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UNITED STATES
SECURITIES ANDEXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
For the quarterly period ended March 31, 2022
Commission File No. 0-22179
GUIDED THERAPEUTICS,
INC.
|
(Exact Name of Registrant as Specified in Its Charter)
|
Delaware
|
|
58-2029543
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
5835 Peachtree Corners East, Suite B
Norcross, Georgia
30092
(Address of principal executive offices) (Zip Code)
(770) 242-8723
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically, if any, every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes ☒ 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 or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act (Check one):
Large Accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated Filer
|
☒
|
Smaller reporting company
|
☒
|
|
|
Emerging growth company
|
☐
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised accounting standards provided
pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒
As of May 10, 2022, the registrant had 27,568,698 shares of Common
Stock, $0.001 par value per share, outstanding.
PART I — FINANCIAL INFORMATION
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
725 |
|
|
$ |
643 |
|
Accounts receivable, net of allowance for doubtful accounts of $126
at March 31, 2022 and December 31, 2021
|
|
|
39 |
|
|
|
46 |
|
Inventory, net of reserves of $785 at March 31, 2022 and December
31, 2021
|
|
|
570 |
|
|
|
571 |
|
Other current assets
|
|
|
453 |
|
|
|
377 |
|
Total current assets
|
|
|
1,787 |
|
|
|
1,637 |
|
|
|
|
|
|
|
|
|
|
Non-Current Assets:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
28 |
|
|
|
14 |
|
Operating lease right-of-use assets, net of amortization
|
|
|
355 |
|
|
|
372 |
|
Other assets
|
|
|
17 |
|
|
|
17 |
|
Total non-current assets
|
|
|
400 |
|
|
|
403 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
2,187 |
|
|
$ |
2,040 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
2,476 |
|
|
$ |
2,362 |
|
Accounts payable, related parties
|
|
|
80 |
|
|
|
87 |
|
Accrued liabilities
|
|
|
1,228 |
|
|
|
1,768 |
|
Deferred revenue
|
|
|
514 |
|
|
|
337 |
|
Current portion of lease liability
|
|
|
70 |
|
|
|
67 |
|
Current portion of long-term debt
|
|
|
67 |
|
|
|
88 |
|
Current portion of long-term debt, related parties
|
|
|
27 |
|
|
|
- |
|
Short-term notes payable
|
|
|
12 |
|
|
|
48 |
|
Short-term notes payable, related parties
|
|
|
31 |
|
|
|
40 |
|
Convertible notes payable in default
|
|
|
161 |
|
|
|
161 |
|
Short-term convertible notes payable
|
|
|
745 |
|
|
|
736 |
|
Derivative liability
|
|
|
38 |
|
|
|
- |
|
Total current liabilities
|
|
|
5,449 |
|
|
|
5,694 |
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term lease liabilities
|
|
|
307 |
|
|
|
325 |
|
Derivative liability
|
|
|
- |
|
|
|
32 |
|
Long-term convertible debt
|
|
|
852 |
|
|
|
820 |
|
Long-term debt
|
|
|
- |
|
|
|
22 |
|
Long-term debt, related parties
|
|
|
568 |
|
|
|
592 |
|
Total long-term liabilities
|
|
|
1,727 |
|
|
|
1,791 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,176 |
|
|
|
7,485 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C convertible preferred stock, $0.001 par value; 9.0 shares
authorized, 0.3 shares issued and outstanding as of March 31, 2022
and December 31, 2021. Liquidation preference of $286 at March 31,
2022 and December 31, 2021.
|
|
|
105 |
|
|
|
105 |
|
Series C1 convertible preferred stock, $0.001 par value; 20.3
shares authorized, 1.0 shares issued and outstanding as of March
31, 2022 and December 31, 2021. Liquidation preference of $1,049 at
March 31, 2022 and December 31, 2021.
|
|
|
170 |
|
|
|
170 |
|
Series C2 convertible preferred stock, $0.001 par value; 5,000
shares authorized, 3.3 shares issued and outstanding as of March
31, 2022 and December 31, 2021. Liquidation preference of $3,263 at
March 31, 2022 and December 31, 2021.
|
|
|
531 |
|
|
|
531 |
|
Series D convertible preferred stock, $0.001 par value; 6.0 shares
authorized, 0.8 shares issued and outstanding as of March 31, 2022
and December 31, 2021. Liquidation preference of $763 at March 31,
2022 and December 31, 2021, respectively.
|
|
|
276 |
|
|
|
276 |
|
Series E convertible preferred stock, $0.001 par value; 5.0 shares
authorized, 1.0 and 1.7 shares issued and outstanding as of March
31, 2022 and December 31, 2021, respectively. Liquidation
preference of $968 and $1,736 at March 31, 2022 and December 31,
2021, respectively.
|
|
|
914 |
|
|
|
1,639 |
|
Series F convertible preferred stock, $0.001 par value; 1.5 shares
authorized, 1.4 shares issued and outstanding as of March 31, 2022
and December 31, 2021. Liquidation preference of $1,411 and $1,426
at March 31, 2022 and December 31, 2021, respectively.
|
|
|
1,174 |
|
|
|
1,187 |
|
Series F-2 convertible preferred stock, $0.001 par value; 5.0
shares authorized, 3.2 shares issued and outstanding as of March
31, 2022 and December 31, 2021. Liquidation preference of $3,237 at
March 31, 2022 and December 31, 2021.
|
|
|
2,963 |
|
|
|
2,963 |
|
Series G convertible preferred stock, $0.001 par value; 1,000
shares authorized, nil shares issued and outstanding as of March
31, 2022 and December 31, 2021. Liquidation preference was nil at
March 31, 2022 and December 31, 2021.
|
|
|
- |
|
|
|
- |
|
Common stock, $0.001 par value; 500,000 shares authorized, 22,316
and 13,673 shares issued and outstanding as of March 31, 2022 and
December 31, 2021, respectively
|
|
|
3,410 |
|
|
|
3,403 |
|
Additional paid-in capital
|
|
|
129,042 |
|
|
|
126,800 |
|
Treasury stock at cost
|
|
|
(132 |
) |
|
|
(132 |
) |
Accumulated deficit
|
|
|
(143,442 |
) |
|
|
(142,387 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(4,989 |
) |
|
|
(5,445 |
) |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$ |
2,187 |
|
|
$ |
2,040 |
|
The accompanying notes are an integral part of these consolidated
statements.
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited, in thousands, except per share
data)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
Sales - devices and disposables
|
|
$ |
5 |
|
|
$ |
- |
|
Cost of goods sold
|
|
|
1 |
|
|
|
- |
|
Gross profit
|
|
|
4 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
21 |
|
|
|
16 |
|
Sales and marketing
|
|
|
40 |
|
|
|
36 |
|
General and administrative
|
|
|
386 |
|
|
|
771 |
|
Total operating expenses
|
|
|
447 |
|
|
|
823 |
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(443 |
) |
|
|
(823 |
) |
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(101 |
) |
|
|
(141 |
) |
Change in fair value of derivative liability
|
|
|
(6 |
) |
|
|
(88 |
) |
Gain from extinguishment of debt
|
|
|
41 |
|
|
|
87 |
|
Change in fair value of warrants
|
|
|
- |
|
|
|
448 |
|
Other expenses
|
|
|
2 |
|
|
|
- |
|
Total other income (expense)
|
|
|
(64 |
) |
|
|
306 |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(507 |
) |
|
|
(517 |
) |
Provision for income taxes
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(507 |
) |
|
|
(517 |
) |
Preferred stock dividends
|
|
|
(548 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$ |
(1,055 |
) |
|
$ |
(572 |
) |
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
Diluted
|
|
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,683 |
|
|
|
13,172 |
|
Diluted
|
|
|
20,683 |
|
|
|
13,172 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2022
(unaudited, in thousands)
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
|
Series C
|
|
|
Series C1
|
|
|
Series C2
|
|
|
Series D
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Balance at December 31, 2021
|
|
|
- |
|
|
$ |
105 |
|
|
|
1 |
|
|
$ |
170 |
|
|
|
3 |
|
|
$ |
531 |
|
|
|
1 |
|
|
$ |
276 |
|
Common stock warrants exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series D preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series E preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series F preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series F-2 preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for Series F and Series F-2 one-time 15%
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversion of Series E preferred stock to common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversion of Series F preferred stock to common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Expense for warrants issued to consultants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Accrued preferred dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2022
|
|
|
- |
|
|
$ |
105 |
|
|
|
1 |
|
|
$ |
170 |
|
|
|
3 |
|
|
$ |
531 |
|
|
|
1 |
|
|
$ |
276 |
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
|
Series E
|
|
|
Series F
|
|
|
Series F2
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Balance at December 31, 2021
|
|
|
2
|
|
|
$ |
1,639 |
|
|
|
1 |
|
|
$ |
1,187 |
|
|
|
3 |
|
|
$ |
2,963 |
|
Common stock warrants exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series D preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series E preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series F preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series F-2 preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for Series F and Series F-2 one-time 15%
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
- |
|
Conversion of Series E preferred stock to common stock
|
|
|
(1 |
) |
|
|
(725 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversion of Series F preferred stock to common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13 |
) |
|
|
- |
|
|
|
- |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Expense for warrants issued to consultants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Accrued preferred dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2022
|
|
|
1 |
|
|
$ |
914 |
|
|
|
1 |
|
|
$ |
1,174 |
|
|
|
3 |
|
|
$ |
2,963 |
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 31, 2021
|
|
|
13,673 |
|
|
$ |
3,403 |
|
|
$ |
126,800 |
|
|
$ |
(132 |
) |
|
$ |
(142,387 |
) |
|
$ |
(5,445 |
) |
Common stock warrants exercised
|
|
|
4,478 |
|
|
|
4 |
|
|
|
712 |
|
|
|
- |
|
|
|
- |
|
|
|
716 |
|
Issuance of common stock for payment of Series D preferred
dividends
|
|
|
23 |
|
|
|
- |
|
|
|
15 |
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
Issuance of common stock for payment of Series E preferred
dividends
|
|
|
13 |
|
|
|
- |
|
|
|
8 |
|
|
|
- |
|
|
|
- |
|
|
|
8 |
|
Issuance of common stock for payment of Series F preferred
dividends
|
|
|
158 |
|
|
|
- |
|
|
|
105 |
|
|
|
- |
|
|
|
- |
|
|
|
105 |
|
Issuance of common stock for payment of Series F-2 preferred
dividends
|
|
|
96 |
|
|
|
- |
|
|
|
64 |
|
|
|
- |
|
|
|
- |
|
|
|
64 |
|
Issuance of common stock for payment of interest
|
|
|
121 |
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
Issuance of common stock for Series F and Series F-2 one-time 15%
dividends
|
|
|
624 |
|
|
|
- |
|
|
|
399 |
|
|
|
- |
|
|
|
- |
|
|
|
399 |
|
Conversion of Series E preferred stock to common stock
|
|
|
3,070 |
|
|
|
3 |
|
|
|
722 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversion of Series F preferred stock to common stock
|
|
|
60 |
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
Expense for warrants issued to consultants
|
|
|
- |
|
|
|
- |
|
|
|
79 |
|
|
|
- |
|
|
|
- |
|
|
|
79 |
|
Accrued preferred dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(548 |
) |
|
|
(548 |
) |
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(507 |
) |
|
|
(507 |
) |
Balance at March 31, 2022
|
|
|
22,316 |
|
|
$ |
3,410 |
|
|
$ |
129,042 |
|
|
$ |
(132 |
) |
|
$ |
(143,442 |
) |
|
$ |
(4,989 |
) |
The accompanying notes are an integral part of these consolidated
statements.
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(unaudited, in thousands)
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
|
Series C
|
|
|
Series C1
|
|
|
Series C2
|
|
|
Series D
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Balance at December 31, 2020
|
|
|
- |
|
|
$ |
105 |
|
|
|
1 |
|
|
$ |
170 |
|
|
|
3 |
|
|
$ |
531 |
|
|
|
1 |
|
|
$ |
276 |
|
Series F preferred offering
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversion of debt and expenses for Series F preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of warrants to finders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Series G preferred offering
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series D preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of warrants to consultants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversions of warrants from liability to equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Accrued preferred dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2021
|
|
|
- |
|
|
$ |
105 |
|
|
|
1 |
|
|
$ |
170 |
|
|
|
3 |
|
|
$ |
531 |
|
|
|
1 |
|
|
$ |
276 |
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
|
Series E
|
|
|
Series F
|
|
|
Series G
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Balance at December 31, 2020
|
|
|
2 |
|
|
$ |
1,639 |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Series F preferred offering
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
1,667 |
|
|
|
- |
|
|
|
- |
|
Conversion of debt and expenses for Series F preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
2,559 |
|
|
|
- |
|
|
|
- |
|
Issuance of warrants to finders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Series G preferred offering
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
153 |
|
|
|
- |
|
Issuance of common stock for payment of Series D preferred
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of warrants to consultants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversions of warrants from liability to equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Accrued preferred dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2021
|
|
|
2 |
|
|
$ |
1,639 |
|
|
|
4 |
|
|
$ |
4,226 |
|
|
|
153 |
|
|
$ |
- |
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
Total
|
Balance at December 31, 2020
|
|
|
13,138 |
|
|
$ |
3,403 |
|
|
$ |
123,109 |
|
|
$ |
(132 |
) |
|
$ |
(139,956 |
) |
|
$ |
(10,855 |
) |
Series F preferred offering
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,667 |
|
Conversion of debt and expenses for Series F preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
2,559 |
|
Issuance of warrants to finders
|
|
|
- |
|
|
|
- |
|
|
|
151 |
|
|
|
- |
|
|
|
- |
|
|
|
151 |
|
Series G preferred offering
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of common stock for payment of Series D preferred
dividends
|
|
|
42 |
|
|
|
- |
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
Issuance of warrants to consultants
|
|
|
- |
|
|
|
- |
|
|
|
398 |
|
|
|
- |
|
|
|
- |
|
|
|
398 |
|
Conversions of warrants from liability to equity
|
|
|
- |
|
|
|
- |
|
|
|
1,755 |
|
|
|
- |
|
|
|
- |
|
|
|
1,755 |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
62 |
|
|
|
- |
|
|
|
- |
|
|
|
62 |
|
Accrued preferred dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(55 |
) |
|
|
(55 |
) |
Net loss
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(517 |
) |
|
|
(517 |
) |
Balance at March 31, 2021
|
|
|
13,180 |
|
|
$ |
3,403 |
|
|
$ |
125,489 |
|
|
$ |
(132 |
) |
|
$ |
(140,528 |
) |
|
$ |
(4,821 |
) |
The accompanying notes are an integral part of these consolidated
financial statements.
