GTHP 10-Q
Guided Therapeutics Inc (GTHP)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File No.
(Exact Name of Registrant as Specified in Its Charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code) |
(
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes
As of August 10, 2021, the registrant had
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
INDEX
3 |
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| Consolidated Balance Sheets – (Unaudited) as of June 30, 2021 and December 31, 2020 | 3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 36 |
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43 |
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43 |
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45 |
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| 46 |
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| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited, in thousands)
ASSETS |
| June 30, 2021 |
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| December 31, 2020 |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventory, net of reserves of $ |
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Other current assets |
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Total current assets |
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NONCURRENT ASSETS: |
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Property and equipment, net |
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Lease asset-right, net of amortization |
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Other assets |
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Total noncurrent assets |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES: |
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Current portion of long-term debt |
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Notes payable in default, related parties |
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Notes payable in default |
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Short-term notes payable |
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Short-term notes payable, related parties, past due |
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Convertible notes in default |
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Convertible notes payable, past due |
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Short-term convertible notes payable |
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Accounts payable |
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Accounts payable, related parties |
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Accrued liabilities |
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Mandatorily redeemable Series G convertible preferred stock |
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Current portion of lease liability |
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Deferred revenue |
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Total current liabilities |
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LONG-TERM LIABILITIES: |
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Warrants, at fair value |
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Lease liability |
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Derivative liability |
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Long-term convertible debt |
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Long-term debt-related parties |
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Total long-term liabilities |
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TOTAL LIABILITIES |
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COMMITMENTS & CONTINGENCIES (Note 7) |
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| 3 |
| Table of Contents |
STOCKHOLDERS’ DEFICIT: |
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Series C convertible preferred stock, $ |
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Series C1 convertible preferred stock, $ |
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Series C2 convertible preferred stock, $ |
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Series D convertible preferred stock, $ |
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Series E convertible preferred stock, $ |
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Series F convertible preferred stock, $ |
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Series F-2 convertible preferred stock, $ |
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Series G convertible preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost |
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| (132 | ) |
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| (132 | ) |
Accumulated deficit |
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TOTAL STOCKHOLDERS’ DEFICIT |
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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The accompanying notes are an integral part of these consolidated statements. |
| 4 |
| Table of Contents |
GUIDED THERAPEUTICS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in Thousands, except per share data)
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| FOR THE THREE MONTHS ENDED JUNE 30, |
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| FOR THE SIX MONTHS ENDED JUNE 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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REVENUE: |
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Sales – devices and disposables |
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Cost of goods sold |
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Gross profit (loss) |
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OPERATING EXPENSES: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Operating loss |
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OTHER INCOME (EXPENSES): |
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Other income |
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Interest expense |
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Change in fair value of derivative liability |
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| (88) |
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(Loss) gain from extinguishment of debt |
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Change in fair value of warrants |
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Total other income (expenses) |
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LOSS BEFORE INCOME TAXES |
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PROVISION FOR INCOME TAXES |
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NET LOSS |
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| ( | ) |
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| (6,749 | ) |
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| (4,020 | ) |
PREFERRED STOCK DIVIDENDS |
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS |
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BASIC |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
DILUTED |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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WEIGHTED AVERAGE SHARES OUTSTANDING |
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BASIC |
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DILUTED |
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| 5 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2021 and 2020 (In Thousands)
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| Preferred Stock Series C |
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| Preferred Stock Series C1 |
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| Preferred Stock Series C2 |
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| Preferred Stock Series D |
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| Preferred Stock Series E | Preferred Stock Series F |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares | Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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BALANCE, December 31, 2019 |
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| - |
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| $ |
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| $ |
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| $ |
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| - |
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| $ | - |
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| - |
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| $ |
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| - |
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Issuance of preferred stock in financing |
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| - |
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| - |
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| - |
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| - |
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| - |
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Conversion of debt into common stock |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of common stock in financing |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of warrants in financing |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of common stock for manufacturing agreements |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Accrued preferred dividends |
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| - |
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| - |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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BALANCE, June 30, 2020 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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BALANCE, December 31, 2020 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| - |
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Series D preferred offering |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Series E preferred offering |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Series F preferred offering |
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| - |
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| - |
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| - |
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| - |
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| - |
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Series F-2 preferred offering |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Conversion of debt and expenses for Series F-2 preferred stock |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of warrants to finders |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Series G preferred offering |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Series G redemption |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of common stock for payment of Series D preferred dividends |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of warrants to consultants |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Conversion of warrants from liability to equity |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Stock-based compensation |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Accrued preferred dividends |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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BALANCE, June 30, 2021 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
| |||||||||||
The accompanying notes are an integral part of these consolidated statements.
| 6 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2021 and 2020 (In Thousands)
|
| Preferred Stock Series F-2 |
|
| Preferred Stock Series G |
|
| Common Stock |
|
| Additional Paid-In |
|
| Treasury |
|
| Accumulated |
|
|
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares | Amount |
|
| Capital |
|
| Stock |
|
| Deficit |
|
| Total |
| ||||||||||||
BALANCE, December 31, 2019 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||
Issuance of preferred stock in financing |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Conversion of debt into common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
| |||||
Issuance of common stock in financing |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of warrants in financing |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of common stock for manufacturing agreements |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
BALANCE, June 30, 2020 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2020 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||
Series D preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Series E preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Series F preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Series F-2 preferred offering |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Conversion of debt and expenses for Series F-2 preferred stock |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of common stock to finders |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Series G preferred offering |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Series G redemption |
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of common stock for payment of Series D preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of warrants to consultants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Conversion of warrants from liability to equity |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
BALANCE, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 2021 and 2020 (In Thousands)
|
| Preferred Stock Series C |
|
| Preferred Stock Series C1 |
|
| Preferred Stock Series C2 |
|
| Preferred Stock Series D |
|
| Preferred Stock Series E | Preferred Stock Series F |
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
| ||||||||||||
BALANCE, March 31, 2020 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
| |||||||
Issuance of preferred stock in financing |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
| |||
Conversion of debt into common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
BALANCE, June 30, 2020 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ | - |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2021 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
| |||||||||||
Series D preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Series E preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Series F-2 preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Conversion of debt and expenses for Series F-2 preferred stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Issuance of warrants to finders |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Series G preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Series G redemption |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Issuance of common stock for payment of Series D preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Issuance of warrants to consultants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Conversion of warrants from liability to equity |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||||||
BALANCE, June 30, 2021 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ | 1,209 |
| ||||||||||
The accompanying notes are an integral part of these consolidated statements.
