product after U.S. FDA approval of
a PMA application, including changes in indications or other
modifications that could affect safety and efficacy, additional
clearances or approvals will be required from the U.S. FDA. Any
request by the U.S. FDA for additional data, or any requirement by
the U.S. FDA that we conduct additional clinical studies, could
result in a significant delay in bringing our products to market
domestically and require substantial additional research and other
expenditures. Similarly, any labeling or other conditions or
restrictions imposed by the U.S. FDA could hinder our ability to
effectively market our products domestically. Further, there may be
new U.S. FDA policies or changes in U.S. FDA policies that could be
adverse to us.
Even if we obtain clearance or approval to sell our products, we
are subject to ongoing requirements and inspections that could lead
to the restriction, suspension or revocation of our
clearance.
10
We, as
well as any potential collaborative partners, will be required to
adhere to applicable regulations in the markets in which we operate
and sell our products, regarding good manufacturing practice, which
include testing, control, and documentation requirements. Ongoing
compliance with good manufacturing practice and other applicable
regulatory requirements will be strictly enforced applicable
regulatory agencies. Failure to comply with these regulatory
requirements could result in, among other things, warning letters,
fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure to obtain
premarket clearance or premarket approval for devices, withdrawal
of approvals previously obtained, and criminal prosecution. The
restriction, suspension or revocation of regulatory approvals or
any other failure to comply with regulatory requirements would
limit our ability to operate and could increase our
costs.
We depend on a limited number of customers and any reduction, delay
or cancellation of an order from these customers or the loss of any
of these customers could cause our revenue to decline.
Each
year we have had one or a few customers that have accounted for
substantially all of our limited revenues. As a result, the
termination of a purchase order with any one of these customers may
result in the loss of substantially all of our revenues. We are
constantly working to develop new relationships with existing or
new customers, but despite these efforts we may not be successful
at generating new orders to maintain similar revenues as current
purchase orders are filled. In addition, since a significant
portion of our revenues is derived from a relatively few customers,
any financial difficulties experienced by any one of these
customers, or any delay in receiving payments from any one of these
customers, could have a material adverse effect on our business,
results of operations, financial condition and cash
flows.
To successfully market and sell our products internationally, we
must address many issues with which we have limited
experience.
All of
our sales of LuViva to date have been to customers outside of the
United States. We expect that substantially all of our business
will continue to come from sales in foreign markets, through
increased penetration in countries where we currently sell LuViva,
combined with expansion into new international markets. However,
international sales are subject to a number of risks,
including:
●
difficulties in staffing and managing international
operations;
●
difficulties in penetrating markets in which our competitors’
products may be more established;
●
reduced or no protection for intellectual property rights in some
countries;
●
export restrictions, trade regulations and foreign tax
laws;
●
fluctuating foreign currency exchange rates;
●
foreign certification and regulatory clearance or approval
requirements;
●
difficulties in developing effective marketing campaigns for
unfamiliar, foreign countries;
●
customs clearance and shipping delays;
●
political and economic instability; and
●
preference for locally produced products.
If one
or more of these risks were realized, it could require us to
dedicate significant resources to remedy the situation, and even if
we are able to find a solution, our revenues may still
decline.
To market and sell LuViva internationally, we depend on
distributors and they may not be successful.
We
currently depend almost exclusively on third-party distributors to
sell and service LuViva internationally and to train our
international customers, and if these distributors terminate their
relationships with us or under-perform, we may be unable to
maintain or increase our level of international revenue. We will
also need to engage additional international distributors to grow
our business and expand the territories in which we sell LuViva.
Distributors may not commit the necessary resources to market, sell
and service LuViva to the level of our expectations. If current or
future distributors do not perform adequately, or if we are unable
to engage distributors in particular geographic areas, our revenue
from international operations will be adversely
affected
Our success largely depends on our ability to maintain and protect
the proprietary information on which we base our
products.
Our
success depends in large part upon our ability to maintain and
protect the proprietary nature of our technology through the patent
process, as well as our ability to license from others patents and
patent applications necessary to develop our products. If any of
our patents are successfully challenged, invalidated or
circumvented, or our right or ability to manufacture our products
was to be limited, our ability to continue to manufacture and
market our products could be adversely affected. In addition to
patents, we rely on trade secrets and proprietary know-how, which
we seek to protect, in part, through confidentiality and
proprietary information agreements. The other parties to these
agreements may breach these provisions, and we may not have
adequate remedies for any breach. Additionally, our trade secrets
could otherwise become known to or be independently developed by
competitors.
11
As of
December 31, 2016, we have been issued, or have rights to, 24 U.S.
patents (including those under license). In addition, we have filed
for, or have rights to, six U.S. patents (including those under
license) that are still pending. There are additional international
patents and pending applications. One or more of the patents we
hold directly or license from third parties, including those for
our cervical cancer detection products, may be successfully
challenged, invalidated or circumvented, or we may otherwise be
unable to rely on these patents. These risks are also present for
the process we use or will use for manufacturing our products. In
addition, our competitors, many of whom have substantial resources
and have made substantial investments in competing technologies,
may apply for and obtain patents that prevent, limit or interfere
with our ability to make, use and sell our products, either in the
United States or in international markets.
The
medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property
rights. In addition, the U.S. Patent and Trademark Office, or
USPTO, may institute interference proceedings. The defense and
prosecution of intellectual property suits, USPTO proceedings and
related legal and administrative proceedings are both costly and
time consuming. Moreover, we may need to litigate to enforce our
patents, to protect our trade secrets or know-how, or to determine
the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings involving us may
require us to incur substantial legal and other fees and expenses
and may require some of our employees to devote all or a
substantial portion of their time to the proceedings. An adverse
determination in the proceedings could subject us to significant
liabilities to third parties, require us to seek licenses from
third parties or prevent us from selling our products in some or
all markets. We may not be able to reach a satisfactory settlement
of any dispute by licensing necessary patents or other intellectual
property. Even if we reached a settlement, the settlement process
may be expensive and time consuming, and the terms of the
settlement may require us to pay substantial royalties. An adverse
determination in a judicial or administrative proceeding or the
failure to obtain a necessary license could prevent us from
manufacturing and selling our products.
We may not be able to generate sufficient sales revenues to sustain
our growth and strategy plans.
Our
cervical cancer diagnostic activities have been financed to date
through a combination of government grants, strategic partners and
direct investment. Growing revenues for this product is the main
focus of our business. In order to effectively market the cervical
cancer detection product, additional capital will be
needed.
Additional
product lines involve the modification of the cervical cancer
detection technology for use in other cancers. These product lines
are only in the earliest stages of research and development and are
currently not projected to reach market for several years. Our goal
is to receive enough funding from government grants and contracts,
as well as payments from strategic partners, to fund development of
these product lines without diverting funds or other necessary
resources from the cervical cancer program.
Because our products, which use different technology or apply
technology in different ways than other medical devices, are or
will be new to the market, we may not be successful in launching
our products and our operations and growth would be adversely
affected.
Our
products are based on new methods of cancer detection. If our
products do not achieve significant market acceptance, our sales
will be limited and our financial condition may suffer. Physicians
and individuals may not recommend or use our products unless they
determine that these products are an attractive alternative to
current tests that have a long history of safe and effective use.
To date, our products have been used by only a limited number of
people, and few independent studies regarding our products have
been published. The lack of independent studies limits the ability
of doctors or consumers to compare our products to conventional
products.
If we are unable to compete effectively in the highly competitive
medical device industry, our future growth and operating results
will suffer.
The
medical device industry in general and the markets in which we
expect to offer products in particular, are intensely competitive.
Many of our competitors have substantially greater financial,
research, technical, manufacturing, marketing and distribution
resources than we do and have greater name recognition and
lengthier operating histories in the health care industry. We may
not be able to effectively compete against these and other
competitors. A number of competitors are currently marketing
traditional laboratory-based tests for cervical cancer screening
and diagnosis. These tests are widely accepted in the health care
industry and have a long history of accurate and effective use.
Further, if our products are not available at competitive prices,
health care administrators who are subject to increasing pressures
to reduce costs may not elect to purchase them. Also, a number of
companies have announced that they are developing, or have
introduced, products that permit non-invasive and less invasive
cancer detection. Accordingly, competition in this area is expected
to increase.
12
Furthermore,
our competitors may succeed in developing, either before or after
the development and commercialization of our products, devices and
technologies that permit more efficient, less expensive
non-invasive and less invasive cancer detection. It is also
possible that one or more pharmaceutical or other health care
companies will develop therapeutic drugs, treatments or other
products that will substantially reduce the prevalence of cancers
or otherwise render our products obsolete.
We have limited manufacturing experience, which could limit our
growth.
We do
not have manufacturing experience that would enable us to make
products in the volumes that would be necessary for us to achieve
significant commercial sales, and we rely upon our suppliers. In
addition, we may not be able to establish and maintain reliable,
efficient, full scale manufacturing at commercially reasonable
costs in a timely fashion. Difficulties we encounter in
manufacturing scale-up, or our failure to implement and maintain
our manufacturing facilities in accordance with good manufacturing
practice regulations, international quality standards or other
regulatory requirements, could result in a delay or termination of
production. In the past, we have had substantial difficulties in
establishing and maintaining manufacturing for our products and
those difficulties impacted our ability to increase sales.
Companies often encounter difficulties in scaling up production,
including problems involving production yield, quality control and
assurance, and shortages of qualified personnel.
Since we rely on sole source suppliers for several of the
components used in our products, any failure of those suppliers to
perform would hurt our operations.
Several
of the components used in our products or planned products, are
available from only one supplier, and substitutes for these
components could not be obtained easily or would require
substantial modifications to our products. Any significant problem
experienced by one of our sole source suppliers may result in a
delay or interruption in the supply of components to us until that
supplier cures the problem or an alternative source of the
component is located and qualified. Any delay or interruption would
likely lead to a delay or interruption in our manufacturing
operations. For our products that require premarket approval, the
inclusion of substitute components could require us to qualify the
new supplier with the appropriate government regulatory
authorities. Alternatively, for our products that qualify for
premarket notification, the substitute components must meet our
product specifications.
Because we operate in an industry with significant product
liability risk, and we have not specifically insured against this
risk, we may be subject to substantial claims against our
products.
The
development, manufacture and sale of medical products entail
significant risks of product liability claims. We currently have no
product liability insurance coverage beyond that provided by our
general liability insurance. Accordingly, we may not be adequately
protected from any liabilities, including any adverse judgments or
settlements, we might incur in connection with the development,
clinical testing, manufacture and sale of our products. A
successful product liability claim or series of claims brought
against us that result in an adverse judgment against or settlement
by us in excess of any insurance coverage could seriously harm our
financial condition or reputation. In addition, product liability
insurance is expensive and may not be available to us on acceptable
terms, if at all.
The availability of third party reimbursement for our products is
uncertain, which may limit consumer use and the market for our
products.
In the
United States and elsewhere, sales of medical products are
dependent, in part, on the ability of consumers of these products
to obtain reimbursement for all or a portion of their cost from
third-party payors, such as government and private insurance plans.
Any inability of patients, hospitals, physicians and other users of
our products to obtain sufficient reimbursement from third-party
payors for our products, or adverse changes in relevant
governmental policies or the policies of private third-party payors
regarding reimbursement for these products, could limit our ability
to sell our products on a competitive basis. We are unable to
predict what changes will be made in the reimbursement methods used
by third-party health care payors. Moreover, third-party payors are
increasingly challenging the prices charged for medical products
and services, and some health care providers are gradually adopting
a managed care system in which the providers contract to provide
comprehensive health care services for a fixed cost per person.
Patients, hospitals and physicians may not be able to justify the
use of our products by the attendant cost savings and clinical
benefits that we believe will be derived from the use of our
products, and therefore may not be able to obtain third-party
reimbursement.
Reimbursement
and health care payment systems in international markets vary
significantly by country and include both government-sponsored
health care and private insurance. We may not be able to obtain
approvals for reimbursement from these international third-party
payors in a timely manner, if at all. Any failure to receive
international reimbursement approvals could have an adverse effect
on market acceptance of our products in the international markets
in which approvals are sought.
13
We have a substantial amount of indebtedness, which may adversely
affect our cash flow and our ability to operate our
business.
Our
outstanding indebtedness, including ordinary course accounts
payable and accrued payroll liabilities, was $5.3 million at
December 31, 2016.
The
terms of our indebtedness could have negative consequences to us,
such as:
●
we may be unable to
obtain additional financing to fund working capital, operating
losses, capital expenditures or acquisitions on terms acceptable to
us, or at all;
●
the amount of our
interest expense may increase if we are unable to make payments
when due;
●
our assets might be
subject to foreclosure if we default on our secured debt (see
“—We have outstanding
debt that is collateralized by a general security interest in all
of our assets, including our intellectual property. If we were to
fail to repay the debt when due, the holders would have the right
to foreclose on these assets.”);
●
our vendors or
employees may, and some have, instituted proceedings to collect on
amounts owed them;
●
we have to use a
substantial portion of our cash flows from operations to repay our
indebtedness, including ordinary course accounts payable and
accrued payroll liabilities, which reduces the amount of money we
have for future operations, working capital, inventory, expansion,
or general corporate or other business activities; and
●
we may be unable to
refinance our indebtedness on terms acceptable to us, or at
all.
Our
ability to meet our expenses and debt obligations will depend on
our future performance, which will be affected by financial,
business, economic, regulatory and other factors. We will be unable
to control many of these factors, such as economic conditions. We
cannot be certain that our earnings will be sufficient to allow us
to pay the principal and interest on our debt and meet any other
obligations. If we do not have enough money to service our debt, we
may be required, but unable, to refinance all or part of our
existing debt, sell assets, borrow money or raise equity on terms
acceptable to us, if at all.
We have outstanding debt that is collateralized by a general
security interest in all of our assets, including our intellectual
property. If we were to fail to repay the debt when due, the
holders would have the right to foreclose on these
assets.
At
March 6, 2017, we had notes outstanding that are collateralized by
a security interest in our current and future inventory and
accounts receivable. We also had a note outstanding that is
collateralized by a security interest in all of our assets,
including our intellectual property. When the debt is repaid, the
holders’ security interests on our assets will be
extinguished. However, if an event of default occurs under the
notes prior to their repayment, the holders may exercise their
rights to foreclose on these secured assets for the payment of
these obligations. Under “cross-default” provisions in
each of the notes, an event of default under one note is
automatically an event of default under the other notes. Any such
default and resulting foreclosure would have a material adverse
effect on our business, financial condition and results of
operations.
We are subject to restrictive covenants under the terms of our
outstanding secured debt. If we were to default under the terms of
these covenants, the holders would have the right to foreclose on
the assets that secure the debt.
The
instruments governing our outstanding secured debt contain
restrictive covenants. For example, our senior secured convertible
note prohibits us from incurring additional indebtedness for
borrowed money, repurchasing any outstanding shares of our common
stock, or paying any dividends on our capital stock, in each case
without the note holder's prior written consent, If we were to
breach any of these covenants, the holder could declare an event of
default on the note, and exercise its rights to foreclose on the
assets securing the note.
Our success depends on our ability to attract and retain
scientific, technical, managerial and finance
personnel.
Our
ability to operate successfully and manage our future growth
depends in significant part upon the continued service of key
scientific, technical, managerial and finance personnel, as well as
our ability to attract and retain additional highly qualified
personnel in these fields. We may not be able to attract and retain
key employees when necessary, which would limit our operations and
growth. Only our Chief Executive Officer and our Senior Vice
President of Engineering have employment contracts with us, and
none of our employees are covered by key person or similar
insurance. In addition, if we are able to successfully develop and
commercialize our products, we will need to hire additional
scientific, technical, marketing, managerial and finance personnel.
We face intense competition for qualified personnel in these areas,
many of whom are often subject to competing employment
offers.
We are significantly influenced by our directors, executive
officers and their affiliated entities.
Our
directors, executive officers and entities affiliated with them
controlled approximately 2% of the voting power of our outstanding
common stock as of March 6, 2017. These stockholders, acting
together, would be able to exert significant influence on
substantially all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers and
other business combination transactions.
14
Certain provisions of our certificate of incorporation that
authorize the issuance of additional shares of preferred stock may
make it more difficult for a third party to effect a change in
control.
Our
certificate of incorporation authorizes our board of directors to
issue up to 5.0 million shares of preferred stock. Our undesignated
shares of preferred stock may be issued in one or more series, the
terms of which may be determined by the board without further
stockholder action. These terms may include, among other terms,
voting rights, including the right to vote as a series on
particular matters, preferences as to liquidation and dividends,
repurchase rights, conversion rights, redemption rights and sinking
fund provisions. The issuance of any preferred stock could diminish
the rights of holders of our common stock, and therefore could
reduce the value of our common stock. In addition, specific rights
granted to future holders of preferred stock could be used to
restrict our ability to merge with or sell assets to a third party.
The ability of our board to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly
to acquire or effect a change in control, which in turn could
prevent our stockholders from recognizing a gain in the event that
a favorable offer is extended and could materially and negatively
affect the market price of our common stock.
Risks Related to Our Common Stock
On November 7, 2016, a 1:800 reverse stock split of all of our
issued and outstanding common stock was implemented. There are
risks associated with a reverse stock split.
On
November 7, 2016, a 1:800 reverse
stock split of all of our issued and outstanding common stock was
implemented. As a result of the reverse stock split, every 800
shares of issued and outstanding common stock were converted into 1
share of common stock. All fractional shares created by the reverse
stock split were rounded to the nearest whole share. The number of
authorized shares of common stock did not
change.
There
are certain risks associated with the reverse stock split,
including the following:
●
We have additional
authorized shares of common stock that the board could issue in
future without stockholder approval, and such additional shares
could be issued, among other purposes, in financing transactions or
to resist or frustrate a third-party transaction that is favored by
a majority of the independent stockholders. This could have an
anti-takeover effect, in that additional shares could be issued,
within the limits imposed by applicable law, in one or more
transactions that could make a change in control or takeover of us
more difficult.
●
There can be no
assurance that the reverse stock split will achieve the benefits
that we hope it will achieve. The total market capitalization of
our common stock after the reverse stock split may be lower than
the total market capitalization before the reverse stock
split.
The reverse stock split may decrease the liquidity of the shares of
our common stock.
The
liquidity of the shares of our common stock may be affected
adversely by the reverse stock split given the reduced number of
shares that were outstanding immediately following the reverse
stock split, especially if the market price of our common stock
does not increase as a result of the reverse stock split. In
addition, the reverse stock split may have increased the number of
stockholders who own odd lots of our common stock, creating the
potential for such stockholders to experience an increase in the
cost of selling their shares and greater difficulty effecting such
sales.
Following the reverse stock split, the resulting market price of
our common stock may not attract new investors, including
institutional investors, and may not satisfy the investing
requirements of those investors. Consequently, the trading
liquidity of our common stock may not improve.
Although
we believe that a higher market price of our common stock may help
generate greater or broader investor interest, there can be no
assurance that the reverse stock split will result in a share price
that will attract new investors, including institutional investors.
In addition, there can be no assurance that the market price of our
common stock will satisfy the investing requirements of those
investors. As a result, the trading liquidity of our common stock
may not necessarily improve.
The number of shares of our common stock issuable upon the
conversion of our outstanding convertible debt and preferred stock
or exercise of outstanding warrants and options is
substantial.
As of
March 6, 2017, our outstanding convertible debt was convertible
into an aggregate of 6,208,961 shares of our common stock, and the
outstanding shares of our Series C and Series C1 preferred stock
were convertible into an aggregate of 12,419,959 shares of common
stock. Also, as of that date we had warrants outstanding that were
exercisable for an aggregate of 4,597,401 shares, contractual
obligations to issue 2,132 shares, and outstanding options to
purchase 125 shares. The shares of common stock issuable upon
conversion or exercise of these securities would have constituted
approximately 96.0% of the total number of shares of common stock
then issued and outstanding.
15
Further,
under the terms of our convertible debt and preferred stock, as
well as certain of our outstanding warrants, the conversion price
or exercise price, as the case may be, could be adjusted downward,
causing substantial dilution. See “—Adjustments to the conversion price for our
convertible debt and preferred stock, and the exercise price for
certain of our warrants, will dilute the ownership interests of our
existing stockholders.”
Adjustments to the conversion price of our convertible debt and
preferred stock, and the exercise price for certain of our
warrants, will dilute the ownership interests of our existing
stockholders.
Under
the terms of a portion of our convertible debt, the conversion
price fluctuates with the market price of our common stock.
Additionally, under the terms of our Series C preferred stock, any
dividends we choose to pay in shares of our common stock will be
calculated based on the then-current market price of our common
stock. Accordingly, if the market price of our common stock
decreases, the number of shares of our common stock issuable upon
conversion of the convertible debt or upon payment of dividends on
our outstanding Series C preferred stock will increase, and may
result in the issuance of a significant number of additional shares
of our common stock.
Under
the terms of our preferred stock and certain of our convertible
notes and outstanding warrants, the conversion price or exercise
price will be lowered if we issue common stock at a per share price
below the then-conversion price or then-exercise price for those
securities. Reductions in the conversion price or exercise price
would result in the issuance of a significant number of additional
shares of our common stock upon conversion or exercise, which would
result in dilution in the value of the shares of our outstanding
common stock and the voting power represented thereby.
Our stock is thinly traded, so you may be unable to sell at or near
ask prices or at all.
The
shares of our common stock are dually quoted on the OTCBB and the
OTCQB. Shares of our common stock are thinly traded, meaning that
the number of persons interested in purchasing our common shares at
or near ask prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of
factors, including:
●
we
are a small company that is relatively unknown to stock analysts,
stock brokers, institutional investors and others in the investment
community that generate or influence sales volume; and
●
stock
analysts, stock brokers and institutional investors may be
risk-averse and be reluctant to follow a company such as ours that
faces substantial doubt about its ability to continue as a going
concern or to purchase or recommend the purchase of our shares
until such time as we became more viable.