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited, in thousands)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2022
|
|
|
2021
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$ |
(507 |
) |
|
$ |
(517 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discounts
|
|
|
41 |
|
|
|
64 |
|
Amortization of beneficial conversion feature
|
|
|
- |
|
|
|
8 |
|
Stock based compensation
|
|
|
44 |
|
|
|
62 |
|
Change in fair value of warrants
|
|
|
- |
|
|
|
(448 |
) |
Change in fair value of derivatives
|
|
|
6 |
|
|
|
88 |
|
Amortization of lease right-of-use-asset
|
|
|
16 |
|
|
|
- |
|
Expense for warrants issued to consultants
|
|
|
79 |
|
|
|
398 |
|
Gain from forgiveness of debt
|
|
|
(41 |
) |
|
|
(87 |
) |
Other non-cash expenses (income)
|
|
|
6 |
|
|
|
- |
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6 |
|
|
|
- |
|
Inventory
|
|
|
1 |
|
|
|
(1 |
) |
Other current assets
|
|
|
(76 |
) |
|
|
46 |
|
Other non-current assets
|
|
|
- |
|
|
|
(18 |
) |
Accounts payable and accrued liabilities
|
|
|
84 |
|
|
|
65 |
|
Lease liabilities
|
|
|
(15 |
) |
|
|
- |
|
Deferred revenue
|
|
|
177 |
|
|
|
20 |
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(179 |
) |
|
|
(320 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(14 |
) |
|
|
(1 |
) |
NET CASH USED FOR INVESTING ACTIVITIES
|
|
|
(14 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from warrant exercises
|
|
|
365 |
|
|
|
- |
|
Payments made on notes payable
|
|
|
(90 |
) |
|
|
(557 |
) |
Proceeds from Series F offering, net of costs
|
|
|
- |
|
|
|
1,818 |
|
Proceeds from Series G offering, net of costs
|
|
|
- |
|
|
|
125 |
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
275 |
|
|
|
1,386 |
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
82 |
|
|
|
1,065 |
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
643 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$ |
725 |
|
|
$ |
1,247 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
6 |
|
|
$ |
405 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Dividends on preferred stock
|
|
$ |
548 |
|
|
$ |
55 |
|
Common stock issued for payment of interest
|
|
$ |
81 |
|
|
$ |
- |
|
Issuance of series F-2 preferred stock
|
|
$ |
- |
|
|
$ |
2,559 |
|
Issuance of warrants to finders in connection with Series F and
Series F-2 preferred stock
|
|
$ |
- |
|
|
$ |
151 |
|
Common stock issued for payment of dividends
|
|
$ |
592 |
|
|
$ |
14 |
|
Conversion of Series E Preferred Shares into Common Stock
|
|
$ |
725 |
|
|
$ |
1,755 |
|
Conversion of Series F Preferred Shares into Common Stock
|
|
$ |
13 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these consolidated
financial statements.
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION, BACKGROUND, AND BASIS OF
PRESENTATION
Guided Therapeutics, Inc. (formerly SpectRx, Inc.), together with
its wholly owned subsidiary, InterScan, Inc. (formerly Guided
Therapeutics, Inc.), collectively referred to herein as the
“Company”, is a medical technology company focused on developing
innovative medical devices that have the potential to improve
healthcare. The Company’s primary focus is the continued
commercialization of its LuViva non-invasive cervical cancer
detection device and extension of its cancer detection technology
into other cancers, including esophageal. The Company’s technology,
including products in research and development, primarily relates
to biophotonics technology for the non-invasive detection of
cancers.
During the year ended December 31, 2021, the Board simultaneously
approved a 1-for-20 reverse stock split of our common stock and
decreased the total number of authorized common shares to
500,000,000. On November 18, 2021, the Company submitted an Issuer
Company Related Action Notification regarding the reverse stock
split to the Financial Industry Regulatory Authority (“FINRA”).
FINRA has not yet declared an effective date for the reverse stock
split. The Company will adjust the number of shares available for
future grant under its equity incentive plan and employee stock
purchase plans and will also adjust the number of outstanding
awards issued to reflect the effects of its reverse split. All
historical share and per share amounts reflected throughout this
report will be adjusted to reflect stock split at the time it
becomes effective.
Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements.
Therefore, these financial statements should be read in conjunction
with our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021 filed with the Securities and Exchange Commission
(“SEC”) pursuant to Section 13 or 15(d) under the Securities
Exchange Act of 1934. The December 31, 2021 balances reported
herein are derived from the audited consolidated financial
statements for the year ended December 31, 2021. The results of
operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full year.
All intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation of the Company as of March 31, 2022 and
December 31, 2021, and the consolidated results of operations and
cash flows for the three-month periods ended March 31, 2022 and
2021 have been included.
The Company’s prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by
entrants into the medical device industry. This industry is
characterized by an increasing number of participants, intense
competition and a high failure rate. The Company has experienced
net losses since its inception and, as of March 31, 2022, it had an
accumulated deficit of approximately $143.4 million. To date, the
Company has engaged primarily in research and development efforts
and the early stages of marketing its products. The Company may not
be successful in growing sales for its products. Moreover, required
regulatory clearances or approvals may not be obtained in a timely
manner, or at all. The Company’s products may not ever gain market
acceptance and the Company may not ever generate significant
revenues or achieve profitability. The development and
commercialization of the Company’s products requires substantial
development, regulatory, sales and marketing, manufacturing and
other expenditures. The Company expects operating losses to
continue for the foreseeable future as it continues to expend
substantial resources to complete development of its products,
obtain regulatory clearances or approvals, build its marketing,
sales, manufacturing and finance capabilities, and conduct further
research and development.
The Company is not organized by multiple operating segments for the
purpose of making operating decisions or assessing performance.
Accordingly, the Company operates in one reportable operating
segment. The Company’s principal decision makers are the Chief
Executive Officer and its Chief Financial Officer. Management
believes that its business operates as one reportable segment
because: a) the Company measures profit and loss as a whole; b) the
principal decision makers do not review information based on any
operating segment; c) the Company does not maintain discrete
financial information on any specific segment; d) the Company has
not chosen to organize its business around different products and
services, and e) the Company has not chosen to organize its
business around geographic areas.
Going Concern
The Company’s consolidated financial statements have been prepared
and presented on a basis assuming it will continue as a going
concern. The factors below raise substantial doubt about the
Company’s ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary
from the outcome of this uncertainty.
At March 31, 2022, the Company had a negative working capital of
approximately $3.7 million, accumulated deficit of $143.4 million,
and incurred a net loss including preferred dividends of $1.1
million for the three months then ended. Stockholders’ deficit
totaled approximately $5.0 million at March 31, 2022, primarily due
to recurring net losses from operations.
During the three-month period ended March 31, 2022, the Company
raised $0.4 million of proceeds from warrant exercises. The Company
will need to continue to raise capital in order to provide funding
for its operations and FDA approval process. If sufficient capital
cannot be raised, the Company will continue its plans of curtailing
operations by reducing discretionary spending and staffing levels
and attempting to operate by only pursuing activities for which it
has external financial support. However, there can be no assurance
that such external financial support will be sufficient to maintain
even limited operations or that the Company will be able to raise
additional funds on acceptable terms, or at all. In such a case,
the Company might be required to enter into unfavorable agreements
or, if that is not possible, be unable to continue operations, and
to the extent practicable, liquidate and/or file for bankruptcy
protection.
The Company had warrants exercisable for approximately 25.4 million
shares of its common stock outstanding at March 31, 2022, with
exercise prices ranging between $0.15 and $0.80 per share.
Exercises of in-the-money warrants would generate a total of
approximately $4.7 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. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Significant areas where estimates are used include the
allowance for doubtful accounts, inventory valuation and input
variables for Black-Scholes, Monte Carlo simulations and binomial
calculations. The Company uses the Monte Carlo simulations and
binomial calculations in the calculation of the fair value of the
warrant liabilities and the valuation of embedded conversion
options and freestanding warrants.
Accounting Standard Updates
A variety of proposed or otherwise potential accounting standards
are currently under consideration by standard-setting organizations
and certain regulatory agencies. Because of the tentative and
preliminary nature of such proposed standards, management has not
yet determined the effect, if any that the implementation of such
proposed standards would have on the Company’s consolidated
financial statements.
Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be a
cash equivalent.
Accounts Receivable
The Company performs periodic credit evaluations of its
distributors’ financial conditions and generally does not require
collateral. The Company reviews all outstanding accounts receivable
for collectability on a quarterly basis. An allowance for doubtful
accounts is recorded for any amounts deemed uncollectable.
Uncollectibility is determined based on the determination that a
distributor will not be able to make payment and the time frame has
exceeded one year. The Company does not accrue interest receivables
on past due accounts receivable.
Concentrations of Credit Risk
The Company, from time to time during the years covered by these
consolidated financial statements, may have bank balances in excess
of its insured limits. Management has deemed this a normal business
risk.
Inventory Valuation
All inventories are stated at lower of cost or net realizable
value, with cost determined substantially on a “first-in,
first-out” basis. Selling, general, and administrative expenses are
not inventoried, but are charged to expense when incurred. As of
March 31, 2022 and December 31, 2021, our inventories were as
follows:
|
|
(in thousands)
|
|
|
|
March 31,
2022
|
|
|
December 31,
2021
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$ |
1,254 |
|
|
$ |
1,255 |
|
Work-in-progress
|
|
|
69 |
|
|
|
69 |
|
Finished goods
|
|
|
32 |
|
|
|
32 |
|
Inventory reserve
|
|
|
(785 |
) |
|
|
(785 |
) |
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$ |
570 |
|
|
$ |
571 |
|
The company periodically reviews the value of items in inventory
and provides write-downs or write-offs of inventory based on its
assessment of market conditions. Write-downs and write-offs are
charged to cost of goods sold.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed using the straight-line method over estimated useful lives
of three to seven years. Leasehold improvements are amortized at
the shorter of the useful life of the asset or the remaining lease
term. Depreciation and amortization expense are included in general
and administrative expense on the statement of operations.
Expenditures for repairs and maintenance are expensed as incurred.
Property and equipment are summarized as follows at March 31, 2022
and December 31, 2021:
|
|
(in thousands)
|
|
|
|
March 31,
2022
|
|
|
December 31,
2021
|
|
|
|
|
|
|
|
|
Equipment
|
|
$ |
1,049 |
|
|
$ |
1,048 |
|
Software
|
|
|
652 |
|
|
|
652 |
|
Furniture and fixtures
|
|
|
41 |
|
|
|
41 |
|
Leasehold improvements
|
|
|
12 |
|
|
|
12 |
|
Construction in progress
|
|
|
21 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,775 |
|
|
|
1,761 |
|
Less accumulated depreciation
|
|
|
(1,747 |
) |
|
|
(1,747 |
) |
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements,
net
|
|
$ |
28 |
|
|
$ |
14 |
|
Depreciation expense related to property and equipment for the
three months ended March 31, 2022 and 2021 was not material.
Debt Issuance Costs
Debt issuance costs are capitalized and amortized over the term of
the associated debt. Debt issuance costs are presented in the
balance sheet as a direct deduction from the carrying amount of the
debt liability consistent with the debt discount.
Patent Costs (Principally Legal Fees)
Costs incurred in filing, prosecuting, and maintaining patents are
recurring, and expensed as incurred. Maintaining patents are
expensed as incurred as the Company has not yet received U.S. FDA
approval and recovery of these costs is uncertain. Such costs were
not material for the three months ended March 31, 2022 and
2021.
Leases
A lease provides the lessee the right to control the use of an
identified asset for a period of time in exchange for
consideration. Right-of-use assets represent the Company’s right to
use an underlying asset for the lease term and operating lease
liabilities represent the Company’s obligation to make lease
payments arising from the lease. The Company determines if an
arrangement is a lease at inception. Right-of-use assets and lease
liabilities are recognized at the lease commencement date based on
the present value of lease payments over the lease term.
Where an operating lease contains extension options that the
Company is reasonably certain to exercise, the extension period is
included in the calculation of the right-of-use assets and lease
liabilities.
The discount rate used to determine the commencement date present
value of lease payments is the interest rate implicit in the lease,
or when that is not readily determinable, the Company utilizes its
secured borrowing rate. Right-of-use assets include any lease
payments required to be made prior to commencement and exclude
lease incentives. Both right-of-use assets and lease liabilities
exclude variable payments not based on an index or rate, which are
treated as period costs. The Company’s lease agreements do not
contain significant residual value guarantees, restrictions or
covenants. See Note 7 – Commitments and Contingencies.