| 8 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 2021 and 2020 (In Thousands)
|
| Preferred Stock Series F-2 |
|
| Preferred Stock Series G |
|
| Common Stock |
|
| Additional Paid-In |
|
| Treasury |
|
| Accumulated |
|
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Stock |
|
| Deficit |
|
| Total |
| ||||||||||
BALANCE, March 31, 2020 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||
Issuance of preferred stock in financing |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Conversion of debt into common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||||
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( | ) |
|
| ( | ) |
BALANCE, June 30, 2020 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2021 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 13,180 |
|
| $ | 3,403 |
|
| $ | 125,489 |
|
| $ | (132 | ) |
| $ | (140,668 | ) |
| $ | (7,992 | ) |
Series D preferred offering |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Series E preferred offering |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Series F-2 preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt and expenses for Series F-2 preferred stock |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of common stock to finders |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Series G preferred offering |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Series G redemption |
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| - |
|
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| |||||||
Issuance of common stock for payment of Series D preferred dividends |
|
| - |
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|
|
| - |
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| ||||||||
Issuance of warrants to consultants |
|
| - |
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|
|
| - |
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|
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|
|
| - |
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| |||||||
Conversion of warrants from liability to equity |
|
| - |
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| - |
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|
| - |
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| |||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
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|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
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|
| |||||
Accrued preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
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|
|
| - |
|
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|
| ( | ) |
|
| ( | ) | |||||
BALANCE, June 30, 2021 |
|
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|
| $ |
|
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|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 9 |
| Table of Contents |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
(unaudited, in thousands) | |||||||||
|
| FOR THE SIX MONTHS ENDED JUNE 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net (loss) income to net cash used in operating activities: |
|
|
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|
Bad debt expense |
|
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| ||
Amortization of debt issuance costs and discounts |
|
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| ||
Amortization of beneficial conversion feature |
|
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|
| ||
Stock-based compensation |
|
|
|
|
|
| ||
Change in fair value of warrants |
|
| ( | ) |
|
|
| |
Warrants issued for consulting services |
|
|
|
|
|
| ||
(Gain) loss from extinguishment of debt |
|
|
|
|
|
| ||
Change in fair value of derivative liability |
|
| 88 |
|
|
|
| |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (2 | ) |
|
|
| |
Inventory |
|
| (26 | ) |
|
| (3 | ) |
Other current assets |
|
|
|
|
|
| ||
Other assets |
|
| (17 | ) |
|
| 18 |
|
Accounts payable |
|
| ( | ) |
|
|
| |
Deferred revenue |
|
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|
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|
| ||
Accrued liabilities |
|
|
|
|
| ( | ) | |
Total adjustments |
|
|
|
|
|
| ||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Additions to fixed assets |
|
| (5 | ) |
|
| (1 | ) |
Net cash used in investing activities |
|
| ( | ) |
|
|
| |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
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|
Proceeds from debt financing, net of discounts and debt issuance costs |
|
|
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|
| ||
Proceeds from issuance of Series E Preferred Stock |
|
|
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| ||
Proceeds from Series F offering, net of costs |
|
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| ||
Proceeds from Series F-2 offering, net of costs |
|
|
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| ||
Proceeds from Series G offering, net of costs |
|
|
|
|
|
| ||
Note payable default penalty |
|
|
|
|
|
| ||
Redemption of Series G Preferred Stock |
|
| (75 | ) |
|
|
| |
Payments on notes and loans payable |
|
| (1,368 | ) |
|
| (697 | ) |
Proceeds from the issuance of common stock |
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
|
|
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|
| ||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
|
|
| ( | ) | |
CASH AND CASH EQUIVALENTS, beginning of year |
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, end of period |
| $ |
|
| $ |
| ||
SUPPLEMENTAL SCHEDULE OF: |
|
|
|
|
|
|
|
|
Cash paid for: |
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|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Issuance of common stock as debt repayment |
| $ |
|
| $ |
| ||
Issuance of Series F-2 preferred stock |
| $ |
|
| $ |
| ||
Issuance of warrants to finders in connection with Series F and Series F-2 preferred stock |
| $ |
|
| $ |
| ||
Dividends on preferred stock |
| $ |
|
| $ |
| ||
Subscription receivable |
| $ |
|
| $ |
| ||
Settlement of dividends through common stock issuance |
| $ |
|
| $ |
| ||
Settlement of accounts payable through common stock issuance |
| $ |
|
| $ |
| ||
Warrants exchanged for fixed price warrants |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| 10 |
| Table of Contents |
GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Guided Therapeutics, Inc. (formerly SpectRx, Inc.), together with its wholly owned subsidiary, InterScan, Inc. (formerly Guided Therapeutics, Inc.), collectively referred to herein as the “Company”, is a medical technology company focused on developing innovative medical devices that have the potential to improve healthcare. The Company’s primary focus is the continued commercialization of its LuViva non-invasive cervical cancer detection device and extension of its cancer detection technology into other cancers, including esophageal. The Company’s technology, including products in research and development, primarily relates to biophotonics technology for the non-invasive detection of cancers.
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.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934. In the opinion of management, all adjustments (consisting of normal recurring accruals and other items) considered necessary for a fair presentation have been included.
The Company’s prospects must be considered in light of the substantial risks, expenses and difficulties encountered by entrants into the medical device industry. This industry is characterized by an increasing number of participants, intense competition and a high failure rate. The Company has experienced net losses since its inception and, as of June 30, 2021, it had an accumulated deficit of approximately $141.8 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.
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 June 30, 2021, the Company had a negative working capital of approximately $
During 2021, the Company did raise $
The Company had warrants exercisable for approximately
| 11 |
| Table of Contents |
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant areas where estimates are used include the allowance for doubtful accounts, inventory valuation and input variables for Black-Scholes, Monte Carlo simulations and binomial calculations. The Company uses the Monte Carlo simulations and binomial calculations in the calculation of the fair value of the warrant liabilities and the valuation of embedded conversion options and freestanding warrants.