As a
consequence, our stock price may not reflect an actual or perceived
value. Also, there may be periods of several days or more when
trading activity in our shares is minimal or non-existent, as
compared to a seasoned issuer that has a large and steady volume of
trading activity that will generally support continuous sales
without an adverse effect on share price. A broader or more active
public trading market for our common shares may not develop or if
developed, may not be sustained. Due to these conditions, you may
not be able to sell your shares at or near ask prices or at all if
you need money or otherwise desire to liquidate your
shares.
Trading in our common stock is subject to special sales practices
and may be difficult to sell.
Our
common stock is subject to the Securities and Exchange
Commission’s “penny stock” rule, which imposes
special sales practice requirements upon broker-dealers who sell
such securities to persons other than established customers or
accredited investors. Penny stocks are generally defined to be an
equity security that has a market price of less than $5.00 per
share. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and
receive the purchaser’s written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell our securities and also may affect the
ability of our stockholders to sell their securities in any market
that might develop.
Stockholders
should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered from patterns
of fraud and abuse. Such patterns include:
●
control
of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
●
manipulation
of prices through prearranged matching of purchases and sales and
false and misleading press releases;
●
“boiler
room” practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales
persons;
●
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
●
the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices
and with consequent investor losses.
Our
management is aware of the abuses that have occurred historically
in the penny stock market. Although we do not expect to be in a
position to dictate the behavior of the market or of broker-dealers
who participate in the market, management will strive within the
confines of practical limitations to prevent the described patterns
from being established with respect to our common
stock.
Our need to raise additional capital in the near future or to use
our equity securities for payments could have a dilutive effect on
your investment.
In
order to continue operations, we will need to raise additional
capital. We may attempt to raise capital through the public or
private sale of our common stock or securities convertible into or
exercisable for our common stock. In addition, from time to time we
have issued our common stock or warrants in lieu of cash payments.
If we sell additional shares of our common stock or other equity
securities, or issue such securities in respect of other claims or
indebtedness, such sales or issuances will further dilute the
percentage of our equity that you own. Depending upon the price per
share of securities that we sell or issue in the future, if any,
your interest in us could be further diluted by any adjustments to
the number of shares and the applicable exercise price required
pursuant to the terms of the agreements under which we previously
issued convertible securities.
16
FORWARD LOOKING STATEMENTS
Statements in this report, which express “belief,”
“anticipation” or “expectation,” as well as
other statements that are not historical facts, are forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, or Securities Act, and Section 21E of the Securities
Exchange Act of 1934, or Exchange Act. These forward-looking
statements are subject to risks and uncertainties that could cause
actual results to differ materially from historical results or
anticipated results, including those identified in the foregoing
“Risk Factors” and elsewhere in this report. Examples
of these uncertainties and risks include, but are not limited
to:
·
access
to sufficient debt or equity capital to meet our operating and
financial needs;
·
the
effectiveness and ultimate market acceptance of our
products;
·
whether
our products in development will prove safe, feasible and
effective;
·
whether
and when we or any potential strategic partners will obtain
required regulatory approvals in the markets in which we plan to
operate;
·
our
need to achieve manufacturing scale-up in a timely manner, and our
need to provide for the efficient manufacturing of sufficient
quantities of our products;
·
the
lack of immediate alternate sources of supply for some critical
components of our products;
·
our
patent and intellectual property position;
·
the
need to fully develop the marketing, distribution, customer service
and technical support and other functions critical to the success
of our product lines;
·
the
dependence on potential strategic partners or outside investors for
funding, development assistance, clinical trials, distribution and
marketing of some of our products; and
·
other
risks and uncertainties described from time to time in our reports
filed with the SEC.
Forward-looking statements should not be read as a guarantee of
future performance or results, and will not necessarily be accurate
indications of the times at, or by which, such performance or
results will be achieved. Forward-looking information is based on
information available at the time and/or management’s good
faith belief with respect to future events, and is subject to risks
and uncertainties that could cause actual performance or results to
differ materially from those expressed in the
statements.
Forward-looking statements speak only as of the date the statements
are made. We assume no obligation to update forward-looking
statements to reflect actual results, changes in assumptions or
changes in other factors affecting forward-looking information
except to the extent required by applicable securities laws. If we
update one or more forward-looking statements, no inference should
be drawn that we will make additional updates with respect thereto
or with respect to other forward-looking statements.
Not
applicable.
Our
corporate offices, which also comprise our administrative, research
and development, marketing and production facilities, are located
at 5835 Peachtree Corners East, Suite D, Norcross, Georgia 30092,
where we lease approximately 23,000 square feet under a lease that
expires in June 2017.
We are
subject to claims and legal actions that arise in the ordinary
course of business. However, we are not currently subject to any
claims or actions that we believe would have a material adverse
effect on our financial position or results of
operations.
Not
applicable.
17
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Market for Common Stock; Holders
Our
common stock is dually listed on the OTC Bulletin Board (OTCBB) and
the OTCQB quotation systems under the ticker symbol
“GTHP.” The number of record holders of our common
stock at March 6, 2017 was 210.
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on November 7, 2016. As a result of the
reverse stock split, every 800 shares of issued and outstanding
common stock was converted into 1 share of common stock. All
fractional shares created by the reverse stock split were rounded
to the nearest whole share. The number of authorized shares of
common stock did not change.
The
high and low sales prices for the first quarter of 2017 and
calendar years 2016 and 2015, as reported by the OTCBB, are as set
forth in the following table. All share prices set forth in the
table have been retroactively adjusted to reflect the reverse stock
split (as discussed above) for all periods presented.
|
|
2017
|
2016
|
2015
|
|||
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|
First
Quarter*
|
$2.13
|
$0.31
|
$1,352.00
|
$85.60
|
$18,400.00
|
$11,200.00
|
|
Second
Quarter
|
|
|
$140.00
|
$3.28
|
$20,000.00
|
$6,400.00
|
|
Third
Quarter
|
|
|
$7.84
|
$0.80
|
$9,600.00
|
$4,000.00
|
|
Fourth
Quarter
|
|
|
$1.35
|
$0.02
|
$4,800.00
|
$800.00
|
*Through March 6,
2017.
Dividend Policy
We have
not paid any dividends on our common stock since our inception and
do not intend to pay any dividends in the foreseeable
future.
Securities Authorized for Issuance Under Equity Compensation
Plans
All the
securities we have provided our employees, directors and
consultants have been issued under our stock option plans, which
are approved by our stockholders. We have issued common stock to
other individuals that are not employees or directors, in lieu of
cash payments, that are not part of any plan approved by our
stockholders.
Securities
authorized for issuance under equity compensation plans as of
December 31, 2016:
|
Plan
category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number of
securities
remaining
available for future issuance under equity compensation plans
(excluding securities reflected in column(a))
|
|
|
(a)
|
(b)
|
( c
)
|
|
Equity compensation
plans approved by security holders
|
125
|
$37,920
|
-
|
|
Equity compensation
plans not approved by security holders
|
-
|
-
|
-
|
|
TOTAL
|
125
|
$37,920
|
-
|
Not
applicable.
18
The
following discussion should be read in conjunction with our
financial statements and notes thereto included elsewhere in this
report.
Overview
We are
a medical technology company focused on developing innovative
medical devices that have the potential to improve healthcare. Our
primary focus is the sales and marketing of our LuViva®
Advanced Cervical Scan non-invasive cervical cancer detection
device. The underlying technology of LuViva primarily relates to
the use of biophotonics for the non-invasive detection of cancers.
LuViva is designed to identify cervical cancers and precancers
painlessly, non-invasively and at the point of care by scanning the
cervix with light, then analyzing the reflected and fluorescent
light.
LuViva
provides a less invasive and painless alternative to conventional
tests for cervical cancer screening and detection. Additionally,
LuViva improves patient well-being not only because it eliminates
pain, but also because it is convenient to use and provides rapid
results at the point of care. We focus on two primary applications
for LuViva: first, as a cancer screening tool in the developing
world, where infrastructure to support traditional cancer-screening
methods is limited or non-existent, and second, as a triage
following traditional screening in the developed world, where a
high number of false positive results cause a high rate of
unnecessary and ultimately costly follow-up tests.
We are
a Delaware corporation, originally incorporated in 1992 under the
name “SpectRx, Inc.,” and, on February 22, 2008,
changed our name to Guided Therapeutics, Inc. At the same time, we
renamed our wholly owned subsidiary, InterScan, which originally
had been incorporated as “Guided
Therapeutics.”
Since
our inception, we have raised capital through the public and
private sale of debt and equity, funding from collaborative
arrangements, and grants.
Our
prospects must be considered in light of the substantial risks,
expenses and difficulties encountered by entrants into the medical
device industry. This industry is characterized by an increasing
number of participants, intense competition and a high failure
rate. We have experienced operating losses since our inception and,
as of December 31, 2016 we have an accumulated deficit of
approximately $127.6 million. To date, we have engaged primarily in
research and development efforts and the early stages of marketing
our products. We do not have significant experience in
manufacturing, marketing or selling our products. We may not be
successful in growing sales for our products. Moreover, required
regulatory clearances or approvals may not be obtained in a timely
manner, or at all. Our products may not ever gain market acceptance
and we may not ever generate significant revenues or achieve
profitability. The development and commercialization of our
products requires substantial development, regulatory, sales and
marketing, manufacturing and other expenditures. We expect our
operating losses to continue through at least the end of 2017 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 2016, the majority
of our revenues were from the sale of LuViva devices and
disposables, as well as some revenue from grants from the NIH and
licensing agreement fees received. We expect that the majority of
our revenue in 2017 will be derived from revenue from the sale of
LuViva devices and disposables.
Current Demand for LuViva
Based
on discussions with our customers, we expect to generate purchase
orders for approximately $3 million to $4 million in LuViva devices
and disposables in 2017, and expect those purchase orders to result
in actual sales of $750,000 to $1 million in 2017, 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 customers 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.
19
Recent Developments
Convertible Promissory Note. On February 13, 2017, we
entered into a securities purchase agreement with Auctus Fund, LLC
for the issuance and sale to Auctus of $170,000 in aggregate
principal amount of a 12% convertible promissory note for an
aggregate purchase price of $156,400 (representing a $13,600
original issue discount). On February 13, 2017, we issued the note
to Auctus. Pursuant to the purchase agreement, we also issued to
Auctus a warrant exercisable to purchase an aggregate of 200,000
shares of our common stock. The warrant is exercisable at any time,
at an exercise price per share equal to $0.77 (110% of the closing
price of the common stock on the day prior to issuance), subject to
certain customary adjustments and price-protection provisions
contained in the warrant. The warrant has a five-year term. The
note matures nine months from the date of issuance and, in addition
to the original issue discount, accrues interest at a rate of 12%
per year. We may prepay the note, in whole or in part, for 115% of
outstanding principal and interest until 30 days from issuance, for
125% of outstanding principal and interest at any time from 31 to
60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance to 180 days from
issuance. After six months from the date of issuance, Auctus may
convert the note, at any time, in whole or in part, into shares of
our common stock, at a conversion price equal to the lower of the
price offered in our next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require us to redeem the note (or
convert it into shares of common stock) at 150% of the outstanding
principal balance plus accrued and unpaid interest. In connection
with the transaction, we agreed to reimburse Auctus for $30,000 in
legal and diligence fees, of which we paid $10,000 in cash and
$20,000 in restricted shares of common stock, valued at $0.40 per
share (a 42.86% discount to the closing price of the common stock
on the day prior to issuance).
SMI License Agreement. On January 22, 2017, we entered into
a license agreement with Shandong Yaohua Medical Instrument
Corporation, or SMI, pursuant to which we granted SMI an exclusive
global license to manufacture the LuViva device and related
disposables (subject to a carve-out for manufacture in Turkey) and
exclusive distribution rights in the Peoples Republic of China,
Macau, Hong Kong and Taiwan. In exchange for the license, SMI will
pay a $1.0 million licensing fee, payable in five installments
through October 2017, as well as a royalty on each disposable sold
in the territories. SMI will also underwrite the cost of securing
approval of LuViva with the Chinese Food and Drug Administration,
or CFDA. Pursuant to the SMI agreement, SMI must become capable of
manufacturing LuViva in accordance with ISO 13485 for medical
devices by the second anniversary of the SMI agreement, or else
forfeit the license. During 2017, SMI must purchase no fewer than
ten devices (with up to four devices pushed to 2018 if there is a
delay in obtaining approval from the CFDA). In the three years
following CFDA approval, SMI must purchase a minimum of 3,500
devices (500 in the first year, 1,000 in the second, and 2,000 in
the third) or else forfeit the license. As manufacturer of the
devices and disposables, SMI will be obligated to sell each to us
at costs no higher than our current costs. As partial consideration
for, and as a condition to, the license, and to further align the
strategic interests of the parties, we agreed to issue $1.0 million
in shares of our common stock to SMI, in five installments through
October 2017, at a price per share equal to the lesser of the
average closing price for the five days prior to issuance and
$1.25.
In
order to facilitate the SMI agreement, immediately prior to its
execution we entered into an agreement with Shenghuo Medical, LLC,
regarding our previous license to Shenghuo (see
“—Liquidity and Capital Resources”). Under the
terms of the new agreement, Shenghuo agreed to relinquish its
manufacturing license and its distribution rights in SMI’s
territories, and to waive its rights under the original Shenghuo
agreement, all for as long as SMI performs under the SMI agreement.
As consideration, we have agreed to split with Shenghuo the
licensing fees and net royalties from SMI that we will receive
under the SMI agreement. Should the SMI agreement be terminated, we
have agreed to re-issue the original license to Shenghuo under the
original terms. Our COO and director, Mark Faupel, is a shareholder
of Shenghuo, and another director, Richard Blumberg, is a managing
member of Shenghuo.
Critical Accounting Policies
Our
material accounting policies, which we believe are the most
critical to an investors understanding of our financial results and
condition, are discussed below. Because we are still early in our
enterprise development, the number of these policies requiring
explanation is limited. As we begin to generate increased revenue
from different sources, we expect that the number of applicable
policies and complexity of the judgments required will
increase.
Revenue
Recognition: We recognize
revenue from contracts on a straight line basis, over the terms of
the contract. We recognize revenue from grants based on the grant
agreement, at the time the expenses are incurred. Revenue from the
sale of the Company’s products is recognized upon shipment of
such products to its customers.
Valuation of Deferred
Taxes: We account for
income taxes in accordance with the liability method. Under the
liability method, we recognize deferred assets and liabilities
based upon anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets
and liabilities and their respective tax bases. We establish a
valuation allowance to the extent that it is more likely than not
that deferred tax assets will not be utilized against future
taxable income.
20
Valuation of Equity Instruments
Granted to Employee, Service Providers and
Investors: On the date of
issuance, the instruments are recorded at their fair value as
determined using either the Black-Scholes valuation model or Monte
Carlo Simulation model. See Note 3 to the consolidated financial
statements accompanying this report for the assumptions used in the
Black-Scholes valuation.
Allowance for Accounts
Receivable: We estimate
losses from the inability of our customers to make required
payments and periodically review the payment history of each of our
customers, as well as their financial condition, and revise our
reserves as a result.
Inventory
Valuation: All inventories
are stated at lower of cost or market, with cost determined
substantially on a “first-in, first-out” basis.
Selling, general, and administrative expenses are not inventoried,
but are charged to expense when purchased.
Reverse Stock
Split: On November 7,
2016, the Company implemented a 1:800 reverse stock split of all of
our issued and outstanding common stock. As a result of the reverse
stock split, every 800 shares of issued and outstanding common
stock was converted into 1 share of common stock. All fractional
shares created by the reverse stock split were rounded to the
nearest whole share. The number of authorized shares of common
stock did not change. The reverse stock split decreased the
Company’s issued and outstanding shares of common stock from
453,694,400 shares of Common Stock to 570,707 shares as of that
date. See Note 4, Stockholders’ Deficit. Unless otherwise
specified, all per share amounts are reported on a post-stock split
basis, as of December 31, 2016. On February 24, 2016, the Company
had also implemented a 1:100 reverse stock split of its issued and
outstanding common stock.
Results of Operations
Comparison of 2016 and 2015
Sales Revenue, Cost of Sales and Gross Loss from Devices and
Disposables: Revenues from the sale of LuViva devices for
2016 and 2015 were approximately $605,000 and $564,000,
respectively. Revenues in 2016 were approximately, $41,000 or 7%
higher when compared to the same period in 2015, due to increased
sales in new territories. Related costs of sales and valuation
allowances on the net realizable values were approximately $493,000
and $537,000 in 2016 and 2015, respectively. Costs of sales in
2016, were approximately, $44,000 or 8% lower when compared to the
same period in 2015, due to reduction in material costs. This
resulted in a gross profit of approximately $112,000 on the sales
of devices and disposables for 2016 compared with a gross profit of
approximately $27,000 for 2015.
Research and Development Expenses: Research and development
expenses for 2016, decreased to approximately $733,000, from
approximately $1,477,000 in 2015. The decrease of $744,000, or 50%,
was primarily due to reduction in research and development payroll
expenses.
Sales and Marketing Expenses: Sales and marketing expenses
for 2016, decreased to approximately $393,000, compared to $718,000
in 2015. The decrease, of approximately $325,000, or 45% was
primarily due to Company-wide expense reduction and cost savings
efforts.
General and Administrative Expense: General and
administrative expenses for 2016, decreased to approximately
$2,806,000, compared to $4,101,000 for the same period in 2015. The
decrease of approximately $1,295,000, or 32%, was primarily related
to lower compensation and option expenses incurred during the same
period.
Other Income: Other income was approximately $68,000 in
2016, compared to $74,000 in 2015.
Interest Expense: Interest expense for 2016 increased to
approximately $1,895,000, compared to $1,317,000 for the same
period in 2015. The increase of approximately $578,000, or 44%, was
primarily related to amortization expense of debt issuance cost and
penalty on event default of convertible debt that were higher than
the same period in 2015.
Fair Value of Warrants Expense: Fair value of warrants
recovery for 2016, increased to approximately $1,677,000 compared
to $568,000 for the same period in 2015. The increase of
approximately $1,109,000, or 195% was primarily due to the
significant changes in warrant conversion prices, in the fiscal
year ended December 31, 2015.
Net Loss: Net loss attributable to common stockholders
deceased to approximately $4,995,000, or $24.62 per share, in 2016,
from $9,503,000, or $5,939.38 per share, in 2015. The decrease in
the net loss of $4,508,000, or 47% was for reasons outlined
above.
21
There
was no income tax benefit recorded for 2016 or 2015, due to
recurring 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. At December 31, 2016, we had cash of
approximately $14,000 and a negative working capital of
approximately $8.3 million.
Our
major cash flows for the year ended December 31, 2016 consisted of
cash out-flows of $1.8 million from operations, including
approximately $4.0 million of net loss, and a net change from
financing activities of $1.8 million, which primarily represented
the proceeds received from issuance of common stock and warrants,
proceeds from debt financing, as well as exercise of outstanding
warrants and options.
On
March 16, 2015 and March 19, 2015, we entered into subscription
agreements with certain accredited investors, pursuant to which we
agreed to sell an aggregate of 50 shares of our common stock and
three-year warrants to purchase an additional 25 shares with an
exercise price per share of $20,400, for an aggregate purchase
price of $720,000.
On June
29, 2015, we entered into a securities purchase agreement with
certain accredited investors (including John Imhoff and Mark
Faupel, two of our directors), amended on September 3, 2015, for
the issuance and sale of shares of an aggregate of 7,903 shares of
our Series C preferred stock, at a purchase price of $750 per share
and an initial conversion price of $76.00 per share, and five-year
warrants exercisable to purchase an aggregate of approximately
156,000 shares of our common stock at an initial exercise price of
$76.00 per share, subject to certain customary adjustments and
anti-dilution provisions.
On
February 11, 2016, we consented to an assignment of our outstanding
secured promissory note to two accredited investors, Aquarius
Opportunity Fund and GPB Debt Holdings II LLC. In connection with
the assignment, the holders waived an ongoing event of default
under the notes related to our minimum market capitalization, and
agreed to eliminate the requirement going forward. On March 7,
2016, we further amended the notes to eliminate the volume
limitations on sales of common stock issued or issuable upon
conversion of the notes. GPB subsequently sold the note to
GHS.
On
February 11, 2016, we entered into a securities purchase agreement
with GPB Debt Holdings II LLC for the issuance and sale on February
12, 2016 of $1.4375 million in aggregate principal amount of a
senior secured convertible note for an aggregate purchase price of
$1.15 million (a 20% original issue discount). The note matures on
the second anniversary of issuance and, in addition to the 20%
original issue discount, accrues interest at a rate of 17% per
year. Subject to certain restrictions, it is convertible at any
time, in whole or in part, at the holder’s option, into
shares of our common stock, at an initial conversion price equal to
$640.00 per share, subject to certain customary adjustments and
anti-dilution provisions. In addition, the investor received a
five-year warrant exercisable to purchase an aggregate of
approximately 2,247 shares of our common stock with an initial
exercise price of $640.00 per share, subject to certain customary
adjustments and anti-dilution provisions. As of March 6, 2017, as a
result of the operation of the anti-dilution provisions, the
conversion price of the note and the exercise price of the warrants
were $0.3293 per share. On March 18, 2016, our placement agent
received a warrant with similar terms exercisable for 108 shares.
In connection with the transaction, on February 12, 2016, we and
the investor entered into a four-year consulting agreement,
pursuant to which the investor will provide management consulting
services to us in exchange for a royalty payment, payable
quarterly, equal to 3.5% of our revenues from the sale of
products.
On
February 24, 2016, we implemented a 1:100 reverse stock split of
all of our issued and outstanding common stock. As a result of the
reverse stock split, every 100 shares of issued and outstanding
common stock was converted into 1 share of common stock. All
fractional shares created by the reverse stock split were rounded
to the nearest whole share. The number of authorized shares of
common stock did not change.
