Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020.
OR
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ____________ to ____________
Commission file
number: 0-22179
GUIDED
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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58-2029543
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(State or other
jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5835
Peachtree Corners East, Suite B
Norcross,
Georgia
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30092
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(Address of
principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number (including area code):
(770) 242-8723
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Act: Common Stock, $0.001 par
value
(Title
of class)
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
[X ] No [ ]
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes [X] No [ ]
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. Yes [X ] No [
]
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
|
Large accelerated
filer [
]
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Accelerated filer
[
]
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Non-accelerated
filer [
]
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Smaller reporting
company [X]
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Emerging growth
company [
]
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|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes [ ] No [X]
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates was approximately $4,000,000 as of December
31, 2020 (the last business day of the registrant’s most
recently completed fiscal quarter).
As of
April 5, 2021, the registrant had 13,180,417 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
None.
TABLE
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1
PART I
Item
1. Business
Overview
We
are a medical technology company focused on developing innovative
medical devices that have the potential to improve healthcare. Our
primary focus is the sales and marketing of our LuViva®
Advanced Cervical Scan non-invasive cervical cancer detection
device. The underlying technology of LuViva primarily relates to
the use of biophotonics for the non-invasive detection of cancers.
LuViva is designed to identify cervical cancers and precancers
painlessly, non-invasively and at the point of care by scanning the
cervix with light, then analyzing the reflected and fluorescent
light.
LuViva
provides a less invasive and painless alternative to conventional
tests for cervical cancer screening and detection. Additionally,
LuViva improves patient well-being not only because it eliminates
pain, but also because it is convenient to use and provides rapid
results at the point of care. We focus on two primary applications
for LuViva: first, as a cancer screening tool in the developing
world, where infrastructure to support traditional cancer-screening
methods is limited or non-existent, and second, as a triage
following traditional screening in the developed world, where a
high number of false positive results cause a high rate of
unnecessary and ultimately costly follow-up tests.
Screening
for cervical cancer represents one of the most significant demands
on the practice of diagnostic medicine. As cervical cancer is
linked to a sexually transmitted disease—the human
papillomavirus (HPV)—every woman essentially becomes
“at risk” for cervical cancer simply after becoming
sexually active. In the developing world, there are approximately
2.0 billion women aged 15 and older who are potentially eligible
for screening with LuViva. Guidelines for screening intervals vary
across the world, but U.S. guidelines call for screening every
three years. Traditionally, the Pap smear screening test, or Pap
test, is the primary cervical cancer screening methodology in the
developed world. However, in developing countries, cancer screening
using Pap tests is expensive and requires infrastructure and skill
not currently existing, and not likely to be developed in the near
future, in these countries.
We
believe LuViva is the answer to the developing world’s
cervical cancer screening needs. Screening for cervical cancer in
the developing world often requires working directly with foreign
governments or non-governmental agencies (NGOs). By partnering with
governments or NGOs, we can provide immediate access to cervical
cancer detection to large segments of a nation’s population
as part of national or regional governmental healthcare programs,
eliminating the need to develop expensive and resource-intensive
infrastructures.
In
the developed world, we believe LuViva offers a more accurate and
ultimately cost-effective triage medical device, to be used once a
traditional Pap test or HPV test indicates the possibility of
cervical cancer. Due to the high number of false positive results
from Pap tests, traditional follow-on tests entail increased
medical treatment costs. We believe these costs can be minimized by
utilizing LuViva as a triage to determine whether and to what
degree follow-on tests are warranted.
We
believe our non-invasive cervical cancer detection technology can
be applied to the early detection of other cancers as well. Early
market analyses of our biophotonic technology indicated that skin
cancer detection was also promising, but currently we are focused
primarily on the large-scale commercialization of
LuViva.
Cancer
Cancer
is a group of many related diseases. All forms of cancer involve
the out-of-control growth and spread of abnormal cells. Normal
cells grow, divide, and die in an orderly fashion. Cancer cells,
however, continue to grow and divide and can spread to other parts
of the body. In America, half of all men and one-third of all women
will develop some form of cancer during their lifetimes. According
to the American Cancer Society, the sooner a cancer is found and
treatment begins, the better a patient’s chances are of being
cured. We began investigating the applications of our biophotonic
technology to cancer detection before 1997, when we initiated a
preliminary market analysis. We concluded that our biophotonic
technology had applications for the detection of a variety of
cancers through the exposure of tissue to light. We selected
detection of cervical cancer and skin cancer from a list of the ten
most promising applications to pursue initially, and ultimately
focused primarily on our LuViva cervical cancer detection
device.
Cervical cancer is
a cancer that begins in the lining of the cervix (which is located
in the lower part of the uterus). Cervical cancer forms over time
and may spread to other parts of the body if left untreated. There
is generally a gradual change from a normal cervix to a cervix with
precancerous cells to cervical cancer. For some women, precancerous
changes may go away without any treatment. While the majority of
precancerous changes in the cervix do not advance to cancer, if
precancers are treated, the risk that they will become cancers can
be greatly reduced.
2
The Developing World
According to the
most recent data published by the World Health Organization (WHO),
cervical cancer is the fourth most frequent cancer in women
worldwide, with an estimated 570,000 new cases in 2018, an increase
of 40,000 cases from 2012. For women living in less developed
regions, however, cervical cancer is the second most common cancer,
and 9 out of 10 women who die from cervical cancer reside in low-
and middle-income countries. In 2018, GLOBOCAN, the international
cancer tracking agency, estimated that approximately 311,000 women
died from cervical cancer, with 85% to 90% of these deaths
occurring in low- and middle-income countries.
As
noted by the WHO, in developed countries, programs are in place
that enable women to get screened, making most pre-cancerous
lesions identifiable at stages when they can easily be treated.
Early treatment prevents up to 80% of cervical cancers in these
countries. In developing countries, however, limited access to
effective screening means that the disease is often not identified
until it is further advanced and symptoms develop. In addition,
prospects for treatment of such late-stage disease may be poor,
resulting in a higher rate of death from cervical cancer in these
countries.
We
believe that the greatest need and market opportunity for LuViva
lies in screening for cervical cancer in developing countries where
the infrastructure for traditional screening may be limited or
non-existent.
We are
actively working with distributors in the following countries to
implement government-sponsored screening programs: Turkey,
Indonesia, and China. The number of screening candidates in those
countries is approximately 131 million and Indonesia and China
represent 2 of the 10 most populous countries in the
world.
The Developed World
The Pap
test, which involves a sample of cervical tissue being placed on a
slide and observed in a laboratory, is currently the most common
form of cervical cancer screening. Since the introduction of
screening and diagnostic methods, the number of cervical cancer
deaths in the developed world has declined dramatically, due mainly
to the increased use of the Pap test. However, the Pap test has a
wide variation in sensitivity, which is the ability to detect the
disease, and specificity, which is the ability to exclude false
positives. A study by Duke University for the U.S. Agency for
Health Care Policy and Research published in 1999 showed Pap test
performance ranging from a 22%-95% sensitivity and 78%-10%
specificity, although new technologies improving the sensitivity
and specificity of the Pap test have recently been introduced and
are finding acceptance in the marketplace. About 60 million Pap
tests are given annually in the United States, at an average price
of approximately $26 per test.
After a
Pap test returns a positive result for cervical cancer, accepted
protocol calls for a visual examination of the cervix using a
colposcope, usually followed by a biopsy, or tissue sampling, at
one or more locations on the cervix. This method looks for visual
changes attributable to cancer. There are about two million
colposcope examinations annually in the United States and Europe.
In 2003, the average cost of a stand-alone colposcope examination
in the United States was $185 and the average cost of a colposcopy
with biopsy was $277.
Given
this landscape, we believe that there is a material need and market
opportunity for LuViva as a triage device in the developed world
where LuViva represents a more cost-effective method of verifying a
positive Pap test than the alternatives.
The
LuViva Advanced Cervical
Scan
LuViva
is designed to identify cervical cancers and precancers painlessly,
non-invasively and at the point of care by scanning the cervix with
light, then analyzing the light reflected from the cervix. The
information presented by the light would be used to indicate the
likelihood of cervical cancer or precancers. Our product, in
addition to detecting the structural changes attributed to cervical
cancer, is also designed to detect the biochemical changes that
precede the development of visual lesions. In this way, cervical
cancer may be detected earlier in its development, which should
increase the chances of effective treatment. In addition to the
device itself, operation of LuViva requires employment of our
single-use, disposable calibration and alignment cervical
guide.
To
date, thousands of women in multiple international clinical
settings have been tested with LuViva. As a result, more than 25
papers and presentations have been published regarding LuViva in a
clinical setting, including at the International Federation of
Gynecology and Obstetrics Congress in London in 2015 and at the
Indonesian National Obstetrics and Gynecology (POGI) Meeting in
Solo in 2016.
Internationally, we
contract with country-specific or regional distributors. We believe
that the international market will be significantly larger than the
U.S. market due to the international demand for cervical cancer
screening. We have executed formal distribution agreements covering
54 countries and still have active contracts in place for countries
that cover roughly half of the world’s population, including
China and Southeast Asia (including Indonesia), Eastern Europe and
Russia as well as the Middle East (including Turkey). In 2021, in
addition to conducting a new clinical study in the U.S. for FDA
approval, we intend to limit our international focus to to the the
large markets described above, such as China, Russia, and certain
countries within the European Union, India, and certain Latin
American countries, such as Mexico.
3
We have
previously obtained regulatory approval to sell LuViva in Europe
under our Edition 3 CE Mark. Additionally, LuViva has also obtained
marketing approval from Health Canada, COFEPRIS in Mexico, Ministry
of Health in Kenya, India and the Singapore Health Sciences
Authority. We currently are seeking regulatory approval to market
LuViva in the United States but have not yet received approval from
the U.S. Food and Drug Administration (FDA). As of December 31,
2020, we have sold 140 LuViva devices and approximately 76,980
single-use-disposable cervical guides to international
distributors.
We
believe our non-invasive cervical cancer detection technology can
be applied to the early detection of other cancers as
well.
Manufacturing,
Sales Marketing and Distribution
We
manufacture LuViva at our Norcross, Georgia facility. Most of the
components of LuViva are custom made for us by third-party
manufacturers. We adhere to ISO 13485:2003 quality standards in our
manufacturing processes. Our single-use cervical guides are
manufactured by a vendor that specializes in injection molding of
plastic medical products. On January 22, 2017, we entered into a
license agreement with Shandong Yaohua Medical Instrument
Corporation (“SMI”) pursuant to which we granted SMI an
exclusive global license to manufacture the LuViva device and
related disposables (subject to a carve-out for manufacture in
Turkey). On December 18, 2018, we entered into a co-development
agreement with Newmars Technologies, Inc. (“NTI”),
whereby NTI will perform final assembly of the LuViva device for
its contracted distribution countries in Eastern Europe and Russia
at its ISO 13485 facility in Hungary. This additional carve out has
been agreed to by SMI.
We rely
on distributors to sell our products. Distributors can be country
exclusive or cover multiple countries in a region. We manage these
distributors, provide them marketing materials and train them to
demonstrate and operate LuViva. We seek distributors that have
experience in gynecology and in introducing new technology into
their assigned territories.
We
have only limited experience in the production planning, quality
system management, facility development, and production scaling
that will be needed to bring production to increased sustained
commercial levels. We will likely need to develop additional
expertise in order to successfully manufacture, market, and
distribute any future products.
Research,
Development and Engineering
We have
been engaged primarily in the research, development and testing of
our LuViva non-invasive cervical cancer detection product and our
core biophotonic technology. Since 2013, we have incurred
approximately $8.0 million in research and development expenses,
net of about $927,000 reimbursed through collaborative arrangements
and government grants. Research and development costs were
approximately $0.1 million in 2020 and 2019.
Since
2013, we have focused our research and development and our
engineering resources almost exclusively on development of our
biophotonic technology, with only limited support of other programs
funded through government contracts or third-party funding. Because
our research and clinical development programs for other cancers
are at a very early stage, substantial additional research and
development and clinical trials will be necessary before we can
produce commercial prototypes of other cancer detection
products.
Several
of the components used in LuViva currently are available from only
one supplier, and substitutes for these components could not be
obtained easily or would require substantial modifications to our
products.
Patents
We have
pursued a course of developing and acquiring patents and patent
rights and licensing technology. Our success depends in large part
on our ability to establish and maintain the proprietary nature of
our technology through the patent process and to license from
other’s patents and patent applications necessary to develop
our products. As of December 31, 2020, we have 10 granted U.S.
patents relating to our biophotonic cancer detection technology
that were developed in-house and are owned by the Company.
Currently we do not own third party patents nor do we make any
outside payments for patents.
4
As of
December 31, 2020, patents 6,400,875, 6,577,391, 6,870,620,
7,006,220 and 8,644,912 had expired.
|
Patent
No.
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Title
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Ctry
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Grant
Date
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Expiration
Date
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6,400,875
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Method for Protecting A Fiber Optic
Probe And The Resulting Fiber Optic Probe
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US
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06/04/2002
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11/01/2019
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6,577,391
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Apparatus And Method For
Determining Tissue Characteristics
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US
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06/10/2003
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03/24/2020
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6,590,651
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Apparatus and Method for
Determining Tissue Characteristics
|
US
|
07/08/2003
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11/16/2020
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6,792,982
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Vacuum Source For Harvesting
Substances
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US
|
09/21/2004
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07/23/2023
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6,870,620
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Apparatus And Method For
Determining Tissue Characteristics
|
US
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03/22/2005
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03/24/2020
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6,975,889
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Multi-Modal Optical Cancer
Diagnostic System
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US
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12/13/2005
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03/09/2021
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7,006,220
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Apparatus and Method for
Determining Tissue Characteristics
|
US
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02/28/2006
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11/16/2020
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7,174,927
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Vacuum Source For Harvesting
Substances
|
US
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02/13/2007
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09/03/2024
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7,301,629
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Apparatus and Method for
Determining Tissue Characteristics
|
US
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11/27/2007
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07/03/2023
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7,335,166
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System And Methods For Fluid
Extractions And Monitoring
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US
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02/26/2008
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05/22/2023
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8,644,912
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Method and Apparatus For
Determining Tissue Characteristics
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US
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02/04/2014
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11/16/2020
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8,781,560
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Method and Apparatus For Rapid
Detection and Diagnosis of Tissue Abnormalities
|
US
|
07/15/2014
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07/14/2031
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9,561,003
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Method and Apparatus For Rapid
Detection and Diagnosis of Tissue Abnormalities
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US
|
02/07/2017
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07/14/2031
|
|
D714453
|
Mobile Cart and Hand Held Unit for
Diagnostics of Measurement
|
US
|
09/30/2014
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09/30/2028
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D724199
|
Medical Diagnostic Stand Off
Tube
|
US
|
03/10/2015
|
03/10/2029
|
|
D746475
|
Mobile Cart and Hand Held Unit for
Diagnostics or Measurement
|
US
|
12/29/2015
|
12/29/2029
|
In addition to the patents listed above, the
Company owns four additional corresponding foreign patents and has
applied for two additional US patents, although there is no
assurance that these patents will be granted. The
Company’s strategy is to continue improving its products and
filing new patents to protect those
improvements.
In
the United States, additional years of patent protection may be
added (on a case by case basis) beyond the standard patent
terms under the 1984 Drug Price Competition and Patent Term
Restoration Act, also known as the Hatch-Waxman Act. The
Hatch-Waxman act includes Section 156, which provides for the
extension of the term of a granted patent (PTE) under certain
circumstances. The intent behind Section 156 is to extend patent
life to compensate patent holders for patent term lost while
developing their product and awaiting FDA approval. The
Company’s patents qualify under Section 156 because LuViva
has not yet been commercialized in the United States and it is
being regulated by FDA as a Class III Medical Device.
Competition
The
medical device industry in general and the markets for cervical
cancer detection in particular, are intensely competitive. If
successful in our product development, we will compete with other
providers of cervical cancer detection and prevention
products.
Current
cervical cancer screening and diagnostic tests, primarily the Pap
test, HPV test, and colposcopy, are well established and pervasive.
Improvements and new technologies for cervical cancer detection and
prevention, such as Thin-Prep from Hologic and HPV testing from
Qiagen, have led to other new competitors. In addition, there are
other companies attempting to develop products using forms of
biophotonic technologies in cervical cancer detection, such as
Spectrascience and Tru-Screen, neither of which currently have U.S.
FDA approval to market their devices for detection of cervical
cancers. The approval limits use of the Spectrascience device only
after a colposcopy, as an adjunct. In addition to the
Spectrascience device, there are other technologies that are
seeking to enter the market as adjuncts to colposcopy, including
devices from Dysis and Zedco. While these technologies are not
direct competitors to LuViva, modifications to them or other new
technologies will require us to develop devices that are more
accurate, easier to use or less costly to administer so that our
products have a competitive advantage.
In
April 2014, the U.S. FDA approved the use of the Roche cobas HPV
test as a primary screener for cervical cancer. Using a sample of
cervical cells, the cobas HPV test detects DNA from 14 high-risk
HPV types. The test specifically identifies HPV 16 and HPV 18,
while concurrently detecting 12 other types of high-risk HPVs. This
could make HPV testing a competitor to the Pap test. However, due
to its lower specificity, we believe that screening with HPV will
increase the number of false positive results if widely
adopted.
In June
2006, the U.S. FDA approved the HPV vaccine Gardasil from drug
maker Merck. Gardasil is a prophylactic HPV vaccine, meaning that
it is designed to prevent the initial establishment of HPV
infections. For maximum efficacy, it is recommended that girls
receive the vaccine prior to becoming sexually active. Since
Gardasil will not block infection with all of the HPV types that
can cause cervical cancer, the vaccine should not be considered a
substitute for routine Pap tests. On October 16, 2009,
GlaxoSmithKline PLC was granted approval in the United States for a
similar preventive HPV vaccine, known as Cervarix. Due to the
limited availability and lack of 100% protection against all
potentially cancer-causing strains of HPV, we believe that the
vaccines will have a limited impact on the cervical cancer
screening and diagnostic market for many years.
Government
Regulation
The
medical devices that we manufacture are subject to regulation by
numerous regulatory bodies, including the CFDA, the U.S. FDA, and
comparable international regulatory agencies. These agencies
require manufacturers of medical devices to comply with applicable
laws and regulations governing the development, testing,
manufacturing, labeling, marketing and distribution of medical
devices. Devices are generally subject to varying levels of
regulatory control, the most comprehensive of which requires that a
clinical evaluation program be conducted before a device receives
approval for commercial distribution.
5
In the
European Union, medical devices are required to comply with the
Medical Devices Directive and obtain CE Mark certification in order
to market medical devices. The CE Mark certification, granted
following approval from an independent “Notified Body,”
is an international symbol of adherence to quality assurance
standards and compliance with applicable European Medical Devices
Directives. From 2017 through 2020, we were unable to pay the
annual registration fees to maintain our ISO 13485:2003
certification and our CE Mark. Once our financing is completed, we
will make the required payments and reobtain both certifications.
In addition, our December 21, 2018 agreement with Newmars, will
allow final assembly at their ISO 13485:2016 accredited facility.
Once all inspections have been passed for LuViva, this will allow
an alternative path for obtaining the CE Mark.
China
has a regulatory regime similar to that of the European Union, but
due to interaction with the U.S. regulatory regime, the CFDA also
shares some similarities with its U.S. counterpart. Devices are
classified by the CFDA’s Center for Medical Device Evaluation
(CMDE) into three categories based on medical risk, with the level
of regulatory oversight determined by degree of risk and
invasiveness. CMDE’s device classifications and definitions
are as follows:
●
Class I device: The
safety and effectiveness of the device can be ensured through
routine administration.
●
Class II device:
Further control is required to ensure the safety and effectiveness
of the device.
●
Class III device:
The device is implanted into the human body; used for life support
or sustenance; or poses potential risk to the human body, and thus
must be strictly controlled in respect to safety and
effectiveness.
Based
on the above definitions and several discussions with regulatory
consultants and potential partners, we believe that LuViva is most
likely to be classified as a Class II device, however, this is not
certain and the CFDA may determine that LuViva requires a Class III
registration. Class III registrations are granted by the national
CFDA office while Class I and II registrations occur at the
provincial level. Typically, registration granted at the provincial
level allows a medical device to be marketed in all of
China’s provinces.
While
Class I devices usually do not require clinical trial data from
Chinese patients and Class III devices almost always do, Class II
medical devices sometimes do and sometimes do not require Chinese
clinical trials, and this determination may depend on the claim for
the device and quality of clinical trials conducted outside of
China. If clinical trials conducted in China are required, they
usually are less burdensome for Class II devices than Class III
devices.
CFDA
labs also conduct electrical, mechanical and electromagnetic
emission safety testing for medical devices similar to those
required for the CE Mark. As is the case with the U.S. FDA,
manufacturers in China undergo periodic inspections and must comply
with international quality standards such as ISO 13485 for medical
devices. As part of our agreement with SMI, SMI will underwrite the
cost of securing approval of LuViva with the CFDA.
In the
United States, permission to distribute a new device generally can
be met in one of two ways. The first process requires that a
pre-market notification (510(k) Submission) be made to the U.S. FDA
to demonstrate that the device is as safe and effective as, or
substantially equivalent to, a legally marketed device that is not
subject to premarket approval (PMA). A legally marketed device is a
device that (1) was legally marketed prior to May 28, 1976, (2) has
been reclassified from Class III to Class II or I, or (3) has been
found to be substantially equivalent to another legally marketed
device following a 510(k) Submission. The legally marketed device
to which equivalence is drawn is known as the
“predicate” device. Applicants must submit descriptive
data and, when necessary, performance data to establish that the
device is substantially equivalent to a predicate device. In some
instances, data from human clinical studies must also be submitted
in support of a 510(k) Submission. If so, these data must be
collected in a manner that conforms with specific requirements in
accordance with federal regulations. The U.S. FDA must issue an
order finding substantial equivalence before commercial
distribution can occur. Changes to existing devices covered by a
510(k) Submission which do not significantly affect safety or
effectiveness can generally be made by us without additional 510(k)
Submissions.
The
second process requires that an application for premarket approval
(PMA) be made to the U.S. FDA to demonstrate that the device is
safe and effective for its intended use as manufactured. This
approval process applies to most Class III devices, including
LuViva. In this case, two steps of U.S. FDA approval are generally
required before marketing in the United States can begin. First,
investigational device exemption (IDE) regulations must be complied
with in connection with any human clinical investigation of the
device in the United States. Second, the U.S. FDA must review the
PMA application, which contains, among other things, clinical
information acquired under the IDE. The U.S. FDA will approve the
PMA application if it finds that there is a reasonable assurance
that the device is safe and effective for its intended
purpose.
We
completed enrollment in our U.S. FDA pivotal trial of LuViva in
2008 and, after the U.S. FDA requested two-years of follow-up data
for patients enrolled in the study, the U.S. FDA accepted our
completed PMA application on November 18, 2010, effective September
23, 2010, for substantive review. On March 7, 2011, we announced
that the U.S. FDA had inspected two clinical trial sites and
audited our clinical trial data base systems as part of its review
process and raised no formal compliance issues. On January 20,
2012, we announced our intent to seek an independent panel review
of our PMA application after receiving a
“not-approvable” letter from the U.S. FDA. On November
14, 2012 we filed an amended PMA with the U.S. FDA. On September 6,
2013, we received a letter from the U.S. FDA with additional
questions and met with the U.S. FDA on May 8, 2014 to discuss our
response. On July 25, 2014, we announced that we had responded to
the U.S. FDA’s most recent questions.
6
We
received a “not-approvable” letter from the U.S. FDA on
May 15, 2015. We had a follow up meeting with the U.S. FDA to
discuss a path forward on November 30, 2015, at which we agreed to
submit a detailed clinical protocol for U.S. FDA review so that
additional studies can be completed. We held a follow up
teleconference with FDA on January 28, 2020 and filed a
pre-submission document to the Agency on February 17, 2020 that
summarized the clinical protocol to be submitted for FDA review.
Despite significant delays at FDA due to their emergency evaluation
of Covid-19 related products, we completed our clinical study
protocol with FDA review and comments at the end of 2020. Assuming
adequate funds are available, in 2021 we anticipate conducting this
new clinical trial for FDA approval. We are committed to obtaining
U.S. FDA approval, and at the same time we intend to continue
international growth based on our new CE Mark for the European
Union, progress in gaining regulatory approval in China and in
large markets where we have previously established distribution,
such as Turkey and Indonesia.
The
process of obtaining clearance to market products is costly and
time-consuming in virtually all of the major markets in which we
sell, or expect to sell, our products and may delay the marketing
and sale of our products. Countries around the world have recently
adopted more stringent regulatory requirements, which are expected
to add to the delays and uncertainties associated with new product
releases, as well as the clinical and regulatory costs of
supporting those releases. No assurance can be given that our
products will be approved on a timely basis in any particular
jurisdiction, if at all. In addition, regulations regarding the
development, manufacture and sale of medical devices are subject to
future change. We cannot predict what impact, if any, those changes
might have on our business. Failure to comply with regulatory
requirements could have a material adverse effect on our business,
financial condition and results of operations.
Noncompliance with
applicable requirements can result in import detentions, fines,
civil penalties, injunctions, suspensions or losses of regulatory
approvals or clearances, recall or seizure of products, operating
restrictions, denial of export applications, governmental
prohibitions on entering into supply contracts, and criminal
prosecution. Failure to obtain regulatory approvals or the
restriction, suspension or revocation of regulatory approvals or
clearances, as well as any other failure to comply with regulatory
requirements, would have a material adverse effect on our business,
financial condition and results of operations.
Regulatory
approvals and clearances, if granted, may include significant
labeling limitations and limitations on the indicated uses for
which the product may be marketed. In addition, to obtain
regulatory approvals and clearances, the U.S. FDA and some foreign
regulatory authorities impose numerous other requirements with
which medical device manufacturers must comply. U.S. FDA
enforcement policy strictly prohibits the marketing of approved
medical devices for unapproved uses. Any products we manufacture or
distribute under U.S. FDA clearances or approvals are subject to
pervasive and continuing regulation by the U.S. FDA. The U.S. FDA
also requires us to provide it with information on death and
serious injuries alleged to have been associated with the use of
our products, as well as any malfunctions that would likely cause
or contribute to death or serious injury.
The
U.S. FDA requires us to register as a medical device manufacturer
and list our products. We are also subject to inspections by the
U.S. FDA and state agencies acting under contract with the U.S. FDA
to confirm compliance with good manufacturing practice. These
regulations require that we manufacture our products and maintain
documents in a prescribed manner with respect to manufacturing,
testing, quality assurance and quality control activities. The U.S.
FDA also has promulgated final regulatory changes to these
regulations that require, among other things, design controls and
maintenance of service records. These changes will increase the
cost of complying with good manufacturing practice
requirements.
Distributors of
medical devices may also be required to comply with other foreign
regulatory agencies, and we or our distributors currently have
marketing approval for LuViva from Health Canada, COFEPRIS in
Mexico, the Ministry of Health in Kenya, and the Singapore Health
Sciences Authority. The time required to obtain these foreign
approvals to market our products may be longer or shorter than that
required in China or the United States, and requirements for those
approvals may differ from those required by the CFDA or the U.S.
FDA.
We are
also subject to a variety of other controls that affect our
business. Labeling and promotional activities are subject to
scrutiny by the U.S. FDA and, in some instances, by the U.S.
Federal Trade Commission. The U.S. FDA actively enforces
regulations prohibiting marketing of products for unapproved users.
We are also subject, as are our products, to a variety of state and
local laws and regulations in those states and localities where our
products are or will be marketed. Any applicable state or local
regulations may hinder our ability to market our products in those
regions. Manufacturers are also subject to numerous federal, state
and local laws relating to matters such as safe working conditions,
manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous
substances. We may be required to incur significant costs to comply
with these laws and regulations now or in the future. These laws or
regulations may have a material adverse effect on our ability to do
business.
Although our
marketing and distribution partners around the world assist in the
regulatory approval process, ultimately, we are be responsible for
obtaining and maintaining regulatory approvals for our products.
The inability or failure to comply with the varying regulations or
the imposition of new regulations would materially adversely affect
our business, financial condition and results of
operations.
7
Employees
and Consultants
As of
December 31, 2020, we had six regular employees and two consultants
to provide services to us on a full- or part-time basis. Of the
eight people employed or engaged by us, two are engaged in
engineering, manufacturing and development, two are engaged in
sales and marketing activities, one is engaged in clinical testing
and regulatory affairs, and three are engaged in administration and
accounting. No employees are covered by collective bargaining
agreements, and we believe we maintain good relations with our
employees.
Our
ability to operate successfully and manage our potential future
growth depends in significant part upon the continued service of
key scientific, technical, managerial and finance personnel, and
our ability to attract and retain additional highly qualified
personnel in these fields. Two of these key employees have an
employment contract with us; none are covered by key person or
similar insurance. In addition, if we are able to successfully
develop and commercialize our products, we likely will need to hire
additional scientific, technical, marketing, managerial and finance
personnel. We face intense competition for qualified personnel in
these areas, many of whom are often subject to competing employment
offers. The loss of key personnel or our inability to hire and
retain additional qualified personnel in the future could have a
material adverse effect on our business, financial condition and
results of operations.
Corporate
History
We are
a Delaware corporation, originally incorporated in 1992 under the
name “SpectRx, Inc.,” and, on February 22, 2008,
changed our name to Guided Therapeutics, Inc. At the same time, we
renamed our wholly owned subsidiary, InterScan, which originally
had been incorporated as “Guided
Therapeutics.”
Our
principal executive and operations facility is located at 5835
Peachtree Corners East, Suite B, Norcross, Georgia 30092, and our
telephone number is (770) 242-8723.
Risk
Factors Summary
The
following is a summary of the principal risks that could adversely
affect our business, operations and financial results. Please refer
to Item 1A “Risk Factors” of this Form 10-K below for
additional discussion of the risks summarized in this Risk Factors
Summary.
An
investment in our securities involves a high degree of risk. The
occurrence of one or more of the events or circumstances described
in the section entitled “Risk Factors,” alone or in
combination with other events or circumstances, may materially
adversely affect our business, financial condition and operating
results. In that event, the trading price of our securities could
decline, and you could lose all or part of your investment. Such
risks include, but are not limited to the following:
Risks
Related to Our Business
●
Although we will be
required to raise additional funds in 2021, there is no assurance
that such funds can be raised on terms that we would find
acceptable, on a timely basis, or at all.
●
If we cannot obtain
additional funds when needed, we will not be able to implement our
business plan.
●
We do not have a
long operating history, especially in the cancer detection field,
which makes it difficult to evaluate our business.
●
We have a history
of losses, and we expect losses to continue.
●
We file federal
taxes that may be subject to audit and adjustments from time to
time.
●
We are currently
delinquent with some of our federal payroll and unemployment taxes
and applicable state payroll and unemployment tax
filings
●
We have received
Paycheck Protection Program (PPP) loans and must retain PPP loan
documentation
●
Our ability to sell
our products is controlled by government regulations, and we may
not be able to obtain any necessary clearances or
approvals.
●
In foreign
countries, including European countries, we are subject to
government regulation, which could delay or prevent our ability to
sell our products in those jurisdictions.
●
In the United
States, we are subject to regulation by the U.S. FDA, which could
prevent us from selling our products domestically.
●
Even if we obtain
clearance or approval to sell our products, we are subject to
ongoing requirements and inspections that could lead to the
restriction, suspension or revocation of our
clearance.
●
We depend on a
limited number of distributors and any reduction, delay or
cancellation of an order from these distributors or the loss of any
of these distributors could cause our revenue to
decline.
●
To successfully
market and sell our products internationally, we must address many
issues with which we have limited experience.
●
Trading in our
common stock is subject to special sales practices and may be
difficult to sell.
8
●
To market and sell
LuViva internationally, we depend on distributors and they may not
be successful.
●
The coronavirus
outbreak could adversely impact our business.
Risks Related to Our Intellectual Property
●
Our success largely
depends on our ability to maintain and protect the proprietary
information on which we base our products.
●
We may be unable to
commercialize our products if we are unable to protect our
proprietary rights, and we may be liable for significant costs and
damages if we face a claim of intellectual property infringement by
a third party.
●
We may be involved
in lawsuits to protect or enforce our patents, which could be
expensive and time consuming.
●
If we infringe the
rights of third parties, we could be prevented from selling
products, forced to pay damages, and defend against
litigation
Risks
Related to Our Sales Strategy
●
We may not be able
to generate sufficient sales revenues to sustain our growth and
strategy plans.
●
Because our
products, which use different technology or apply technology in
different ways than other medical devices, are or will be new to
the market, we may not be successful in launching our products and
our operations and growth would be adversely affected.
●
If we are unable to
compete effectively in the highly competitive medical device
industry, our future growth and operating results will
suffer.
●
We have limited
manufacturing experience, which could limit our
growth.
●
Since we rely on
sole source suppliers for several of the components used in our
products, any failure of those suppliers to perform would hurt our
operations.
