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  6. Guided Therapeutics Inc (QB) (GTHP)

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GTHP Guided Therapeutics Inc (QB)

0.14
-0.019 (-11.95%)
14 Jun 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Guided Therapeutics Inc (QB) USOTC:GTHP OTCMarkets Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -0.019 -11.95% 0.14 0.0855 0.158 0.14 0.14 0.14 1,002 21:01:59

Quarterly Report (10-q)

15/11/2021 9:34pm

Edgar (US Regulatory)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

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

 

For the quarterly period ended September 30, 2021

Commission File No. 0-22179

 

GUIDED THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

58-2029543

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5835 Peachtree Corners East, Suite B

Norcross, Georgia 30092

(Address of principal executive offices) (Zip Code)

 

(770) 242-8723

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

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

 

 

Large Accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☒

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

 

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

 

As of November 10, 2021, the registrant had 13,633,583 shares of Common Stock, $0.001 par value per share, outstanding.

 

 

 

    

PART I — FINANCIAL INFORMATION

 

 

 

 

Page

 

Item 1.

Financial Statements

 

3

 

 

Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020 (Unaudited)

 

3

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)

 

4

 

 

Consolidated Statements of Stockholders Equity for the Three Months Ended September 30, 2021 and 2020 (Unaudited)

 

5

 

 

Consolidated Statements of Stockholders Equity for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

 

7

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

 

9

 

 

Notes to Unaudited Consolidated Financial Statements

 

10

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

 

 

Company Overview

 

38

 

 

Results of Operations

 

40

 

 

Disclosure About Off-Balance Sheet Arrangements

 

 

 

 

Critical Accounting Policies and Estimates

 

 

 

 

Liquidity and Capital Resources

 

42

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

46

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

46

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

47

 

 

 

 

 

 

Item 1A.

Risk Factors

 

47

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

47

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

47

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

47

 

 

 

 

 

 

Item 5.

Other Information

 

 

 

 

 

 

 

 

Item 6.

Exhibits

 

 

 

 

 

 

 

 

Signatures

 

 

48

 

  

 
2

Table of Contents

      

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 541

 

 

$ 182

 

Accounts receivable, net of allowance for doubtful accounts of $126 at September 30, 2021 and December 31, 2020

 

 

24

 

 

 

24

 

Inventory, net of reserves of $785 and $758 at September 30, 2021 and December 31, 2020, respectively

 

 

590

 

 

 

605

 

Other current assets

 

 

173

 

 

 

85

 

Total current assets

 

 

1,328

 

 

 

896

 

 

 

 

 

 

 

 

 

 

Non-Current Assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

11

 

 

 

1

 

Operating lease right-of-use assets, net of amortization

 

 

388

 

 

 

453

 

Other assets

 

 

17

 

 

 

-

 

Total non-current assets

 

 

416

 

 

 

454

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 1,744

 

 

$ 1,350

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 2,220

 

 

$ 2,419

 

Accounts payable, related parties

 

 

94

 

 

 

116

 

Accrued iabilities

 

 

1,380

 

 

 

2,995

 

Deferred revenue

 

 

278

 

 

 

42

 

Current portion of lease liability

 

 

64

 

 

 

56

 

Current portion of long-term debt

 

 

18

 

 

 

28

 

Notes payable in default

 

 

-

 

 

 

328

 

Notes payable in default, related parties

 

 

-

 

 

 

1

 

Short-term notes payable

 

 

83

 

 

 

45

 

Short-term notes payable, related parties

 

 

50

 

 

 

51

 

Convertible notes payable in default

 

 

161

 

 

 

-

 

Convertible notes payable, past due

 

 

-

 

 

 

1,930

 

Short-term convertible notes payable

 

 

728

 

 

 

951

 

Total current liabilities

 

 

5,076

 

 

 

8,962

 

 

 

 

 

 

 

 

 

 

Long-Term Liabilities

 

 

 

 

 

 

 

 

Warrants, at fair value

 

 

-

 

 

 

2,203

 

Long-term lease Liabilities

 

 

343

 

 

 

392

 

Derivative liability

 

 

30

 

 

 

25

 

Long-term convertible debt

 

 

787

 

 

 

23

 

Long-term debt, related parties

 

 

586

 

 

 

600

 

Total long-term liabilities

 

 

1,746

 

 

 

3,243

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

6,822

 

 

 

12,205

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series C convertible preferred stock, $.001 par value; 9.0 shares authorized, 0.3 shares issued and outstanding as of September 30, 2021 and December 31, 2020. Liquidation preference of $286 at September 30, 2021 and December 31, 2020.

 

 

105

 

 

 

105

 

Series C1 convertible preferred stock, $.001 par value; 20.3 shares authorized, 1.0 shares issued and outstanding as of September 30, 2021 and December 31, 2020. Liquidation preference of $1,049 at September 30, 2021 and December 31, 2020.

 

 

170

 

 

 

170

 

Series C2 convertible preferred stock, $.001 par value; 5,000 shares authorized, 3.3 shares issued and outstanding as of September 30, 2021 and December 31, 2020. Liquidation preference of $3,263 at September 30, 2021 and December 31, 2020.

 

 

531

 

 

 

531

 

Series D convertible preferred stock, $.001 par value; 6.0 shares authorized,0.8 shares issued and outstanding as of September 30, 2021 and December 31, 2020. Liquidation preference of $763 at September 30, 2021 and December 31, 2020, respectively.

 

 

276

 

 

 

276

 

Series E convertible preferred stock, $.001 par value; 5.0 shares authorized, 1.7 shares issued and outstanding as of September 30, 2021 and December 31, 2020. Liquidation preference of $1,736 at September 30, 2021 and December 31, 2020.

 

 

1,639

 

 

 

1,639

 

Series F convertible preferred stock, $.001 par value; 1.5 shares authorized, 1.4 and nil shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively. Liquidation preference of $1,436 and nil at September 30, 2021 and December 31, 2020, respectively.

 

 

1,195

 

 

 

-

 

Series F-2 convertible preferred stock, $.001 par value; 5.0 shares authorized, 3.3 and nil shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively. Liquidation preference of $3,339 and nil at September 30, 2021 and December 31, 2020, respectively.

 

 

2,963

 

 

 

-

 

Series G convertible preferred stock, $.001 par value; 1,000 shares authorized, nil shares issued and outstanding as of September 30, 2021 and December 31, 2020. Liquidation preference was nil at September 30, 2021 and December 31, 2020.

 

 

-

 

 

 

-

 

Common stock, $.001 par value; 3,000,000 shares authorized, 13,607 and 13,138 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

3,403

 

 

 

3,403

 

Additional paid-in capital

 

 

126,650

 

 

 

123,109

 

Treasury stock at cost

 

 

(132 )

 

 

(132 )

Accumulated deficit

 

 

(141,878 )

 

 

(139,956 )

 

 

 

 

 

 

 

 

 

Total stockholders’ deficit

 

 

(5,078 )

 

 

(10,855 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$ 1,744

 

 

$ 1,350

 

        

The accompanying notes are an integral part of these consolidated statements.

   

 
3

Table of Contents

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales - devices and disposables

 

$ 19

 

 

$ 77

 

 

$ 21

 

 

$ 77

 

Cost of goods sold

 

 

42

 

 

 

12

 

 

 

42

 

 

 

19

 

Gross profit (loss)

 

 

(23 )

 

 

65

 

 

 

(21 )

 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

16

 

 

 

41

 

 

 

52

 

 

 

121

 

Sales and marketing

 

 

41

 

 

 

36

 

 

 

107

 

 

 

107

 

General and administrative

 

 

407

 

 

 

141

 

 

 

1,747

 

 

 

593

 

Total operating expenses

 

 

464

 

 

 

218

 

 

 

1,906

 

 

 

821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(487 )

 

 

(153 )

 

 

(1,927 )

 

 

(764 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(594 )

 

 

(317 )

 

 

(1,050 )

 

 

(910 )

Change in fair value of derivative liability

 

 

(1 )

 

 

(36 )

 

 

(89 )

 

 

(36 )

Gain (loss) from extinguishment of debt

 

 

763

 

 

 

20

 

 

 

578

 

 

 

(296 )

Change in fair value of warrants

 

 

-

 

 

 

2,061

 

 

 

448

 

 

 

(490 )

Other income/loss

 

 

387

 

 

 

-

 

 

 

414

 

 

 

51

 

Total other income (expense)

 

 

555

 

 

 

1,728

 

 

 

301

 

 

 

(1,681 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

68

 

 

 

1,575

 

 

 

(1,626 )

 

 

(2,445 )

Preferred stock dividends

 

 

(119 )

 

 

(46 )

 

 

(296 )

 

 

(75 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

$ (51 )

 

$ 1,529

 

 

$ (1,922 )

 

$ (2,520 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ 0.12

 

 

$ (0.14 )

 

$ (0.25 )

Diluted

 

$ (0.00 )

 

$ 0.03

 

 

$ (0.14 )

 

$ (0.25 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

13,417

 

 

 

12,995

 

 

 

13,291

 

 

 

9,985

 

Diluted

 

 

13,417

 

 

 

60,331

 

 

 

13,291

 

 

 

9,985

 

 

The accompanying notes are an integral part of these consolidated statements.