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
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740)”. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending other areas of Topic 740. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2020. We adopted this ASU on January 1, 2021 with no material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company’s accounting treatment under the current standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis. The Company has early adopted ASU No. 2020-06 under a modified retrospective basis on January 1, 2021. The result of the early adoption would have been a change to retained earnings of $
Except as noted above, the guidance issued by the FASB during the current year is not expected to have a material effect on the Company’s consolidated financial statements.
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.
| 12 |
| Table of Contents |
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 June 30, 2021 and December 31, 2020, our inventories were as follows (in thousands):
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Inventory reserve |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
The company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of three to seven years. Leasehold improvements are amortized at the shorter of the useful life of the asset or the remaining lease term. Depreciation and amortization expense are included in general and administrative expense on the statement of operations. Expenditures for repairs and maintenance are expensed as incurred. Property and equipment are summarized as follows at June 30, 2021 and December 31, 2020 (in thousands):
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Equipment |
| $ |
|
| $ |
| ||
Software |
|
|
|
|
|
| ||
Furniture and fixtures |
|
|
|
|
|
| ||
Leasehold improvement |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
During the six months ended June 30, 2021 and year ended December 31, 2020, the Company disposed of approximately nil and $
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 $
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. See Note 7: Commitments and Contingencies.
| 13 |
| Table of Contents |
Accrued Liabilities
Accrued liabilities are summarized as follows (in thousands):
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Compensation |
| $ |
|
| $ |
| ||
Professional fees |
|
|
|
|
|
| ||
Subscription receivable |
|
|
|
|
|
| ||
Interest |
|
|
|
|
|
| ||
Vacation |
|
|
|
|
|
| ||
Preferred dividends |
|
|
|
|
|
| ||
Other accrued expenses |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
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 June 30, 2021, the Company had received $
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.
The Company had $
Significant Distributors
As of June 30, 2021, accounts receivable outstanding was $
Deferred revenue
The Company defers payments received as revenue until earned based on the related contracts and applying ASC 606 as required. As of June 30, 2021, and December 31, 2020, the Company had $
| 14 |
| Table of Contents |
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 2020 federal and state corporate tax returns. The Company has entered into an agreed upon payment plan with the IRS for delinquent payroll taxes. The Company has an established payment arrangement for its delinquent state income taxes with the State of Georgia. Although the Company has been experiencing recurring losses, it is obligated to file tax returns for compliance with IRS regulations and that of applicable state jurisdictions. At December 31, 2020, the Company has approximately $
The current corporate tax rate in the U.S. is
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.
Warrants
The Company has issued warrants, which allow the warrant holder to purchase one share of stock at a specified price for a specified period of time. The Company records equity instruments including warrants based on the fair value at the date of issue. The fair value of warrants classified as equity instruments at the date of issuance is estimated using the Black-Scholes Model. The fair value of warrants classified as liabilities at the date of issuance is estimated using the Monte Carlo Simulation or Binomial model.
Stock Based Compensation
The Company 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
For the six months ended June 30, 2021 and 2020 share-based compensation for options attributable to employees, non-employees, officers and Board members were approximately $122,000 and nil, 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 June 30, 2021, and 2020 the Company had approximately $
| 15 |
| Table of Contents |
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.
The Company also adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.
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. As of June 30, 2021 we had one instrument that we valued for the derivative liability associated with the bifurcated conversion option of the Auctus loan for $
| 16 |
| Table of Contents |
The following table presents the fair value for those liabilities measured on a recurring basis as of June 30, 2021 and December 31, 2020:
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 June 30, 2021 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liability/bifurcated conversion option in connection with Auctus $400,000 loan on December 17, 2019 |
|
|
|
|
|
|
|
| (29 | ) |
|
| ( | ) | ||
Total long-term liabilities at fair value |
| $ |
|
| $ | - |
|
| $ | ( | ) |
| $ | ( | ) | |
|
|
|
|
|
|
| ||||||||||
|
| Fair Value at December 31, 2020 | ||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with Senior Secured Debt |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||
Derivative liability/bifurcated conversion option in connection with Auctus $1,100,000 loan on December 17, 2019 |
|
|
|
|
| - |
|
|
| (25 | ) |
|
| ( | ) | |
Total long-term liabilities at fair value |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||
The following is a summary of changes to Level 3 instruments during the six months ended June 30, 2021:
|
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| |||||||||
|
| Senior Secured Debt |
|
| Derivative |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance, December 31, 2020 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Change in the terms of warrants previously recorded as a liability and now reclassified to equity |
|
|
|
|
|
|
|
|
| |||
Change in value due to warrants expiring during the year |
|
|
|
|
|
|
|
|
| |||
Extinguishment of derivative liability due to payoff of $700,000 loan to Auctus |
|
|
|
|
|
| 84 |
|
|
| 84 |
|
Change in fair value during the year |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Balance, June 30, 2021 |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
As of June 30, 2021, the fair value of warrants was approximately nil and the fair value of the derivative liability was approximately $
| 17 |
| Table of Contents |
4. STOCKHOLDERS’ DEFICIT
Common Stock
The Company has authorized
For the six months ended June 30, 2021, the Company issued
Shares issued for payments of Series D dividends |
|
|
| |
Shares issued for payment of finder fee |
|
|
| |
Issued during the six months ended June 30, 2021 |
|
|
|
Summary table of common stock share transactions:
Balance at December 31, 2020 |
|
|
| |
Issued in 2021 |
|
|
| |
Balance at June 30, 2021 |
|
|
|
Investments
During 2021, the Company received 10% debenture unit investments in the amount of $
During 2021, the Company received equity investments in the amount of $
During 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $
During 2020, the Company received equity investments in the amount of $
During January and April 2020, the Company received equity investments in the amount of $
Debt Exchanges - 2021
On January 8, 2021, the Company made the final payment of $
On February 19, 2021, the Company exchanged $
On March 10, 2021, the Company exchanged $
On March 22, 2021, the Company entered into an exchange agreement with Richard Fowler. As of December 31, 2020, the Company owed Mr. Fowler $
| 18 |
| Table of Contents |
Debt Exchanges - 2020
On January 8, 2020, the Company exchanged $
On June 3, 2020, the Company exchanged $
On June 30, 2020, the Company exchanged $
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 $
The following table summarizes the 2020 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 |
| $ |
|
| $ |
|
| $ |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||
K2 Medical (Shenghuo)3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
| |||||||
Mr. Blumberg |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
| |||||||
Mr. Case |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| |||||
Mr. Grimm |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| |||||
Mr. Gould |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| |||||
Mr. Mamula |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| |||||
Dr. Imhoff2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
| |||||||
Ms. Rosenstock1 |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| |||||
Mr. James2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
| |||||||
Auctus |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| |||||
Mr. Clavijo |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ||||
Mr. Wells4 |
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
1 Ms. Rosenstock also forgave $
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.