●
Because we operate
in an industry with significant product liability risk, and we have
not specifically insured against this risk, we may be subject to
substantial claims against our products.
●
The availability of
third party reimbursement for our products is uncertain, which may
limit consumer use and the market for our products.
●
We have a
substantial amount of indebtedness, which may adversely affect our
cash flow and our ability to operate our business.
●
We have outstanding
debt that is collateralized by a general security interest in all
of our assets, including our intellectual property. If we were to
fail to repay the debt when due, the holders would have the right
to foreclose on these assets
●
We are subject to
restrictive covenants under the terms of our outstanding secured
debt. If we were to default under the terms of these covenants, the
holders would have the right to foreclose on the assets that secure
the debt.
●
Our success depends
on our ability to attract and retain scientific, technical,
managerial and finance personnel.
●
Certain provisions
of our certificate of incorporation that authorize the issuance of
additional shares of preferred stock may make it more difficult for
a third party to effect a change in control.
Risks
Related to Our Common Stock
●
On March 29, 2019,
a 1:800 reverse stock split of all of our issued and outstanding
common stock was implemented. There are risks associated with a
reverse stock split.
●
The reverse stock
split may decrease the liquidity of the shares of our common
stock.
●
Following the
reverse stock split, the resulting market price of our common stock
may not attract new investors, including institutional investors,
and may not satisfy the investing requirements of those investors.
Consequently, the trading liquidity of our common stock may not
improve.
●
The number of
shares of our common stock issuable upon the conversion of our
outstanding convertible debt and preferred stock or exercise of
outstanding warrants and options is substantial.
●
Adjustments to the
conversion price of our convertible debt and preferred stock, and
the exercise price for certain of our warrants, will dilute the
ownership interests of our existing stockholders.
●
Our stock is thinly
traded, so you may be unable to sell at or near ask prices or at
all.
●
Trading in our
common stock is subject to special sales practices and may be
difficult to
●
Our need to raise
additional capital in the near future or to use our equity
securities for payments could have a dilutive effect on your
investment.
9
Item
1A. Risk Factors
In addition to the other information in this annual report on Form
10-K, the following risk factors should be considered carefully in
evaluating us.
Risks
Related to Our Business
Although we will be required to raise additional funds in 2021,
there is no assurance that such funds can be raised on terms that
we would find acceptable, on a timely basis, or at
all.
Additional debt or
equity financing will be required for us to continue as a going
concern. We may seek to obtain additional funds for the financing
of our cervical cancer detection business through additional debt
or equity financings and/or new collaborative arrangements.
Management believes that additional financing, if obtainable, will
be sufficient to support planned operations only for a limited
period. Management has implemented operating actions to reduce cash
requirements. Any required additional funding may not be available
on terms attractive to us, on a timely basis, or at all. If we
cannot obtain additional funds or achieve profitability, we may not
be able to continue as a going concern.
Because
we must obtain additional funds through financing transactions or
through new collaborative arrangements in order to grow the
revenues of our cervical cancer detection product line, there
exists substantial doubt about our ability to continue as a going
concern. Therefore, it will be necessary to raise additional funds.
There can be no assurance that we will be able to raise these
additional funds. If we do not secure additional funding when
needed, we will be unable to conduct all of our product development
efforts as planned, which may cause us to alter our business plan
in relation to the development of our products. Even if we obtain
additional funding, we will need to achieve profitability
thereafter.
Our
independent registered public accountants’ report on our
consolidated financial statements as of and for the year ended
December 31, 2020, indicated that there was substantial doubt about
our ability to continue as a going concern because we had suffered
recurring losses from operations and had an accumulated deficit of
$140.0 million at December 31, 2020 summarized as
follows:
|
Accumulated
deficit, from inception to 12/31/2018
|
$137.7
million
|
|
Net
Loss for fiscal year 2019, ended 12/31/2019
|
$ 1.9
million
|
|
Accumulated
deficit, from inception to 12/31/2019
|
$139.6
million
|
|
Preferred dividends
for fiscal year 2020
|
$ 0.1
million
|
|
Net
Loss for year to date ended 12/31/2020
|
$ 0.3
million
|
|
Accumulated
deficit, from inception to 12/31/2020
|
$140.0
million
|
Our
management has implemented reductions in operating expenditures and
reductions in some development activities. We have determined to
make cervical cancer detection the focus of our business. We are
managing the development of our other programs only when funds are
made available to us via grants or contracts with government
entities or strategic partners. However, there can be no assurance
that we will be able to successfully implement or continue these
plans.
If we cannot obtain additional funds when needed, we will not be
able to implement our business plan.
We
require substantial additional capital to develop our products,
including completing product testing and clinical trials, obtaining
all required regulatory approvals and clearances, beginning and
scaling up manufacturing, and marketing our products. We have
historically financed our operations though the public and private
sale of debt and equity, funding from collaborative arrangements,
and grants. Any failure to achieve adequate funding in a timely
fashion would delay our development programs and could lead to
abandonment of our business plan. To the extent we cannot obtain
additional funding, our ability to continue to manufacture and sell
our current products, or develop and introduce new products to
market, will be limited. Further, financing our operations through
the public or private sale of debt or equity may involve
restrictive covenants or other provisions that could limit how we
conduct our business or finance our operations. Financing our
operations through collaborative arrangements generally means that
the obligations of the collaborative partner to fund our
expenditures are largely discretionary and depend on a number of
factors, including our ability to meet specified milestones in the
development and testing of the relevant product. We may not be able
to obtain an acceptable collaboration partner, and even if we do,
we may not be able to meet these milestones, or the collaborative
partner may not continue to fund our expenditures.
We do not have a long operating history, especially in the cancer
detection field, which makes it difficult to evaluate our
business.
Although we have
been in existence since 1992, we have only recently begun to
commercialize our cervical cancer detection technology. Because
limited historical information is available on our revenue trends
and manufacturing costs, it is difficult to evaluate our
business. Our prospects must be considered in light of the
substantial risks, expenses, uncertainties and difficulties
encountered by entrants into the medical device industry, which is
characterized by increasing intense competition and a high failure
rate.
10
We have a history of losses, and we expect losses to
continue.
We have
never been profitable and we have had operating losses since our
inception. We expect our operating losses to continue as we
continue to expend substantial resources to complete
commercialization of our products, obtain regulatory clearances or
approvals; build our marketing, sales, manufacturing and finance
capabilities, and conduct further research and development. The
further development and commercialization of our products will
require substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. We have only generated
limited revenues from product sales. Our accumulated deficit was
approximately $140.0 million at December 31, 2020.
We file federal taxes that may be subject to audit and adjustments
from time to time.
Although we have
been experiencing recurring losses, we are obligated to file tax
returns for compliance with IRS regulations and that of applicable
state jurisdictions. We have filed our 2019 federal and state
corporate tax returns. At December 31, 2020 and 2019, we have
approximately $71.4 and $77.5 million of net operating losses,
respectively. This net operating loss will be eligible to be
carried forward for tax purposes at federal and applicable states
level, but the use of such net operating losses may be subject to
restrictions under applicable tax law. A full valuation allowance
has been recorded related to the deferred tax assets generated from
the net operating losses.
We are currently delinquent with some of our federal payroll and
unemployment taxes and applicable state payroll and unemployment
tax filings
In
prior years we have been delinquent in filing our payroll and
unemployment taxes. We have established payment plans with the IRS
and the State of Georgia. We have been able to abate some of the
penalties associated with the late filings. We will attempt to file
on time and to make payments to federal state agencies on time, but
we cannot guarantee that we will have adequate funds or the
personnel necessary to make these payments and
filings.
We have received Paycheck Protection Program (PPP) loans and must
retain PPP loan documentation
According to the
rules of the SBA, the Company is required to retain PPP Loan
documentation for six years after the date the loan is forgiven or
repaid in full, and permit authorized representatives of the SBA,
including representatives of its Office of Inspector General, to
access such files upon request. Should the SBA conduct such a
review and reject all or some of the Company’s judgments
pertaining to satisfying PPP Loan eligibility or forgiveness
conditions, the Company may be required to adjust previously
reported amounts and disclosures in the financial
statements.
Our ability to sell our products is controlled by government
regulations, and we may not be able to obtain any necessary
clearances or approvals.
The
design, manufacturing, labeling, distribution and marketing of
medical device products are subject to extensive and rigorous
government regulation in most of the markets in which we sell, or
plan to sell, our products, which can be expensive and uncertain
and can cause lengthy delays before we can begin selling our
products in those markets.
In foreign countries, including European countries, we are subject
to government regulation, which could delay or prevent our ability
to sell our products in those jurisdictions.
In
order for us to market our products in Europe and some other
international jurisdictions, we and our distributors and agents
must obtain required regulatory registrations or approvals. We must
also comply with extensive regulations regarding safety, efficacy
and quality in those jurisdictions. We may not be able to obtain
the required regulatory registrations or approvals, or we may be
required to incur significant costs in obtaining or maintaining any
regulatory registrations or approvals we receive. Delays in
obtaining any registrations or approvals required for marketing our
products, failure to receive these registrations or approvals, or
future loss of previously obtained registrations or approvals would
limit our ability to sell our products internationally. For
example, international regulatory bodies have adopted various
regulations governing product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. These regulations vary from country to
country. In 2020, our contract manufacturer, Newmars Medical
Technology, based in Budapest Hungary, successfully underwent and
passed an inspection and re-filing for ISO 13485:2016 and
the obtained the CE Mark for LuViva, which is an international
symbol of quality and compliance with applicable European medical
device directives. The new ISO and CE Mark mean that LuViva can
continue to be sold in the European Union. Failure to maintain ISO
13485:2016 certification or CE mark certification or other
international regulatory approvals would prevent us from selling in
some countries in the European Union.
In the United States, we are subject to regulation by the U.S. FDA,
which could prevent us from selling our products
domestically.
In
order for us to market our products in the United States, we must
obtain clearance or approval from the U.S. Food and Drug
Administration, or U.S. FDA. We cannot be sure that:
●
we, or any
collaborative partner, will make timely filings with the U.S.
FDA;
●
the U.S. FDA will
act favorably or quickly on these submissions;
●
we will not be
required to submit additional information or perform additional
clinical studies; or
●
we will not face
other significant difficulties and costs necessary to obtain U.S.
FDA clearance or approval.
11
It can
take several years from initial filing of a PMA application and
require the submission of extensive supporting data and clinical
information. The U.S. FDA may impose strict labeling or other
requirements as a condition of its clearance or approval, any of
which could limit our ability to market our products domestically.
Further, if we wish to modify a product after U.S. FDA approval of
a PMA application, including changes in indications or other
modifications that could affect safety and efficacy, additional
clearances or approvals will be required from the U.S. FDA. Any
request by the U.S. FDA for additional data, or any requirement by
the U.S. FDA that we conduct additional clinical studies, could
result in a significant delay in bringing our products to market
domestically and require substantial additional research and other
expenditures. Similarly, any labeling or other conditions or
restrictions imposed by the U.S. FDA could hinder our ability to
effectively market our products domestically. Further, there may be
new U.S. FDA policies or changes in U.S. FDA policies that could be
adverse to us.
Even if we obtain clearance or approval to sell our products, we
are subject to ongoing requirements and inspections that could lead
to the restriction, suspension or revocation of our
clearance.
We, as
well as any potential collaborative partners, will be required to
adhere to applicable regulations in the markets in which we operate
and sell our products, regarding good manufacturing practice, which
include testing, control, and documentation requirements. Ongoing
compliance with good manufacturing practice and other applicable
regulatory requirements will be strictly enforced applicable
regulatory agencies. Failure to comply with these regulatory
requirements could result in, among other things, warning letters,
fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure to obtain
premarket clearance or premarket approval for devices, withdrawal
of approvals previously obtained, and criminal prosecution. The
restriction, suspension or revocation of regulatory approvals or
any other failure to comply with regulatory requirements would
limit our ability to operate and could increase our
costs.
We depend on a limited number of distributors and any reduction,
delay or cancellation of an order from these distributors or the
loss of any of these distributors could cause our revenue to
decline.
Each
year we have had one or a few distributors that have accounted for
substantially all of our limited revenues. As a result, the
termination of a purchase order with any one of these distributors
may result in the loss of substantially all of our revenues. We are
constantly working to develop new relationships with existing or
new distributors, but despite these efforts we may not be
successful at generating new orders to maintain similar revenues as
current purchase orders are filled. In addition, since a
significant portion of our revenues is derived from a relatively
few distributors, any financial difficulties experienced by any one
of these distributors, or any delay in receiving payments from any
one of these distributors, could have a material adverse effect on
our business, results of operations, financial condition and cash
flows.
To successfully market and sell our products internationally, we
must address many issues with which we have limited
experience.
All of
our sales of LuViva to date have been to distributors outside of
the United States. We expect that substantially all of our business
will continue to come from sales in foreign markets, through
increased penetration in countries where we currently sell LuViva,
combined with expansion into new international markets. However,
international sales are subject to a number of risks,
including:
●
difficulties in staffing and managing international
operations;
●
difficulties in penetrating markets in which our competitors’
products may be more established;
●
reduced or no protection for intellectual property rights in some
countries;
●
export restrictions, trade regulations and foreign tax
laws;
●
fluctuating foreign currency exchange rates;
●
foreign certification and regulatory clearance or approval
requirements;
●
difficulties in developing effective marketing campaigns for
unfamiliar, foreign countries;
●
customs clearance and shipping delays;
●
political and economic instability; and
●
preference for locally produced products.
If one
or more of these risks were realized, it could require us to
dedicate significant resources to remedy the situation, and even if
we are able to find a solution, our revenues may still decline and
expenses increase.
To market and sell LuViva internationally, we depend on
distributors and they may not be successful.
We
currently depend almost exclusively on third-party distributors to
sell and service LuViva internationally and to train our
international distributors, and if these distributors terminate
their relationships with us or under-perform, we may be unable to
maintain or increase our level of international revenue. We will
also need to engage additional international distributors to grow
our business and expand the territories in which we sell LuViva.
Distributors may not commit the necessary resources to market, sell
and service LuViva to the level of our expectations. If current or
future distributors do not perform adequately, or if we are unable
to engage distributors in particular geographic areas, our revenue
from international operations will be adversely
affected.
12
The coronavirus outbreak could adversely impact our
business.
In
December 2019, it was first reported that there had been an
outbreak of a novel strain of coronavirus, SARS-CoV-2, in China. As
the coronavirus continues to spread outside of China, including
throughout the United States, we may experience disruptions that
could severely impact our business and regulatory filings,
including:
●
impact to the
financial markets;
●
disruption in our
ability to sell our product in foreign markets;
●
disruption on our
ability to source materials;
●
disruption in our
ability to manufacture our devices and disposables;
●
delays or
difficulties in completing our regulatory work;
●
FDA has reduced the
number of staff working on non-Covid 19 related
products;
●
limitations on our
employee resources ability to work, including because of sickness
of employees or their families or the desire of employees to avoid
contact with large groups of people; and
●
additional
repercussions on our ability to operate our business.
The
global outbreak of coronavirus continues to rapidly evolve. The
extent to which the coronavirus impacts our results will depend on
future developments, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning
the severity of the coronavirus, the ultimate geographic spread of
the coronavirus, the duration of the outbreak, travel restrictions
imposed by countries we conduct our business, business closures or
business disruption in the world, a reduction in time spent out of
home and the actions taken throughout the world, including in our
markets, to contain the coronavirus or treat its impact. 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 to us, if any, will depend on future developments, including
actions taken to contain the coronavirus.
Risks Related to Our Intellectual Property
Our success largely depends on our ability to maintain and protect
the proprietary information on which we base our
products.
Our
success depends in large part upon our ability to maintain and
protect the proprietary nature of our technology through the patent
process, as well as our ability to license from other’s
patents and patent applications necessary to develop our products.
If any of our patents are successfully challenged, invalidated or
circumvented, or our right or ability to manufacture our products
was to be limited, our ability to continue to manufacture and
market our products could be adversely affected. In addition to
patents, we rely on trade secrets and proprietary know-how, which
we seek to protect, in part, through confidentiality and
proprietary information agreements. The other parties to these
agreements may breach these provisions, and we may not have
adequate remedies for any breach. Additionally, our trade secrets
could otherwise become known to or be independently developed by
competitors.
As of
December 31, 2020, we have been issued, or have rights to, 10 U.S.
patents (including those under license). In addition, we have filed
for, or have rights to, two U.S. patents (including those under
license) that are still pending. We also have three granted patents
that apply to our interstitial fluid analysis system as well as
seven international patents that apply to our noninvasive
technologies. There are additional international patents and
pending applications. One or more of the patents we hold directly
or license from third parties, including those for our cervical
cancer detection products, may be successfully challenged,
invalidated or circumvented, or we may otherwise be unable to rely
on these patents. These risks are also present for the process we
use or will use for manufacturing our products. In addition, our
competitors, many of whom have substantial resources and have made
substantial investments in competing technologies, may apply for
and obtain patents that prevent, limit or interfere with our
ability to make, use and sell our products, either in the United
States or in international markets.
The
medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property
rights. In addition, the U.S. Patent and Trademark Office, or
USPTO, may institute interference proceedings. The defense and
prosecution of intellectual property suits, USPTO proceedings and
related legal and administrative proceedings are both costly and
time consuming. Moreover, we may need to litigate to enforce our
patents, to protect our trade secrets or know-how, or to determine
the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings involving us may
require us to incur substantial legal and other fees and expenses
and may require some of our employees to devote all or a
substantial portion of their time to the proceedings. An adverse
determination in the proceedings could subject us to significant
liabilities to third parties, require us to seek licenses from
third parties or prevent us from selling our products in some or
all markets. We may not be able to reach a satisfactory settlement
of any dispute by licensing necessary patents or other intellectual
property. Even if we reached a settlement, the settlement process
may be expensive and time consuming, and the terms of the
settlement may require us to pay substantial royalties. An adverse
determination in a judicial or administrative proceeding or the
failure to obtain a necessary license could prevent us from
manufacturing and selling our products.
13
We may be unable to commercialize our products if we are unable to
protect our proprietary rights, and we may be liable for
significant costs and damages if we face a claim of intellectual
property infringement by a third party.
Our
near and long-term prospects depend in part on our ability to
obtain and maintain patents, protect trade secrets and operate
without infringing upon the proprietary rights of others. In the
absence of patent and trade secret protection, competitors may
adversely affect our business by independently developing and
marketing substantially equivalent or superior products and
technology, possibly at lower prices. We could also incur
substantial costs in litigation and suffer diversion of attention
of technical and management personnel if we are required to defend
ourselves in intellectual property infringement suits brought by
third parties, with or without merit, or if we are required to
initiate litigation against others to protect or assert our
intellectual property rights. Moreover, any such litigation may not
be resolved in our favor.
Although
we and our licensors have filed various patent applications
covering the uses of our product candidates, patents may not be
issued from the patent applications already filed or from
applications that we might file in the future. Moreover, the patent
position of companies in the pharmaceutical industry generally
involves complex legal and factual questions and has been the
subject of much litigation. Any patents we own or license, now or
in the future, may be challenged, invalidated or circumvented. To
date, no consistent policy has been developed in the U.S. Patent
and Trademark Office (the “PTO”) regarding the breadth
of claims allowed in biotechnology patents.
In
addition, because patent applications in the U.S. are maintained in
secrecy until patent applications publish or patents issue, and
because publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, we cannot be
certain that we and our licensors are the first creators of
inventions covered by any licensed patent applications or patents
or that we or they are the first to file. The PTO may commence
interference proceedings involving patents or patent applications,
in which the question of first inventorship is contested.
Accordingly, the patents owned or licensed to us may not be valid
or may not afford us protection against competitors with similar
technology, and the patent applications licensed to us may not
result in the issuance of patents.
It
is also possible that our owned and licensed technologies may
infringe on patents or other rights owned by others, and licenses
to which may not be available to us. We may be unable to obtain a
license under such patent on terms favorable to us, if at all. We
may have to alter our products or processes, pay licensing fees or
cease activities altogether because of patent rights of third
parties.
In
addition to the products for which we have patents or have filed
patent applications, we rely upon unpatented proprietary technology
and may not be able to meaningfully protect our rights with regard
to that unpatented proprietary technology. Furthermore, to the
extent that consultants, key employees or other third parties apply
technological information developed by them or by others to any of
our proposed projects, disputes may arise as to the proprietary
rights to this information, which may not be resolved in our
favor.
We may be involved in lawsuits to protect or enforce our patents,
which could be expensive and time consuming.
The
pharmaceutical industry has been characterized by extensive
litigation regarding patents and other intellectual property
rights, and companies have employed intellectual property
litigation to gain a competitive advantage. We may become subject
to infringement claims or litigation arising out of patents and
pending applications of our competitors, or additional interference
proceedings declared by the PTO to determine the priority of
inventions. The defense and prosecution of intellectual property
suits, PTO proceedings, and related legal and administrative
proceedings are costly and time-consuming to pursue, and their
outcome is uncertain. Litigation may be necessary to enforce our
issued patents, to protect our trade secrets and know-how, or to
determine the enforceability, scope, and validity of the
proprietary rights of others. An adverse determination in
litigation or interference proceedings to which we may become a
party could subject us to significant liabilities, require us to
obtain licenses from third parties, or restrict or prevent us from
selling our products in certain markets. Although patent and
intellectual property disputes might be settled through licensing
or similar arrangements, the costs associated with such
arrangements may be substantial and could include our paying large
fixed payments and ongoing royalties. Furthermore, the necessary
licenses may not be available on satisfactory terms or at
all.
Competitors
may infringe our patents, and we may file infringement claims to
counter infringement or unauthorized use. This can be expensive,
particularly for a company of our size, and time-consuming. In
addition, in an infringement proceeding, a court may decide that a
patent of ours is not valid or is unenforceable or may refuse to
stop the other party from using the technology at issue on the
grounds that our patents do not cover its technology. An adverse
determination of any litigation or defense proceedings could put
one or more of our patents at risk of being invalidated or
interpreted narrowly.
Also,
a third party may assert that our patents are invalid and/or
unenforceable. There are no unresolved communications, allegations,
complaints or threats of litigation related to the possibility that
our patents are invalid or unenforceable. Any litigation or claims
against us, whether or not merited, may result in substantial
costs, place a significant strain on our financial resources,
divert the attention of management and harm our reputation. An
adverse decision in litigation could result in inadequate
protection for our product candidates and/or reduce the value of
any license agreements we have with third parties.
14
Interference
proceedings brought before the PTO may be necessary to determine
priority of invention with respect to our patents or patent
applications. During an interference proceeding, it may be
determined that we do not have priority of invention for one or
more aspects in our patents or patent applications and could result
in the invalidation in part or whole of a patent or could put a
patent application at risk of not issuing. Even if successful, an
interference proceeding may result in substantial costs and
distraction to our management.
Furthermore,
because of the substantial amount of discovery required in
connection with intellectual property litigation or interference
proceedings, there is a risk that some of our confidential
information could be compromised by disclosure. In addition, there
could be public announcements of the results of hearings, motions
or other interim proceedings or developments. If investors perceive
these results to be negative, the price of our common stock could
be adversely affected.
If we infringe the rights of third parties, we could be prevented
from selling products, forced to pay damages, and defend against
litigation.
If
our products, methods, processes and other technologies infringe
the proprietary rights of other parties, we could incur substantial
costs and we may have to: obtain licenses, which may not be
available on commercially reasonable terms, if at all; abandon an
infringing product candidate; redesign our products or processes to
avoid infringement; stop using the subject matter claimed in the
patents held by others; pay damages; and/or defend litigation or
administrative proceedings which may be costly whether we win or
lose, and which could result in a substantial diversion of our
financial and management resources.
Risks
Related to Our Sales Strategy
We may not be able to generate sufficient sales revenues to sustain
our growth and strategy plans.
Our
cervical cancer diagnostic activities have been financed to date
through a combination of government grants, strategic partners and
direct investment. Growing revenues for this product are the main
focus of our business. In order to effectively market the cervical
cancer detection product, additional capital will be
needed.
Additional product
lines involve the modification of the cervical cancer detection
technology for use in other cancers. These product lines are only
in the earliest stages of research and development and are
currently not projected to reach market for several years. Our goal
is to receive enough funding from government grants and contracts,
as well as payments from strategic partners, to fund development of
these product lines without diverting funds or other necessary
resources from the cervical cancer program.
Because our products, which use different technology or apply
technology in different ways than other medical devices, are or
will be new to the market, we may not be successful in launching
our products and our operations and growth would be adversely
affected.
Our
products are based on new methods of cancer detection. If our
products do not achieve significant market acceptance, our sales
will be limited and our financial condition may suffer. Physicians
and individuals may not recommend or use our products unless they
determine that these products are an attractive alternative to
current tests that have a long history of safe and effective use.
To date, our products have been used by only a limited number of
people, and few independent studies regarding our products have
been published. The lack of independent studies limits the ability
of doctors or consumers to compare our products to conventional
products.
If we are unable to compete effectively in the highly competitive
medical device industry, our future growth and operating results
will suffer.
The
medical device industry in general and the markets in which we
expect to offer products in particular, are intensely competitive.
Many of our competitors have substantially greater financial,
research, technical, manufacturing, marketing and distribution
resources than we do and have greater name recognition and
lengthier operating histories in the health care industry. We may
not be able to effectively compete against these and other
competitors. A number of competitors are currently marketing
traditional laboratory-based tests for cervical cancer screening
and diagnosis. These tests are widely accepted in the health care
industry and have a long history of accurate and effective use.
Further, if our products are not available at competitive prices,
health care administrators who are subject to increasing pressures
to reduce costs may not elect to purchase them. Also, a number of
companies have announced that they are developing, or have
introduced, products that permit non-invasive and less invasive
cancer detection. Accordingly, competition in this area is expected
to increase.
Furthermore, our
competitors may succeed in developing, either before or after the
development and commercialization of our products, devices and
technologies that permit more efficient, less expensive
non-invasive and less invasive cancer detection. It is also
possible that one or more pharmaceutical or other health care
companies will develop therapeutic drugs, treatments or other
products that will substantially reduce the prevalence of cancers
or otherwise render our products obsolete.
15
We have limited manufacturing experience, which could limit our
growth.
We do
not have manufacturing experience that would enable us to make
products in the volumes that would be necessary for us to achieve
significant commercial sales, and we rely upon our suppliers. In
addition, we may not be able to establish and maintain reliable,
efficient, full scale manufacturing at commercially reasonable
costs in a timely fashion. Difficulties we encounter in
manufacturing scale-up, or our failure to implement and maintain
our manufacturing facilities in accordance with good manufacturing
practice regulations, international quality standards or other
regulatory requirements, could result in a delay or termination of
production. In the past, we have had substantial difficulties in
establishing and maintaining manufacturing for our products and
those difficulties impacted our ability to increase sales.
Companies often encounter difficulties in scaling up production,
including problems involving production yield, quality control and
assurance, and shortages of qualified personnel.
Since we rely on sole source suppliers for several of the
components used in our products, any failure of those suppliers to
perform would hurt our operations.
Several
of the components used in our products or planned products, are
available from only one supplier, and substitutes for these
components could not be obtained easily or would require
substantial modifications to our products. Any significant problem
experienced by one of our sole source suppliers may result in a
delay or interruption in the supply of components to us until that
supplier cures the problem or an alternative source of the
component is located and qualified. Any delay or interruption would
likely lead to a delay or interruption in our manufacturing
operations. For our products that require premarket approval, the
inclusion of substitute components could require us to qualify the
new supplier with the appropriate government regulatory
authorities. Alternatively, for our products that qualify for
premarket notification, the substitute components must meet our
product specifications.
Because we operate in an industry with significant product
liability risk, and we have not specifically insured against this
risk, we may be subject to substantial claims against our
products.
The
development, manufacture and sale of medical products entail
significant risks of product liability claims. We currently have no
product liability insurance coverage beyond that provided by our
general liability insurance. Accordingly, we may not be adequately
protected from any liabilities, including any adverse judgments or
settlements, we might incur in connection with the development,
clinical testing, manufacture and sale of our products. A
successful product liability claim, or series of claims brought
against us that result in an adverse judgment against or settlement
by us in excess of any insurance coverage could seriously harm our
financial condition or reputation. In addition, product liability
insurance is expensive and may not be available to us on acceptable
terms, if at all.
The availability of third party reimbursement for our products is
uncertain, which may limit consumer use and the market for our
products.
In the
United States and elsewhere, sales of medical products are
dependent, in part, on the ability of consumers of these products
to obtain reimbursement for all or a portion of their cost from
third-party payors, such as government and private insurance plans.
Any inability of patients, hospitals, physicians and other users of
our products to obtain sufficient reimbursement from third-party
payors for our products, or adverse changes in relevant
governmental policies or the policies of private third-party payors
regarding reimbursement for these products, could limit our ability
to sell our products on a competitive basis. We are unable to
predict what changes will be made in the reimbursement methods used
by third-party health care payors. Moreover, third-party payors are
increasingly challenging the prices charged for medical products
and services, and some health care providers are gradually adopting
a managed care system in which the providers contract to provide
comprehensive health care services for a fixed cost per person.
Patients, hospitals and physicians may not be able to justify the
use of our products by the attendant cost savings and clinical
benefits that we believe will be derived from the use of our
products, and therefore may not be able to obtain third-party
reimbursement.
Reimbursement and
health care payment systems in international markets vary
significantly by country and include both government-sponsored
health care and private insurance. We may not be able to obtain
approvals for reimbursement from these international third-party
payors in a timely manner, if at all. Any failure to receive
international reimbursement approvals could have an adverse effect
on market acceptance of our products in the international markets
in which approvals are sought.
We have a substantial amount of indebtedness, which may adversely
affect our cash flow and our ability to operate our
business.
Our
outstanding indebtedness, which is considered notes payable,
accounts payable and accrued liabilities, was $12.2 million at
December 31, 2020.
The
terms of our indebtedness could have negative consequences to us,
such as:
●
we may be unable to
obtain additional financing to fund working capital, operating
losses, capital expenditures or acquisitions on terms acceptable to
us, or at all;
●
the amount of our
interest expense may increase if we are unable to make payments
when due;
●
our assets might be
subject to foreclosure if we default on our secured debt (see
“—We have outstanding
debt that is collateralized by a general security interest in all
of our assets, including our intellectual property. If we were to
fail to repay the debt when due, the holders would have the right
to foreclose on these assets.”);
16
●
our vendors or
employees may, and some have, instituted proceedings to collect on
amounts owed them;
●
we have to use a
substantial portion of our cash flows from operations to repay our
indebtedness, including ordinary course accounts payable and
accrued payroll liabilities, which reduces the amount of money we
have for future operations, working capital, inventory, expansion,
or general corporate or other business activities; and
●
we may be unable to
refinance our indebtedness on terms acceptable to us, or at
all.
Our
ability to meet our debt obligations will depend on our future
performance, which will be affected by financial, business,
economic, regulatory and other factors. We will be unable to
control many of these factors, such as economic conditions. We
cannot be certain that our earnings will be sufficient to allow us
to pay the principal and interest on our debt and meet any other
obligations. If we do not have enough money to service our debt, we
may be required, but unable, to refinance all or part of our
existing debt, sell assets, borrow money or raise equity on terms
acceptable to us, if at all.
We have outstanding debt that is collateralized by a general
security interest in all of our assets, including our intellectual
property. If we were to fail to repay the debt when due, the
holders would have the right to foreclose on these
assets.
At
April 5, 2021, we had notes outstanding that are collateralized by
a security interest in our current and future inventory and
accounts receivable. We also had a note outstanding that is
collateralized by a security interest in all of our assets,
including our intellectual property. When the debt is repaid, the
holders’ security interests on our assets will be
extinguished. However, if an event of default occurs under the
notes prior to their repayment, the holders may exercise their
rights to foreclose on these secured assets for the payment of
these obligations. Under “cross-default” provisions in
each of the notes, an event of default under one note is
automatically an event of default under the other notes. Any such
default and resulting foreclosure would have a material adverse
effect on our business, financial condition and results of
operations.
We are subject to restrictive covenants under the terms of our
outstanding secured debt. If we were to default under the terms of
these covenants, the holders would have the right to foreclose on
the assets that secure the debt.
The
instruments governing our outstanding secured debt contain
restrictive covenants. For example, our senior secured convertible
note prohibits us from incurring additional indebtedness for
borrowed money, repurchasing any outstanding shares of our common
stock, or paying any dividends on our capital stock, in each case
without the note holder's prior written consent, If we were to
breach any of these covenants, the holder could declare an event of
default on the note, and exercise its rights to foreclose on the
assets securing the note.
Our success depends on our ability to attract and retain
scientific, technical, managerial and finance
personnel.
Our
ability to operate successfully and manage our future growth
depends in significant part upon the continued service of key
scientific, technical, managerial and finance personnel, as well as
our ability to attract and retain additional highly qualified
personnel in these fields. We may not be able to attract and retain
key employees when necessary, which would limit our operations and
growth. In addition, if we are able to successfully develop and
commercialize our products, we will need to hire additional
scientific, technical, marketing, managerial and finance personnel.