Between
April 27, 2016 and May 3, 2016, we entered into various agreements
with certain holders of our Series C preferred stock, including
John Imhoff and Mark Faupel, two of our directors, pursuant to
which those holders separately agreed to exchange each share of
Series C preferred stock held for 2.25 shares of our newly created
Series C1 preferred stock and 12 shares of our common stock. In
connection with these exchanges, each holder also agreed to
exchange the $1,000 stated value per share of the holder’s
shares of Series C1 preferred stock for new securities that we
separately issue in the next qualifying financing we undertake on a
dollar-for-dollar basis. In total, for 1,916 shares of Series C
preferred stock surrendered, we issued 4,311 shares of Series C1
preferred stock and 22,996 shares of common stock. The Series C1
preferred stock has terms that are substantially the same as the
Series C preferred stock, except that the Series C1 preferred stock
does not pay dividends (unless and to the extent declared on the
common stock) or at-the-market “make-whole payments.”
Separately, on April 27, 2016, we entered into a rollover and
amendment agreement with a prior holder of Series C preferred
stock, Aquarius Opportunity Fund, pursuant to which
Aquarius agreed to
exchange any shares of Series C preferred stock (stated value plus
make-whole dividend), as well as any remaining principal and
accrued interest on our secured promissory note Aquarius holds, for
new securities that we issue in our next financing, all on a
dollar-for-dollar basis, as long as the next financing involves at
least $1 million in cash from investors unaffiliated with Aquarius.
Aquarius sold all of its shares of Series C preferred stock and its
portion of our secured promissory note to GHS. Aquarius also agreed
to return to us for cancelation warrants exercisable for 903 shares
of our common stock that it held. Except in the event of an
additional $50,000 cash investment by Aquarius in the qualifying
financing, Aquarius has agreed to execute a customary
“lockup” agreement in connection with the financing.
Finally, Aquarius, as the holder of a majority of the outstanding
Series C preferred stock, agreed to amend the Series C stock
purchase agreement to eliminate any participation rights held by
the Series C shareholders and to waive operation of certain
anti-dilution provisions of the Series C that would otherwise have
been triggered.
22
On May
4, 2016, May 26, 2016, and June 22, 2016, Aquarius Opportunity Fund
advanced us a total of $107,500 for 2% simple interest notes due
the earlier of December 31, 2016 or consummation of our next public
offering. Also on May 26, 2016, GPB Debt Holdings II LLC, holder of
our outstanding senior secured convertible note, advanced as an
additional $87,500, on the same terms as their note. We intend to
offer Aquarius the opportunity to participate in our next public
offering at least up to the extent of the outstanding principal and
interest on its cash advances, by extinguishing all or a portion of
the debt on a dollar-for-dollar basis.
On June
5, 2016, we entered into a license agreement with Shenghuo Medical,
LLC pursuant to which we granted Shenghuo an exclusive license to
manufacture, sell and distribute LuViva in Taiwan, Brunei
Darussalam, Cambodia, Laos, Myanmar, Philippines, Singapore,
Thailand, and Vietnam. Shenghuo was already our exclusive
distributor in China, Macau and Hong Kong, and the license extended
to manufacturing in those countries as well. Under the terms of the
license agreement, once Shenghuo was capable of manufacturing
LuViva in accordance with ISO 13485 for medical devices, Shenghuo
would pay us a royalty equal to $2.00 or 20% of the distributor
price (subject to a discount under certain circumstances),
whichever is higher, per disposable distributed within
Shenghuo’s exclusive territories. In connection with the
license grant, Shenghuo would underwrite the cost of securing
approval of LuViva with Chinese Food and Drug Administration. At
its option, Shenghuo also would provide up to $1.0 million in
furtherance of our efforts to secure regulatory approval for LuViva
from the U.S. Food and Drug Administration, in exchange for the
right to receive payments equal to 2% of our future sales in the
United States, up to an aggregate of $4.0 million. Pursuant to the
license agreement, Shenghuo had the option to have a designee
appointed to our board of directors (and Richard Blumberg is that
designee). As partial consideration for, and as a condition to, the
license, and to further align the strategic interests of the
parties, we have agreed to issue a convertible note to Shenghuo, in
exchange for an aggregate cash investment of $200,000. The note
will provide for a payment to Shenghuo of $300,000, expected to be
due the earlier of 90 days from issuance and consummation of any
capital raising transaction by us with net cash proceeds of at
least $1.0 million. The note will accrue interest at 20% per year
on any unpaid amounts due after that date. The note will be
convertible into shares of our common stock at a conversion price
per share of $13.92, subject to customary anti-dilution adjustment.
The note will be unsecured, and is expected to provide for
customary events of default. We will also issue Shenghuo a
five-year warrant exercisable immediately for approximately 17,239
shares of common stock at an exercise price equal to the conversion
price of the note, subject to customary anti-dilution adjustment.
On January 22, 2017, we entered into a license agreement with SMI,
pursuant to which we granted SMI an exclusive global license to
manufacture the LuViva device and related disposables (subject to a
carve-out for manufacture in Turkey) and exclusive distribution
rights in the Peoples Republic of China, Macau, Hong Kong and
Taiwan. In order to facilitate the SMI agreement, immediately prior
to its execution we entered into an agreement with Shenghuo,
regarding the previous license to Shenghuo. Under the terms of the
new agreement, Shenghuo agreed to relinquish its manufacturing
license and its distribution rights in SMI’s territories, and
to waive its rights under the original Shenghuo agreement, all for
as long as SMI performs under the SMI agreement. See
“—Recent Developments.”
Between
June 13, 2016 and June 14, 2016, we entered into various agreements
with holders of certain warrants (including John Imhoff, one of our
directors) originally issued in May 2013, and with GPB Debt
Holdings II LLC, holder of a warrant issued February 12, 2016,
pursuant to which each holder separately agreed to exchange
warrants for either (1) shares of common stock equal to 166% of the
number of shares of common stock underlying the surrendered
warrants, or (2) new warrants exercisable for 200% of the number of
shares underlying the surrendered warrants, but without certain
anti-dilution protections included with the surrendered warrants.
As a result of the exchanges, we effectively eliminate any
potential exponential increase in the number of underlying shares
issuable upon exercise of our outstanding warrants. In total, for
surrendered warrants then-exercisable for an aggregate of 1,814,598
shares of common stock (but subject to exponential increase upon
operation of certain anti-dilution provisions), we issued or are
obligated to issue 16,898 shares of common stock and new warrants
that, if exercised as of June 14, 2016, would have been exercisable
for an aggregate of 3,608,835 shares of common stock. In certain
circumstances, in lieu of presently issuing all of the shares (for
each holder that opted for shares of common stock), we and the
holder further agreed that we will, subject to the terms and
conditions set forth in the applicable warrant exchange agreement,
from time to time, be obligated to issue the remaining shares to
the holder. No additional consideration will be payable in
connection with the issuance of the remaining shares. The holders
that elected to receive shares for their surrendered warrants have
agreed that they will not sell shares on any trading day in an
amount, in the aggregate, exceeding 20% of the composite aggregate
trading volume of the common stock for that trading day. The
holders that elected to receive new warrants will be required to
surrender their old warrants upon consummation of our next public
offering. The new warrants will have an initial exercise price
equal to the exercise price of the surrendered warrants as of
immediately prior to consummation of the offering, subject to
customary “downside price protection” for as long as
our common stock is not listed on a national securities exchange,
and will expire five years from the date of issuance.
23
On
September 6, 2016, we entered into a royalty agreement with one of
our directors, John Imhoff, and another stockholder, Dolores
Maloof, pursuant to which we sold to them a royalty of future sales
of single-use cervical guides for LuViva. Under the terms of the
royalty agreement, and for consideration of $50,000, we will pay
them an aggregate perpetual royalty initially equal to $0.10, and
from and after October 2, 2016, equal to $0.20, for each disposable
that we sell (or that is sold by a third party pursuant to a
licensing arrangement with us).
On
November 2, 2016, we entered into a lockup and exchange agreement
with GHS Investments, LLC, holder of approximately $221,000 in
outstanding principal amount of our secured promissory note and all
of the outstanding shares of our Series C preferred stock. Pursuant
to the agreement, upon the effectiveness of the 1:800 reverse stock
split and continuing for 45 days after, GHS and its affiliates were
prohibited from converting any portion of the secured promissory
note or any of the shares of Series C preferred stock or selling
any of our securities that they beneficially owned. We agreed that,
upon consummation of our next financing, we would use $260,000 of
net cash proceeds first, to repay GHS’s portion of the
secured promissory note and second, with any remaining amount from
the $260,000, to repurchase a portion of GHS’s shares of
Series C preferred stock. In addition, GHS has agreed to exchange
the stated value per share (plus any accrued but unpaid dividends)
of its remaining shares of Series C preferred stock for new
securities of the same type that we separately issue in the next
qualifying financing we undertake, on a dollar-for-dollar basis in
a private placement exchange.
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on November 7, 2016. As a result of the
reverse stock split, every 800 shares of issued and outstanding
common stock was converted into 1 share of common stock. All
fractional shares created by the reverse stock split were rounded
to the nearest whole share. The number of authorized shares of
common stock did not change.
On
December 7, 2016, we entered into an exchange agreement with GPB
Debt Holdings II LLC with regard to the $1,525,000 in outstanding
principal amount of senior secured convertible note originally
issued to GPB on February 11, 2016, and the $306,863 in outstanding
principal amount of our secured promissory note that GPB holds.
Pursuant to the exchange agreement, upon completion of the next
financing resulting in at least $1 million in cash proceeds, GPB
will exchange both securities for a new convertible note in
principal amount of $1,831,863. The new convertible note will
mature on the second anniversary of issuance and will accrue
interest at a rate of 19% per year. We will pay monthly interest
coupons and, beginning one year after issuance, will pay amortized
quarterly principal payments. Subject to resale restrictions under
Federal securities laws and the availability of sufficient
authorized but unissued shares of our common stock, the new
convertible note will be convertible at any time, in whole or in
part, at the holder’s option, into shares of our common
stock, at a conversion price equal to the price offered in the
qualifying financing that triggers the exchange, subject to certain
customary adjustments and anti-dilution provisions contained in the
new convertible note. The new convertible note will include
customary event of default provisions and a default interest rate
of the lesser of 21% or the maximum amount permitted by law. Upon
the occurrence of an event of default, GPB will be entitled to
require us to redeem the new convertible note at 120% of the
outstanding principal balance. The new convertible note will be
secured by a lien on all of our assets, including our intellectual
property, pursuant to the security agreement entered into by us and
GPB in connection with the issuance of the original senior secured
convertible note. As an inducement to GPB to enter into these
transactions, we agreed to increase the royalty payable to GPB
pursuant to its consulting agreement with us from 3.5% to 3.85% of
revenues from the sales of our products.
On
December 28, 2016, we entered into a securities purchase agreement
with RedDiamond Partners LLC for the issuance and sale to
RedDiamond of up to $330,000 in aggregate principal amount of 10%
original issuance discount convertible promissory notes, for an
aggregate purchase price of $300,000. On that date, we issued to
RedDiamond a note in the principal amount of $222,000, for a
purchase price of $200,000. At our option, at any time within 60
days from that issuance, we may issue another note in the principal
amount of $110,000, for a purchase price of $100,000, subject to
customary conditions contained in the purchase agreement. The notes
mature six months from their date of issuance and, in addition to
the 10% original issue discount, accrue interest at a rate of 10%
per year. We may prepay the notes, in whole or in part, for 115% of
outstanding principal and interest until 30 days from issuance, for
125% of outstanding principal and interest at any time from 31 to
60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance until immediately
prior to the maturity date. After six months from the date of
issuance (i.e., if we fail to repay all principal and interest due
under the notes at the maturity date), RedDiamond may convert the
notes, at any time, in whole or in part, into shares of our common
stock, at a conversion price equal to 60% of the lowest volume
weighted average price of our common stock during the 20 trading
days prior to conversion, subject to certain customary adjustments
and anti-dilution provisions contained in the notes.
24
See
“—Recent Developments” for information regarding
capital-raising activities since December 31, 2016.
We will
be required to raise additional funds through public or private
financing, additional collaborative relationships or other
arrangements, as soon as possible. We cannot be certain that our
existing and available capital resources will be sufficient to
satisfy our funding requirements through the second quarter of
2017. We are evaluating various options to further reduce our cash
requirements to operate at a reduced rate, as well as options to
raise additional funds, including loans.
Generally,
substantial capital will be required to develop our products,
including completing product testing and clinical trials, obtaining
all required U.S. and foreign regulatory approvals and clearances,
and commencing and scaling up manufacturing and marketing our
products. Any failure to obtain capital would have a material
adverse effect on our business, financial condition and results of
operations. Based on discussions with our customers, we expect to
generate purchase orders for approximately $3 million to $4 million
in LuViva devices and disposables in 2017, and expect those
purchase orders to result in actual sales of $750,000 to $1 million
in 2017, 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 customers 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. We
currently do not have cash on hand sufficient to build the
inventory required to fill these orders, and material delays in
product deliveries could result in canceled orders.
Our
financial statements have been prepared and presented on a basis
assuming we will continue as a going concern. The above factors
raise substantial doubt about our ability to continue as a going
concern, as more fully discussed in Note 1 to the consolidated
financial statements contained herein and in the report of our
independent registered public accounting firm accompanying our
financial statements contained in our annual report on Form 10-K
for the year ended December 31, 2016.
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.
Not
applicable.
25
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and
Stockholders of Guided Therapeutics, Inc.
We have
audited the accompanying consolidated balance sheets of Guided
Therapeutics, Inc. and Subsidiary (the “Company”) as of
December 31, 2016 and 2015, and the related consolidated statements
of operations, stockholders’ deficit, and cash flows for the
years then ended. The Company’s management is responsible for
these consolidated financial statements. Our responsibility is to
express an opinion on these consolidated financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are
free of material misstatement. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Guided Therapeutics, Inc. and Subsidiary as of December 31, 2016
and 2015, and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company’s significant operating losses raise substantial
doubt about its ability to continue as a going concern.
Management’s plans regarding those matters are also discussed
in Note 1 to the consolidated financial statements. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
/s/ UHY
LLP
UHY LLP
|
Sterling Heights, Michigan
|
|
|
March 21, 2017
|
|
26
|
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
|
||
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (in thousands)
|
||
|
AS
OF DECEMBER 31,
|
||
|
|
|
|
|
ASSETS
|
2016
|
2015
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
$14
|
$35
|
|
Accounts
receivable, net of allowance for doubtful accounts of $279 and $95
at December 31, 2016 and 2015, respectively
|
-
|
190
|
|
Inventory,
net of reserves of $278 and $118 at December 31, 2016 and 2015,
respectively
|
773
|
1,119
|
|
Other
current assets
|
259
|
780
|
|
Total
current assets
|
1,046
|
2,124
|
|
|
|
|
|
Property
and equipment, net
|
126
|
318
|
|
Other
assets
|
320
|
73
|
|
Total
noncurrent assets
|
446
|
391
|
|
|
|
|
|
TOTAL
ASSETS
|
1,492
|
2,515
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Notes
payable in default, including related parties
|
1,008
|
133
|
|
Short-term
note payable
|
197
|
704
|
|
Convertible
note in default
|
2,361
|
-
|
|
Short-term
convertible notes payable, net
|
468
|
686
|
|
Accounts
payable
|
2,600
|
1,824
|
|
Accrued
liabilities
|
2,670
|
1,907
|
|
Deferred
revenue
|
34
|
217
|
|
Total
current liabilities
|
9,338
|
5,471
|
|
|
|
|
|
Warrants,
at fair value
|
1,420
|
2,606
|
|
|
|
|
|
TOTAL
LIABILITIES
|
10,758
|
8,077
|
|
|
|
|
|
COMMITMENTS & CONTINGENCIES (Note 8)
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT:
|
|
|
|
Series
C convertible preferred stock, $.001 par value; 9.0 shares
authorized, 1.6 and 5.6 shares issued and outstanding as of
December 31, 2016 and 2015, respectively. (Liquidation preference
of $1,643 and $5,555 at December 31, 2016 and 2015,
respectively).
|
601
|
2,052
|
|
Series
C1 convertible preferred stock, $.001 par value; 20.3 shares
authorized, 4.3 shares and none issued and outstanding as of
December 31, 2016 and 2015, respectively. (Liquidation preference
of $4,312 and none at December 31, 2016 and 2015,
respectively).
|
701
|
-
|
|
Common
stock, $.001 par value; 1,000,000 shares authorized, 669 and 3
shares issued and outstanding as of December 31, 2016 and 2015,
respectively
|
742
|
236
|
|
Additional
paid-in capital
|
116,380
|
114,845
|
|
Treasury
stock, at cost
|
(132)
|
(132)
|
|
Accumulated
deficit
|
(127,558)
|
(122,563)
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
(9,266)
|
(5,562)
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$1,492
|
$2,515
|
The
accompanying notes are an integral part of these consolidated
statements.
27
|
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
|
||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS (in thousands)
|
||
|
FOR
THE YEARS ENDED DECEMBER 31,
|
||
|
|
|
|
|
|
2016
|
2015
|
|
REVENUE:
|
|
|
|
Sales
– devices and disposables, net
|
$605
|
$564
|
|
Cost
of goods sold
|
493
|
537
|
|
Gross
profit
|
112
|
27
|
|
|
|
|
|
Contract
and grant revenue
|
-
|
42
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Research
and development
|
733
|
1,477
|
|
Sales
and marketing
|
393
|
718
|
|
General
and administrative
|
2,806
|
4,101
|
|
Total
operating expenses
|
3,932
|
6,296
|
|
|
|
|
|
Operating
loss
|
(3,820)
|
(6,227)
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
Other
income
|
68
|
74
|
|
Interest
expense
|
(1,895)
|
(1,317)
|
|
Change
in fair value of warrants
|
1,677
|
568
|
|
Total
other income (expenses)
|
(150)
|
(675)
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
(3,970)
|
(6,902)
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
-
|
-
|
|
|
|
|
|
NET
LOSS
|
(3,970)
|
(6,902)
|
|
|
|
|
|
DEEMED
DIVIDENDS
|
-
|
(1,263)
|
|
|
|
|
|
PREFERRED
STOCK DIVIDENDS
|
(1,025)
|
(1,338)
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$(4,995)
|
$(9,503)
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO
COMMON STOCKHOLDERS
|
$(24.62)
|
$(5,939.38)
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
203
|
2
|
|
The
accompanying notes are an integral part of these consolidated
statements.
|
||||
|
|
||||
|
|
28
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In
Thousands)
|
|
Preferred
Stock
Series
C
|
Preferred Stock
Series
C1
|
Common
Stock
|
Additional
Paid-In
|
Treasury
|
Accumulated
|
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stock
|
Deficit
|
TOTAL
|
|
BALANCE, January 1,
2015
|
-
|
$-
|
-
|
$- -
|
1
|
$97
|
$107,952
|
$(132)
|
$(113,060)
|
$(4,465)
|
|
Preferred
dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(352)
|
(352)
|
|
Conversion of
Series C preferred stock to common stock
|
(2)
|
(840)
|
-
|
-
|
1
|
99
|
1,727
|
-
|
(986)
|
-
|
|
Issuance of common
stock and warrants
|
-
|
-
|
-
|
-
|
-
|
11
|
1,327
|
-
|
-
|
1,338
|
|
Exercise of
warrants and options for common stock
|
-
|
-
|
-
|
-
|
-
|
11
|
132
|
-
|
-
|
143
|
|
Conversion of debt
into common stock
|
-
|
-
|
-
|
-
|
-
|
15
|
999
|
-
|
-
|
1,014
|
|
December 2014
public offering warrants exchange and common shares
issuance
|
-
|
-
|
-
|
-
|
-
|
3
|
1,368
|
-
|
(1,049)
|
322
|
|
Series B, Tranche
A, warrant price adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
64
|
-
|
(64)
|
-
|
|
Series B preferred
stock exchange
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
(678)
|
|
Series C preferred
stock and warrant issuance
|
8
|
2,892
|
-
|
-
|
-
|
-
|
268
|
-
|
(150)
|
3,010
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
1,008
|
-
|
-
|
1,008
|
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,902)
|
(6,902)
|
|
BALANCE, December
31, 2015
|
6
|
$2,052
|
-
|
$-
|
3
|
$236
|
$114,845
|
$(132)
|
$(122,563)
|
$(5,562)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(191)
|
(191)
|
|
Issuance of common
stock from accrued dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
54
|
-
|
-
|
54
|
|
Conversion of
Series C preferred stock to common stock
|
(2)
|
(750)
|
-
|
-
|
531
|
456
|
1,128
|
-
|
(834)
|
-
|
|
Conversion of debt
into common stock
|
-
|
-
|
-
|
-
|
53
|
20
|
238
|
-
|
-
|
258
|
|
Issuance of common
stock due to Series B, Tranche B warrants exchanged for shares and
rights to shares
|
-
|
-
|
-
|
-
|
19
|
12
|
(12)
|
-
|
-
|
-
|
|
Series C preferred
stock exchanged for Series C1 preferred stock
|
(2)
|
(751)
|
4
|
701
|
23
|
18
|
(18)
|
-
|
-
|
-
|
|
Issuance of common
stock for cash
|
-
|
-
|
-
|
-
|
40
|
-
|
50
|
-
|
-
|
50
|
|
Stock-based
compensation
|
|
|
|
|
-
|
-
|
95
|
-
|
-
|
95
|
|
Net
Loss
|
|
|
|
|
-
|
-
|
-
|
-
|
(3,970)
|
(3,970)
|
|
BALANCE,
December 31, 2016
|
2
|
$601
|
4
|
$701
|
669
|
$742
|
$116,380
|
$(132)
|
$(127,558)
|
$(9,266)
|
The
accompanying notes are an integral part of these consolidated
statements.