| 19 |
| Table of Contents |
Preferred Stock
The Company has authorized
Series C Convertible Preferred Stock
The board designated
Holders of the Series C preferred stock are entitled to quarterly cumulative dividends at an annual rate of 12.0% until 42 months after the original issuance date (the “Dividend End Date”), payable in cash or, subject to certain conditions, the Company’s common stock. 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 June 30, 2021 and 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 $
Series C1 Convertible Preferred Stock
The board designated 20,250 shares of preferred stock as Series C1 Preferred Stock, of which
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
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 June 30, 2021 and December 31, 2020, there were 1,049.25 shares outstanding with a conversion price of $
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.
| 20 |
| Table of Contents |
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 June 30, 2021 and December 31, 2020, shares of Series C2 had a conversion price of $
The terms of the Series C2 Preferred Stock are substantially the same as the Series C1 Preferred Stock, except that (i) shares of Series C1 Preferred Stock may not be convertible into the Company’s common stock by their holder for a period of 180 days following the date of the filing of the Certificate of Designation (the “Lock-Up Period”); (ii) the Series C2 Preferred Stock has the right to vote as a single class with the Company’s common stock on an as-converted basis, notwithstanding the Lock-Up Period; and (iii) the Series C2 Preferred Stock will automatically convert into that number of securities sold in the next Qualified Financing (as defined in the Exchange Agreement) determined by dividing the stated value ($1,000 per share) of such share of Series C2 Preferred Stock by the purchase price of the securities sold in the Qualified Financing.
Series D Convertible Preferred Stock
The Board designated
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 $
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 the six months ended June 30, 2021, the Company issued
Series E Convertible Preferred Stock
The Board designated
Each share of Series E Preferred is convertible, at any time for a period of
| 21 |
| Table of Contents |
Series F Convertible Preferred Stock
As provided in other disclosures, the Company was oversubscribed for its Series F Convertible Preferred Stock. This required the Company to file an additional Certificate of Designation for Series F-2 Convertible Preferred Stock with substantially the same terms as the Series F Convertible Preferred Stock. The Board designated
Each share of Series F Preferred is convertible, at any time for a period of
Series F-2 Convertible Preferred Stock
The Board designated
On January 8, 2021, the Company made the final payment of $
On February 19, 2021, the Company exchanged $
On March 10, 2021, the Company exchanged $
Each share of Series F-2 Preferred is convertible, at any time for a period of 5 years after issuance, into that number of shares of Common Stock, determined by dividing the Stated Value by $0.25, subject to certain adjustments set forth in the Series F-2 Certificate of Designation (the “Series F-2 Conversion Price”). The conversion of Series F-2 Preferred is subject to a4.99% beneficial ownership limitation, which may be increased to
| 22 |
| Table of Contents |
Powerup (Series G Convertible Preferred Stock)
During January 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $
During February 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $
Due to the mandatory redemption feature of the Series G preferred stock, the total amount of proceeds of $
Warrants
The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the six months ended June 30, 2021:
|
| Warrants (Underlying Shares) |
| |
Outstanding, January 1, 2021 |
|
|
| |
Issuances |
|
|
| |
Canceled / Expired |
|
| (1,729,662 | ) |
Exercised |
|
| - |
|
Outstanding, June 30, 2021 |
|
|
| |
| 23 |
| Table of Contents |
The Company had the following shares reserved for the warrants as of June 30, 2021:
Warrants |
|
| Exercise Price |
| Expiration Date | |
|
| (1) | $ |
| ||
|
| (2) | $ |
| ||
|
| (3) | $ |
| ||
|
| (4) | $ |
| ||
|
| (5) | $ |
| ||
|
| (6) | $ |
| ||
|
| (7) | $ |
| ||
|
| (8) | $ |
| ||
|
| (9) | $ |
| ||
|
| (10) | $ |
| ||
|
| (11) | $ |
| ||
|
| (12) | $ |
| ||
|
| (13) | $ |
| ||
|
| (14) | $ |
| ||
|
| (15) | $ |
| ||
|
| (16) | $ |
| ||
|
| (17) | $ |
| ||
|
| (18) | $ |
| ||
|
| (19) | $ |
| ||
|
| (20) | $ |
| ||
|
| (21) | $ |
| ||
|
| (22) | $ |
| ||
|
| (23) | $ |
| ||
|
|
|
|
|
| |
(1) | Exchanged in January 2020 from amount issued as part of a February 2016 private placement with senior secured debt holder |
(2) | Issued to investors for a loan in April 2019 |
(3) | Issued to investors for a loan in July 2019 |
(4) | Issued to investors for a loan in September 2019 |
(5) | Issued to investors for a loan in December 2019 |
(6) | Issued to investors for a loan in January 2020 |
(7) | Issued to investors as part of Series D Preferred Stock Capital raise in December 2020 |
(8) | Issued to investors as part of Series D Preferred Stock Capital raise in December 2020 |
(9) | Issued to investors as part of Series D Preferred Stock Capital raise in December 2020 |
(10) | Issued to a consultant for services in April 2020 |
(11) (12) (13) (14) (15) (16) | 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 Issued to a consultant for services in August 2020 Issued to a consultant (director) in February 2021 |
(17) | Issued to a consultant for Series F Preferred Stock Capital raise in March 2021 |
(18) | Issued to a consultant for Series F and Series F-2 Preferred Stock Capital raise in May 2021 |
(19) | Issued to a consultant for Series F and Series F-2 Preferred Stock Capital raise in May 2021 |
(20) | Issued to investors for 10% Debentures raise in May 2021 |
(21) | Issued to a consultant for 10% Debentures raise in May 2021 |
(22) | Issued to a consultant for 10% Debentures raise in May 2021 |
(23) | Issued to a consultant for 10% Debentures raise in May 2021 |
Footnote (1) - 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
5. STOCK OPTIONS
On July 14, 2020, the Company granted
| 24 |
| Table of Contents |
Outstanding stock options as of June 30, 2021 are as follows:
Stock options vested |
|
|
| |
Stock options unvested |
|
|
| |
Total stock options granted at June 30, 2021 |
|
|
|
Stock option activity for the six months ended June 30, 2021 is as follows:
|
| Shares |
|
| Weighted Average Exercise Price |
| ||
|
|
|
|
|
|
| ||
Outstanding at beginning of year |
|
| 1,800,000 |
|
| $ | 0.49 |
|
Options granted |
|
|
|
|
|
| ||
Options exercised |
|
| - |
|
|
| - |
|
Options expired/forfeited |
|
| - |
|
|
| - |
|
Outstanding at end of the period |
|
| 1,825,000 |
|
| $ | 0.49 |
|
6. LITIGATION AND CLAIMS
From time to time, the Company may be involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the dispositions of these matters, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial condition. However, depending on the amount and timing of such disposition, an unfavorable resolution of some or all of these matters could materially affect the future results of operations or cash flows in a particular year.