 

 
4

Table of Contents

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

Series C

Series C1

Series C2

Series D

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance at June 30, 2021

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

1

 

 

$ 276

 

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 common stock for payment of Series E preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of warrants to consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of warrants from liability to equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accrued preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at September 30, 2021

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

1

 

 

$ 276

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

Series E

Series F

Series F2

Series G

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance at June 30, 2021

 

 

2

 

 

$ 1,639

 

 

 

1

 

 

$ 1,195

 

 

 

3

 

 

$ 2,963

 

 

 

62

 

 

$ -

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(62 )

 

 

-

 

Issuance of common stock for payment of Series D preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for payment of Series E preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of warrants to consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of warrants from liability to equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accrued preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at September 30, 2021

 

 

2

 

 

$ 1,639

 

 

 

1

 

 

$ 1,195

 

 

 

3

 

 

$ 2,963

 

 

 

-

 

 

$ -

 

   

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

Treasury

Accumulated

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

 Stock

 

 

Deficit

 

 

Total

 

Balance at June 30, 2021

 

 

13,297

 

 

$ 3,403

 

 

$ 126,353

 

 

$ (132 )

 

$ (141,827.00 )

 

$ (5,324 )

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

 

 

22

 

 

 

-

 

 

 

11

 

 

 

-

 

 

 

-

 

 

 

11

 

Issuance of common stock for payment of Series E preferred dividends

 

 

288

 

 

 

-

 

 

 

118

 

 

 

-

 

 

 

-

 

 

 

118

 

Issuance of warrants to consultants

 

 

-

 

 

 

-

 

 

 

112

 

 

 

-

 

 

 

-

 

 

 

112

 

Conversion of warrants from liability to equity

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

56

 

 

 

-

 

 

 

-

 

 

 

56

 

Accrued preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(119 )

 

 

(119 )

Net income

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

68

 

 

 

68

 

Balance at September 30, 2021

 

 

13,607

 

 

$ 3,403

 

 

$ 126,650

 

 

$ (132 )

 

$ (141,878 )

 

$ (5,078 )

     

The accompanying notes are an integral part of these consolidated statements.

 

 
5

Table of Contents

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

Series C

Series C1

Series C2

Series D

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance at June 30, 2020

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

1

 

 

$ 276

 

Issuance of preferred stock in financing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of debt into common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock in financing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for payment of Series D preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

107

 

 

 

-

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accrued series D preferred stock dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at September 30, 2020

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

108

 

 

$ 276

 

 

 

 

Preferred Stock

 

 

 

 

Additional

 

 

 

 

 

 

 

Series E

 

 

Common Stock

 

Paid-In

Treasury

Accumulated

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Total

 

Balance at June 30, 2020

 

 

1

 

 

$ 798

 

 

 

12,764

 

 

$ 3,403

 

 

$ 122,030

 

 

$ (132 )

 

$ (143,604 )

 

$ (16,423 )

Issuance of preferred stock in financing

 

 

1

 

 

 

741

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

741

 

Conversion of debt into common stock

 

 

-

 

 

 

-

 

 

 

175

 

 

 

-

 

 

 

50

 

 

 

-

 

 

 

 

 

 

 

50

 

Issuance of common stock in financing

 

 

-

 

 

 

-

 

 

 

50

 

 

 

1

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

6

 

Issuance of common stock for payment of Series D preferred dividends

 

 

-

 

 

 

-

 

 

 

107

 

 

 

-

 

 

 

26

 

 

 

-

 

 

 

-

 

 

 

26

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

251

 

 

 

-

 

 

 

-

 

 

 

251

 

Accrued series D preferred stock dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46 )

 

 

(46 )

Net loss

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,575

 

 

 

1,575

 

Balance at September 30, 2020

 

 

2

 

 

$ 1,539

 

 

 

13,096

 

 

$ 3,404

 

 

$ 122,362

 

 

$ (132 )

 

$ (142,075 )

 

$ (13,820 )

 

   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 NINE MONTHS ENDED SEPTEMBER 30, 2021

 

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

Series C

Series C1

Series C2

Series D

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance at December 31, 2020

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

1

 

 

$ 276

 

Series F preferred offering

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

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 common stock for payment of Series E preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of warrants to consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Beneficial conversion feature of warrants issued with debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of warrants from liabilities to equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accrued preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at September 30, 2021

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

1

 

 

$ 276

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

Series E

Series F

Series F-2

Series G

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance at December 31, 2020

 

 

2

 

 

$ 1,639

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

Series F preferred offering

 

 

-

 

 

 

-

 

 

 

1

 

 

 

1,195

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Series F-2 preferred offering

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

404

 

 

 

-

 

 

 

-

 

Conversion of debt and expenses for Series F-2 preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

2,559

 

 

 

-

 

 

 

-

 

Issuance of common stock to finders

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Series G preferred offering

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

153

 

 

 

-

 

Series G redemption

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(153 )

 

 

-

 

Issuance of common stock for payment of Series D preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for payment of Series E preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of warrants to consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Beneficial conversion feature of warrants issued with debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of warrants from liabilities to equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accrued preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at September 30, 2021

 

 

2 

 

 

$ 1,639

 

 

 

1

 

 

$ 1,195

 

 

 

3

 

 

$ 2,963

 

 

 

-

 

 

$ -

 

   

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

Treasury

Accumulated

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Total

 

Balance at December 31, 2020

 

 

13,138

 

 

$ 3,403

 

 

$ 123,109

 

 

$ (132 )

 

$ (139,956 )

 

$ (10,855 )

Series F preferred offering

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,195

 

Series F-2 preferred offering

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

404

 

Conversion of debt and expenses for Series F-2 preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,559

 

Issuance of common stock to finders

 

 

98

 

 

 

-

 

 

 

54

 

 

 

-

 

 

 

-

 

 

 

54

 

Series G preferred offering

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Series G redemption

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

Issuance of common stock for payment of Series D preferred dividends

 

 

83

 

 

 

-

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

39

 

Issuance of common stock for payment of Series E preferred dividends

 

 

288

 

 

 

-

 

 

 

118

 

 

 

-

 

 

 

-

 

 

 

118

 

Issuance of warrants to consultants

 

 

-

 

 

 

-

 

 

 

1,093

 

 

 

-

 

 

 

-

 

 

 

1,093

 

Warrants issued with debt

 

 

-

 

 

 

-

 

 

 

304

 

 

 

-

 

 

 

-

 

 

 

304

 

Conversion of warrants from liabilities to equity

 

 

-

 

 

 

-

 

 

 

1,755

 

 

 

-

 

 

 

-

 

 

 

1,755

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

178

 

 

 

-

 

 

 

-

 

 

 

178

 

Accrued preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(296 )

 

 

(296 )

Net loss

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,626 )

 

 

(1,626 )

Balance at September 30, 2021

 

 

13,607

 

 

$ 3,403

 

 

$ 126,650

 

 

$ (132 )

 

$ (141,878 )

 

$ (5,078 )

     

The accompanying notes are an integral part of these consolidated statements.

      

 
7

Table of Contents

 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

Series C

Series C1

Series C2

Series D

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance at December 31, 2019

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

-

 

 

$ -

 

Issuance of preferred stock in financing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

276

 

Conversion of debt into common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock in financing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of warrants in financing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for manufacturing agreements

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for payment of Series D preferred dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

107

 

 

 

-

 

Beneficial conversion feature of debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accrued series D preferred stock dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at September 30, 2020

 

 

-

 

 

$ 105

 

 

 

1

 

 

$ 170

 

 

 

3

 

 

$ 531

 

 

 

108

 

 

$ 276

 

 

 

 

Preferred Stock

 

 

 

 

Additional

 

 

 

 

 

 

 

Series E

 

 

Common Stock

 

Paid-In

Treasury

Accumulated

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

 Stock

 

 

Deficit

 

 

Total

 

Balance at December 31, 2019

 

 

-

 

 

$ -

 

 

 

3,319

 

 

$ 3,394

 

 

$ 118,552

 

 

$ (132 )

 

$ (139,555 )

 

$ (16,935 )

Issuance of preferred stock in financing

 

 

2

 

 

 

1,539

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,815

 

Conversion of debt into common stock

 

 

-

 

 

 

-

 

 

 

8,132

 

 

 

8

 

 

 

2,921

 

 

 

-

 

 

 

 

 

 

 

2,929

 

Issuance of common stock in financing

 

 

-

 

 

 

-

 

 

 

1,526

 

 

 

2

 

 

 

460

 

 

 

-

 

 

 

-

 

 

 

462

 

Issuance of warrants in financing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

70

 

 

 

-

 

 

 

-

 

 

 

70

 

Issuance of common stock for manufacturing agreements

 

 

-

 

 

 

-

 

 

 

12

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for payment of Series D preferred dividends

 

 

-

 

 

 

-

 

 

 

107

 

 

 

-

 

 

 

26

 

 

 

-

 

 

 

-

 

 

 

26

 

Beneficial conversion feature of debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

82

 

 

 

-

 

 

 

-

 

 

 

82

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

251

 

 

 

-

 

 

 

-

 

 

 

251

 

Accrued series D preferred stock dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(75 )

 

 

(75 )

Net loss

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,445 )

 

 

(2,445 )

Balance at September 30, 2020

 

 

2

 

 

$ 1,539

 

 

 

13,096

 

 

$ 3,404

 

 

$ 122,362

 

 

$ (132 )

 

$ (142,075 )

 

$ (13,820 )

  

    The accompanying notes are an integral part of these consolidated financial statements.

