Attached files

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EX-32.1 - EXHIBIT 32.1 - Viatar CTC Solutions Inc.exhibit321.htm
EX-4.3 - FORM OF CONVERTIBLE PROMISSORY NOTE - Viatar CTC Solutions Inc.exhibit43viatarconvertibleno.htm
EX-31.1 - EXHIBIT 31.1 - Viatar CTC Solutions Inc.exhibit311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

[  ] 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______________ to _____________

 

Commission file number:  333-199619

 

VIATAR CTC SOLUTIONS INC.

(Exact name of Company as specified in its charter)

 

Delaware

 

26-1581305

(State or other jurisdiction of incorporation or

 

(I.R.S. Employer Identification No.)

organization)

 

 

 

116 John Street, Suite 10, Lowell, Massachusetts

 

01852

(Address of principal executive offices)

 

(Zip Code)

 

 

(617) 299-6590

 

 

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Yes [X]  No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]   No[  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer

[  ]

Accelerated filer

[  ]

 

 

 

 

Non-accelerated filer

[  ]

Smaller reporting company

[X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  [  ]   No [X]   




1




APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes ¨    No ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:

 

As of August 10, 2015, there were 17,914,426 shares of $0.001 par value common stock issued and outstanding.






2




VIATAR CTC SOLUTIONS INC.

FORM 10-Q

INDEX

 

 

 

Page

 

 

 

PART I.

Financial Information

 

 

 

 

 

Item 1.  Financial Statements (Unaudited).

F-1

 

 

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and results of Operation.

4

 

 

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

13

 

 

 

 

Item 4.  Controls and Procedures.

13

 

 

 

PART II.

Other Information

 

 

 

 

 

Item 1.  Legal Proceedings.

14

 

 

 

 

Item 1A. Risk Factors.

14

 

 

 

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

14

 

 

 

 

Item 3.  Defaults Upon Senior Securities.

14

 

 

 

 

Item 4.  Mine Safety Disclosures.

14

 

 

 

 

Item 5.  Other Information.

14

 

 

 

 

Item 6.  Exhibits.

15

 

 

 

 

Signatures

16

 



3




PART I –FINANCIAL INFORMATION

 

Item 1. Financial Statements

 


INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Page

Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014

F-2

Condensed Consolidated Statements of Operations for the six and three months ended June 30, 2015 and 2014 (unaudited)

F-3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)

F-4

Condensed Consolidated Statements of Stockholders’ Deficit for the period ended June 30, 2015 (unaudited)

F-5

Notes to Condensed Consolidated Financial Statements (unaudited)

F-6






F-1






Viatar CTC Solutions Inc. and Subsidiary

Condensed Consolidated Balance Sheets


 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

 

 

 

 

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash

$

459,409 

 

$

31,351 

 

 

 

TOTAL ASSETS

$

459,409 

 

$

31,351 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable and accrued expenses

$

208,302 

 

$

290,210 

 

Accrued income tax liability

748,514 

 

732,550 

 

Demand note payable

 

50,000 

 

Convertible note payable

 

93,495 

 

 

Total current liabilities

956,816 

 

1,166,255 

 

 

 

 

 

 

 

 

Convertible note payable, net

200,000 

 

 

 

 

TOTAL LIABILITIES

1,156,816 

 

1,166,255 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 STOCKHOLDERS' DEFICIT

 

 

 

 

Series A preferred stock, $.001 par value, 20,000,000 shares

 

 

 

 

 

authorized, 4,000,000 shares issued and outstanding at

 

 

 

 

 

June 30, 2015 and December 31, 2014, respectively

4,000 

 

4,000 

 

Common stock, $.001 par value, 100,000,000 shares authorized,

 

 

 

 

 

17,914,426 and 16,814,426 shares issued and outstanding at

 

 

 

 

 

June 30, 2015 and December 31, 2014, respectively

17,915 

 

16,815 

 

Common stock subscription and interest receivable

 

(605,475)

 

Additional paid-in capital

19,387,636 

 

17,611,374 

 

Accumulated deficit

(20,096,856)

 

(18,151,789)

 

 

 

Total stockholders' deficit

(687,305)

 

(1,125,075)

 

 

 

 

 

 

 

 

Noncontrolling interest

(10,102)

 

(9,829)

 

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS' DEFICIT

(697,407)

 

(1,134,904)

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

459,409 

 

$

31,351 


See notes to condensed consolidated financial statements.





F-2




Viatar CTC Solutions Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)


 

 

 

For the Six Months Ended June 30,

 

For the Three Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

REVENUE

 

 

 

 

 

 

 

 

Sales

$

23,955 

 

$

9,000 

 

$

13,985 

 

$

9,000 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

Research and development

1,215,108 

 

430,129 

 

394,453 

 

219,395 

 

General and administrative

697,468 

 

670,145 

 

427,943 

 

349,548 

 

 

 

 

 

 

 

 

 

 

TOTAL EXPENSES

1,912,576 

 

1,100,274 

 

822,396 

 

568,943 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Change in value of derivative liability

 

1,800 

 

 

1,800 

 

Interest expense

(56,719)

 

 

(20,691)

 

 

 

 

 

 

 

 

 

 

 

TOTAL OTHER INCOME (EXPENSE)

(56,719)

 

1,800 

 

(20,691)

 

1,800 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAX (EXPENSE) BENEFIT

(1,945,340)

 

(1,089,474)

 

(829,102)

 

(558,143)

 

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

(1,945,340)

 

(1,089,474)

 

(829,102)

 

(558,143)

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling

 

 

 

 

 

 

 

 

 

interest in consolidated subsidiary

(273)

 

(86)

 

(108)

 

(34)

 

 

 

 

 

 

 

 

 

 

NET LOSS ATTRIBUTABLE TO

 

 

 

 

 

 

 

 

STOCKHOLDERS

$

(1,945,067)

 

$

(1,089,388)

 

$

(828,994)

 

$

(558,109)

 

 

 

 

 

 

 

 

 

 

LOSS PER COMMON SHARE -

 

 

 

 

 

 

 

 

BASIC AND DILUTED:

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Common

 

 

 

 

 

 

 

 

 

Stockholders

$

(0.11)

 

$

(0.07)

 

$

(0.05)

 

$

(0.04)

 

 

Weighted Average Shares

17,412,901 

 

15,372,381 

 

17,800,679 

 

15,685,418 


See notes to condensed consolidated financial statements.