Accrued Liabilities
Accrued liabilities as of March 31, 2022 and December 31, 2021 are
summarized as follows:
|
|
(in thousands)
|
|
|
|
March 31,
2022
|
|
|
December 31,
2021
|
|
|
|
|
|
|
|
|
Compensation
|
|
$ |
573 |
|
|
$ |
621 |
|
Professional fees
|
|
|
41 |
|
|
|
98 |
|
Stock Subscription Payable
|
|
|
- |
|
|
|
351 |
|
Interest
|
|
|
232 |
|
|
|
261 |
|
Vacation
|
|
|
42 |
|
|
|
39 |
|
Preferred dividends
|
|
|
299 |
|
|
|
349 |
|
Other accrued expenses
|
|
|
41 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,228 |
|
|
$ |
1,768 |
|
Stock Subscription Payable
Cash received from investors for common stock shares that have not
yet been issued is recorded as a liability, which is presented
within Accrued Liabilities on the consolidated balance sheet.
Revenue Recognition
ASC 606, Revenue from Contracts with Customers, establishes a
single and comprehensive framework which sets out how much revenue
is to be recognized, and when. The core principle is that a vendor
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the vendor expects to be entitled in
exchange for those goods or services. Revenue will now be
recognized by a vendor when control over the goods or services is
transferred to the customer. In contrast, revenue-based revenue
recognition around an analysis of the transfer of risks and
rewards; this now forms one of a number of criteria that are
assessed in determining whether control has been transferred. The
application of the core principle in ASC 606 is carried out in five
steps:
|
·
|
Step 1 – Identify the contract with a customer: a contract is
defined as an agreement (including oral and implied), between two
or more parties, that creates enforceable rights and obligations
and sets out the criteria for each of those rights and obligations.
The contract needs to have commercial substance and it is probable
that the entity will collect the consideration to which it will be
entitled.
|
|
|
|
|
·
|
Step 2 – Identify the performance obligations in the contract: a
performance obligation in a contract is a promise (including
implicit) to transfer a good or service to the customer. Each
performance obligation should be capable of being distinct and is
separately identifiable in the contract.
|
|
|
|
|
·
|
Step 3 – Determine the transaction price: transaction price is the
amount of consideration that the entity can be entitled to, in
exchange for transferring the promised goods and services to a
customer, excluding amounts collected on behalf of third
parties.
|
|
|
|
|
·
|
Step 4 – Allocate the transaction price to the performance
obligations in the contract: for a contract that has more than one
performance obligation, the entity will allocate the transaction
price to each performance obligation separately, in exchange for
satisfying each performance obligation. The acceptable methods of
allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and the residual
approach in limited circumstances. Discounts given should be
allocated proportionately to all performance obligations unless
certain criteria are met and reallocation of changes in standalone
selling prices after inception is not permitted.
|
|
|
|
|
·
|
Step 5 – Recognize revenue as and when the entity satisfies a
performance obligation: the entity should recognize revenue at a
point in time, except if it meets any of the three criteria, which
will require recognition of revenue over time: the entity’s
performance creates or enhances an asset controlled by the
customer, the customer simultaneously receives and consumes the
benefit of the entity’s performance as the entity performs, and the
entity does not create an asset that has an alternative use to the
entity and the entity has the right to be paid for performance to
date.
|
The Company did not recognize material revenues during the
three-month periods ended March 31, 2022 or 2021. The Company’s
revenues do not require significant estimates or judgments. The
Company is not party to contracts that include multiple performance
obligations or material variable consideration.
Contract
Balances
The Company defers payments received as revenue until earned based
on the related contracts and applying ASC 606 as required. As of
March 31, 2022 and December 31, 2021, the Company had $514,000 and
$337,000 in deferred revenue, respectively.
Significant Distributors
As of March 31, 2022, accounts receivable outstanding was $165,000,
the outstanding amount was netted against a $126,000 allowance,
leaving a balance of $39,000 which was from two distributors. As of
December 31, 2021, accounts receivable outstanding was $172,000;
the outstanding amount was netted against a $126,000 allowance,
leaving a balance of $46,000, which was from two distributors.
Research and Development
Research and development expenses consist of expenditures for
research conducted by the Company and payments made under contracts
with consultants or other outside parties and costs associated with
internal and contracted clinical trials. All research and
development costs are expensed as incurred.
Income Taxes
The provision for income taxes is determined in accordance with ASC
740, “Income Taxes”. The Company provides for income taxes
based on enacted tax law and statutory tax rates at which items of
income and expense are expected to be settled in our income tax
return. Certain items of revenue and expense are reported for
Federal income tax purposes in different periods than for financial
reporting purposes, thereby resulting in deferred income taxes.
Deferred taxes are also recognized for operating losses that are
available to offset future taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized.
The Company has filed its 2021 federal and state corporate tax
returns. The Company has entered into an agreed upon payment plan
with the IRS for delinquent payroll taxes. The Company has an
established payment arrangement for its delinquent state income
taxes with the State of Georgia. Although the Company has been
experiencing recurring losses, it is obligated to file tax returns
for compliance with IRS regulations and that of applicable state
jurisdictions. At March 31, 2022, the Company had approximately
$61.6 million of net operating losses carryforward available. 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.
The Company recognizes uncertain tax positions based on a benefit
recognition model. Provided that the tax position is deemed more
likely than not of being sustained, the Company recognizes the
largest amount of tax benefit that is greater than 50.0% likely of
being ultimately realized upon settlement. The tax position is
derecognized when it is no longer more likely than not of being
sustained. The Company classifies income tax related interest and
penalties as interest expense and selling, general and
administrative expense, respectively, on the consolidated
statements of operations.
Warrants
The Company has issued warrants, which allow the warrant holder to
purchase one share of stock at a specified price for a specified
period of time. The Company records equity instruments including
warrants based on the fair value at the date of issue. The fair
value of warrants classified as equity instruments at the date of
issuance is estimated using the Black-Scholes Model. The fair value
of warrants classified as liabilities at the date of issuance is
estimated using the Monte Carlo Simulation or Binomial model.
Stock Based Compensation
The Company accounts for its stock-based awards in accordance with
ASC Subtopic 718, “Compensation – Stock Compensation”,
which requires fair value measurement on the grant date and
recognition of compensation expense for all stock-based payment
awards made to employees and directors. The Company determines the
fair value of stock options using the Black-Scholes model. The fair
value of restricted stock awards is based upon the quoted market
price of the common shares on the date of grant. The fair value of
stock-based awards is expensed over the requisite service periods
of the awards. The Company accounts for forfeitures of stock-based
awards as they occur.
The Black-Scholes option pricing model requires the input of
certain assumptions that require the Company’s judgment, including
the expected term and the expected stock price volatility of the
underlying stock. The assumptions used in calculating the fair
value of stock-based compensation represent management’s best
estimates, but these estimates involve inherent uncertainties and
the application of judgment. As a result, if factors change
resulting in the use of different assumptions, stock-based
compensation expense could be materially different in the
future.
Derivatives
The Company reviews the terms of convertible debt issued to
determine whether there are embedded derivative instruments,
including embedded conversion options, which are required to be
bifurcated and accounted for separately as derivative financial
instruments. In circumstances where the host instrument contains
more than one embedded derivative instrument, including the
conversion option, that is required to be bifurcated, the
bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair
value and are then revalued at each reporting date with changes in
the fair value reported as non-operating income or expense. When
the equity or convertible debt instruments contain embedded
derivative instruments that are to be bifurcated and accounted for
as liabilities, the total proceeds received are first allocated to
the fair value of all the bifurcated derivative instruments. The
remaining proceeds, if any, are then allocated to the host
instruments themselves, usually resulting in those instruments
being recorded at a discount from their face value. The discount
from the face value of the convertible debt, together with the
stated interest on the instrument, is amortized over the life of
the instrument through periodic charges to interest expense.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The guidance for fair value measurements, ASC 820, Fair Value
Measurements and Disclosures, establishes the authoritative
definition of fair value, sets out a framework for measuring fair
value, and outlines the required disclosures regarding fair value
measurements. Fair value is the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at
the measurement date. The Company uses a three-tier fair value
hierarchy based upon observable and non-observable inputs as
follow:
|
·
|
Level 1–Quoted market prices in
active markets for identical assets and liabilities; |
|
·
|
Level 2–Inputs, other than level 1
inputs, either directly or indirectly observable; and |
|
·
|
Level 3–Unobservable inputs
developed using internal estimates and assumptions (there is little
or no market date) which reflect those that market participants
would use. |
The Company records its derivative activities at fair value. As of
March 31, 2022 we had one instrument that we valued for the
derivative liability associated with the bifurcated conversion
option of the Auctus loan for $400,000. There was no movement of
instruments between fair value hierarchy tiers during the three
months ended March 31, 2022.
The following tables present the fair value of those liabilities
measured on a recurring basis as of March 31, 2022 and December 31,
2021:
|
|
Fair Value at March 31, 2022
(in thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability/bifurcated conversion option in connection
with Auctus $400,000 loan on December 17, 2019
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(38 |
) |
|
$ |
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term liabilities at fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(38 |
) |
|
$ |
(38 |
) |
|
|
Fair Value at December 31, 2021
(in thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability/bifurcated conversion option in connection
with Auctus $400,000 loan on December 17, 2019
|
|
|
- |
|
|
|
- |
|
|
|
(32 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities at fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(32 |
) |
|
$ |
(32 |
) |
The following is a summary of changes to Level 3 instruments during
the three months ended March 31, 2022:
|
|
(in thousands)
|
|
|
|
Senior Secured Debt
|
|
|
Derivative
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021
|
|
$ |
- |
|
|
$ |
(32 |
) |
|
$ |
(32 |
) |
Change in fair value during the period
|
|
|
- |
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022
|
|
$ |
- |
|
|
$ |
(38 |
) |
|
$ |
(38 |
) |
4. STOCKHOLDERS’ DEFICIT
Common Stock
The Company has authorized 500,000,000 shares of common stock with
$0.001 par value. As of March 31, 2022 and December 31, 2021,
22,316,412 and 13,673,583 shares were issued and outstanding,
respectively.
During the three months ended March 31, 2022, the Company issued
8,642,829 shares of common stock:
|
|
Number of Shares
|
|
|
|
|
|
Common stock warrants exercised
|
|
|
4,477,923 |
|
Issuance of common stock for payment of Series D preferred
dividends
|
|
|
23,109 |
|
Issuance of common stock for payment of Series E preferred
dividends
|
|
|
12,432 |
|
Issuance of common stock for payment of Series F preferred
dividends
|
|
|
158,662 |
|
Issuance of common stock for payment of Series F-2 preferred
dividends
|
|
|
95,535 |
|
Issuance of common stock for payment of interest
|
|
|
121,262 |
|
Issuance of common stock for Series F one-time 15% dividend
|
|
|
255,401 |
|
Issuance of common stock for Series F-2 one-time 15% dividend
|
|
|
368,505 |
|
Conversion of Series E preferred stock to common stock
|
|
|
3,070,000 |
|
Conversion of Series F preferred stock to common stock
|
|
|
60,000 |
|
Issued during the three months ended March 31, 2022
|
|
|
8,642,829 |
|
|
|
|
|
|
Summary table of common stock share
transactions:
|
|
|
|
|
Balance at December 31, 2021
|
|
|
13,673,583 |
|
Issued in 2022
|
|
|
8,642,829 |
|
Balance at March 31, 2022
|
|
|
22,316,412 |
|
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock with
a $0.001 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.
Series C Convertible Preferred Stock
The board designated 9,000 shares of preferred stock as Series C
Convertible Preferred Stock, (the “Series C Preferred Stock”).
Pursuant to the Series C certificate of designations, shares of
Series C preferred stock are convertible into common stock by their
holder at any time and may be mandatorily convertible upon the
achievement of specified average trading prices for the Company’s
common stock. At March 31, 2022 and December 31, 2021, there were
286 shares outstanding with a conversion price of $0.50 per share,
such that each share of Series C preferred stock would convert into
approximately 2,000 shares of the Company’s common stock; for a
total convertible of 572,000 common stock shares, 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. Unpaid accrued dividends were $120,120 as of March 31, 2022.
Upon conversion of the Series C preferred stock prior to the
Dividend End Date, the Company will also pay to the converting
holder a “make-whole payment” equal to the number of unpaid
dividends through the Dividend End Date on the converted shares. At
March 31, 2022 and December 31, 2021, the “make-whole payment” for
a converted share of Series C preferred stock would convert to 200
shares of the Company’s common stock.
The Series C preferred stock generally has no voting rights except
as required by Delaware law. Upon the Company’s liquidation or sale
to or merger with another corporation, each share will be entitled
to a liquidation preference of $1,000, plus any accrued but unpaid
dividends. In addition, the purchasers of the Series C preferred
stock received, on a pro rata basis, warrants exercisable to
purchase an aggregate of approximately 1 share of Company’s common
stock. The warrants contain anti-dilution adjustments in the event
that the Company issues shares of common stock, or securities
exercisable or convertible into shares of common stock, at prices
below the exercise price of such warrants. As a result of the
anti-dilution protection, the Company is required to account for
the warrants as a liability recorded at fair value each reporting
period. As of March 31, 2022, these warrants had expired.
Series C1 Convertible Preferred Stock
The board designated 20,250 shares of preferred stock as Series C1
Preferred Stock, of which 1,049 shares were issued and outstanding
at March 31, 2022 and December 31, 2021. In addition, some holders
separately agreed to exchange each share of the Series C1 Preferred
Stock held for one (1) share of the Company’s newly created Series
C2 Preferred Stock. In total, for 3,262.25 shares of Series C1
Preferred Stock to be surrendered, the Company issued 3,262.25
shares of Series C2 Preferred Stock. At March 31, 2022 and December
31, 2021, shares of Series C2 had a conversion price of $0.50 per
share, such that each share of Series C preferred stock would
convert into approximately 2,000 shares of the Company’s common
stock.