  

 
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GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

 

 

 

 

Nine Months Ended

 

September 30,

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (1,626 )

 

$ (2,445 )

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

 

 

 

 

 

 

 

 

Bad debt expense

 

 

-

 

 

 

13

 

Depreciation

 

 

1

 

 

 

-

 

Amortization of debt issuance costs and discounts

 

 

250

 

 

 

297

 

Amortization of beneficial conversion feature

 

 

37

 

 

 

78

 

Stock based compensation

 

 

178

 

 

 

251

 

Change in fair value of warrants

 

 

(448 )

 

 

490

 

Extinguishment of derivative liability

 

 

(84 )

 

 

296

 

Change in fair value of derivatives

 

 

89

 

 

 

36

 

Amortization of lease right-of-use-asset

 

 

66

 

 

 

-

 

Expense for warrants issued to consultants

 

 

585

 

 

 

-

 

Gain from forgiveness of debt

 

 

(578 )

 

 

-

 

Other non-cash expenses (income)

 

 

109

 

 

 

-

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

-

 

 

 

(1 )

Inventory

 

 

14

 

 

 

(5 )

Other current assets

 

 

(88 )

 

 

(532 )

Other non-current assets

 

 

(17 )

 

 

18

 

Accounts payable and accrued liabilities

 

 

(435 )

 

 

19

 

Lease liabilities

 

 

(41 )

 

 

-

 

Deferred revenue

 

 

237

 

 

 

(59 )

NET CASH USED IN OPERATING ACTIVITIES

 

 

(1,751 )

 

 

(1,544 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(10 )

 

 

(1 )

NET CASH USED FOR INVESTING ACTIVITIES

 

 

(10 )

 

 

(1 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from debt financing

 

 

1,248

 

 

 

519

 

Payments made on notes payable

 

 

(1,415 )

 

 

(959 )

Payments of debt issuance costs

 

 

(86 )

 

 

-

 

Note payable default penalty

 

 

398

 

 

 

-

 

Proceeds from issuance of Series E preferred stock

 

 

-

 

 

 

1,539

 

Proceeds from issuance of common stock, net of costs

 

 

-

 

 

 

128

 

Proceeds from Series F offering, net of costs

 

 

1,436

 

 

 

-

 

Proceeds from Series F-2 offering, net of costs

 

 

539

 

 

 

-

 

Proceeds from Series G offering, net of costs

 

 

125

 

 

 

-

 

Redemption of Series G preferred stock

 

 

(125 )

 

 

-

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

2,120

 

 

 

1,227

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

359

 

 

 

(318 )

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

 

182

 

 

 

899

 

 

 

 

 

 

 

 

 

 

CASH AT END OF PERIOD

 

$ 541

 

 

$ 581

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 552

 

 

$ 229

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Dividends on preferred stock

 

$ 296

 

 

$ 75

 

Debt from related parties exchanged for preferred series F-2

 

$ 323

 

 

$ -

 

Issuance of series F-2 preferred stock

 

$ 2,236

 

 

$   

 

Issuance of warrants to finders in connection with Series F and Series F-2 preferred stock

 

$ 377

 

 

$ -

 

Settlement of dividends through common stock issuance

 

$ 157

 

 

$ 26

 

Settlement of accounts payable through common stock issuance

 

$ 62

 

 

$ -

 

Warrants exchanged for fixed price warrants

 

$ 1,755

 

 

$ 70

 

Warrants issued with debt

 

$ 304

 

 

$ -

 

Issuance of common stock as debt repayment

 

$ -

 

 

$ 2,832

 

Subscription receivable

 

$ -

 

 

$ 635

 

   

The accompanying notes are an integral part of these consolidated financial statements.

 

 
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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

 

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. The December 31, 2020 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2020. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

 

All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company as of September 30, 2021 and December 31, 2020, and the consolidated results of operations and cash flows for the three and nine-month periods ended September 30, 2021 and 2020 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 September 30, 2021, it had an accumulated deficit of approximately $141.9 million. To date, the Company has engaged primarily in research and development efforts and the early stages of marketing its products. The Company may not be successful in growing sales for its products. Moreover, required regulatory clearances or approvals may not be obtained in a timely manner, or at all. The Company’s products may not ever gain market acceptance and the Company may not ever generate significant revenues or achieve profitability. The development and commercialization of the Company’s products requires substantial development, regulatory, sales and marketing, manufacturing and other expenditures. The Company expects operating losses to continue for the foreseeable future as it continues to expend substantial resources to complete development of its products, obtain regulatory clearances or approvals, build its marketing, sales, manufacturing and finance capabilities, and conduct further research and development.

 

The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment. The Company’s principal decision makers are the Chief Executive Officer and its Chief Financial Officer. Management believes that its business operates as one reportable segment because: a) the Company measures profit and loss as a whole; b) the principal decision makers do not review information based on any operating segment; c) the Company does not maintain discrete financial information on any specific segment; d) the Company has not chosen to organize its business around different products and services, and e) the Company has not chosen to organize its business around geographic areas.

 

 
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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 September 30, 2021, the Company had a negative working capital of approximately $3.7 million, accumulated deficit of $141.9 million, and incurred a net loss including preferred dividends of $1.9 million for the nine months then ended. Stockholders’ deficit totaled approximately $5.1 million at September 30, 2021, primarily due to recurring net losses from operations.

 

During the nine-month period ended September 30, 2021, the Company raised $3.2 million of funds from the sale of preferred stock and 10% convertible debentures. The Company will need to continue to raise capital in order to provide funding for its operations and FDA approval process. If sufficient capital cannot be raised, the Company will continue its plans of curtailing operations by reducing discretionary spending and staffing levels and attempting to operate by only pursuing activities for which it has external financial support. However, there can be no assurance that such external financial support will be sufficient to maintain even limited operations or that the Company will be able to raise additional funds on acceptable terms, or at all. In such a case, the Company might be required to enter into unfavorable agreements or, if that is not possible, be unable to continue operations, and to the extent practicable, liquidate and/or file for bankruptcy protection.

 

The Company had warrants exercisable for approximately 30.1 million shares of its common stock outstanding at September 30, 2021, with exercise prices ranging between $0.15 and $0.80 per share. Exercises of in-the-money warrants would generate a total of approximately $5.7 million in cash, assuming full exercise, although the Company cannot be assured that holders will exercise any warrants. Management may obtain additional funds through the public or private sale of debt or equity, and grants, if available.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant areas where estimates are used include the allowance for doubtful accounts, inventory valuation and input variables for Black-Scholes, Monte Carlo simulations and binomial calculations. The Company uses the Monte Carlo simulations and binomial calculations in the calculation of the fair value of the warrant liabilities and the valuation of embedded conversion options and freestanding warrants.

 

Accounting Standard Updates

 

FASB ASU 2021-04, “Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” – Issued in May 2021, ASU No. 2021-04 provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. We have elected to early adopt ASU 2021-04 in the third quarter of 2021. Adoption of this standard had no material impact on our consolidated financial statements.

 

 
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FASB ASU NO. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” – Issued in August 2020, ASU 2020-06 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 are classification 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. Adoption had no material impact on our consolidated financial statements.

 

FASB ASU NO. 2019-12, “Simplifying the Accounting for Income Taxes” – Issued in December 2019, 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. Adoption had no material impact on our 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.

 

Inventory Valuation

 

All inventories are stated at lower of cost or net realizable value, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative expenses are not inventoried, but are charged to expense when incurred. As of September 30, 2021 and December 31, 2020, our inventories were as follows:

 

 

 

(in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

2021

 

2020

 

 

 

 

 

 

 

 

Raw materials

 

$ 1,256

 

 

$ 1,276

 

Work-in-progress

 

 

86

 

 

 

80

 

Finished goods

 

 

33

 

 

 

7

 

Inventory reserve

 

 

(785 )

 

 

(758 )

 

 

 

 

 

 

 

 

 

Total inventory

 

$ 590

 

 

$ 605

 

 

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.