F-3




Viatar CTC Solutions Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)


 

 

 

 

For the Six Months Ended June 30,

 

 

 

 

2015

 

2014

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net loss

$

(1,945,340)

 

$

(1,089,474)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Issuance of stock for license

 

29,731 

 

 

Issuance of stock for services

956,749 

 

251,332 

 

 

Contribution of services from noncontrolling interest

 

29,882 

 

 

Amortization of discount on debt

37,654 

 

9,758 

 

 

Change in derivative liability

 

(1,800)

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(4,530)

 

 

Tax refund receivable

 

147,997 

 

 

Accrued expenses

(81,908)

 

97,286 

 

 

Accrued income tax expense

15,964 

 

 

 

 

Net cash used in operating activities

(1,016,881)

 

(529,818)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from demand note

50,000 

 

 

Repayment of demand notes

(100,000)

 

 

Proceeds from convertible note payable

100,000 

 

 

Proceeds from promissory note for common stock subscription

611,939 

 

 

Issuance of stock and warrants

783,000 

 

805,000 

 

Proceeds from the exercise of warrants

 

50,000 

 

 

 

Net cash provided by financing activities

1,444,939 

 

855,000 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

428,058 

 

325,182 

Cash - beginning of the period

31,351 

 

66,769 

Cash - end of the period

$

459,409 

 

$

391,951 

Supplemental disclosure of cash flow information:

 

 

 

 

Cash paid for interest

$

3,101 

 

$

2,000 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

Conversion of demand note payable to common stock

$

 

$

60,000 

 

Issuance of stock for services

$

 

$

200,000 

 

Discount on debt issued with warrants

$

31,149 

 

$

 

Promissory notes received from issuance of stock

$

 

$

 

Discount on debt issued with warrants

$

 

$


See notes to condensed consolidated financial statements.






F-4




Viatar CTC Solutions Inc. and Subsidiary

Condensed Consolidated Statements of Stockholders’ Deficit

For the Period Ended June 30, 2015

(Unaudited)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Common Stock Subscription and Interest Receivable

 

Additional Paid-in Capital

 

Accumulated Deficit

 

Total Stockholders' Equity (Deficit)

 

Noncontrolling Interest

 

Total Deficit

Balance, December 31, 2014

4,000,000

 

$

4,000

 

16,814,426

 

$

16,815

 

$

(605,475)

 

$

17,611,374

 

$

(18,151,789)

 

$

(1,125,075)

 

 $              (9,829)

 

 $                  (1,134,904)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock, net of offering costs of $134,750

 

 

 

 

562,000

 

562

 

 

782,438

 

 

783,000 

 

 -

 

                          783,000

Issuance of warrants with demand notes

-

 

-

 

-

 

-

 

 

31,149

 

 

31,149 

 

-

 

                            31,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock per incentive plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for services

-

 

-

 

370,000

 

370

 

 

696,879

 

 

697,249 

 

-

 

                          697,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on common stock receivable

-

 

-

 

-

 

-

 

(6,464)

 

6,464

 

 

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received for common stock receivable and interest

-

 

-

 

-

 

-

 

611,939 

 

-

 

 

 

-

 

                          611,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(1,945,067)

 

(1,945,067)

 

                    (273)

 

                     (1,945,340)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2015

4,000,000

 

$

4,000

 

17,914,426

 

$

17,915

 

$

 

$

19,387,636

 

$

(20,096,856)

 

$

(687,305)

 

 $            (10,102)

 

 $                     (697,407)


See notes to condensed consolidated financial statements.






F-5




Viatar CTC Solutions Inc. and Subsidiary

Notes to the Condensed Consolidated Financial Statements

June 30, 2015

(Unaudited)


1.

NATURE OF OPERATIONS AND GOING CONCERN


Viatar CTC Solutions Inc., formerly known as Vizio Medical Devices LLC (“Vizio”), and Subsidiary is a development stage company focused on medical devices for oncology applications which remove circulating tumor cells for diagnostic and therapeutic purposes.

 

Vizio was a Delaware limited liability company with perpetual duration that was formed on December 18, 2007. On February 25, 2014, Vizio converted to a Delaware C corporation and changed its name to Viatar CTC Solutions Inc. (“Viatar CTC Solutions”).

 

Viatar CTC Solutions conducts all of its operations through its subsidiary, Viatar LLC (the “Subsidiary”). The Subsidiary was formed on September 23, 2010 as a Delaware limited liability company with perpetual duration.

 

Viatar CTC Solutions and Vizio are together referred to as the “Company”.

 

Since inception, the Company has not generated significant revenues. As reflected in the accompanying condensed consolidated financial statements, the Company has a net loss and net cash used in operations of $1,945,340 and $1,016,881, respectively, for the six months ended June 30, 2015. As of June 30, 2015 the Company had a working capital deficit and an accumulated deficit totaling $497,407 and $20,096,856, respectively.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continued existence is dependent upon several factors, including (a) obtaining funding, whether in the form of equity, or debt investments, licensing revenues, strategic collaboration payments or grants from government or other sources, (b) success in achieving its research and development goals, (c) obtaining regulatory approvals, and (d) gaining market acceptance and/or distribution or strategic partners for its products. The Company has raised approximately $14.7 million of equity capital since its inception, and management is continually pursuing additional funding sources. During the six months ended June 30 2015, the Company also obtained debt financing to support its operations, including demand and convertible notes from which the Company received aggregate proceeds of $150,000. In July 2015, the Company obtained an additional $100,000 of financing from a convertible note.