We face intense competition for qualified personnel in these areas,
many of whom are often subject to competing employment
offers.
Certain provisions of our certificate of incorporation that
authorize the issuance of additional shares of preferred stock may
make it more difficult for a third party to effect a change in
control.
Our
certificate of incorporation authorizes our board of directors to
issue up to 5.0 million shares of preferred stock. Our undesignated
shares of preferred stock may be issued in one or more series, the
terms of which may be determined by the board without further
stockholder action. These terms may include, among other terms,
voting rights, including the right to vote as a series on
particular matters, preferences as to liquidation and dividends,
repurchase rights, conversion rights, redemption rights and sinking
fund provisions. The issuance of any preferred stock could diminish
the rights of holders of our common stock, and therefore could
reduce the value of our common stock. In addition, specific rights
granted to future holders of preferred stock could be used to
restrict our ability to merge with or sell assets to a third party.
The ability of our board to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly
to acquire or effect a change in control, which in turn could
prevent our stockholders from recognizing a gain in the event that
a favorable offer is extended and could materially and negatively
affect the market price of our common stock.
Risks
Related to Our Common Stock
On March 29, 2019, a 1:800 reverse stock split of all of our issued
and outstanding common stock was implemented. There are risks
associated with a reverse stock split.
On
March 29, 2019, a 1:800 reverse stock
split of all of our issued and outstanding common stock was
implemented. As a result of the reverse stock split, every 800
shares of issued and outstanding common stock were converted into 1
share of common stock. All fractional shares created by the reverse
stock split were rounded to the nearest whole share. The number of
authorized shares of common stock did not
change.
17
There
are certain risks associated with the reverse stock split,
including the following:
●
We have additional
authorized shares of common stock that the board could issue in
future without stockholder approval, and such additional shares
could be issued, among other purposes, in financing transactions or
to resist or frustrate a third-party transaction that is favored by
a majority of the independent stockholders. This could have an
anti-takeover effect, in that additional shares could be issued,
within the limits imposed by applicable law, in one or more
transactions that could make a change in control or takeover of us
more difficult.
●
There can be no
assurance that the reverse stock split will achieve the benefits
that we hope it will achieve. The total market capitalization of
our common stock after the reverse stock split may be lower than
the total market capitalization before the reverse stock
split.
The reverse stock split may decrease the liquidity of the shares of
our common stock.
The
liquidity of the shares of our common stock may be affected
adversely by the reverse stock split given the reduced number of
shares that were outstanding immediately following the reverse
stock split, especially if the market price of our common stock
does not increase as a result of the reverse stock split. In
addition, the reverse stock split may have increased the number of
stockholders who own odd lots of our common stock, creating the
potential for such stockholders to experience an increase in the
cost of selling their shares and greater difficulty effecting such
sales.
Following the reverse stock split, the resulting market price of
our common stock may not attract new investors, including
institutional investors, and may not satisfy the investing
requirements of those investors. Consequently, the trading
liquidity of our common stock may not improve.
Although we believe
that a higher market price of our common stock may help generate
greater or broader investor interest, there can be no assurance
that the reverse stock split will result in a share price that will
attract new investors, including institutional investors. In
addition, there can be no assurance that the market price of our
common stock will satisfy the investing requirements of those
investors. As a result, the trading liquidity of our common stock
may not necessarily improve.
The number of shares of our common stock issuable upon the
conversion of our outstanding convertible debt and preferred stock
or exercise of outstanding warrants and options is
substantial.
As of
April 5, 2021, our outstanding convertible debt was convertible
into an aggregate of 19,500,000 shares of our common stock, and the
outstanding shares of our Series C, Series C1, Series C2, Series D,
Series E, and Series F preferred stock were convertible into an
aggregate of 39,510,000 shares of common stock. Also, as of that
date we had warrants outstanding that were exercisable for an
aggregate of 28,520,275 shares, contractual obligations to issue
2,132 shares, and outstanding options to purchase 1,800,029 shares.
The shares of common stock issuable upon conversion or exercise of
these securities would have constituted approximately 97.0% of the
total number of shares of common stock then issued and
outstanding.
Further, under the
terms of our convertible debt and preferred stock, as well as
certain of our outstanding warrants, the conversion price or
exercise price, as the case may be, could be adjusted downward,
causing substantial dilution. See “—Adjustments to the conversion price for our
convertible debt and preferred stock, and the exercise price for
certain of our warrants, will dilute the ownership interests of our
existing stockholders.”
Adjustments to the conversion price of our convertible debt and
preferred stock, and the exercise price for certain of our
warrants, will dilute the ownership interests of our existing
stockholders.
Under
the terms of a portion of our convertible debt, the conversion
price fluctuates with the market price of our common stock.
Additionally, under the terms of our Series C preferred stock, any
dividends we choose to pay in shares of our common stock will be
calculated based on the then-current market price of our common
stock. Accordingly, if the market price of our common stock
decreases, the number of shares of our common stock issuable upon
conversion of the convertible debt or upon payment of dividends on
our outstanding Series C preferred stock will increase, and may
result in the issuance of a significant number of additional shares
of our common stock.
Under
the terms of our preferred stock and certain of our convertible
notes and outstanding warrants, the conversion price or exercise
price will be lowered if we issue common stock at a per share price
below the then-conversion price or then-exercise price for those
securities. Reductions in the conversion price or exercise price
would result in the issuance of a significant number of additional
shares of our common stock upon conversion or exercise, which would
result in dilution in the value of the shares of our outstanding
common stock and the voting power represented thereby.
18
Our stock is thinly traded, so you may be unable to sell at or near
ask prices or at all.
The
shares of our common stock are only quoted in the OTCQB
marketplace. Shares of our common stock are thinly traded, meaning
that the number of persons interested in purchasing our common
shares at or near ask prices at any given time may be relatively
small or non-existent. This situation is attributable to a number
of factors, including:
●
we
are a small company that is relatively unknown to stock analysts,
stock brokers, institutional investors and others in the investment
community that generate or influence sales volume; and
●
stock
analysts, stock brokers and institutional investors may be
risk-averse and be reluctant to follow a company such as ours that
faces substantial doubt about its ability to continue as a going
concern or to purchase or recommend the purchase of our shares
until such time as we became more viable.
As a
consequence, our stock price may not reflect an actual or perceived
value. Also, there may be periods of several days or more when
trading activity in our shares is minimal or non-existent, as
compared to a seasoned issuer that has a large and steady volume of
trading activity that will generally support continuous sales
without an adverse effect on share price. A broader or more active
public trading market for our common shares may not develop or if
developed, may not be sustained. Due to these conditions, you may
not be able to sell your shares at or near ask prices or at all if
you need money or otherwise desire to liquidate your
shares.
Trading in our common stock is subject to special sales practices
and may be difficult to sell.
Our
common stock is subject to the Securities and Exchange
Commission’s “penny stock” rule, which imposes
special sales practice requirements upon broker-dealers who sell
such securities to persons other than established distributors or
accredited investors. Penny stocks are generally defined to be an
equity security that has a market price of less than $5.00 per
share. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and
receive the purchaser’s written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell our securities and also may affect the
ability of our stockholders to sell their securities in any market
that might develop.
Stockholders should
be aware that, according to Securities and Exchange Commission, the
market for penny stocks has suffered from patterns of fraud and
abuse. Such patterns include:
●
control
of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
●
manipulation
of prices through prearranged matching of purchases and sales and
false and misleading press releases;
●
“boiler
room” practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales
persons;
●
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
●
the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices
and with consequent investor losses.
Our
management is aware of the abuses that have occurred historically
in the penny stock market. Although we do not expect to be in a
position to dictate the behavior of the market or of broker-dealers
who participate in the market, management will strive within the
confines of practical limitations to prevent the described patterns
from being established with respect to our common
stock.
Our need to raise additional capital in the near future or to use
our equity securities for payments could have a dilutive effect on
your investment.
In
order to continue operations, we will need to raise additional
capital. We may attempt to raise capital through the public or
private sale of our common stock or securities convertible into or
exercisable for our common stock. In addition, from time to time we
have issued our common stock or warrants in lieu of cash payments.
If we sell additional shares of our common stock or other equity
securities or issue such securities in respect of other claims or
indebtedness, such sales or issuances will further dilute the
percentage of our equity that you own. Depending upon the price per
share of securities that we sell or issue in the future, if any,
your interest in us could be further diluted by any adjustments to
the number of shares and the applicable exercise price required
pursuant to the terms of the agreements under which we previously
issued convertible securities.
19
FORWARD LOOKING STATEMENTS
Statements
in this report, which express “belief,”
“anticipation” or “expectation,” as well as
other statements that are not historical facts, are forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, or Securities Act, and Section 21E of the Securities
Exchange Act of 1934, or Exchange Act. These forward-looking
statements are subject to risks and uncertainties that could cause
actual results to differ materially from historical results or
anticipated results, including those identified in the foregoing
“Risk Factors” and elsewhere in this report. Examples
of these uncertainties and risks include, but are not limited
to:
·
access
to sufficient debt or equity capital to meet our operating and
financial needs;
·
the
effectiveness and ultimate market acceptance of our
products;
·
whether
our products in development will prove safe, feasible and
effective;
·
whether
and when we or any potential strategic partners will obtain
required regulatory approvals in the markets in which we plan to
operate;
·
our
need to achieve manufacturing scale-up in a timely manner, and our
need to provide for the efficient manufacturing of sufficient
quantities of our products;
·
the
lack of immediate alternate sources of supply for some critical
components of our products;
·
our
patent and intellectual property position;
·
the
need to fully develop the marketing, distribution, customer service
and technical support and other functions critical to the success
of our product lines;
·
the
dependence on potential strategic partners or outside investors for
funding, development assistance, clinical trials, distribution and
marketing of some of our products; and
·
other
risks and uncertainties described from time to time in our reports
filed with the SEC.
Forward-looking
statements should not be read as a guarantee of future performance
or results and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be
achieved. Forward-looking information is based on information
available at the time and/or management’s good faith belief
with respect to future events and is subject to risks and
uncertainties that could cause actual performance or results to
differ materially from those expressed in the
statements.
Forward-looking
statements speak only as of the date the statements are made. We
assume no obligation to update forward-looking statements to
reflect actual results, changes in assumptions or changes in other
factors affecting forward-looking information except to the extent
required by applicable securities laws. If we update one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect thereto or with respect
to other forward-looking statements.
Item
1B. Unresolved Staff
Comments
Not
applicable.
Item
2. Properties
Our
corporate offices, which also comprise our administrative, research
and development, marketing and production facilities, are located
at 5835 Peachtree Corners East, Suite B, Norcross, Georgia 30092,
where we lease approximately 12,800 square feet under a lease that
expires in March 2021.
Item
3. Legal Proceedings
We are
subject to claims and legal actions that arise in the ordinary
course of business. However, we are not currently subject to any
claims or actions that we believe would have a material adverse
effect on our financial position or results of
operations.
Item
4. Mine Safety
Disclosures
Not
applicable.
20
PART II
Item
5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market
for Common Stock; Holders
Our
common stock is listed on the OTCQB under the ticker symbol
“GTHP.” The number of record holders of our common
stock at April 5, 2021 was 145.
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on March 29, 2019. As a result of the reverse
stock split, every 800 shares of issued and outstanding common
stock were converted into 1 share of common stock. All fractional
shares created by the reverse stock split were rounded to the
nearest whole share. The number of authorized shares of common
stock did not change.
The
high and low common stock share prices for the first quarter of
2021 and calendar years 2020 and 2019, as reported by the OTCBB,
are as set forth in the following table. All share prices set forth
in the table have been retroactively adjusted to reflect the
reverse stock split (as discussed above) for all periods
presented.
|
|
2021
|
2020
|
2019
|
|||
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|
First
Quarter
|
$0.95
|
$0.23
|
$0.23
|
$0.11
|
$1.45
|
$0.02
|
|
Second
Quarter*
|
$ 0.80
|
$ 0.75
|
$0.56
|
$0.10
|
$0.26
|
$0.10
|
|
Third
Quarter
|
|
|
$0.55
|
$0.23
|
$0.25
|
$0.16
|
|
Fourth
Quarter
|
|
|
$0.51
|
$0.16
|
$0.24
|
$0.10
|
*Through April 5,
2021.
Dividend
Policy
We have
not paid any dividends on our common stock since our inception and
do not intend to pay any dividends in the foreseeable
future.
Securities
Authorized for Issuance Under Equity Compensation
Plans
All the
securities we have provided our employees, directors and
consultants have been issued under our stock option plans, which
are approved by our stockholders. We have issued common stock to
other individuals that are not employees or directors, in lieu of
cash payments, that are not part of any plan approved by our
stockholders.
Securities
authorized for issuance under equity compensation plans as of
December 31, 2020:
|
Plan
category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities
remaining
available for future issuance under equity compensation plans
(excluding securities reflected in column(a))
|
|
|
(a)
|
(b)
|
( c
)
|
|
Equity compensation
plans approved by security holders
|
47
|
$58,083
|
-
|
|
|
1,800,000
|
$0.49
|
4,709,411
|
|
Equity compensation
plans not approved by security holders
|
-
|
-
|
-
|
|
TOTAL
|
1,800,047
|
$0.50
|
4,709,411
|
Item
6. Selected Financial
Data
Not
applicable.
21
Item
7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
The
following discussion should be read in conjunction with our
financial statements and notes thereto included elsewhere in this
report.
Overview
We are
a medical technology company focused on developing innovative
medical devices that have the potential to improve healthcare. Our
primary focus is the sales and marketing of our LuViva®
Advanced Cervical Scan non-invasive cervical cancer detection
device. The underlying technology of LuViva primarily relates to
the use of biophotonics for the non-invasive detection of cancers.
LuViva is designed to identify cervical cancers and precancers
painlessly, non-invasively and at the point of care by scanning the
cervix with light, then analyzing the reflected and fluorescent
light.
LuViva
provides a less invasive and painless alternative to conventional
tests for cervical cancer screening and detection. Additionally,
LuViva improves patient well-being not only because it eliminates
pain, but also because it is convenient to use and provides rapid
results at the point of care. We focus on two primary applications
for LuViva: first, as a cancer screening tool in the developing
world, where infrastructure to support traditional cancer-screening
methods is limited or non-existent, and second, as a triage
following traditional screening in the developed world, where a
high number of false positive results cause a high rate of
unnecessary and ultimately costly follow-up tests.
We are
a Delaware corporation, originally incorporated in 1992 under the
name “SpectRx, Inc.,” and, on February 22, 2008,
changed our name to Guided Therapeutics, Inc. At the same time, we
renamed our wholly owned subsidiary, InterScan, which originally
had been incorporated as “Guided
Therapeutics.”
Since
our inception, we have raised capital through the public and
private sale of debt and equity, funding from collaborative
arrangements, and grants.
Our
prospects must be considered in light of the substantial risks,
expenses and difficulties encountered by entrants into the medical
device industry. This
industry is characterized by an increasing number of participants,
intense competition and a high failure rate. We have experienced
operating losses since our inception and, as of December 31, 2020
we have an accumulated deficit of approximately $140.0 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 2020, 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 2021 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 $2.0 to
$3.0 million in LuViva devices and disposables in 2021 and expect
those purchase orders to result in actual sales of $1.0 to $2.0
million in 2021, 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.
Recent
Developments
A 1:800
reverse stock split of all of our issued and outstanding common
stock was implemented on March 29, 2019. As a result of the reverse
stock split, every 800 shares of issued and outstanding common
stock were converted into 1 share of common stock. All fractional
shares created by the reverse stock split were rounded to the
nearest whole share. The number of authorized shares of common
stock did not change.
22
Critical
Accounting Policies
Our
material accounting policies, which we believe are the most
critical to investors understanding of our financial results and
condition, are discussed below. Because we are still early in our
enterprise development, the number of these policies requiring
explanation is limited. As we begin to generate increased revenue
from different sources, we expect that the number of applicable
policies and complexity of the judgments required will
increase.
Revenue
Recognition: ASC 606
Revenue from Contracts with Customers establishes a single and
comprehensive framework which sets out how much revenue is to be
recognized, and when. The core principle is that a vendor should
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the vendor expects to be entitled in exchange for those
goods or services. Revenue will now be recognized by a vendor when
control over the goods or services is transferred to the customer.
In contrast, Revenue based revenue recognition around an analysis
of the transfer of risks and rewards; this now forms one of a
number of criteria that are assessed in determining whether control
has been transferred. The application of the core principle in ASC
606 is carried out in five steps: Step 1 – Identify the
contract with a customer: a contract is defined as an agreement
(including oral and implied), between two or more parties, that
creates enforceable rights and obligations and sets out the
criteria for each of those rights and obligations. The contract
needs to have commercial substance and it is probable that the
entity will collect the consideration to which it will be entitled.
Step 2 – Identify the performance obligations in the
contract: a performance obligation in a contract is a promise
(including implicit) to transfer a good or service to the customer.
Each performance obligation should be capable of being distinct and
is separately identifiable in the contract. Step 3 –
Determine the transaction price: transaction price is the amount of
consideration that the entity can be entitled to, in exchange for
transferring the promised goods and services to a customer,
excluding amounts collected on behalf of third parties. Step 4
– Allocate the transaction price to the performance
obligations in the contract: for a contract that has more than one
performance obligation, the entity will allocate the transaction
price to each performance obligation separately, in exchange for
satisfying each performance obligation. The acceptable methods of
allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and, the residual
approach in limited circumstances. Discounts given should be
allocated proportionately to all performance obligations unless
certain criteria are met and reallocation of changes in standalone
selling prices after inception is not permitted. Step 5 –
Recognize revenue as and when the entity satisfies a performance
obligation: the entity should recognize revenue at a point in time,
except if it meets any of the three criteria, which will require
recognition of revenue over time: the entity’s performance
creates or enhances an asset controlled by the customer, the
customer simultaneously receives and consumes the benefit of the
entity’s performance as the entity performs, and the entity
does not create an asset that has an alternative use to the entity
and the entity has the right to be paid for performance to
date.
Valuation of Deferred
Taxes: We account for
income taxes in accordance with the liability method. Under the
liability method, we recognize deferred assets and liabilities
based upon anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets
and liabilities and their respective tax bases. We establish a
valuation allowance to the extent that it is more likely than not
that deferred tax assets will not be utilized against future
taxable income.
Valuation of Equity Instruments
Granted to Employee, Service Providers and
Investors: On the date of
issuance, the instruments are recorded at their fair value as
determined using either the Black-Scholes valuation model or Monte
Carlo Simulation model.
Beneficial Conversion Features of Convertible
Securities: Conversion options that are not bifurcated as a
derivative pursuant to ASC 815 and not accounted for as a separate
equity component under the cash conversion guidance are evaluated
to determine whether they are beneficial to the investor at
inception (a beneficial conversion feature) or may become
beneficial in the future due to potential adjustments. The
beneficial conversion feature guidance in ASC 470-20 applies to
convertible stock as well as convertible debt which are outside the
scope of ASC 815. A beneficial conversion feature is defined as a
nondetachable conversion feature that is in the money at the
commitment date. The beneficial conversion feature guidance
requires recognition of the conversion option’s in-the-money
portion, the intrinsic value of the option, in equity, with an
offsetting reduction to the carrying amount of the instrument. The
resulting discount is amortized as a dividend over either the life
of the instrument, if a stated maturity date exists, or to the
earliest conversion date, if there is no stated maturity date. If
the earliest conversion date is immediately upon issuance, the
dividend must be recognized at inception. When there is a
subsequent change to the conversion ratio based on a future
occurrence, the new conversion price may trigger the recognition of
an additional beneficial conversion feature on
occurrence.
Allowance for Accounts
Receivable: We estimate
losses from the inability of our distributors to make required
payments and periodically review the payment history of each of our
distributors, as well as their financial condition, and revise our
reserves as a result.
Inventory
Valuation: All inventories
are stated at lower of cost or net realizable value, with cost
determined substantially on a “first-in, first-out”
basis. Selling, general, and administrative expenses are not
inventoried, but are charged to expense when
purchased.
Reverse Stock
Split: On March 29, 2019,
the Company implemented a 1:800 reverse stock split of all of our
issued and outstanding common stock. As a result of the reverse
stock split, every 800 shares of issued and outstanding common
stock were converted into 1 share of common stock. All fractional
shares created by the reverse stock split were rounded to the
nearest whole share. The number of authorized shares of common
stock did not change. The reverse stock split decreased the
Company’s issued and outstanding shares of common stock from
2,135,478,405 shares of Common Stock to 2,669,348 shares as of that
date.
23
Results
of Operations
Comparison
of 2020 and 2019
Sales
Revenue, Cost of Sales and Gross Profit from Devices and
Disposables: Revenues from
the sale of other parts of our LuViva devices for 2020 and 2019 was
approximately $102,000 and $36,000, respectively. Revenues for 2020
was approximately, $66,000 or 183% higher when compared to the same
period in 2019, due to a sale of parts to one customer in 2020.
Related cost of sales recovered was approximately $41,000 for 2020
compared to $70,000 cost of sales for 2019, a decrease of $111,000
or 159%. Cost of sales recovered was a result of the buy-back of
parts from one customer that were then sold and the revaluation of
inventory reserve, the net effect was a cost of goods sold
recovered. This resulted in a gross profit of approximately
$143,000 on the sales of devices and disposables for 2020 compared
with a gross loss of approximately $34,000 for the same period in
2019.
Research
and Development Expenses: Research and development expenses for 2020,
increased to approximately $143,000, from approximately $122,000 to
the same period in 2019. The increase of $21,000, or 17%, was
primarily due to increases in research and development costs and
salaries incurred in 2020.
Sales and
Marketing Expenses: Sales
and marketing expenses for 2020, increased to approximately
$139,000, compared to $87,000 for the same period in 2019. The
increase, of approximately $52,000, or 60% was primarily due to
higher payroll expenses for 2020.
General and
Administrative Expense: General and administrative expenses for 2020,
increased to approximately $913,000, compared to $694,000 for the
same period in 2019. The increase of approximately $219,000, or
32%, was primarily related to higher compensation, stock based
compensation and insurance expenses incurred during the same
period. During 2020, the Company had also reversed a $292,000
reserve taken for a deposit made for inventory parts for its
devices, and the Company recorded stock based compensation expense
of $310,000 for stock options granted in July
2020.
Other
Income: Other income for
2020, increased to approximately $271,000, compared to $48,000 for
the same period in 2019. The increase of approximately $223,000 or
465% was primarily a result of the recovery of employment expenses
and old outstanding payables which had exceeded their statute of
limitations on collectability.
Interest
Expense: Interest expense
for 2020 decreased to approximately $1,056,000, compared to
$1,412,000 for the same period in 2019. The decrease of
approximately $356,000, or 25%, was primarily related to
amortization expense of and interest recorded for the value of the
beneficial conversion feature on convertible debt outstanding and
amortization of debt issuance costs.
Loss from
Extinguishment of Debt: Loss from extinguishment of debt for 2020
increased to approximately $296,000, compared to nil for the same
period in 2019. The increase of approximately $296,000, or 100%,
was primarily related to debt that had been eliminated from debt
exchange agreements and debt reduction through exchanges and
forgiveness.
Fair Value
of Derivative Liability: Fair value of derivatives for 2020, increased to
approximately $25,000 compared to fair value of derivatives expense
of $0 for the same period in 2019. The increase of approximately
$25,000, or 100% was primarily due to changes to the derivative
liability for a short-term convertible note payable in
2020.
Fair Value
of Warrants: Fair value of
warrants recovered for 2020, increased to approximately $1,879,000
compared to fair value of warrants recovered of $380,000 for the
same period in 2019. The increase of approximately $1,499,000, or
394% was primarily due to favorable significant changes in common
stock warrant conversion prices, a reduction in the number of
outstanding warrants and an increase in the warrant conversion
price in 2020.
Net
Loss: Net loss
attributable to common stockholders decreased to approximately
$401,000, or $0.04 per share for 2020, from a net loss of
$1,921,000, or $0.58 per share, for the same period in 2019. The
decrease in the net loss of $1,520,000, or 79% was for reasons
outlined above. As stated previously, our net loss for 2020, would
have been greater if it were not for favorable results from changes
in the fair value of warrants, favorable significant changes in
common stock warrant conversion prices, a reduction in the number
of outstanding warrants and an increase in the warrant conversion
price in 2020.
There
was no income tax benefit recorded for 2020 or 2019, due to
recurring net operating losses.
24
Liquidity
and Capital Resources
Since
our inception, we have raised capital through the public and
private sale of debt and equity, funding from collaborative
arrangements, and grants. At December 31, 2020, we had cash of
approximately $182,000 and negative working capital of
approximately $8,000,000.
Our
major cash flows for 2020 consisted of cash out-flows of $1.9
million from operations, including approximately $0.4 million of
net loss, (as stated previously, our net loss for 2020, would have
been greater if it were not for favorable results from changes in
the fair value of warrants, favorable significant changes in common
stock warrant conversion prices, a reduction in the number of
outstanding warrants and an increase in the warrant conversion
price), and a net change from financing activities of $1.2 million;
which primarily represented the proceeds received from issuance of
preferred stock, common stock and warrants, loans and payments made
on notes payable.
Capital resources for 2021
During
2021, we received equity investments in the amount of $1,944,000.
These investors received a total of 1,944 Series F preferred stock
(if the Investor elects to convert their Series F preferred stock,
each Series F preferred stock share converts into 4,000 shares of
our common stock shares).
Capital resources for 2020
During
2020, we received equity investments in the amount of $1,735,500.
These investors received a total of 1,735.5 Series E preferred
stock (if the Investor elects to convert their Series E preferred
stock, each Series E preferred stock shares converts into 4,000
shares of our common stock shares).
During
January and April 2020, we received equity investments in the
amount of $128,000. These investors received a total of 256,000
common stock shares and 256,000 warrants issued to purchase common
stock shares at a strike price of $0.25, 256,000 warrants to
purchase common stock shares at a strike price of $0.75 and 128
Series D preferred stock (if the Investor elects to convert their
Series D preferred stock, each Series D preferred stock shares
converts into 3,000 shares of our common stock shares). Of the
amount invested $38,000 was from related parties.
On
January 6, 2020, we entered into an exchange agreement with Jones
Day. Upon making a payment of $175,000, which had not yet occurred,
we will exchange $1,744,768 of debt outstanding for: $175,000, an
unsecured promissory note in the amount of $550,000; due 13 months
form the date of issuance, that may be called at any time prior to
maturity upon a payment of $150,000; and an unsecured promissory
note in the principal amount of $444,768, bearing an annualized
interest rate of 6.0% and due in four equal annual installments
beginning on the second anniversary of the date of
issuance.
On
January 8, 2020, we exchanged $2,064,366 in debt for several equity
instruments (noted below) that were determined to have a total fair
value of $2,065,548, resulting in a loss on extinguishment of debt
of $1,183 which is recorded in other income (expense) on the
accompanying consolidated statements of operations. We also issued
6,957,013 warrants to purchase common stock shares; with exercise
prices of $0.25, $0.75 and $0.20.
On June 3, 2020, we exchanged $328,422 in debt
from Auctus, (summarized in footnote 10: Convertible
Notes), for 500,000 common
stock shares and 700,000 warrants to purchase common stock shares.
The fair value of the common stock shares was $250,000 (based on a
$0.50 fair value for our stock) and of the warrants to purchase
common stock shares was $196,818 (based on a $0.281 black scholes
fair valuation). This resulted in a net loss on extinguishment of
debt of $118,396 ($446,818 fair value less the $328,422 of
exchanged debt).
On
June 30, 2020, we exchanged $125,000 in debt (during June 2020,
$125,000 in payables had been converted into short-term debt) from
Mr. James Clavijo, for 500,000 common stock shares and 250,000
warrants to purchase common stock shares. The fair value of the
common stock shares was $250,000 (based on a $0.50 fair value for
our stock) and of the warrants to purchase common stock shares was
$99,963 (based on a $0.40 black scholes fair valuation). This
resulted in a net loss on extinguishment of debt of $224,963
($349,963 fair value less the $125,000 of exchanged debt). After
the exchange transaction a balance was due Mr. Clavijo of $10,213
which was paid.
On
July 9, 2020, we entered into an exchange agreement with Mr. Bill
Wells (one of its former employees). In lieu of agreeing to dismiss
approximately half of what is owed or $220,000, Mr. Wells will
receive the following: (i) cash payments of $20,000 within 60 days
of the signing of the agreement; cash payments over time in the
amount of $90,000 in the form of an unsecured note to be executed
within 30 days of a new financing(s) totaling at least $3.0
million. The note shall bear interest of 6.0% and mature over 18
months; (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.
25
The
following table summarizes the debt exchanges:
|
|
Total Debt and
Accrued Interest
|
Total
Debt
|
Total Accrued
Interest
|
Common Stock
Shares
|
Warrants
(Exercise $0.25)
|
Warrants
(Exercise $0.75)
|
Warrants
(Exercise $0.20)
|
Warrants
(Exercise $0.15)
|
Warrants
(Exercise $0.50)
|
|
|
|
|
|
|
|
|
|
|
|
|
Aquarius
|
$145,544
|
$107,500
|
$38,044
|
291,088
|
145,544
|
145,544
|
—
|
—
|
—
|
|
K2 Medical (Shenghuo)3
|
803,653
|
771,927
|
31,726
|
1,905,270
|
704,334
|
704,334
|
496,602
|
—
|
—
|
|
Mr. Blumberg
|
305,320
|
292,290
|
13,030
|
1,167,630
|
119,656
|
119,656
|
928,318
|
—
|
—
|
|
Mr. Case
|
179,291
|
150,000
|
29,291
|
896,456
|
—
|
—
|
896,456
|
—
|
—
|
|
Mr. Grimm
|
51,050
|
50,000
|
1,050
|
255,548
|
—
|
—
|
255,548
|
—
|
—
|
|
Mr. Gould
|
111,227
|
100,000
|
11,227
|
556,136
|
—
|
—
|
556,136
|
—
|
—
|
|
Mr. Mamula
|
15,577
|
15,000
|
577
|
77,885
|
—
|
—
|
77,885
|
—
|
—
|
|
Dr. Imhoff2
|
400,417
|
363,480
|
36,937
|
1,699,255
|
100,944
|
100,944
|
1,497,367
|
—
|
—
|
|
Ms. Rosenstock1
|
50,000
|
50,000
|
—
|
100,000
|
50,000
|
50,000
|
—
|
—
|
—
|
|
Mr. James2
|
2,286
|
2,000
|
286
|
7,745
|
1,227
|
1,227
|
5,291
|
—
|
—
|
|
Auctus
|
328,422
|
249,119
|
79,303
|
500,000
|
—
|
—
|
—
|
700,000
|
—
|
|
Mr. Clavijo
|
125,000
|
125,000
|
—
|
500,000
|
—
|
—
|
—
|
—
|
500,000
|
|
Mr. Wells4
|
220,000
|
220,000
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|
$2,737,787
|
$2,496,316
|
$241,471
|
7,957,013
|
1,121,705
|
1,121,705
|
4,713,603
|
700,000
|
500,000
|
1 Ms.
Rosenstock also forgave $28,986 in debt.
2 Mr.
Imhoff and Mr. James are members of the board of directors and
therefore related parties.
3 Our
COO and director, Mark Faupel, is a shareholder of Shenghuo, and a
former director, Richard Blumberg, is a managing member of
Shenghuo.
4 Mr.
Wells will also receive 66,000 common share stock options; the
details of which are explained above.
On January 16, 2020, we entered into an exchange agreement with
GPB. Under the terms of this exchange agreement, we will exchange
$3,360,811 of debt outstanding as of December 12, 2019 for the
following: (1) a cash payment of $1,500,000, (2) 7,185,000 warrants
to purchase common stock, previously outstanding, would be
exchanged for new warrants to purchase common stock shares at a
strike price of $0.20 and (3) a certain amount of preferred stock
shares for the remaining balance outstanding upon the final
exchange date. On January 8, 2021, we made the final payment of
$750,000 out of the total $1,500,000 as required by this exchange
agreement with GPB. On March 31, 2021, we issued 2,236 series F
preferred stock shares in accordance with the terms of the
agreement.
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 March 31, 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 matures on January 26, 2021 and accrues interest
at a rate of 12% per year.
On
May 4, 2020, we 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 Company has applied
to have the loan forgiven. We provide no assurance that we will
obtain forgiveness of the PPP Loan in whole or in
part.
On
May 20, 2020, the Company received a $70,000 loan from Mr.
Blumberg, which was paid off in June 2020.
On
May 22, 2020, we entered into an exchange agreement with Auctus.