 

 
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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 September 30, 2021 and December 31, 2020:

 

 

 

 

(in thousands)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

2021

 

2020

 

 

 

 

 

 

 

 

 

Equipment

 

 

$ 1,052

 

 

$ 1,042

 

Software

 

 

 

652

 

 

 

652

 

Furniture and fixtures

 

 

 

41

 

 

 

41

 

Leasehold improvements

 

 

 

12

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

 

 

1,757

 

 

 

1,747

 

Less accumulated depreciation

 

 

 

(1,746 )

 

 

(1,746 )

Property, equipment and leasehold improvements, net

 

 

$

11

 

 

$

1

 

 

During the nine months ended September 30, 2021 and year ended December 31, 2020, the Company disposed of approximately nil and $647,000 of property and equipment that was fully depreciated, respectively. Depreciation expense related to property and equipment for the nine months ended September 30, 2021 and 2020 was not material.

 

Debt Issuance Costs

 

Debt issuance costs are capitalized and amortized over the term of the associated debt. Debt issuance costs are presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with the debt discount.

 

Patent Costs (Principally Legal Fees)

 

Costs incurred in filing, prosecuting, and maintaining patents are recurring, and expensed as incurred. Maintaining patents are expensed as incurred as the Company has not yet received U.S. FDA approval and recovery of these costs is uncertain. Such costs aggregated to approximately $14,800 and $17,000 for the nine months ended September 30, 2021 and 2020, respectively.

  

 
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Leases

 

A lease provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

 

Where an operating lease contains extension options that the Company is reasonably certain to exercise, the extension period is included in the calculation of the right-of-use assets and lease liabilities.

 

The discount rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when that is not readily determinable, the Company utilizes its secured borrowing rate. Right-of-use assets include any lease payments required to be made prior to commencement and exclude lease incentives. Both right-of-use assets and lease liabilities exclude variable payments not based on an index or rate, which are treated as period costs. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants. See Note 7 – Commitments and Contingencies.

 

Accrued Liabilities

 

Accrued liabilities as of September 30, 2021 and December 31, 2020 are summarized as follows:

 

 

 

(in thousands)

 

 

 

September 30,
2021

 

December 31,
2021

 

 

 

 

 

 

 

 

Compensation

 

$ 745

 

 

$ 1,094

 

Professional fees

 

 

36

 

 

 

83

 

Interest

 

 

211

 

 

 

1,517

 

Vacation

 

 

44

 

 

 

34

 

Preferred dividends

 

 

298

 

 

 

202

 

Other accrued expenses

 

 

46

 

 

 

65

 

Total

 

$ 1,380

 

 

$ 2,995

 

 

Subscription receivables

 

Cash received from investors for common stock shares that has not completed processing is recorded as a liability to subscription receivables.

 

 
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Table of Contents

    

Revenue Recognition

 

ASC 606, Revenue from Contracts with Customers, establishes a single and comprehensive framework which sets out how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, revenue-based revenue recognition around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps:

 

 

·

Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled.

 

 

 

 

·

Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract.

 

 

 

 

·

Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties.

 

 

 

 

·

Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted.

 

 

 

 

·

Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.

  

The Company did not recognize material revenues during the nine-month periods ended September 30, 2021 or 2020. The Company’s revenues do not require significant estimates or judgments. The Company is not party to contracts that include multiple performance obligations or material variable consideration.

 

Contract Balances

 

The Company defers payments received as revenue until earned based on the related contracts and applying ASC 606 as required. As of September 30, 2021, and December 31, 2020, the Company had $278,000 and $42,000 in deferred revenue, respectively.

 

Significant Distributors

 

As of September 30, 2021, accounts receivable outstanding was $149,000, the outstanding amount was netted against a $126,000 allowance, leaving a balance of $24,000 which was from one distributor. As of December 31, 2020, accounts receivable outstanding was $150,000, the outstanding amount was netted against a $126,000 allowance, leaving a balance of $24,000 which was from one distributor.

 

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.

   

 
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Income Taxes

 

The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”. The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expense are expected to be settled in our income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company has filed its 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 $61.6 million of net operating losses carryforward available. This net operating loss will be eligible to be carried forward for tax purposes at federal and applicable states level. A full valuation allowance has been recorded related the deferred tax assets generated from the net operating losses.

 

The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50.0% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations.

 

Warrants

 

The Company has issued warrants, which allow the warrant holder to purchase one share of stock at a specified price for a specified period of time. The Company records equity instruments including warrants based on the fair value at the date of issue. The fair value of warrants classified as equity instruments at the date of issuance is estimated using the Black-Scholes Model. The fair value of warrants classified as liabilities at the date of issuance is estimated using the Monte Carlo Simulation or Binomial model.

 

Stock Based Compensation

 

The Company accounts for its stock-based awards in accordance with ASC Subtopic 718, “Compensation – Stock Compensation”, which requires fair value measurement on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors. The Company determines the fair value of stock options using the Black-Scholes model. The fair value of restricted stock awards is based upon the quoted market price of the common shares on the date of grant. The fair value of stock-based awards is expensed over the requisite service periods of the awards. The Company accounts for forfeitures of stock-based awards as they occur.

 

The Black-Scholes option pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future.

 

 
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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 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.

 

 
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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 September 30, 2021 we had one instrument that we valued for the derivative liability associated with the bifurcated conversion option of the Auctus loan for $400,000 ($700,000 of the $1,100,000 was paid in during the nine months ended September 30, 2021). There was no movement of instruments between fair value hierarchy tiers during the nine months ended September 30, 2021.

 

The following tables present the fair value of those liabilities measured on a recurring basis as of September 30, 2021 and December 31, 2020:

 

 

 

Fair Value at September 30, 2021
(in thousands)

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability/bifurcated conversion option in connection with Auctus $400,000 loan on December 17, 2019

 

$ -

 

 

$ -

 

 

$ (30 )

 

$ (30 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term liabilities at fair value

 

$ -

 

 

$ -

 

 

$ (30 )

 

$ (30 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at December 31, 2020
(in thousands)

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued in connection with Senior Secured Debt

 

$  

 

 

$

 

 

 

(2,203 )

 

$ (2,203 )

Derivative liability/bifurcated conversion option in connection with Auctus $400,000 loan on December 17, 2019

 

 

-

 

 

 

-

 

 

 

(25 )

 

 

(25 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term liabilities at fair value

 

$ -

 

 

$ -

 

 

$ (2,228 )

 

$ (2,228 )

   

The following is a summary of changes to Level 3 instruments during the nine months ended September 30, 2021:

 

 

 

(in thousands)

 

 

 

Senior Secured Debt

 

 

Derivative

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

$ (2,203 )

 

$ (25 )

 

$ (2,228 )

Change in the terms of warrants previously recorded as a liability and now reclassified to equity

 

 

1,755

 

 

 

-

 

 

 

1,755

 

Change in value due to warrants expiring during the year

 

 

448

 

 

 

-

 

 

 

448

 

Extinguishment of derivative liability due to payoff of $700,000 loan to Auctus

 

 

-

 

 

 

84

 

 

 

-

 

Change in fair value during the year

 

 

-

 

 

 

(89 )

 

 

(89 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

$ -

 

 

$ (30 )

 

$ (114 )

     

 
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4. STOCKHOLDERS’ DEFICIT

 

Common Stock

 

The Company has authorized 3,000,000,000 shares of common stock with $0.001 par value. As of September 30, 2021 and December 31,2020 13,607,609 and 13,138,282 shares were issued and outstanding, respectively.

 

During the nine months ended September 30, 2021, the Company issued 469,327 shares of common stock as listed below:

 

 

 

Number of Shares

 

 

Shares issued for payment of Series D dividends

 

 

83,065

 

Shares issued for payment of Series E dividends

 

 

288,262

 

Shares issued for payment of finder fee

 

 

98,000

 

Issued during the nine months ended September 30, 2021

 

 

469,327

 

 

 

 

 

 

Summary table of common stock share transactions:

 

 

 

 

Balance at December 31, 2020

 

 

13,138,282

 

Issued in 2021

 

 

469,327

 

Balance at September 30, 2021

 

 

13,607,609

 

 

Investments

 

During 2021, the Company received 10% debenture unit investments in the amount of $1,130,000 and incurred fees due on these debentures of $86,400. The Company also issued the finders 413,600 warrants for the Company’s common stock shares. The investors received a total of 1,130,000 warrants for common stock shares. The debentures are convertible into 2,260,000 of the Company’s common stock shares.

 

During 2021, the Company received equity investments in the amount of $2,114,000 and incurred fees due on these investments of $139,000. The Company also issued the finders 98,000 of the Company’s common stock shares and 643,700 warrants for the Company’s common stock shares. These investors received a total of 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 shares converts into 4,000 shares of the Company’s common stock shares).

 

During 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $132,000, net to the Company is $125,000, for 153,000 shares of Series G preferred stock. As of September 30, 2021, all Series G preferred shares were redeemed.

 

Debt Exchanges - 2021

 

On January 8, 2021, the Company made the final payment of $750,000 out of the total $1,500,000 as required by this exchange agreement with GPB. On June 30, 2021, the Company issued 2,236 series F-2 preferred stock shares in accordance with the terms of the agreement (see Note 10 – Convertible Debt).