29
|
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
|
||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||
|
FOR
THE YEARS ENDED DECEMBER 31,
|
||
|
(In
Thousands)
|
||
|
|
||
|
|
2016
|
2015
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$(3,970)
|
$(6,902)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Bad
debt expense
|
221
|
19
|
|
Depreciation
and Amortization
|
1,223
|
1,054
|
|
Stock-based
compensation
|
95
|
1,008
|
|
Non-employee
stock based compensation
|
-
|
400
|
|
Change
in fair value of warrants
|
(1,677)
|
(568)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(31)
|
61
|
|
Inventory
|
345
|
129
|
|
Other
current assets
|
519
|
(681)
|
|
Other
assets
|
(247)
|
28
|
|
Accounts
payable
|
775
|
91
|
|
Deferred
revenue
|
(183)
|
193
|
|
Accrued
liabilities
|
1,128
|
1,125
|
|
Total
adjustments
|
2,168
|
2,859
|
|
|
|
|
|
Net
cash used in operating activities
|
(1,802)
|
(4,043)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Additions
to fixed assets
|
-
|
(8)
|
|
|
|
|
|
Net
cash used in investing activities
|
-
|
(8)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Net
proceeds from issuance of preferred stock and warrants,
net
|
-
|
3,698
|
|
Net
proceed from issuance of common stock and warrants
|
50
|
720
|
|
Proceeds
from debt financing, net of discount and debt issuance
costs
|
1,958
|
377
|
|
Payments
on notes
|
(227)
|
(1,014)
|
|
Proceeds
from options and warrants exercised
|
-
|
143
|
|
|
|
|
|
Net
cash provided by financing activities
|
1,781
|
3,924
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(21)
|
(127)
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
35
|
162
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of year
|
$14
|
$35
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF:
|
|
|
|
Cash paid
for:
|
|
|
|
Interest
|
$-
|
$76
|
|
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
Issuance
of common stock as debt repayment
|
$258
|
$1,014
|
|
Dividends
on preferred stock
|
$1,025
|
$1,338
|
|
Deemed
dividend on December 2014 public offering warrants
|
$-
|
$1,049
|
|
Term
changes on Series B preferred stock and December 2014 public
offering warrants resulting in transfer to equity
|
$-
|
$324
|
|
Repayment
of deferred compensation via issuance of preferred
stock
|
$-
|
$100
|
|
Deemed
dividend on beneficial conversion features of Series C Preferred
stock
|
$-
|
$150
|
|
Deemed
dividend on price changes for Series B preferred stock
warrants
|
$-
|
$64
|
|
The
accompanying notes are an integral part of these consolidated
statements.
|
||
30
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
1. ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Guided
Therapeutics, Inc. (formerly SpectRx, Inc.), together with its
wholly owned subsidiary, InterScan, Inc. (formerly Guided
Therapeutics, Inc.), collectively referred to herein as the
“Company”, is a medical
technology company focused on developing innovative medical devices
that have the potential to improve healthcare. The Company’s
primary focus is the continued commercialization of its LuViva
non-invasive cervical cancer detection device and extension of its
cancer detection technology into other cancers, including
esophageal. The Company’s technology, including products in
research and development, primarily relates to biophotonics
technology for the non-invasive detection of
cancers.
Basis of Presentation
All
information and footnote disclosures included in the consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United
States.
A 1:800
reverse stock split of all of the Company’s issued and
outstanding common stock was implemented on November 7, 2016. As a
result of the reverse stock split, every 800 shares of issued and
outstanding common stock was converted into 1 share of common
stock. All fractional shares created by the reverse stock split
were rounded to the nearest whole share. The number of authorized
shares of common stock did not change. The reverse stock split
decreased the Company’s issued and outstanding shares of
common stock from 453,694,400 shares of Common Stock to 570,707
shares as of that date. See Note 4, Stockholders’ Deficit.
Unless otherwise specified, all per share amounts are reported on a
post-stock split basis, as of December 31, 2016. On February 24,
2016, the Company had also implemented a 1:100 reverse stock split
of its issued and outstanding common stock.
The
Company’s prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by
entrants into the medical device industry. This industry is
characterized by an increasing number of participants, intense
competition and a high failure rate. The Company has experienced
net losses since its inception and, as of December 31, 2016, it had
an accumulated deficit of approximately $127.6 million. Through
December 31, 2016, the Company has devoted substantial resources to
research and development efforts. The Company first generated
revenue from product sales in 1998, but does not have significant
experience in manufacturing, marketing or selling its products. The
Company’s development efforts may not result in commercially
viable products and it may not be successful in growing sales for
its products. Moreover, required regulatory clearances or approvals
may not be obtained. The Company’s products may not ever gain
market acceptance and the Company may not ever achieve levels of
revenue to sustain further development costs and support ongoing
operations or achieve profitability. The development and continued
commercialization of the Company’s products will require
substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. The Company expects operating
losses to continue through the foreseeable future as it continues
to expend substantial resources to complete development of its
products, obtain regulatory clearances or approvals and conduct
further research and development.
Going Concern
The
Company’s consolidated financial statements have been
prepared and presented on a basis assuming it will continue as a
going concern. The factors below raise substantial doubt about the
Company’s ability to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary from the outcome of this uncertainty.
At
December 31, 2016, the Company had a negative working capital of
approximately $8.3 million, accumulated deficit of $127.6 million,
and incurred a net loss of $4.0 million for the year then ended.
Stockholders’ deficit totaled approximately $9.3 million at
December 31, 2016, primarily due to recurring net losses from
operations, deemed dividends on warrants and preferred stock,
offset by proceeds from the exercise of options and warrants and
proceeds from sales of stock.
The
Company’s capital-raising efforts are ongoing. If sufficient
capital cannot be raised during the second quarter of 2017, the
Company will continue its plans of curtailing operations by
reducing discretionary spending and staffing levels, and attempting
to operate by only pursuing activities for which it has external
financial support. However, there can be no assurance that such
external financial support will be sufficient to maintain even
limited operations or that the Company will be able to raise
additional funds on acceptable terms, or at all. In such a case,
the Company might be required to enter into unfavorable agreements
or, if that is not possible, be unable to continue operations, and
to the extent practicable, liquidate and/or file for bankruptcy
protection.
31
The
Company had warrants exercisable for approximately 4.3 million
shares of its common stock outstanding at December 31, 2016, with
exercise prices ranging between $0.35 and $84,000 per share.
Exercises of these warrants would generate a total of approximately
$6.2 million in cash, assuming full exercise, although the Company
cannot be assured that holders will exercise any warrants.
Management may obtain additional funds through the public or
private sale of debt or equity, and grants, if
available.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Significant areas where estimates are used include the
allowance for doubtful accounts, inventory valuation and input
variables for Black-Scholes, Monte Carlo simulations and binomial
calculations.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of Guided Therapeutics, Inc. and its wholly owned
subsidiary.
Accounting Standard Updates
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued ASU 2014-09, “Revenue from Contracts with Customers
(Topic 606),” (“ASU 2014-09”). ASU 2014-09
outlines a new, single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including
industry-specific guidance. This new revenue recognition model
provides a five-step analysis in determining when and how revenue
is recognized. The new model requires revenue recognition to depict
the transfer of promised goods or services to customers in an
amount that reflects the consideration a company expects to
receive. ASU 2014-09 also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments
and changes in judgments and assets recognized from costs incurred
to obtain or fulfill a contract. In August 2015, the FASB issued
ASU 2015-14, “Deferral of the Effective Date”, which
amends ASU 2014-09. As a result, the effective date will be the
first quarter of fiscal year 2018 with early adoption permitted in
the first quarter of fiscal year 2017. Subsequently, the FASB has
issued the following standards related to ASU 2014-09: ASU 2016-08,
“Revenue from Contracts with Customers (Topic 606), Principal
versus Agent Considerations (Reporting Revenue Gross versus
Net),” (“ASU 2016-08”); ASU 2016-10,
“Revenue from Contracts with Customers (Topic 606),
Identifying Performance Obligations and Licensing,”
(“ASU 2016-10”); ASU 2016-12, “Revenue from
Contracts with Customers (Topic 606) Narrow-Scope Improvements and
Practical Expedients,” (“ASU 2016-12”); and ASU
2016-20, “Technical Corrections and Improvements to Topic
606, Revenue from Contracts with Customers,” (“ASU
2016-20”), which are intended to provide additional guidance
and clarity to ASU 2014-09. The Company must adopt ASU 2016-08, ASU
2016-10, ASU 2016-12 and ASU 2016-20 along with ASU 2014-09
(collectively, the “New Revenue Standards”). The New
Revenue Standards may be applied using one of two retrospective
application methods: (1) a full retrospective approach for all
periods presented, or (2) a modified retrospective approach that
presents a cumulative effect as of the adoption date and additional
required disclosures. The Company is evaluating the impact that
adoption of this guidance will have on the determination or
reporting of its financial results.
In June
2014, the FASB issued ASU 2014-12, “Accounting for
Share-Based Payments When the Terms of an Award Provide that a
Performance Target Could be Achieved after the Requisite Service
Period,” (“ASU 2014-12”). ASU 2014-12 requires
that a performance target that affects vesting, and that could be
achieved after the requisite service period, be treated as a
performance condition. As such, the performance target should not
be reflected in estimating the grant date fair value of the award.
ASU 2014-12 is effective for the reporting periods beginning after
December 15, 2015. Early adoption is permitted. The effective date
of this policy was the first quarter of fiscal year
2016.
In
August 2014, the FASB issued ASU 2014-15, “Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern,” (“ASU 2014-15”). ASU 2014-15
requires management to perform interim and annual assessments of an
entity’s ability to continue as a going concern for a one
year period subsequent to the date of issuance of its financial
statements. An entity must provide certain disclosures if
conditions or events raise substantial doubt about the
entity’s ability to continue as a going concern. The Company
is evaluating the impact that adoption of this guidance will have
on the determination or reporting of its financial
results.
32
In July
2015, the FASB issued ASU 2015-11, “Simplifying the
Measurement of Inventory,” (“ASU 2015-11”). ASU
2015-11 requires inventory be measured at the lower of cost and net
realizable value and options that currently exist for market value
be eliminated. ASU 2015-11 defines net realizable value as
estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and
transportation. The guidance is effective for reporting periods
beginning after December 15, 2016 and interim periods within
those fiscal years with early adoption permitted. ASU 2015-11
should be applied prospectively. The Company is evaluating the
impact adoption of this guidance will have on determination or
reporting of its financial results.
In
April 2015, the FASB issued ASU 2015-03, “Imputation of
Interest: Simplifying the Presentation of Debt Issuance
Costs,” (“ASU 2015-03”). ASU 2015-03 requires
that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the
carrying amount of that debt liability, consistent with debt
discounts. The guidance is effective for reporting periods
beginning after December 15, 2015 and interim periods within
those fiscal years with early adoption permitted. ASU 2015-03
should be applied on a retrospective basis, wherein the balance
sheet of each period presented should be adjusted to reflect the
effects of adoption. The effective date of this policy was the
first quarter of fiscal year 2016.
In
November 2015, the FASB issued ASU 2015-17, “Income Taxes
(Topic 740) Balance Sheet Classification of Deferred Taxes.”
The amendments in ASU 2015-17 seek to simplify the presentation of
deferred income taxes and require that deferred tax liabilities and
assets be classified as noncurrent in a classified statement of
financial position. ASU 2015-17 is effective for financial
statements issued for annual periods beginning after December 15,
2016, and interim periods within those annual periods, with early
application permitted for all entities as of the beginning of an
interim or annual reporting period. The Company believes that
adoption of this new standard will not be material to its
consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic
842)” that requires lessees to recognize on the balance sheet
the assets and liabilities associated with the rights and
obligations created by those leases. Under the new guidance, a
lessee will be required to recognize assets and liabilities for
leases with lease terms of more than 12 months. Consistent with
current U.S. GAAP, the recognition, measurement, and presentation
of expenses and cash flows arising from a lease by a lessee
primarily will depend on its classification as finance or operating
lease. The update is effective for reporting periods beginning
after December 15, 2018. Early adoption is permitted. The Company
is evaluating the impact adoption of this guidance will have on
determination or reporting of its financial results.
In
March 2016, the FASB issued ASU 2016-05, “Derivatives and
Hedging (Topic 815),” (“ASU 2016-05”). ASU
2016-05 provides guidance clarifying that novation of a derivative
contract (i.e., a change in counterparty) in a hedge accounting
relationship does not, in and of itself, require dedesignation of
that hedge accounting relationship. The effective date will be the
first quarter of fiscal year 2017, with early adoption permitted.
Adoption is not expected to have a material effect on the
Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-06, “Derivatives and
Hedging (Topic 815),” (“ASU 2016-06”). ASU
2016-06 simplifies the embedded derivative analysis for debt
instruments containing contingent call or put options by clarifying
that an exercise contingency does not need to be evaluated to
determine whether it relates to interest rates and credit risk in
an embedded derivative analysis. The effective date will be the
first quarter of fiscal year 2017, with early adoption permitted.
Adoption is not expected to have a material effect on the
Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, “Compensation-Stock
Compensation (Topic 718), Improvements to Employee Share-Based
Payment Accounting,” (“ASU 2016-09”). ASU 2016-09
is intended to simplify several aspects related to how share-based
payments are accounted for and presented in the financial
statements, such as requiring all income tax effects of awards to
be recognized in the income statement when the awards vest or are
settled and allowing a policy election to account for forfeitures
as they occur. In addition, all related cash flows resulting from
share-based payments will be reported as operating activities on
the statement of cash flows. ASU 2016-09 could result in increased
volatility of the Company’s provision for income taxes and
earnings per share, depending on the Company’s share price at
exercise or vesting of share-based awards compared to grant date.
The effective date will be the first quarter of fiscal year 2017,
with early adoption permitted. The Company believes that adoption
of this new standard will not be material to its consolidated
financial statements; however, the impact on future effective tax
rates could be significant.
33
In June
2016, the FASB issued ASU 2016-13, “Financial Instruments -
Credit Losses,” (“ASU 2016-13”). ASU 2016-13 sets
forth a “current expected credit loss” model which
requires the Company to measure all expected credit losses for
financial instruments held at the reporting date based on
historical experience, current conditions and reasonable
supportable forecasts. The guidance in this new standard replaces
the existing incurred loss model and is applicable to the
measurement of credit losses on financial assets measured at
amortized cost and applies to some off-balance sheet credit
exposures. The effective date will be the first quarter of fiscal
year 2020. The Company is evaluating the impact that adoption of
this new standard will have on its consolidated financial
statements.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash
Flows (Topic 230), Classification of Certain Cash Receipts and Cash
Payments,” (“ASU 2016-15”). ASU 2016-15 reduces
the existing diversity in practice in financial reporting by
clarifying existing principles in ASC 230, “Statement of Cash
Flows,” and provides specific guidance on certain cash flow
classification issues. The effective date for ASU 2016-15 will be
the first quarter of fiscal year 2018, with early adoption
permitted. The Company is evaluating the impact adoption of this
guidance will have on determination or reporting of its financial
results.
In
November 2016, the FASB issued ASU 2016-18, “Statement of
Cash Flows (Topic 230) - Restricted Cash,” (“ASU
2016-18”). ASU 2016-18 requires a statement of cash flows to
explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The Company is evaluating the impact
adoption of this guidance will have on determination or reporting
of its financial results.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment,” (“ASU 2017-04”). ASU 2017-04
eliminates Step 2 from the goodwill impairment test. Instead, an
entity should perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its
carrying amount. An entity should recognize an impairment charge
for the amount by which the carrying amount exceeds the reporting
unit’s fair value, if any. The loss recognized should not
exceed the total amount of goodwill allocated to that reporting
unit. Additionally, an entity should consider income tax effects
from any tax deductible goodwill on the carrying amount of the
reporting unit when measuring the goodwill impairment. The
effective date will be the first quarter of fiscal year 2020, with
early adoption permitted in 2017. Adoption is not expected to have
a material effect on the Company’s consolidated financial
statements.
Except
as noted above, the guidance issued by the FASB during the current
year is not expected to have a material effect on the
Company’s consolidated financial statements.
Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be a cash
equivalent.
Accounts Receivable
The
Company performs periodic credit evaluations of its
customers’ financial conditions and generally does not
require collateral. The Company reviews all outstanding accounts
receivable for collectability on a quarterly basis. An allowance
for doubtful accounts is recorded for any amounts deemed
uncollectable. The Company does not accrue interest receivable on
past due accounts receivable.
Concentrations of Credit Risk
The
Company, from time to time during the years covered by these
consolidated financial statements, may have bank balances in excess
of its insured limits. Management has deemed this a normal business
risk.
The
Company performs periodic credit evaluations of its
customers’ financial conditions and generally does not
require collateral. The Company reviews all outstanding accounts
receivable for collectability on a quarterly basis. An allowance
for doubtful accounts is recorded for any amounts deemed
uncollectable. The Company does not accrue interest receivable on
past due accounts receivable.
34
Inventory Valuation
All
inventories are stated at lower of cost or market, with cost
determined substantially on a “first-in, first-out”
basis. Selling, general, and administrative expenses are not
inventoried, but are charged to expense when purchased. At December
31, 2016 and December 31, 2015, our inventories were as follows (in
thousands):
|
|
Year Ended
December 31,
|
|
|
|
2016
|
2015
|
|
Raw
materials
|
$795
|
$686
|
|
Work in
process
|
115
|
186
|
|
Finished
goods
|
141
|
365
|
|
Inventory
reserve
|
(278)
|
(118)
|
|
Total
|
$773
|
$1,119
|
Property and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using
the straight-line method over estimated useful lives of three to
seven years. Leasehold improvements are depreciated at the shorter
of the useful life of the asset or the remaining lease term.
Depreciation expense is included in general and administrative
expense on the statement of operations. Expenditures for repairs
and maintenance are expensed as incurred. Property and equipment
are summarized as follows at December 31, 2016 and 2015 (in
thousands):
|
|
Year Ended
December 31,
|
|
|
|
2016
|
2015
|
|
Equipment
|
$1,378
|
$1,377
|
|
Software
|
740
|
740
|
|
Furniture and
fixtures
|
124
|
124
|
|
Leasehold
Improvement
|
199
|
199
|
|
|
2,441
|
2,440
|
|
Less accumulated
depreciation
|
(2,315)
|
(2,122)
|
|
Total
|
$126
|
$318
|
Debt Issuance Costs
Debt
issuance costs are capitalized as described in ASU 2015-03 and
adopted retrospectively.
Other Assets
Other
assets primarily consist of short, and long-term deposits for
various tooling inventory that are being constructed for the
Company and deferred financing costs.
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 FDA
approval and recovery of these costs is uncertain. Such costs
aggregated approximately $23,000 and $47,000 in 2016 and 2015,
respectively.
Accrued Liabilities
Accrued
liabilities are summarized as follows at December 31, 2016 and
2015 (in thousands):
35
|
|
Year Ended
December 31,
|
|
|
|
2016
|
2015
|
|
Accrued
compensation
|
$1,656
|
$1,235
|
|
Accrued
professional fees
|
161
|
154
|
|
Deferred
rent
|
13
|
36
|
|
Accrued
warranty
|
58
|
82
|
|
Accrued
vacation
|
175
|
177
|
|
Accrued
dividends
|
296
|
167
|
|
Other accrued
expenses
|
311
|
56
|
|
Total
|
$2,670
|
$1,907
|
Revenue Recognition
Revenue
from the sale of the Company’s products is recognized upon
shipment of such products to its customers. The Company recognizes
revenue from contracts on a straight-line basis, over the terms of
the contracts. The Company recognizes revenue from grants based on
the grant agreements, at the time the expenses are
incurred.
Significant Customers
In 2016
and 2015, the majority of the Company’s revenues were from
three and four customers, respectively. Revenue from these
customers totaled approximately $534,000 or 73% and approximately
$280,000 or 73% of gross revenue for the year ended December 31,
2016 and 2015, respectively. Accounts receivable due from those
customers represents 43% and 62% of unreserved accounts receivable
as of December 31, 2016 and 2015, respectively.
Deferred Revenue
The
Company defers payments received as revenue until earned based on
the related contracts on a straight line basis, over the terms of
the contract.
Research and Development
Research
and development expenses consist of expenditures for research
conducted by the Company and payments made under contracts with
consultants or other outside parties and costs associated with
internal and contracted clinical trials. All research and
development costs are expensed as incurred.
Income Taxes
The
Company uses the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Management provides valuation
allowances against the deferred tax assets for amounts that are not
considered more likely than not to be realized.
The
Company is current with its federal and applicable state tax
returns filings. Although we have been experiencing recurring
losses, its is obligated to file tax returns for compliance with
Internal Revenue Service (“IRS”) regulations and that
of applicable state jurisdictions. At December 31, 2016, the
Company has approximately $33 million of net operating loss as
compared to $28 million for the same period in 2015. This net
operating loss will be eligible to be carried forward for tax
purposes at federal and applicable states level. A full valuation
allowance has been recorded related the deferred tax assets
generated from the net operating losses.
None of
the Company’s federal or state income tax returns are
currently under examination by the IRS or state
authorities.
Uncertain Tax Positions
The
Company assesses each income tax position is assessed using a
two-step process. A determination is first made as to whether it is
more likely than not that the income tax position will be
sustained, based upon technical merits, upon examination by the
taxing authorities. If the income tax position is expected to meet
the more likely than not criteria, the benefit recorded in the
financial statements equals the largest amount that is greater than
50% likely to be realized upon its ultimate settlement. At December
31, 2016 and 2015 there were no uncertain tax
positions.
36
Warrants
The
Company has issued warrants, which allow the warrant holder to
purchase one share of stock at a specified price for a specified
period of time. The Company records equity instruments including
warrants issued to non-employees based on the fair value at the
date of issue. The fair value of warrants classified as equity
instruments at the date of issuance is estimated using the
Black-Scholes Model. The fair value of warrants classified as
liabilities at the date of issuance is estimated using the Monte
Carlo Simulation or Binomial model.
Stock Based Compensation
The
Company records compensation expense related to options granted to
non-employees based on the fair value of the award.
Compensation
cost is recorded as earned for all unvested stock options
outstanding at the beginning of the first year based upon the grant
date fair value estimates, and for compensation cost for all
share-based payments granted or modified subsequently based on fair
value estimates.