2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Accounting


The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP 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.




F-6





The financial statements contained herein have been prepared by the Company in accordance with GAAP for interim financial information. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. The balance sheet at December 31, 2014 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the six and three months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2014.

 

Principles of Consolidation


The accompanying condensed consolidated financial statements include the accounts of Viatar CTC Solutions, Viatar and amounts related to a noncontrolling interest in Viatar. The noncontrolling interest represents a 0.01% ownership interest in Viatar at June 30, 2015 and December 31, 2014. All significant intercompany accounts and transactions have been eliminated in consolidation.


Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Significant estimates subject to such estimates and assumptions include the valuation of debt and equity instruments issued for services and in connection with agreements and contracts entered in to by the Company. Actual results could differ from those estimates.


Cash

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company held no cash equivalents at June 30, 2015 or December 31, 2014.

 

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.


Research and Development

 

Research and development costs consist of ongoing testing and research and are expensed as incurred.

 

Derivatives

 

The Company evaluated its options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassed to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liability at the fair value of the instrument on the reclassification date.




F-7




Income Taxes


In the ordinary course of business, there is inherent uncertainty in quantifying income tax positions. The Company assesses its income tax positions and records tax assets or liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense or benefit.


The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company is no longer subject to tax examinations by tax authorities for years prior to 2011.


The Company is currently under audit by New York City tax authorities for the 2011, 2012, and 2013 tax years. The Company applied for New York City biotechnology tax credits and received certificates of eligibility from the NYC Department of Finance in the amounts of $147,997, $242,016, and $236,874 for tax years 2013, 2012, and 2011, respectively. These credits have been recognized as income tax benefits on the consolidated statements of operations in the year of application. As of June 30, 2015, the 2011, 2012, and 2013 tax refunds have been received for these amounts. The City of New York ruled that the Company does not qualify for the tax credits. As of June 30, 2015, the Company accrued $748,514 on the condensed consolidated balance sheet which includes $126,627 of interest. The Company appealed the decision made by the City of New York. As of the filing date, no decision has been made regarding the appeal.


Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. 


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.




F-8




Stock-Based Compensation

 

In December 2004, the FASB issued ASC 718, Compensation – Stock Compensation, or ASC 718. Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include options, restricted stock, restricted stock units, performance-based awards, share appreciation rights, and employee share purchase plans. As such, compensation cost is measured on the date of grant at fair value. The Company amortizes such compensation amounts, if any, over the respective vesting periods of the award. The Company uses the Black-Scholes-Merton option pricing model, or the Black-Scholes Model, an acceptable model in accordance with ASC 718, that requires the input of highly complex and subjective variables, including the expected life of the award and the expected stock price volatility over a period equal to or greater than the expected life of the award.


Equity instruments (“instruments”) issued to anyone other than employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. ASC 505, Equity Based Payments to Non-Employees, or ASC 505, defines the measurement date and recognition period for such instruments. In general, the measurement date is when either (a) a performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in ASC 505.

 

The Company recognizes the compensation expense for all share-based compensation granted based on the grant date fair value estimated in accordance with ASC 718. The Company generally recognizes the compensation expense on a straight-line basis over the employee’s requisite service period.


Earnings (Loss) Per Share

 

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

 

The Company had the following potential common stock equivalents at June 30, 2015:


Common stock warrants, exercise price range of $1.00-$2.00

 

 

535,000

Conversion feature on convertible notes, exercise price of $2.50

 

 

40,000

 

The Company had the following potential common stock equivalents at June 30, 2014: 

Common stock warrants, exercise price range of $1.00-$2.00

 

 

422,500

 

Since the Company reflected a net loss during the six and three months ended June 30, 2015 and 2014, the effect of considering any common stock equivalents, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.




F-9




Recent Accounting Pronouncements


In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition. On July 9th the effective date was delayed one year by a vote by the FASB. Public business entities, certain not-for-profit entities, and certain employee benefit plans would apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.

 

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently assessing the impact, if any, of the adoption of this guidance on the condensed consolidated financial statements.


In March 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). The Company is currently evaluating the effects of ASU 2015-03 on the condensed consolidated financial statements.




F-10




3.

CONVERTIBLE NOTE PAYABLE


In April 2013, the Company borrowed $100,000 in exchange for a 4% convertible promissory note due April 30, 2015 and a five-year warrant to purchase 50,000 shares of common stock at $2 each. The note is convertible at any time prior to maturity at the option of the holder into 50,000 shares of common stock. The relative fair value of the warrant issued was $32,525 based on the Black-Scholes option pricing model. The fair value of the warrant was recorded as a discount and is being amortized over two years based on the straight line method, which approximates the effective interest method. The unamortized discount at June 30, 2015 and December 31, 2014 was $0 and $6,505, respectively. The note requires interest payments semi-annually. In April 2015 the note and the related warrants were extended for an additional two year period maturing in April 2017. Based on management’s review, the accounting for debt modification applied.


In June 2015, the Company borrowed $100,000 in exchange for a 4% convertible promissory note due June 22, 2018. The note is convertible at any time prior to maturity at the option of the holder into 40,000 shares of common stock; and may be automatically converted by the Company into 40,000 shares of common stock after May 5, 2017 if after that date the common stock trades above $2.50 per share for 20 trading days with an average daily volume of 25,000 shares.


4.

FAIR VALUE OF FINANCIAL INSTRUMENTS


The Company follows the provisions of ASC 820 for fair value measurements of its financial assets and liabilities. The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The accounting standard established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. This hierarchy prioritizes the inputs into three broad levels, as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company's own assumptions used to measure assets and liabilities at fair value. An asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.


5.