 

On February 19, 2021, the Company exchanged $100,000 and $85,000 of long-term debt for Dr. Cartwright and Dr. Faupel in exchange for 100 and 85 shares of Series F-2 Preferred Stock, respectively.

 

On March 10, 2021, the Company exchanged $88,000 in accrued consulting fees for Mr. Blumberg for 88 Series F-2 preferred stock shares.

   

 
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On March 22, 2021, the Company entered into an exchange agreement with Richard Fowler. As of December 31, 2020, the Company owed Mr. Fowler $546,214 ($412,624 in deferred salary and $133,590 in accrued interest). The Company exchanged $50,000 of the amount owed of $546,214 for 50 Series F-2 Preferred Shares (convertible into 200,000 common stock shares), and a $150,000 unsecured note. The note accrues interest at the rate of 6% (18% in the event of default) beginning on March 22, 2022 and will be payable in monthly installments of $3,600 for four years, with the first payment being due on March 15, 2022. The effective interest rate of the note is 6.18%. Mr. Fowler also has a short-term note for $26,400 and $18,718 in accrued interest. Mr. Fowler forgave $86,554 and will forgive up to $259,661 if the Company complies with the repayment plan described above.

 

Preferred Stock

 

The Company has authorized 5,000,000 shares of preferred stock with a $.001 par value. The board of directors has the authority to issue these shares and to set dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions.

 

Series C Convertible Preferred Stock

 

The board designated 9,000 shares of preferred stock as Series C Convertible Preferred Stock, (the “Series C Preferred Stock”). Pursuant to the Series C certificate of designations, shares of Series C preferred stock are convertible into common stock by their holder at any time and may be mandatorily convertible upon the achievement of specified average trading prices for the Company’s common stock. At September 30, 2021 and December 31, 2020, there were 286 shares outstanding with a conversion price of $0.50 per share, such that each share of Series C preferred stock would convert into approximately 2,000 shares of the Company’s common stock; for a total convertible of 572,000 common stock shares, subject to customary adjustments, including for any accrued but unpaid dividends and pursuant to certain anti-dilution provisions, as set forth in the Series C certificate of designations. The conversion price will automatically adjust downward to 80% of the then-current market price of the Company’s common stock 15 trading days after any reverse stock split of the Company’s common stock, and 5 trading days after any conversions of the Company’s outstanding convertible debt.

 

Holders of the Series C preferred stock are entitled to quarterly cumulative dividends at an annual rate of 12.0% until 42 months after the original issuance date (the “Dividend End Date”), payable in cash or, subject to certain conditions, the Company’s common stock. Unpaid accrued dividends were $120,120 as of September 30, 2021. 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 September 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 $1,000, plus any accrued but unpaid dividends. In addition, the purchasers of the Series C preferred stock received, on a pro rata basis, warrants exercisable to purchase an aggregate of approximately 1 share of Company’s common stock. The warrants contain anti-dilution adjustments in the event that the Company issues shares of common stock, or securities exercisable or convertible into shares of common stock, at prices below the exercise price of such warrants. As a result of the anti-dilution protection, the Company is required to account for the warrants as a liability recorded at fair value each reporting period. As of September 30, 2021, these warrants had expired.

 

Series C1 Convertible Preferred Stock

 

The board designated 20,250 shares of preferred stock as Series C1 Preferred Stock, of which 1,049 shares were issued and outstanding at September 30, 2021 and December 31, 2020. In addition, some holders separately agreed to exchange each share of the Series C1 Preferred Stock held for one (1) share of the Company’s newly created Series C2 Preferred Stock. In total, for 3,262.25 shares of Series C1 Preferred Stock to be surrendered, the Company issued 3,262.25 shares of Series C2 Preferred Stock. At September 30, 2021 and December 31, 2020, shares of Series C2 had a conversion price of $0.50 per share, such that each share of Series C preferred stock would convert into approximately 2,000 shares of the Company’s common stock.

   

 
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At September 30, 2021 and December 31, 2020, there were 1,049.25 shares outstanding with a conversion price of $0.50 per share, such that each share of Series C1 preferred stock would convert into approximately 2,000 shares of the Company’s common stock; for a total convertible of 2,098,500 common stock shares.

 

The Series C1 preferred stock has terms that are substantially the same as the Series C preferred stock, except that the Series C1 preferred stock does not pay dividends (unless and to the extent declared on the common stock) or at-the-market “make-whole payments” and, while it has the same anti-dilution protections afforded the Series C preferred stock, it does not automatically reset in connection with a reverse stock split or conversion of our outstanding convertible debt.

 

Series C2 Convertible Preferred Stock

 

On August 31, 2018, the Company entered into agreements with certain holders of the Company’s Series C1 Preferred Stock, including the chairman of the Company’s board of directors, and the Chief Operating Officer and a director of the Company pursuant to which those holders separately agreed to exchange each share of the Series C1 Preferred Stock held for one (1) share of the Company’s newly created Series C2 Preferred Stock. In total, for 3,262.25 shares of Series C1 Preferred Stock to be surrendered, the Company issued 3,262.25 shares of Series C2 Preferred Stock. At September 30, 2021 and December 31, 2020, shares of Series C2 had a conversion price of $0.50 per share, such that each share of Series C preferred stock would convert into approximately 2,000 shares of the Company’s common stock; for a total convertible of 6,524,500 common stock shares.

 

The terms of the Series C2 Preferred Stock are substantially the same as the Series C1 Preferred Stock, except that (i) shares of Series C1 Preferred Stock may not be convertible into the Company’s common stock by their holder for a period of 180 days following the date of the filing of the Certificate of Designation (the “Lock-Up Period”); (ii) the Series C2 Preferred Stock has the right to vote as a single class with the Company’s common stock on an as-converted basis, notwithstanding the Lock-Up Period; and (iii) the Series C2 Preferred Stock will automatically convert into that number of securities sold in the next Qualified Financing (as defined in the Exchange Agreement) determined by dividing the stated value ($1,000 per share) of such share of Series C2 Preferred Stock by the purchase price of the securities sold in the Qualified Financing.

 

Series D Convertible Preferred Stock

 

The Board designated 6,000 shares of preferred stock as Series D Preferred Stock, 763 of which remain outstanding as of September 30, 2021. On January 8, 2020, the Company entered into a Stock Purchase Agreement with certain accredited investors (“the Series D Investors”) pursuant to all obligations under the Series D Certificate of Designation. The Series D Investors included the Chief Executive Officer, Chief Operating Officer and a director of the Company. In total, for $763,000 the Company issued 763 shares of Series D Preferred Stock, 1,526,000 common stock shares, 1,526,000 common stock warrants, exercisable at $0.25, and 1,526,000 common stock warrants, exercisable at $0.75. Each Series D Preferred Stock is convertible into 3,000 common stock shares. The Series D Preferred Stock will have cumulative dividends at the rate per share of 10% per annum. The stated value and liquidation preference on the Series D Preferred Stock is $763. The 763 Series D Preferred Shares are convertible into debt at the option of the holder during a prescribed time period. If the Series D Preferred Shares are converted, the Series D preferences are surrendered and the debt is then secured by the Company’s assets. As of September 30, 2021, none of the 763 Series D Preferred Shares have been converted to secured debt.

 

Each share of Series D Preferred is convertible, at any time for a period of 5 years after issuance, into that number of shares of Common Stock, determined by dividing the Stated Value by $0.25, subject to certain adjustments set forth in the Series D Certificate of Designation (the “Series D Conversion Price”). The conversion of Series D Preferred is subject to a 4.99% beneficial ownership limitation, which may be increased to 9.99% at the election of the holder of the Series D Preferred. If the average of the VWAPs (as defined in the Series D Certificate of Designation) for any consecutive 5 trading day period (“Measurement Period”) exceeds 200% of the then Series D Conversion Price and the average daily trading volume of the Common Stock on the primary trading market exceeds 1,000 shares per trading day during the Measurement Period (subject to adjustments), the Company may redeem the then outstanding Series D Preferred, for cash in an amount equal to aggregate Stated Value then outstanding plus accrued but unpaid dividends.

 

During the nine months ended September 30, 2021, the Company issued 83,065 common stock shares for the payment of accrued Series D Preferred Stock dividends. As of September 30, 2021, the Company had accrued dividends of $14,306.

  

 
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Series E Convertible Preferred Stock

 

The Board designated 5,000 shares of preferred stock as Series E Preferred Stock, 1,736 of which remain outstanding. Each share of Series E Preferred is convertible, at any time for a period of 5 years after issuance, into that number of shares of Common Stock, determined by dividing the Stated Value by $0.25, subject to certain adjustments set forth in the Series E Certificate of Designation (the “Series E Conversion Price”). The conversion of Series E Preferred is subject to a 4.99% beneficial ownership limitation, which may be increased to 9.99% at the election of the holder of the Series E Preferred. If the average of the VWAPs (as defined in the Series E Certificate of Designation) for any consecutive 5 trading day period (“Measurement Period”) exceeds 200% of the then Series E Conversion Price and the average daily trading volume of the Common Stock on the primary trading market exceeds 1,000 shares per trading day during the Measurement Period (subject to adjustments), the Company may redeem the then outstanding Series E Preferred, for cash in an amount equal to aggregate Stated Value then outstanding plus accrued but unpaid dividends.