For the
years ended December 31, 2016 and 2015, share-based compensation
for options attributable to employees, officers and Board members
were approximately $95,000 and $1,008,000, respectively. These
amounts have been included in the Company’s statements of
operations. Compensation costs for stock options which vest over
time are recognized over the vesting period. As of December 31,
2016, the Company had $132,667 of unrecognized compensation costs
related to granted stock options to be recognized over the
remaining vesting period of approximately three years.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The
guidance for fair value measurements, ASC820, Fair Value
Measurements and Disclosures, establishes the authoritative
definition of fair value, sets out a framework for measuring fair
value, and outlines the required disclosures regarding fair value
measurements. Fair value is the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at
the measurement date. The Company uses a three-tier fair value
hierarchy based upon observable and non-observable inputs as
follow:
●
Level 1 –
Quoted market prices in active markets for identical assets and
liabilities;
●
Level 2 –
Inputs, other than level 1 inputs, either directly or indirectly
observable; and
●
Level 3 –
Unobservable inputs developed using internal estimates and
assumptions (there is little or no market date) which reflect those
that market participants would use.
The
Company records its derivative activities at fair value, which
consisted of warrants as of December 31, 2016. The fair value of
the warrants was estimated using the Binomial Simulation model.
Gains and losses from derivative contracts are included in net gain
(loss) from derivative contracts in the statement of operations.
The fair value of the Company’s derivative warrants is
classified as a Level 3 measurement, since unobservable inputs are
used in the valuation.
The
following table presents the fair value for those liabilities
measured on a recurring basis as of December 31, 2016 and
2015:
FAIR VALUE MEASUREMENTS (In Thousands)
The
following is summary of items that the Company measures at fair
value on a recurring basis:
|
|
Fair Value at
December 31, 2016
|
|||
|
|
|
|
|
|
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
Warrants issued in
connection with Distributor Debt
|
-
|
-
|
(114)
|
(114)
|
|
Warrants issued in
connection with Senior Secured Debt
|
-
|
-
|
(1,306)
|
(1,306)
|
|
Total
long-term liabilities at fair value
|
$-
|
$-
|
$(1,420)
|
$(1,420)
|
|
|
|
|
|
|
37
|
|
Fair Value at
December 31, 2015
|
|||
|
|
|
|
|
|
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
Warrants issued in
connection with the issuance of Series C preferred
stock
|
$—
|
$—
|
$(1,145)
|
$(1,145)
|
|
Warrants issued in
connection with the issuance of Series B preferred
stock
|
—
|
—
|
(1,461)
|
(1,461)
|
|
Total
long-term liabilities at fair value
|
$—
|
$—
|
$(2,606)
|
$(2,606)
|
The following is a summary of changes to Level 3 instruments during
the year ended December 31, 2016:
|
|
Fair Value
Measurements Using Significant Unobservable Inputs (Level
3)
|
||||
|
|
|
|
|
|
|
|
|
Series
C Warrants
|
Series B
Warrants
|
Senior Secured
Debt
|
Distributor
Debt
|
Total
|
|
Balance,
December 31, 2015
|
$(1,145)
|
$(1,461)
|
$-
|
$-
|
$(2,606)
|
|
Warrants
issued during the period
|
-
|
-
|
(377)
|
(114)
|
(491)
|
|
Change
in fair value during the period
|
1,145
|
1,461
|
(929)
|
-
|
1,677
|
|
Balance, December
31, 2016
|
$-
|
$-
|
$1,306
|
$(114)
|
$(1,420)
|
As of
December 31, 2016, the fair value of warrants was approximately
$1.4 million. A net change of approximately $1.7 million has been
recorded to the accompanying statement of operations for the year
ended.
4. STOCKHOLDER’S DEFICIT
Common Stock
The
Company has authorized 1,000,000,000 shares of common stock with
$0.001 par value, of which 668,651 were issued and outstanding as
of December 31, 2016. For the year ended December 31, 2015, there
were 1,000,000,000 authorized shares of common stock, of which
2,964 were issued and outstanding.
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on November 7, 2016. As a result of the
reverse stock split, every 800 shares of issued and outstanding
common stock was converted into 1 share of common stock. All
fractional shares created by the reverse stock split were rounded
to the nearest whole share. The number of authorized shares of
common stock did not change. On February 24, 2016, the Company had
also implemented a 1:100 reverse stock split of its issued and
outstanding common stock. The number of the authorized shares did
not change.
For the
year ended December 31, 2016, the Company issued 665,687 shares of
common stock as listed below:
|
Series C Preferred
Stock Conversions
|
341,110
|
|
Series C Preferred
Stock Dividends
|
190,107
|
|
Common Stock Issued
as Payment for Accrued Dividends
|
38
|
|
Convertible Debt
Conversions
|
53,080
|
|
Series C
Exchanges
|
22,996
|
|
Series B Tranche B
Warrants Exchanges
|
14,766
|
|
Issuance of shares
due to rounding
|
3,590
|
|
Issuance of shares
in Transit due to Shandong agreement
|
40,000
|
|
Total
|
665,687
|
38
Preferred Stock
The
Company has authorized 5,000,000 shares of preferred stock with a
$.001 par value. The board of directors has the authority to issue
these shares and to set dividends, voting and conversion rights,
redemption provisions, liquidation preferences, and other rights
and restrictions. The board of directors designated 525,000 shares
of preferred stock as redeemable convertible preferred stock, none
of which remain outstanding; 33,000 shares of preferred stock as
Series B Preferred Stock, none of which remained outstanding, 9,000
shares of preferred stock as Series C Convertible Preferred Stock,
of which 1,643 and 5,555 were issued and outstanding at December
31, 2016 and 2015, respectively, and 20,250 shares of Series C1
Convertible Preferred Stock, of which 4,312 and none were issued
and outstanding at December 31, 2016 and 2015,
respectively.
Series B Convertible Preferred Stock
Pursuant
to the terms of the Series B Preferred Stock set forth in the
Series B designations, shares of Series B Preferred Stock were
convertible into common stock by their holder at any time, and were
mandatorily convertible upon the achievement of certain conditions,
including the receipt of certain approvals from the U.S. Food and
Drug Administration and the achievement by the Company of specified
average trading prices and volumes for the common
stock.
Holders
of the Series B Preferred Stock were entitled to quarterly
dividends at an annual rate of 10.0%, payable in cash or, subject
to certain conditions, common stock, at the Company’s option.
Preferred dividends totaled approximately none and $352,000 for
2016 and 2015, respectively. Dividends were paid via issuance of
common stock.
The
Series B Preferred Stock were issued with Tranche A warrants to
purchase 24 shares of common stock and Tranche B warrants
purchasing 7,539 shares of common stock, at an exercise price of
$8,364 and $75 per share, respectively.
At
December 31, 2015, as a result of the operation of certain
anti-dilution provisions, the Tranche B warrants were convertible
into 1 shares of common stock. These warrants are re-measured based
upon their fair value each reporting period and classified as a
liability on the Balance Sheet.
Series C Convertible Preferred Stock
On June
29, 2015, the Company entered into a securities purchase agreement
with certain accredited investors, including John Imhoff, a member
of the Board, for the issuance and sale of an aggregate of 6,737
shares of Series C convertible preferred stock, at a purchase price
of $750 per share and a stated value of $1,000 per share. On
September 3, 2015 the Company entered into an interim agreement
amending the securities purchase agreement to provide for certain
of the investors to purchase an additional aggregate of 1,166
shares. Total cash and non-cash expenses were valued at $853,000,
resulting in net proceeds of $3,698,000.
Pursuant
to the Series C certificate of designations, shares of Series C
preferred stock are convertible into common stock by their holder
at any time, and may be mandatorily convertible upon the
achievement of specified average trading prices for the
Company’s common stock. At December 31, 2016, there were
1,643 shares outstanding with a conversion price of $1.119 per
share, such that each share of Series C preferred stock would
convert into approximately 893 shares of the Company’s common
stock, subject to customary adjustments, including for any accrued
but unpaid dividends and pursuant to certain anti-dilution
provisions, as set forth in the Series C certificate of
designations. The conversion price will automatically adjust
downward to 80% of the then-current market price of the
Company’s common stock 15 trading days after any reverse
stock split of the Company’s common stock, and 5 trading days
after any conversions of the Company’s outstanding
convertible debt.
Holders
of the Series C preferred stock are entitled to quarterly
cumulative dividends at an annual rate of 12.0% until 42 months
after the original issuance date (the “Dividend End
Date”), payable in cash or, subject to certain conditions,
the Company’s common stock. In addition, upon conversion of
the Series C preferred stock prior to the Dividend End Date, the
Company will also pay to the converting holder a “make-whole
payment” equal to the amount of unpaid dividends through the
Dividend End Date on the converted shares. At December 31, 2016,
the “make-whole payment” for a converted share of
Series C preferred stock would convert to 747 shares of the
Company’s common stock. The Series C preferred stock
generally has no voting rights except as required by Delaware law.
Upon the Company’s liquidation or sale to or merger with
another corporation, each share will be entitled to a liquidation
preference of $1,000, plus any accrued but unpaid
dividends.
In
addition, the purchasers of the Series C preferred stock received,
on a pro rata basis, warrants exercisable to purchase an aggregate
of approximately 150 shares of Company’s common stock. The
warrants contain anti-dilution adjustments in the event that the
Company issues shares of common stock, or securities exercisable or
convertible into shares of common stock, at prices below the
exercise price of such warrants. As a result of the anti-dilution
protection, the Company is required to account for the warrants as
a liability recorded at fair value each reporting period. At
December 31, 2016, the exercise price per share was
$640.
39
On May
23, 2016, an investor canceled certain of these warrants,
exercisable into 903 shares of common stock. The same investor also
transferred certain of these warrants, exercisable for 150 shares
of common stock, to two investors who also had participated in the
2015 Series C financing.
Series C1 Convertible Preferred Stock
Between
April 27, 2016 and May 3, 2016, the Company entered into various
agreements with certain holders of Series C preferred stock,
including directors John Imhoff and Mark Faupel, pursuant to which
those holders separately agreed to exchange each share of Series C
preferred stock held for 2.25 shares of the Company’s newly
created Series C1 preferred stock and 12 (9,600 pre-split) shares
of the Company’s common stock (the “Series C
Exchanges”). In connection with the Series C Exchanges, each
holder also agreed to roll over the $1,000 stated value per share
of the holder’s shares of Series C1 preferred stock into the
next qualifying financing undertaken by the Company on a
dollar-for-dollar basis and, except in the event of an additional
$50,000 cash investment in the Company by the holder, to execute a
customary “lockup” agreement in connection with the
financing. In total, for 1,916 shares of Series C preferred stock
surrendered, the Company issued 4,312 shares of Series C1 preferred
stock and 22,996 shares of common stock. At December 31, 2016,
there were 4,312 shares outstanding with a conversion price of
$1.119 per share, such that each share of Series C preferred stock
would convert into approximately 893 shares of the Company’s
common stock
The
Series C1 preferred stock has terms that are substantially the same
as the Series C preferred stock, except that the Series C1
preferred stock does not pay dividends (unless and to the extent
declared on the common stock) or at-the-market “make-whole
payments” and, while it has the same anti-dilution
protections afforded the Series C preferred stock, it does not
automatically reset in connection with a reverse stock split or
conversion of our outstanding convertible debt.
Warrants
The
following table summarizes transactions involving the
Company’s outstanding warrants to purchase common stock for
the year ended December 31, 2016:
|
|
Warrants
(Underlying
Shares)
|
|
Outstanding,
January 1, 2016
|
3,503
|
|
Issuances
|
4,334,898
|
|
To be
issued
|
21,549
|
|
Canceled /
Expired
|
(10,188)
|
|
Outstanding,
December 31, 2016
|
4,349,762
|
The
Company had the following shares reserved for the warrants as of
December 31, 2016:
|
Warrants
(Underlying Shares)
|
|
Exercise Price
|
Expiration Date
|
|
24
|
(1)
|
$8,368.00 per
share
|
May
23, 2018
|
|
7,542
|
(2)
|
$75.00
per share
|
June
14, 2021
|
|
3
|
(3)
|
$40,000.00 per
share
|
April
23, 2019
|
|
8
|
(4)
|
$36,000.00 per
share
|
May
22, 2019
|
|
3
|
(5)
|
$30,400.00 per
share
|
September 10,
2019
|
|
5
|
(6)
|
$36,864.80 per
share
|
September 27,
2019
|
|
10
|
(7)
|
$22,504.00 per
share
|
December 2,
2019
|
|
105
|
(8)
|
$7,200.00 per
share
|
December 2,
2020
|
|
105
|
(9)
|
$8,800.00 per
share
|
December 2,
2020
|
|
25
|
(11)
|
$20,400.00 per
share
|
March
30, 2018
|
|
22
|
(12)
|
$9,504.00 per
share
|
June
29, 2020
|
|
659
|
(10)
|
$640.00 per
share
|
June
29, 2020
|
|
343
|
(11)
|
$640.00 per
share
|
September 4,
2020
|
|
363
|
(12)
|
$640.00 per
share
|
September 21,
2020
|
|
7
|
(13)
|
$9,504.00 per
share
|
September 4,
2020
|
|
198
|
(14)
|
$640.00 per
share
|
October 23,
2020
|
|
7
|
(15)
|
$9,504.00 per
share
|
October 23,
2020
|
|
4,120,977
|
(16)
|
$0.3488 per
share
|
June
14, 2021
|
|
197,807
|
(17)
|
$0.3488 per
share
|
February 21,
2021
|
|
21,549
|
(18)
|
$13.92
per share
|
June
6, 2021
|
|
4,349,762
|
|
|
|
|
|
|
|
(1)
|
Issued
in June 2015 in exchange for warrants originally issued as part of
a May 2013 private placement.
|
|
(2)
|
Issued
in June 2015 in exchange for warrants originally issued as part of
a May 2013 private placement.
|
|
(3)
|
Issued
to a placement agent in conjunction with an April 2014 private
placement.
|
|
(4)
|
Issued
to a placement agent in conjunction with a September 2014 private
placement.
|
|
(5)
|
Issued
as part of a September 2014 Regulation S offering.
|
|
(6)
|
Issued
to a placement agent in conjunction with a 2014 public
offering.
|
|
(7)
|
Issued
in June 2015 in exchange for warrants originally issued as part of
a 2014 public offering.
|
|
(8)
|
Issued
as part of a March 2015 private placement.
|
|
(9)
|
Issued
to a placement agent in conjunction with a June 2015 private
placement.
|
|
(10)
|
Issued
as part of a June 2015 private placement.
|
|
(11)
|
Issued
as part of a June 2015 private placement.
|
|
(12)
|
Issued
as part of a June 2015 private placement.
|
|
(13)
|
Issued
to a placement agent in conjunction with a June 2015 private
placement.
|
|
(14)
|
Issued
as part of a June 2015 private placement.
|
|
(15)
|
Issued
to a placement agent in conjunction with a June 2015 private
placement.
|
|
(16)
|
Issued
as part of a February 2016 private placement.
|
|
(17)
|
Issued
to a placement agent in conjunction with a February 2016 private
placement.
|
|
(18)
|
Contractually
obligated to be issued pursuant to a strategic license
agreement.
|
40
All
outstanding warrant agreements provide for anti-dilution
adjustments in the event of certain mergers, consolidations,
reorganizations, recapitalizations, stock dividends, stock splits
or other changes in the Company’s corporate structure; except
for (9). In addition, warrants subject to footnotes (2) and
(10)-(12), (14), and (16) – (18) in the table above are
subject to “lower price issuance” anti-dilution
provisions that automatically reduce the exercise price of the
warrants (and, in the cases of warrants subject to footnote (2),
(16) and (17) in the table above, increase the number of shares of
common stock issuable upon exercise), to the offering price in a
subsequent issuance of the Company’s common stock, unless
such subsequent issuance is exempt under the terms of the
warrants.
The
warrants subject to footnote (2) are subject to a mandatory
exercise provision. This provision permits the Company, subject to
certain limitations, to require exercise of such warrants at any
time following (a) the date that is the 30th day after the later of
the Company’s receipt of an approvable letter from the FDA
for LuViva and the date on which the common stock achieves an
average market price for 20 consecutive trading days of at least
$1,040.00 with an average daily trading volume during such 20
consecutive trading days of at least 250 shares, or (b) the date on
which the average market price of the common stock for 20
consecutive trading days immediately prior to the date the Company
delivers a notice demanding exercise is at least $129,600.00 and
the average daily trading volume of the common stock exceeds 250
shares for such 20 consecutive trading days. If these warrants are
not timely exercised upon demand, they will expire. Upon the
occurrence of certain events, the Company may be required to
repurchase these warrants, as well as the warrants subject to
footnote (2) in the table above.
The
warrants subject to footnote (5) in the table above are also
subject to a mandatory exercise provision. This provision permits
the Company, subject to certain limitations; to require the
exercise of such warrants should the average trading price of its
common stock over any 30 consecutive day trading period exceed
$92.16.
The
warrants subject to footnote (7) in the table above are also
subject to a mandatory exercise provision. This provision permits
the Company, subject to certain limitations, to require exercise of
50% of the then-outstanding warrants if the trading price of its
common stock is at least two times the initial warrant exercise
price for any 20-day trading period. Further, in the event that the
trading price of the Company’s common stock is at least 2.5
times the initial warrant exercise price for any 20-day trading
period, the Company will have the right to require the immediate
exercise of 50% of the then-outstanding warrants. Any warrants not
exercised within the prescribed time periods will be canceled to
the extent of the number of shares subject to mandatory
exercise.
41
The
holders of the warrants subject to footnote (2) in the table above
have agreed to surrender the warrants, upon consummation of a
qualified public financing, for new warrants exercisable for 200%
of the number of shares underlying the surrendered warrants, but
without certain anti-dilution protections included with the
surrendered warrants.
Series B Tranche B Warrants
As
discussed in Note 3, Fair Value Measurements, between June 13, 2016
and June 14, 2016, the Company entered into various agreements with
holders of the Company’s “Series B Tranche B”
warrants, pursuant to which each holder separately agreed to
exchange the warrants for either (1) shares of common stock equal
to 166% of the number of shares of common stock underlying the
surrendered warrants, or (2) new warrants exercisable for 200% of
the number of shares underlying the surrendered warrants, but
without certain anti-dilution protections included with the
surrendered warrants. In total, for surrendered warrants
then-exercisable for an aggregate of 1,185,357 shares of common
stock (but subject to exponential increase upon operation of
certain anti-dilution provisions), the Company issued or is
obligated to issue 16,897 shares of common stock and new warrants
that, if exercised as of the date hereof, would be exercisable for
an aggregate of 216,707 shares of common stock. As of December 31,
2016, the Company had issued 14,766 shares of common stock and
rights to common stock shares for 2,131. In certain circumstances,
in lieu of presently issuing all of the shares (for each holder
that opted for shares of common stock), the Company and the holder
further agreed that the Company will, subject to the terms and
conditions set forth in the applicable warrant exchange agreement,
from time to time, be obligated to issue the remaining shares to
the holder. No additional consideration will be payable in
connection with the issuance of the remaining shares. The holders
that elected to receive shares for their surrendered warrants have
agreed that they will not sell shares on any trading day in an
amount, in the aggregate, exceeding 20% of the composite aggregate
trading volume of the common stock for that trading day. The
holders that elected to receive new warrants will be required to
surrender their old warrants upon consummation of the
Company’s next financing resulting in net cash proceeds to
the Company of at least $1 million. The new warrants will have an
initial exercise price equal to the exercise price of the
surrendered warrants as of immediately prior to consummation of the
financing, subject to customary “downside price
protection” for as long as the Company’s common stock
is not listed on a national securities exchange, and will expire
five years from the date of issuance.
5. INCOME TAXES
The
Company has incurred net operating losses ("NOLs") since inception.
As of December 31, 2016, the company had NOL carryforwards
available through 2035 of approximately $79.3 million to offset its
future income tax liability. The NOL carryforwards began to expire
in 2008. The company has not recorded deferred tax assets due to
uncertainties related to utilization of NOLs as well as calculation
of effective tax rate. Utilization of existing NOL carryforwards
may be limited in future years based on significant ownership
changes. The company is in the process of analyzing their NOL and
has not determined if the company has had any change of control
issues that could limit the future use of NOL.
Components
of deferred taxes are as follow at December 31 (in
thousands):
|
|
2016
|
2015
|
|
Deferred tax
assets
|
$795
|
$626
|
|
Net operating loss
carry forwards
|
27,958
|
28,201
|
|
Deferred tax
liabilities: intangible assets and other
|
-
|
-
|
|
|
28,753
|
28,827
|
|
Valuation
allowance
|
(28,753)
|
(28,827)
|
|
|
$0
|
$0
|
The
following is a summary of the items that caused recorded income
taxes to differ from taxes computed using the statutory federal
income tax rate for the years ended December 31:
|
|
2016
|
2015
|
|
Statutory federal
tax rate
|
34%
|
34%
|
|
State taxes, net of
federal benefit
|
4
|
4
|
|
Nondeductible
expenses
|
-
|
-
|
|
Valuation
allowance
|
(38)
|
(38)
|
|
|
0%
|
0%
|
42
6. STOCK OPTIONS
The
Company’s 1995 Stock Plan (the “Plan”) has
expired pursuant to its terms, so zero shares remained available
for issuance at December 31, 2016 and 2015. The Plan allowed for
the issuance of incentive stock options, nonqualified stock
options, and stock purchase rights. The exercise price of options
was determined by the Company’s board of directors, but
incentive stock options were granted at an exercise price equal to
the fair market value of the Company’s common stock as of the
grant date. Options historically granted have generally become
exercisable over four years and expire ten years from the date of
grant.
As of
December 31, 2016, the Company has issued and outstanding options
to purchase a total of 125 shares of common stock pursuant to the
Plan, at a weighted average exercise price of $37,920 per
share.
The
fair value of stock options granted in the period ended December
31, 2015 were estimated using the Black-Scholes option pricing
model. No options were issued during the period ended December 31,
2016.