As of June 30, 2021, and December 31, 2020, there was no accrual recorded for any potential losses related to pending litigation.
7. 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 leases
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. Monthly rents for the one-year periods beginning on April 1, 2021 and ending on May 31, 2026 are: $
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 June 30, 2021 under non-cancellable operating leases for office space and equipment are as follows (in thousands):
Year |
| Amount |
| |
2021 |
| $ |
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Thereafter |
|
|
| |
Total |
|
|
| |
Less: Interest |
|
|
| |
Present value of lease liability |
| $ |
| |
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
| 25 |
| Table of Contents |
On September 6, 2016, the Company entered into a royalty agreement with one of its directors, John Imhoff, and another stockholder, Dolores Maloof, pursuant to which the Company sold to them a royalty of future sales of single-use cervical guides for LuViva. Under the terms of the royalty agreement, and for consideration of $
On January 22, 2020, the Company entered into a promotional agreement with a related party, which is partially owned by Mr. Blumberg, to provide investor and public relations services for a period of two years. As compensation for these services,
On March 10, 2021, the Company entered into a consulting agreement with Richard Blumberg. As a result of the consulting agreement Mr. Blumberg provided $
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 $
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.
| 26 |
| Table of Contents |
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.
8. NOTES PAYABLE
Notes Payable in Default
At June 30, 2021 and December 31, 2020, the Company maintained notes payable to both related and non-related parties totaling approximately $
During 2021, notes payable of $
The following table summarizes the Notes payable in default, including related parties:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Mr. Mermelstein |
| $ |
|
| $ |
| ||
Dr. Cartwright |
|
|
|
|
|
| ||
Mr. Fowler |
|
|
|
|
|
| ||
GPB |
|
|
|
|
|
| ||
Notes payable in default |
| $ |
|
| $ |
| ||
The notes payable to related parties was nil of the $
Short Term Notes Payable
At June 30, 2021 and December 31, 2020, the Company maintained short term notes payable to both related and non-related parties totaling $
During 2019, the Company issued promissory notes to Mr. Cartwright and Mr. Faupel, in the amounts of approximately $
On July 4, 2020, the Company entered into a premium finance agreement to finance its insurance policies totaling $
On December 21, 2016 and January 19, 2017, the Company issued promissory notes to Mr. Fowler, in the amounts of approximately $
The following table summarizes the Short-term notes payable, including related parties:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Dr. Cartwright |
| $ |
|
| $ |
| ||
Dr. Faupel |
|
|
|
|
|
| ||
Mr. Fowler |
|
|
|
|
|
| ||
Premium Finance (insurance) |
|
|
|
|
|
| ||
Short-term notes payable, including related parties |
| $ |
|
| $ |
| ||
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The short-term notes payable past due to related parties was $
Troubled Debt Restructuring
During the six months ended June 30, 2020, the debt extinguished for Notes Payable was $
9. 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 $
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
In connection with the first tranche of $700,000, the Company issued to
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On May 27, 2020, the Company received the second tranche in the amount of $
The total outstanding balance for the first two tranches outstanding as of June 30, 2021 and December 31, 2020, was approximately $
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.
The following table summarizes the Short-term Convertible Notes Payable (including debt in default):
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Auctus Tranche 2 (December 17, 2019 note) |
| $ |
|
| $ |
| ||
Auctus prepayment penalty (December 17, 2019 note) |
|
|
|
|
|
| ||
Auctus Tranche 1 (December 17, 2019 note) |
|
|
|
|
|
| ||
Auctus (March 31, 2020 note) |
|
|
|
|
|
| ||
Debt discount and issuance costs to be amortized |
|
| ( | ) |
|
| ( | ) |
Convertible notes payable – short-term |
| $ |
|
| $ |
| ||
Troubled Debt Restructuring
The prepayment penalty to Auctus was recorded as debt extinguished for Short-term Convertible Notes Payable. This prepayment penalty resulted in a loss of $
During 2021, the prepayment penalty to Auctus was recorded as debt extinguished for Short-term Convertible Notes Payable. This prepayment penalty resulted in a loss of $
10. CONVERTIBLE DEBT
Short-term convertible notes payable
Senior Secured Promissory Note
As of June 30, 2021, all Senior Secured debt due to GPB had been exchanged for
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On February 12, 2016, the Company entered into a securities purchase agreement with GPB Debt Holdings II LLC (“GPB”) for the issuance of a $
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
As of December 31, 2020, the balance due on the convertible debt was $
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. The warrants issued to that placement agent had expired during the six months ended June 30, 2021.