Based on this agreement we exchanged three outstanding notes, in
the amounts of $150,000, $89,250, and $65,000 for a total amount
$304,250 of debt outstanding, as well as any accrued interest and
default penalty, for: $160,000 in cash payments (payable in monthly
payments of $20,000), converted a portion of the notes pursuant to
original terms of the notes into 500,000 restricted common stock
shares (shares were issued on June 3, 2020); and 700,000 warrants
issued to purchase common stock shares with an exercise price of
$0.15. The fair value of the common stock shares was $250,000
(based on a $0.50 fair value for our stock) and of the warrants to
purchase common stock shares was $196,818 (based on a $0.281 black
scholes fair valuation). This resulted in a net loss on
extinguishment of debt of $118,396 ($446,818 fair value less the
$328,422 of exchanged debt). During 2020, we paid $100,000 and
$20,000 of common stock to reduce the outstanding balance. As of
December 31, 2020, a balance of $40,000 remained to be paid for
these exchanged loans.
On
May 27, 2020, we 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 us 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 notes maturity date is December 17,
2021 and an interest rate of ten percent (10%).
26
Capital resources for 2019
Auctus Note
On
December 17, 2019, we 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 has been received and will have a maturity date of
December 17, 2021 and an interest rate of ten percent
(10%).
Series D Financing
During
December 2019, we received equity investments in the amount of
$635,000. These investors received a total of 1,270,000 common
stock shares and 1,270,000 warrants to purchase common stock shares
at a strike price of $0.25, 1,270,000 warrants to purchase common
stock shares at a strike price of $0.75 and 635 Series D preferred
stock shares (each Series D preferred stock share converts into
3,000 shares of our common stock shares). Of the amount invested
$350,000 was from related parties.
On
February 14, 2019, we entered into a Purchase and Sale Agreement
with Everest Business Funding for the factoring of its accounts
receivable. The transaction provided us with $48,735 after $1,265
in debt issuance costs (bank costs) for a total purchase amount of
$50,000, in which we would have to repay $68,500. At a minimum we
would need to pay $535.16 per day or 20.0% of the future collected
accounts receivable or “receipts.” The effective
interest rate as calculated for this transaction is approximately
132.5%. As of December 31, 2019, $60,105 had been paid, leaving a
balance of $8,016. As of December 31, 2020, the balance of $68,121
had been paid in full.
On
May 15, 2019, we entered into a securities purchase agreement with
Eagle Equities, LLC, providing for the purchase by Eagle of a
convertible redeemable note in the principal amount of $57,750. The
note was fully funded on May 21, 2019, upon which we received
$45,000 of net proceeds (net of a 10% original issue discount and
other expenses). The note bears an interest rate of 8% and is due
and payable on May 15, 2020. The note may be converted by Eagle at
any time after five months from issuance into shares of our common
stock (as determined in the notes) calculated at the time of
conversion. The conversion price of the notes will be equal to 60%
of the average of the two lowest closing bid prices of our common
stock shares as reported on OTC Markets exchange, for the 20 prior
trading days including the day upon which we receive a notice of
conversion. The notes may be prepaid in accordance with the terms
set forth in the notes. The notes also contain certain
representations, warranties, covenants and events of default
including if we are delinquent in our periodic report filings with
the SEC and increases in the amount of the principal and interest
rates under the notes in the event of such defaults. In the event
of default, at Eagle’s option and in its sole discretion,
Eagle may consider the notes immediately due and payable. As of
December 31, 2019, the outstanding note was for $25,651, which
consisted of unamortized balance of $14,438 of a beneficial
conversion feature, unamortized original issue discount of $1,942,
unamortized debt issuance costs of $2,774 and interest of $1,166
included in accrued expenses on the accompanying consolidated
balance sheet. On May 14, 2020, the outstanding note was paid
off.
On
May 15, 2019, we entered into a securities purchase agreement with
Adar Bays, LLC, providing for the purchase by Adar of a convertible
redeemable note in the principal amount of $57,750. The note was
fully funded on May 21, 2019, upon which we received $45,000 of net
proceeds (net of a 10% original issue discount and other expenses).
The note bears an interest rate of 8% and are due and payable on
May 15, 2020. The note may be converted by Adar at any time after
five months from issuance into shares of our common stock (as
determined in the notes) calculated at the time of conversion. The
conversion price of the notes will be equal to 60% of the average
of the two lowest closing bid prices of our common stock shares as
reported on OTC Markets exchange, for the 20 prior trading days
including the day upon which we receive a notice of conversion. The
notes may be prepaid in accordance with the terms set forth in the
notes. The notes also contain certain representations, warranties,
covenants and events of default including if we are delinquent in
our periodic report filings with the SEC and increases in the
amount of the principal and interest rates under the notes in the
event of such defaults. In the event of default, at Adar’s
option and in its sole discretion, Adar may consider the notes
immediately due and payable. In addition, we had recorded a $38,500
beneficial conversion feature, $5,250 original issue discount and
$7,500 of debt issuance costs. As of December 31, 2019, the note
outstanding increased to $84,780 as a default penalty of $27,030
was added to the outstanding balance of the note, which consisted
of unamortized balance of $14,438 of a beneficial conversion
feature, unamortized original issue discount of $1,942, unamortized
debt issuance costs of $2,774 and interest of $3,190 included in
accrued expenses on the accompanying consolidated balance sheet. On
May 22, 2020, the outstanding note was paid off.
We
will be required to raise additional funds through public or
private financing, additional collaborative relationships or other
arrangements, as soon as possible. We cannot be certain that our
existing and available capital resources will be sufficient to
satisfy our funding requirements through 2021. We are evaluating
various options to further reduce our cash requirements to operate
at a reduced rate, as well as options to raise additional funds,
including loans.
27
Generally, substantial capital will be required to
develop our products, including completing product testing and
clinical trials, obtaining all required U.S. and foreign regulatory
approvals and clearances, and commencing and scaling up
manufacturing and marketing our products. Any failure to obtain
capital would have a material adverse effect on our business,
financial condition and results of operations. Based on
discussions with our distributors, we currently hold and expect to
generate additional purchase orders for approximately $2.0 to $3.0
million in LuViva devices and disposables in 2021 and expect those
purchase orders to result in actual sales of $1.0 to $2.0 million
in 2021, representing what we view as current demand for our
products. The primary source for 2021
projected sales revenue is an existing $2.5 million purchase order
from SMI, our distribution and manufacturing partner for China,
Hong Kong, Macau and Taiwan. While we project that a portion of
this purchase order will be paid before the end of 2021, we cannot
be assured that this payment will be not be delayed or canceled,
just as we cannot be assured that we will generate all or any of a
number of other 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.
Our
financial statements have been prepared and presented on a basis
assuming we will continue as a going concern. The above factors
raise substantial doubt about our ability to continue as a going
concern, as more fully discussed in Note 1 to the consolidated
financial statements contained herein and in the report of our
independent registered public accounting firm accompanying our
financial statements contained in our annual report on Form 10-K
for the year ended December 31, 2020.
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.
Off-Balance
Sheet Arrangements
We have
no material off-balance sheet arrangements, no special purpose
entities, and no activities that include non-exchange-traded
contracts accounted for at fair value.
Item
7A. Quantitative and Qualitative
Disclosures about Market Risk.
Not
applicable.
28
Item
8. Financial Statements and
Supplementary Data
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
UHY
LLP
Certified
Public Accountants
To the
Board of Directors and Stockholders of
Guided
Therapeutics, Inc.
Opinion
on the Financial Statements
We have
audited the accompanying consolidated balance sheets of
Guided Therapeutics, Inc. and
Subsidiary. (the “Company”) as of December 31, 2020 and 2019, and the
related consolidated statements of operations, stockholders’
deficit, and cash flows for the years then ended, and the related
notes (collectively, the “consolidated financial
statements”). In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations
and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America (“US GAAP”).
Substantial
Doubt about the Company’s Ability to Continue as a Going
Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has recurring losses from operations, limited cash flow,
and an accumulated deficit. These conditions raise substantial
doubt about the Company’s ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not
include any adjustment that might result from the outcome of this
uncertainty. Our opinion is not modified with respect to this
matter.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risk of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved especially
challenging, subjective or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts
or disclosures to which they relate.
29
Fair Value Measurement of Warrants
As
disclosed in Note 3 to the consolidated financial statements, the
Company has issued warrants exercisable for common shares in the
Company that were measured at fair value as of December 31, 2020.
As observable data is not readily available, the valuation of the
warrants is determined to be a level 3 fair value measurement
according to US GAAP. The Company utilizes a binomial option
pricing model in order to determine the fair value of these
instruments. This model involves significant management judgment,
including the assessment of the volatility and discount rates used
in the model.
We have
identified the fair value of warrants as a critical audit matter.
The valuation methodology involved significant judgment by
management when developing the fair value measurement of the
warrants. This in turn led to a high degree of auditor judgment,
subjectivity and effort in performing procedures to evaluate
management’s fair value estimates and significant
assumptions.
How the Critical Audit Matter was Addressed
Our
audit procedures performed to evaluate the reasonableness of
management’s estimates and assumptions included assessing the
methodologies used by the Company and testing the significant
assumptions and underlying data used in the binomial model. We
involved our valuation specialists to assist us in analyzing the
significant assumptions underlying the model, such as the
volatility and discount rates, and determining the appropriateness
and reasonableness of the methodologies employed.
Going Concern Assessment
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
disclosed in Note 1 to the consolidated financial statements, the
Company has suffered recurring losses from operations, negative
operating cash flow, has a net accumulated deficit and expects to
continue to incur losses for at least the next twelve months. This
matter is also described in the “Emphasis of Matter –
Substantial Doubt about the Company’s Ability to Continue as
a Going Concern” section of our report.
We
identified management’s judgments and assumptions used to
assess the Company’s ability to continue as a going concern
as a critical audit matter due to inherent complexities and
uncertainties related to the Company’s projections of
operations. Auditing these judgments and assumptions involved
especially challenging auditor judgment due to the nature and
extent of audit evidence and effort required to address these
matters.
How the Critical Audit Matter was Addressed
The
primary procedures we performed to address this critical audit
matter included the following: (1) evaluating management’s
assessment and assessing the reasonableness of key assumptions
underlying management’s conclusion, (2) evaluating the
probability that the Company will be able to reduce note payable
obligations and other operating expenditures if required, (3)
assessing management’s plans in the context of other audit
evidence obtained during the audit to determine whether it
supported or contradicted the conclusions reached by
management.
We have
served as the Company’s auditor since 2007.
UHY
LLP
Sterling Heights,
Michigan
April
5, 2021
30
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS (in thousands)
AS
OF DECEMBER 31,
|
ASSETS
|
2020
|
2019
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
$182
|
$899
|
|
Accounts
receivable, net of allowance for doubtful accounts of $126 and $114
at December 31, 2020 and 2019, respectively
|
24
|
13
|
|
Inventory,
net of reserves of $758 and $831 at December 31, 2020 and 2019,
respectively
|
605
|
48
|
|
Other
current assets
|
85
|
70
|
|
Total
current assets
|
896
|
1,030
|
|
NONCURRENT
ASSETS:
|
|
|
|
Property
and equipment, net
|
1
|
-
|
|
Lease
asset-right, net of amortization
|
453
|
132
|
|
Other
assets
|
-
|
18
|
|
Total
noncurrent assets
|
454
|
150
|
|
TOTAL
ASSETS
|
1,350
|
1,180
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Current
portion of long-term debt
|
28
|
-
|
|
Notes
payable in default, related parties
|
1
|
349
|
|
Notes
payable in default
|
328
|
427
|
|
Short-term
notes payable
|
45
|
380
|
|
Short-term
notes payable, related parties, past due
|
51
|
646
|
|
Convertible
notes in default
|
-
|
2,915
|
|
Convertible
notes payable, past due
|
1,930
|
-
|
|
Short-term
convertible notes payable
|
951
|
73
|
|
Short-term
convertible notes payable, related parties
|
-
|
513
|
|
Accounts
payable
|
2,419
|
2,897
|
|
Accounts
payable, related parties
|
116
|
136
|
|
Accrued
liabilities
|
2,995
|
3,235
|
|
Subscription
receivable
|
-
|
635
|
|
Current
portion of lease liability
|
56
|
103
|
|
Deferred
revenue
|
42
|
101
|
|
Total
current liabilities
|
8,962
|
12,410
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
Warrants,
at fair value
|
2,203
|
5,092
|
|
Lease
liability
|
392
|
29
|
|
Derivative
liability
|
25
|
-
|
|
Long-term
convertible notes payable, net
|
-
|
15
|
|
Long-term
debt
|
23
|
-
|
|
Long-term
debt-related parties
|
600
|
569
|
|
Total
long-term liabilities
|
3,243
|
5,705
|
|
TOTAL
LIABILITIES
|
12,205
|
18,115
|
|
|
|
|
|
COMMITMENTS & CONTINGENCIES (Note 8)
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT:
|
|
|
|
Series
C convertible preferred stock, $.001 par value; 9.0 shares
authorized, 0.3 shares issued and outstanding as of December 31,
2020 and 2019. (Liquidation preference of $286 at December 31, 2020
and 2019).
|
105
|
105
|
|
Series
C1 convertible preferred stock, $.001 par value; 20.3 shares
authorized, 1.0 shares issued and outstanding as of December 31,
2020 and 2019. (Liquidation preference of $1,049 at December 31,
2020 and 2019).
|
170
|
170
|
|
Series
C2 convertible preferred stock, $.001 par value; 5,000 shares
authorized, 3.3 shares issued and outstanding as of December 31,
2020 and 2019. (Liquidation preference of $3,263 at December 31,
2020 and 2019).
|
531
|
531
|
|
Series D
convertible preferred stock, $.001 par value; 6.0 shares
authorized, 0.8 and nil shares issued and outstanding as of
December 31, 2020 and 2019, respectively. (Liquidation preference
of $763 and nil at December 31, 2020 and 2019),
respectively.
|
276
|
-
|
|
Series E
convertible preferred stock, $.001 par value; 5.0 shares
authorized, 1.7 and nil shares issued and outstanding as of
December 31, 2020 and 2019, respectively. (Liquidation preference
of $1,736 and nil at December 31, 2020 and 2019),
respectively.
|
1,639
|
-
|
|
Common
stock, $.001 par value; 3,000,000 shares authorized, 13,138 and
3,319 shares issued and outstanding as of December 31, 2020 and
2019, respectively
|
3,403
|
3,394
|
|
Additional
paid-in capital
|
123,109
|
118,552
|
|
Treasury
stock, at cost
|
(132)
|
(132)
|
|
Accumulated
deficit
|
(139,956)
|
(139,555)
|
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
(10,855)
|
(16,935)
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
1,350
|
1,180
|
The accompanying
notes are an integral part of these consolidated
statements.
31
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS (in thousands)
FOR
THE YEARS ENDED DECEMBER 31,
|
|
2020
|
2019
|
|
REVENUE:
|
|
|
|
Sales
– devices and disposables, net
|
$102
|
$36
|
|
Cost
of goods recovered (sold)
|
41
|
(70)
|
|
Gross
profit (loss)
|
143
|
(34)
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Research
and development
|
143
|
122
|
|
Sales
and marketing
|
139
|
87
|
|
General
and administrative
|
913
|
694
|
|
Total
operating expenses
|
1,195
|
903
|
|
|
|
|
|
Operating
loss
|
(1,052)
|
(937)
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
Other
income
|
271
|
48
|
|
Interest
expense
|
(1,056)
|
(1,412)
|
|
Loss
from extinguishment of debt
|
(296)
|
-
|
|
Change
in fair value of derivative liability
|
(25)
|
-
|
|
Change
in fair value of warrants
|
1,879
|
380
|
|
Total
other income (expenses)
|
773
|
(984)
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
(279)
|
(1,921)
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
-
|
-
|
|
|
|
|
|
NET
LOSS
|
(279)
|
(1,921)
|
|
|
|
|
|
PREFERRED
STOCK DIVIDENDS
|
(122)
|
-
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$(401)
|
$(1,921)
|
|
|
||
|
NET
LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
||
|
BASIC
|
$(0.04)
|
$(0.58)
|
|
DILUTED
|
$(0.04)
|
$(0.58)
|
|
|
||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
||
|
BASIC
|
10,767
|
3,302
|
|
DILUTED
|
10,767
|
3,302
|
The accompanying
notes are an integral part of these consolidated
statements.
32
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In
Thousands)
|
|
Preferred
Stock
Series
C
|
Preferred
Stock
Series
C1
|
Preferred
Stock
Series
C2
|
Preferred
Stock
Series
D
|
Preferred
Stock
Series
E
|
|||||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|
BALANCE, January 1,
2019
|
-
|
$105
|
1
|
$170
|
3
|
$531
|
-
|
$-
|
-
|
$-
|
|
Shares in
transit
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Conversion of debt into common
stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Beneficial conversion feature of
convertible debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
BALANCE, December 31,
2019
|
-
|
$105
|
1
|
$170
|
3
|
$531
|
-
|
$-
|
-
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred
offering
|
-
|
-
|
-
|
-
|
-
|
-
|
1
|
276
|
-
|
-
|
|
Series E preferred
offering
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2
|
1,639
|
|
Conversion of debt into common
stock – exchange agreements
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Conversion of debt into common
stock – convertible debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of common stock for
manufacturing agreements
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of common stock for
payment of Series D preferred dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Beneficial conversion feature of
convertible debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Warrants exchanged for fixed price
warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Adjustment to warrant liability for
adoption of ASU 2017-11
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Accrued preferred
dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
BALANCE,
December 31, 2020
|
-
|
$105
|
1
|
$170
|
3
|
$531
|
1
|
$276
|
2
|
$1,639
|
The
accompanying notes are an integral part of these consolidated
statements.
33
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2020 and 2019 (In
Thousands)
|
|
Common
Stock
|
Additional
Paid-In
|
Treasury
|
Accumulated
|
|
|
|
|
Shares
|
Amount
|
Capital
|
Stock
|
Deficit
|
TOTAL
|
|
BALANCE, January 1,
2019
|
2,669
|
$2,877
|
$118,259
|
$(132)
|
$(137,634)
|
$(15,824)
|
|
Shares in
transit
|
-
|
-
|
692
|
-
|
-
|
692
|
|
Conversion of debt
into common stock
|
650
|
517
|
(484)
|
-
|
-
|
33
|
|
Beneficial
conversion feature of convertible debt
|
-
|
-
|
77
|
-
|
-
|
77
|
|
Stock-based
compensation
|
-
|
-
|
8
|
-
|
-
|
8
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(1,921)
|
(1,921)
|
|
BALANCE, December
31, 2019
|
3,319
|
$3,394
|
$118,552
|
$(132)
|
$(139,555)
|
$(16,935)
|
|
|
|
|
|
|
|
|
|
Series D preferred
offering
|
1,526
|
1
|
460
|
-
|
-
|
737
|
|
Series E preferred
offering
|
-
|
-
|
-
|
-
|
-
|
1,639
|
|
Conversion of debt
into common stock – exchange agreements
|
7,957
|
8
|
2,871
|
-
|
-
|
2,879
|
|
Conversion of debt
into common stock – convertible debt
|
175
|
-
|
50
|
-
|
-
|
50
|
|
Issuance of common
stock for manufacturing agreements
|
12
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of common
stock for payment of Series D preferred dividends
|
149
|
-
|
40
|
-
|
-
|
40
|
|
Beneficial
conversion feature of convertible debt
|
-
|
-
|
82
|
-
|
-
|
82
|
|
Warrants exchanged
for fixed price warrants
|
-
|
-
|
117
|
-
|
-
|
117
|
|
Adjustment to
warrant liability for adoption of ASU 2017-11
|
-
|
-
|
627
|
-
|
-
|
627
|
|
Stock-based
compensation
|
-
|
-
|
310
|
-
|
-
|
310
|
|
Accrued preferred
dividends
|
-
|
-
|
-
|
-
|
(122)
|
(122)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(279)
|
(279)
|
|
BALANCE,
December 31, 2020
|
13,138
|
$3,403
|
$123,109
|
$(132)
|
$(139,956)
|
$(10,855)
|
34
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31,
(In
Thousands)
|
|
2020
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$(279)
|
$(1,921)
|
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
Bad
debt expense
|
12
|
-
|
|
Inventory
reserve
|
(73)
|
|
|
Depreciation
|
-
|
21
|
|
Amortization
of debt issuance costs and discounts
|
394
|
105
|
|
Amortization
of beneficial conversion feature
|
102
|
92
|
|
Stock
based compensation
|
310
|
8
|
|
Change
in fair value of warrants
|
(1,879)
|
(380)
|
|
Loss
on extinguishment of debt
|
296
|
-
|
|
Change
in fair value of derivatives
|
25
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(23)
|
-
|
|
Inventory
|
(483)
|
66
|
|
Other
current assets
|
(15)
|
(2)
|
|
Other
assets
|
18
|
1
|
|
Accounts
payable
|
(372)
|
20
|
|
Deferred
revenue
|
(59)
|
35
|
|
Accrued
liabilities
|
151
|
1,149
|
|
Total
adjustments
|
(1,596)
|
1,115
|
|
Net
cash used in operating activities
|
(1,875)
|
(806)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Additions
to property and equipment
|
(1)
|
-
|
|
Net
cash used in investing activities
|
(1)
|
-
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds
from Series D offering, net of costs
|
102
|
635
|
|
Proceeds
from Series E offering, net of costs
|
1,639
|
-
|
|
Proceeds
from debt financing, net of discounts and debt issuance
costs
|
519
|
1,351
|
|
Payments
made on notes and loans payable
|
(1,101)
|
(281)
|
|
Net
cash provided by financing activities
|
1,159
|
1,705
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(717)
|
899
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
899
|
-
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of year
|
$182
|
$899
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF:
|
|
|
|
Cash paid
for:
|
|
|
|
Interest
|
$295
|
$14
|
|
|
|
|
|
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
Issuance
of common stock as debt repayment
|
$2,929
|
$33
|
|
Dividends
on preferred stock
|
$122
|
$-
|
|
Subscription
receivable
|
$635
|
$-
|
|
Warrants
exchanged for fixed price warrants
|
$131
|
$-
|
|
Settlement
of dividends through common stock issuance
|
$40
|
$-
|
|
The
accompanying notes are an integral part of these consolidated
statements.
|
||
35
GUIDED
THERAPEUTICS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
1.
ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Guided
Therapeutics, Inc. (formerly SpectRx, Inc.), together with its
wholly owned subsidiary, InterScan, Inc. (formerly Guided
Therapeutics, Inc.), collectively referred to herein as the
“Company”, is a medical
technology company focused on developing innovative medical devices
that have the potential to improve healthcare. The Company’s
primary focus is the continued commercialization of its LuViva
non-invasive cervical cancer detection device and extension of its
cancer detection technology into other cancers, including
esophageal. The Company’s technology, including products in
research and development, primarily relates to biophotonics
technology for the non-invasive detection of
cancers.
Basis
of Presentation
All
information and footnote disclosures included in the consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United
States.
A 1:800
reverse stock split of all of the Company’s issued and
outstanding common stock was implemented on March 29, 2019. As a
result of the reverse stock split, every 800 shares of issued and
outstanding common stock were converted into 1 share of common
stock. All fractional shares created by the reverse stock split
were rounded to the nearest whole share. The number of authorized
shares of common stock did not change. The reverse stock split
decreased the Company’s issued and outstanding shares of
common stock from 2,652,309,322 shares to 3,319,486 shares as of
that date with rounding. See Note 4, Stockholders’ Deficit.
Unless otherwise specified, all per share amounts are reported on a
post-stock split basis, as of December 31, 2020 and
2019.
The
Company’s prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by
entrants into the medical device industry. This industry is
characterized by an increasing number of participants, intense
competition and a high failure rate. The Company has experienced
net losses since its inception and, as of December 31, 2020, it had
an accumulated deficit of approximately $140.0 million. To date,
the Company has engaged primarily in research and development
efforts and the early stages of marketing its products. The Company
may not be successful in growing sales for its products. Moreover,
required regulatory clearances or approvals may not be obtained in
a timely manner, or at all. The Company’s products may not
ever gain market acceptance and the Company may not ever generate
significant revenues or achieve profitability. The development and
commercialization of the Company’s products requires
substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. The Company expects operating
losses to continue for the foreseeable future as it continues to
expend substantial resources to complete development of its
products, obtain regulatory clearances or approvals, build its
marketing, sales, manufacturing and finance capabilities, and
conduct further research and development.
Certain
prior year amounts have been reclassified in order to conform to
the current year presentation.
Going
Concern
The
Company’s consolidated financial statements have been
prepared and presented on a basis assuming it will continue as a
going concern. The factors below raise substantial doubt about the
Company’s ability to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary from the outcome of this uncertainty.
At
December 31, 2020, the Company had a negative working capital of
approximately $8.0 million, accumulated deficit of $140.0 million,
and incurred a net loss of $0.4 million for the year then ended.
Stockholders’ deficit totaled approximately $10.9 million at
December 31, 2020, primarily due to recurring net losses from
operations, deemed dividends on warrants and preferred stock,
offset by proceeds from the exercise of options and warrants and
proceeds from sales of stock.
The
Company has taken the following steps to improve certain factors
that are generating the going concern opinion,
including:
●
During the end of
2019 and during 2020, the Company was able to raise over $3.5
million in equity and debt investments;
●
The
Company has executed several exchange agreements that converted of
approximately $2.7 million of debt for equity; and
●
During the quarter
ended September 30, 2020, the Company uplisted to the Over the
Counter (OTC) bulletin board;
If
sufficient capital cannot be raised during 2021, 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.
36
The
Company had warrants exercisable for approximately 28.3 million
shares of its common stock outstanding at December 31, 2020, with
exercise prices ranging between $0.04 and $1.82 per share.
Exercises of in the money warrants would generate a total of
approximately $5.0 million in cash, assuming full exercise,
although the Company cannot be assured that holders will exercise
any warrants. Management may obtain additional funds through the
public or private sale of debt or equity, and grants, if
available.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Significant areas where estimates are used include the
allowance for doubtful accounts, inventory valuation and input
variables for Black-Scholes, Monte Carlo simulations and binomial
calculations. The Company uses the Monte Carlo simulations and
binomial calculations in the calculation of the fair value of the
warrant liabilities and the valuation of embedded conversion
options and freestanding warrants.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts
of Guided Therapeutics, Inc. and its wholly owned subsidiary. All
intercompany transactions are eliminated.
Accounting
Standard Updates
Recently Adopted Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. ASU 2016-13 requires that expected credit
losses relating to financial assets are measured on an amortized
cost basis and available-for-sale debt securities be recorded
through an allowance for credit losses. ASU 2016-13 limits the
amount of credit losses to be recognized for available-for-sale
debt securities to the amount by which carrying value exceeds fair
value and also requires the reversal of previously recognized
credit losses if fair value increases. The Company adopted the
standard on January 1, 2020. The adoption of ASU 2016-13 did not
have a material impact on the Company.
In
July, 2017, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update No. 2017-11
(“ASU 2017-11”), which addressed accounting for (I)
certain financial instruments with down round features and (II)
replacement of the indefinite deferral for mandatorily redeemable
financial instruments of certain nonpublic entities and certain
mandatorily redeemable non-controlling interests with a scope
exception. The main provisions of Part I of ASU 2017-11 is to
“change the classification analysis of certain equity-linked
financial instruments (or embedded features) with down round
features. When determining whether certain financial instruments
should be classified as liabilities or equity instruments, a down
round feature no longer precludes equity classification when
assessing whether the instrument is indexed to an entity’s
own stock. The amendments also clarify existing disclosure
requirements for equity-classified instruments. As a result, a
freestanding equity-linked financial instrument (or embedded
conversion option) no longer would be accounted for as a derivative
liability at fair value as a result of the existence of a down
round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings
per share (EPS) to recognize the effect of the down round feature
when it is triggered. That effect is treated as a dividend and as a
reduction of income available to common shareholders in basic
EPS.” Under previous US GAAP, warrants with a down round
feature are not being considered indexed to the entity’s own
stock, which results in classification of the warrant as a
derivative liability. Under ASU 2017-11, the down round feature
qualifies for a scope exception from derivative treatment. ASU
2017-11 is effective for public companies as of December 15, 2018
and interim periods within that fiscal year. Early adoption is
permitted, including adoption in an interim period, with
adjustments reflected as of the beginning of the fiscal year. The
Company has issued financial instruments with down round features.
The Company opted to adopt ASU 2017-11 as of December 31, 2020. If
the Company had adopted the standard on the effective date the
impact would have been immaterial to the financial statements. The
impact of this adoption on the quarterly reports for 2020 would
require the following debits and (credits) as shown in the schedule
below:
|
|
March
31,
2020
|
June
30,
2020
|
September
30,
2020
|
|
Warrant
liability decrease
|
$870,499
|
$3,512,254
|
$2,594,111
|
|
Long-term debt
increase
|
(244,941)
|
(209,096)
|
(173,251)
|
|
Interest expense
decrease
|
(35,845)
|
(71,690)
|
(107,535)
|
|
Accumulated deficit
increase
|
13,437
|
2,691,036
|
1,808,738
|
|
Additional paid in
capital increase
|
(625,558)
|
(3,303,158)
|
(2,420,860)
|
|
Change in fair
value of warrants during the year
|
22,408
|
2,619,347
|
1,701,203
|
37
In
August 2018, the FASB issued Accounting Standards Update No.
2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair
Value Measurement, or ASU 2018-13. The amendments in ASU 2018-13
eliminate, add, and modify certain disclosure requirements for fair
value measurements. The amendments are effective for the
Company’s interim and annual reporting periods beginning
after December 15, 2019, with early adoption permitted for either
the entire ASU or only the provisions that eliminate or modify
requirements. The amendments with respect to changes in unrealized
gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value
measurements, and the narrative description of measurement
uncertainty are to be applied prospectively. All other amendments
are to be applied retrospectively to all periods presented. The
adoption of ASU 2016-13 did not have a material impact on the
Company.
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. At December 31, 2020 and 2019, our inventories were as
follows (in thousands):
|
|
December
31,
|
December
31,
|
|
|
2020
|
2019
|
|
Raw
materials
|
$1,276
|
$781
|
|
Work in
process
|
80
|
81
|
|
Finished
goods
|
7
|
17
|
|
Inventory
reserve
|
(758)
|
(831)
|
|
Total
|
$605
|
$48
|
|
|
|
|
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.
38
Deposits
made for long-term inventory parts were recorded in Other Assets.
On September 4, 2020, the Company paid and additional deposit of
$200,000 for the deposit of a major part in the assembly of the
Company’s devices. The Company had a prior deposit of
$292,000 with this vendor that was being held until the Company
could pay the entire balance of the $493,000 order. The Company had
reserved and recorded an expense for the entire balance of $292,000
in prior periods as it was unsure when it would have the financial
resources to pay the balance. Upon the payment of the additional
deposit the Company reversed the reserve of $292,000. The parts
were received during the year ended December 31, 2020.
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 December 31, 2020 and 2019
(in thousands):
|
|
December
31,
|
December
31,
|
|
|
2020
|
2019
|
|
Equipment
|
$1,042
|
$1,349
|
|
Software
|
652
|
740
|
|
Furniture and
fixtures
|
41
|
124
|
|
Leasehold
Improvement
|
12
|
180
|
|
|
1,747
|
2,393
|
|
Less accumulated
depreciation and amortization
|
(1,746)
|
(2,393)
|
|
Total
|
$1
|
$—
|
During
the year ended December 31, 2020, the Company disposed of
approximately $647,000 of property and equipment that was fully
depreciated.
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
aggregated approximately $17,000 and $15,000 for the year ended
December 31, 2020 and 2019, respectively.
Leases
With the implementation of ASU 2016-02,
“Leases (Topic 842)”, the Company recorded a
lease-right-of-use asset and a lease liability. The Company adopted
the standard on January 1, 2019. The implementation required the
analysis of certain criteria in determining its treatment. The
Company determined that its corporate office lease met those
criteria. The Company implemented the guidance using the
alternative transition method. Under this alternative, the
effective date would be the date of initial application. The
Company analyzed the lease at its effective date and calculated an
initial lease payment amount of $267,380 with a present value of
$213,000 using a 20% discount. See Note 8: Commitments and
Contingencies.
The
cumulative effect of initially applying the new guidance had an
immaterial impact on the opening balance of retained earnings. The
Company elected the practical expedients permitted under the
transition guidance within the new standards, which allowed the
Company to carry forward the historical lease
classification.
39
Accrued
Liabilities
Accrued
liabilities are summarized as follows (in thousands):
|
|
December
31,
2020
|
December
31,
2019
|
|
Compensation
|
$1,094
|
$1,123
|
|
Professional
fees
|
83
|
181
|
|
Interest
|
1,517
|
1,603
|
|
Warranty
|
-
|
2
|
|
Vacation
|
34
|
41
|
|
Preferred
dividends
|
202
|
120
|
|
Other accrued
expenses
|
65
|
165
|
|
Total
|
$2,995
|
$3,235
|
Subscription
receivables
Cash
received from investors for common stock shares that has not
completed processing is recorded as a liability to subscription
receivables. As of December 31, 2020, all common stock shares were
issued to investors. As of December 31, 2020, the outstanding
subscription receivable was nil. As of December 31, 2019, the
Company had reserved 635 Series D preferred shares and 1,270,000
common stock shares in exchange for $635,000.