At March 31, 2022 and December 31, 2021, there were 1,049.25 shares
outstanding with a conversion price of $0.50 per share, such that
each share of Series C1 preferred stock would convert into
approximately 2,000 shares of the Company’s common stock, for a
total convertible of 2,098,500 common stock shares.
The Series C1 preferred stock has terms that are substantially the
same as the Series C preferred stock, except that the Series C1
preferred stock does not pay dividends (unless and to the extent
declared on the common stock) or at-the-market “make-whole
payments” and, while it has the same anti-dilution protections
afforded the Series C preferred stock, it does not automatically
reset in connection with a reverse stock split or conversion of our
outstanding convertible debt.
Series C2 Convertible Preferred Stock
On August 31, 2018, the Company entered into agreements with
certain holders of the Company’s Series C1 Preferred Stock,
including the chairman of the Company’s board of directors, and the
Chief Operating Officer and a director of the Company pursuant to
which those holders separately agreed to exchange each share of the
Series C1 Preferred Stock held for one (1) share of the Company’s
newly created Series C2 Preferred Stock. In total, for 3,262.25
shares of Series C1 Preferred Stock to be surrendered, the Company
issued 3,262.25 shares of Series C2 Preferred Stock. At March 31,
2022 and December 31, 2021, shares of Series C2 had a conversion
price of $0.50 per share, such that each share of Series C
preferred stock would convert into approximately 2,000 shares of
the Company’s common stock, for a total convertible of 6,524,500
common stock shares.
The terms of the Series C2 Preferred Stock are substantially the
same as the Series C1 Preferred Stock, except that (i) shares of
Series C1 Preferred Stock may not be convertible into the Company’s
common stock by their holder for a period of 180 days following the
date of the filing of the Certificate of Designation (the “Lock-Up
Period”); (ii) the Series C2 Preferred Stock has the right to vote
as a single class with the Company’s common stock on an
as-converted basis, notwithstanding the Lock-Up Period; and (iii)
the Series C2 Preferred Stock will automatically convert into that
number of securities sold in the next Qualified Financing (as
defined in the Exchange Agreement) determined by dividing the
stated value ($1,000 per share) of such share of Series C2
Preferred Stock by the purchase price of the securities sold in the
Qualified Financing.
Series D Convertible Preferred Stock
The Board designated 6,000 shares of preferred stock as Series D
Preferred Stock, 763 of which remained outstanding as of March 31,
2022 and December 31, 2021. On January 8, 2021, the Company entered
into a Stock Purchase Agreement with certain accredited investors
(“the Series D Investors”) pursuant to all obligations under the
Series D Certificate of Designation. The Series D Investors
included the Chief Executive Officer, Chief Operating Officer and a
director of the Company. In total, for $763,000 the Company issued
763 shares of Series D Preferred Stock, 1,526,000 common stock
shares, 1,526,000 common stock warrants, exercisable at $0.25, and
1,526,000 common stock warrants, exercisable at $0.75. Each Series
D Preferred Stock is convertible into 3,000 common stock shares.
The Series D Preferred Stock will have cumulative dividends at the
rate per share of 10% per annum. The stated value and liquidation
preference on the Series D Preferred Stock is $763. The 763 Series
D Preferred Shares are convertible into debt at the option of the
holder during a prescribed time period. If the Series D Preferred
Shares are converted, the Series D preferences are surrendered and
the debt is then secured by the Company’s assets. As of March 31,
2022, none of the 763 Series D Preferred Shares have been converted
to secured debt.
Each share of Series D Preferred is convertible, at any time for a
period of 5 years after issuance, into that number of shares of
Common Stock, determined by dividing the Stated Value by $0.25,
subject to certain adjustments set forth in the Series D
Certificate of Designation (the “Series D Conversion Price”). The
conversion of Series D Preferred is subject to a 4.99% beneficial
ownership limitation, which may be increased to 9.99% at the
election of the holder of the Series D Preferred. If the average of
the VWAPs (as defined in the Series D Certificate of Designation)
for any consecutive 5 trading day period (“Measurement Period”)
exceeds 200% of the then Series D Conversion Price and the average
daily trading volume of the Common Stock on the primary trading
market exceeds 1,000 shares per trading day during the Measurement
Period (subject to adjustments), the Company may redeem the then
outstanding Series D Preferred, for cash in an amount equal to
aggregate Stated Value then outstanding plus accrued but unpaid
dividends.
During the three months ended March 31, 2022, the Company issued
23,109 common stock shares for the payment of accrued Series D
Preferred Stock dividends. As of March 31, 2022, the Company had
accrued dividends of $14,306.
Series E Convertible Preferred Stock
The Board designated 5,000 shares of preferred stock as Series E
Preferred Stock, 968 and 1,736 of which remained outstanding as of
March 31, 2022 and December 31, 2021, respectively. Each share of
Series E Preferred is convertible, at any time for a period of 5
years after issuance, into that number of shares of Common Stock,
determined by dividing the Stated Value by $0.25, subject to
certain adjustments set forth in the Series E Certificate of
Designation (the “Series E Conversion Price”). The conversion of
Series E Preferred is subject to a 4.99% beneficial ownership
limitation, which may be increased to 9.99% at the election of the
holder of the Series E Preferred. If the average of the VWAPs (as
defined in the Series E Certificate of Designation) for any
consecutive 5 trading day period (“Measurement Period”) exceeds
200% of the then Series E Conversion Price and the average daily
trading volume of the Common Stock on the primary trading market
exceeds 1,000 shares per trading day during the Measurement Period
(subject to adjustments), the Company may redeem the then
outstanding Series E Preferred, for cash in an amount equal to
aggregate Stated Value then outstanding plus accrued but unpaid
dividends.
Each share of Series E Preferred Stock has a par value of 0.001 per
share and a Stated Value equal to $1,000, subject to increase set
forth in its Certificate of Designation.
Each holder of Series E Preferred Stock is entitled to receive
cumulative dividends of 8% per annum, payable
annually in cash or, following the listing of the Company’s common
stock on certain Canadian trading markets and at the option of the
Company, shares of common stock.
During the three months ended March 31, 2022, the Company issued
3,070,000 common stock shares for the conversion of 768 shares of
Series E Convertible Preferred Stock.
During the three months ended March 31, 2022, the Company issued
12,432 common stock shares for the payment of Series E Preferred
Stock dividends accrued. As of March 31, 2022, the Company had
accrued dividends of $71,099.
Series F Convertible Preferred Stock
The Board designated 1,500 shares of preferred stock as Series F
Preferred Stock, 1,411 and 1,426 of which were issued and
outstanding as of March 31, 2022 and December 31, 2021,
respectively. During 2021, the Company entered into a Stock
Purchase Agreement with certain accredited investors (“the Series F
Investors”). In total, for $1,436,000 the Company issued 1,436
shares of Series F Preferred Stock. Each Series F Preferred Stock
is convertible into 4,000 common stock shares. The Series F
Preferred Stock is entitled to cumulative dividends at the rate per
share of 6% per annum. The stated value on the Series F Preferred
Stock is $1,411.
Each share of Series F Preferred is convertible, at any time for a
period of 5 years after issuance, into that number of shares of
Common Stock, determined by dividing the Stated Value by $0.25,
subject to certain adjustments set forth in the Series F
Certificate of Designation (the “Series F Conversion Price”). The
conversion of Series F Preferred is subject to a 4.99% beneficial
ownership limitation, which may be increased to 9.99% at the
election of the holder of the Series F Preferred. If the average of
the VWAPs (as defined in the Series F Certificate of Designation)
for any consecutive 5 trading day period (“Measurement Period”)
exceeds 200% of the then Series F Conversion Price and the average
daily trading volume of the Common Stock on the primary trading
market exceeds 1,000 shares per trading day during the Measurement
Period (subject to adjustments), the Company may redeem the then
outstanding Series F Preferred, for cash in an amount equal to
aggregate Stated Value then outstanding plus accrued but unpaid
dividends.
During the three months ended March 31, 2022, the Company issued
60,000 common stock shares for the conversion of 15 shares of
Series F Convertible Preferred Stock.
During the three months ended March 31, 2022, the Company issued
158,662 common stock shares for the payment of annual Series F
Preferred Stock dividends. Additionally, During the three months
ended March 31, 2022, the Company issued 255,401 common stock
shares for the payment of a one-time, non-recurring 15% dividend to
the Series F Preferred shareholders (as required by the Series F
Certificate of Designation in the event the Company did not uplist
to the NASDAQ stock exchange or file its clinical data intended for
FDA approval of LuViva by December 31, 2021). As of March 31, 2022,
accrued dividends totaled $1,998.
Series F-2 Convertible Preferred
Stock
The Company was oversubscribed for its Series F Convertible
Preferred Stock, resulting in the requirement to file an additional
Certificate of Designation for Series F-2 Convertible Preferred
Stock with substantially the same terms as the Series F Convertible
Preferred Stock. The Board designated 3,500 shares of preferred
stock as Series F-2 Preferred Stock, 3,237 of which were issued and
outstanding as of March 31, 2022 and December 31, 2021. During
2021, the Company entered into a Stock Purchase Agreement with
certain accredited investors (“the Series F-2 Investors”). In
total, for $678,000 the Company issued 678 shares of Series F-2
Preferred Stock. In addition, the Company exchanged outstanding
debt of $2,559,000 for 2,559 shares of Series F-2 Preferred Stock.
Each Series F-2 Preferred Stock is convertible into 4,000 common
stock shares. The Series F-2 Preferred Stock will have cumulative
dividends at the rate per share of 6% per annum. The stated value
on the Series F-2 Preferred Stock is 3,237.
Each share of Series F-2 Preferred is convertible, at any time for
a period of 5 years after issuance, into that number of shares of
Common Stock, determined by dividing the Stated Value by 0.25,
subject to certain adjustments set forth in the Series F-2
Certificate of Designation (the “Series F-2 Conversion Price”). The
conversion of Series F-2 Preferred is subject to a 4.99% beneficial
ownership limitation, which may be increased to 9.99% at the
election of the holders of the Series F-2 Preferred. If the average
of the VWAPs (as defined in the Series F-2 Certificate of
Designation) for any consecutive 5 trading day period (“Measurement
Period”) exceeds 200% of the then Series F-2 Conversion Price and
the average daily trading volume of the Common Stock on the primary
trading market exceeds 1,000 shares per trading day during the
Measurement Period (subject to adjustments), the Company may redeem
the then outstanding Series F-2 Preferred, for cash in an amount
equal to aggregate Stated Value then outstanding plus accrued but
unpaid dividends.
During the three months ended March 31, 2022, the Company issued
95,535 common stock shares for the payment of annual Series F-2
Preferred Stock dividends. Additionally, During the three months
ended March 31, 2022, the Company issued 368,505 common stock
shares for the payment of a one-time, non-recurring 15% dividend to
the Series F-2 Preferred shareholders (as required by the Series
F-2 Certificate of Designation in the event the Company did not
uplist to the NASDAQ stock exchange or file its clinical data
intended for FDA approval of LuViva by December 31, 2021). As of
March 31, 2022, accrued dividends totaled $91,592.
Powerup (Series G Convertible Preferred Stock)
During January 2021, the Company finalized an investment by Power
Up Lending Group Ltd. Power Up invested $78,500, net to the Company
is $75,000, for 91,000 shares of Series G preferred stock with
additional tranches of financing up to $925,000 in the aggregate
over the terms of the Series G preferred stock. Series G will be
non-voting on any matters requiring shareholder vote. The Series G
Preferred Stock will have cumulative dividends at the rate per
share of 8% per annum. At any time during the period indicated
below, after the date of the issuance of shares of Series G
preferred stock, the Company will have the right, at the Company’s
option, to redeem all of the shares of Series G preferred stock by
paying an amount equal to: (i) the number of shares of Series G
preferred stock multiplied by then stated value (including accrued
dividends); (ii) multiplied by the corresponding percentage as
follows: Day 1-60, 105%; Day 61-90, 110%; Day 91-120, 115%; and Day
121-180, 122%. After the expiration of the 180 days following the
issuance date, except for mandatory redemption, the Company shall
have no right to redeem the Series G preferred stock. Mandatory
redemption occurs within 24 months. In addition, if the Company
does not redeem the Series G preferred stock, then Power Up will
have the option to convert to common stock shares. The variable
conversion price will be the value equal to a discount of 19% off
of the trading price; which is calculated as the average of the
three lowest closing bid prices over the last fifteen trading days.
The conversion of Series G Preferred is subject to a 4.99%
beneficial ownership limitation, which may be increased to 9.99% at
the election of the holder of the Series G Preferred. The Company
has redeemed all of the Series G preferred stock and the balance is
paid.
During February 2021, the Company finalized an investment by Power
Up Lending Group Ltd. Power Up invested $53,500, net to the Company
is $50,000, for 62,000 shares of Series G preferred stock with
additional tranches of financing up to $925,000 in the aggregate
over the terms of the Series G preferred stock. Series G will be
non-voting on any matters requiring shareholder vote. The Series G
Preferred Stock will have cumulative dividends at the rate per
share of 8% per annum. At any time during the period indicated
below, after the date of the issuance of shares of Series G
preferred stock, the Company will have the right, at the Company’s
option, to redeem all of the shares of Series G preferred stock by
paying an amount equal to: (i) the number of shares of Series G
preferred stock multiplied by then stated value (including accrued
dividends); (ii) multiplied by the corresponding percentage as
follows: Day 1-60, 105%; Day 61-90, 110%; Day 91-120, 115%; and Day
121-180, 122%. After the expiration of the 180 days following the
issuance date, except for mandatory redemption, the Company shall
have no right to redeem the Series G preferred stock. Mandatory
redemption occurs within 24 months. In addition, if the Company
does not redeem the Series G preferred stock then Power Up will
have the option to convert to common stock shares. The variable
conversion price will be the value equal to a discount of 19% off
of the trading price; which is calculated as the average of the
three lowest closing bid prices over the last fifteen trading days.