Other Convertible Debt
GHS
Effective May 19, 2017, the Company entered into a securities purchase agreement with GHS for the purchase of a $
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 $
Effective June 22, 2018, the Company entered into a securities purchase agreement with GHS for the purchase of a $
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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 $
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 $
Convertible Notes in default
On March 31, 2020, we entered into a securities purchase agreement with Auctus Fund, LLC for the issuance and sale to Auctus of $
The following table summarizes the Convertible notes (including debt in default):
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
GPB |
| $ |
|
| $ | - |
|
| $ |
|
| $ | 1,709 |
| ||
GHS |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| ||
Auctus |
|
|
|
|
|
|
|
| - |
|
|
|
| |||
Convertible notes, past due (including debt in default) |
|
|
|
|
| $ | 169 |
|
|
|
|
|
| $ |
| |
As of June 30, 2021, the outstanding balances were $
Troubled Debt Restructuring
During 2021, the Company restructured debt with GPB resulting in the exchange of $
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11. 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
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 $
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 $
On February 19, 2021, the Company exchanged $
The table below summarizes the detail of the exchange agreement:
For Dr. Faupel:
Salary |
| $ |
| |
Bonus |
|
|
| |
Vacation |
|
|
| |
Interest on compensation |
|
|
| |
Loans to Company |
|
|
| |
Interest on loans |
|
|
| |
Total outstanding prior to exchange |
| $ |
| |
Amount forgiven |
|
| ( | ) |
Total Interest accrued through December 31, 2020 |
|
|
| |
Balance outstanding at December 31, 2020 |
| $ |
| |
Exchange for Series F-2 Preferred Stock |
|
| ( | ) |
Interest accrued through June 30, 2021 |
|
|
| |
Balance outstanding at June 30, 2021 |
| $ |
|
For Dr. Cartwright:
Salary |
| $ |
| |
Bonus |
|
|
| |
Interest on compensation |
|
|
| |
Loans to Company |
|
|
| |
Interest on loans |
|
|
| |
Total outstanding prior to exchange |
| $ |
| |
Amount forgiven |
|
| ( | ) |
Total Interest accrued through December 31, 2020 |
|
|
| |
Balance outstanding at December 31, 2020 |
| $ |
| |
Exchange for Series F-2 Preferred Stock |
|
| ( | ) |
Interest accrued through June 30, 2021 |
|
|
| |
Balance outstanding at June 30, 2021 |
| $ |
|
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| Table of Contents |
On March 22, 2021, the Company entered into an exchange agreement with Richard Fowler. As of December 31, 2020, the Company owed Mr. Fowler $
Future debt obligations which are recorded in the Long-term debt-related parties includes: $
Year |
| Amount |
| |
2021 |
| $ |
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Thereafter |
|
|
| |
Totals |
| $ |
| |
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 $
Long-term convertible debt
10% Senior Unsecured Convertible Debenture
On May 17, 2021, the Company issued 10% Senior Unsecured convertible debentures to investors, which mature on
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At June 30, 2021, the balance due on the 10% Senior Secured Convertible Debenture was $
Troubled Debt Restructuring
The debt extinguished for Dr. Cartwright, Mr. Fowler and Dr. 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. During the six months ended June 30, 2021, the Company recorded a gain of $86,554 for Mr. Fowler’s debt exchange.
12. INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share attributable to common stockholders, amounts are computed by dividing the net income (loss) plus preferred stock dividends and deemed dividends on preferred stock by the weighted average number of shares outstanding during the year.
Diluted net income (loss) per share attributable to common stockholders amounts are computed by dividing the net income (loss) plus preferred stock dividends, deemed dividends on preferred stock, after-tax interest on convertible debt and convertible dividends by the weighted average number of shares outstanding during the year, plus Series C, Series D, Series E, Series F and Series F-2 convertible preferred stock, Series G preferred stock, convertible debt, convertible preferred dividends and warrants convertible into common stock shares.
The following table sets forth pertinent data relating to the computation of basic and diluted net loss per share attributable to common shareholders.
In thousands |
| June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Basic weighted average number of shares outstanding |
|
|
|
|
|
| ||
Net loss per share (basic) |
| $ | ( | ) |
| $ | ( | ) |
Diluted weighted average number of shares outstanding |
|
| 13,226 |
|
|
|
| |
Net loss per share (diluted) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Dilutive equity instruments (number of equivalent units): |
|
|
|
|
|
|
|
|
Stock options |
|
| - |
|
|
| - |
|
Preferred stock |
|
|
|
|
| - |
| |
Convertible debt |
|
|
|
|
|
| ||
Warrants |
|
|
|
|
| 5,341 |
| |
Total Dilutive instruments |
|
|
|
|
|
| ||
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For period of net loss, basic and diluted earnings per share are the same as the assumed exercise of warrants and the conversion of convertible debt are anti-dilutive.
Troubled Debt Restructuring
As provided in the preceding footnotes, several transactions met the basic criteria for troubled debt, which 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. As of June 30, 2021, the total troubled debt restructuring was $179,000, since this amount has already been recorded as a loss on extinguishment of debt the loss would not have any impact on the per share calculation. As of June 30, 2020, the troubled debt restructuring for Convertible Debt, based on the reduction in warrants outstanding would have an effect on the Company’s diluted earnings per share calculation for June 30, 2020, but not on the basic earnings per share calculation. However, for the six months ended June 30, 2020 the basic and diluted earnings per share would have remained the same as the Company had a loss.