COMMITMENTS AND CONTINGENCIES


In June 2012 the Company entered into an operating lease for its office space for $3,103 per month through June 2015 with a three year renewal option extending to June 2018. The future minimum rental payments to be paid under the non-cancelable operating lease in effect at March 31, 2015 was $9,309. In April 2015, the Company and the landlord agreed to extend and expand that lease agreement by increasing the size of the space rented. The annual rent according to the amended lease is $91,050 per year payable in equal monthly installments of $7,587, plus the Company’s share of common area maintenance charges and electricity. The amended lease is subject to a five year extension at the election of the Company.





F-11




6.

RELATED PARTY TRANSACTIONS


In January 2013, the Company borrowed an aggregate of $60,000 in exchange for an interest free demand note from a member of the board of managers. In February 2014, the demand note was converted into 60,000 shares of common stock and a warrant to purchase 60,000 shares of common stock at $1 per share, expiring in 2019. At the date of grant, the warrants had a fair value of $44,862.


In December 2014, the Company borrowed an aggregate of $50,000 in exchange for an interest free demand note from a former member of the board of managers. In addition, warrants to purchase 50,000 shares of common stock at $1.00 per share were granted to the lender. The warrants expire in 2019 and have an exercise price of $1.00. The relative fair value of the warrant issued was $21,381 based on the Black-Scholes option pricing model. See Note 7 for assumptions utilized. As a result of this transaction, the Company recorded a debt discount and corresponding amortization expense of $21,381. The loan was repaid in January 2015.


In January 2015, the Company borrowed an aggregate of $50,000 in exchange for an interest free demand note from a former member of the board of managers. In addition, warrants to purchase 50,000 shares of common stock at $1.00 per share were granted to the lender. The warrants expire in 2020 and have an exercise price of $1.00. The relative fair value of the warrant issued was $31,149 based on the Black-Scholes option pricing model. See Note 7 for assumptions utilized. As a result of this transaction, the Company recorded a debt discount and corresponding amortization expense of $31,149. The loan was repaid in January 2015.


7.

STOCKHOLDERS’ EQUITY (DEFICIT)


On February 25, 2014, the Company converted from a limited liability company to a C corporation pursuant to Delaware law, and changed its name from Vizio Medical Devices LLC to Viatar CTC Solutions Inc. Each Class A member unit was converted into one share of common stock and each Class B member unit was converted into one share of Series A Preferred Stock (the “Preferred Stock”). Each warrant to purchase Class A member units was converted into one warrant to purchase one share of common stock. The 2010 Incentive Plan was amended to provide for the issuance of common stock instead of Class B member units, and 3,000,000 shares of common stock are reserved for future issuance.


The Company’s capital structure consists of the authorization to issue 100,000,000 shares of common stock and 20,000,000 shares of Preferred Stock, which may be issued in series as designated by the Board of Directors. Each series of Preferred Stock shall have such voting and other rights as designated at the time of establishment by the Board of Directors.

 

Each issued share of common stock and Preferred Stock has one vote and the approval of a majority of the Preferred Stock, voting as a separate class, is required to approve any corporate action. The Preferred Stock is entitled to participate in dividends, rights issuances and property distributions on the same terms that the Class B member units had since the formation of the Company; namely, 20% of the dividends, rights and property distributed to common stockholders. Upon liquidation of the Company, the Preferred Stock is entitled to 20% of the liquidation value, subject to a priority $13,470,000 allocation to the common shares. This formulation preserves the right of the former Class B member units to participate in profits once the holders of Class A member units recouped their aggregate capital contributions.




F-12




As of February 25, 2014, immediately following the conversion of the Company from a limited liability company to a C corporation, 15,196,292 shares of common stock and 4,000,000 shares of Preferred Stock were issued and outstanding. Also as of that date, 410,000 shares of common stock were reserved for issuance pursuant to warrants at prices ranging from $1 to $2 per share and expiring in 2014 through 2019.


During the six months ended June 30, 2015, the Company issued an aggregate of 562,000 shares of Common Stock in connection with the sale of common stock for proceeds of $783,000 net of offering costs of $134,750.


During the six months ended June 30, 2015, the Company expensed an aggregate of $956,749 on the condensed consolidated statement of operations for stock based compensation for services provided:

 

(i)

During March 2015, the Company issued 15,000 shares of fully vested common stock to its counsel as consideration of legal services. The Company expensed an aggregate of $30,000 as stock-based compensation to general and administrative expenses.


(ii)

On March 19, 2015, the Company issued an aggregate of 370,000 shares of common stock under the 2014 Incentive Plan to two employees as compensation for services. The shares have a grant date fair value of $647,500 based on a per share price of $1.75 and are subject to immediate vesting or vesting terms ranging from 1 to 2 years. For the six months ended June 30, 2015, total stock-based compensation expense related to the incentive plan was $697,949 which is included in research and development expenses.


(iii)

On May 7, 2015, the Company issued 3,000 shares of fully vested common stock to its transfer agent as consideration of services. The Company expensed an aggregate of $4,500 as stock-based compensation to general and administrative expenses.


(iv)

On May 7, 2015, the Company issued 150,000 shares of fully vested Common stock to a consultant as consideration of advisory services. The Company expensed an aggregate of $225,000 as stock-based compensation to general and administrative expenses.


As of June 30, 2015, 17,914,426 shares of common stock and 4,000,000 shares of Preferred Stock were issued and outstanding. Also as of that date, 535,000 shares of common stock were reserved for issuance pursuant to warrants at prices ranging from $1 to $2 per share and expiring in 2017 through 2020.


During January 2015, the Company received $611,939 for the payoff of notes originally issued to purchase common stock receivable and all accrued interest.




F-13




Restricted Stock


The Company periodically grants restricted stock awards to certain employees pursuant to the 2014 Incentive Plan that typically vest one to two years from their grant date. As noted above, the Company recognized an aggregate of $697,949 in compensation expense during the six months ended June 30, 2015 related to restricted stock awards. Stock compensation expense is recognized over the vesting period of the restricted stock. At June 30, 2015, the Company had approximately $213,446 of total unrecognized compensation cost related to non-vested restricted stock, all of which will be recognized through March 2017.