Revenue
recognition
The Company follows, ASC 606 Revenue from Contracts with Customers
establishes a single and comprehensive framework which sets out how
much revenue is to be recognized, and when. The core principle is
that a vendor should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the vendor expects to be entitled in
exchange for those goods or services. Revenue will now be
recognized by a vendor when control over the goods or services is
transferred to the customer. In contrast, revenue based revenue
recognition around an analysis of the transfer of risks and
rewards; this now forms one of a number of criteria that are
assessed in determining whether control has been transferred. The
application of the core principle in ASC 606 is carried out in five
steps: Step 1 – Identify the contract with a customer: a
contract is defined as an agreement (including oral and implied),
between two or more parties, that creates enforceable rights and
obligations and sets out the criteria for each of those rights and
obligations. The contract needs to have commercial substance and it
is probable that the entity will collect the consideration to which
it will be entitled. Step 2 – Identify the performance
obligations in the contract: a performance obligation in a contract
is a promise (including implicit) to transfer a good or service to
the customer. Each performance obligation should be capable of
being distinct and is separately identifiable in the contract. Step
3 – Determine the transaction price: transaction price is the
amount of consideration that the entity can be entitled to, in
exchange for transferring the promised goods and services to a
customer, excluding amounts collected on behalf of third parties.
Step 4 – Allocate the transaction price to the performance
obligations in the contract: for a contract that has more than one
performance obligation, the entity will allocate the transaction
price to each performance obligation separately, in exchange for
satisfying each performance obligation. The acceptable methods of
allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and, the residual
approach in limited circumstances. Discounts given should be
allocated proportionately to all performance obligations unless
certain criteria are met and reallocation of changes in standalone
selling prices after inception is not permitted. Step 5 –
Recognize revenue as and when the entity satisfies a performance
obligation: the entity should recognize revenue at a point in time,
except if it meets any of the three criteria, which will require
recognition of revenue over time: the entity’s performance
creates or enhances an asset controlled by the customer, the
customer simultaneously receives and consumes the benefit of the
entity’s performance as the entity performs, and the entity
does not create an asset that has an alternative use to the entity
and the entity has the right to be paid for performance to
date.
Revenue
by product line (in thousands):
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Devices
|
$-
|
17
|
|
Disposables
|
2
|
2
|
|
Major part
components
|
100
|
15
|
|
Warranty
|
-
|
2
|
|
Total
|
$102
|
$36
|
40
Revenue
by geographic location (in thousands):
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Asia
|
$102
|
$22
|
|
Europe
|
-
|
14
|
|
Total
|
$102
|
$36
|
Significant
Distributors
Accounts
receivable, that netted to a balance of $24,000, and were reserved
against, were from one distributor as of December 31, 2020. The
Allowance on Accounts Receivable was recorded on all but one
distributor. During the year ended December 31, 2020, $100,000 or
98% of the total revenue was from one distributor for the sale of
parts and cerival guides. During the year ended December 31, 2019,
revenues were from two distributors and for extended warranties.
Sales revenues from these distributors totaled $34,000 or 94% of
the total revenue for the period ended December 31,
2019.
Deferred revenue
The
Company defers payments received as revenue until earned based on
the related contracts and applying ASC 606 as required. As of
December 31, 2020, and 2019, the Company had $42,000 and $101,000
in deferred revenue, respectively.
Research
and Development
Research
and development expenses consist of expenditures for research
conducted by the Company and payments made under contracts with
consultants or other outside parties and costs associated with
internal and contracted clinical trials. All research and
development costs are expensed as incurred.
Income
Taxes
The
Company uses the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Management provides valuation
allowances against the deferred tax assets for amounts that are not
considered more likely than not to be realized.
The Company has filed its 2019 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
is currently in process of setting up a payment arrangement for its
delinquent state income taxes with the State of Georgia and the
returns are currently under review by state authorities. Although
the Company has been experiencing recurring losses, it is obligated
to file tax returns for compliance with IRS regulations and that of
applicable state jurisdictions. At December 31, 2020, the Company
has approximately $71 million of net operating losses, but it has
not filed its Federal tax returns, therefore this number may not be
accurate. 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
current corporate tax rates in the U.S. is 21%.
Uncertain
Tax Positions
The
Company assesses each income tax position is assessed using a
two-step process. A determination is first made as to whether it is
more likely than not that the income tax position will be
sustained, based upon technical merits, upon examination by the
taxing authorities. If the income tax position is expected to meet
the more likely than not criteria, the benefit recorded in the
financial statements equals the largest amount that is greater than
50% likely to be realized upon its ultimate settlement. At December
31, 2020 and, 2019, there were no uncertain tax
positions.
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.
41
Warrants
The
Company has issued warrants, which allow the warrant holder to
purchase one share of stock at a specified price for a specified
period of time. The Company records equity instruments including
warrants issued to non-employees based on the fair value at the
date of issue. The fair value of warrants classified as equity
instruments at the date of issuance is estimated using the
Black-Scholes Model. The fair value of warrants classified as
liabilities at the date of issuance is estimated using the Monte
Carlo Simulation or Binomial model.
Stock
Based Compensation
The
Company records compensation expense related to options granted to
employees and non-employees based on the fair value of the award.
Compensation cost is recorded as earned for all unvested stock
options outstanding at the beginning of the first year based upon
the grant date fair value estimates, and for compensation cost for
all stock based payments granted or modified subsequently based on
fair value estimates.
On
July 14, 2020, the Company granted stock options to employees and
consultants. 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.
Stock
options granted have a 10-year life and expire 90 days after
employment or upon termination of consulting agreement. Vesting
schedule varies per grantee. Generally stock options granted vest
as follows: 25% vest immediately, and the remaining stock options
vest over 33 months, beginning three months after
grant.
For
the year ended December 31, 2020 and 2019, stock based compensation
for options attributable to employees, non-employees, officers and
Board members was approximately $310,000 and $8,000, respectively.
These amounts have been included in the Company’s statements
of operations under general and administrative expense.
Compensation costs for stock options which vest over time are
recognized over the vesting period. As of December 31, 2020, and
2019 the Company had $559,000 and nil, of unrecognized compensation
costs related to granted stock options that will be recognized,
respectively.
Beneficial
Conversion Features of Convertible Securities
The
Company has adopted the provisions of ASU 2017-11 to account for
the down round features of warrants issued with private placements
effective as of January 1, 2020. In doing so, warrants with a down
round feature previously treated as a derivative liabilities in the
consolidated balance sheet and measured at fair value are
henceforth treated as equity, with no adjustment for changes in
fair value at each reporting period. Previously, the Company
accounted for conversion options embedded in convertible notes in
accordance with ASC 815. ASC 815 generally requires companies to
bifurcate conversion options embedded in convertible notes from
their host instruments and to account for them as free standing
derivative financial instruments. ASC 815 provides for an exception
to this rule when convertible notes, as host instruments, are
deemed to be conventional, as defined by ASC 815-40. The Company
accounts for convertible notes deemed conventional and conversion
options embedded in non-conventional convertible notes which
qualify as equity under ASC 815, in accordance with the provisions
of ASC 470-20, which provides guidance on accounting for
convertible securities with beneficial conversion features.
Accordingly, the Company records, as a discount to convertible
notes, the intrinsic value of such conversion options based upon
the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts
under these arrangements are amortized over the term of the related
debt.
Conversion
options that are not bifurcated as a derivative pursuant to ASC 815
and not accounted for as a separate equity component under the cash
conversion guidance are evaluated to determine whether they are
beneficial to the investor at inception (a beneficial conversion
feature) or may become beneficial in the future due to potential
adjustments. The beneficial conversion feature guidance in ASC
470-20 applies to convertible stock as well as convertible debt
which are outside the scope of ASC 815. A beneficial conversion
feature is defined as a nondetachable conversion feature that is in
the money at the commitment date. The beneficial conversion feature
guidance requires recognition of the conversion option’s
in-the-money portion, the intrinsic value of the option, in equity,
with an offsetting reduction to the carrying amount of the
instrument. The resulting discount is amortized as a dividend over
either the life of the instrument, if a stated maturity date
exists, or to the earliest conversion date, if there is no stated
maturity date. If the earliest conversion date is immediately upon
issuance, the dividend must be recognized at inception. When there
is a subsequent change to the conversion ratio based on a future
occurrence, the new conversion price may trigger the recognition of
an additional beneficial conversion feature on
occurrence.
42
Derivatives
The
Company reviews the terms of convertible debt issued to determine
whether there are embedded derivative instruments, including
embedded conversion options, which are required to be bifurcated
and accounted for separately as derivative financial instruments.
In circumstances where the host instrument contains more than one
embedded derivative instrument, including the conversion option,
that is required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative
instrument.
Bifurcated
embedded derivatives are initially recorded at fair value and are
then revalued at each reporting date with changes in the fair value
reported as non-operating income or expense. When the equity or
convertible debt instruments contain embedded derivative
instruments that are to be bifurcated and accounted for as
liabilities, the total proceeds received are first allocated to the
fair value of all the bifurcated derivative instruments. The
remaining proceeds, if any, are then allocated to the host
instruments themselves, usually resulting in those instruments
being recorded at a discount from their face value. The discount
from the face value of the convertible debt, together with the
stated interest on the instrument, is amortized over the life of
the instrument through periodic charges to interest
expense.
3.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The
guidance for fair value measurements, ASC820, Fair Value
Measurements and Disclosures, establishes the authoritative
definition of fair value, sets out a framework for measuring fair
value, and outlines the required disclosures regarding fair value
measurements. Fair value is the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at
the measurement date. The Company uses a three-tier fair value
hierarchy based upon observable and non-observable inputs as
follow:
●
Level 1 –
Quoted market prices in active markets for identical assets and
liabilities;
●
Level 2 –
Inputs, other than level 1 inputs, either directly or indirectly
observable; and
●
Level 3 –
Unobservable inputs developed using internal estimates and
assumptions (there is little or no market date) which reflect those
that market participants would use.
The
Company records its derivative activities at fair value, which
consisted of warrants as of December 31, 2020 and 2019. The fair
value of the warrants was estimated using the Binomial Simulation
model. Gains and losses from derivative contracts are included in
net gain (loss) from derivative contracts in the statement of
operations. The fair value of the Company’s derivative
warrants is classified as a Level 3 measurement, since unobservable
inputs are used in the valuation.
The
following table presents the fair value for those liabilities
measured on a recurring basis as of December 31, 2020 and
2019:
FAIR
VALUE MEASUREMENTS (In Thousands)
The
following is summary of items that the Company measures at fair
value on a recurring basis:
|
|
Fair Value at
December 31, 2020
|
|||
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
Warrants issued in
connection with Senior Secured Debt
|
-
|
-
|
(2,203)
|
(2,203)
|
|
Derivative
liability/bifurcated conversion option in connection with Auctus
$1,100,000 loan on December 17, 2019
|
-
|
-
|
(25)
|
(25)
|
|
Total
long-term liabilities at fair value
|
$-
|
$-
|
$(2,228)
|
$(2,228)
|
43
|
|
Fair Value at
December 31, 2019
|
|||
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
Warrants issued in
connection with Distributor Debt
|
-
|
-
|
(114)
|
(114)
|
|
Warrants issued in
connection with Short-term loans
|
-
|
-
|
(83)
|
(83)
|
|
Warrants issued in
connection with Long-term loans
|
-
|
-
|
(893)
|
(893)
|
|
Warrants issued in
connection with Senior Secured Debt
|
-
|
-
|
(4,002)
|
(4,002)
|
|
Derivative
liability/bifurcated conversion option in connection with Auctus
$1,100,000 loan on December 17, 2019
|
-
|
-
|
-
|
-
|
|
Total
long-term liabilities at fair value
|
$-
|
$-
|
$(5,092)
|
$(5,092)
|
The following is a summary of changes to Level 3
instruments during the year ended December 31,
2020:
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|||||
|
|
Distributor
Debt
|
Short-Term
Loans
|
Long-Term
Loans
|
Senior Secured
Debt
|
Derivative
|
Total
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2019
|
$(114)
|
$(83)
|
$(893)
|
$(4,002)
|
$-
|
$(5,092)
|
|
Transfer to equity
as a result of warrants exchanged for fixed price
warrants
|
67
|
50
|
-
|
-
|
-
|
117
|
|
Change in fair
value of derivatives during the year
|
-
|
-
|
-
|
-
|
(25)
|
(25)
|
|
Transfer to equity
as a result of adoption of ASU 2017-11
|
-
|
-
|
627
|
-
|
-
|
627
|
|
Reduction of debt
discount as result of adoption of ASU 2017-11
|
-
|
-
|
266
|
-
|
-
|
266
|
|
Change in fair
value of warrants during the year
|
47
|
33
|
-
|
1,799
|
-
|
1,879
|
|
Balance, December
31, 2020
|
$-
|
$-
|
$-
|
$(2,203)
|
$(25)
|
$(2,228)
|
As of
December 31, 2020, the fair value of warrants was approximately
$2.2 million and the fair value of
the derivative liability was $25,000. A net change of
approximately $1.9 million has been recorded to the accompanying
statement of operations for the year ended, as well as an
adjustment to the liability of $0.9 million.
4.
STOCKHOLDER’S DEFICIT
Common
Stock
The
Company has authorized 3,000,000,000 shares of common stock with
$0.001 par value, of which 13,138,282 were issued and outstanding
as of December 31, 2020. As of December 31, 2019, there were
3,000,000,000 authorized shares of common stock, of which 3,319,469
were issued and outstanding.
44
For the
year ended December 31, 2020, the Company issued 9,818,813 shares
of common stock as listed below:
|
Conversion of debt
into common shares – exchange agreements
|
7,957,013
|
|
Conversion of debt
into common shares
|
175,000
|
|
Shares issued for
manufacturing agreements
|
12,147
|
|
Shares issued for
payment of Series D dividends
|
148,653
|
|
Investments
|
1,526,000
|
|
Issued during the
year ended December 31, 2020
|
9,818,813
|
Summary
table of common stock share transactions:
|
Balance at December
31, 2019
|
3,319,469
|
|
Issued in
2020
|
9,818,813
|
|
Balance at December
31, 2020
|
13,138,282
|
Investments
During
2020, the Company received equity investments in the amount of
$1,735,500 and incurred fees due on these investments of $96,985.
These investors received a total of 1,736 Series E preferred stock
(if the Investor elects to convert their Series E preferred stock,
each Series E preferred stock shares converts into 4,000 shares of
the Company’s common stock shares).
During
January and April 2020, the Company received equity investments in
the amount of $128,000. These investors received a total of 256,000
common stock shares and 256,000 warrants issued to purchase common
stock shares at a strike price of $0.25, 256,000 warrants to
purchase common stock shares at a strike price of $0.75 and 128
Series D preferred stock (if the Investor elects to convert their
Series D preferred stock, each Series D preferred stock shares
converts into 3,000 shares of the Company’s common stock
shares). Of the amount invested $38,000 was from related
parties.
During
December 2019, the Company received equity investments in the
amount of $635,000. The $635,000 of investments were recorded as a
subscription liability in December 2019. The common stock shares
were issued in January 2020. These investors received a total of
1,270,000 common stock shares and 1,270,000 warrants to purchase
common stock shares at a strike price of $0.25, 1,270,000 warrants
issued to purchase common stock shares at a strike price of $0.75
and 635 Series D preferred stock (each Series D preferred stock
shares converts into 3,000 shares of the Company’s common
stock shares). Of the amount invested $350,000 was from related
parties.
For
the Series D preferred stock, the Company received equity
investments in the amount of $763,000 and incurred fees due on
these investments of $26,000.
Debt Exchanges
On January 8, 2020, the Company exchanged $2,064,366 in debt for
several equity instruments (noted below) that were determined to
have a total fair value of $2,065,548, resulting in a loss on
extinguishment of debt of $1,183 which is recorded in other income
(expense) on the accompanying consolidated statements of
operations. The Company also issued 6,957,013 warrants to purchase
common stock shares; with exercise prices of $0.25, $0.75 and
$0.20. In addition, one of the investors forgave approximately
$29,000 of debt, which was recorded as a gain for extinguishment of
debt.
On June 3, 2020, the Company exchanged $328,422 in
debt from Auctus, (summarized in footnote 10: Convertible
Notes), for 500,000 common
stock shares and 700,000 warrants to purchase common stock shares.
The fair value of the common stock shares was $250,000 (based on a
$0.50 fair value for the Company’s stock) and of the warrants
to purchase common stock shares was $196,818 (based on a $0.281
black scholes fair valuation). This resulted in a net loss on
extinguishment of debt of $118,396 ($446,818 fair value less the
$328,422 of exchanged debt).
On
June 30, 2020, the Company exchanged $125,000 in debt (during June
2020, $125,000 in payables had been converted into short-term debt)
from Mr. James Clavijo, for 500,000 common stock shares and 250,000
warrants to purchase common stock shares. The fair value of the
common stock shares was $250,000 (based on a $0.50 fair value for
the Company’s stock) and of the warrants to purchase common
stock shares was $99,963 (based on a $0.40 black scholes fair
valuation). This resulted in a net loss on extinguishment of debt
of $224,963 ($349,963 fair value less the $125,000 of exchanged
debt). After the exchange transaction a balance was due to Mr.
Clavijo of $10,213 which was paid.
45
On
July 9, 2020, the Company entered into an exchange agreement with
Mr. Bill Wells (one of its former employees) for an outstanding
debt to him of $220,000. In lieu of agreeing to dismiss
approximately half of what is owed by the Company, Mr. Wells will
receive the following: (i) cash payments of $20,000 within 60 days
of the signing of the agreement; cash payments over time in the
amount of $90,000 in the form of an unsecured note with the Company
to be executed within 30 days of a new financing(s) totaling at
least $3.0 million. The note shall bear interest of 6.0% and mature
over 18 months; (ii) 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 (iii) 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, 2020, the Company made a payment of $20,000; this
payment allowed the Company to reduce $40,000 in debt, with the
corresponding $20,000 difference recorded as a gain.
The
following table summarizes the debt exchanges:
|
|
Total Debt and
Accrued Interest
|
Total
Debt
|
Total Accrued
Interest
|
Common Stock
Shares
|
Warrants
(Exercise $0.25)
|
Warrants
(Exercise $0.75)
|
Warrants
(Exercise $0.20)
|
Warrants
(Exercise $0.15)
|
Warrants
(Exercise $0.50)
|
|
Aquarius
|
$145,544
|
$107,500
|
38,044
|
$291,088
|
145,544
|
145,544
|
-
|
-
|
-
|
|
K2 Medical (Shenghuo)3
|
803,653
|
771,927
|
31,726
|
1,905,270
|
704,334
|
704,334
|
496,602
|
-
|
-
|
|
Mr. Blumberg
|
305,320
|
292,290
|
13,030
|
1,167,630
|
119,656
|
119,656
|
928,318
|
-
|
-
|
|
Mr. Case
|
179,291
|
150,000
|
29,291
|
896,456
|
-
|
-
|
896,456
|
-
|
-
|
|
Mr. Grimm
|
51,050
|
50,000
|
1,050
|
255,548
|
-
|
-
|
255,548
|
-
|
-
|
|
Mr. Gould
|
111,227
|
100,000
|
11,227
|
556,136
|
-
|
-
|
556,136
|
-
|
-
|
|
Mr. Mamula
|
15,577
|
15,000
|
577
|
77,885
|
-
|
-
|
77,885
|
-
|
-
|
|
Dr. Imhoff2
|
400,417
|
363,480
|
36,937
|
1,699,255
|
100,944
|
100,944
|
1,497,367
|
-
|
-
|
|
Ms. Rosenstock1
|
50,000
|
50,000
|
-
|
100,000
|
50,000
|
50,000
|
-
|
-
|
-
|
|
Mr. James2
|
2,286
|
2,000
|
286
|
7,745
|
1,227
|
1,227
|
5,291
|
-
|
-
|
|
Auctus
|
328,422
|
249,119
|
79,303
|
500,000
|
-
|
-
|
-
|
700,000
|
-
|
|
Mr. Clavijo
|
125,000
|
125,000
|
-
|
500,000
|
-
|
-
|
-
|
-
|
500,000
|
|
Mr. Wells4
|
220,000
|
220,000
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
$2,737,787
|
$2,496,316
|
$241,471
|
7,957,013
|
1,121,705
|
1,121,705
|
4,713,603
|
700,000
|
500,000
|
1 Ms.
Rosenstock also forgave $28,986 in debt to the
Company.
2 Mr.
Imhoff and Mr. James are members of the board of directors and
therefore related parties.
3 The
Company’s COO and director, Mark Faupel, is a shareholder of
Shenghuo, and a former director, Richard Blumberg, is a managing
member of Shenghuo.
4 Mr.
Wells will also receive 66,000 common share stock options; the
details of which are explained above.
Preferred Stock
The
Company has authorized 5,000,000 shares of preferred stock with a
$.001 par value. The board of directors has the authority to issue
these shares and to set dividends, voting and conversion rights,
redemption provisions, liquidation preferences, and other rights
and restrictions. The board of directors designated 525,000 shares
of preferred stock redeemable convertible preferred stock, none of
which remain outstanding, 33,000 shares of preferred stock as
Series B Preferred Stock, none of which remain outstanding, 9,000
shares of preferred stock as Series C Convertible Preferred Stock,
(the “Series C Preferred Stock”), of which 286 were
issued and outstanding at December 31, 2020 and 2019, respectively
and 20,250 shares of preferred stock as Series C1 Preferred Stock,
of which 1,050 shares were issued and outstanding at December 31,
2020 and 2019. 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 December 31, 2020, 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.
In
2019 and 2020, the board of directors designated 6,000 shares of
preferred stock as Series D Preferred Stock, 763 of which remain
outstanding, and 6,000 shares of preferred stock as Series E
Preferred Stock, 1,736 of which remain outstanding.
Series C Convertible 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 December 31, 2020 and 2019, 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.
46
Holders
of the Series C preferred stock are entitled to quarterly
cumulative dividends at an annual rate of 12.0% until 42 months
after the original issuance date (the “Dividend End
Date”), payable in cash or, subject to certain conditions,
the Company’s common stock. In addition, upon conversion of
the Series C preferred stock prior to the Dividend End Date, the
Company will also pay to the converting holder a “make-whole
payment” equal to the number of unpaid dividends through the
Dividend End Date on the converted shares. At December 31, 2020,
the “make-whole payment” for a converted share of
Series C preferred stock would convert to 200 shares of the
Company’s common stock. The Series C preferred stock
generally has no voting rights except as required by Delaware law.
Upon the Company’s liquidation or sale to or merger with
another corporation, each share will be entitled to a liquidation
preference of $1,000, plus any accrued but unpaid dividends. In
addition, the purchasers of the Series C preferred stock received,
on a pro rata basis, warrants exercisable to purchase an aggregate
of approximately 1 share of Company’s common stock. The
warrants contain anti-dilution adjustments in the event that the
Company issues shares of common stock, or securities exercisable or
convertible into shares of common stock, at prices below the
exercise price of such warrants. As a result of the anti-dilution
protection, the Company is required to account for the warrants as
a liability recorded at fair value each reporting period. At
December 31, 2020, the exercise price per share was
$512,000.
Series C1 Convertible Preferred Stock
Between
April 27, 2016 and May 3, 2016, the Company entered into various
agreements with certain holders of Series C preferred stock,
including directors John Imhoff and Mark Faupel, pursuant to which
those holders separately agreed to exchange each share of Series C
preferred stock held for 2.25 shares of the Company’s newly
created Series C1 Preferred Stock and 12 (9,600 pre-split) shares
of the Company’s common stock (the “Series C
Exchanges”). In connection with the Series C Exchanges, each
holder also agreed to roll over the $1,000 stated value per share
of the holder’s shares of Series C1 Preferred Stock into the
next qualifying financing undertaken by the Company on a
dollar-for-dollar basis and, except in the event of an additional
$50,000 cash investment in the Company by the holder, to execute a
customary “lockup” agreement in connection with the
financing. In total, for 1,916 shares of Series C preferred stock
surrendered, the Company issued 4,312 shares of Series C1 Preferred
Stock and 29 shares of common stock.
On
August 31, 2018, 3,262.25 shares of Series C1 Preferred Stock were
surrendered, and the Company issued 3,262.25 shares of Series C2
Preferred Stock.
At
December 31, 2020, 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
December 31, 2020, 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.
47
Series D Convertible Preferred Stock
On
January 8, 2020, the Company entered into a Security Agreement with
the Series D Investors (the “Series D Security
Agreement”) pursuant to which all obligations under the
Series D Certificate of Designation are secured by all of the
Company’s assets and personal properties, with certain
accredited investors, including 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 $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 $554.
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 .
The
Series D Warrants may be exercised cashlessly if there is no
effective registration statement covering the Common Stock issuable
upon exercise of the Series D Warrants. The Series D Warrants
contain a 4.99% beneficial ownership blocker which may be increased
to 9.99% at the holder’s election.
On
January 8, 2020, the Company also entered into a Registration
Rights Agreement (the “Series D Registration Rights Agreement
“) with the Series D Investors pursuant to which the Company
agreed to file with the SEC, a registration statement on a Form S-3
(or on other appropriate form if a Form S-3 is not available)
covering the Common Stock issuable upon conversion of the Series D
Warrants within 90 days of the date of the Registration Rights
Agreement and cause such registration statement to be declared
effective within 120 days of the date of the Registration Rights
Agreement. All reasonable expenses related to such registration
shall be borne by the Company.
During
August 2020, the Company issued 148,653 common stock shares for the
payment of Series D Preferred Stock dividends accrued. As of
December 31, 2020, the Company had accrued dividends of
$14,306.
Series E Convertible Preferred Stock
During
year ended December 31, 2020, the Company entered into a Security
Agreement with the Series E Investors (the “Series E Security
Agreement”) pursuant to which all obligations under the
Series E Certificate of Designation are secured by all of the
Company’s assets and personal properties, with certain
accredited investors. In total, for $1,736,000 the Company issued
1,736 shares of Series E Preferred Stock. Each Series E Preferred
Stock is convertible into 4,000 common stock shares. The Series E
Preferred Stock will have cumulative dividends at the rate per
share of 6% per annum. The stated value and liquidation preference
on the Series E Preferred Stock is $1,736. The Company incurred
fees due on these investments of $91,895.
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. As of December 31, 2020, the
Company had not issued shares as payment of Series E Preferred
Stock dividends. As of December 31, 2020, the Company had accrued
dividends of $67,247.
48
Warrants
The
following table summarizes transactions involving the
Company’s outstanding warrants to purchase common stock for
the year ended December 31, 2020:
|
|
Warrants
(Underlying
Shares)
|
|
Outstanding,
January 1, 2020
|
46,016,840
|
|
Issuances
|
11,270,013
|
|
Cancelled /
Expired
|
(70)
|
|
Exchanged in debt
restructuring
|
(28,962,508)
|
|
Exercised
|
—
|
|
Outstanding,
December 31, 2020
|
28,324,275
|
The
Company had the following shares reserved for the warrants as of
December 31, 2020:
|
Warrants
(Underlying Shares)
|
|
Exercise Price
|
Expiration Date
|
|
4,262
|
(1)
|
$1.824
per share
|
March
19, 2021
|
|
7,185,000
|
(2)
|
$0.20
per share
|
February
12, 2023
|
|
1,725,000
|
(3)
|
$0.04
per share
|
February
21, 2021
|
|
325,000
|
(4)
|
$0.18
per share
|
April
4, 2022
|
|
215,000
|
(5)
|
$0.25
per share
|
July
1, 2022
|
|
100,000
|
(6)
|
$0.25
per share
|
September
1, 2022
|
|
7,500,000
|
(7)
|
$0.20
per share
|
December
17, 2024
|
|
250,000
|
(8)
|
$0.16
per share
|
March
31, 2025
|
|
2,597,705
|
(9)
|
$0.25
per share
|
December
30, 2022
|
|
2,597,705
|
(10)
|
$0.75
per share
|
December
30, 2022
|
|
4,713,603
|
(11)
|
$0.20
per share
|
December
30, 2022
|
|
60,000
|
(12)
|
$0.25
per share
|
April
23, 2023
|
|
50,000
|
(13)
|
$0.25
per share
|
December
30, 2022
|
|
50,000
|
(14)
|
$0.75
per share
|
December
30, 2022
|
|
700,000
|
(15)
|
$0.15
per share
|
May
21, 2023
|
|
250,000
|
(16)
|
$0.50
per share
|
June
23, 2023
|
|
1,000
|
(17)
|
$0.50
per share
|
August
10, 2022
|
|
28,324,275
|
|
|
|
|
(1)
|
Issued
to investors for a loan in March 2018.
|
|
(2)
|
Exchanged in
January 2020 from amount issued as part of a February 2016 private
placement with senior secured
debt
holder
|
|
(3)
|
Issued
to a placement agent in conjunction with a February 2016 private
placement with senior secured debt holder
|
|
(4)
|
Issued
to investors for a loan in April 2019
|
|
(5)
|
Issued
to investors for a loan in July 2019
|
|
(6)
|
Issued
to investors for a loan in September 2019
|
|
(7)
|
Issued
to investors for a loan in December 2019
|
|
(8)
|
Issued
to investors for a loan in January 2020
|
|
(9)
|
Issued
to investors as part of Series D Preferred Stock Capital raise in
December 2020
|
|
(10)
|
Issued
to investors as part of Series D Preferred Stock Capital raise in
December 2020
|
|
(11)
(12)
(13)
(14)
(15)
(16)
|
Issued
to investors as part of Series D Preferred Stock Capital raise in
December 2020
Issued
to a consultant for services in April 2020
Issued
to an investor as part of Series D Preferred Stock Capital raise in
April 2020
Issued
to an investor as part of Series D Preferred Stock Capital raise in
April 2020
Issued
to an investor for a loan in May 2020
Issued
to an investor in exchange of debt in June 2020
|
|
(17)
|
Issued
to a consultant for services in August 2020
|
Footnote
(2) - On January 16, 2020, the Company entered into an exchange
agreement with GPB. This exchange agreement canceled the existing
outstanding warrants, which were subject to anti-dilution and
ratchet provisions, to purchase 35,937,500 shares of common stock
at an exercise price of $0.04 per share and resulted in the
issuance of new warrants to purchase 7,185,000 share of common
stock at a price of $0.20 per share. The new warrants have fixed
exercise prices of $0.20. On January 8, 2021, the Company met the
requirement by making the final payment of $750,000 as required by
the exchange agreement with GPB, which canceled the previously
issued warrants.
49
Warrant
to purchase 70 shares of common stock were not recorded as their
exercise price after considering reverse stock splits, were greater
than $60,000 and deemed to be immaterial for
disclosure
On
January 6, 2020, the Company entered into a finder’s fee
agreement. The finder will receive 5% cash and 5% warrants on all
funds it raises including bridge loans. The three-year common stock
share warrants will have an exercise price of $0.25. During 2019
and 2020, the finder helped the Company raise $300,000, therefore a
fee of $31,650 was paid and 126,600 warrants will be
issued.
On
January 22, 2020, the Company entered into a promotional agreement
with a consultant. The consultant will provide the Company investor
and public relations services. As compensation for these services,
the Company will issue a total of 5,000,000 common stock warrants
at a $0.25 strike price and expiring in three years, if the
following conditions occur: 1,250,000 common stock warrants, 6
months after the close of the Series D Preferred Stock units, if
the minimum common stock share price is a at least $0.50 based on a
30-day VWAP, with a two year term; 1,250,000 common stock warrants,
12 months after the close of the Series D Preferred Stock units, if
the minimum common stock share price is at least $0.75 based on a
30-day VWAP, with a one and half year term; 1,250,000 common stock
warrants, 18 months after the close of the Series D Preferred Stock
units, if the minimum common stock share price is a minimum of
$1.00 based on a 30-day VWAP, with a one year term; and 1,250,000
common stock warrants, 24 months after the close of the Series D
Preferred Stock units, if the minimum common stock share price is a
minimum of $1.25 based on a 30-day VWAP, with a one year term. The
consultant agrees to a 10.0% blocker at any single point in time it
cannot own 10.0% of the total common stock shares
outstanding.
5.
INCOME TAXES
The
Company has incurred net operating losses ("NOLs") since inception.
As of December 31, 2020, the company had NOL carryforwards
available through 2038 of approximately $71.4 million to offset its
future income tax liability. The company has recorded deferred tax
assets but reserved against, due to uncertainties related to
utilization of NOLs as well as calculation of effective tax rate.
Utilization of existing NOL carryforwards may be limited in future
years based on significant ownership changes. The company is in the
process of analyzing their NOL and has not determined if the
company has had any change of control issues that could limit the
future use of NOL. NOL carryforwards that were generated after 2017
of approximately $6.2 million may only be used to offset 80% of
taxable income and are carried forward indefinitely.