13. SUBSEQUENT EVENTS
On July 22, 2021 the Company held its 2021 Annual Meeting of Stockholders. At this meeting the following proposals were approved: (1) the election of the director-nominees (the “Directors”) of the Company’s board of directors (the “Board”); (2) the ratification of the appointment of UHY LLP as the Company’s independent registered public accounting firm; (3) an amendment to the Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to enable a potential reverse split of the issued and outstanding shares of Common Stock at a ratio of up to
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements in this report which express “belief,” “anticipation” or “expectation,” as well as other statements which are not historical facts, are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those that may be set forth under “Risk Factors” below and elsewhere in this report, as well as in our annual report on Form 10-K for the year ended December 31, 2020 and subsequently filed quarterly reports on Form 10-Q. Examples of these uncertainties and risks include, but are not limited to:
· | access to sufficient debt or equity capital to meet our operating and financial needs; |
· | the extent of dilution of the holdings of our existing stockholders upon the issuance, conversion or exercise of securities issued as part of our capital raising efforts; |
· | the extent to which certain debt holders may call the notes to be paid; |
· | the effectiveness and ultimate market acceptance of our products and our ability to generate sufficient sales revenues to sustain our growth and strategy plans; |
· | whether our products in development will prove safe, feasible and effective; |
· | whether and when we or any potential strategic partners will obtain required regulatory approvals in the markets in which we plan to operate; |
· | our need to achieve manufacturing scale-up in a timely manner, and our need to provide for the efficient manufacturing of sufficient quantities of our products; |
· | the lack of immediate alternate sources of supply for some critical components of our products; |
· | our ability to establish and protect the proprietary information on which we base our products, including our patent and intellectual property position; |
· | Based on the current outbreak of the Coronavirus SARS-CoV-2, the pathogen responsible for COVID-19, which has already had an impact on financial markets, there could be additional repercussions in our operating business, including but not limited to, the sourcing of materials for product candidates, manufacture of supplies for preclinical and/or clinical studies, delays in clinical operations, which may include the availability or the continued availability of patients for trials due to such things as quarantines, conduct of patient monitoring and clinical trial data retrieval at investigational study sites; |
· | The future impact of the outbreak is highly uncertain and cannot be predicted, and we cannot provide any assurance that the outbreak will not have a material adverse impact on our operations or future results or filings with regulatory health authorities. The extent of the impact, if any, we will depend on future developments, including actions taken to contain the coronavirus; |
· | the 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. |
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.
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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 June 30, 2021 we have an accumulated deficit of approximately $141.8 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 $0.5 to $1.0 million in LuViva devices and disposables in 2021 and expect those purchase orders to result in actual sales of $0.2 to $0.5 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.
CRITICAL ACCOUNTING POLICIES
Our material accounting policies, which we believe are the most critical to investors understanding of our financial results and condition, are discussed below. Because we are still early in our enterprise development, the number of these policies requiring explanation is limited. When we begin to generate revenue from different sources, we expect that the number of applicable policies and complexity of the judgments required will increase.
Revenue Recognition: ASC 606 Revenue from Contracts with Customers establishes a single and comprehensive framework which sets out how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue recognition around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps: Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled. Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and, the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.
Valuation of Deferred Taxes: We account for income taxes in accordance with the liability method. Under the liability method, we recognize deferred assets and liabilities based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.
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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.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020
Sales Revenue, Cost of Sales and Gross Profit from Devices and Disposables: Revenues from the sale of LuViva devices for the three months ended June 30, 2021 and 2020 were approximately $2,000 and nil, respectively. Revenues for the three months ended June 30, 2021 were $2,000 higher when compared to the same period in 2020, due to no sales activity in 2020. Related cost of sales was approximately $0 and $6,000 in the three months ended June 30, 2021 and 2020, respectively. Cost of sales for the three months ended June 30, 2021, were $6,000 lower when compared to the same period in 2020, due to inventory write off in 2020 This resulted in a gross profit of approximately $2,000 on the sales of devices and disposables for the three months ended June 30, 2021 compared with a gross loss of approximately $6,000 for the same period in 2020.
Research and Development Expenses: Research and development expenses for the three months ended June 30, 2021, decreased to approximately $20,000, from approximately $55,000 to the same period in 2020. The decrease of $35,000, or 64%, was primarily due to a reduction in research and development clinical costs and payroll expenses.
Sales and Marketing Expenses: Sales and marketing for the three months ended June 30, 2021, decreased to approximately $30,000, from approximately $37,000 to the same period in 2020. The decrease of $7,000, or 16%, was primarily due to a decrease in sales and marketing rent and storage related expenses.
General and Administrative Expense: General and administrative expenses for the three months ended June 30, 2021, increased to approximately $513,000, compared to $271,000 for the same period in 2020. The increase of approximately $242,000, or 89%, was primarily related to higher consulting expenses of $228,000 for warrants issued to finders in the capital raises.
Other Income: Other income for the three months ended June 30, 2021, decreased to approximately $27,000, compared to $50,000 for the same period in 2020. The decrease of $23,000 or 47% was primarily the result of $26,000 in write off of accrued salaries.
Interest Expense: Interest expense for the three months ended June 30, 2021 increased to approximately $315,000, compared to $308,000 for the same period in 2020. The increase of approximately $7,000, or 2%, was primarily related to higher interest payments in 2021 compared to 2020.
Loss/Gain from extinguishment of debt: Loss from extinguishment of debt for the three months ended June 30, 2021 decreased to approximately $185,000, compared to a loss from extinguishment of debt of $343,000 for the same period in 2020. The decrease of approximately $158,000, or 46%, was primarily related to a $350,000 prepayment penalty recorded, gain from debt extinguished in 2021 compared to a loss on debt extinguished in 2020, a gain from the extinguishment of the derivative liability and $24,000 in forgiveness of PPP loan.
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Change in Fair Value of Warrants: Change in fair value of warrants for the three months ended June 30, 2021, decreased to approximately nil compared to $5,779,000 for the same period in 2020. The decrease of approximately $5,779,000, or 100% was primarily due to an increase in the number of common stock warrants outstanding, the exchange of common stock warrants for fixed price common stock warrants, the exchange of debt and for favorable changes in warrant conversion prices and increase in stock price in the three months ended June 30, 2020.
Net loss: Net loss attributable to common stockholders decreased to approximately $1,159,000, or $0.09 per share, for the three months ended June 30, 2021, from a net loss of $6,766,000, or $0.57 per share, for the same period in 2020. The decrease in the net loss of $5,550,000, or 83% was for reasons outlined above.
There was no income tax benefit recorded for the three months ended June 30, 2021 or 2020, due to recurring net operating losses.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
Sales Revenue, Cost of Sales and Gross Profit from Devices and Disposables: Revenues from the sale of LuViva devices for the six months ended June 30, 2021 and 2020 were approximately $2,000 and nil, respectively. Revenues for the six months ended June 30, 2021 were $2,000 higher when compared to the same period in 2020, due to no sales activity in 2020. Related cost of sales was approximately $0 and $6,000 in the six months ended June 30, 2021 and 2020, respectively. Cost of sales for the six months ended June 30, 2021, were $6,000 lower when compared to the same period in 2020, due to inventory write off in 2021. This resulted in a gross profit of approximately $2,000 on the sales of devices and disposables for the six months ended June 30, 2021 compared with a gross loss of approximately $6,000 for the same period in 2020.