The conversion of Series G Preferred is subject to a 4.99%
beneficial ownership limitation, which may be increased to 9.99% at
the election of the holder of the Series G Preferred.
Due to the mandatory redemption feature of the Series G preferred
stock, the total amount of 125,000 was recorded as a liability. On
June 4, 2021, the Company redeemed the January 2021 investment of
$75,000 for $114,597, this $39,597 difference was recorded as
interest expense. On July 8, 2021, the Company redeemed the
February 2021 investment of $50,000 for $78,094. The difference of
28,094 was recorded as interest expense. As of March 31, 2022 and
December 31, 2021, the amount outstanding was nil.
Warrants
The following table summarizes transactions involving the Company’s
outstanding warrants to purchase common stock for the three months
ended March 31, 2022:
|
|
Warrants
(Underlying Shares)
|
|
|
Weighted-Average Exercise Price Per Share
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2021
|
|
|
27,669,634 |
|
|
$ |
0.29 |
|
Warrants exercised
|
|
|
(2,284,324 |
) |
|
$ |
0.16 |
|
Outstanding, March 31, 2022
|
|
|
25,385,310 |
|
|
$ |
0.30 |
|
5. STOCK OPTIONS
The new Stock Plan (the “Plan”) allows for the issuance of
incentive stock options, nonqualified stock options, and stock
purchase rights. The exercise price of options was determined by
the Company’s board of directors, but incentive stock options were
granted at an exercise price equal to the fair market value of the
Company’s common stock as of the grant date. Options historically
granted have generally become exercisable over four years and
expire ten years from the date of grant. The plan provides for
stock options to be granted up to 10% of the outstanding common
stock shares.
There was no stock option activity during the three months ended
March 31, 2022. The following table summarizes the Company’s
outstanding and exercisable stock options as of March 31, 2022:
|
|
Number of Shares
|
|
|
Weighted-Average Exercise Price Per Share
|
|
|
Weighted-Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value of In-the-Money
Options
(in thousands)
|
|
|
|
|
|
|
|
|
Options outstanding as of March 31, 2022
|
|
|
1,500,000 |
|
|
$ |
0.49 |
|
|
8.3 years
|
|
$ |
240 |
|
Options exercisable as of March 31, 2022
|
|
|
1,045,227 |
|
|
$ |
0.49 |
|
|
8.3 years
|
|
$ |
167 |
|
The aggregate intrinsic value is calculated as the difference
between the Company’s closing stock price as of March 31, 2022 and
the exercise price, multiplied by the number of options. As of
March 31, 2022, there was $219,558 of unrecognized stock-based
compensation expense. Such costs are expected to be recognized over
a weighted average period of approximately 1.25 years. The
weighted-average fair value of awards granted was nil and $0.47
during the three months ended March 31, 2022 and 2021,
respectively.
The Company recognizes compensation expense for stock option awards
on a straight-line basis over the applicable service period of the
award. The service period is generally the vesting period. The
Black-Scholes option pricing model and the following
weighted-average assumptions were used to estimate the fair value
of awards granted during the three months ended March 31, 2021:
|
|
March 31,
|
|
|
|
2021
|
|
Expected term (years)
|
|
|
10 years
|
|
Volatility
|
|
|
153.12 |
% |
Risk-free interest rate
|
|
|
0.98 |
% |
Dividend yield
|
|
|
0.00 |
% |
6. LITIGATION AND CLAIMS
From time to time, the Company may be involved in various legal
proceedings and claims arising in the ordinary course of business.
Management believes that the dispositions of these matters,
individually or in the aggregate, are not expected to have a
material adverse effect on the Company’s financial condition.
However, depending on the amount and timing of such disposition, an
unfavorable resolution of some or all of these matters could
materially affect the future results of operations or cash flows in
a particular year.
As of March 31, 2022, and December 31, 2021, there was no accrual
recorded for any potential losses related to pending
litigation.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The below table presents total operating lease right-of-use assets
and lease liabilities as of March 31, 2022:
|
|
(in thousands)
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2022
|
|
Operating lease right-of-use assets
|
|
$ |
355 |
|
Operating lease liabilities
|
|
$ |
377 |
|
The table below presents the maturities of operating lease
liabilities as of March 31, 2022:
|
|
(in thousands)
|
|
|
|
Operating
|
|
|
|
Leases
|
|
2022 (remaining)
|
|
$ |
82 |
|
2023
|
|
|
112 |
|
2024
|
|
|
115 |
|
2025
|
|
|
118 |
|
2026
|
|
|
50 |
|
Total future lease payments
|
|
|
477 |
|
Less: discount
|
|
|
(100 |
) |
Total lease liabilities
|
|
$ |
377 |
|
The table below presents the weighted-average remaining lease term
and discount rate used in the calculation of operating lease
right-of-use assets and lease liabilities:
|
|
Three Months Ended March 31,
|
|
|
|
2022
|
|
Weighted average remaining lease term (years)
|
|
|
4.2 |
|
Weighted average discount rate
|
|
|
11.4 |
% |
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 (current director Richard Blumberg is
the designee).
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).
On January 22, 2020, the Company entered into a promotional
agreement with a related party, which is partially owned by Mr.
Blumberg, to provide investor and public relations services for a
period of two years. As compensation for these services, the
Company will issue a total of 5,000,000 warrants, broken into four
tranches of 1,250,000. The warrants have a strike price of $0.25
and are subject to vesting based upon the close of the Series D
offering and a minimum share price based on the 30-day VWAP. If the
minimum share price per the terms of the agreement is not achieved,
the warrants will expire three years after the issuance date. The
warrants were valued using the Black Scholes model on the grant
date of January 22, 2020, which resulted in a total fair value of
$715,000. The Company did not appropriately expense the services
received in connection with this agreement in 2020. During the
three months ended March 31, 2022, the Company recognized $79,444
of consulting expenses as a result of this agreement. Unrecognized
consulting expense to be recognized under this agreement is nil as
of March 31, 2022.
On March 10, 2021, the Company entered into a consulting agreement
with Richard Blumberg. As a result of the consulting agreement Mr.
Blumberg provided $350,000, which was recorded to subscription
receivable, to the Company in exchange for the following: (1) on
September 26, 2021, 900,000 3-year warrants with an exercise price
of $0.30 and 400,000 common stock shares; (2) on March 26, 2022,
900,000 3-year warrants with an exercise price of $0.40 and 400,000
common stock shares; (3) on September 26, 2022, 900,000 3-year
warrants with an exercise price of $0.50 and 400,000 common stock
shares; and (4) on March 26, 2023, 900,000 3-year warrants with an
exercise price of $0.60 and 400,000 common stock shares.
During the year ended December 31, 2021, the consulting agreement
was amended to clarify that $350,000 is not intended to be debt and
will not be required to be repaid in cash. Additionally, issuance
of the warrants is now predicated on the Company receiving funding
receipts of $1,000,000, whether from a financing, series of
financing, or gross sales. The amended agreement clarified that the
warrants issued to Mr. Blumberg are compensation for services,
which involve obtaining financing. The Company will recognize
expense for the services equal to the fair value of the warrants
issued to Mr. Blumberg as the services are provided, which will
coincide with the successful execution of a financing agreement
over $1,000,000.
Other Commitments
On July 24, 2019, Shandong Yaohua Medical Instrument Corporation
(“SMI”), agreed to modify its existing agreement. Under the terms
of this modification, the Company agreed to grant (1) exclusive
manufacturing rights, excepting the disposable cervical guides for
the Republic of Turkey, and the final assembly rights for Hungary,
and (2) exclusive distribution and sales for LuViva in
jurisdictions, subject to the following terms and conditions.
First, SMI shall complete the payment for parts, per the purchase
order, for five additional LuViva devices. Second, in consideration
for the $885,144 that the Company received, SMI will receive 12,147
common stock shares. Third, SMI shall honor all existing purchase
orders it has executed to date with the Company, in order to
maintain jurisdiction sales and distribution rights. If SMI needs
to purchase cervical guides, then it will do so at a cost including
labor, plus ten percent markup. The Company will provide 200
cervical guides at no cost for the clinical trials. Fourth, the
Company and SMI will make best efforts to sell devices after CFDA
approval. With an initial estimate of year one sales of 200 LuViva
devices; year two sales of 500 LuViva devices; year three sales of
1,000 LuViva devices; and year four sales of 1,250 LuViva devices.
Fifth, SMI shall pay for entire costs of securing approval of
LuViva with the Chinese FDA. Sixth, SMI shall arrange, at its sole
cost, for a manufacturer in China to build tooling to support
manufacturing. In addition, SMI retains the right to manufacture
for China, Hong Kong, Macau and Taiwan, where SMI has distribution
and sales rights. For each single-use cervical guide sold by SMI in
the jurisdictions, SMI shall transfer funds to escrow agent at a
rate of $1.90 per device chip. If within 18 months of the license’s
effective date, SMI fails to achieve commercialization of LuViva in
China, SMI shall no longer have any rights to manufacture,
distribute or sell LuViva. Commercialization is defined as: filing
an application with the Chinese FDA for the approval of LuViva; any
assembly or manufacture of the devices or disposables that begins
in China; and purchase of at least 10 devices and disposables for
clinical evaluations and regulatory use and or sales in the
jurisdictions.
On August 12, 2021, the Company executed an amendment to its
agreement with SMI, which established a payment schedule for the
balance owed by SMI to the Company for outstanding purchase orders.
The remaining balance owed for outstanding purchase orders was
$23,445 as of March 31, 2022. Under the terms of the amended
agreement, the parties agreed that if by October 30, 2022, SMI
fails to achieve commercialization of LuViva in China, SMI shall no
longer have any rights to manufacture, distribute or sell
LuViva.
Contingencies
The current outbreak of the Coronavirus SARS-CoV-2, the pathogen
responsible for COVID-19, which has already had an impact on
financial markets, could result in additional repercussions to the
Company’s operating business, including but not limited to, the
sourcing of materials for product candidates, manufacture of
supplies for preclinical and/or clinical studies, delays in
clinical operations, which may include the availability or the
continued availability of patients for trials due to such things as
quarantines, conduct of patient monitoring and clinical trial data
retrieval at investigational study sites.
The future impact of the outbreak is highly uncertain and cannot be
predicted, and the Company cannot provide any assurance that the
outbreak will not have a material adverse impact on the Company’s
operations or future results or filings with regulatory health
authorities. The extent of the impact to the Company, if any, will
depend on future developments, including actions taken to contain
the coronavirus.
The Russia-Ukraine conflict and the sanctions imposed in response
to this crisis could result in repercussions to our
operating business, including delays in obtaining regulatory
approval to market our products in Russia. The future impact of the
conflict is highly uncertain and cannot be predicted, and we cannot
provide any assurance that the conflict will not have a material
adverse impact on our operations or future results or filings with
regulatory health authorities.
8. NOTES PAYABLE
Short Term Notes Payable
At March 31, 2022 and December 31, 2021, the Company maintained
short term notes payable to related and non-related parties
totaling approximately $43,253 and $87,615, respectively. These
notes are short term, straight-line amortizing notes. The notes
carry annual interest rates between 4.3% and 16%, or 18% in the
event of default.
On July 4, 2021, the Company entered into a premium finance
agreement to finance its insurance policies totaling $117,560. The
note requires monthly payments of $11,968, including interest at
4.3% and matured in April 2022. As of March 31, 2022, the balance
on that note was $11,968.
During 2019, the Company issued promissory notes to Mr. Cartwright
totaling $45,829. The note was initially issued with 0% interest,
however interest increased to 6.0% interest 90 days after the
Company received $1,000,000 in financing proceeds. As of March 31,
2022, the balance on the notes was $31,285.
On December 21, 2016 and January 19, 2017, the Company issued
promissory notes to Mr. Fowler, in the amounts of approximately
$12,500 and $13,900. The notes were initially issued with 0%
interest and then went into default with an interest rate of 18%.
As part of the March 22, 2021 exchange agreement these notes were
combined into one short term note payable of $26,400 and $18,718 in
principal and interest of the two previous notes, respectively, for
the total balance of $45,118. The aforementioned agreement brought
the note current and will accrue interest at a rate of 6.0%. The
note carries a monthly payment of $3,850. As of March 31, 2022, the
note was paid in full.
The following table summarizes short-term notes payable, including
related parties:
|
|
Short-term notes payable, including related
parties
|
|
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
Dr. Cartwright
|
|
$ |
31 |
|
|
$ |
34 |
|
Mr. Fowler
|
|
|
- |
|
|
|
6 |
|
Premium Finance (insurance)
|
|
|
12 |
|
|
|
48 |
|
Short-term notes payable
|
|
$ |
43 |
|
|
$ |
88 |
|
The short-term notes payable due to related parties was $31,285 at
March 31, 2022 and $40,000 of the $88,000 balance at December 31,
2021.
9. SHORT-TERM CONVERTIBLE DEBT
Short-term Convertible Notes Payable
Auctus
On December 17, 2019, the Company entered into a securities
purchase agreement and convertible note with Auctus. The
convertible note issued to Auctus will be for a total of $2.4
million. The first tranche of $700,000 was received in December
2019 and matured December 17, 2021 and accrued interest at a rate
of ten percent (10%). The note may not have been prepaid in whole
or in part except as otherwise explicitly allowed. Any amount of
principal or interest on the note which was not paid when due shall
bore interest at the rate of the lessor of 24% or the maximum
permitted by law (the “default interest”). The variable conversion
prices equaled the lesser of: (i) the lowest trading price on the
issue date, and (ii) the variable conversion price. The variable
conversion price was 95% multiplied by the market price (the market
price means the average of the five lowest trading prices during
the period beginning on the issue date and ending on the maturity
date), minus $0.04 per share, provided however that in no event
could the variable conversion price be less than $0.15. If an event
of default under this note occurred and/or the note was not
extinguished in its entirety prior to December 17, 2020 the $0.15
price floor no longer applied.