 

Each share of Series E Preferred Stock has a par value of $0.001 per share and a Stated Value equal to $1,000, subject to increase set forth in its Certificate of Designation.

 

Each holder of Series E Preferred Stock is entitled to receive cumulative dividends of 8% per annum, payable

annually in cash or, following the listing of the Company’s common stock on certain Canadian trading markets and at the option of the Company, shares of common stock.

 

During the nine months ended September 30, 2021, the Company issued 288,262 common stock shares for the payment of Series E Preferred Stock dividends accrued. As of September 30, 2021, the Company had accrued dividends of $19,811.

 

Series F Convertible Preferred Stock

 

The Company was oversubscribed for its Series F Convertible Preferred Stock, resulting in the requirement to file an additional Certificate of Designation for Series F-2 Convertible Preferred Stock with substantially the same terms as the Series F Convertible Preferred Stock. The Board designated 1,500 shares of preferred stock as Series F Preferred Stock, 1,436 of which are issued and outstanding. During 2021, the Company entered into a Stock Purchase Agreement with certain accredited investors (“the Series F Investors”). In total, for $1,436,000 the Company issued 1,436 shares of Series F Preferred Stock. Each Series F Preferred Stock is convertible into 4,000 common stock shares. The Series F Preferred Stock will have cumulative dividends at the rate per share of 6% per annum. The stated value and liquidation preference on the Series F Preferred Stock is $1,436.

 

Each share of Series F Preferred is convertible, at any time for a period of 5 years after issuance, into that number of shares of Common Stock, determined by dividing the Stated Value by $0.25, subject to certain adjustments set forth in the Series F Certificate of Designation (the “Series F Conversion Price”). The conversion of Series F Preferred is subject to a 4.99% beneficial ownership limitation, which may be increased to 9.99% at the election of the holder of the Series F Preferred. If the average of the VWAPs (as defined in the Series F Certificate of Designation) for any consecutive 5 trading day period (“Measurement Period”) exceeds 200% of the then Series F Conversion Price and the average daily trading volume of the Common Stock on the primary trading market exceeds 1,000 shares per trading day during the Measurement Period (subject to adjustments), the Company may redeem the then outstanding Series F Preferred, for cash in an amount equal to aggregate Stated Value then outstanding plus accrued but unpaid dividends. As of September 30, 2021, the Company had not issued shares as payment of Series F Preferred Stock dividends. As of September 30, 2021, the Company had accrued dividends of $44,199.

   

 
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Series F-2 Convertible Preferred Stock

 

The Board designated 3,500 shares of preferred stock as Series F-2 Preferred Stock, 3,237 of which are issued and outstanding. During 2021, the Company entered into a Stock Purchase Agreement with certain accredited investors (“the Series F-2 Investors”). In total, for $678,000 the Company issued 678 shares of Series F-2 Preferred Stock. In addition, the Company exchanged outstanding debt of $2,559,000 for 2,559 shares of Series F-2 Preferred Stock. Each Series F-2 Preferred Stock is convertible into 4,000 common stock shares. The Series F-2 Preferred Stock will have cumulative dividends at the rate per share of 6% per annum. The stated value and liquidation preference on the Series F-2 Preferred Stock is $3,339. Below is a summary of the debt exchanges.

 

On January 8, 2021, the Company made the final payment of $750,000 out of the total $1,500,000 as required by this exchange agreement with GPB. On February 24, 2021, the Company agree to issue 2,236 Series F-2 preferred stock shares in accordance with the terms of the agreement (see Note 10 – Convertible Debt).

 

On February 19, 2021, the Company exchanged $100,000 and $85,000 of long-term debt for Dr. Cartwright and Dr. Faupel in exchange for 100 and 85 shares of Series F-2 Preferred Stock, respectively.

 

On March 10, 2021, the Company exchanged $88,000 in accrued consulting fees for Mr. Blumberg for 88 shares of Series F-2 preferred stock shares.

 

On March 22, 2021, the Company exchanged $50,000 of the amount owed of $546,214 for 50 shares of Series F-2 Preferred Shares (convertible into 200,000 common stock shares), a $150,000 unsecured note. Mr. Fowler forgave $86,554 and will forgive up to $259,661 if the Company complies in full with the repayment plan.

 

Each share of Series F-2 Preferred is convertible, at any time for a period of 5 years after issuance, into that number of shares of Common Stock, determined by dividing the Stated Value by $0.25, subject to certain adjustments set forth in the Series F-2 Certificate of Designation (the “Series F-2 Conversion Price”). The conversion of Series F-2 Preferred is subject to a 4.99% beneficial ownership limitation, which may be increased to 9.99% at the election of the holders of the Series F-2 Preferred. If the average of the VWAPs (as defined in the Series F-2 Certificate of Designation) for any consecutive 5 trading day period (“Measurement Period”) exceeds 200% of the then Series F-2 Conversion Price and the average daily trading volume of the Common Stock on the primary trading market exceeds 1,000 shares per trading day during the Measurement Period (subject to adjustments), the Company may redeem the then outstanding Series F-2 Preferred, for cash in an amount equal to aggregate Stated Value then outstanding plus accrued but unpaid dividends. As of September 30, 2021, the Company had not issued shares as payment of Series F-2 Preferred Stock dividends. As of September 30, 2021, the Company had accrued dividends of $99,593.

 

Powerup (Series G Convertible Preferred Stock)

 

During January 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $78,500, net to the Company is $75,000, for 91,000 shares of Series G preferred stock with additional tranches of financing up to $925,000 in the aggregate over the terms of the Series G preferred stock. Series G will be non-voting on any matters requiring shareholder vote. The Series G Preferred Stock will have cumulative dividends at the rate per share of 8% per annum. At any time during the period indicated below, after the date of the issuance of shares of Series G preferred stock, the Company will have the right, at the Company’s option, to redeem all of the shares of Series G preferred stock by paying an amount equal to: (i) the number of shares of Series G preferred stock multiplied by then stated value (including accrued dividends); (ii) multiplied by the corresponding percentage as follows: Day 1-60, 105%; Day 61-90, 110%; Day 91-120, 115%; and Day 121-180, 122%. After the expiration of the 180 days following the issuance date, except for mandatory redemption, the Company shall have no right to redeem the Series G preferred stock. Mandatory redemption occurs within 24 months. In addition, if the Company does not redeem the Series G preferred stock then Power Up will have the option to convert to common stock shares. The variable conversion price will be the value equal to a discount of 19% off of the trading price; which is calculated as the average of the three lowest closing bid prices over the last fifteen trading days. The conversion of Series G Preferred is subject to a 4.99% beneficial ownership limitation, which may be increased to 9.99% at the election of the holder of the Series G Preferred. The Company has redeemed all of the Series G preferred stock and the balance is paid.

 

During February 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $53,500, net to the Company is $50,000, for 62,000 shares of Series G preferred stock with additional tranches of financing up to $925,000 in the aggregate over the terms of the Series G preferred stock. Series G will be non-voting on any matters requiring shareholder vote. The Series G Preferred Stock will have cumulative dividends at the rate per share of 8% per annum. At any time during the period indicated below, after the date of the issuance of shares of Series G preferred stock, the Company will have the right, at the Company’s option, to redeem all of the shares of Series G preferred stock by paying an amount equal to: (i) the number of shares of Series G preferred stock multiplied by then stated value (including accrued dividends); (ii) multiplied by the corresponding percentage as follows: Day 1-60, 105%; Day 61-90, 110%; Day 91-120, 115%; and Day 121-180, 122%. After the expiration of the 180 days following the issuance date, except for mandatory redemption, the Company shall have no right to redeem the Series G preferred stock. Mandatory redemption occurs within 24 months. In addition, if the Company does not redeem the Series G preferred stock then Power Up will have the option to convert to common stock shares. The variable conversion price will be the value equal to a discount of 19% off of the trading price; which is calculated as the average of the three lowest closing bid prices over the last fifteen trading days. The conversion of Series G Preferred is subject to a 4.99% beneficial ownership limitation, which may be increased to 9.99% at the election of the holder of the Series G Preferred.

   

 
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Due to the mandatory redemption feature of the Series G preferred stock, the total amount of proceeds of $125,000 was recorded as a liability. On June 4, 2021, the Company redeemed the January 2021 investment of $75,000 for $114,597, this $39,597 difference was recorded as interest expense. On July 8, 2021, the Company redeemed the February 2021 investment of $50,000 for $78,094. The difference of $28,094 was recorded as interest expense. As of September 30, 2021, the amount outstanding was nil.