Research and Development Expenses: Research and development expenses for the six months ended June 30, 2021, decreased to approximately $36,000, from approximately $80,000 to the same period in 2020. The decrease of $44,000, or 55%, was primarily due to a reduction in research and development clinical costs and payroll expenses.
Sales and Marketing Expenses: Sales and marketing for the six months ended June 30, 2021, decreased to approximately $66,000, from approximately $71,000 to the same period in 2020. The decrease of $5,000, or 7%, was primarily due to a decrease in sales and marketing rent and storage related expenses.
General and Administrative Expense: General and administrative expenses for the six months ended June 30, 2021, increased to approximately $1,340,000, compared to $453,000 for the same period in 2020. The increase of approximately $887,000, or 196%, was primarily related to higher compensation expenses incurred during the same period and the recording of a charge of $398,000 for warrants issued to Mr. Blumberg for consulting services and consulting expenses of $228,000 for warrants issued to finders in the capital raises.
Other Income: Other income for the six months ended June 30, 2021 decreased to approximately $27,000, compared to $51,000 for the same period in 2020. In the six months ended June 30, 2021 the amounts were primarily the result of $26,000 in write off of accrued salaries.
Interest Expense: Interest expense for the six months ended June 30, 2021 decreased to approximately $456,000, compared to $594,000 for the same period in 2020. The increase of approximately $138,000, or 23%, was primarily related to lower interest payments for the six months ended June 30, 2021 compared to the same period in 2020.
Change in fair value of derivative liability: Change in fair value of derivative liability for the three months ended 2021 increased to approximately $88,000, compared to nil for the same period in 2020. The increase of approximately $88,000, or 100%, was primarily related to the change in the value of the derivative liability.
Loss/Gain from extinguishment of debt: Loss from extinguishment of debt for the six months ended June 30, 2021 decreased to approximately a loss of $185,000, compared to a loss of $316,000 for the same period in 2020. The decrease of approximately $131,000, or 41%, was primarily related to a $350,000 prepayment penalty recorded, gain from debt extinguished in 2021 compared to a loss on debt extinguished in 2020, a gain from the extinguishment of the derivative liability and $24,000 in forgiveness of PPP loan.
Change in Fair Value of Warrants: Fair value of warrants recovery for the six months ended June 30, 2021, increased to approximately $448,000 compared to change in fair value of warrants of $2,551,000 for the same period in 2020. The decrease of approximately ($2,999,000), or 118% was primarily due to the recording of the debt exchange for the debt to GPB and the elimination of the warrant liability and due to favorable significant changes in warrant conversion prices and increase in stock price in the six months ended June 30, 2020.
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Net loss/ Income: Net loss attributable to common stockholders increased to approximately $1,871,000, or $0.14 per share, for the six months ended June 30, 2021, from a net loss of $4,049,000, or $0.48 per share, for the same period in 2020. The decrease in the net loss of $2,178,000, or 54% was for reasons outlined above.
There was no income tax benefit recorded for the six months ended June 30, 2021 or 2019, due to recurring net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have raised capital through the public and private sale of debt and equity, funding from collaborative arrangements, and grants. At June 30, 2021, we had cash of approximately $0.9 million and a negative working capital of approximately $4.0 million.
Our major cash flows for the six months ended June 30, 2021 consisted of cash out-flows of $1.0 million from operations, including approximately $1.7 million of net loss, and a net change from financing activities of $1.7 million, which primarily represented the proceeds received from issuance of preferred stock, long-term debt and exchanged outstanding debt.
Capital resources for 2021
During 2021, we received 10% debenture unit investments in the amount of $1,130,000. These investors received a total of 1,130,000 warrants for common stock shares. The debentures are convertible into 2,260,000 of our common stock shares.
During 2021, we received equity investments in the amount of $2,114,000. These investors received a total of 2,114 Series F and Series F-2 preferred stock (if the Investor elects to convert their Series F or Series F-2 preferred stock, each Series F or Series F-2 preferred stock share converts into 4,000 shares of our common stock shares).
During 2021, we finalized an investment by Power Up Lending Group Ltd. Power Up invested $132,000, net to us is $125,000, for 153,000 shares of Series G preferred stock.
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.
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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.
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 |
|
| 51,110 |
|
|
| 50,000 |
|
|
| 1,110 |
|
|
| 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 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| $ | 2,737,847 |
|
| $ | 2,496,316 |
|
| $ | 241,531 |
|
|
| 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-2 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 matured on January 26, 2021 and accrues interest at a rate of 12% per year. In default as of June 30, 2021.
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 was notified that the application for loan forgiveness was approved in the amount of $23,742 in principal and $234 in interest. The Company is planning on appealing the amount forgiven.
On May 20, 2020, the Company received a $70,000 loan from Mr. Blumberg, which was paid off in June 2020.
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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). As of June 30, 2021, the note had been paid off.
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%).
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company under the supervision and with the participation of management, including the Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial officer), evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2018. The controls and system currently used by the Company to calculate and record inventory is not operating effectively. Additionally, the Company lacks the resources to properly research and account for complex transactions. The combination of these controls deficiencies has resulted in a material weakness in our internal control over financial reporting.
Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective as of June 30, 2021 to provide reasonable assurance that (1) information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may be involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the disposition of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial condition. See Note 6 to the financial statements.
ITEM 1A. RISK FACTORS
Please refer to Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year ended December 31, 2020, for information regarding factors that could affect our results of operations, financial condition and liquidity.
ITEM 2. UNREGISTERRED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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| Table of Contents |
ITEM 4. EXHIBITS
Exhibit Number |
| Exhibit Description |
|
|
|
31* |
| Rule 13a-14(a)/15d-14(a) Certification |
32* |
| Section 1350 Certification |
101.1* |
| XBRL |
______________
*Filed herewith
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GUIDED THERAPEUTICS, INC. |
| |
|
| |
/s/ Gene S. Cartwright |
| |
By: | Gene S. Cartwright |
|
| President, Chief Executive Officer and |
|
| Acting Chief Financial Officer |
|
|
|
|
Date: | August 18, 2021 |
|
46 |