Components of
deferred taxes are as follow at December 31 (in
thousands):
|
|
2020
|
2019
|
|
Deferred tax
assets:
|
|
|
|
Warrant
liability
|
$617
|
$1,087
|
|
Accrued executive
compensation
|
519
|
515
|
|
Reserves and
other
|
421
|
468
|
|
Net operating loss
carryforwards
|
17,851
|
18,961
|
|
|
19,408
|
21,031
|
|
Valuation
allowance
|
(19,408)
|
(21,031)
|
|
Net deferred tax
assets
|
$0
|
$0
|
The
following is a summary of the items that caused recorded income
taxes to differ from taxes computed using the statutory federal
income tax rate for the years ended December 31:
|
|
2020
|
2019
|
|
Statutory federal
tax rate
|
21%
|
21%
|
|
State taxes, net of
federal benefit
|
4
|
4
|
|
Nondeductible
expenses
|
-
|
-
|
|
Valuation
allowance
|
(25)
|
(25)
|
|
Effective tax
rate
|
0%
|
0%
|
50
The
Company applies the applicable authoritative guidance which
prescribes a comprehensive model for the manner in which a company
should recognize, measure, present and disclose in its financial
statements all material uncertain tax positions that the Company
has taken or expects to take on a tax return. As of December 31,
2020, the Company has no uncertain tax positions. There are no
uncertain tax positions for which it is reasonably possible that
the total amounts of unrecognized tax benefits will significantly
increase or decrease within twelve months from December 31,
2020.
The
Company files federal income tax returns and income tax returns in
various state tax jurisdictions with varying statutes of
limitations. The Company has filed its 2019 federal and state
corporate tax returns.
The
provision for income taxes as of the dates indicated consisted of
the following (in thousands) December 31:
|
|
2020
|
2019
|
|
Current
|
$-
|
$-
|
|
Deferred
|
-
|
-
|
|
Deferred
provision (credit)
|
1,623
|
434
|
|
Change
in valuation allowance
|
(1,623)
|
(434)
|
|
Total provision for
income taxes
|
$-
|
$-
|
In 2020
and 2019, our effective tax rate differed from the U.S. federal
statutory rate due to the valuation allowance over our deferred tax
assets.
6.
STOCK OPTIONS
The
Company’s 1995 Stock Plan (the “Plan”) has
expired pursuant to its terms, so zero shares remained available
for issuance at December 31, 2020 and 2019. The Plan allowed for
the issuance of incentive stock options, nonqualified stock
options, and stock purchase rights. The exercise price of options
was determined by the Company’s board of directors, but
incentive stock options were granted at an exercise price equal to
the fair market value of the Company’s common stock as of the
grant date. Options historically granted have generally become
exercisable over four years and expire ten years from the date of
grant. As of December 31, 2020, and 2019, there were no stock
options outstanding and exercisable.
On
July 14, 2020, the Company granted 1,800,000 stock options to
employees and consultants. 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.
The
fair value of options issued during the year ended December 31,
2020 was estimated using the Black-Scholes option-pricing model and
the following assumptions:
●
a
dividend yield of 0%;
●
an
expected life of 10 years;
●
volatility
of 153.1%; and
●
risk-free
interest rate of 0.98%.
51
The
fair value of each option grant made during 2020 was estimated on
the date of each grant using the Black-Scholes option pricing model
and recognized as stock based compensation rateably over the option
vesting periods, which approximates the service
period.
The
following lists the stock options granted:
|
|
Grant
Date
|
Expiration
Date
|
Vesting
Period
|
Number of Stock
Options Granted
|
Exercise
Price
|
Black Scholes
Valuation
|
|
|
|
|
|
|
|
|
|
Cartwright,
Gene
|
07/14/2020
|
07/13/2030
|
Vesting(1)
|
400,000
|
$0.49
|
$0.483
|
|
Faupel,
Mark
|
07/14/2020
|
07/13/2030
|
Vesting(1)
|
400,000
|
$0.49
|
$0.483
|
|
Imhoff,
John
|
07/14/2020
|
07/13/2030
|
Immediate
|
50,000
|
$0.49
|
$0.483
|
|
James,
Michael
|
07/14/2020
|
07/13/2030
|
Immediate
|
50,000
|
$0.49
|
$0.483
|
|
Clavijo,
James
|
07/14/2020
|
07/13/2030
|
Vesting(1)
|
300,000
|
$0.49
|
$0.483
|
|
Battle,
Lisa
|
07/14/2020
|
07/13/2030
|
Vesting(1)
|
178,000
|
$0.49
|
$0.483
|
|
Sufka,
Melissa
|
07/14/2020
|
07/13/2030
|
Vesting(1)
|
178,000
|
$0.49
|
$0.483
|
|
Waterstreet,
Alesandra
|
07/14/2020
|
07/13/2030
|
Vesting(1)
|
178,000
|
$0.49
|
$0.483
|
|
Wells,
William
|
07/14/2020
|
07/13/2030
|
18
months
|
66,000
|
$0.49
|
$0.483
|
|
|
1,800,000
|
|
|
|||
(1) 25% immediate and
25% each year thereafter; 36 months in total
As
of December 31, 2020, the Company has issued and outstanding
options to purchase a total of 1,800,000 shares of common stock
pursuant to the plan, at a weighted average exercise price of $0.49
per share.
As
of December 31, 2020,
|
Stock options
vested
|
641,909
|
|
Stock options
unvested
|
1,158,091
|
|
Total stock options
granted at December 31, 2020
|
1,800,000
|
Stock
option activity for the year ended December 31, 2020 is as
follows:
|
|
December 31, 2020
|
|
|
|
Shares
|
Weighted Average
Exercise Price
|
|
|
|
|
|
Outstanding at
beginning of year
|
-
|
-
|
|
Options
granted
|
1,800,000
|
$0.49
|
|
Options
exercised
|
-
|
-
|
|
Options
expired/forfeited
|
-
|
-
|
|
Outstanding at end
of the period
|
1,800,000
|
$0.49
|
7.
LITIGATION AND CLAIMS
From
time to time, the Company may be involved in various legal
proceedings and claims arising in the ordinary course of business.
Management believes that the dispositions of these matters,
individually or in the aggregate, are not expected to have a
material adverse effect on the Company’s financial condition.
However, depending on the amount and timing of such disposition, an
unfavorable resolution of some or all of these matters could
materially affect the future results of operations or cash flows in
a particular year.
As of
December 31, 2020, and 2019, there was no accrual recorded for any
potential losses related to pending litigation.
52
8.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
December 2009, the Company moved its offices, which comprise its
administrative, research and development, marketing and production
facilities to 5835 Peachtree Corners East, Suite B, Peachtree
Corners, Georgia 30092. The Company leased approximately 23,000
square feet under a lease that expired in June 2017. In July 2017,
the Company leased the offices on a month to month basis. On
February 23, 2018, the Company modified its lease to reduce its
occupancy to 12,835 square feet. The fixed monthly lease expense
will be: $13,859 each month for the period beginning January 1,
2018 and ending June 30, 2018; $8,022 each month for the period
beginning April 1, 2018 and ending June 30, 2019; $8,268 each month
for the period beginning April 1, 2019 and ending June 30, 2020;
and $8,514 each month for the period beginning April 1, 2020 and
ending March 31, 2021.
On
October 27, 2020, the Company amended the lease of its offices in
Norcross, Georgia. The Company has extended the lease for sixty-two
(62) months. The lease will begin on April 1, 2021 and end on May
31, 2026. Rents for the one-year periods beginning on April 1, 2021
and ending on May 31, 2026 are: $8,824, $9,091, $9,370, $9,648,
$9,936, and $10,236. Also, the Company will pay any additional rent
for the Company’s proportionate share of basic costs and all
other charges when due and payable under the lease. These costs are
accounted for as variable costs and are not determinable at the
lease commencement date and are not included in the measurement of
the lease asset and liabilities. The landlord will abate the rent
for the first two months. In addition, the Company will have a
five-year renewal option effective June 1, 2026. The rent for the
renewal option will be based upon prevailing market rate and shall
escalate by three percent (3%). As of December 31, 2020, the right
of use asset calculated for the amended lease was
$453,322.
The
Company recognizes lease expense on a straight-line basis over the
estimated lease term and combine lease and non-lease components.
Future minimum rental payments at December 31, 2020 under
non-cancellable operating leases for office space and equipment are
as follows (in thousands):
|
Year
|
Amount
|
|
2021
|
$91
|
|
2022
|
108
|
|
2023
|
112
|
|
2024
|
115
|
|
2025
|
119
|
|
Thereafter
|
50
|
|
Total
|
595
|
|
Less:
Interest
|
147
|
|
Present value of
lease liability
|
$448
|
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).
53
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
manufacture. 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 March 5, 2020 the Company had
recorded an accrued liability for SMI of $692,335, which was
reclassified to additional paid in capital and 12,147 common stock
shares.
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 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.
9.
NOTES PAYABLE
Notes
Payable in Default
At December 31, 2020 and 2019, the Company
maintained notes payable to both related and non-related parties
totaling approximately $329,000 and $776,000, respectively. These
notes are short term, straight-line amortizing notes. The notes
carry annual interest rates between 0% and 10% and have default
rates as high as 20%. The Company is accruing interest at the
default rate of 18.0% on two of the loans. As described
in Note 4: STOCKHOLDERS’
DEFICIT, certain notes payable
in default outstanding had been exchanged for equity and cash as
described in the note.
As
described previously, the Company entered into an exchange
agreement with Dr. Imhoff. Based on this agreement the Company
exchanged $199,417 of short-term debt outstanding.
As
described previously, the Company entered into an exchange
agreement with Ms. Rosenstock. Based on this agreement the Company
exchanged $50,000 of short-term debt outstanding and Mr. Rosenstock
forgave $28,986.
On February 8, 2019, a note payable in default to
Aquarius as reported in the Company’s Form 10-K report
- Footnote 9: Notes payable
– Note payable in default, was exchanged for a note with a convertible
option. The balance on the note was $107,500 and accrued interest
was $38,044 for a total of $145,544 outstanding. As of December 31,
2020, the Company had entered into an exchange agreement with
Aquarius. Based on this agreement the Company exchanged $145,544 of
debt outstanding for: 291,088 common stock shares; 145,544 warrants
issued to purchase common stock shares at a strike price of $0.25;
and 145,544 warrants issued to purchase common stock shares at a
strike price of $0.75.
54
On
July 1, 2019, the Company entered into a loan agreement with
Accilent Capital Management Inc / Rev Royalty Income and Growth
Trust (“Accilent”), providing for the purchase by
Accilent of an unsecured promissory note in the principal amount of
$49,389 (CAD$ 65,500). The note was fully funded on July 9, 2019
(net of an 8% original issue discount and other expenses). The note
bears an interest rate of 16% and was due and payable on September
11, 2019. Following maturity, demand, default, or judgment and
until actual payment in full, interest rate shall be paid at the
rate of 19% per annum. The Company issued 315,000 warrants at an
exercise price of $0.25 per warrant and exercisable within 3 years
from issuance (the “Initial Warrants”). As of December
31, 2020, the loan had been paid off. As of December 31, 2019,
$57,946 remained outstanding, which included a fee of $4,951 and
interest of $4,606.
As
described previously, the Company entered into an exchange
agreement with Mr. Blumberg. Based on this agreement the Company
exchanged $82,320 of short-term debt outstanding.
As
described previously, the Company entered into an exchange
agreement with Mr. James. Based on this agreement the Company
exchanged $2,286 of short-term debt outstanding.
The
following table summarizes the Notes payable in default, including related
parties:
|
|
December 31,
2020
|
December 31,
2019
|
|
Dr.
Imhoff
|
$-
|
$199
|
|
Dr.
Cartwright
|
1
|
2
|
|
Ms.
Rosenstock
|
-
|
50
|
|
Mr.
Fowler
|
26
|
26
|
|
Mr.
Mermelstein
|
285
|
244
|
|
GHS
|
-
|
-
|
|
GPB
|
17
|
17
|
|
Aquarius
|
-
|
108
|
|
Accilent
|
|
58
|
|
Mr.
Blumberg
|
-
|
70
|
|
Mr.
James
|
-
|
2
|
|
Notes
payable in default
|
$329
|
$776
|
The
notes payable to related parties was $1,000 of the $329,000 balance
at December 31, 2020 and $349,000 of the $776,000 balance at
December 31, 2019.
Short
Term Notes Payable
At
December 31, 2020 and 2019, the Company maintained short term notes
payable to both related and non-related parties totaling $96,000
and $1,026,000, respectively. These notes are short term,
straight-line amortizing notes. The notes carry annual interest
rates between 5% and 19%.
As
described previously, the Company entered into an exchange
agreement with Dr. Imhoff. Based on this agreement the Company
exchanged $201,000 of short-term debt outstanding.
The
Company issued promissory notes to Mr. Cartwright and Mr. Faupel,
in the amounts of approximately $48,000 and $4,000, respectively.
The notes were initially issued with 0% interest, however interest
increased to 6.0% interest 90 days after the Company received
$1,000,000 in financing proceeds.
On
August 22, 2018, the Company issued a promissory note to Mr. Case
for $150,000 in aggregate principal amount of a 6% promissory note
for an aggregate purchase price of $157,500 (representing a $7,500
original issue discount). As of December 31, 2020, the Company had
exchanged $179,291 of debt outstanding for: 896,456 common stock
shares; and 896,455 warrants issued to purchase common stock shares
at a strike price of $0.20. As of December 31, 2019, the Company
had not repaid the note and original issue discount of $157,500
($7,500 is recorded in accrued expenses).
55
As
described previously, the Company entered into an exchange
agreement with Mr. Mamula. Based on this agreement the Company
exchanged $15,577 of short-term debt outstanding.
On
September 19, 2018, and February 15, 2019, the Company issued
promissory notes to Mr. Gould for $50,000 each in aggregate
principal amount of a 6% promissory note for an aggregate purchase
price of $52,500 each (representing a $2,500 original issue
discount). As of December 31, 2020, the Company had entered into an
exchange agreement with Mr. Gould. Based on this agreement the
Company exchanged $111,227 of debt outstanding for: 556,136 common
stock shares; and 556,136 warrants issued to purchase common stock
shares at a strike price of $0.20. As of December 31, 2019, the
Company had not repaid the note and original issue discount of
$52,500 ($2,500 is recorded in accrued expenses) and therefore the
accrued interest rate increased to 12%.
As
described previously, the Company entered into an exchange
agreement with K2 Medical. Based on this agreement the Company
exchanged $203,000 of short-term debt outstanding.
On
February 14, 2019, the Company entered into a Purchase and Sale
Agreement with Everest Business Funding for the sale of its
accounts receivable. The transaction provided the Company with
$48,735 after $1,265 in debt issuance costs (bank costs) for a
total purchase amount of $50,000, in which the Company would have
to repay $68,500. At a minimum the Company would need to pay
$535.16 per day or 20.0% of the future collected accounts
receivable or “receipts.” The effective interest rate
as calculated for this transaction is approximately 132.5%. As of
December 31, 2019, $60,105 had been paid, leaving a balance of
$8,016. As of December 31, 2020, the balance of $68,121 had been
paid in full.
In
July 2019, the Company entered into a premium finance agreement to
finance its insurance policies totaling $142,000. The note requires
monthly payments of $14,459, including interest at 4.91% and
matures in April 2020. As of December 31, 2020, the balance was
paid in full. The balance due on insurance policies totaled $57,483
at December 31, 2019.
On
July 4, 2020, the Company entered into a premium finance agreement
to finance its insurance policies totaling $109,000. The note
requires monthly payments of $11,299, including interest at 4.968%
and matures in April 2021. As of December 31, 2020, the balance was
$44,916.
As
described previously, the Company entered into an exchange
agreement with Mr. Blumberg. Based on this agreement the Company
exchanged $223,000 of short-term debt outstanding.
As
described previously, the Company entered into an exchange
agreement with Mr. Grimm. Based on this agreement the Company
exchanged $51,050 of short-term debt outstanding.
On
June 30, 2020, the Company exchanged $125,000 in debt (during June
2020, $125,000 in payables had been converted into short-term debt)
from Mr. James Clavijo, for 500,000 common stock shares and 250,000
warrants to purchase common stock shares. The fair value of the
common stock shares was $250,000 (based on a $0.50 fair value for
the Company’s stock) and of the warrants to purchase common
stock shares was $99,963 (based on a $0.40 black scholes fair
valuation). This resulted in a net loss on extinguishment of debt
of $224,963 ($349,963 fair value less the $125,000 of exchanged
debt). After the exchange transaction a balance was due Mr. Clavijo
of $10,213 which was paid.
The
following table summarizes the Short-term notes payable, including related
parties:
|
|
December
31,
2020
|
December
31,
2019
|
|
Dr.
Imhoff
|
$-
|
$167
|
|
Dr.
Cartwright
|
46
|
48
|
|
Dr.
Faupel
|
5
|
5
|
|
Ms.
Mamula
|
-
|
15
|
|
Mr.
Case
|
-
|
150
|
|
Mr.
Gould
|
-
|
100
|
|
K2
(Shenghuo)
|
-
|
203
|
|
Premium Finance
(insurance)
|
45
|
58
|
|
Everest
|
-
|
8
|
|
Mr.
Grimm
|
-
|
49
|
|
Mr.
Blumberg
|
-
|
223
|
|
Short-term
notes payable, including related parties
|
$96
|
$1,026
|
56
The
short-term notes payable past due to related parties was $51,000 of
the $96,000 balance at December 31, 2020 and $645,000 of the
$1,026,000 balance at December 31, 2019.
Troubled Debt Restructuring
The
debt extinguished for Notes Payable was $1,808,712 in debt for
common stock shares and warrants as described above that were
determined to have a total fair value of $2,235,811, resulting in a
loss on extinguishment of debt of $427,099 which is recorded in
other income (expense) on the accompanying consolidated statements
of operations. Included in that total was an amount that an
investor forgave of approximately $29,000 of debt, which was
recorded as a gain for extinguishment of debt. This debt
extinguished met the criteria for troubled debt. The basic criteria
are that the borrower is troubled, ie., they are having financial
difficulties, and a concession is granted by the creditor. Due to
the Company being in default on several of its loans the debt is
considered troubled debt. The troubled debt restructuring for Note
Payable, would have increased the loss per share calculation from
.04 to .08.
10.
SHORT-TERM CONVERTIBLE DEBT
Related
Party Convertible Note Payable – Short-Term
On
June 5, 2016, the Company entered into a license agreement with a
distributor pursuant to which the Company granted the distributor
an exclusive license to manufacture, sell and distribute the
Company’s LuViva Advanced Cervical Cancer device and related
disposables in Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar,
Philippines, Singapore, Thailand, and Vietnam. The distributor was
already the Company’s exclusive distributor in China, Macau
and Hong Kong, and the license will extend to manufacturing in
those countries as well.
As partial consideration for, and as a condition
to, the license, and to further align the strategic interests of
the parties, the Company agreed to issue a convertible note to the
distributor, in exchange for an aggregate cash investment of
$200,000. The note will provide for a payment to the distributor of
$240,000, due upon consummation of any capital raising transaction
by the Company within 90 days and with net cash proceeds of at
least $1.0 million. As of December 31, 2019, the Company had a note due of $512,719. As
of December 31, 2020, the note
had been exchanged for common stock shares and warrants. This was
part of the exchange made on January 8, 2020, for $790,544 of debt
outstanding for: 1,905,270 common stock shares issued on March 23,
2020; 496,602 warrants issued to purchase common stock shares at a
strike price of $0.20; 692,446 warrants issued to purchase common
stock shares at a strike price of $0.25; and 692,446 warrants
issued to purchase common stock shares at a strike price of
$0.75.
Troubled Debt Restructuring
The
debt extinguished for Related Party Convertible Note Payable
– Short-Term, which closed on January 8, 2020, the Company
exchanged in part $600,653 in debt for several common stock shares
and warrants as described above. The exchange resulted in a gain of
$249,938. This debt extinguished 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. Due to the Company being in default on several of
its loans the debt is considered troubled debt. The troubled debt
restructuring for Related Party Convertible Note Payable –
Short-Term, would have reduced the loss per share calculation from
.04 to .01.
57
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 matures
December 17, 2021 and 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. In connection with the first tranche
of $700,000, the Company issued to 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 and was $635,000
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. On May 27, 2020,
the second tranche of $400,000 was received. 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. The last two tranches will have warrants attached. As of
December 31, 2020, and 2019, $700,000 remained outstanding and
accrued interest of $73,889 and $2,722, respectively. Further, as
December 31, 2020 and 2019, the Company had unamortized debt
issuance costs of $33,854 and $64,000, respectively and an
unamortized debt discount on warrants of $330,729, and $621,271,
respectively and providing a net balance of $501,989 and $12,007,
respectively. The Company also recorded a liability for the fair
value of derivative liability in the amount of $25,000 as of
December 31, 2020.
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 notes
maturity date is December 17, 2021 and an interest 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
December 31, 2020, $400,000 remained outstanding and accrued
interest of $24,222. Further, as of December 31, 2020, the Company
had unamortized debt issuance costs of $47,086, providing a net
balance of $352,914.
The
total outstanding balance for the first two tranches outstanding as
of December 31, 2020, was approximately $1,100,000.
In
addition, the Company determined that the conversion option needed
to be bifurcated from the debt arrangement and will be valued at
fair value each reporting period. The initial value at the date of
issuance deemed to be $0 due to the presence of the $0.15 floor
price. As of December 31, 2020, the Company calculated an intrinsic
value of the bifurcation to be $8,425.
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 March 31, 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 matures 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 made
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 December 31, 2020, the
note outstanding was $112,750, which consisted of unamortized
balance of $8,424 of a beneficial conversion feature, unamortized
original issue discount of $5,100, unamortized debt issuance costs
of $5,517 and interest of $10,260 included in accrued expenses on
the accompanying consolidated balance sheet.
58
Other Short-Term Convertible Notes Payable
On
May 15, 2019, the Company entered into a securities purchase
agreement with Eagle Equities, LLC, providing for the purchase by
Eagle of a convertible redeemable note in the principal amount of
$57,750. The note was fully funded on May 21, 2019, upon which the
Company received $45,000 of net proceeds (net of a 10% original
issue discount and other expenses). The note bears an interest rate
of 8% is due and payable on May 15, 2020. The note may be converted
by Eagle at any time after five months from issuance into shares of
the Company common stock (as determined in the notes) calculated at
the time of conversion. The conversion price of the notes will be
equal to 60% of the average of the two lowest closing bid prices of
the Company’s common stock shares as reported on OTC Markets
exchange, for the 20 prior trading days including the day upon
which the Company receives a notice of conversion. The notes may be
prepaid in accordance with the terms set forth in the notes. The
notes also contain certain representations, warranties, covenants
and events of default including if the Company are delinquent in
our periodic report filings with the SEC and increases in the
amount of the principal and interest rates under the notes in the
event of such defaults. In the event of default, at Eagle’s
option and in its sole discretion, Eagle may consider the notes
immediately due and payable. During 2020, Eagle provided a
forbearance to the Company on the default after a payment was made.
On May 15, 2019, the Company had recorded a $38,500 beneficial
conversion feature, $5,250 original issue discount and $7,500 of
debt issuance costs. As of December 31, 2019, the outstanding note
was for $25,651, which consisted of unamortized balance of $14,438
of a beneficial conversion feature, unamortized original issue
discount of $1,942, unamortized debt issuance costs of $2,774 and
interest of $1,166 included in accrued expenses on the accompanying
consolidated balance sheet. On May 14, 2020, the outstanding note
was paid off.
On
May 15, 2019, the Company entered into a securities purchase
agreement with Adar Bays, LLC, providing for the purchase by Adar
of a convertible redeemable note in the principal amount of
$57,750. The note was fully funded on May 21, 2019, upon which the
Company received $45,000 of net proceeds (net of a 10% original
issue discount and other expenses). The note bears an interest rate
of 8% and are due and payable on May 15, 2020. The note may be
converted by Adar at any time after five months from issuance into
shares of the Company common stock (as determined in the notes)
calculated at the time of conversion. The conversion price of the
notes will be equal to 60% of the average of the two lowest closing
bid prices of the Company’s common stock shares as reported
on OTC Markets exchange, for the 20 prior trading days including
the day upon which the Company receives a notice of conversion. The
notes may be prepaid in accordance with the terms set forth in the
notes. The notes also contain certain representations, warranties,
covenants and events of default including if the Company are
delinquent in our periodic report filings with the SEC and
increases in the amount of the principal and interest rates under
the notes in the event of such defaults. In the event of default,
at Adar’s option and in its sole discretion, Adar may
consider the notes immediately due and payable. During 2020, Adar
provided a forbearance to the Company on the default after a
payment was made. On May 15, 2019, the Company had recorded a
$38,500 beneficial conversion feature, $5,250 original issue
discount and $7,500 of debt issuance costs. As of December 31,
2019, the note outstanding increased to $84,780 as a default
penalty of $27,030 was added to the outstanding balance of the
note, which consisted of unamortized balance of $14,438 of a
beneficial conversion feature, unamortized original issue discount
of $1,942, unamortized debt issuance costs of $2,774 and interest
of $3,190 included in accrued expenses on the accompanying
consolidated balance sheet. On May 22, 2020, the outstanding note
was paid off.
The
following table summarizes the Convertible notes payable –
short-term:
|
|
December
31,
2020
|
December
31,
2019
|
|
Shenghuo
|
$-
|
$513
|
|
Auctus
|
1,213
|
-
|
|
Eagle
|
-
|
26
|
|
Adar
|
-
|
85
|
|
Debt discount and
issuance costs to be amortized
|
(262)
|
(9)
|
|
Debt discount
related to beneficial conversion
|
-
|
(29)
|
|
Convertible
notes payable – short-term, including related
parties
|
$951
|
$586
|
11.
CONVERTIBLE DEBT
Senior Secured Promissory Note
Effective
February 12, 2016, the Company entered into a securities purchase
agreement with GPB Debt Holdings II LLC (“GPB”) for the
issuance of a $1,437,500 senior secured convertible note for an
aggregate purchase price of $1,029,000 (representing an original
issue discount of $287,500 and debt issuance costs of $121,000). On
May 28, 2016, the balance of the note was increased by $87,500 for
a total principal balance of $1,525,000. On December 7, 2016, the
Company entered into an exchange agreement with GPB and as a result
the principal balance increased by a transfer $312,500 (see –
“Senior Secured Promissory Note”) for a total principal
balance of $1,837,500. In addition, GPB received warrants for 2,246
shares of the Company’s common stock. The Company allocated
proceeds totaling $359,555 to the fair value of the warrants at
issuance and recorded an additional discount on the debt. The
warrant is exercisable at any time, pending availability of
sufficient authorized but unissued shares of the Company’s
common stock, at an exercise price per share equal to the
conversion price of the convertible note, subject to certain
customary adjustments and anti-dilution provisions contained in the
warrant. The warrant has a five-year term. At December 31, 2019,
the common stock purchase warrant exercise price had been adjusted
to $0.04 and the number of common stock shares exchangeable for was
35,937,500.
59
As
of December 31, 2020, and as a result of the January 15, 2020
exchange agreement, the common stock purchase warrant exercise
price had been adjusted to $0.20 and the number of common stock
shares exchangeable for was 7,185,000. This exchange is subject to
the Company meeting repayment conditions. Those conditions involved
in part the repayment of $450,000, $100,000 and $950,000 for the
completion of each Auctus financing tranche. The Company has
executed Tranche 1 and 2 and has paid GPB $550,000. On September 2,
2020, the Company made a payment of $50,000, which provided the
Company an additional four-month forbearance as well as paying and
additional $150,000 to reduce the balance outstanding. On January
8, 2021, the Company made the final payment of $750,000 as required
by this exchange agreement with GPB.
The
convertible note required monthly interest payments at a rate of
17% per year and was due on February 12, 2018. Subject to resale
restrictions and the availability of sufficient authorized but
unissued shares of the Company’s common stock, the note is
convertible at a conversion price equal to 70% of the average
closing price per share for the five trading days prior to
issuance. In an event of default, the note will accrue interest at
a rate of 22%. Upon the occurrence of an event of default, the
holder may require the Company to redeem the convertible note at
120% of the outstanding principal balance, but as of December 31,
2020 and 2019, had not done so. The note is secured by a lien on
substantially all of the Company’s assets.
In
connection with the transaction, on February 12, 2016, the Company
and GPB entered into a four-year consulting agreement, pursuant to
which the investor will provide management consulting services to
the Company in exchange for a royalty payment, payable quarterly,
equal to 3.85% of the Company’s revenues from the sale of
products. As of December 31, 2020, and 2019, GPB had earned
approximately $35,000 and $31,000 in royalties that are unpaid,
respectively. Based on the exchange agreement GPB will no longer
earn royalties.
As
of December 31, 2020, the balance due on the convertible debt was
$1,709,414, consisting of principal of $1,362,384 and a prepayment
penalty of $347,030 and compared to December 31, 2019, where the
balance due on the convertible debt was $2,177,030 consisting of
principal of $1,830,000 and a prepayment penalty of $347,030.
Interest accrued on the note total $1,233,637 and $1,175,925 at
December 31, 2020 and 2019, respectively, and is included in
accrued expenses on the accompanying consolidated balance
sheet.
The
Company used a placement agent in connection with the transaction.
For its services, the placement agent received a cash placement fee
equal to 4% of the aggregate gross proceeds from the transaction
and a warrant to purchase shares of common stock equal to an
aggregate of 6% of the total number of shares underlying the
securities sold in the transaction, at an exercise price equal to,
and terms otherwise identical to, the warrant issued to the
investor. Finally, the Company agreed to reimburse the placement
agent for its reasonable out-of-pocket expenses.
Secured Promissory Note
Effective
September 10, 2014, the Company sold a secured promissory note to
an accredited investor, GHS Investments, LLC (“GHS”),
with an initial principal amount of $1,275,000, for a purchase
price of $570,000 (less an original issue discount of $560,000 and
debt issuance costs of $145,000). The note is secured by the
Company’s current and future accounts receivable and
inventory and accrued interest at a rate of 18% per year. The note
has subsequently been assigned to different credited investors and
the terms of the note were amended extend the maturity until August
31, 2016. The balance of this note was reduced by a transfer of
$306,863 as part of a debt restructuring that occurred on December
7, 2016 (see – “Senior Secured Promissory Note”).
The holder may convert the outstanding balance into shares of
common stock at a conversion price per share equal to 75% of the
lowest daily volume average price of common stock during the five
days prior to conversion. During 2020, GHS converted $50,454 of
principal and interest for 175,000 common stock shares. In
addition, during 2020, as part of the conversion of the outstanding
note, the Company paid $134,133 in cash for principal and interest
that remained outstanding. As of December 31, 2020, the note was
paid in full. The balance due on the note was $148,223 at December
31, 2019.
Other Convertible Debt
GHS
Effective
May 19, 2017, the Company entered into a securities purchase
agreement with GHS for the purchase of a $66,000 convertible
promissory note for the purchase of $60,000 in net proceeds
(representing a 10% original issue discount of $6,000). The accrued
interest rate of 8% per year until it matured in December 31, 2017.
Beginning February 2018, the note is convertible, in whole or in
part, at the holder’s option, into shares of the
Company’s stock at a conversion price equal to 60% of the
lowest trading price during the 25 trading days prior to
conversion. Upon the occurrence of an event of default, the note
will bear interest at a rate of 20% per year and the holder of the
note may require the Company to redeem or convert the note at 150%
of the outstanding principal balance. GHS converted $12,700 of
principal and accrued interest during the year ended December 31,
2019. On December 16, 2020, the Company paid $25,000 on the note
balance. At December 31, 2020 and 2019, the balance due on this
note was $63,520 and $83,094, respectively including a default
penalty of $37,926. Interest accrued on the note totals $17,816,
and $16,641 at December 31, 2020 and 2019, and is included in
accrued expenses on the accompanying consolidated balance sheet,
respectively.
60
Effective
May 17, 2018, the Company entered into a securities purchase
agreement with GHS for the purchase of a convertible promissory
note with a principal of $9,250 for a purchase price of $7,500
(representing an original issue discount of $750 and debt issuance
costs of $1,000). The note accrued interest at a rate of 8% per
year until its matured June 17, 2019. Beginning February 2018, the
note is convertible, in whole or in part, at the holder's option,
into shares of the Company's stock at a conversion price equal to
70% of the lowest trading price during the 25 trading days prior to
conversion (if the note cannot be converted due to Depository Trust
Company freeze then rate decreases to 60%). Upon the occurrence of
an event of default, the note will bear interest at a rate of 20%
per year and the holder of the note may require the Company to
redeem or convert the note at 150% of the outstanding principal
balance. At December 31, 2020 and 2019, the balance due on this
note was $14,187, including a default penalty of $4,937. Interest
accrued on the note totals $5,006 and $3,972 at December 31, 2020
and 2019, respectively, and is included in accrued expenses on the
accompanying consolidated balance sheet.