Stock
option activity for December 31, 2016 and 2015 as
follows:
|
|
2015
|
|
|
|
Shares
|
Weighted
Average
Exercise
Price
|
|
Outstanding at
beginning of year
|
87
|
$36,000
|
|
Options
granted
|
52
|
$9,600
|
|
Options
exercised
|
(2)
|
$38,400
|
|
Options
expired/forfeited
|
(5)
|
$34,400
|
|
Outstanding at end
of year
|
132
|
$36,000
|
|
Options available
for issue
|
-
|
|
|
|
2016
|
|
|
|
Shares
|
Weighted
Average
Exercise
Price
|
|
Outstanding at
beginning of year
|
132
|
$36,000
|
|
Options
granted
|
-
|
$-
|
|
Options
exercised
|
-
|
$-
|
|
Options
expired/forfeited
|
(7)
|
$74,160
|
|
Outstanding at end
of year
|
125
|
$37,920
|
|
Options available
for issue
|
-
|
|
|
|
|
Weighted
Average
|
|
|
Shares
|
Exercise
Price
|
|
Options Vested as
of December 31, 2015
|
113
|
$39,200
|
|
Options
vested in 2016
|
4
|
$22,860
|
|
Options vested as
of December 31, 2016
|
117
|
$38,640
|
|
|
|
Weighted
Average
|
|
|
Shares
|
Exercise
Price
|
|
Options Unvested as
of December 31, 2015
|
19
|
$39,200
|
|
Options
vested in 2016
|
(4)
|
$22,860
|
|
Options
expired/forfeited in 2016
|
(7)
|
$74,160
|
|
Options Unvested as
of December 31, 2016
|
8
|
|
43
7. LITIGATION AND CLAIMS
From
time to time, the Company may be involved in various legal
proceedings and claims arising in the ordinary course of business.
Management believes that the dispositions of these matters,
individually or in the aggregate, are not expected to have a
material adverse effect on the Company’s financial condition.
However, depending on the amount and timing of such disposition, an
unfavorable resolution of some or all of these matters could
materially affect the future results of operations or cash flows in
a particular period.
As of
December 31, 2016 and 2015, there was no accrual recorded for any
potential losses related to pending litigation.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
In
December 2009, the Company moved its offices, which comprise its
administrative, research and development, marketing and production
facilities to 5835 Peachtree Corners East, Suite D, Norcross,
Georgia 30092. The Company leases approximately 23,000 square feet
under a lease that expires in June 2017. The fixed monthly lease
expense is approximately $15,000 plus common charges. The Company
also leases office and equipment under operating lease agreements
with monthly payments of approximately $2,000. These leases expire
at various dates through April 2016. Future minimum rental payments
at December 31, 2016 under non-cancellable operating leases for
office space and equipment are as follows (in
thousands):
|
Year
|
|
Amount
|
|
2017
|
|
98
|
Related Party Contracts
On June
5, 2016, the Company entered into a license agreement with Shenghuo
Medical, LLC pursuant to which the Company granted Shenghuo an
exclusive license to manufacture, sell and distribute LuViva in
Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar, Philippines,
Singapore, Thailand, and Vietnam. Shenghuo was already the
Company’s exclusive distributor in China, Macau and Hong
Kong, and the license extended to manufacturing in those countries
as well. Under the terms of the license agreement, once Shenghuo
was capable of manufacturing LuViva in accordance with ISO 13485
for medical devices, Shenghuo would pay the Company a royalty equal
to $2.00 or 20% of the distributor price (subject to a discount
under certain circumstances), whichever is higher, per disposable
distributed within Shenghuo’s exclusive territories. In
connection with the license grant, Shenghuo was to underwrite the
cost of securing approval of LuViva with Chinese Food and Drug
Administration. At its option, Shenghuo also would provide up to
$1.0 million in furtherance of the Company’s efforts to
secure regulatory approval for LuViva from the U.S. Food and Drug
Administration, in exchange for the right to receive payments equal
to 2% of the Company’s future sales in the United States, up
to an aggregate of $4.0 million. Pursuant to the license agreement,
Shenghuo had the option to have a designee appointed to the
Company’s board of directors (director Richard Blumberg is
that designee). As partial consideration for, and as a condition
to, the license, and to further align the strategic interests of
the parties, the Company agreed to issue a convertible note to
Shenghuo, in exchange for an aggregate cash investment of $200,000.
The note will provide for a payment to Shenghuo of $300,000,
expected to be due the earlier of 90 days from issuance and
consummation of any capital raising transaction by the Company with
net cash proceeds of at least $1.0 million. The note will accrue
interest at 20% per year on any unpaid amounts due after that date.
The note will be convertible into shares of the Company’s
common stock at a conversion price per share of $13.92, subject to
customary anti-dilution adjustment. The note will be unsecured, and
is expected to provide for customary events of default. The Company
will also issue Shenghuo a five-year warrant exercisable
immediately for approximately 21,549 shares of common stock at an
exercise price equal to the conversion price of the note, subject
to customary anti-dilution adjustment. On January 22, 2017, the
Company entered into a license agreement with Shandong Yaohua
Medical Instrument Corporation, or SMI, pursuant to which the
Company granted SMI an exclusive global license to manufacture the
LuViva device and related disposables (subject to a carve-out for
manufacture in Turkey) and exclusive distribution rights in the
Peoples Republic of China, Macau, Hong Kong and Taiwan. In order to
facilitate the SMI agreement, immediately prior to its execution
the Company entered into an agreement with Shenghuo Medical, LLC,
regarding its previous license to Shenghuo. Under the terms of the
new agreement, Shenghuo agreed to relinquish its manufacturing
license and its distribution rights in SMI’s territories, and
to waive its rights under the original Shenghuo agreement, all for
as long as SMI performs under the SMI agreement. See Note 13,
Subsequent Events.
44
On
September 6, 2016, the Company entered into a royalty agreement
with one of its directors, John Imhoff, and another stockholder,
Dolores Maloof, pursuant to which the Company sold to them a
royalty of future sales of single-use cervical guides for LuViva.
Under the terms of the royalty agreement, and for consideration of
$50,000, the Company will pay them an aggregate perpetual royalty
initially equal to $0.10, and from and after October 2, 2016, equal
to $0.20, for each disposable that the Company sells (or that is
sold by a third party pursuant to a licensing arrangement with the
Company).
9. NOTES PAYABLE
Notes Payable in Default
At
December 31, 2016 and 2015, the Company maintained notes payable
and accrued interest to both related and non-related parties
totaling $1,539,000 and $133,000, respectively. These notes are
short term, straight-line amortizing notes. The notes carry annual
interest rates between 5% and 10% and have default rates as high a
16.5%.
Short Term Notes Payable
At
December 31, 2016 and 2015, the Company maintained short term notes
payable and accrued interest to both related and non-related
parties totaling $127,000 and $634,000, respectively. These notes
are short term, straight-line amortizing notes. The notes carry
annual interest rates between 5% and 10%.
In June
2016, the Company entered into a premium finance agreement to
finance its insurance policies totaling $193,862. The note requires
monthly payments of $17,622, including interest at 4.87% and
matures in April 2017. The balance due on this note totaled $70,000
at December 31, 2016.
In June
2015, the Company entered into a similar short-term note payable
for the financing of its insurance policies. This note required
monthly payments of $17,614, including interest at 5.2% and matured
in April 2016. The balance due on this note totaled $70,000 at
December 31, 2015.
10. SHORT-TERM CONVERTIBLE DEBT
Related Party Convertible Note Payable –
Short-Term
On June
5, 2016, the Company entered into a license agreement with a
distributor pursuant to which the Company granted the distributor
an exclusive license to manufacture, sell and distribute the
Company’s LuViva Advanced Cervical Cancer device and related
disposables in Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar,
Philippines, Singapore, Thailand, and Vietnam. The distributor was
already the Company’s exclusive distributor in China, Macau
and Hong Kong, and the license will extend to manufacturing in
those countries as well.
As partial consideration for, and as a condition to, the license,
and to further align the strategic interests of the parties, the
Company agreed to issue a convertible note to the distributor, in
exchange for an aggregate cash investment of $200,000. The note
will provide for a payment to the distributor of $240,000, due upon
consummation of any capital raising transaction by the Company
within 90 days and with net cash proceeds of at least $1.0 million.
As of December 31, 2016 the Company had a note due of $300,000. The
note will accrue interest at 20% per year on any unpaid amounts due
after that date. The note will be convertible into shares of the
Company’s common stock at a conversion price per share of
$13.92, subject to customary anti-dilution adjustment. The note
will be unsecured, and is expected to provide for customary events
of default. The Company will also issue the distributor a five-year
warrant exercisable immediately for 17,239 shares of common stock
at an exercise price equal to the conversion price of the note,
subject to customary anti-dilution adjustment.
45
Convertible Note Payable – Short-Term
On December 28, 2016, the Company entered into a securities
purchase agreement with an investor for the issuance and sale to
investor of up to $330,000 in aggregate principal amount of 10%
original issuance discount convertible promissory notes, for an
aggregate purchase price of $300,000. On that date, the Company
issued to the investor a note in the principal amount of $222,000,
for a purchase price of $200,000. The note matures six months from
their date of issuance and, in addition to the 10% original issue
discount, accrue interest at a rate of 10% per year. The Company
may prepay the notes, in whole or in part, for 115% of outstanding
principal and interest until 30 days from issuance, for 125% of
outstanding principal and interest at any time from 31 to 60 days
from issuance, and for 130% of outstanding principal and interest
at any time from 61 days from issuance until immediately prior to
the maturity date. After six months from the date of issuance
(i.e., if the Company fails to repay all principal and interest due
under the notes at the maturity date), the investor may convert the
notes, at any time, in whole or in part, into shares of the
Company’s common stock, at a conversion price equal to 60% of
the lowest volume weighted average price of our common stock during
the 20 trading days prior to conversion, subject to certain
customary adjustments and anti-dilution provisions contained in the
note.
As of December 31, 2016, the Company had debt issue costs of
$30,000, net of debt of $168,000.
11. CONVERTIBLE DEBT IN DEFAULT
Secured Promissory Note.
On September 10, 2014, the Company sold a secured promissory note
to an accredited investor with an initial principal amount of
$1,275,000, for a purchase price of $700,000 (an original issue
discount of $560,000). The Company may prepay the note at any time.
The note is secured by the Company’s current and future
accounts receivable and inventory, pursuant to a security agreement
entered into in connection with the sale. On March 10, 2015, May 4,
2015, June 1, 2015, June 16, 2015, June 29, 2015, January 21, 2016,
January 29, 2016, and February 12, 2016 the Company amended the
terms of the note to extend the maturity ultimately until August
31, 2016. During the extension, interest accrues on the note at a
rate of the lesser of 18% per year or the maximum rate permitted by
applicable law. On February 11, 2016, the Company consented to an
assignment of the note to two accredited investors. In connection
with the assignment, the holders waived an ongoing event of default
under the notes related to the Company’s minimum market
capitalization, and agreed to eliminate the requirement going
forward. Pursuant to the terms of the amended note, the holder may
convert the outstanding balance into shares of common stock at a
conversion price per share equal to the lower of (1) $25.0 or (2)
75% of the lowest daily volume weighted average price of the common
stock during the five days prior to conversion. If the conversion
price at the time of any conversion is lower than $15.00, the
Company has the option of delivering the conversion amount in cash
in lieu of shares of common stock. On March 7, 2016, the Company
further amended the note to eliminate the volume limitations on
sales of common stock issued or issuable upon conversion. On July
13, 2016, the Company consented to the assignment by one of the
accredited investors of its portion of the note of to a third
accredited investor.
The balance due on the note was $530,691 and $685,864 at December
31, 2016 and 2015, respectively. The balance was reduced by
$306,863 as part of a debt restructuring completed with an
accredited investor on December 7, 2016 (see Note 11).
Total debt issuance costs as originally capitalized were
approximately $130,000. This amount was amortized over nine months
and was fully amortized as of December 31, 2015. Total amortized
expense for the years ended December 31, 2015 was approximately
$49,000. For the year ended December 31, 2015, the Company recorded
amortization of approximately $213,000 on the discount. The
original issue discount of $560,000 was fully amortized as of
December 31, 2015.
On November 2, 2016, the Company entered into a lockup and exchange
agreement with GHS Investments, LLC, holder of approximately
$221,000 in outstanding principal amount of the Company’s
secured promissory note and all of the outstanding shares of the
its Series C preferred stock. Pursuant to the agreement, upon the
effectiveness of the 1:800 reverse stock split and continuing for
45 days after, GHS and its affiliates were prohibited from
converting any portion of the secured promissory note or any of the
shares of Series C preferred stock or selling any of the
Company’s securities that they beneficially owned. The
Company agreed that, upon consummation of its next financing, the
Company would use $260,000 of net cash proceeds first, to repay
GHS’s portion of the secured promissory note and second, with
any remaining amount from the $260,000, to repurchase a portion of
GHS’s shares of Series C preferred stock. In addition, GHS
has agreed to exchange the stated value per share (plus any accrued
but unpaid dividends) of its remaining shares of Series C preferred
stock for new securities of the same type that the Company
separately issue in the next qualifying financing it undertakes, on
a dollar-for-dollar basis in a private placement
exchange.
46
Senior Secured Promissory Note
On February 11, 2016, the Company entered into a securities
purchase agreement with an accredited investor for the issuance and
sale on February 12, 2016 of $1.4375 million in aggregate principal
amount of a senior secured convertible note for an aggregate
purchase price of $1.15 million (a 20% original issue discount of
$287,500) and a discount for debt issuance costs paid at closing of
$121,000 for a total of $408,500. In addition, the investor
received a warrant exercisable to purchase an aggregate of
approximately 2,246 shares of the Company’s common stock. The
Company allocated proceeds totaling $359,555 to the fair value of
the warrants at issuance. This was recorded as an additional
discount on the debt. The convertible note matures on the second
anniversary of issuance and, in addition to the 20% original issue
discount, accrues interest at a rate of 17% per year. The Company
is required to pay monthly interest coupons and beginning nine
months after issuance, the Company is required to pay amortized
quarterly principal payments. If the Company does not receive, on
or before the first anniversary after issuance, an aggregate of at
least $3.0 million from future equity or debt financings or
non-dilutive grants, then the holder will have the option of
accelerating the maturity date to the first anniversary of
issuance. The Company may prepay the convertible note, in whole or
in part, without penalty, upon 20 days’ prior written notice.
Subject to resale restrictions under Federal securities laws and
the availability of sufficient authorized but unissued shares of
the Company’s common stock, the convertible note is
convertible at any time, in whole or in part, at the holder’s
option, into shares of the Company’s common stock, at a
conversion price equal to the lesser of $0.80 per share or 70% of
the average closing price per share for the five trading days prior
to issuance, subject to certain customary adjustments and
anti-dilution provisions contained in the convertible note. On May
28, 2016, in exchange for an additional $87,500 in cash from the
holder to the Company, the principal balance was increased by the
same amount. The Company is currently in default as they are past
due on the required monthly interest payments. In the event of
default, the Company shall accrue interest at a rate the lesser of
22% or the maximum permitted by law. The Company has accrued
$78,500 for past due interest payments at December 31, 2016. Upon
the occurrence of an event of default, the holder may require the
Company to redeem the convertible note at 120% of the outstanding
principal balance (but as of December 31, 2016, had not done so).
As of December 31, 2016, the balance due on the convertible debt
was $1,830,000 as the Company has fully amortized debt issuance
costs of $47,675 and the debt discount of $768,055 and recorded a
20% penalty totaling $305,000. The convertible note is secured by a
lien on all of the Company’s assets, including its
intellectual property, pursuant to a security agreement entered
into by the Company and the accredited investor with the
transaction holder.
The warrant is exercisable at any time, pending availability of
sufficient authorized but unissued shares of the Company’s
common stock, at an exercise price per share equal to the
conversion price of the convertible note, subject to certain
customary adjustments and anti-dilution provisions contained in the
warrant. The warrant has a five-year term. As of December 31, 2016,
the exercise price had been adjusted to $0.35 and the number of
common stock shares exchangeable for was 4,120,978. As of December
31, 2016, the effective interest rate considering debt costs was
29%.
The Company used a placement agent in connection with the
transaction. For its services, the placement agent received a cash
placement fee equal to 4% of the aggregate gross proceeds from the
transaction and a warrant to purchase shares of common stock equal
to an aggregate of 6% of the total number of shares underlying the
securities sold in the transaction, at an exercise price equal to,
and terms otherwise identical to, the warrant issued to the
investor. Finally, the Company agreed to reimburse the placement
agent for its reasonable out-of-pocket expenses.
In connection with the transaction, on February 12, 2016, the
Company and the investor entered into a four-year consulting
agreement, pursuant to which the investor will provide management
consulting services to the Company in exchange for a royalty
payment, payable quarterly, equal to 3.5% of the Company’s
revenues from the sale of products. As of December 31, 2016 the
investor had earned approximately $23,000 of
royalties.
Debt Restructuring.
On December 7, 2016, the Company entered into an exchange agreement
with GPB Debt Holdings II LLC with regard to the $1,525,000 in
outstanding principal amount of senior secured convertible note
originally issued to GPB on February 11, 2016, and the $306,863 in
outstanding principal amount of the Company’s secured
promissory note that GPB holds (see “—Secured
Promissory Note”). Pursuant to the exchange agreement, upon
completion of the next financing resulting in at least $1 million
in cash proceeds, GPB will exchange both securities for a new
convertible note in principal amount of $1,831,863. The new
convertible note will mature on the second anniversary of issuance
and will accrue interest at a rate of 19% per year. The Company
will pay monthly interest coupons and, beginning one year after
issuance, will pay amortized quarterly principal payments. Subject
to resale restrictions under Federal securities laws and the
availability of sufficient authorized but unissued shares of the
Company’s common stock, the new convertible note will be
convertible at any time, in whole or in part, at the holder’s
option, into shares of common stock, at a conversion price equal to
the price offered in the qualifying financing that triggers the
exchange, subject to certain customary adjustments and
anti-dilution provisions contained in the new convertible note. The
new convertible note will include customary event of default
provisions and a default interest rate of the lesser of 21% or the
maximum amount permitted by law. Upon the occurrence of an event of
default, GPB will be entitled to require the Company to redeem the
new convertible note at 120% of the outstanding principal balance.
The new convertible note will be secured by a lien on all of the
Company’s assets, including its intellectual property,
pursuant to the security agreement entered into by the Company and
GPB in connection with the issuance of the original senior secured
convertible note. As an inducement to GPB to enter into these
transactions, the Company agreed to increase the royalty payable to
GPB pursuant to its consulting agreement with us from 3.5% to 3.85%
of revenues from the sales of the Company’s
products.
47
12. INCOME (LOSS) PER COMMON SHARE
Basic
net income (loss) per share attributable to common stockholders
amounts are computed by dividing the net income (loss) plus
preferred stock dividends and deemed dividends on preferred stock
by the weighted average number of shares outstanding during the
period.
Diluted
net income (loss) per share attributable to common stockholders
amounts are computed by dividing the net income (loss) plus
preferred stock dividends, deemed dividends on preferred stock,
after-tax interest on convertible debt and convertible dividends by
the weighted average number of shares outstanding during the
period, plus Series C convertible preferred stock, convertible
debt, convertible preferred dividends and warrants convertible into
common stock shares.
Diluted
net loss per common share is the same as basic net loss per common
share since the Company was operating in a loss position for 2016
and 2015.
13. SUBSEQUENT EVENTS
On
January 22, 2017, the Company entered into a license agreement with
Shandong Yaohua Medical Instrument Corporation, or SMI, pursuant to
which the Company granted SMI an exclusive global license to
manufacture the LuViva device and related disposables (subject to a
carve-out for manufacture in Turkey) and exclusive distribution
rights in the Peoples Republic of China, Macau, Hong Kong and
Taiwan. In exchange for the license, SMI will pay a $1.0 million
licensing fee, payable in five installments through October 2017,
as well as a royalty on each disposable sold in the territories.
SMI will also underwrite the cost of securing approval of LuViva
with the Chinese Food and Drug Administration, or CFDA. Pursuant to
the SMI agreement, SMI must become capable of manufacturing LuViva
in accordance with ISO 13485 for medical devices by the second
anniversary of the SMI agreement, or else forfeit the license.
During 2017, SMI must purchase no fewer than ten devices (with up
to two devices pushed to 2018 if there is a delay in obtaining
approval from the CFDA). In the three years following CFDA
approval, SMI must purchase a minimum of 3,500 devices (500 in the
first year, 1,000 in the second, and 2,000 in the third) or else
forfeit the license. As manufacturer of the devices and
disposables, SMI will be obligated to sell each to us at costs no
higher than our current costs. As partial consideration for, and as
a condition to, the license, and to further align the strategic
interests of the parties, the Company agreed to issue $1.0 million
in shares of its common stock to SMI, in five installments through
October 2017, at a price per share equal to the lesser of the
average closing price for the five days prior to issuance and
$1.25.
In
order to facilitate the SMI agreement, immediately prior to its
execution the Company entered into an agreement with Shenghuo
Medical, LLC, regarding its previous license to Shenghuo (see Note
8, Commitments and Contingencies). Under the terms of the new
agreement, Shenghuo agreed to relinquish its manufacturing license
and its distribution rights in SMI’s territories, and to
waive its rights under the original Shenghuo agreement, all for as
long as SMI performs under the SMI agreement. As consideration, the
Company agreed to split with Shenghuo the licensing fees and net
royalties from SMI that the Company will receive under the SMI
agreement. Should the SMI agreement be terminated, the Company have
agreed to re-issue the original license to Shenghuo under the
original terms. The Company’s COO and director, Mark Faupel,
is a shareholder of Shenghuo, and another director, Richard
Blumberg, is a managing member of Shenghuo.
On
February 13, 2017, the Company entered into a securities purchase
agreement with Auctus Fund, LLC for the issuance and sale to Auctus
of $170,000 in aggregate principal amount of a 12% convertible
promissory note for an aggregate purchase price of $156,400
(representing a $13,600 original issue discount). On February 13,
2017, the Company issued the note to Auctus. Pursuant to the
purchase agreement, the Company also issued to Auctus a warrant
exercisable to purchase an aggregate of 200,000 shares of the
Company’s common stock. The warrant is exercisable at any
time, at an exercise price per share equal to $0.77 (110% of the
closing price of the common stock on the day prior to issuance),
subject to certain customary adjustments and price-protection
provisions contained in the warrant. The warrant has a five-year
term. The note matures nine months from the date of issuance and,
in addition to the original issue discount, accrues interest at a
rate of 12% per year. The Company may prepay the note, in whole or
in part, for 115% of outstanding principal and interest until 30
days from issuance, for 125% of outstanding principal and interest
at any time from 31 to 60 days from issuance, and for 130% of
outstanding principal and interest at any time from 61 days from
issuance to 180 days from issuance. After six months from the date
of issuance, Auctus may convert the note, at any time, in whole or
in part, into shares of the Company’s common stock, at a
conversion price equal to the lower of the price offered in the
Company’s next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require the Company to redeem the
note (or convert it into shares of common stock) at 150% of the
outstanding principal balance plus accrued and unpaid interest. In
connection with the transaction, the Company agreed to reimburse
Auctus for $30,000 in legal and diligence fees, of which we paid
$10,000 in cash and $20,000 in restricted shares of common stock,
valued at $0.40 per share (a 42.86% discount to the closing price
of the common stock on the day prior to issuance).