In connection with the first tranche of $700,000, the Company
issued 7,500,000 warrants to purchase common stock at an exercise
price of $0.20. The fair value of the warrants at the date of
issuance was $745,972; $635,000 was allocated to the warrant
liability and a loss of $110,972 was recorded at the date of
issuance for the amount of the fair value in excess of the net
proceeds received of $635,000. The $700,000 proceeds were received
net of debt issuance costs of $65,000 (net proceeds of $635,000,
after administrative and legal expenses Company received $570,000).
The Company used $65,000 of the proceeds to make a partial payment
of the $89,250 convertible promissory note issued on July 3, 2018
to Auctus. The Company made a $700,000 payment on June 1, 2021,
which resulted in a prepayment penalty of $350,000 being assessed
to the Company, which remained outstanding as of March 31, 2022.
The Company recorded this prepayment penalty as interest expense.
Interest will not be assessed on the prepayment penalty. As of
March 31, 2022 and December 31, 2021, the outstanding amount of the
note was nil.
On May 27, 2020, the Company received the second tranche in the
amount of $400,000, from the December 17, 2019 securities purchase
agreement and convertible note with Auctus. The net amount paid to
the Company was $313,000 This second tranche is part of the
convertible note issued to Auctus for a total of $2.4 million of
which $700,000 has already been provided by Auctus. The note
maturity date is May 27, 2022 and the note accrues interest at a
rate of ten percent (10%). The note may not be prepaid in whole or
in part except as otherwise explicitly allowed. Any amount of
principal or interest on the note which is not paid when due shall
bear interest at the rate of the lessor of 24% or the maximum
permitted by law (the “default interest”). The variable conversion
prices shall equal the lesser of: (i) the lowest trading price on
the issue date, and (ii) the variable conversion price. The
variable conversion price shall mean 95% multiplied by the market
price (the market price means the average of the five lowest
trading prices during the period beginning on the issue date and
ending on the maturity date), minus $0.04 per share, provided
however that in no event shall the variable conversion price be
less than $0.15. If an event of default under this note occurs
and/or the note is not extinguished in its entirety prior to
December 17, 2020 the $0.15 price shall no longer apply. The last
tranche of $1.3 million will be received within 60 days of the S-1
registration statement becoming effective. The conversion price of
the notes will be at market value with a minimum conversion amount
of $0.15. In addition, as part of this transaction the Company was
required to pay a 2.0% fee to a registered broker-dealer. As of
March 31, 2022 and December 31, 2021, $400,000 of principal
remained outstanding and accrued interest totaled $74,778 and
$64,778, respectively. Further, as of March 31, 2022 and December
31, 2020, the Company had unamortized debt issuance costs of $5,211
and $13,586. As of March 31, 2022 and December 31, 2021, the
estimated fair value of the derivative liability for the bifurcated
conversion option was $38,129 and $31,889, respectively.
Convertible Notes in Default
On March 31, 2020, we entered into a securities purchase agreement
with Auctus Fund, LLC for the issuance and sale to Auctus of
$112,750 in aggregate principal amount of a 12% convertible
promissory note. On June 30, 2020, we issued the note to Auctus and
issued 250,000 five-year common stock warrants at an exercise price
of $0.16. On April 3, 2020, we received net proceeds of $100,000.
The note matured on January 26, 2021 and accrues interest at a rate
of 12% per year. We may not prepay the note, in whole or in part.
After the 90th calendar day after the issuance date and
ending on the later of maturity date and the date of payment of the
default amount, Auctus may convert the note, at any time, in whole
or in part, provided such conversion does not provide Auctus with
more than 4.99% of the outstanding common share stock. The
conversion may be converted into shares of the our common stock, at
a conversion price equal to the lesser of: (i) the lowest Trading
Price during the twenty-five (25) trading day period on the last
trading prior to the issue date and (ii) the variable conversion
price (55% multiplied by the market price, market price means the
lowest trading price for the common stock during the twenty-five
(25) trading day period ending on the latest complete trading day
prior to the conversion date. Trading price is the lowest trade
price on the trading market as reported. The note includes
customary events of default provisions and a default interest rate
of 24% per year. As of March 31, 2022 and December 31, 2021, the
outstanding balance on the note was $161,184 (which includes a
default penalty of $48,434. As of March 31, 2022 and December 31,
2021, accrued interest of $46,099 and $36,428 are included in
accrued expenses on the accompanying consolidated balance sheet,
respectively.
The following table summarizes the Short-term Convertible Notes
Payable, including debt in default (in thousands):
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
Auctus Tranche 2
|
|
$ |
400 |
|
|
$ |
400 |
|
Auctus prepayment penalty
|
|
|
350 |
|
|
|
350 |
|
Auctus (March 31, 2020 Note)
|
|
|
161 |
|
|
|
161 |
|
Debt discount and issuance costs to be amortizaed
|
|
|
(5 |
) |
|
|
(14 |
) |
Convertible notes payable - short-term
|
|
$ |
906 |
|
|
$ |
897 |
|
On June 2, 2021, we entered into an exchange agreement with Auctus,
which was amended on February 1, 2022. Pursuant to this agreement,
Auctus agreed to exchange an aggregate of $668,290 of outstanding
notes (the “Notes”), including accrued interest, and the associated
warrants issued in connection with the Notes (the warrants, for the
purpose of the exchange, are valued at, in the aggregate,
$1,681,707) into unregistered units of our common stock, warrants
and prefunded warrants otherwise in the form and ratios issued in a
proposed underwritten public offering on the Nasdaq Capital Markets
(the “Nasdaq Offering”).
The exchange price will be on a $1 for $1 basis such that Auctus
will receive $2,349,997 of units consisting of common stock,
warrants and prefunded warrants. The units being issued in the
exchange with Auctus are unregistered and are being issued pursuant
to Section 4(a)(2) under the Securities Act of 1933, as amended.
Additionally, the units and the common stock underlying the units
will be subject to a lock up agreement with the underwriters until
the earlier of 120 days after the Nasdaq Offering and the date that
the daily volume weighted average price of the common stock exceeds
200% of the Nasdaq Offering price for at least five consecutive
trading days. Further, the termination date of the June 2, 2021
agreement was extended to April 15, 2022. The $350,000 related to
default penalties will be exchanged into $350,000 of securities
offered in the Nasdaq Offering.
10. LONG-TERM DEBT
Long-term Debt – Related
Parties
On July 14, 2018, the Company entered into an exchange agreement
with Dr. Faupel, whereby Dr. Faupel agreed to exchange outstanding
amounts due to him for loans, interest, bonus, salary and vacation
pay in the amount of $660,895 for a $207,111 promissory note dated
September 4, 2018. On July 20, 2018, the Company entered into an
exchange agreement with Dr. Cartwright, whereby Dr. Cartwright
agreed to exchange outstanding amounts due to him for loans,
interest, bonus, salary and vacation pay in the amount of
$1,621,499 for a $319,000 promissory note dated September 4, 2018
that incurs interest at a rate of 6% per annum.
On July 24, 2019, Dr. Faupel and Mr. Cartwright agreed to an
addendum to the debt restructuring exchange agreement and to modify
the terms of the original exchange agreement. Under this
modification Dr. Faupel and Mr. Cartwright agreed to extend the
note to be due in full on the third anniversary of that
agreement.
On February 19, 2021, the Company entered into new promissory notes
replacing the original notes from September 4, 2018, with Mark
Faupel and Gene Cartwright. For Dr. Cartwright the principal amount
on the new note was $267,085, matures on February 18, 2023, and
will accrue interest at a rate of 6.0%. For Dr. Faupel the
principal amount on the new note was $153,178, matures on February
18, 2023, and will accrue interest at a rate of 6.0%. The
modifications extended the maturity date on both of the notes.
On February 19, 2021, the Company exchanged $100,000 and $85,000 of
long-term debt for Dr. Cartwright and Dr. Faupel in exchange for
100 and 85 shares of Series F2 Preferred Stock, respectively.
The table below summarizes the detail of the exchange
agreement:
For Dr. Faupel:
|
|
|
|
|
|
|
|
Salary
|
|
$ |
134 |
|
Bonus
|
|
|
20 |
|
Vacation
|
|
|
95 |
|
Interest on compensation
|
|
|
67 |
|
Loans to Company
|
|
|
196 |
|
Interest on loans
|
|
|
149 |
|
Total outstanding prior to exchange
|
|
|
661 |
|
|
|
|
|
|
Amount forgiven in prior years
|
|
|
(454 |
) |
Amount exchanged for Series F-2 Preferred Stock
|
|
|
(85 |
) |
Total interest accrued through December 31, 2021
|
|
|
39 |
|
Balance outstanding at December 31, 2021
|
|
$ |
161 |
|
|
|
|
|
|
Interest accrued through March 31, 2022
|
|
|
2 |
|
Balance outstanding at March 31, 2022
|
|
$ |
163 |
|
For Dr.Cartwright
|
|
|
|
|
|
|
|
Salary
|
|
$ |
337 |
|
Bonus
|
|
|
675 |
|
Loans to Company
|
|
|
528 |
|
Interest on loans
|
|
|
81 |
|
Total outstanding prior to exchange
|
|
|
1,621 |
|
|
|
|
|
|
Amount forgiven in prior years
|
|
|
(1,302 |
) |
Amount exchanged for Series F-2 Preferred Stock
|
|
|
(100 |
) |
Total interest accrued through December 31, 2021
|
|
|
62 |
|
Balance outstanding at December 31, 2021
|
|
$ |
281 |
|
|
|
|
|
|
Interest accrued through March 31, 2022
|
|
|
4 |
|
Balance outstanding at March 31, 2022
|
|
$ |
285 |
|
On March 22, 2021, the Company entered into an exchange agreement
with Richard Fowler. As of December 31, 2020, the Company owed Mr.
Fowler $546,214 ($412,624 in deferred salary and $133,590 in
accrued interest). The Company exchanged $50,000 of the amount owed
of $546,214 for 50 share of Series F-2 Preferred Shares
(convertible into 200,000 common stock shares), and a $150,000
unsecured note. The note accrues interest at the rate of 6% (18% in
the event of default) beginning on March 22, 2022 and is payable in
monthly installments of $3,580 for four years, with the first
payment due on March 15, 2022. The effective interest rate of the
note is 6.18%. During the three months ended March 31, 2022, Mr.
Fowler forgave $6,232 of the outstanding balance and may forgive up
to $253,429 of the remaining principal and accrued interest if the
Company complies with the repayment plan described above. The
reduction in the outstanding balance met the criteria for troubled
debt. The basic criteria are that the borrower is troubled, i.e.,
they are having financial difficulties, and a concession is granted
by the creditor. The outstanding principal amount owed on the note
was $146,400 as of March 31, 2022, of which $26,586 is included in
“Current portion of long-term debt, related parties” and the
remainder of which is included in “Long-term debt, related parties”
on the consolidated balance sheets.
Future debt obligations as shown below include: $284,867, $163,376,
and $146,400 for a total of $594,643 for Dr. Cartwright, Dr.
Faupel, and Mr. Fowler, respectively. Future debt obligations as of
March 31, 2022 for debt owed to related parties is as follows (in
thousands):
Year
|
|
Amount
|
|
2022
|
|
$ |
27 |
|
2023
|
|
|
485 |
|
2024
|
|
|
39 |
|
2025
|
|
|
41 |
|
2026
|
|
|
3 |
|
Thereafter
|
|
|
- |
|
Total
|
|
$ |
595 |
|
Small Business Administration Loan
On May 4, 2020, the Company received a loan from the Small Business
Administration (SBA) pursuant to the Paycheck Protection Program
(PPP) as part of the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) in the amount of $50,184. The loan bears interest
at a rate of 1.00%, and matures in 24 months, with the principal
and interest payments being deferred until the date of forgiveness
with interest accruing, then converting to monthly principal and
interest payments, at the interest rate provided herein, for the
remaining eighteen (18) months. Lender will apply each payment
first to pay interest accrued to the day Lender received the
payment, then to bring principal current, and will apply any
remaining balance to reduce principal. Payments must be made on the
same day as the date of this Note in the months they are due.
Lender shall adjust payments at least annually as needed to
amortize principal over the remaining term of the Note. Under the
provisions of the PPP, the loan amounts will be forgiven as long
as: the loan proceeds are used to cover payroll costs, and most
mortgage interest, rent, and utility costs over a 24-week period
after the loan is made; and employee and compensation levels are
maintained. In addition, payroll costs are capped at $100,000 on an
annualized basis for each employee. Not more than 40% of the
forgiven amount may be for non-payroll costs. As of March 31, 2022
and December 31, 2021, the outstanding balance was $4,491 (this
amount is presented in current portion of long-term debt) and
$11,181, including $407 and $385 in accrued interest,
respectively.