 

Restricted Stock

 

 

Weighted

Average

Exercise Price

 

 

 

 

 

 

 

Non-vested – December 31, 2014

 

220,000

 

 

$

2.00

 

Granted

 

370,000

 

 

$

1.75

 

Vested

 

(395,000)

 

 

$

1.83

 

Forfeited/Cancelled

 

-

 

 

$

-

 

Non-vested – June 30, 2015

 

195,000

 

 

$

1.87

 



The following is a summary of the Company’s warrant activity:

 

 

Warrants

 

 

Weighted

Average

Exercise Price

 

 

 

 

 

 

 

Outstanding – December 31, 2014

 

485,000

 

 

$

1.46

 

Exercisable – December 31, 2014

 

485,000

 

 

$

1.46

 

Granted

 

50,000

 

 

$

1.00

 

Exercised

 

-

 

 

$

-

 

Forfeited/Cancelled

 

-

 

 

$

-

 

Outstanding – June 30, 2015

 

535,000

 

 

$

1.42

 

Exercisable – June 30, 2015

 

535,000

 

 

$

1.42

 





F-14




Warrants Outstanding

 

Warrants Exercisable

Range of
Exercise Price

 

Number
Outstanding

 

 

Weighted
Average
Remaining
Contractual Life
(in years)

 

Weighted
Average
Exercise Price

 

 

Number
Exercisable

 

Weighted
Average
Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.00-$2.00

 

 

535,000

 

 

3.65 years

 

$

1.42

 

 

535,000

 

$

1.42

 


The following table summarizes the range of assumptions the Company utilized to estimate the fair value of the convertible note and warrants, and derivative liability issued during the six months ended June 30, 2015:


Assumptions

 

June 30, 2015

 

 

 

Expected term (years)

 

5.00

Expected volatility

 

100%

Risk-free interest rate

 

1.47%

Dividend yield

 

0.00%


The expected warrant term is based on the remaining contractual term. The expected volatility is based on historical-volatility of peer entities whose stock prices were publicly available. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected term of the related warrant at the valuation date. Dividend yield is based on historical trends.


8.

SUBSEQUENT EVENTS


In July 2015, the Company borrowed $100,000 in exchange for a 4% convertible promissory note due July 2018. The note is convertible at any time prior to maturity at the option of the holder into 40,000 shares of common stock; and may be automatically converted by the Company into 40,000 shares of common stock after May 5, 2017 if after that date the common stock trades above $2.50 per share for 20 trading days with an average daily volume of 25,000 shares.





F-15




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statements

 

This quarterly report on Form 10-Q and other reports (collectively, the “Filings”) filed by Viatar CTC Solutions Inc. (“Viatar” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 31, 2015 relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.


Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

 

Overview

 

We are a biotechnology company focused on developing and marketing cancer molecular diagnostics and cancer therapy products, both of which are based on the principle of removing blood-borne circulating tumor cells (CTCs). We are seeking to commercialize two products which utilize our proprietary CTC removal technology:


·

The ViatarTM Collection System for Molecular Analysis is designed to collect and purify a statistically significant quantity of CTCs from up to 50 mL of blood as the “front end” for DNA sequencing and other genetic analysis technologies used primarily for research.


·

The ViatarTM Therapeutic Oncopheresis System is designed to remove CTCs from a patient’s blood as a new cancer therapy for metastatic disease.




4




We anticipate launching the ViatarTM Collection System for Molecular Analysis during 2016 once we receive the following regulatory clearances: first, a CE Mark in Europe and Canada, second, a 510K designation in the United States. We are currently engaged in research collaborations with several CTC platform technology companies with the goal of marketing and selling the ViatarTM Collection System for Molecular Analysis through private label and distribution arrangements.   During 2015 the Company agreed to be the exclusive supplier of filters for ScreenCell’s diagnostic CTC platform, and has begun to generate commercial sales to that customer.

 

We anticipate launching the ViatarTM Therapeutic Oncopheresis System during 2016 with a CE Mark in Europe and Canada. Introduction in the United States will take several years, based on the anticipated PMA classification by the FDA. We anticipate marketing and selling the ViatarTM Therapeutic Oncopheresis System on a direct basis through our own dedicated sales force in key large markets (such as the United States, Germany, France, Italy, UK and Japan), and through distributors in other markets.


Key Factors Affecting our Results of Operations and Financial Condition

 

Our overall long-term growth plan depends on our ability to develop and commercialize our two oncology products. We are working with several CTC-based diagnostic companies to optimize our ViatarTM Collection System for Molecular Analysis to their process flow, and we intend to enter into additional such collaborations in the coming year. These activities will help facilitate market adoption of that product, and we anticipate having to complete various studies with clinical samples to demonstrate its efficacy. We will also seek to publish the results of those studies in peer-reviewed scientific journals. Our ability to complete such clinical studies, as well as to perform clinical studies for the ViatarTM Therapeutic Oncopheresis System is dependent on our ability to foster strong collaborative relationships with cancer researchers, other CTC technology platform companies, and companies which make DNA sequencing equipment or perform such services; to conduct the appropriate clinical studies; and to obtain favorable clinical data.

 

For the six months ended June 30, 2015 and 2014, we generated $23,955 and $9,000 from commercial sales, respectively, from purchase orders submitted by ScreenCell. Assuming we are successful in completing development activities for the ViatarTM Collection System for Molecular Analysis, we expect to generate additional revenues during 2016 from sales of that product. However, significant revenues and growth will depend on market adoption of that product. Similarly, assuming we are successful in completing development activities for the ViatarTM Therapeutic Oncopheresis System, we expect to generate revenues in 2016; however, significant revenues and growth will depend on clinical studies showing its efficacy in mitigating the spread and growth of metastatic tumors and regulatory approval in the US.