48
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
We
maintain a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) is recorded, processed,
summarized, and reported, within the time periods specified in
Securities and Exchange Commission (“Commission”) rules
and forms. We carried out an evaluation under the supervision and
with the participation of our management, including the Chief
Executive Officer/Acting Chief Financial Officer, Gene Cartwright,
of the effectiveness of its disclosure controls and procedures.
Based on that evaluation, the Chief Executive Officer/Acting Chief
Financial Officer has concluded that our disclosure controls and
procedures were ineffective as of December 31, 2016, due to the
existence of a material weakness in our internal control over
financial reporting, described below, that we have yet to fully
remediate.
Management’s
Annual Report on Internal Control over Financial Reporting: Our
management, including our Chief Executive Officer/Acting Chief
Financial Officer, is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is a process designed by, or under
the supervision of, our Chief Executive Officer/Chief Financial
Officer and implemented by our board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and
procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorization
of our management and directors; and (ii) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements. Because of their
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Under
the supervision and with the participation of our management,
including our Principal Executive Officer/Principal Financial
Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the 2013 version
of the Internal Control – Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.
Based
on our evaluation, our management concluded that our internal
control over financial reporting was ineffective as of December 31,
2016, due to the existence of the material weakness described
below:
The
Company lacks the resources to properly research and account for
complex transactions. This deficiency has resulted in a material
weakness in our internal control over financial
reporting.
This
annual report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by our independent registered public
accounting firm pursuant to rules of the Commission that permit
non-accelerated filers to provide only the management’s
report in their annual reports on Form 10-K.
Except
as described above, there were no changes to the Company’s
internal controls over financial reporting occurred during the
quarter ended December 31, 2016 that have materially affected, or
are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
None.
49
PART III
Our executive officers are elected by and serve at the discretion
of our board of directors. The following table lists information
about our directors and executive officers:
|
Name
|
Age
|
Position with Guided Therapeutics
|
|
Gene S. Cartwright, Ph.D.
|
62
|
Chief
Executive Officer, President, Acting Chief Financial Officer and
Director
|
|
Mark Faupel, Ph.D.
|
61
|
Chief
Operating Officer and Director
|
|
Richard L. Fowler
|
60
|
Senior
Vice President of Engineering
|
|
Richard P. Blumberg
|
60
|
Director
|
|
John E. Imhoff, M.D.
|
67
|
Director
|
|
Michael C. James
|
58
|
Chairman
and Director
|
Except as set forth below, all of the executive officers have been
associated with us in their present or other capacities for more
than the past five years. Officers are elected annually by the
board of directors and serve at the discretion of the board. There
are no family relationships among any of our executive officers and
directors.
Gene S. Cartwright, Ph.D. joined us in January 2014 as the
President, Chief Executive Officer and Acting Chief Financial
Officer. He was elected as a director on January 11, 2014. His most
recent position was with Omnyx, LLC, a Joint Venture between GE
Healthcare and the University of Pittsburgh Medical Center, where,
as CEO for over four years he founded and managed the successful
development of products for the field of Digital Pathology. Prior
to his work with Omnyx, LLC, he was President of Molecular
Diagnostics for GE Healthcare. Prior to GE, Dr. Cartwright was
Divisional Vice President/General Manager for Abbott
Diagnostics’ Molecular Diagnostics business. In his 24 year
career at Abbott, he also served as Divisional Vice President for
U.S. Marketing for five years. He received a Masters of Management
degree from Northwestern’s Kellogg School of Management and
also holds a Ph.D. in chemistry from Stanford University and an AB
from Dartmouth College.
Dr.
Cartwright brings over 30 years of experience working in the IVD
diagnostics industry. He has great experience in the diagnostics
market both in the development and introduction of new diagnostics
technologies, as well as extensive successful commercial experience
with global businesses. With his background and experience, Dr.
Cartwright, as President and Chief Executive Officer, as well as
Acting Chief Financial Officer, works with and advises the board as
to how we can successfully market and build LuViva international
sales.
Mark Faupel, Ph.D., rejoined us as Chief Operating Officer
and director on December 8, 2016. He previously served on our board
of directors through 2013 and has more than 30 years of experience
in developing non-invasive alternatives to surgical biopsies and
blood tests, especially in the area of cancer screening and
diagnostics. Dr. Faupel was one of our co-founders and also served
as our Chief Executive Officer from May 2007 through 2013. Prior
thereto was our Chief Technical Officer from April 2001 to May
2007. Dr. Faupel has served as a National Institutes of Health
reviewer, is the inventor on 26 U.S. patents and has authored
numerous scientific publications and presentations, appearing in
such peer-reviewed journals as The Lancet. Dr. Faupel earned his
Ph.D. in neuroanatomy and physiology from the University of
Georgia. Dr. Faupel is also a shareholder of Shenghuo Medical, LLC.
See Item 13, Certain Relationships and Related Transactions and
Director Independence
Rick Fowler, Senior Vice President of Engineering is an
accomplished Executive with significant experience in the
management of businesses that sell, market, produce and develop
sophisticated medical devices and instrumentation. Mr.
Fowler’s 25 plus years of experience includes assembling and
managing teams, leading businesses and negotiating contracts,
conducting litigation, and developing ISO, CE, FDA QSR, GMP and GCP
compliant processes and products. He is adept at providing product
life cycle management through effective process definition and
communication - from requirements gathering, R&D feasibility,
product development, product launch, production startup and
support. Mr. Fowler combines outstanding analytical,
out-of-the-box, and strategic thinking with strong leadership,
technical, and communication skills and he excels in dynamic,
demanding environments while remaining pragmatic and focused. He is
able to deliver high risk projects on time and under budget as well
as enhance operational effectiveness through outstanding
cross-functional team leadership (R&D, marketing, product
development, operations, quality assurance, sales, service, and
finance). In addition, Mr. Fowler is well versed in global medical
device regulatory and product compliance requirements.
50
Richard P. Blumberg was appointed to the Board of Directors
on November 10, 2016. Mr. Blumberg has been a long-time investor in
the Company. Since 1978, Mr. Blumberg has been a Principal at
Webster, Mrak & Blumberg, a medical-legal and class action
labor litigation firm. He is also currently the Managing Member of
Elysian Medical, LLC, a company with world-wide rights for certain
breast cancer detection technology. He served from 2004 to 2007 as
Chief Executive Officer of Energy Logics, a wind power company that
developed projects in Alberta, Canada and Montana. Mr. Blumberg
holds a B.S. in Electrical Engineering and Computer Science from
the University of Illinois and received a J. D. from Stanford
University. He also brings extensive experience as a venture
capitalist specializing in high-tech and life science companies.
Mr. Blumberg is also a Managing Member of Shenghuo Medical, LLC.
See Item 13, Certain Relationships and Related Transactions and
Director Independence.
John E. Imhoff, M.D. has served as a member of our Board of
Directors since April 2006. Dr. Imhoff is an ophthalmic surgeon who
specializes in cataract and refractive surgery. He is one of our
principal stockholders and invests in many other private and public
companies. He has a B.S. in Industrial Engineering from Oklahoma
State University, an M.D. from the University of Oklahoma and
completed his ophthalmic residency at the Dean A. McGee Eye
Institute. He has worked as an ophthalmic surgeon and owner of
Southeast Eye Center since 1983.
Dr.
Imhoff has experience in clinical trials and in other technical
aspects of a medical device company. His background in industrial
engineering is especially helpful to us, especially as Dr. Imhoff
can combine this knowledge with clinical applications. His
experience in the investment community is invaluable to a public
company often undertaking capital raising efforts.
Michael C. James has served as
a member of our Board of Directors since March 2007 and as Chairman
of the Board since October 2013. Mr. James is also the Managing
Partner of Kuekenhof Capital Management, LLC, a private investment
management company, Chief Executive Officer and the Chief Financial
Officer of Inergetics, Inc., a nutraceutical supplements company
and also the Chief Financial Officer of Terra Tech Corporation,
which is a hydroponic and agricultural company. He also holds the
position of Managing Director of Kuekenhof Equity Fund, L.P. and
Kuekenhof Partners, L.P. Mr. James currently sits on the Board of
Directors of Inergetics; Inc. Mr. James was Chief Executive
Officer of Nestor, Inc. from January 2009 to September 2009
and served on their Board of Directors from July 2006 to June 2009.
He was employed by Moore Capital Management, Inc., a private
investment management company from 1995 to 1999 and held position
of Partner. He was employed by Buffalo Partners, L.P., a private
investment management company from 1991 to 1994 and held the
position of Chief Financial and Administrative Officer. He began
his career in 1980 as a staff accountant with Eisner LLP. Mr. James
received a B.S. degree in Accounting from Farleigh Dickinson
University in 1980.
Mr.
James has experience both in the areas of company finance and
accounting, which is invaluable to us during financial audits and
offerings. Mr. James has extensive experience in the management of
both small and large companies and his entrepreneurial background
is relevant as we develop as a company.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers and persons who beneficially
own more than 10% of a registered class of our equity securities to
file reports of ownership and reports of changes in ownership with
the Securities and Exchange Commission. These persons are required
by regulations of the Securities and Exchange Commission to furnish
us with copies of all Section 16(a) forms they file.
Based
solely on our review of the copies of these forms received by us,
we believe that, with respect to fiscal year 2016, our officers,
directors were in compliance with all applicable filing
requirements.
Code of Ethics
We have
adopted a code of ethics that applies to all of our directors,
officers and employees. To obtain a copy without charge, contact
our Corporate Secretary, Guided Therapeutics, Inc., 5835 Peachtree
Corners East, Suite D, Norcross, Georgia 30092. If we amend our
code of ethics, other than a technical, administrative or
non-substantive amendment, or we grant any waiver, including any
implicit waiver, from a provision of the code that applies to our
principal executive officer, principal financial officer, principal
accounting officer or controller, we will disclose the nature of
the amendment or waiver on our website, www.guidedinc.com, under
the “Investor Relations” tab under the tab “About
Us.” Also, we may elect to disclose the amendment or waiver
in a report on Form 8-K filed with the Securities and Exchange
Commission.
Material Changes to Security Holders Nomination
Procedure
There
has been no material change to the procedures by which security
holders may recommend nominees to the registrant’s board of
directors, since the last disclosure.
51
Summary Compensation Table
The
following table lists specified compensation we paid or accrued
during each of the fiscal years ended December 31, 2016 and 2015 to
the Chief Executive Officer and our two other most highly
compensated executive officers, collectively referred to as the
“named executive officers,” in 2016:
2016 and 2015 Summary Compensation Table
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option Awards
($)(1)
|
Total
($)
|
|
Gene S.
Cartwright, Ph.D.
|
2016
|
104,990
|
150,000
|
-
|
254,990
|
|
President, CEO,
Acting CFO and Director (2)
|
2015
|
300,000
|
150,000
|
-
|
450,000
|
|
Mark Faupel,
Ph.D.
|
2016
|
132,557
|
-
|
-
|
132,557
|
|
COO and
Director(3)
|
2015
|
198,073
|
-
|
30,400
|
228,473
|
|
Richard
Fowler,
|
2016
|
129,995
|
-
|
-
|
129,995
|
|
Senior Vice
President of Engineering
|
2015
|
243,000
|
-
|
30,880
|
273,880
|
(1)
See Note 4 to the
audited consolidated financial statements that accompany this
prospectus.
(2)
All amounts
reported as accrued. Dr. Cartwright has elected to get paid partial
salary, due to our cash position.
(3)
In 2016, Dr. Faupel
was not employed by us, but instead provided consulting services to
us on an as-needed basis. On December 8, 2016, the board of
directors appointed Dr. Faupel as our new COO and
director.
On
March 2016, Dr. Cartwright agreed to reduce his base salary
compensation to $75,000 from $300,000. The board-granted
performance bonus remained the same at $150,000 for all both years,
and he received usual customary company benefits. During 2015, he
also received 20,000 performance-based restricted shares of common
stock, which will vest as follows: (1) seven shares will vest if
the stock price closes at or above $1,200 for 30 consecutive
trading days, and an additional seven will vest on the first
anniversary of such vesting date, in each case subject to
continuous employment through the applicable vesting date; and (2)
seven shares will vest if the stock price closes at or above
$200,000 for 30 consecutive trading days, and an additional seven
will vest on the first anniversary of such vesting date, in each
case subject to continuous employment through the applicable
vesting date. As of December 31, 2016, Dr. Cartwright’s
deferred salary plus interest was $361,526 and his deferred bonus
was $450,000.
Dr.
Faupel’s 2016 and 2015 compensation consisted of a base
salary of $132,557 and $198,073, respectively, plus usual and
customary company benefits. He received no bonus in the years ended
December 31, 2016 and 2015. In 2015, he received options to
purchase 1,900 shares of common stock, which vest over 48 months.
As of December 31, 2016, Dr. Faupel’s remaining deferred
salary plus interest and bonus was $166,426. He also holds a
promissory note of $290,704 for past un-paid salary.
On
March 2016, Mr. Fowler began working half-time and agreed to reduce
his base salary compensation to $107,500 from $243,000 in 2015. For
both years he received the usual and customary company benefits. He
received no bonus in the years ended December 31, 2016 and 2015. In
2015, he received options to purchase 1,930 shares of common stock,
which vest over 48 months. As of December 31, 2016, Mr.
Fowler’s total deferred salary plus interest was
approximately $320,042.
Outstanding
Equity Awards to Officers at December 31, 2016
|
|
Option
Awards
|
||||
|
Name and
Principal
Position
|
Number
of
Securities
Underlying
Options
Exercisable
(#)(1)
|
Number
of
Securities
Underlying
Options
Un-exercisable
(#)
|
Equity Incentive
Plan Awards:
Number of
Securities
Under-lying
Unexercised
Unearned Options
(#)
|
Option
Exercise
Price
($)(2)
|
Option
Expiration
Date
|
|
Gene S.
Cartwright, Ph.D.
President,
CEO, Acting CFO and Director
|
2
|
-
|
3
|
21,600.00
|
12/31/2024
|
|
Mark
Faupel, Ph.D.
COO and
Director
|
32
|
-
|
3
|
57,600.00
|
12/31/2024
|
|
Richard
Fowler
Senior
Vice President of Engineering
|
11
|
-
|
3
|
47,200.00
|
12/31/2024
|
(1)
Represents fully
vested options.
(2)
Based on all
outstanding options.
52
Outstanding Equity Awards to Directors at December 31,
2016
|
|
Option
Awards
|
|
|
Name and
Principal Position
|
Option
Awards
(#)
|
Exercise
Price
($)
|
|
Ronald
W. Hart, Ph.D., Director (resigned as of December 11,
2015)
|
18
|
17,600.00
|
|
John E.
Imhoff, M.D., Director
|
16
|
26,400.00
|
|
Michael
C. James, Chairman and Director
|
13
|
16,000.00
|
|
Jonathan
Niloff, M.D., former Director
|
14
|
17,600.00
|
|
Linda
Rosenstock, M.D., former Director
|
14
|
16,800.00
|
|
|
|
|
Risk Oversight
Our
board as a whole has responsibility for risk oversight, with
reviews of certain areas being conducted by the relevant board
committees that report on their deliberations to the full board, as
further described below. Given the small size of the board, the
board feels that this structure for risk oversight is appropriate
(except for those risks that require risk oversight by independent
directors only). The audit committee is specifically charged with
discussing risk management (primarily financial and internal
control risk), and receives regular reports from management and
independent auditors on risks related to, among others, our
financial controls and reporting. The compensation committee
reviews risks related to compensation and makes recommendations to
the board with respect to whether the Company’s compensation
policies are properly aligned to discourage inappropriate
risk-taking, and is regularly advised by management. In addition,
the Company’s management regularly communicates with the
board to discuss important risks for their review and oversight,
including regulatory risk, and risks stemming from periodic
litigation or other legal matters in which we are
involved.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
following table lists information regarding the beneficial
ownership of our equity securities as of March 6, 2017 by (1) each
person whom we know to beneficially own more than 5% of the
outstanding shares of our common stock, (2) each director, (3) each
officer named in the summary compensation table below, and (4) all
directors and executive officers as a group. Unless otherwise
indicated, the address of each officer and director is 5835
Peachtree Corners East, Suite D, Norcross, Georgia
30092.
|
|
Common Stock
(2)
|
Series
C
Preferred Stock
(3)
|
Series
C1
Preferred Stock
(4)
|
|||
|
Name and Address
of Beneficial Owner (1)
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
|
John E. Imhoff
(5)
|
4,249,082
|
79.55%
|
-
|
-
|
2,400.75
|
55.67%
|
|
Lynne Imhoff
(6)
|
1,194,239
|
52.02%
|
-
|
-
|
675.00
|
15.65%
|
|
Michael C.
James/Kuekenhof Equity Fund, LLP (7)
|
28
|
*
|
-
|
-
|
-
|
-
|
|
Gene Cartwright
(8)
|
38
|
*
|
-
|
-
|
-
|
-
|
|
Richard L. Fowler
(9)
|
16
|
*
|
-
|
-
|
-
|
-
|
|
Richard P. Blumberg
(10)
|
37
|
*
|
-
|
-
|
-
|
-
|
|
Mark Faupel
(11)
|
529,773
|
32.44%
|
|
|
300.00
|
6.96%
|
|
All directors and
executive officers as a group (4 persons) (12)
|
4,249,164
|
79.55%
|
-
|
-
|
2,700.75
|
62.63%
|
|
|
|
|
|||||
|
(*)
|
Less
than 1%.
|
|
|||||
|
(1)
|
Except
as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all
shares of common stock.
|
|
|||||
|
(2)
|
Percentage
ownership is based on 1,015,012 shares of common stock outstanding
as of March 6, 2017. Beneficial ownership is determined in
accordance with the rules of the SEC, based on factors that include
voting and investment power with respect to shares. Shares of
common stock subject to convertible securities convertible or
exercisable within 60 days after the record date, are deemed
outstanding for purposes of computing the percentage ownership of
the person holding those securities, but are not deemed outstanding
for purposes of computing the percentage ownership of any other
person. Note that certain of our outstanding securities, including
certain warrants and the shares of Series C1 preferred stock held
by the persons listed in this table, have anti-dilution
“ratchet” or “price-protection”
provisions that, when triggered, will increase the number of shares
of common stock underlying such securities. Subject to customary
exceptions, these provisions are triggered anytime we issue shares
of common stock to third parties at a price lower than the
then-current conversion price or exercise price of the subject
securities. As a result, the beneficial ownership reported in this
table is only as of the date presented, and the beneficial
ownership amounts of the persons in this table may increase on a
future date, even though such persons have not actually acquired
any additional shares of common stock.
|
|
|||||
53
|
(3)
|
As of
March 6, 2017, there were 1,497 shares of Series C preferred stock
outstanding, and each such share was convertible into approximately
1,762 shares of common stock.
|
|
(4)
|
As of
March 6, 2017, there were 4,312.50 shares of Series C1 preferred
stock outstanding, and each such share was convertible into
approximately 1,762 shares of common stock.
|
|
(5)
|
Shares
of common stock consist of 12,952 shares of common stock directly
held, 4,912 shares issuable upon exercise of warrants, 16 shares
subject to options, and 4,231,202 shares issuable upon conversion
of 2,400.75 shares of Series C1 preferred stock. Dr. Imhoff is on
the board of directors.
|
|
(6)
|
Shares
of common stock consist of 3,612 shares of common stock directly
held, 973 shares issuable upon exercise of warrants, and 1,189,654
shares issuable upon conversion of 675.00 shares of Series C1
preferred stock.
|
|
(7)
|
Shares
of commons stock consist of 10 shares of common stock directly
held, 4 shares issuable upon exercise of warrants, and 14 shares
subject to options. Mr. James is on the board of
directors.
|
|
(8)
|
Shares of commons stock consist of 29 shares of common stock
directly held, 4 shares issuable upon exercise of warrants, and 5
shares subject to options. Dr. Cartwright is the CEO
and on the board of directors.
|
|
(9)
|
Shares
of commons stock consist of 2 shares of common stock directly held
and 14 shares subject
to options.
|
|
(10)
|
Shares
of common stock consist of 23 shares of common stock directly held
and 14 shares issuable upon exercise of warrants.
|
|
(11)
|
Shares
of common stock consist of 1,600 shares of common stock directly
held, 46 shares issuable upon exercise of warrants, 27 shares
subject to options, and 528,100 shares issuable upon conversion of
300.00 shares of Series C1 preferred stock. Dr. Faupel is the COO
and on the board of directors.
|
|
(12)
|
Shares of commons stock consists of 12,993 shares of common stock
directly held, 4,920 shares issuable upon exercise of
warrants, 49 shares subject to options, and 4,231,202 shares
issuable upon conversion of 2,700.75 shares of Series C1 preferred
stock.
|
See
Item 5 of this report for information regarding Securities
Authorized for Issuance under Equity Compensation
Plans.
Our
board recognizes that related person transactions present a
heightened risk of conflicts of interest. The audit committee has
the authority to review and approve all related party transactions
involving our directors or executive officers.
Under
the policy, when management becomes aware of a related person
transaction, management reports the transaction to the audit
committee and requests approval or ratification of the transaction.
Generally, the audit committee will approve only related party
transactions that are on terms comparable to those that could be
obtained in arm’s length dealings with an unrelated third
person. The audit committee will report to the full board all
related person transactions presented to it.