Effective
June 22, 2018, the Company entered into a securities purchase
agreement with GHS for the purchase of a $68,000 convertible
promissory note for a purchase price of $60,000 (representing an
original issue discount of $6,000 and debt issuance costs of
$2,000). At issuance, the Company recorded a $29,143 beneficial
conversion feature, which was fully amortized at December 31, 2019.
The accrued interest at a rate of 10% per year until it matured on
June 22, 2019. Beginning May 2019, the note is convertible, in
whole or in part, at the holder's option, into shares of the
Company's stock at a conversion price equal to 70% of the lowest
trading price during the 25 trading days prior to conversion (if
the note cannot be converted due to Depository Trust Company freeze
then rate decreases to 60%). Upon the occurrence of an event of
default, the note will bear interest at a rate of 20% per year and
the holder of the note may require the Company to redeem or convert
the note at 150% of the outstanding principal balance. At December
31, 2020 and 2019, the balance due on this note was $103,285,
including a default penalty of $35,285. Interest accrued on the
note totals $39,644 and $29,287 at December 31, 2020 and 2019,
respectively, and is included in accrued expenses on the
accompanying consolidated balance sheet.
Auctus
On
May 22, 2020, the Company entered into an exchange agreement with
Auctus. Based on this agreement the Company exchanged three
outstanding notes, in the amounts of $150,000, $89,250, and $65,000
for a total amount $328,422 of debt outstanding, as well as any
accrued interest and default penalty, for: $160,000 in cash
payments (payable in monthly payments of $20,000), converted a
portion of the notes pursuant to original terms of the notes into
500,000 restricted common stock shares (shares were issued on June
3, 2020); and 700,000 warrants issued to purchase common stock
shares at a strike price of $0.15. The fair value of the common
stock shares was $250,000 (based on a $0.50 fair value for the
Company’s stock) and of the warrants to purchase common stock
shares was $196,818 (based on a $0.281 black scholes fair
valuation). During the year ended December 31, 2020, the Company
paid $100,000 to reduce the outstanding balance. As of December 31,
2020, a balance of $40,000 remained to be paid for these exchanged
loans.
Auctus notes exchanged in the May 22, 2020 transaction
Effective
March 20, 2018, the Company entered into a securities purchase with
Auctus Fund, LLC ("Auctus") for the issuance of a $150,000
convertible promissory note and warrants exercisable for 4,262
shares of the Company's common stock. At issuance, the Company
recorded a $97,685 beneficial conversion feature, which was fully
amortized at December 31, 2018. The warrants are exercisable at any
time, at an exercise price equal to $0.04 per share, subject to
certain customary adjustments and price-protection provisions
contained in the warrant. The warrants have a five-year term. The
note accrued interest at a rate of 12% per year until it matured in
December 2018. Beginning December 2018, the note is convertible, in
whole or in part, at the holder's option, into shares of the
Company's stock at a conversion price equal to 60% of the lowest
trading price during the 20 trading days prior to conversion. Upon
the occurrence of an event of default, the note will bear interest
at a rate of 24% per year and the holder of the note may require
the Company to redeem or convert the note at 150% of the
outstanding principal balance. On May 22, 2020, the default penalty
and outstanding interest was exchanged as described in the
preceding paragraph. At December 31, 2019, the balance due on this
total was $192,267, including a default penalty of $70,931,
respectively. Interest accrued on the note totals $45,629 at
December 31, 2019, and is included in accrued expenses on the
accompanying consolidated balance sheet. Auctus converted nil and
$14,236 of principal and accrued interested during year ended
December 31, 2020 and 2019, respectively. During the year ended
December 31, 2020, the Company paid $100,000 to reduce the
outstanding balance. As of December 31, 2020, a balance of $40,000
remained to be paid for these exchanged loans.
61
Effective
July 3, 2018, the Company entered into a securities purchase with
Auctus for the issuance of a $89,250 convertible promissory note.
At issuance, the Company recorded a $59,000 beneficial conversion
feature, which was fully amortized at December 31, 2019. The note
accrued interest at a rate of 12% per year until it matured in
April 2019. Beginning April 2019, the note is convertible, in whole
or in part, at the holder's option, into shares of the Company's
stock at a conversion price equal to 60% of the lowest trading
price during the 20 trading days prior to conversion. Upon the
occurrence of an event of default, the note will bear interest at a
rate of 24% per year and the holder of the note may require the
Company to redeem or convert the note at 150% of the outstanding
principal balance. At December 31, 2019, the balance due on this
total was $90,641, including a default penalty of $56,852. Interest
accrued on the note totals $16,436 at December 31, 2019, and is
included in accrued expenses on the accompanying consolidated
balance sheet. At December 31, 2020, the balance due on this note
was nil.
Effective
March 29, 2019, the Company entered into a securities purchase with
Auctus for the issuance of a $65,000 convertible promissory note.
At issuance, the Company recorded a $65,000 beneficial conversion
feature, which was fully amortized at December 31, 2019. The note
accrued interest at a rate of 12% until it matured in December
2019. Beginning December 2019, the note is convertible, in whole or
in part, at the holder's option, into shares of the Company's stock
at a conversion price equal to 50% of the lowest trading price
during the 25 trading days prior to conversion. Upon the occurrence
of an event of default, the note will bear interest at a rate of
24% per year and the holder of the note may require the Company to
redeem or convert the note at 150% of the outstanding principal
balance. At December 31, 2019, the balance due on this total was
$106,210, including a default penalty of $41,210. Interest accrued
on the note totaled $142 at December 31, 2019 and is included in
accrued expenses on the accompanying consolidated balance sheet. At
December 31, 2020, the balance due on this note was
nil.
The following table summarizes
the Convertible notes (including
debt in default):
|
|
December 31,
2020
|
December 31,
2019
|
||
|
GPB
|
$1,709
|
$1,709
|
$2,177
|
$2,177
|
|
GHS
|
-
|
|
149
|
|
|
|
64
|
|
83
|
|
|
|
14
|
|
14
|
|
|
|
103
|
181
|
103
|
349
|
|
Auctus
|
40
|
|
192
|
|
|
|
-
|
|
91
|
|
|
|
-
|
|
106
|
|
|
|
-
|
40
|
-
|
389
|
|
Convertible
notes, past due (including debt in default)
|
|
$1,930
|
|
$2,915
|
The
convertible notes payable, past due was $1,930,000 at December 31,
2020 and the convertible notes in default was the total balance of
$2,915,000 at December 31, 2019.
Troubled Debt Restructuring
The
debt restructured for Convertible Debt, which closed on January 15,
2020, the Company restructured several re-payment plans as
described above and in addition cancelled warrants and issued new
warrants as part of the restructure. The debt exchanged with Auctus
of $328,422 for 500,000 common stock shares resulted in a $118,396
loss. This debt restructure 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 troubled debt restructuring for Convertible Debt,
would have increased the loss per share calculation from .04 to
.05.
12.
LONG-TERM DEBT
Long-term Debt – Related Parties
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. The
modification also included simple interest at a 6% rate, with the
principal and accrued interest due in total at the date of maturity
or September 4, 2021, the terms are currently being updated and an
amended modification is expected to be completed.
62
During
the quarter ended September 30, 2018, the Company entered into an
exchange agreement dated July 14, 2018, Dr Faupel, agreed to
exchange outstanding amounts due to him for loans, interest, bonus,
salary and vacation pay in the amount of $661,000 for a $207,000
promissory note dated September 4, 2018. As a result of the
exchange agreement, the Company recorded a gain for extinguishment
of debt of $199,000 and a capital contribution of $235,000 during
the year ended December 31, 2018. The resulting difference of
$20,000 was recorded to accrued interest. In the July 20, 2018
exchange agreement, Dr, Cartwright, agreed to exchange outstanding
amounts due to him for loans, interest, bonus, salary and vacation
pay in the amount of $1,621,000 for a $319,000 promissory note
dated September 4, 2018. As a result of the exchange agreement, the
Company recorded a gain for extinguishment of debt of $840,000 and
a capital contribution of $432,000 during the year ended December
31, 2018. The resulting difference of $30,000 was recorded to
accrued interest and elimination of debt.
Troubled Debt Restructuring
The
debt extinguished for Mr. Cartwright and Mr. Faupel meet 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. Due to the Company
being in default on several of its loans the debt is considered
troubled debt. The troubled debt restructuring for Long-term Debt
– Related Parties, had an immaterial effect on the
Company’s basic or diluted earnings per share calculation for
December 31, 2020 and 2019 as the gain was recorded in
2018.
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 during the quarter ended September 30, 2018
|
(454)
|
|
Promissory
note dated September 4, 2018
|
$207
|
|
Interest
accrued through December 31, 2019
|
17
|
|
Balance
outstanding at December 31, 2019
|
$224
|
|
Interest
accrued through December 31, 2020
|
12
|
|
Balance
outstanding at December 31, 2020
|
$236
|
For
Dr. Cartwright:
|
Salary
|
$337
|
|
Bonus
|
675
|
|
Interest on
compensation
|
59
|
|
Loans to
Company
|
528
|
|
Interest on
loans
|
22
|
|
Total
outstanding prior to exchange
|
$1,621
|
|
Amount
forgiven during the quarter ended September 30, 2018
|
(1,302)
|
|
Promissory
note dated September 4, 2018
|
$319
|
|
Interest
accrued through December 31, 2019
|
26
|
|
Balance
outstanding at December 31, 2019
|
$345
|
|
Interest
accrued through December 31, 2020
|
19
|
|
Balance
outstanding at December 31, 2020
|
$364
|
On
February 19, 2021, the Company entered into a new promissory note
replacing the original note 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%. 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%.
63
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 F Preferred Stock,
respectively.
Future
debt obligations at December 31, 2020 for Long-term Debt –
Related Parties are as follows (in thousands):
|
Year
|
Amount
|
|
2021
|
$-
|
|
2022
|
200
|
|
2023
|
215
|
|
Totals
|
$415
|
Long-term debt
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 December 31,
2020, the outstanding balance was $50,477 including $293 in accrued
interest. The Company has applied to have the loan
forgiven.
13.
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 and Series E convertible 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.
64
|
In thousands
|
December 31,
|
||
|
|
2020
|
2019
|
|
|
|
|
|
|
|
Net loss
|
$( 401)
|
$( 1,921)
|
|
|
Basic weighted average number of shares outstanding
|
10,767
|
3,302
|
|
|
Net income (loss) per share (basic)
|
$(0.04)
|
$(0.58)
|
|
|
Diluted weighted average number of shares outstanding
|
80,545
|
3,302
|
|
|
Net income (loss) per share (diluted)
|
$(0.04)
|
$(0.58)
|
|
|
|
|
|
|
|
Dilutive equity instruments (number of equivalent
units):
|
|
|
|
|
Stock options
|
-
|
-
|
|
|
Preferred stock
|
-
|
-
|
|
|
Convertible debt
|
62,095
|
39,636
|
|
|
Warrants
|
7,683
|
30,208
|
|
|
Total Dilutive instruments
|
69,778
|
73,144
|
|
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 anit-dilutive.
14. SUBSEQUENT
EVENTS
GPB
On January 8, 2021, the
Company made the final payment of $750,000 out of the total
$1,500,000 as required by this exchange agreement with GPB. On
March 31, 2021, the Company issued 2,236 series F preferred stock
shares in accordance with the terms of the agreement (see
NOTE
11: CONVERTIBLE DEBT).
GHS
On
January 29, 2021, the Company paid GHS $40,000 per the agreement to
reduce the outstanding debt.
Series F Convertible Preferred Stock
During
January and February 2021, the Company entered into a Security
Agreement with the Series F Investors (the “Series F Security
Agreement”) pursuant to which all obligations under the
Series F Certificate of Designation are secured by all of the
Company’s assets and personal properties, with certain
accredited investors. In total, for $1,944,000 the Company issued
1,944 shares of Series F Preferred Stock. Each Series F Preferred
Stock is convertible into 4,000 common stock shares. The Series F
Preferred Stock will have cumulative dividends at the rate per
share of 6% per annum. The stated value and liquidation preference
on the Series F Preferred Stock is $1,944.
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 F Preferred Stock,
respectively.
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.
65
Powerup
(Series G Callable 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 F 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.
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.
Other matters
On
February 19, 2021, the Company entered into a new promissory note
replacing the original note 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%. 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%.
On
February 22, 2021, the Company based on a past agreement with Mr.
Blumberg, was required to issuance 1,250,000 2-year warrants with
an exercise price of $0.25, when the 30-day vwap reached
$0.50.
On
March 2, 2021, the Company agreed to pay a fee to Aspen Capital
Corporation for investor relations. Aspen would receive a fee of
$49,0000, payable in cash of $24,500 and 98,000 common stock
shares. In addition, they would receive 196,000 three year warrants
to purchase common stock shares at an exercise price of $0.25 and
expiring on March 4, 2024.
On
March 10, 2021, the Company entered into a consulting agreement
with Richard Blumberg. The consulting agreement requires Mr.
Blumberg to provide $350,000 to the Company and additional
consulting services in exchange for the following: (1) 900,000
3-year warrants with an exercise price of $0.30 and 400,000 common
stock shares; (2) 900,000 3-year warrants with an exercise price of
$0.40 and 400,000 common stock shares; (3) 900,000 3-year warrants
with an exercise price of $0.50 and 400,000 common stock shares;
and (4) 900,000 3-year warrants with an exercise price of $0.60 and
400,000 common stock shares. Based on this agreement the Company
will record compensation expense of $3,144,400. In addition,
$88,000 in accrued consulting fees for Mr. Blumberg will be
converted into 88 series F preferred stock shares.
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 will exchange the amount owed of
$546,214 for 20 Series F Preferred Shares (convertible into 200,000
common stock shares), a $150,000 unsecured note and Mr. Fowler will
remain on our health insurance plan. The unsecured note of $150,000
will have a four year term, with monthly payments scheduled to
begin on March 15, 2022, and then monthly on the 15th thereafter,
in the amount of $3,600 and accruing interest at a rate of 6%. The
unsecured note will be in default on the 20th of the month. The
amount forgiven by Mr. Fowler was $346,214. In addition, the
Company will reimburse Mr. Fowler for $4,325.42 of accrued
expenses. The Company will also begin repaying two outstanding
notes totaling $45,118 in principal and interest on April 15, 2021.
The notes will be combined into one note with a payment of $3,850
per month and have an interest rate of 6%, if the notes go into
default the interest will be 18%.
66
Item
9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
Item
9A. Controls and
Procedures
We
maintain a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) is recorded, processed,
summarized, and reported, within the time periods specified in
Securities and Exchange Commission (“Commission”) rules
and forms. We carried out an evaluation under the supervision and
with the participation of our management, including the Chief
Executive Officer/Acting Chief Financial Officer, Gene Cartwright,
of the effectiveness of its disclosure controls and procedures.
Based on that evaluation, the Chief Executive Officer/Acting Chief
Financial Officer has concluded that our disclosure controls and
procedures were ineffective as of December 31, 2020, due to the
existence of a material weakness in our internal control over
financial reporting, described below, that we have yet to fully
remediate.
Management’s
Annual Report on Internal Control over Financial Reporting: Our
management, including our Chief Executive Officer/Acting Chief
Financial Officer, is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is a process designed by, or under
the supervision of, our Chief Executive Officer/Chief Financial
Officer and implemented by our board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and
procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorization
of our management and directors; and (ii) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements. Because of their
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Under
the supervision and with the participation of our management,
including our Principal Executive Officer/Principal Financial
Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the 2013 version
of the Internal Control – Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.
Based
on our evaluation, our management concluded that our internal
control over financial reporting was ineffective as of December 31,
2020, due to the existence of the material weakness described
below:
The
Company lacks the resources to properly research and account for
complex transactions. This deficiency has resulted in a material
weakness in our internal control over financial
reporting.
This
annual report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by our independent registered public
accounting firm pursuant to rules of the Commission that permit
non-accelerated filers to provide only the management’s
report in their annual reports on Form 10-K.
Except
as described above, there were no changes to the Company’s
internal controls over financial reporting occurred during the year
ended December 31, 2020 that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Item
9B. Other Information
None.
67
PART III
Item
10. Directors, Executive Officers and
Corporate Governance
Our
executive officers are elected by and serve at the discretion of
our board of directors. The following table lists information about
our directors and executive officers:
|
Name
|
Age
|
Position with Guided Therapeutics
|
|
Gene
S. Cartwright, Ph.D.
|
66
|
Chief
Executive Officer, President, Acting Chief Financial Officer and
Director
|
|
Mark
Faupel, Ph.D.
|
65
|
Chief
Operating Officer and Director
|
|
Richard
P. Blumberg
|
64
|
Director
|
|
|
|
|
|
John
E. Imhoff, M.D.
|
71
|
Director
|
|
Michael
C. James
|
62
|
Chairman
and Director
|
|
Richard
L. Fowler
|
64
|
Senior
Vice President of Engineering
|
Except
as set forth below, all of the executive officers have been
associated with us in their present or other capacities for more
than the past five years. Officers are elected annually by the
board of directors and serve at the discretion of the board. There
are no family relationships among any of our executive officers and
directors.
Gene S. Cartwright, Ph.D. joined us in
January 2014 as the President, Chief Executive Officer and Acting
Chief Financial Officer. He was elected as a director on January
11, 2014. His most recent position was with Omnyx, LLC, a Joint
Venture between GE Healthcare and the University of Pittsburgh
Medical Center, where, as CEO for over four years he founded and
managed the successful development of products for the field of
Digital Pathology. Prior to his work with Omnyx, LLC, he was
President of Molecular Diagnostics for GE Healthcare. Prior to GE,
Dr. Cartwright was Divisional Vice President/General Manager for
Abbott Diagnostics’ Molecular Diagnostics business. In his
24-year career at Abbott, he also served as Divisional Vice
President for U.S. Marketing for five years. He received a Master
of Management degree from Northwestern’s Kellogg School of
Management and also holds a Ph.D. in chemistry from Stanford
University and an AB from Dartmouth College.
Dr.
Cartwright brings over 30 years of experience working in the IVD
diagnostics industry. He has great experience in the diagnostics
market both in the development and introduction of new diagnostics
technologies, as well as extensive successful commercial experience
with global businesses. With his background and experience, Dr.
Cartwright, as President and Chief Executive Officer, as well as
Acting Chief Financial Officer, works with and advises the board as
to how we can successfully market and build LuViva international
sales.
Mark Faupel, Ph.D., rejoined us as
Chief Operating Officer and director on December 8, 2016. He
previously served on our board of directors through 2013 and has
more than 30 years of experience in developing non-invasive
alternatives to surgical biopsies and blood tests, especially in
the area of cancer screening and diagnostics. Dr. Faupel was one of
our co-founders and also served as our Chief Executive Officer from
May 2007 through 2013. Prior thereto was our Chief Technical
Officer from April 2001 to May 2007. Dr. Faupel has served as a
National Institutes of Health reviewer, is the inventor on 26 U.S.
patents and has authored numerous scientific publications and
presentations, appearing in such peer-reviewed journals as The
Lancet. Dr. Faupel earned his Ph.D. in neuroanatomy and physiology
from the University of Georgia. Dr. Faupel is also a shareholder of
Shenghuo Medical, LLC. See Item 13, Certain Relationships and
Related Transactions and Director Independence
John E. Imhoff, M.D. has served as a
member of our Board of Directors since April 2006. Dr. Imhoff is an
ophthalmic surgeon who specializes in cataract and refractive
surgery. He is one of our principal stockholders and invests in
many other private and public companies. He has a B.S. in
Industrial Engineering from Oklahoma State University, an M.D. from
the University of Oklahoma and completed his ophthalmic residency
at the Dean A. McGee Eye Institute. He has worked as an ophthalmic
surgeon and owner of Southeast Eye Center since 1983.
Dr.
Imhoff has experience in clinical trials and in other technical
aspects of a medical device company. His background in industrial
engineering is especially helpful to us, especially as Dr. Imhoff
can combine this knowledge with clinical applications. His
experience in the investment community is invaluable to a public
company often undertaking capital raising efforts.
68
Michael C. James has served as
a member of our Board of Directors since March 2007 and as Chairman
of the Board since October 2013. Mr. James is also the Managing
Partner of Kuekenhof Capital Management, LLC, a private investment
management company, Chief Executive Officer and the Chief Financial
Officer of Inergetics, Inc., a nutraceutical supplements company
and also the Chief Financial Officer of Terra Tech Corporation,
which is a hydroponic and agricultural company. He also holds the
position of Managing Director of Kuekenhof Equity Fund, L.P. and
Kuekenhof Partners, L.P. Mr. James currently sits on the Board of
Directors of Inergetics; Inc. Mr. James was Chief Executive
Officer of Nestor, Inc. from January 2009 to September 2009
and served on their Board of Directors from July 2006 to June 2009.
He was employed by Moore Capital Management, Inc., a private
investment management company from 1995 to 1999 and held position
of Partner. He was employed by Buffalo Partners, L.P., a private
investment management company from 1991 to 1994 and held the
position of Chief Financial and Administrative Officer. He began
his career in 1980 as a staff accountant with Eisner LLP. Mr. James
received a B.S. degree in Accounting from Farleigh Dickinson
University in 1980.
Mr.
James has experience both in the areas of company finance and
accounting, which is invaluable to us during financial audits and
offerings. Mr. James has extensive experience in the management of
both small and large companies and his entrepreneurial background
is relevant as we develop as a company.
Richard P. Blumberg was appointed to
the Board of Directors on November 10, 2016 and resigned on March
27, 2019, but was reappointed on September 1, 2020. Mr. Blumberg
has been a long-time investor in the Company. Since 1978, Mr.
Blumberg has been a Principal at Webster, Mrak & Blumberg, a
medical-legal and class action labor litigation firm. He is also
currently a Managing Member of K2 Medical, LLC formerly known as
Shenghuo Medical, LLC (“Shenghuo”), a company with
licensing rights in several Asian countries for the Company’s
LuViva Advanced Cervical Scan, and is a Managing Member of Elysian
Medical, LLC, a company with world-wide rights for certain breast
cancer detection technology. He served from 2004 to 2007 as Chief
Executive Officer of Energy Logics, a wind power company that
developed projects in Alberta, Canada and Montana. Mr. Blumberg
holds a B.S. in Electrical Engineering and Computer Science from
the University of Illinois and received a J. D. from Stanford
University. He also brings extensive experience as a venture
capitalist specializing in high-tech and life science
companies.
Rick Fowler, Senior Vice President of Engineering is an
accomplished Executive with significant experience in the
management of businesses that sell, market, produce and develop
sophisticated medical devices and instrumentation. Mr.
Fowler’s 25 plus years of experience includes assembling and
managing teams, leading businesses and negotiating contracts,
conducting litigation, and developing ISO, CE, FDA QSR, GMP and GCP
compliant processes and products. He is adept at providing product
life cycle management through effective process definition and
communication - from requirements gathering, R&D feasibility,
product development, product launch, production startup and
support. Mr. Fowler combines outstanding analytical,
out-of-the-box, and strategic thinking with strong leadership,
technical, and communication skills and he excels in dynamic,
demanding environments while remaining pragmatic and focused. He is
able to deliver high risk projects on time and under budget as well
as enhance operational effectiveness through outstanding
cross-functional team leadership (R&D, marketing, product
development, operations, quality assurance, sales, service, and
finance). In addition, Mr. Fowler is well versed in global medical
device regulatory and product compliance requirements. Mr. Fowler
became a consultant in 2020, but retained his
title.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers and persons who beneficially
own more than 10% of a registered class of our equity securities to
file reports of ownership and reports of changes in ownership with
the Securities and Exchange Commission. These persons are required
by regulations of the Securities and Exchange Commission to furnish
us with copies of all Section 16(a) forms they file.
Based
solely on our review of the copies of these forms received by us,
we believe that, with respect to fiscal year 2020, our officers,
directors were in compliance with all applicable filing
requirements.
Code
of Ethics
We have
adopted a code of ethics that applies to all of our directors,
officers and employees. To obtain a copy without charge, contact
our Corporate Secretary, Guided Therapeutics, Inc., 5835 Peachtree
Corners East, Suite B, Norcross, Georgia 30092. If we amend our
code of ethics, other than a technical, administrative or
non-substantive amendment, or we grant any waiver, including any
implicit waiver, from a provision of the code that applies to our
principal executive officer, principal financial officer, principal
accounting officer or controller, we will disclose the nature of
the amendment or waiver on our website, www.guidedinc.com, under
the “Investor Relations” tab under the tab “About
Us.” Also, we may elect to disclose the amendment or waiver
in a report on Form 8-K filed with the Securities and Exchange
Commission.
Material
Changes to Security Holders Nomination Procedure
There
has been no material change to the procedures by which security
holders may recommend nominees to the registrant’s board of
directors, since the last disclosure.
69
Item
11. Executive
Compensation
Summary
Compensation Table
The
following table lists specified compensation we paid or accrued
during each of the fiscal years ended December 31, 2020 and 2019 to
the Chief Executive Officer and our two other most highly
compensated executive officers, collectively referred to as the
“named executive officers,” in 2020:
2020
and 2019 Summary Compensation Table
|
Name and
Principal Position
|
|
Year
|
Salary
($)(4)
|
Bonus
($)
|
Option
Awards
($)(1)
|
Other
($)(5)
|
Total
($)
|
|
Gene S. Cartwright,
Ph.D.
|
|
2020
|
12,000
|
-
|
193,200
|
-
|
205,200
|
|
President, CEO,
Acting CFO and Director (2)
|
|
2019
|
-
|
-
|
-
|
-
|
-
|
|
Mark Faupel,
Ph.D.
|
|
2020
|
12,000
|
-
|
193,200
|
14,000
|
219,200
|
|
COO and
Director(3)(2)
|
|
2019
|
-
|
-
|
-
|
36,000
|
36,000
|
|
Richard
Fowler
|
|
2020
|
-
|
-
|
--
|
21,000
|
21,000
|
|
Senior Vice
President of Engineering(2)
|
|
2019
|
62,000
|
-
|
-
|
49,000
|
111,000
|
(1)
Option awards
figure includes the value of Common Stock option awards at grant
date as calculated under FASB ASC 718.
(2)
All amounts
reported as accrued. Dr. Cartwright, Dr. Faupel, and Mr. Fowler
have elected not to get paid a salary, due to our cash
position.
(3)
On December 8,
2016, the board of directors appointed Dr. Faupel as our new COO
and director.
(4)
Dr. Cartwright and
Dr. Faupel accrued $1,000 per month as compensation, the amounts
have not been paid.
(5)
Other expenses are
related to the Company health insurance plan
For
2019, Dr. Cartwright and Dr. Faupel did not receive salary
compensation.
For
2020 and 2019, Mr. Fowler accrued base salary of nil and $62,019.
On March 2016, Mr. Fowler began working half-time and agreed to
reduce his base salary compensation to $107,500 from $215,000 in
2015. For both years he received the usual and customary company
benefits. He received no bonus in the years ended December 31, 2020
and 2019. As of December 31, 2020, Mr. Fowler’s total
deferred salary plus interest was approximately
$546,214.
Outstanding
Equity Awards to Officers at December 31, 2020
|
Name and
Principal
Position
|
Number
of
Securities
Underlying
Options
Exercisable
(#)(1)
|
Number of
Securities Underlying
Options Un-exercisable
(#)
|
Option
Exercise
Price
($)(2)
|
Option
Expiration
Date
|
|
Gene S. Cartwright,
Ph.D.
President, CEO,
Acting CFO and Director
|
2
|
-
|
28,360
|
12/31/2024
|
|
|
127,273
|
272,727
|
0.49
|
07/12/2030
|
|
Mark Faupel,
Ph.D
COO and
Director
|
9
|
-
|
70,836
|
12/31/2024
|
|
|
127,273
|
272,727
|
0.49
|
07/12/2030
|
|
Richard
Fowler
Senior Vice
President of Engineering
|
5
|
-
|
49,984
|
12/31/2024
|
|
|
|
|
|
|
(1)
Represents fully
vested options.
(2)
Average price,
based on all outstanding options.
70
Outstanding
Equity Awards to Directors at December 31, 2020
|
|
Option
Awards
|
|
|
Name and
Principal Position
|
Option
Awards
(#)
|
Exercise
Price
($)
|
|
Ronald W. Hart,
Ph.D., Director (resigned as of December 11, 2015)
|
6
|
56,267
|
|
John E. Imhoff,
M.D., Director
|
7
|
57,143
|
|
|
50,000
|
0.49
|
|
Michael C. James,
Chairman and Director
|
6
|
56,267
|
|
|
50,000
|
0.49
|
|
|
|
|
Risk
Oversight
Our
board as a whole has responsibility for risk oversight, with
reviews of certain areas being conducted by the relevant board
committees that report on their deliberations to the full board, as
further described below. Given the small size of the board, the
board feels that this structure for risk oversight is appropriate
(except for those risks that require risk oversight by independent
directors only). The audit committee is specifically charged with
discussing risk management (primarily financial and internal
control risk), and receives regular reports from management and
independent auditors on risks related to, among others, our
financial controls and reporting. The compensation committee
reviews risks related to compensation and makes recommendations to
the board with respect to whether the Company’s compensation
policies are properly aligned to discourage inappropriate
risk-taking, and is regularly advised by management. In addition,
the Company’s management regularly communicates with the
board to discuss important risks for their review and oversight,
including regulatory risk, and risks stemming from periodic
litigation or other legal matters in which we are
involved.
71
Item
12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The
following table lists information regarding the beneficial
ownership of our equity securities as of April 5, 2021 by (1) each
person whom we know to beneficially own more than 5% of the
outstanding shares of our common stock, (2) each director, (3) each
officer named in the summary compensation table below, and (4) all
directors and executive officers as a group. Unless otherwise
indicated, the address of each officer and director is 5835
Peachtree Corners East, Suite B, Norcross, Georgia
30092.
|
|
Common Stock
(2)
|
Series
D
Preferred Stock
(3)
|
Series
C1
Preferred Stock
(4)
|
Series
C2
Preferred Stock
(5)
|
||||
|
Name and Address
of Beneficial Owner (1)
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
|
John E. Imhoff
(8)
|
11,066,185
|
50.42%
|
300
|
39.32%
|
-
|
-
|
2,400.75
|
73.57%
|
|
Lynne Imhoff
(9)
|
1,350,005
|
9.29%
|
-
|
-
|
675.00
|
64.33%
|
-
|
-
|
|
Michael C.
James/Kuekenhof Equity Fund, LLP (10)
|
65,506
|
*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Gene Cartwright
(11)
|
1,312,621
|
9.07%
|
50
|
6.55%
|
-
|
-
|
-
|
-
|
|
Richard L. Fowler
(12)
|
200,006
|
1.49%
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Mark L. Faupel
(13)
|
1,738,156
|
11.66%
|
38
|
4.98%
|
-
|
-
|
300.00
|
9.17%
|
|
Richard Blumberg
(14)
|
5,019,260
|
29.47%
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Rosalind Master
Fund (15)
|
4,313,457
|
25.48%
|
-
|
-
|
-
|
-
|
-
|
-
|
|
K2 Medical
(16)
|
3,810,540
|
25.26%
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Auctus
(17)
|
8,779,262
|
39.98%
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Flynn D. Case
Living Trust (18)
|
1,792,912
|
12.74%
|
-
|
-
|
-
|
-
|
-
|
-
|
|
All directors and
executive officers as a group (5 persons) (19)
|
18,985,882
|
66.83%
|
388
|
50.85%
|
-
|
-
|
2,700.75
|
82.75%
|
|
|
Series
E
Preferred Stock
(6)
|
Series
F
Preferred Stock
(7)
|
||
|
Name and Address
of Beneficial Owner (1)
|
Number of
Shares
|
Percentage
|
Number of
Shares
|
Percentage
|
|
John E. Imhoff
(8)
|
|
|
10
|
*
|
|
Lynne Imhoff
(9)
|
-
|
-
|
-
|
-
|
|
Michael C.
James/Kuekenhof Equity Fund, LLP (10)
|
-
|
-
|
-
|
-
|
|
Gene Cartwright
(11)
|
-
|
-
|
110
|
2.27%
|
|
Richard L. Fowler
(12)
|
-
|
-
|
50
|
1.03%
|
|
Mark L. Faupel
(13)
|
-
|
-
|
97
|
2.00%
|
|
Richard Blumberg
(14)
|
233
|
13.43%
|
438
|
9.01%
|
|
Rosalind Master
Fund (15)
|
-
|
-
|
-
|
-
|
|
K2 Medical
(16)
|
-
|
-
|
-
|
-
|
|
Auctus
(17)
|
-
|
-
|
-
|
-
|
|
Flynn D. Case
Living Trust (18)
|
-
|
-
|
-
|
-
|
|
All directors and
executive officers as a group (5 persons) (19)
|
233
|
13.43%
|
705
|
14.51%
|
(*)
Less than 1%.
(1)
Except as otherwise indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named
in the table have sole voting and investment power with respect to
all shares of common stock.