 

Our operating expenses consist of general and administrative; research and development; clinical and regulatory; employee-based stock compensation; and business development. These expenses principally consist of personnel costs, outside services (such as cost of supporting clinical studies and regulatory consultants), laboratory equipment and consumables, rent and overhead, and legal and accounting fees. All of these expense categories will increase in the near-term, principally as a result of hiring additional personnel and contracting with outside engineering firms to complete the development of our two products; expanding the range and scope of clinical trials (both with cancer researchers as well as companies we collaborate with); hiring additional personnel to handle business development, sales and marketing activities; and hiring additional personnel or outside services to handle administrative functions.

 

We expect there to be an element of seasonality to our business, as research activities and patient treatment or monitoring with CTC-based tests is likely to decline during vacation and holiday seasons. We expect this trend of seasonality to continue for the foreseeable future.






5




Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and make various assumptions, which management believes to be reasonable under the circumstances, which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The notes to our financial statements, which are included elsewhere in this report, contain a summary of our significant accounting policies. We consider the accounting policies discussed below as being critical to the understanding of our current and future results of our operations.


Revenue Recognition

 

We recognize revenue in accordance with ASC 605, Revenue Recognition, and ASC 954-605, Health Care Entities, Revenue Recognition which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the client or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured. For contract partners, revenue is recorded based upon the contractually agreed upon fee schedule. When assessing collectability, we will consider whether we have sufficient payment history to reliably estimate a payor’s individual payment patterns.

 

Accounts Receivable and Bad Debts

 

We will carry accounts receivable at original invoice amounts, less an estimate for doubtful receivables, based on a review of all outstanding amounts on a periodic basis. The estimate for doubtful receivables will be determined from an analysis of the accounts receivable on a quarterly basis, and be recorded as bad debt expense. Since we will only recognize revenue to the extent we expect to collect such amounts, bad debt expense related to receivables from product revenue will be recorded in general and administrative expense in the statements of operations. Accounts receivable will be written off when deemed uncollectible. Recoveries of accounts receivable previously written off will be recorded when received.

 

Stock-Based Compensation Expense

 

In December 2004, the FASB issued ASC 718, Compensation – Stock Compensation, or ASC 718. Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include options, restricted stock, restricted stock units, performance-based awards, share appreciation rights, and employee share purchase plans. As such, compensation cost is measured on the date of grant at fair value. The Company amortizes such compensation amounts, if any, over the respective vesting periods of the award. The Company uses the Black-Scholes-Merton option pricing model, or the Black-Scholes Model, an acceptable model in accordance with ASC 718, that requires the input of highly complex and subjective variables, including the expected life of the award and the expected stock price volatility over a period equal to or greater than the expected life of the award.





6




Equity instruments (“instruments”) issued to anyone other than employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. ASC 505, Equity Based Payments to Non-Employees, or ASC 505, defines the measurement date and recognition period for such instruments. In general, the measurement date is when either (a) a performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in ASC 505.

 

The Company recognizes the compensation expense for all share-based compensation granted based on the grant date fair value estimated in accordance with ASC 718. The Company generally recognizes the compensation expense on a straight-line basis over the employee’s requisite service period.


Recent Accounting Pronouncements


In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition. On July 9th the effective date was delayed one year by a vote by the FASB. Public business entities, certain not-for-profit entities, and certain employee benefit plans would apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.


In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently assessing the impact, if any, of the adoption of this guidance on the condensed consolidated financial statements.


In March 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). The Company is currently evaluating the effects of ASU 2015-03 on the condensed consolidated financial statements.




7




Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.


Three Months Ended June 30, 2015 and 2014

 

The following table sets forth certain information concerning our results of operations for the periods shown:

  

 

 

Three Months Ended June 30,

 

 

Change

 

 

 

2015

 

 

2014

 

 

Dollars

 

 

Percent

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

13,985

 

 

$

9,000

 

 

$

4,985

 

 

 

55%

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and Development

 

 

393,361

 

 

 

181,888

 

 

 

211,473

 

 

 

116%

 

Clinical & Regulatory

 

 

1,092

 

 

 

37,507

 

 

 

(36,415)

 

 

 

(97)%

 

Total R&D

 

 

394,453

 

 

 

219,395

 

 

 

175,058

 

 

 

88%

 

General and Administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

357,029

 

 

 

344,862

 

 

 

12,167

 

 

 

4%

 

Business Development

 

 

70,914

 

 

 

4,686

 

 

 

66,228

 

 

 

1,413%

 

Total G&A

 

 

427,943

 

 

 

349,548

 

 

 

78,395

 

 

 

22%

 

Total Expenses

 

$

822,396

 

 

$

568,943

 

 

$

253,453

 

 

 

45%

 

 

Revenue

 

Commercial sales of $13,985 for the three months ended June 30, 2015 arose in connection with evaluation testing of our filters being conducted by a diagnostic CTC company.  Although we recently negotiated a commercial arrangement for volume purchases of filters by that company for integration into their molecular diagnostic CTC product, we do not expect to achieve significant sales until they undertake a full scale commercial rollout and successfully obtain widespread adoption by the research community.

 

Expenses

 

Research and Development Expenses

 

Research and development (“R&D”) expenses consist of two categories of expenses: (i) research and development; and (ii) clinical trial and regulatory expenses.


R&D Expenses


The R&D component of this category was $393,361 for the three months ended June 30, 2015, an increase of $211,473 or 116%, compared with $181,888 for the three months ended June 30, 2014. One of the largest component of the current quarter - $84,533 - was due to the non-cash expensing of restricted and unrestricted stock awards to employees issued pursuant to the 2014 Equity Incentive Plan.  The balance of current quarter amount - $309,028 - was due to higher staffing levels, use of third-party engineering resources, and the purchase of supplies and equipment to support the oncology program.




8




Clinical Trial and Regulatory Expenses


Clinical trial and regulatory expenses were $1,092 for the three months ended June 30, 2015, a decrease of $36,415, or 97%, compared with $37,507 for the three months ended June 30, 2014.  The decrease was due to the sharply reduced level of activity in this area until research and development of commercial products reaches the preclinical and clinical testing phase.  