 

Warrants

 

The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the nine months ended September 30, 2021:

 

 

 

Warrants
(Underlying Shares)

 

 

Weighted-Average Exercise Price Per Share

 

 

 

 

 

 

Outstanding, January 1, 2021

 

 

28,324,275

 

 

$ 0.25

 

Warrants granted

 

 

3,504,300

 

 

$ 0.48

 

Warrants cancelled/expired

 

 

(1,729,662 )

 

$ 0.04

 

Outstanding, September 30, 2021

 

 

30,098,913

 

 

$ 0.29

 

 

5. STOCK OPTIONS

 

The new Stock Plan (the “Plan”) allows for the issuance of incentive stock options, nonqualified stock options, and stock purchase rights. The exercise price of options was determined by the Company’s board of directors, but incentive stock options were granted at an exercise price equal to the fair market value of the Company’s common stock as of the grant date. Options historically granted have generally become exercisable over four years and expire ten years from the date of grant. The plan provides for stock options to be granted up to 10% of the outstanding common stock shares.

 

 
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The following table summarizes the Company’s stock option activity and related information for the nine months ended September 30, 2021:

 

 

 

Number of Shares

 

 

Weighted-Average Exercise Price Per Share

 

 

Weighted-Average Remaining Contractual Life

 

Aggregate Intrinsic Value of In-the-Money Options
(in thousands)

 

 

 

 

 

 

 

 

Options outstanding as of January 1, 2021

 

 

1,800,000

 

 

$ 0.49

 

 

 

 

 

 

Options granted

 

 

25,000

 

 

$ 0.48

 

 

 

 

 

 

Options exercised

 

 

-

 

 

$ -

 

 

 

 

 

 

Options forfeited

 

 

(167,614 )

 

$ 0.48

 

 

 

 

 

 

Options expired

 

 

-

 

 

$ -

 

 

 

 

 

 

Options outstanding as of September 30, 2021

 

 

1,657,386

 

 

$ 0.49

 

 

8.8 years

 

$ 127

 

Options exercisable as of September 30, 2021

 

 

1,009,705

 

 

$ 0.49

 

 

8.8 years

 

$ 71

 

 

The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price as of September 30, 2021 and the exercise price, multiplied by the number of options. As of September 30, 2021, there was $312,693 total unrecognized stock-based compensation expense. Such costs are expected to be recognized over a weighted average period of approximately 1.75 years. The weighted-average fair value of awards granted was $0.47 and $0.48 during the nine months ended September 30, 2021 and 2020, respectively.

 

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following weighted-average assumptions were used to calculate stock-based compensation expense:

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

Expected term (years)

 

10 years

 

 

10 years

 

Volatility

 

 

153.1 %

 

 

153.12 %

Risk-free interest rate

 

 

0.98 %

 

 

0.98 %

Dividend yield

 

 

0.00 %

 

 

0.00 %

 

6. LITIGATION AND CLAIMS

 

From time to time, the Company may be involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the dispositions of these matters, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial condition. However, depending on the amount and timing of such disposition, an unfavorable resolution of some or all of these matters could materially affect the future results of operations or cash flows in a particular year.

 

As of September 30, 2021, and December 31, 2020, there was no accrual recorded for any potential losses related to pending litigation.

 

 
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7. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The below table presents total operating lease right-of-use assets and lease liabilities as of September 30, 2021:

 

 

 

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

Operating lease right-of-use assets

 

$ 388

 

Operating lease liabilities

 

$ 407

 

 

The table below presents the maturities of operating lease liabilities as of September 30, 2021:

 

 

 

(in thousands)

 

 

 

Operating

 

Leases

 

2021

 

$ 26

 

2022

 

 

108

 

2023

 

 

112

 

2024

 

 

115

 

2025

 

 

118

 

Thereafter

 

 

50

 

Total future lease payments

 

 

529

 

Less: discount

 

 

(122 )

Total lease liabilities

 

$ 407

 

 

The table below presents the weighted-average remaining lease term and discount rate used in the calculation of operating lease right-of-use assets and lease liabilities:

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

Weighted average remaining lease term (years)

 

 

4.5

 

Weighted average discount rate

 

 

11.4 %

 

Related Party Contracts

 

On June 5, 2016, the Company entered into a license agreement with Shenghuo Medical, LLC pursuant to which the Company granted Shenghuo an exclusive license to manufacture, sell and distribute LuViva in Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Shenghuo was already the Company’s exclusive distributor in China, Macau and Hong Kong, and the license extended to manufacturing in those countries as well. Under the terms of the license agreement, once Shenghuo was capable of manufacturing LuViva in accordance with ISO 13485 for medical devices, Shenghuo would pay the Company a royalty equal to $2.00 or 20% of the distributor price (subject to a discount under certain circumstances), whichever is higher, per disposable distributed within Shenghuo’s exclusive territories. In connection with the license grant, Shenghuo was to underwrite the cost of securing approval of LuViva with Chinese Food and Drug Administration. At its option, Shenghuo also would provide up to $1.0 million in furtherance of the Company’s efforts to secure regulatory approval for LuViva from the U.S. Food and Drug Administration, in exchange for the right to receive payments equal to 2% of the Company’s future sales in the United States, up to an aggregate of $4.0 million. Pursuant to the license agreement, Shenghuo had the option to have a designee appointed to the Company’s board of directors (current director Richard Blumberg is the designee).

 

 
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On September 6, 2016, the Company entered into a royalty agreement with one of its directors, John Imhoff, and another stockholder, Dolores Maloof, pursuant to which the Company sold to them a royalty of future sales of single-use cervical guides for LuViva. Under the terms of the royalty agreement, and for consideration of $50,000, the Company will pay them an aggregate perpetual royalty initially equal to $0.10, and from and after October 2, 2016, equal to $0.20, for each disposable that the Company sells (or that is sold by a third party pursuant to a licensing arrangement with the Company).

 

On January 22, 2020, the Company entered into a promotional agreement with a related party, which is partially owned by Mr. Blumberg, to provide investor and public relations services for a period of two years. As compensation for these services, the Company will issue a total of 5,000,000 warrants, broken into four tranches of 1,250,000. The warrants have a strike price of $0.25 and are subject to vesting based upon the close of the Series D offering and a minimum share price based on the 30-day VWAP. If the minimum share price per the terms of the agreement is not achieved, the warrants will expire three years after the issuance date. The warrants were valued using the Black Scholes model on the grant date of January 22, 2020, which resulted in a total fair value of $715,000. The Company did not appropriately expense the services received in connection with this agreement in 2020. During the nine months ended September 30, 2021, the Company recognized $556,111 of consulting expenses as a result of this agreement, which includes twelve months of expense for the year ended December 31, 2020. If the Company had properly accounted for the straight-line expensing of these services in 2020, net loss would have increased by $318,000 for a total net loss of $719,000 for the year ended December 31, 2020 and accumulated deficit would have increased to $140.2 million as of December 31, 2020. Unrecognized consulting expense to be recognized under this agreement is $158,889 as of September 30, 2021.

 

On March 10, 2021, the Company entered into a consulting agreement with Richard Blumberg. As a result of the consulting agreement Mr. Blumberg provided $350,000, which was recorded to subscription receivable, to the Company in exchange for the following: (1) on September 26, 2021, 900,000 3-year warrants with an exercise price of $0.30 and 400,000 common stock shares; (2) on March 26, 2022, 900,000 3-year warrants with an exercise price of $0.40 and 400,000 common stock shares; (3) on September 26, 2022, 900,000 3-year warrants with an exercise price of $0.50 and 400,000 common stock shares; and (4) on March 26, 2023, 900,000 3-year warrants with an exercise price of $0.60 and 400,000 common stock shares.

 

On September 30, 2021, the consulting agreement was amended to clarify that $350,000 is not intended to be debt and will not be required to be repaid in cash. Additionally, issuance of the warrants is now predicated on the Company receiving funding receipts of $1,000,000, whether from a financing, series of financing, or gross sales. The amended agreement clarified that the warrants issued to Mr. Blumberg are compensation for services, which involve obtaining financing. The Company will recognize expense for the services equal to the fair value of the warrants issued to Mr. Blumberg as the services are provided, which will coincide with the successful execution of a financing agreement over $1,000,000. The Company concluded that as of September 30, 2021, there is no longer a liability due to Mr. Blumberg of $350,000. The liability was written off in the third quarter of 2021 and a gain of $350,000 was recognized in non-operating income.