(2)
Percentage ownership is based on 13,180,417 shares of common stock
outstanding as of April 5, 2021. Beneficial ownership is determined
in accordance with the rules of the SEC, based on factors that
include voting and investment power with respect to shares. Shares
of common stock subject to convertible securities convertible or
exercisable within 60 days after the record date, are deemed
outstanding for purposes of computing the percentage ownership of
the person holding those securities but are not deemed outstanding
for purposes of computing the percentage ownership of any other
person. Note that certain of our outstanding securities, including
certain warrants and the shares of Series C1 preferred stock held
by the persons listed in this table, have anti-dilution
“ratchet” or “price-protection”
provisions that, when triggered, will increase the number of shares
of common stock underlying such securities. Subject to customary
exceptions, these provisions are triggered anytime we issue shares
of common stock to third parties at a price lower than the
then-current conversion price or exercise price of the subject
securities. As a result, the beneficial ownership reported in this
table is only as of the date presented, and the beneficial
ownership amounts of the persons in this table may increase on a
future date, even though such persons have not actually acquired
any additional shares of common stock.
72
(3)
As of April 5, 2021, there were 763 shares of Series D preferred
stock shares that will be issued, and each such share was
convertible into approximately 3,000 shares of common
stock.
(4)
As of April 5, 2021, there were 1,049.25 shares of Series C1
preferred stock outstanding, and each such share was convertible
into approximately 2,000 shares of common stock. Three shareholders
elected to convert 3,263.00 of their Series C1 preferred stock for
Series C2 preferred stock.
(5)
As of April 5, 2021, there were 3,262.25 shares of Series C2
preferred stock outstanding, and each such share was convertible
into approximately 2,000 shares of common stock.
(6)
As of April 5, 2021, there were 1,735.5 shares of Series E
preferred stock outstanding, and each such share was convertible
into approximately 4,000 shares of common stock.
(7)
As of April 5, 2021, there were 4,858 shares of Series F preferred
stock outstanding, and each such share was convertible into
approximately 4,000 shares of common stock.
(8)
Shares of common stock consist of 2,375,423 shares of common stock
directly held, 2,899,255 shares issuable upon exercise of warrants,
50,007 shares subject to options, 40,000 shares issuable upon
conversion of 10 shares of Series F preferred stock shares, 900,000
shares issuable upon conversion of 300 shares of Series D preferred
stock shares and 4,801,500 shares issuable upon conversion of
2,400.75 shares of Series C2 preferred stock. Dr. Imhoff is on the
board of directors.
(9)
Shares of common stock consist of 5 shares of common stock directly
held, and 1,350,000 shares issuable upon conversion of 675.00
shares of Series C1 preferred stock.
(10)
Shares of commons stock consist of
7,755 shares of common stock directly held, 7,745 shares issuable
upon exercise of warrants, and 50,006 shares subject to options.
Mr. James is on the board of directors.
(11) Shares of commons
stock consist of 122,621 shares of common stock directly held,
200,000 shares issuable upon exercise of warrants,
440,000 shares issuable upon
conversion of 110 shares of Series F preferred stock,
150,000 shares issuable upon conversion of 50 shares
of Series D preferred stock shares
and 400,002 shares subject to
options. Dr. Cartwright
is the CEO and on the board of directors.
(12)
Shares of commons stock consist of 1
shares of common stock directly held, 200,000 shares issuable upon
the conversion of 50 shares of Series F preferred stock and
5 shares subject to
options.
(13)
Shares of common stock consist of
85,647 shares of common stock directly held, 152,000 shares
issuable upon exercise of warrants, 400,009 shares subject to
options, 388,000
shares issuable upon conversion of 97 shares of Series F preferred
stock,
114,000 shares issuable upon
conversion of 38 shares of Series D preferred stock shares and
598,500 shares issuable upon conversion of 300.00 shares of Series
C2 preferred stock. Dr. Faupel is the COO and on the board of
directors.
(14) Shares of commons
stock consists of 1,167,630 shares of common stock directly
held, 1,167,630 shares issuable upon exercise of
warrants, 932,000 shares
issuable upon conversion of 233 shares of Series E preferred stock,
and 1,752,000 shares issuable upon conversion of 438 shares of
Series F preferred stock. Mr. Blumberg is on the board of
directors.
(15) Shares of commons stock consists of 500,000 shares of common
stock directly held, and 1,000,000 shares issuable upon
exercise of warrants.
(16) Shares of commons stock consists of 1,905,270 shares of common
stock directly held, and 1,905,270 shares issuable upon
exercise of warrants.
(17) Shares of commons stock consists of 8,779,262 shares issuable
upon exercise of warrants.
(18) Shares of commons stock consists of 896,456 shares of common
stock directly held, and 896,456 shares issuable upon exercise
of warrants.
(19) Shares of commons
stock consists of 3,759,077 shares of common stock directly
held, 4,426,630 shares issuable upon exercise of warrants,
900,029 shares subject to options, 2,820,000 shares issuable upon conversion of 705 shares of
Series F preferred stock shares 932,000 shares issuable upon conversion of 233 shares
of Series E preferred stock shares 1,164,000
shares issuable upon conversion of 388 shares of Series D preferred
stock shares and 5,400,000 shares
issuable upon conversion of 2,700.75 shares of Series C2 preferred
stock.
As of
April 5, 2021, there were 286 shares of Series C preferred stock
outstanding, and each such share was convertible into approximately
2,000 shares of common stock.
See
Item 5 of this report for information regarding Securities
Authorized for Issuance under Equity Compensation
Plans.
73
Item
13. Certain Relationships and Related
Transactions and Director Independence
Our
board recognizes that related person transactions present a
heightened risk of conflicts of interest. The audit committee has
the authority to review and approve all related party transactions
involving our directors or executive officers.
Under
the policy, when management becomes aware of a related person
transaction, management reports the transaction to the audit
committee and requests approval or ratification of the transaction.
Generally, the audit committee will approve only related party
transactions that are on terms comparable to those that could be
obtained in arm’s length dealings with an unrelated third
person. The audit committee will report to the full board all
related person transactions presented to it. Based on the
definition of independence of the NASDAQ Stock Market, the board
has determined that Mr. James and Dr. Imhoff are independent
directors.
John E.
Imhoff is one of our directors. In June 2015, Dr. Imhoff agreed to
exchange certain of his warrants, originally issued in December
2014 and exercisable for 1 share of our common stock, for two new
warrants that, unlike the original warrant, do not contain any
price or share reset provisions. Each new warrant is exercisable
for the same number of shares of our common stock as the original
warrant, at any time until December 2, 2020. The exercise price of
the first new warrant is $57,600 per share and the second new
warrant is $70,400 per share but, aside from the exercise price,
the new warrants are identical in terms to each other. As
additional consideration, we issued Dr. Imhoff an additional 1
share of common stock. Dr. Imhoff participated on terms equal to
those of other holders of the December 2014 warrants. As a result
of these transactions, Dr. Imhoff’s beneficial ownership of
our common stock increased from approximately 11.7% immediately
prior to the exchange, to approximately 11.8% immediately
afterward.
In
September 2015, Dr. Imhoff participated in our Series C preferred
stock issuance by exchanging all of his shares of Series B
preferred stock and investing $300,000 in cash, for a total of
1,067 shares of Series C preferred stock and warrants to purchase
211 shares of common stock. Dr. Imhoff participated on terms equal
to those of other Series C investors. As a result of these
transactions, Dr. Imhoff’s beneficial ownership of our common
stock increased from approximately 14% immediately prior to his
first acquisition of shares of Series C preferred stock, to 25%
immediately afterward.
On
March 11, 2016, Dr. Imhoff received 1 share of common stock as a
dividend on his Series B preferred stock (previously accrued but
unpaid), in accordance with the terms of the Series B preferred
stock.
In
April 2016, Dr. Imhoff exchanged his shares of Series C preferred
stock for a total of 2,400.75 shares of Series C1 preferred stock
and 16 shares of common stock. Dr. Imhoff participated on terms
equal to those of other Series C1 investors. As a result of this
transaction, Dr. Imhoff’s beneficial ownership of our common
stock increased from approximately 25% immediately prior to the
transaction, to 77% immediately afterward.
In June
2016, Dr. Imhoff agreed to exchange certain of his warrants,
exercisable for 6 shares of our common stock and subject to certain
anti-dilution provisions, in exchange for new warrants, exercisable
for 11 shares of our common stock, but without those anti-dilution
provisions. Dr. Imhoff will be required to surrender his old
warrants upon consummation of our next financing resulting in net
cash proceeds to us of at least $1 million. The new warrants will
have an initial exercise price equal to the exercise price of the
surrendered warrants as of immediately prior to consummation of the
financing, subject to customary “downside price
protection” for as long as our common stock is not listed on
a national securities exchange, and will expire five years from the
date of issuance.
On
September 6, 2016, we entered into a royalty agreement with Dr.
Imhoff and another party. Pursuant to the royalty agreement, in
exchange for a payment of $50,000 by Dr. Imhoff and the other
party, we granted them a royalty on future sales of our single-use
cervical guides. The royalty rate was initially $0.10 per
disposable, until October 2, 2016, at which point the royalty rate
increased to $0.20 per disposable. Any royalty payments will be
split evenly between Dr. Imhoff and the other party.
Lynne
Imhoff (no relation) currently beneficially owns in excess of 10%
of our outstanding common stock. In September 2015, Ms. Imhoff
participated in our Series C preferred stock issuance by exchanging
all of her shares of Series B preferred stock and investing
$125,000 in cash, for a total of 300 shares of Series C preferred
stock and warrants to purchase 1 shares of common stock. Ms. Imhoff
participated on terms equal to those of other Series C investors.
As a result of these transactions, Ms. Imhoff’s beneficial
ownership of our common stock increased from approximately 2%
immediately prior to her first acquisition of shares of Series C
preferred stock, to 4% immediately afterward.
In
April 2016, Ms. Imhoff exchanged her shares of Series C preferred
stock for a total of 675 shares of Series C1 preferred stock and 5
shares of common stock. Ms. Imhoff participated on terms equal to
those of other Series C1 investors. As a result of this
transaction, Ms. Imhoff’s beneficial ownership of our common
stock increased from approximately 4% immediately prior to the
transaction, to 45% immediately afterward.
74
In June
2016, Ms. Imhoff agreed to exchange certain of her warrants,
exercisable for 1 share of our common stock and subject to certain
anti-dilution provisions, in exchange for new warrants, exercisable
for 2 shares of our common stock, but without those anti-dilution
provisions. Ms. Imhoff will be required to surrender her old
warrants upon consummation of our next financing resulting in net
cash proceeds to us of at least $1 million. The new warrants will
have an initial exercise price equal to the exercise price of the
surrendered warrants as of immediately prior to consummation of the
financing, subject to customary “downside price
protection” for as long as our common stock is not listed on
a national securities exchange, and will expire five years from the
date of issuance.
Mark
Faupel is one of our directors and our Chief Operating Officer, and
Richard Blumberg is one of our directors. Dr. Faupel is a
shareholder of Shenghuo, and Mr. Blumberg, is a managing member of
Shenghuo. We entered into a license agreement with Shenghuo
pursuant to which we granted Shenghuo an exclusive license to
manufacture, sell and distribute our LuViva Advanced Cervical
Cancer device and related disposables in Taiwan, Brunei Darussalam,
Cambodia, Laos, Myanmar, Philippines, Singapore, Thailand, and
Vietnam. Shenghuo has been our exclusive distributor in China,
Macau and Hong Kong, and the license extends to manufacturing in
those countries as well. Pursuant to the license agreement,
Shenghuo had the option to have a designee appointed to our board
of directors. As partial consideration for, and as a condition to,
the license, and to further align the strategic interests of the
parties, we agreed to issue a convertible note to Shenghuo, in
exchange for an aggregate cash investment of $200,000. The note
will provide for a payment to Shenghuo of $300,000, expected to be
due the earlier of 90 days from issuance and consummation of any
capital raising transaction by us with net cash proceeds of at
least $1.0 million. The note will accrue interest at 20% per year
on any unpaid amounts due after that date. The note will be
convertible into shares of our common stock at a conversion price
per share of $11,137, subject to customary anti-dilution
adjustment. The note will be unsecured and is expected to provide
for customary events of default. We will also issue Shenghuo a
five-year warrant exercisable immediately for 22 shares of common
stock at an exercise price equal to the conversion price of the
note, subject to customary anti-dilution adjustment. As of December
31, 2020, the balance was paid.
In
September 2015, Dr. Faupel participated in our Series C preferred
stock issuance by investing $100,000 in cash, for a total of 133
shares of Series C preferred stock and warrants to purchase 1 share
of common stock. Dr. Faupel participated on terms equal to those of
other Series C investors. In April 2016, Dr. Faupel exchanged his
shares of Series C preferred stock for a total of 300 shares of
Series C1 preferred stock and 2 shares of common stock. Dr. Faupel
participated on terms equal to those of other Series C1
investors.
Item
14. Principal Accountant Fees and
Services
UHY LLP
is our current independent registered public accounting
firm.
We were
billed by UHY LLP $164,650 and $100,869 during the fiscal years
ended December 31, 2020 and 2019, respectively, for professional
services, which include fees associated with the annual audit of
financial statements, as well as the 10-K annual report and review
of our quarterly reports on Form 10-Q, and other SEC
filings.
|
|
2020
|
2019
|
|
Audit
fees
|
$150,000
|
$95,646
|
|
Audit related
fees
|
8,400
|
-
|
|
Tax
fees
|
6,250
|
5,223
|
|
Total
Fees
|
$164,650
|
$100,869
|
Audit Committee Pre-Approval Policy and Permissible Non-Audit
Services of Independent Registered Public Accounting
Firm
Our
Audit Committee pre-approves all audit and permissible non-audit
services provided by our independent registered public accounting
firm. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is
generally provided for up to one year, and any pre-approval is
detailed as to the particular service or category of services and
is generally subject to a specific budget. Our independent
registered public accounting firm and management are required to
periodically report to the Audit Committee regarding the extent of
services provided by the independent registered public accounting
firm in accordance with the pre-approval, and the fees for the
services performed to date. The Audit Committee may also
pre-approve particular services on a case-by-case
basis.
75
PART IV
Item
15. Exhibits and Financial Statement
Schedules
The
consolidated financial statements included in Item 8 of this report
are filed as part of this report.
The
exhibits listed below are filed as part hereof, or incorporated by
reference into, this Report. All documents referenced below were
filed pursuant to the Securities and Exchange Act of 1934 by Guided
Therapeutics, Inc. (f/k/a SpectRx, Inc.), file number 0-22179,
unless otherwise indicated.
EXHIBIT INDEX
|
EXHIBIT
NO.
|
|
DESCRIPTION
|
|
3.1
|
|
Restated
Certificate of Incorporation, as amended through November 3,
2016
|
|
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.1 to
the current report on Form 8-K, filed March 23, 2012)
|
|
|
|
Amended
and Restated Certificate of Incorporation, (incorporated by
reference to Exhibit 3.1 to the current report on Form 8-K, filed
November 15, 2018)
|
|
|
3.4
|
|
Certificate of Designation of Preferences, Rights
and Limitations of Series D Convertible Preferred Stock
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
3.5*
|
|
Certificate
of Designation of Preferences, Rights and Limitations of Series E
Convertible Preferred Stock
|
|
3.6*
|
|
Certificate
of Designation of Preferences, Rights and Limitations of Series F
Convertible Preferred Stock
|
|
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1
to the amended registration statement on Form S-1/A (No. 333-22429)
filed April 24, 1997)
|
|
|
|
Secured
Promissory Note, dated September 10, 2014 (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
September 10, 2014)
|
|
|
|
Amendment
#1 to Secured Promissory Note, dated March 10, 2015 (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K
filed March 19, 2015)
|
|
|
|
Amendment
#2 to Secured Promissory Note, dated May 4, 2015 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
May 7, 2015)
|
|
|
|
Amendment
#3 to Secured Promissory Note, dated June 1, 2015 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
June 5, 2015)
|
|
|
|
Amendment
#4 to Secured Promissory Note, dated June 16, 2015 (incorporated by
reference to Exhibit 10.4 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
|
Amendment
#5 to Secured Promissory Note, dated June 29, 2015 (incorporated by
reference to Exhibit 10.5 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
|
Amendment
#6 to Secured Promissory Note, dated January 20, 2016 (incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K
filed February 16, 2016)
|
|
|
|
Amendment
#7 to Secured Promissory Note, dated February 11, 2016
(incorporated by reference to Exhibit 10.2 to the current report on
Form 8-K filed February 16, 2016)
|
|
|
|
Amendment
#8 to Secured Promissory Note, dated March 7, 2016 (incorporated by
reference to Exhibit 10.1 to the current report on Form 8-K filed
March 7, 2016)
|
|
|
|
Senior
Secured Convertible Note, dated February 12, 2016 (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed
February 12, 2016)
|
|
|
|
Form
of Exchange Note (GPB) (incorporated by reference to Exhibit 4.1 to
the current report on Form 8-K filed December 7, 2016)
|
|
|
|
10%
OID Convertible Promissory Note (incorporated by reference to
Exhibit 4.1 to the current report on Form 8-K filed December 30,
2016)
|
|
|
|
Convertible
Promissory Note (incorporated by reference to Exhibit 4.1 to the
current report on Form 8-K filed February 16, 2017)
|
|
|
|
Form
of Warrant (Standard Form) (incorporated by reference to Exhibit
4.1 to the current report on Form 8-K, filed September 14,
2010)
|
|
|
|
Form
of Warrant (InterScan) (incorporated by reference to Exhibit 4.13
to the annual report on Form 10-K for the year ended December 31,
2013, filed March 27, 2014)
|
|
|
|
Form
of Warrant (November 2011 Private Placement) (incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K/A, filed
November 28, 2011)
|
76
|
|
Form
of Warrant (Series B-Tranche A) (incorporated by reference to
Exhibit 10.2 to amendment no. 1 to the current report on Form 8-K,
filed May 23, 2013)
|
|
|
|
Form
of Warrant (Series B-Tranche B) (incorporated by reference to
Exhibit 10.3 to amendment no. 1 to the current report on Form 8-K,
filed May 23, 2013)
|
|
|
|
Form
of Warrant (Regulation S) (incorporated by reference to Exhibit 4.1
to the current report on Form 8-K, filed September 8,
2014)
|
|
|
|
Form
of Warrant (2014 Public Offering Placement Agent) (incorporated by
reference to Exhibit 4.2 to the current report on Form 8-K filed
December 4, 2014)
|
|
|
|
Form
of Warrant (2014 Public Offering Warrant Exchanges) (incorporated
by reference to Exhibit 4.1 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
|
Form
of Warrant (Series C) (incorporated by reference to Exhibit 4.3 to
the current report on Form 8-K filed June 30, 2015)
|
|
|
|
Form
of Warrant (Senior Secured Convertible Note) (incorporated by
reference to Exhibit 10.5 to the current report on Form 8-K filed
February 12, 2016)
|
|
|
|
Form
of Warrant (Series B-Tranche B Exchanges; GPB Exchange)
(incorporated by reference to Exhibit 4.1 to the current report on
Form 8-K filed June 14, 2016)
|
|
|
|
Common
Stock Purchase Warrant (Convertible Promissory Note) (incorporated
by reference to Exhibit 4.2 to the current report on Form 8-K filed
February 16, 2017)
|
|
|
|
Senior Secured Convertible Note, dated December
17, 2019, by and between Guided Therapeutics, Inc. and Auctus Fund,
LLC (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Common Stock Warrant, dated December 17, 2019, by
and between Guided Therapeutics, Inc. and Auctus Fund, LLC
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Form of Common Stock Purchase Warrant
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Form of Common Stock Purchase Warrant
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Form of 12% debenture (incorporated by reference
to exhibit filed on Form 10-K filed April 20,
2020)
|
|
|
|
Form of Warrant (Exchange Agreements)
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Form of Common Stock Purchase Warrant
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
4.34*
|
|
Convertible
Promissory Note with Auctus, dated March 31, 2020.
|
|
4.35*
|
|
Form of
Warrant (Auctus Note), dated March 31, 2020.
|
|
4.36*
|
|
Form of
Warrant (Series D Preferred Stock).
|
|
4.37*
|
|
Form of
Warrant (Series D Preferred Stock).
|
|
4.38*
|
|
Form of
Warrant (Ironstone Capital), dated April 23, 2020
|
|
4.39*
|
|
Form of
Warrant (Auctus Note), dated May 22, 2020.
|
|
4.40*
|
|
Form of
Warrant (Credential Qtrade Securities Inc. ITF Reve Royalty Income
Growth, dated as of June 23, 2020
|
|
4.41*
|
|
Form of
Warrant (James Clavijo), dated June 23, 2020
|
|
4.42*
|
|
Form of
Warrant (Manju Venugopal), dated August 10, 2020.
|
|
4.43*
|
|
Note
Payable Agreement with Gene Cartwright, dated February 19,
2021
|
|
4.44*
|
|
Note
Payable Agreement with Mark Faupel, dated February 19,
2021
|
|
4.45*
|
|
Form of
Warrant (Aspen Capital), dated June 23, 2020
|
|
|
1995 Stock Plan and form of Stock Option Agreement
(incorporated by reference to Exhibit 10.2 to the registration
statement on Form S-1 (No. 333-22429) filed February 27,
1997)
|
|
|
|
2005
Amendment to 1995 Stock Plan (incorporated by reference to Appendix
1 to the proxy statement on Schedule 14A, filed May 10,
2005)
|
|
|
|
2010
Amendment to 1995 Stock Plan (incorporated by reference to Exhibit
10.3 to the registration statement on Form S-8 (File No.
333-178261), filed December 1, 2011)
|
|
|
|
2012
Amendment to 1995 Stock Plan (incorporated by reference to Annex 1
to the proxy statement on Schedule 14A, filed April 30,
2012)
|
|
|
|
Securities
Purchase Agreement (Series C), dated June 29, 2015 (incorporated by
reference to Exhibit 10.6 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
|
Registration
Rights Agreement (Series C), dated June 29, 2015 (incorporated by
reference to Exhibit 10.7 to the current report on Form 8-K filed
June 30, 2015)
|
|
|
|
Form
of Joinder Agreement (Series C) (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K filed July 13,
2015)
|
|
|
|
Interim
Securities Purchase Agreement (Series C), dated September 3, 2015
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed September 3, 2015)
|
77
|
|
Securities
Purchase Agreement (Senior Secured Convertible Note), dated
February 11, 2016 (incorporated by reference to Exhibit 10.3 to the
current report on Form 8-K filed February 12, 2016)
|
|
|
|
Security
Agreement (Senior Secured Convertible Note), dated February 11,
2016 (incorporated by reference to Exhibit 10.4 to the current
report on Form 8-K filed February 12, 2016)
|
|
|
|
Royalty
Agreement, dated September 6, 2016, between the Company and Imhoff
and Maloof (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K filed September 8, 2016)
|
|
|
|
Agreement
between Shandong Yaohua Medical Instrument Corporation and Guided
Therapeutics, Inc., Confidential, Final 22 January 2017
(incorporated by reference to Exhibit 10.1 to the current report on
Form 8-K filed January 26, 2017)
|
|
|
|
Guided
Therapeutics-Shenghuo Medical Agreement, 22 Jan 2017 (incorporated
by reference to Exhibit 10.2 to the current report on Form 8-K
filed January 26, 2017)
|
|
|
|
Securities Purchase Agreement, dated as of
February 12, 2018, by and between Guided Therapeutics, Inc. and
Adar Bays, LLC (incorporated by reference to exhibit filed on Form
10-K filed April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of
February 22, 2018, by and between Guided Therapeutics, Inc. and
Power Up (incorporated by reference to exhibit filed on Form 10-K
filed April 20, 2020)
|
|
|
|
Lease Modification, dated as of February 23, 2018,
by and between Guided Therapeutics, Inc. and TREA Infill Industrial
Atlanta, LLC (incorporated by reference to exhibit filed on Form
10-K filed April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of March
12, 2018, by and between Guided Therapeutics, Inc. and Eagle
Equities, LLC (incorporated by reference to exhibit filed on Form
10-K filed April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of May 17,
2018, by and between Guided Therapeutics, Inc. and GHS Investments,
Inc (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of March
20, 2018, by and between Guided Therapeutics, Inc. and Auctus Fund,
LLC (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of April
30, 2018, by and between Guided Therapeutics, Inc. and Power Up
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of June 7,
2018, by and between Guided Therapeutics, Inc. and Power Up
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of June
22, 2018, by and between Guided Therapeutics, Inc. and GHS
Investments, Inc (incorporated by reference to exhibit filed on
Form 10-K filed April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of July 3,
2018, by and between Guided Therapeutics, Inc. and Auctus Fund, LLC
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Promissory Note, dated as of August 22, 2018, by
and between Guided Therapeutics, Inc. and Mr. Case (incorporated by
reference to exhibit filed on Form 10-K filed April 20,
2020)
|
|
|
|
Exchange
Agreements, dated as of August 31, 2018, by and between Guided
Therapeutics, Inc. and Series C1 Preferred Stockholders in exchange
for Series C2 Preferred Stock. (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K filed September 6,
2018)
|
|
|
|
Promissory Note, dated as of September 19, 2018,
by and between Guided Therapeutics, Inc. and Mr. Gould
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Exchange Agreement, dated as of September 30,
2018, by and between Guided Therapeutics, Inc. and Dr. Faupel
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Exchange
Agreement, dated as of September 30, 2018, by and between Guided
Therapeutics, Inc. and Dr. Cartwright
|
|
|
|
Equity Financing Agreement, dated as of March 1,
2018, by and between Guided Therapeutics, Inc. and GHS Investments,
Inc (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Purchase and Sale Agreement, dated as of February
14, 2019, by and between Guided Therapeutics, Inc. and Everest
Business Funding (incorporated by reference to exhibit filed on
Form 10-K filed April 20, 2020)
|
|
|
|
Promissory
Note, dated as of February 15, 2019, by and between Guided
Therapeutics, Inc. and Mr. Gould
|
|
|
|
Securities Purchase Agreement, dated as of March
29, 2019, by and between Guided Therapeutics, Inc. and Auctus Fund,
LLC (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of May 15,
2019, by and between Guided Therapeutics, Inc. and Eagle Equities,
LLC (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of May 15,
2019, by and between Guided Therapeutics, Inc. and Adar Bays, LLC
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Loan Agreement, dated as of July 1, 2019, by and
between Guided Therapeutics, Inc. and Accilent Capital Management
Inc. / Rev Royalty Trust Income and Growth Trust (incorporated by
reference to exhibit filed on Form 10-K filed April 20,
2020)
|
|
|
|
License Agreement Modification, dated as of July
24, 2019, by and between Guided Therapeutics, Inc. and Shandong
Medical Instrument Corporation (incorporated by reference to
exhibit filed on Form 10-K filed April 20,
2020)
|
|
|
|
Addendum to the Exchange Agreement, dated as of
September 30, 2018, by and between Guided Therapeutics, Inc. and
Dr. Faupel (incorporated by reference to exhibit filed on Form 10-K
filed April 20, 2020)
|
78
|
|
Addendum to the Exchange Agreement, dated as of
September 30, 2018, by and between Guided Therapeutics, Inc. and
Dr. Cartwright (incorporated by reference to exhibit filed on Form
10-K filed April 20, 2020)
|
|
|
|
Exchange
Agreement, dated as of December 5, 2019, by and between Guided
Therapeutics, Inc. and Aquarius
|
|
|
|
Securities Purchase Agreement, dated as of
December 17, 2019, by and between Guided Therapeutics, Inc. and
Auctus Fund, LLC (incorporated by reference to exhibit filed on
Form 10-K filed April 20, 2020)
|
|
|
|
Security
Agreement, dated December 17, 2019, by and between Guided
Therapeutics, Inc. and Auctus Fund, LLC
|
|
|
|
Registration Rights Agreement, dated December 17,
2019, by and between Guided Therapeutics, Inc. and Auctus Fund, LLC
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Form of Securities Purchase Agreement between the
Guided Therapeutics, Inc. and investors set forth therein
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Form of Security Agreement between the Guided
Therapeutics, Inc. and investors set forth therein (incorporated by
reference to exhibit filed on Form 10-K filed April 20,
2020)
|
|
|
|
Securities Purchase Agreement (Series D), dated
December 30, 2019 (incorporated by reference to exhibit filed on
Form 10-K filed April 20, 2020)
|
|
|
|
Registration Rights Agreement (Series D), dated
December 30, 2019 (incorporated by reference to exhibit filed on
Form 10-K filed April 20, 2020)
|
|
|
|
Form of Joinder Agreement (Series D), dated
December 30, 2019 (incorporated by reference to exhibit filed on
Form 10-K filed April 20, 2020)
|
|
|
|
Form of Exchange Agreement, dated as of December
30, 2019, by and between Guided Therapeutics, Inc. and Investors
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Exchange Agreement, dated as of December 30, 2019,
by and between Guided Therapeutics, Inc. and K2 (incorporated by
reference to exhibit filed on Form 10-K filed April 20,
2020)
|
|
|
|
Exchange Agreement, dated as of December 30, 2019,
by and between Guided Therapeutics, Inc. and Mr. Blumberg
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Exchange Agreement, dated as of December 30, 2019,
by and between Guided Therapeutics, Inc. and Dr. Imhoff
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Exchange Agreement, dated as of January 6, 2020,
by and between Guided Therapeutics, Inc. and Jones Day Law Firm
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Finder’s Fee Agreement, dated as of January
6, 2020, by and between Guided Therapeutics, Inc. and Iron Stone
Capital (incorporated by reference to exhibit filed on Form 10-K
filed April 20, 2020)
|
|
|
|
Promissory Note, dated as of January 15, 2020, by
and between Guided Therapeutics, Inc. and IRTH Communications, LLC
(incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Exchange Agreement, dated as of January 16, 2020,
by and between Guided Therapeutics, Inc. and GPB Debt Holdings II,
LLC (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Promotional Agreement, dated as of January 22,
2020, by and between Guided Therapeutics, Inc. and Blumberg &
Bowles Consulting, LLC (incorporated by reference to exhibit filed
on Form 10-K filed April 20, 2020)
|
|
|
|
Securities Purchase Agreement, dated as of March
31, 2020, by and between Guided Therapeutics, Inc. and Auctus Fund,
LLC (incorporated by reference to exhibit filed on Form 10-K filed
April 20, 2020)
|
|
|
|
Finder’s Fee
Agreement with JH Darbie, dated as of May 19, 2020
|
|
|
Debt
for Equity Exchange Agreement with Auctus, dated as of May 22,
2020
|
|
|
|
Securities Purchase
Agreement with Auctus, dated as of May 27, 2020
|
|
|
|
Finder’s Fee
Agreement with FCMI, dated as of June 11, 2020
|
|
|
|
Exchange Agreement
with William Wells, dated as of July 9, 2020
|
|
|
|
Securities Purchase
Agreement with PowerUp, dated as of December 24, 2020
|
|
|
|
Securities Purchase
Agreement with PowerUp, dated as of February 10, 2021
|
|
|
|
Consulting
Agreement with Richard Blumberg, dated as of March 11,
2021
|
|
|
|
Exchange Agreement
with Richard Fowler, dated as of March 22, 2021
|
|
|
|
Securities Purchase Agreement (Series E), dated
June 30, 2020
|
|
|
|
Securities
Purchase Agreement (Series F), dated March 31, 2020
|
|
|
Subsidiaries
(incorporated by reference to Exhibit 21.1 to the registration
statement on Form S-1 (No. 333-169755) filed October 5,
2010)
|
|
|
23.1*
|
|
Consent
of UHY LLP
|
|
101.1*
|
|
Interactive
Data File
|
|
*Filed herewith
|
|
|
Item
16. Form 10-K Summary
Not
applicable.
79
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
GUIDED THERAPEUTICS,
INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Gene S.
Cartwright
|
|
|
|
President, Chief Executive Officer and
Acting
Chief Financial Officer
|
|
|
|
|
In
accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
|
|
April
5, 2021
|
|
/s/ Gene S. Cartwright
|
|
President,
Chief Executive Officer, Acting Chief Financial Officer (Principal
Executive Officer and Principal Financial and Accounting
Officer)
|
|
Gene
S. Cartwright
|
||||
|
|
|
|
|
|
|
April
5, 2021
|
|
/s/ Michael C. James
|
|
Chairman
of the Board and Director
|
|
|
|
Michael
C. James
|
|
|
|
|
|
|
|
|
|
April
5, 2021
|
|
/s/ John E. Imhoff
|
|
Director
|
|
|
|
John
E. Imhoff
|
|
|
|
|
|
|
|
|
|
April
5, 2021
|
|
/s/ Mark Faupel
|
|
Chief
Operating Officer and Director
|
|
|
|
Mark
Faupel
|
|
|
|
April
5, 2021
|
|
/s/ Richard Blumberg
|
|
Director
|
|
|
|
Richard
Blumberg
|
|
|
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