 

General and Administrative Expenses

 

General and administrative (“G&A”) expenses consist of G&A and business development expenses.


G&A Expenses


G&A expenses were $357,029 for the three months ended June 30, 2015, an increase of $12,167 or 4%, compared with $344,862 for the three months ended June 30, 2014. Now that we are an SEC registered company, we expect to incur approximately $60,000 per quarter of legal and accounting costs on a regular basis.


Business Development Expenses

 

Business development expenses were $70,914 for the three months ended June 30, 2015, an increase of $66,228, or 1413%, compared with $4,686 for the three months ended June 30, 2014.  The increase was due to higher costs to obtain new capital, including investor relation activities and meetings.   


Interest Expense

 

Interest expense was $20,691 for the three months ended June 30, 2015 compared to $0 for the three months ended June 30, 2014. The current period expense is comprised of $15,964 for accrued interest in the outstanding NYC R&D tax credit appeal, $1,627 for non-cash amortization of debt discount related to warrants issued with a demand note, and $3,100 of accrued interest on debt.


Net Loss

 

Net loss was $829,102 for the three months ended June 30, 2015, an increase of $270,959 or 49%, compared with $558,143 for the three months ended June 30, 2014. The increase was primarily due to higher expenses as discussed above.





9




Six Months Ended June 30, 2015 and 2014

 

The following table sets forth certain information concerning our results of operations for the periods shown:

  

 

 

Six Months Ended June 30,

 

 

Change

 

 

 

2015

 

 

2014

 

 

Dollars

 

 

Percent

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

23,955

 

 

$

9,000

 

 

$

14,955

 

 

 

166%

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and Development

 

 

1,212,085

 

 

 

358,995

 

 

 

853,090

 

 

 

238%

 

Clinical & Regulatory

 

 

3,023

 

 

 

71,134

 

 

 

(68,111)

 

 

 

(96)%

 

Total R&D

 

 

1,215,108

 

 

 

430,129

 

 

 

784,979

 

 

 

182%

 

General and Administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

550,224

 

 

 

638,668

 

 

 

(88,444)

 

 

 

(14)%


Business Development

 

 

147,244

 

 

 

31,477

 

 

 

115,767

 

 

 

368%

 

Total G&A

 

 

697,468

 

 

 

670,145

 

 

 

27,333

 

 

 

4%

 

Total Expenses

 

$

1,912,576

 

 

$

1,100,274

 

 

$

812,302

 

 

 

74%

 

 

Revenue

 

Commercial sales of $23,955 for the six months ended June 30, 2015 arose in connection with evaluation testing of our filters being conducted by a diagnostic CTC company.  Although we recently negotiated a commercial arrangement for volume purchases of filters by that company for integration into their molecular diagnostic CTC product, we do not expect to achieve significant sales until they undertake a full scale commercial rollout and successfully obtain widespread adoption by the research community.

 

Expenses

 

Research and Development Expenses

 

Research and development (“R&D”) expenses consist of two categories of expenses: (i) research and development; and (ii) clinical trial and regulatory expenses.


R&D Expenses


The R&D component of this category was $1,212,085 for the six months ended June 30, 2015, an increase of $853,090 or 238%, compared with $358,995 for the six months ended June 30, 2014. The largest component of the current quarter - $697,249 - was due to the non-cash expensing of restricted and unrestricted stock awards to employees issued pursuant to the 2014 Equity Incentive Plan.  The balance of current quarter amount - $514,836 - was due to higher staffing levels, use of third party engineering resources, and the purchase of supplies and equipment to support the oncology program.




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Clinical Trial and Regulatory Expenses


Clinical trial and regulatory expenses were $3,023 for the six months ended June 30, 2015, a decrease of $68,111, or 96%, compared with $71,134 for the six months ended June 30, 2014.  The decrease was due to the sharply reduced level of activity in this area until research and development of commercial products reaches the preclinical and clinical testing phase.  

 

General and Administrative Expenses

 

General and administrative (“G&A”) expenses consist of G&A and business development expenses.


G&A Expenses


G&A expenses were $550,224 for the six months ended June 30, 2015, a decrease of $88,444 or 14%, compared with $638,668 for the six months ended June 30, 2014. The decrease was due to the lower level of financial advisory and legal expenses incurred in connection with going public activities. Now that we are an SEC registered company, we expect to incur approximately $60,000 per quarter of legal and accounting costs on a normalized basis.


Business Development Expenses

 

Business development expenses were $147,244 for the six months ended June 30, 2015, an increase of $115,767, or 368%, compared with $31,477 for the six months ended June 30, 2014.  The increase was due to higher costs to obtain new capital, including investor relation activities and meetings.   


Interest Expense

 

Interest expense was $56,719 for the six months ended June 30, 2015 compared to $0 for the six months ended June 30, 2014. The current period expense is comprised of $15,964 of accrued interest in the outstanding NYC R&D tax credit appeal, $37,655 for non-cash amortization of debt discount related to warrants issued with a demand note and $3,100 of accrued interest on debt.


Net Loss

 

Net loss was $1,945,340 for the six months ended June 30, 2015, an increase of $855,866 or 79%, compared with $1,089,474 for the six months ended June 30, 2014. The increase was primarily due to higher expenses as discussed above.


 

Liquidity and Capital Resources

 

We are actively working to improve our financial position and enable the growth of our business by raising new capital. During the six months ended June 30, 2015 and 2014 we raised approximately $783,000 and $805,000, respectively, through equity financing and $150,000 and $0, respectively, through debt financing. In addition, we received $611,939 and $0 from the promissory note for common stock subscription during the six months ended June 30, 2015 and 2014, respectively. We repaid $100,000 and $0, respectively, on two outstanding demand notes during the six months ended June 30, 2015 and 2014, respectively.