10% Senior Unsecured Convertible Debenture
On May 17, 2021, the Company issued 10% Senior Unsecured
convertible debentures to investors, which mature on May 17, 2024
(the “Maturity Date”). The Company subscribed $1,130,000 of the
$1,000 convertible debentures. The terms of the debentures are as
follows: 1) the principal amount of some or all of the convertible
debentures and accrued interest are convertible into common stock
shares at the holder’s option, at a price of $0.50 per common stock
share (the “conversion price”), subject to adjustment in certain
events, at any time prior to maturity date; 2) upon successful
uplist to a U.S. National Exchange, the note will automatically
convert into the uplisting financing; 3) each debenture unit will
have a right to 1,000 warrants for common stock shares, warrants
have an exercise price of $0.80 and an expiration date of May 17,
2023; 4) if a Change of Control (as defined in the Convertible
Debenture Certificate) occurs prior to the Maturity Date, unless
the holder elects in writing to convert the Convertible Debentures
into common shares, the Company will repay in cash upon the closing
of such Change of Control all outstanding principal and accrued
interest under each Convertible Debenture plus a Change of Control
premium equal to an additional 3% of the outstanding principal sum
under such Convertible Debenture. Prior to the closing of an Change
of Control, in lieu of repayment as set forth in the preceding
sentence, the holder has the right to elect in writing to convert,
effective immediately prior to the effective date of such Change of
Control, all outstanding principal and accrued Interest under the
Convertible Debentures into common shares at the Conversion Price;
5) Subject to a holder’s option of electing conversion prior to the
Redemption Date (as such term is defined below), on or after the
date that is 24 months from the Closing Date if the daily volume
weighted average trading price of the common shares is $1.50 per
common share or more for each trading day over a 30 consecutive
trading day period, the Company may, at any time (the “Redemption
Date”), at its option, redeem all, or any portion of the
Convertible Debentures for either: (i) a cash payment (in the form
of a certified cheque or bank draft) that is equal to all
outstanding principal and accrued interest under each Convertible
Debenture up to the Redemption Date; or (ii) by issuing and
delivering common shares to the holders of Convertible Debentures
at a deemed price of US$0.50 per common share that is equal to all
outstanding principal and accrued interest under each Convertible
Debenture up to the Redemption Date, or any combination of (i) or
(ii), upon not less than 30 days and not more than 60 days prior
written notice in the manner provided in the Debenture Certificate,
to the holder of Convertible Debentures.
At March 31, 2022 and December 31, 2021, the balance due on the 10%
Senior Secured Convertible Debenture was $1,130,000 and total
accrued interest was $28,250 and $73,326, respectively. The bond
payable discount and unamortized debt issuance costs as of March
31, 2022 and December 31, 2021 are presented below (in
thousands):
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
10% Senior Unsecured Convertible Debentures
|
|
$ |
1,130 |
|
|
$ |
1,130 |
|
Debt Issuance costs to be amortized
|
|
|
(62 |
) |
|
|
(69 |
) |
Debt Discount
|
|
|
(216 |
) |
|
|
(241 |
) |
Long-term convertible debt
|
|
$ |
852 |
|
|
$ |
820 |
|
6% Unsecured Promissory Note
On July 9, 2020, we entered into an exchange agreement with Mr.
Bill Wells (a former employee). In lieu of agreeing to dismiss
approximately half of what was owed to him, or $220,000, Mr. Wells
received the following: (i) cash payments of $ 20,000; (ii) an
unsecured promissory note in the amount of $90,000 to be executed
within 30 days of completing new financing(s) totaling at least
$3.0 million, (iii) 66,000 common share stock options that vest at
a rate of 3,667 per month and have a $0.49 exercise price (if two
consecutive payments in (ii) are not made the stock options will be
canceled and a cash payment will be required; and (iv) the total
amount of forgiveness by creditor of approximately $110,000 shall
be prorated according to amount paid.
During the year ended December 31, 2021, the Company closed a
financing round that exceeded the $3.0 million threshold and issued
an unsecured promissory note in the amount of $97,052 to Mr. Wells.
The note, for which monthly installment payments of $5,000 are due,
matures 18 months after the issuance date and incurs interest at a
rate of 6.0% per annum. During the three months ended March 31,
2022, the Company made payments of $35,000 to Mr. Wells, which
resulted in forgiveness of $35,000 of the remaining balance of
accrued compensation. The reduction in the outstanding balance met
the criteria for troubled debt. The basic criteria are that the
borrower is troubled, i.e., they are having financial difficulties,
and a concession is granted by the creditor. As of March 31, 2022,
the total amount owed to Mr. Wells (principal and accrued
interest), was $65,299, which is included in “Current portion of
long-term debt” on the consolidated balance sheet.
11. INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share attributable to common
stockholders, amounts are computed by dividing the net income
(loss) plus preferred stock dividends and deemed dividends on
preferred stock by the weighted average number of shares
outstanding during the year.
Diluted net income (loss) per share attributable to common
stockholders amounts are computed by dividing the net income (loss)
plus preferred stock dividends, deemed dividends on preferred
stock, after-tax interest on convertible debt and convertible
dividends by the weighted average number of shares outstanding
during the year, plus Series C, Series D, Series E, Series F and
Series F-2 convertible preferred stock, Series G preferred stock,
convertible debt, convertible preferred dividends and warrants
convertible into common stock shares.
The following table sets forth pertinent data relating to the
computation of basic and diluted net loss per share attributable to
common shareholders (in thousands, except for per-share data):
|
|
March 31,
|
|
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,055 |
) |
|
|
(572 |
) |
Basic weighted average number of shares outstanding
|
|
|
20,683 |
|
|
|
13,172 |
|
Net loss per share (basic)
|
|
|
(0.05 |
) |
|
|
(0.04 |
) |
Diluted weighted average number of shares outstanding
|
|
|
20,683 |
|
|
|
13,172 |
|
Net loss per share (diluted)
|
|
|
(0.05 |
) |
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
Dilutive equity instruments (number of equivalent
units):
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
917 |
|
|
|
- |
|
Preferred stock
|
|
|
15,572 |
|
|
|
17,994 |
|
Convertible debt
|
|
|
2,018 |
|
|
|
315 |
|
Warrants
|
|
|
13,609 |
|
|
|
17,400 |
|
Total Dilutive instruments
|
|
|
32,116 |
|
|
|
35,709 |
|
For period of net loss, basic and diluted earnings per share are
the same as the assumed exercise of warrants and the conversion of
convertible debt are anti-dilutive.
Troubled Debt Restructurings - 2022
During the three months ended March 31, 2022, two of the Company’s
creditors forgave $41,232 of debt. The reductions in the
outstanding balances met the criteria for troubled debt. The basic
criteria are that the borrower is troubled, i.e., they are having
financial difficulties, and a concession is granted by the
creditor. As of March 31, 2022, the troubled debt restructurings in
total would have decreased the net loss by $41,232, with no impact
to net loss per share.
Troubled Debt Restructurings - 2021
During the three months ended March 31, 2021, the Company
restructured several debt agreements that met the criteria for
troubled debt. The basic criteria are that the borrower is
troubled, i.e., they are having financial difficulties, and a
concession is granted by the creditor. As of March 31, 2022, the
troubled debt restructurings in total would have decreased the net
loss by $972,000, causing the per share calculation to change from
.04 to .11 net loss per share.
12. SUBSEQUENT EVENTS
Auctus Exchange Agreement
On April 14, 2022, we entered into an agreement with Auctus that
extended the April 15, 2022 deadline to May 15, 2022. See Footnote
9 – “Short-Term Convertible Debt” for information on the
exchange agreement.
Series D Exchange Agreements
Subsequent to March 31, 2022, the Company entered into various
agreements with Series D Preferred shareholders, pursuant to which
each holder separately agreed to exchange their Series D Preferred
shares into the Company’s common shares (in accordance with their
existing Series D Preferred Share Agreements). In addition, the
holders agreed to exchange 650,000 common stock warrants with a
strike price of $0.25 for 650,000 warrants with a strike price of
$0.20, which were required to be immediately exercised. The Company
received $130,000 from the holders for exercises of the
aforementioned warrants.
Common Stock Issuances
Subsequent to March 31, 2022, we issued 1,864,000 shares of common
stock for the conversion of Series F-2 Preferred shares.
Subsequent to March 31, 2022, we issued 1,360,000 shares of common
stock for the conversion of Series F Preferred shares.
Subsequent to March 31, 2022, we issued 320,000 shares of common
stock for the conversion of Series E Preferred shares.
Subsequent to March 31, 2022, we issued 650,000 shares of common
stock for warrant exercises.
Subsequent to March 31, 2022, we issued 975,000 shares of common
stock for the conversion of Series D Preferred shares.
Subsequent to March 31, 2022, we 22,829 shares of common stock for
Series D Preferred dividends.
Subsequent to March 31, 2022, we issued 43,470 shares of common
stock for Series E Preferred dividends.
Subsequent to March 31, 2022, we issued 16,987 shares of common
stock for Series F Preferred dividends.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on
Form 10-Q may contain “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act), which provides a “safe
harbor” for forward-looking statements made by us. All statements,
other than statements of historical facts, including statements
concerning our plans, objectives, goals, beliefs, business
strategies, future events, business conditions, results of
operations, financial position, business outlook, business trends,
and other information, may be forward-looking statements. Words
such as “might,” “will,” “may,” “should,” “estimates,” “expects,”
“continues,” “contemplates,” “anticipates,” “projects,” “plans,”
“potential,” “predicts,” “intends,” “believes,” “forecasts,”
“future,” and variations of such words or similar expressions are
intended to identify forward-looking statements. The
forward-looking statements are not historical facts, and are based
upon our current expectations, beliefs, estimates and projections,
and various assumptions, many of which, by their nature, are
inherently uncertain and beyond our control. Our expectations,
beliefs, estimates, and projections are expressed in good faith and
we believe there is a reasonable basis for them. However, there can
be no assurance that management’s expectations, beliefs, estimates,
and projections will occur or can be can achieved and actual
results may vary materially from what is expressed in or indicated
by the forward-looking statements.
These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from historical results or anticipated results, including those
that may be set forth under “Risk Factors” below and elsewhere in
this report, as well as in our annual report on Form 10-K for the
year ended December 31, 2021 and this quarterly report on Form
10-Q. Examples of these uncertainties and risks include, but are
not limited to:
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access to sufficient debt or equity capital to meet our operating
and financial needs;
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the extent of dilution of the holdings of our existing stockholders
upon the issuance, conversion or exercise of securities issued as
part of our capital raising efforts;
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the extent to which certain debt holders may call the notes to be
paid;
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the effectiveness and ultimate market acceptance of our products
and our ability to generate sufficient sales revenues to sustain
our growth and strategy plans;
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whether our products in development will prove safe, feasible and
effective;
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whether and when we or any potential strategic partners will obtain
required regulatory approvals in the markets in which we plan to
operate;
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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;
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the lack of immediate alternate sources of supply for some critical
components of our products;
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our ability to establish and protect the proprietary information on
which we base our products, including our patent and intellectual
property position;
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the current outbreak of the Coronavirus SARS-CoV-2, the pathogen
responsible for COVID-19, which has already had an impact on
financial markets, could result in additional repercussions in our
operating business, including but not limited to, the sourcing of
materials for product candidates, manufacture of supplies for
preclinical and/or clinical studies, delays in clinical operations,
which may include the availability or the continued availability of
patients for trials due to such things as quarantines, conduct of
patient monitoring and clinical trial data retrieval at
investigational study sites;
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The future impact of the outbreak is highly uncertain and cannot be
predicted, and we cannot provide any assurance that the outbreak
will not have a material adverse impact on our operations or future
results or filings with regulatory health authorities. The extent
of the impact, if any, we will depend on future developments,
including actions taken to contain the coronavirus;
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The impact of the conflict between Russia and Ukraine on economic
conditions in general and on our business and operations;
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the need to fully develop the marketing, distribution, customer
service and technical support and other functions critical to the
success of our product lines;
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the dependence on potential strategic partners or outside investors
for funding, development assistance, clinical trials, distribution
and marketing of some of our products; and
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other risks and uncertainties described from time to time in our
reports filed with the SEC.
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The following discussion should be read in conjunction with our
financial statements and notes thereto included elsewhere in this
report.
OVERVIEW
We are a medical technology company focused on developing
innovative medical devices that have the potential to improve
healthcare. Our primary focus is the sales and marketing of our
LuViva® Advanced Cervical Scan non-invasive cervical cancer
detection device. The underlying technology of LuViva primarily
relates to the use of biophotonics for the non-invasive detection
of cancers. LuViva is designed to identify cervical cancers and
precancers painlessly, non-invasively and at the point of care by
scanning the cervix with light, then analyzing the reflected and
fluorescent light.
LuViva provides a less invasive and painless alternative to
conventional tests for cervical cancer screening and detection.
Additionally, LuViva improves patient well-being not only because
it eliminates pain, but also because it is convenient to use and
provides rapid results at the point of care. We focus on two
primary applications for LuViva: first, as a cancer screening tool
in the developing world, where infrastructure to support
traditional cancer-screening methods is limited or non-existent,
and second, as a triage following traditional screening in the
developed world, where a high number of false positive results
cause a high rate of unnecessary and ultimately costly follow-up
tests.
We are a Delaware corporation, originally incorporated in 1992
under the name “SpectRx, Inc.” and, on February 22, 2008, changed
our name to Guided Therapeutics, Inc. At the same time, we renamed
our wholly owned subsidiary, InterScan, which originally had been
incorporated as “Guided Therapeutics.”
Since our inception, we have raised capital through the public and
private sale of debt and equity, funding from collaborative
arrangements, and grants.
Our prospects must be considered in light of the substantial risks,
expenses and difficulties encountered by entrants into the
medical device industry. This industry is characterized by an
increasing number of participants, intense competition and a high
failure rate. We have experienced operating losses since our
inception and, as of March 31, 2022 we have an accumulated deficit
of approximately $143.4 million. To date, we have engaged
primarily in research and development efforts and the early stages
of marketing our products. We do not have significant experience in
manufacturing, marketing or selling our products. We may not be
successful in growing sales for our products. Moreover, required
regulatory clearances or approvals may not be obtained in a timely
manner, or at all. Our products may not ever gain market acceptance
and we may not ever generate significant revenues or achieve
profitability. The development and commercialization of our
products requires substantial development, regulatory, sales and
marketing, manufacturing and other expenditures. We expect our
operating losses to continue for the foreseeable future as we
continue to expend substantial resources to complete
commercialization of our products, obtain regulatory clearances or
approvals, build our marketing, sales, manufacturing and finance
capabilities, and conduct further research and development.