Based
on the definition of independence of the NASDAQ Stock Market, the
board has determined that Mr. James and Dr. Imhoff are independent
directors.
John E.
Imhoff is one of our directors. In June 2015, Dr. Imhoff agreed to
exchange certain of his warrants, originally issued in December
2014 and exercisable for 1 share of our common stock, for two new
warrants that, unlike the original warrant, do not contain any
price or share reset provisions. Each new warrant is exercisable
for the same number of shares of our common stock as the original
warrant, at any time until December 2, 2020. The exercise price of
the first new warrant is $72 per share and the second new warrant
is $88 per share but, aside from the exercise price, the new
warrants are identical in terms to each other. As additional
consideration, we issued Dr. Imhoff an additional 1 share of common
stock. Dr. Imhoff participated on terms equal to those of other
holders of the December 2014 warrants. As a result of these
transactions, Dr. Imhoff’s beneficial ownership of our common
stock increased from approximately 11.7% immediately prior to the
exchange, to approximately 11.8% immediately
afterward.
In
September 2015, Dr. Imhoff participated in our Series C preferred
stock issuance by exchanging all of his shares of Series B
preferred stock and investing $300,000 in cash, for a total of
1,067 shares of Series C preferred stock and warrants to purchase
211 shares of common stock. Dr. Imhoff participated on terms equal
to those of other Series C investors. As a result of these
transactions, Dr. Imhoff’s beneficial ownership of our common
stock increased from approximately 14% immediately prior to his
first acquisition of shares of Series C preferred stock, to 25%
immediately afterward.
On
March 11, 2016, Dr. Imhoff received 24 shares of common stock as a
dividend on his Series B preferred stock (previously accrued but
unpaid), in accordance with the terms of the Series B preferred
stock.
54
In
April 2016, Dr. Imhoff exchanged his shares of Series C preferred
stock for a total of 2,400.75 shares of Series C1 preferred stock
and 12,804 shares of common stock. Dr. Imhoff participated on terms
equal to those of other Series C1 investors. As a result of this
transaction, Dr. Imhoff’s beneficial ownership of our common
stock increased from approximately 25% immediately prior to the
transaction, to 77% immediately afterward.
In June
2016, Dr. Imhoff agreed to exchange certain of his warrants,
exercisable for 4,560 shares of our common stock and subject to
certain anti-dilution provisions, in exchange for new warrants,
exercisable for 9,120 shares of our common stock, but without those
anti-dilution provisions. Dr. Imhoff will be required to surrender
his old warrants upon consummation of our next financing resulting
in net cash proceeds to us of at least $1 million. The new warrants
will have an initial exercise price equal to the exercise price of
the surrendered warrants as of immediately prior to consummation of
the financing, subject to customary “downside price
protection” for as long as our common stock is not listed on
a national securities exchange, and will expire five years from the
date of issuance.
On
September 6, 2016, we entered into a royalty agreement with Dr.
Imhoff and another party. Pursuant to the royalty agreement, in
exchange for a payment of $50,000 by Dr. Imhoff and the other
party, we granted them a royalty on future sales of our single-use
cervical guides. The royalty rate was initially $0.10 per
disposable, until October 2, 2016, at which point the royalty rate
increased to $0.20 per disposable. Any royalty payments will be
split evenly between Dr. Imhoff and the other party.
Lynne
Imhoff (no relation) currently beneficially owns in excess of 10%
of our outstanding common stock. In September 2015, Ms. Imhoff
participated in our Series C preferred stock issuance by exchanging
all of her shares of Series B preferred stock and investing
$125,000 in cash, for a total of 300 shares of Series C preferred
stock and warrants to purchase 592 shares of common stock. Ms.
Imhoff participated on terms equal to those of other Series C
investors. As a result of these transactions, Ms. Imhoff’s
beneficial ownership of our common stock increased from
approximately 2% immediately prior to her first acquisition of
shares of Series C preferred stock, to 4% immediately
afterward.
In
April 2016, Ms. Imhoff exchanged her shares of Series C preferred
stock for a total of 675 shares of Series C1 preferred stock and
3,600 shares of common stock. Ms. Imhoff participated on terms
equal to those of other Series C1 investors. As a result of this
transaction, Ms. Imhoff’s beneficial ownership of our common
stock increased from approximately 4% immediately prior to the
transaction, to 45% immediately afterward.
In June
2016, Ms. Imhoff agreed to exchange certain of her warrants,
exercisable for 912 shares of our common stock and subject to
certain anti-dilution provisions, in exchange for new warrants,
exercisable for 1,824 shares of our common stock, but without those
anti-dilution provisions. Ms. Imhoff will be required to surrender
her old warrants upon consummation of our next financing resulting
in net cash proceeds to us of at least $1 million. The new warrants
will have an initial exercise price equal to the exercise price of
the surrendered warrants as of immediately prior to consummation of
the financing, subject to customary “downside price
protection” for as long as our common stock is not listed on
a national securities exchange, and will expire five years from the
date of issuance.
Mark
Faupel is one of our directors and our Chief Operating Officer, and
Richard Blumberg is another one of our directors. Dr. Faupel is a
shareholder of Shenghuo, and Mr. Blumberg, is a managing member of
Shenghuo. We entered into a license agreement with Shenghuo
pursuant to which we granted Shenghuo an exclusive license to
manufacture, sell and distribute our LuViva Advanced Cervical
Cancer device and related disposables in Taiwan, Brunei Darussalam,
Cambodia, Laos, Myanmar, Philippines, Singapore, Thailand, and
Vietnam. Shenghuo has been our exclusive distributor in China,
Macau and Hong Kong, and the license extends to manufacturing in
those countries as well. Pursuant to the license agreement,
Shenghuo had the option to have a designee appointed to our board
of directors. As partial consideration for, and as a condition to,
the license, and to further align the strategic interests of the
parties, we agreed to issue a convertible note to Shenghuo, in
exchange for an aggregate cash investment of $200,000. The note
will provide for a payment to Shenghuo of $300,000, expected to be
due the earlier of 90 days from issuance and consummation of any
capital raising transaction by us with net cash proceeds of at
least $1.0 million. The note will accrue interest at 20% per year
on any unpaid amounts due after that date. The note will be
convertible into shares of our common stock at a conversion price
per share of $13.92, subject to customary anti-dilution adjustment.
The note will be unsecured, and is expected to provide for
customary events of default. We will also issue Shenghuo a
five-year warrant exercisable immediately for 17,239 shares of
common stock at an exercise price equal to the conversion price of
the note, subject to customary anti-dilution
adjustment.
55
In
September 2015, Dr. Faupel participated in our Series C preferred
stock issuance by investing $100,000 in cash, for a total of 133
shares of Series C preferred stock and warrants to purchase 46
shares of common stock. Dr. Faupel participated on terms equal to
those of other Series C investors. In April 2016, Dr. Faupel
exchanged his shares of Series C preferred stock for a total of 300
shares of Series C1 preferred stock and 1,600 shares of common
stock. Dr. Faupel participated on terms equal to those of other
Series C1 investors.
UHY LLP
is our current independent registered public accounting firm.
Representatives of UHY LLP are expected to attend the annual
meeting of stockholders, will have the opportunity to make a
statement if they desire, and will be available to respond to
appropriate questions.
We were
billed by UHY LLP $176,000 and $192,000 during the fiscal years
ended December 31, 2016 and 2015, respectively, for professional
services, which include fees associated with the annual audit of
financial statements and review of our quarterly reports on Form
10-Q, and other SEC filings.
|
|
2016
|
2015
|
|
Audit
fees
|
$154,000
|
$166,000
|
|
Audit related
fees
|
15,000
|
15,000
|
|
Tax
fees
|
7,000
|
11,000
|
|
Total
Fees
|
$176,000
|
$192,000
|
Audit Committee Pre-Approval Policy and Permissible Non-Audit
Services of Independent Registered Public Accounting
Firm
Our
Audit Committee pre-approves all audit and permissible non-audit
services provided by our independent registered public accounting
firm. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is
generally provided for up to one year, and any pre-approval is
detailed as to the particular service or category of services and
is generally subject to a specific budget. Our independent
registered public accounting firm and management are required to
periodically report to the Audit Committee regarding the extent of
services provided by the independent registered public accounting
firm in accordance with the pre-approval, and the fees for the
services performed to date. The Audit Committee may also
pre-approve particular services on a case-by-case
basis.
56
PART IV
The
consolidated financial statements included in Item 8 of this report
are filed as part of this report.
The
exhibits listed below are filed as part hereof, or incorporated by
reference into, this Report. All documents referenced below were
filed pursuant to the Securities and Exchange Act of 1934 by Guided
Therapeutics, Inc. (f/k/a SpectRx, Inc.), file number 0-22179,
unless otherwise indicated.
EXHIBIT INDEX
|
EXHIBIT
NO.
|
DESCRIPTION
|
|
3.1
|
Restated
Certificate of Incorporation, as amended through November 3,
2016
|
|
3.2
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.1 to
the current report on Form 8-K, filed March 23, 2012)
|
|
4.1
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1
to the amended registration statement on Form S-1/A (No. 333-22429)
filed April 24, 1997)
|
|
4.2
|
Secured
Promissory Note, dated September 10, 2014 (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
September 10, 2014)
|
|
4.3
|
Amendment
#1 to Secured Promissory Note, dated March 10, 2015 (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K
filed March 19, 2015)
|
|
4.4
|
Amendment
#2 to Secured Promissory Note, dated May 4, 2015 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
May 7, 2015)
|
|
4.5
|
Amendment
#3 to Secured Promissory Note, dated June 1, 2015 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
June 5, 2015)
|
|
4.6
|
Amendment
#4 to Secured Promissory Note, dated June 16, 2015 (incorporated by
reference to Exhibit 10.4 to the current report on Form 8-K filed
June 30, 2015)
|
|
4.7
|
Amendment
#5 to Secured Promissory Note, dated June 29, 2015 (incorporated by
reference to Exhibit 10.5 to the current report on Form 8-K filed
June 30, 2015)
|
|
4.8
|
Amendment
#6 to Secured Promissory Note, dated January 20, 2016 (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K
filed February 16, 2016)
|
|
4.9
|
Amendment
#7 to Secured Promissory Note, dated February 11, 2016
(incorporated by reference to Exhibit 10.2 to the current report on
Form 8-K filed February 16, 2016)
|
|
4.10
|
Amendment
#8 to Secured Promissory Note, dated March 7, 2016 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
March 7, 2016)
|
|
4.11
|
Senior
Secured Convertible Note, dated February 12, 2016 (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
February 12, 2016)
|
|
4.12
|
Form of
Exchange Note (GPB) (incorporated by reference to Exhibit 4.1 to
the current report on Form 8-K filed December 7, 2016)
|
|
4.13
|
10% OID
Convertible Promissory Note (incorporated by reference to Exhibit
4.1 to the current report on Form 8-K filed December 30,
2016)
|
|
4.14
|
Convertible
Promissory Note (incorporated by reference to Exhibit 4.1 to the
current report on Form 8-K filed February 16, 2017)
|
|
4.15
|
Form of
Warrant (Standard Form) (incorporated by reference to Exhibit 4.1
to the current report on Form 8-K, filed September 14,
2010)
|
|
4.16
|
Form of
Warrant (InterScan) (incorporated by reference to Exhibit 4.13 to
the annual report on Form 10-K for the year ended December 31,
2013, filed March 27, 2014)
|
|
4.17
|
Form of
Warrant (November 2011 Private Placement) (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K/A, filed
November 28, 2011)
|
|
4.18
|
Form of
Warrant (Series B-Tranche A) (incorporated by reference to Exhibit
10.2 to amendment no. 1 to the current report on Form 8-K, filed
May 23, 2013)
|
|
4.19
|
Form of
Warrant (Series B-Tranche B) (incorporated by reference to Exhibit
10.3 to amendment no. 1 to the current report on Form 8-K, filed
May 23, 2013)
|
|
4.20
|
Form of
Warrant (Regulation S) (incorporated by reference to Exhibit 4.1 to
the current report on Form 8-K, filed September 8,
2014)
|
|
4.21
|
Form of
Warrant (2014 Public Offering Placement Agent) (incorporated by
reference to Exhibit 4.2 to the current report on Form 8-K filed
December 4, 2014)
|
57
|
4.22
|
Form of
Warrant (2014 Public Offering Warrant Exchanges) (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
4.23
|
Form of
Warrant (Series C) (incorporated by reference to Exhibit 4.3 to the
current report on Form 8-K filed June 30, 2015)
|
|
|
4.24
|
Form of
Warrant (Senior Secured Convertible Note) (incorporated by
reference to Exhibit 10.5 to the current report on Form 8-K filed
February 12, 2016)
|
|
|
4.25
|
Form of
Warrant (Series B-Tranche B Exchanges; GPB Exchange) (incorporated
by reference to Exhibit 4.1 to the current report on Form 8-K filed
June 14, 2016)
|
|
|
4.26
|
Common
Stock Purchase Warrant (Convertible Promissory Note) (incorporated
by reference to Exhibit 4.2 to the current report on Form 8-K filed
February 16, 2017)
|
|
|
10.1
|
1995
Stock Plan and form of Stock Option Agreement (incorporated by
reference to Exhibit 10.2 to the registration statement on Form S-1
(No. 333-22429) filed February 27, 1997)
|
|
|
10.2
|
2005
Amendment to 1995 Stock Plan (incorporated by reference to Appendix
1 to the proxy statement on Schedule 14A, filed May 10,
2005)
|
|
|
10.3
|
2010
Amendment to 1995 Stock Plan (incorporated by reference to Exhibit
10.3 to the registration statement on Form S-8 (File No.
333-178261), filed December 1, 2011)
|
|
|
10.4
|
2012
Amendment to 1995 Stock Plan (incorporated by reference to Annex 1
to the proxy statement on Schedule 14A, filed April 30,
2012)
|
|
|
10.5
|
Agreement
and Release, dated August 30, 2011 (incorporated by reference to
10.2 to the current report on Form 8-K, filed September 2,
2011)
|
|
|
10.6
|
Employment
Agreement between the Company and Mark Faupel dated March 24, 2013
(incorporated by reference to Exhibit 10.10 to the annual report on
Form 10-K for the year ended December 31, 2013, filed March 27,
2014)
|
|
|
10.7
|
Employment
Agreement between the Company and Gene Cartwright, dated January 6,
2014 (incorporated by reference to Exhibit 10.11 to the annual
report on Form 10-K for the year ended December 31, 2013, filed
March 27, 2014).
|
|
|
10.8
|
Employment
Agreement between the Company and Rick L. Fowler, automatically
renewed on May 9, 2013 (incorporated by reference to Exhibit 10.12
to the annual report on Form 10-K for the year ended December 31,
2013, filed March 27, 2014)
|
|
|
10.9
|
Consulting
Agreement between the Company and GPB Debt Holdings II LLC, dated
February 12, 2016 (incorporated by reference to Exhibit 10.6 to the
current report on Form 8-K filed February 12, 2016)
|
|
|
10.10
|
Securities
Purchase Agreement (Magna Note), dated April 23, 2014, by and
between the Company and Hanover Holdings I, LLC (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K, filed
April 24, 2014).
|
|
|
10.11
|
Registration
Rights Agreement (Magna Note), dated April 23, 2014, by and between
the Company and Hanover Holdings I, LLC (incorporated by reference
to Exhibit 10.1 to the current report on Form 8-K, filed April 24,
2014)
|
|
|
10.12
|
Standstill
Agreement (Magna Note), dated as of November 6, 2014, by and
between the Company and Magna Equities II, LLC (incorporated by
reference to Exhibit 19 to the registration statement on Form S-1
(No. 333-198733) filed November 10, 2014)
|
|
|
10.13
|
Exchange
Agreement (Magna Note), dated as of June 25, 2015 (incorporated by
reference to Exhibit 10.3 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
10.14
|
Subscription
Agreement (Regulation S), accepted September 2, 2014 (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K,
filed September 8, 2014)
|
|
|
10.15
|
Form of
Registration Rights Agreement (Regulation S), dated September 8,
2014 by and between the Company and the investor party thereto
(incorporated by reference to Exhibit 10.2 to the current report on
Form 8-K, filed September 8, 2014)
|
|
|
10.16
|
Note
Purchase Agreement (Secured Promissory Note), dated as of September
10, 2014, by and between the Company and Tonaquint, Inc.
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K, filed September 10, 2014)
|
|
|
10.17
|
Security
Agreement (Secured Promissory Note), dated as of September 10,
2014, by the Company and Tonaquint, Inc. (incorporated by reference
to Exhibit 10.2 to the current report on Form 8-K, filed September
10, 2014)
|
|
|
10.18
|
Form of
Securities Purchase Agreement (2014 Public Offering) (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K
filed December 4, 2014)
|
|
|
10.19
|
Placement
Agent Agreement (2014 Public Offering), by and between the Company
and Olympus Securities, LLC (incorporated by reference to Exhibit
10.2 to the current report on Form 8-K filed December 4,
2014)
|
|
|
10.20
|
Amendment
to Securities Purchase Agreement (2014 Public Offering), dated as
of June 26, 2015 (incorporated by reference to Exhibit 10.2 to the
current report on Form 8-K filed June 30, 2015)
|
|
58
|
10.21
|
Form of
Letter Agreement (2014 Public Offering Warrant Exchanges)
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed June 30, 2015)
|
|
10.22
|
Securities
Purchase Agreement (Series C), dated June 29, 2015 (incorporated by
reference to Exhibit 10.6 to the current report on Form 8-K filed
June 30, 2015)
|
|
10.23
|
Registration
Rights Agreement (Series C), dated June 29, 2015 (incorporated by
reference to Exhibit 10.7 to the current report on Form 8-K filed
June 30, 2015)
|
|
10.24
|
Form of
Joinder Agreement (Series C) (incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed July 13,
2015)
|
|
10.25
|
Interim
Securities Purchase Agreement (Series C), dated September 3, 2015
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed September 3, 2015)
|
|
10.26
|
Securities
Purchase Agreement (Senior Secured Convertible Note), dated
February 11, 2016 (incorporated by reference to Exhibit 10.3 to the
current report on Form 8-K filed February 12, 2016)
|
|
10.27
|
Security
Agreement (Senior Secured Convertible Note), dated February 11,
2016 (incorporated by reference to Exhibit 10.4 to the current
report on Form 8-K filed February 12, 2016)
|
|
10.28
|
Rollover
and Amendment Agreement, dated April 27, 2016, by and between the
Company and Aquarius Opportunity Fund (incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K filed May 3,
2016)
|
|
10.29
|
Form of
Letter Agreement (Series C Exchanges) (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K filed May 3,
2016)
|
|
10.30
|
License
Agreement, dated June 5, 2016 (incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed June 8,
2016)
|
|
10.31
|
Form of
Warrant Exchange Agreement (Warrant-for-Shares) (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
June 14, 2016)
|
|
10.32
|
Form of
Warrant Exchange Agreement (Warrant-for-Warrant) (incorporated by
reference to Exhibit 10.2 to the current report on Form 8-K filed
June 14, 2016)
|
|
10.33
|
Royalty
Agreement, dated September 6, 2016, between the Company and Imhoff
and Maloof (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K filed September 8, 2016)
|
|
10.34
|
Lockup
and Exchange Agreement, dated November 2, 2016, by the Company and
GHS Investments, LLC (incorporated by reference to Exhibit 10.1 to
the current report on Form 8-K filed November 2, 2016)
|
|
10.35
|
Exchange
Agreement, dated December 7, 2016, between the Company and GPB Debt
Holdings II LLC (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K filed December 7, 2016)
|
|
10.36
|
Amendment
to Consulting Agreement, dated December 7, 2016, between the
Company and GPB Debt Holdings II LLC (incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K filed December 7,
2016)
|
|
10.37
|
Securities
Purchase Agreement, dated December 28, 2016, between the Company
and RedDiamond (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K filed December 30, 2016)
|
|
10.38
|
Agreement
between Shandong Yaohua Medical Instrument Corporation and Guided
Therapeutics, Inc., Confidential, Final 22 January 2017
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed January 26, 2017)
|
|
10.39
|
Guided
Therapeutics-Shenghuo Medical Agreement, 22 Jan 2017 (incorporated
by reference to Exhibit 10.2 to the current report on Form 8-K
filed January 26, 2017)
|
|
10.40
|
Securities
Purchase Agreement, dated as of February 13, 2017, by and between
Guided Therapeutics, Inc. and Auctus Fund, LLC (incorporated by
reference to Exhibit 10.2 to the current report on Form 8-K filed
February 16, 2017)
|
|
21.1
|
Subsidiaries
(incorporated by reference to Exhibit 21.1 to the registration
statement on Form S-1 (No. 333-169755) filed October 5,
2010)
|
|
23.1*
|
Consent
of UHY LLP
|
|
101.1*
|
Interactive
Data File
|
|
*Filed
herewith
|
|
None.
59
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
GUIDED
THERAPEUTICS, INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Gene S.
Cartwright
|
|
|
|
President, Chief Executive Officer and
Acting
Chief Financial Officer
|
|
|
|
|
|
|
Date:
|
March 21, 2017 |
|
|
|
|
In
accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
|
|
March
20, 2017
|
|
/s/ Gene S. Cartwright
|
|
President, Chief Executive Officer, Acting Chief Financial Officer
(Principal Executive Officer and Principal Financial and Accounting
Officer)
|
|
Gene S. Cartwright
|
||||
|
|
|
|
|
|
|
March
20, 2017
|
|
/s/ Micbael C. James
|
|
Chairman of the Board and Director
|
|
|
|
Michael C. James
|
|
|
|
|
|
|
|
|
|
March
20, 2017
|
|
/s/ John E. Imhoff
|
|
Director
|
|
|
|
John E. Imhoff
|
|
|
|
|
|
|
|
|
|
March
20, 2017
|
|
/s/ Richard P. Blumberg
|
|
Director
|
|
|
|
Richard P. Blumberg
|
|
|
|
|
|
|
|
|
|
March
20, 2017
|
|
/s/ Mark Faupel
|
|
Chief Operating Officer and Director
|
|
|
|
Mark Faupel
|
|
|
60