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We have yet to generate significant revenues. As a result, we have incurred significant net losses and significant negative cash flows from operations since our inception. Our ability to continue as a going concern relies on the continued availability of funds from equity and debt financing and other sources. Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


In January 2015 we received a commitment from an existing shareholder to provide $1.5 million of financing by February 28, 2016.  That amount should be sufficient to fund our operations for 2015. As of August 10, 2015, we received $783,000 from the sale of common stock to accredited investors pursuant to that commitment.  No warrants or commissions were paid in relation to these transactions.  We anticipate raising additional funds during 2015 to fund operations for 2016.

 

Cash Flows

 

Cash Used in Operating Activities

 

Net cash used in operating activities was $1,016,881 for the six months ended June 30, 2015, compared to net cash used in operating activities of $529,818 for the six months ended June 30, 2014. The change in cash used in operating activities was a result of the overall increase in expenses described above.  

 

In all periods, the primary use of cash in operating activities was to fund operations.

 

Cash Used in Investing Activities

 

Inasmuch as we expense all purchased assets used in research and development activities, there was no cash used in investing activities in 2015 or 2014. 


Cash Provided by Financing Activities

  

Net cash provided by financing activities was $1,444,939 for the six months ended June 30, 2015, compared to net cash provided by financing activities of $855,000 for the six months ended June 30, 2014. Our primary source of financing in all periods consisted of equity capital contributed by current and new investors, as well as debt financing from various lenders. Our ability to continue as a going concern relies on the continued availability of financing from these and other sources.

 

Contingencies

 

The Company is currently under audit by New York City tax authorities for the 2011, 2012, and 2013 tax years. The Company applied for New York City biotechnology tax credits and received certificates of eligibility from the NYC Department of Finance in the amounts of $147,997, $242,016, and $236,874 for tax years 2013, 2012, and 2011, respectively. These credits have been recognized as income tax benefits on the consolidated statements of operations in the year of application. As of June 30, 2015, the 2011, 2012, and 2013 tax refunds have been received for these amounts. The City of New York ruled that the Company does not qualify for the tax credits. As of June 30, 2015, the Company accrued $748,514 on the condensed consolidated balance sheet which includes $126,627 of interest. The Company appealed the decision made by the City of New York. As of the filing date, no decision has been made regarding the appeal.




12




Subsequent Events


In July 2015, the Company borrowed $100,000 in exchange for a 4% convertible promissory note due July 2018. The note is convertible at any time prior to maturity at the option of the holder into 40,000 shares of common stock; and may be automatically converted by the Company into 40,000 shares of common stock after May 5, 2017 if after that date the common stock trades above $2.50 per share for 20 trading days with an average daily volume of 25,000 shares.

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable. 

 

Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company's management, including the Company's chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including Ilan Reich, the Company’s chief executive officer and chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the quarter ended June 30, 2015. Based upon that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were not effective due to the deficiencies in the Company’s internal control over financial reporting identified below.  


A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.  Based on management's assessment over financial reporting, management believes as of June 30, 2015, the Company's internal control over financial reporting was not effective due to the following deficiencies:

(i)

there are limited controls over information processing due to limited resources,


(ii)

a lack of sufficient internal accounting expertise to provide reasonable assurance that our financial statements and notes thereto are prepared in accordance with GAAP and


(iii)

a lack of segregation of duties to ensure adequate review of financial statement preparation. 


 Accordingly, as the result of identifying the above material weaknesses we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company's internal controls.




13



Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size. Management believes these weaknesses did not have a material effect on our financial results and intends to take remedial actions upon receiving funding for the Company's business operations.


Changes in Internal Controls over Financial Reporting

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

None.


Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On June 22 and July 14, 2015, the Company sold two convertible promissory notes in the aggregate principal amount of $200,000 to two non-US investors. The notes mature three years after their initial issuance and have an interest rate of 4% per annum. The notes are convertible at any time prior to maturity at the option of the holder into shares of common stock at $2.50 per share, subject to certain adjustments (“Conversion Price”) and will be automatically converted into shares of common stock at the Conversion Price after May 5, 2017 if after that date the common stock trades above the Conversion Price for 20 trading days with an average daily volume of at least 25,000 shares.


 

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) for the issuance of the securities referenced herein pursuant to Section 4(a)(2) of the Securities Act, since, among other things, the transaction did not involve a public offering and in reliance on Regulation S under the Securities Act since all securities were sold to non-U.S. investors.


Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

On July 22, 2015, the Company’s application to have its common stock quoted on the OTCQB marketplace was approved. The Company’s common stock is currently quoted on the OTCQB marketplace under the ticker symbol “VRTT.”




14




Item 6. Exhibits.

  

Exhibit

No.

 

Description

 

 

 

3.1

 

Certificate of Conversion (1)

 

 

 

3.2

 

Certificate of Incorporation (1)

 

 

 

3.3

 

Certificate of Amendment (1)

 

 

 

3.4

 

Bylaws (1)

 

 

 

4.1

 

Specimen common stock certificate.(2)

 

 

 

4.2

 

Form of warrant (1)

 

 

 

4.3

 

Form of Convertible Promissory Note*

 

 

 

10. 1

 

2014 Equity Incentive Plan and forms of agreements thereunder.(1)

 

 

 

31.1

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32.1

 

Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

 

 

 

101.INS

 

XBRL Instance Document*

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document*

 

 

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document*

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document*

 

 

 

101.LAB

 

XBRL Taxonomy Label Linkbase Document*

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document*

 

*Filed herewith.

**Furnished herewith.

(1) Incorporated herein by reference the exhibits to the Company’s registration statement on Form S-1 filed with the SEC on October 27, 2014.

(2) Incorporated herein by reference the exhibits to the Company’s registration statement on Form S-1 filed with the SEC on November 26, 2014.





15






SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

VIATAR CTC SOLUTIONS INC.

 

 

 

Date: August 10, 2015

By:

/s/ Ilan Reich

 

 

Ilan Reich

 

 

President, Chief Executive Officer and Chief Financial Officer

 

 

(Principal Executive Officer and Principal Accounting and Financial Officer)

 

 

 






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