Our product revenues to date have been limited. In 2021, the
majority of our revenues were from the sale of components of our
LuViva devices and disposables. We expect that the majority of our
revenue in 2022 will be derived from revenue from the sale of
LuViva devices and disposables.
Current Demand for LuViva
Based on discussions with our distributors, we currently hold and
expect to generate additional purchase orders for approximately
$1.0 to $1.5 million in LuViva devices and disposables in 2022 and
expect those purchase orders to result in actual sales of $0.5 to
$1.0 million in 2022, representing what we view as current demand
for our products. We cannot be assured that we will generate all or
any of these additional purchase orders, or that existing orders
will not be canceled by the distributors or that parts to build
product will be available to meet demand, such that existing orders
will result in actual sales. Because we have a short history of
sales of our products, we cannot confidently predict future sales
of our products beyond this time frame and cannot be assured of any
particular amount of sales. Accordingly, we have not identified any
particular trends with regard to sales of our products. In order to
increase demand for LuViva, the Company in 2022 is focused on three
primary markets: the United States, China and
Europe.
In the United States, the Company is actively pursuing FDA approval
by initiating a clinical trial protocol involving approximately 400
study participants. The protocol was drafted with input from
FDA and two prestigious clinical centers that will participate in
enrolling the 400 women at multiple sites within their hospital
systems. Clinical trial agreements have been drafted and
agreed upon, the budget at one institution has been agreed upon and
is under negotiation at the other institution. The LuViva devices
have been prepared and have passed bench testing in order to begin
the study. All requested materials have been submitted for
review by the respective hospital institutional review boards
(IRBs). Once the IRB’s have approved the study, enrollment
may begin, which is expected prior to the end of 2022 and will last
approximately three to eight months; however, there can be no
assurance that the study will be completed by the end of 2022.
In China, the Chinese NMPA (National Medical Products Approval)
study has begun at four clinical sites. According to enrollment
tracking reports sent to us by our Chinese partner SMI on March 11,
2022, testing of 150 patients has been completed in the
ongoing clinical trial for Chinese National Medical Products
Administration (NMPA) approval. The trial is expected to be
completed in the second quarter of this year and submitted for
approval shortly thereafter, although there can be no assurance
that the study will be completed within this time frame.
In Europe, the Company attended a meeting in Bucharest, Romania on
November 3-4, 2021, hosted by our central Eastern and Russian
distribution partner. The LuViva system was demonstrated for
doctors at a local clinic and the head Ob-Gyn physician intends to
keep the LuViva device and order additional Cervical Guides to test
patients as part of her practice.
CRITICAL ACCOUNTING
POLICIES
Our material accounting policies, which we believe are the most
critical to investors understanding of our financial results and
condition, are discussed below. Because we are still early in our
enterprise development, the number of these policies requiring
explanation is limited. When we begin to generate revenue from
different sources, we expect that the number of applicable policies
and complexity of the judgments required will increase.
Revenue Recognition: ASC 606, Revenue from
Contracts with Customers establishes a single and comprehensive
framework which sets out how much revenue is to be recognized, and
when. The core principle is that a vendor should recognize revenue
to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the vendor
expects to be entitled in exchange for those goods or services.
Revenue will now be recognized by a vendor when control over the
goods or services is transferred to the customer. In contrast,
Revenue based revenue recognition around an analysis of the
transfer of risks and rewards; this now forms one of a number of
criteria that are assessed in determining whether control has been
transferred. The application of the core principle in ASC 606 is
carried out in five steps:
Step 1 – Identify the contract with a customer: a contract is
defined as an agreement (including oral and implied), between two
or more parties that creates enforceable rights and obligations and
sets out the criteria for each of those rights and obligations. The
contract needs to have commercial substance and it is probable that
the entity will collect the consideration to which it will be
entitled.
Step 2 – Identify the performance obligations in the contract: a
performance obligation in a contract is a promise (including
implicit) to transfer a good or service to the customer. Each
performance obligation should be capable of being distinct and is
separately identifiable in the contract.
Step 3 – Determine the transaction price: transaction price is the
amount of consideration that the entity can be entitled to, in
exchange for transferring the promised goods and services to a
customer, excluding amounts collected on behalf of third
parties.
Step 4 – Allocate the transaction price to the performance
obligations in the contract: for a contract that has more than one
performance obligation, the entity will allocate the transaction
price to each performance obligation separately, in exchange for
satisfying each performance obligation. The acceptable methods of
allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and the residual
approach in limited circumstances. Discounts given should be
allocated proportionately to all performance obligations unless
certain criteria are met and reallocation of changes in standalone
selling prices after inception is not permitted.
Step 5 – Recognize revenue as and when the entity satisfies a
performance obligation: the entity should recognize revenue at a
point in time, except if it meets any of the three criteria, which
will require recognition of revenue over time: the entity’s
performance creates or enhances an asset controlled by the
customer, the customer simultaneously receives and consumes the
benefit of the entity’s performance as the entity performs, and the
entity does not create an asset that has an alternative use to the
entity and the entity has the right to be paid for performance to
date.
Valuation of Deferred Taxes: We account for
income taxes in accordance with the liability method. Under the
liability method, we recognize deferred assets and liabilities
based upon anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets
and liabilities and their respective tax bases. We establish a
valuation allowance to the extent that it is more likely than not
that deferred tax assets will not be utilized against future
taxable income.
Valuation of Equity Instruments Granted to Employee,
Service Providers and Investors: On the date of
issuance, the instruments are recorded at their fair value as
determined using either the Black-Scholes valuation model or Monte
Carlo Simulation model.
Allowance for Accounts Receivable: We
estimate losses from the inability of our distributors to make
required payments and periodically review the payment history of
each of our distributors, as well as their financial condition, and
revise our reserves as a result.
Inventory Valuation: All inventories are
stated at lower of cost or net realizable value, with cost
determined substantially on a “first-in, first-out” basis. Selling,
general, and administrative expenses are not inventoried, but are
charged to expense when purchased.
RESULTS OF
OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2022 AND
2021
Research and Development Expenses:
Research and development expenses were $21,000 during the three
months ended March 31, 2022, compared to $16,000 during the three
months ended March 31, 2021, an increase of $5,000 or 31%. The
increase was primarily due to higher research and development
clinical costs and payroll-related expenses.
Sales and Marketing Expenses: Sales and
marketing expenses were $40,000 during the three months ended March
31, 2022, compared to $36,000 during the three months ended March
31, 2021, an increase of $4,000 or 11%. The increase was primarily
due to higher travel and payroll-related expenses.
General and Administrative Expense:
General and administrative expenses were $386,000 for the three
months ended March 31, 2022, compared to $771,000 during the three
months ended March 31, 2021, a decrease of $385,000 or 50%. The
decrease was primarily due to a prior-year charge of $398,000
recorded during the three months ended March 31, 2021 for warrants
issued to Mr. Blumberg for consulting services.
Interest Expense: Interest expense during
the three months ended March 31, 2022 was $101,000, compared to
$141,000 during the three months ended March 31, 2021, a decrease
of $40,000, or 28%. The decrease was due a decrease in debt,
resulting in lower interest recognized for outstanding notes
payable and convertible debt during the three months ended March
31, 2022 versus the same period in the prior year.
Loss Due to Change in Fair Value of Derivative
Liability: Loss due to change in fair value of the
derivative liability during the three months ended March 31, 2022
was $6,000, compared to an $88,000 loss recorded during the three
months ended March 31, 2021. The decrease was primarily due to
changes to our stock price during each of the three-month periods,
which impacted the fair value of the derivative liability.
Gain from extinguishment of debt: Gain
from extinguishment of debt during the three months ended March 31,
2022 was $41,000, compared to a gain from extinguishment of debt of
$87,000 during the three months ended March 31, 2021, a decrease of
$46,000, or 53%. The decrease was due to a lower amount of debt
forgiven.
Change in Fair Value of Warrants: Change
in fair value of warrants during the three months ended March 31,
2022 was zero, compared to a $448,000 gain recorded during the
three months ended March 31, 2021. The decrease was primarily due
to (i) a change in the terms of the warrants during 2021, which
resulted in reclassification of the warrant instruments from
liabilities to equity and (ii) expiration of the warrants
previously outstanding.
Preferred Stock Dividends: Expense
related to preferred stock dividends during the three months ended
March 31, 2022 was $548,000, compared to $55,000 of expense
recorded during the three months ended March 31, 2021. The increase
was primarily due to payment of a one-time, non-recurring 15%
dividends to the Series F and Series F-2 Preferred shareholders, as
required by the Series F and Series F-2 Certificate of Designations
in the event the Company did not uplist to the NASDAQ stock
exchange or file its clinical data intended for FDA approval of
LuViva by December 31, 2021.
Net Loss: Net loss attributable to common
stockholders was $1,055,000 for the three months ended March 31,
2022, compared to net loss of $572,000 for the three months ended
March 31, 2021. The reasons for the fluctuation are outlined
above.
There was no income tax benefit recorded for the three months ended
March 31, 2022 and 2021, due to recurring net operating losses. A
full valuation allowance has been recorded related the deferred tax
assets generated from the net operating losses.
LIQUIDITY AND CAPITAL
RESOURCES
Since our inception, we have raised capital through the public and
private sale of debt and equity, funding from collaborative
arrangements, and grants. As of March 31, 2022, we had cash of
approximately $725,000 and negative working capital of
$3,662,000.
Our major cash flows for the three months ended March 31, 2022
consisted of cash used by operating activities of $179,000, cash
used for investing activities of $14,000, and net cash provided by
financing activities of $275,000, which primarily represented the
proceeds received from warrant exercises.
Capital resources for 2021
During 2021, the Company received equity investments in the amount
of $2,114,000 and incurred fees due on these investments of
$139,000. The Company also issued the finders 98,000 of the
Company’s common stock shares and 643,700 warrants for the
Company’s common stock shares. These investors received a total of
1,436 and 3,237 shares of Series F and Series F-2 preferred stock,
respectively. If the Investor elects to convert their Series F or
Series F-2 preferred stock, each Series F or Series F-2 preferred
stock shares converts into 4,000 shares of the Company’s common
stock shares.
During 2021, the Company finalized an investment by Power Up
Lending Group Ltd. Power Up invested $132,000, net to the Company
is $125,000, for 153,000 shares of Series G preferred stock. As of
March 31, 2022, all Series G preferred shares were redeemed.
Contingencies
Based on the current outbreak of the Coronavirus SARS-CoV-2, the
pathogen responsible for COVID-19, which has already had an impact
on financial markets, there could be additional repercussions in
our operating business, including but not limited to, the sourcing
of materials for product candidates, manufacture of supplies for
preclinical and/or clinical studies, delays in clinical operations,
which may include the availability or the continued availability of
patients for trials due to such things as quarantines, conduct of
patient monitoring and clinical trial data retrieval at
investigational study sites.
The future impact of the outbreak is highly uncertain and cannot be
predicted, and we cannot provide any assurance that the outbreak
will not have a material adverse impact on our operations or future
results or filings with regulatory health authorities. The extent
of the impact, if any, we will depend on future developments,
including actions taken to contain the coronavirus.
The Russia-Ukraine conflict and the sanctions imposed in response
to this crisis could result in repercussions to our operating
business, including delays in obtaining regulatory approval to
market our products in Russia. The future impact of the conflict is
highly uncertain and cannot be predicted, and we cannot provide any
assurance that the conflict will not have a material adverse impact
on our operations or future results or filings with regulatory
health authorities.
Off-Balance Sheet
Arrangements
We have no material off-balance sheet arrangements, no special
purpose entities, and no activities that include
non-exchange-traded contracts accounted for at fair value.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND
PROCEDURES
Disclosure Controls and Procedures
The Company under the supervision and with the participation of
management, including the Chief Executive Officer (principal
executive officer) and the Chief Financial Officer (principal
financial officer), evaluated the effectiveness of our “disclosure
controls and procedures” (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) as of September 30, 2018. The controls and system currently
used by the Company to calculate and record inventory is not
operating effectively. Additionally, the Company lacks the
resources to properly research and account for complex
transactions. The combination of these controls deficiencies has
resulted in a material weakness in our internal control over
financial reporting.
Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) were not effective as of March 31, 2022 to provide
reasonable assurance that (1) information required to be disclosed
by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission’s rules
and forms, and (2) information required to be disclosed by us in
the reports we file or submit under the Exchange Act is accumulated
and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosures.
The effectiveness of any system of controls and procedures is
subject to certain limitations, and, as a result, there can be no
assurance that our controls and procedures will detect all errors
or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system will be attained.
Changes in Internal Control Over Financial
Reporting
There has been no change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the quarter ended March 31, 2022 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
From time to time, the Company may be involved in various legal
proceedings and claims arising in the ordinary course of business.
Management believes that the disposition of these matters,
individually or in the aggregate, is not expected to have a
material adverse effect on the Company’s financial condition. See
Note 6 to the financial statements for additional information.
ITEM 1A. RISK FACTORS
Not applicable for a smaller reporting company.
ITEM 2. UNREGISTERRED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
Not applicable.
ITEM 4. EXHIBITS
_____________
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GUIDED THERAPEUTICS, INC.
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By:
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/s/ Gene S. Cartwright
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Gene S. Cartwright
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President, Chief Executive Officer and
Acting Chief Financial Officer
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Date: May 16, 2022
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