 

Other Commitments

 

On July 24, 2019, Shandong Yaohua Medical Instrument Corporation (“SMI”), agreed to modify its existing agreement. Under the terms of this modification, the Company agreed to grant (1) exclusive manufacturing rights, excepting the disposable cervical guides for the Republic of Turkey, and the final assembly rights for Hungary, and (2) exclusive distribution and sales for LuViva in jurisdictions, subject to the following terms and conditions. First, SMI shall complete the payment for parts, per the purchase order, for five additional LuViva devices. Second, in consideration for the $885,144 that the Company received, SMI will receive 12,147 common stock shares. Third, SMI shall honor all existing purchase orders it has executed to date with the Company, in order to maintain jurisdiction sales and distribution rights. If SMI needs to purchase cervical guides then it will do so at a cost including labor, plus ten percent markup. The Company will provide 200 cervical guides at no cost for the clinical trials. Fourth, the Company and SMI will make best efforts to sell devices after CFDA approval. With an initial estimate of year one sales of 200 LuViva devices; year two sales of 500 LuViva devices; year three sales of 1,000 LuViva devices; and year four sales of 1,250 LuViva devices. Fifth, SMI shall pay for entire costs of securing approval of LuViva with the Chinese FDA. Sixth, SMI shall arrange, at its sole cost, for a manufacturer in China to build tooling to support manufacturing. In addition, SMI retains the right to manufacture for China, Hong Kong, Macau and Taiwan, where SMI has distribution and sales rights. For each single-use cervical guide sold by SMI in the jurisdictions, SMI shall transfer funds to escrow agent at a rate of $1.90 per device chip. If within 18 months of the license’s effective date, SMI fails to achieve commercialization of LuViva in China, SMI shall no longer have any rights to manufacture, distribute or sell LuViva. Commercialization is defined as: filing an application with the Chinese FDA for the approval of LuViva; any assembly or manufacture of the devices or disposables that begins in China; and purchase of at least 10 devices and disposables for clinical evaluations and regulatory use and or sales in the jurisdictions.

 

 
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On August 12, 2021, the Company executed an amendment to its agreement with SMI, which established a payment schedule for the balance owed by SMI to the Company for outstanding purchase orders. The Company received $233,635 from SMI during the three months ended September 30, 2021. The remaining balance owed for outstanding purchase orders was $277,000 as of September 30, 2021. Under the terms of the amended agreement, the parties agreed that if by October 30, 2022, SMI fails to achieve commercialization of LaViva in China, SMI shall no longer have any rights to manufacture, distribute or sell LaViva.

 

Contingencies

 

Based on the current outbreak of the Coronavirus SARS-CoV-2, the pathogen responsible for COVID-19, which has already had an impact on financial markets, there could be additional repercussions to the Company’s operating business, including but not limited to, the sourcing of materials for product candidates, manufacture of supplies for preclinical and/or clinical studies, delays in clinical operations, which may include the availability or the continued availability of patients for trials due to such things as quarantines, conduct of patient monitoring and clinical trial data retrieval at investigational study sites.

 

The future impact of the outbreak is highly uncertain and cannot be predicted, and the Company cannot provide any assurance that the outbreak will not have a material adverse impact on the Company’s operations or future results or filings with regulatory health authorities. The extent of the impact to the Company, if any, will depend on future developments, including actions taken to contain the coronavirus.

 

8. NOTES PAYABLE

 

Notes Payable in Default

 

At September 30, 2021 and December 31, 2020, the Company maintained notes payable to both related and non-related parties totaling approximately nil and $329,000, respectively. These notes are short term, straight-line amortizing notes. The notes carry annual interest rates between 0% and 10% and have default rates as high as 20%. As described in Note 4: “Stockholders’ Deficit,” certain notes payable in default outstanding had been exchanged for equity and cash as described in the note.

 

During the three months ended September 30, 2021, the Company obtained a legal opinion as to how the applicable statute of limitations effects the status of the note payable due to Mr. Mermelstein and determined that the Company can no longer be required to repay the note as of September 30, 2021. As a result of the opinion, the note payable of $285,244 and accrued interest of $32,945 was written off during the third quarter of 2021.

 

During 2021, notes payable of $1,000 due to Dr. Cartwright were paid off and notes payable of $26,000 due to Mr. Fowler were brought current and not in default. The note payable to GPB was exchanged as part of the exchange as described in Note 10: “Convertible Debt”.

 

 
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The following table summarizes notes payable in default, including related parties (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Mr. Mermelstein

 

$ -

 

 

$ 285

 

Dr. Cartwright

 

 

-

 

 

 

1

 

Mr. Fowler

 

 

-

 

 

 

26

 

GPB

 

 

-

 

 

 

17

 

Notes payable in default

 

$ -

 

 

$ 329

 

 

The notes payable in default to related parties was $27,000 of the $329,000 balance as of December 31, 2020.

 

Short Term Notes Payable

 

At September 30, 2021 and December 31, 2020, the Company maintained short term notes payable to both related and non-related parties totaling $132,812 and $96,000, respectively. These notes are short term, straight-line amortizing notes. The notes carry annual interest rates between 4.3% and 16%, or 18% in the event of default.

 

On July 4, 2021, the Company entered into a premium finance agreement to finance its insurance policies totaling $117,560. The note requires monthly payments of $11,968, including interest at 4.3% and matured in April 2022. As of September 30, 2021, the balance on that note was $82,881.

 

On July 4, 2020, the Company entered into a premium finance agreement to finance its insurance policies totaling $109,000. The note requires monthly payments of $11,299, including interest at 4.968% and matured in April 2021. As of September 30, 2021, the balance was paid.

 

During 2019, the Company issued promissory notes to Mr. Cartwright and Mr. Faupel, in the amounts of approximately $41,000 and $5,000, respectively. The notes were initially issued with 0% interest, however interest increased to 6.0% interest 90 days after the Company received $1,000,000 in financing proceeds.

 

On December 21, 2016 and January 19, 2017, the Company issued promissory notes to Mr. Fowler, in the amounts of approximately $12,500 and $13,900. The notes were initially issued with 0% interest and then went into default with an interest rate of 18%. As part of the March 22, 2021 exchange agreement these notes were combined into one short term note payable of $26,400 and $18,718 in principal and interest of the two previous notes, respectively, for the total balance of $45,118. The aforementioned agreement brought the note current and will accrue interest at a rate of 6.0%. The note carries a monthly payment of $3,850. As of September 30, 2021, the outstanding principal balance on the note was $12,601. At December 31, 2020 this note was recorded in the Notes payable in default section of the consolidated Balance Sheet.

 

The following table summarizes short-term notes payable, including related parties:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Dr. Cartwright

 

$ 37

 

 

$ 46

 

Dr. Faulpel

 

 

-

 

 

 

5

 

Mr. Fowler

 

 

13

 

 

 

-

 

Premium Finance (insurance)

 

 

83

 

 

 

45

 

Short-term notes payable

 

$ 133

 

 

$ 96

 

 

The short-term notes payable past due to related parties was $50,000 at September 30, 2021 and $51,000 of the $96,000 balance at December 31, 2020.

 

 
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9. SHORT-TERM CONVERTIBLE DEBT

 

Short-term Convertible Notes Payable

 

Auctus

 

On December 17, 2019, the Company entered into a securities purchase agreement and convertible note with Auctus. The convertible note issued to Auctus will be for a total of $2.4 million. The first tranche of $700,000 was received in December 2019 and matures December 17, 2021 and accrues interest at a rate of ten percent (10%). The note may not be prepaid in whole or in part except as otherwise explicitly allowed. Any amount of principal or interest on the note which is not paid when due shall bear interest at the rate of the lessor of 24% or the maximum permitted by law (the “default interest”). The variable conversion prices shall equal the lesser of: (i) the lowest trading price on the issue date, and (ii) the variable conversion price. The variable conversion price shall mean 95% multiplied by the market price (the market price means the average of the five lowest trading prices during the period beginning on the issue date and ending on the maturity date), minus $0.04 per share, provided however that in no event shall the variable conversion price be less than $0.15. If an event of default under this note occurs and/or the note is not extinguished in its entirety prior to December 17, 2020 the $0.15 price shall no longer apply.

 

In connection with the first tranche of $700,000, the Company issued 7,500,000 warrants to purchase common stock at an exercise price of $0.20. The fair value of the warrants at the date of issuance was $745,972 and was $635,000 allocated to the warrant liability and a loss of $110,972 was recorded at the date of issuance for the amount of the fair value in excess of the net proceeds received of $635,000. The $700,000 proceeds were received net of debt issuance costs of $65,000 (net proceeds of $635,000, after administrative and legal expenses Company received $570,000). The Company used $65,000 of the proceeds to make a partial payment of the $89,250 convertible promissory note issued on July 3, 2018 to Auctus. As a result of the payment of the Company made a $700,000 payment on June 1, 2021, which resulted in a prepayment penalty of $350,000 being assessed to the Company. The Company recorded this prepayment penalty as interest expense. Interest will not be assessed on the prepayment penalty. As of September 30, 2021 and December 31, 2020, $350,000 and $700,000, respectively, remained outstanding. As of September 30, 2021, accrued interest was paid in full and at December 31, 2020 $73,889 remained outstanding. Further, as September 30, 2021 and December 31, 2020, the Company had unamortized debt issuance costs of nil and $31,146, respectively and an unamortized debt discount on warrants of nil and $304,271, respectively and providing a net balance of $350,000 and $364,583, respectively.

 

On May 27, 2020, the Company received the second tranche in the amount of $400,000, from the December 17, 2019 securities purchase agreement and convertible note with Auctus. The net amount paid to the Company was $313,000 This second tranche is part of the convertible note issued to Auctus for a total of $2.4 million of which $700,000 has already been provided by Auctus. The notes maturity date is December 17, 2021 and an interest rate of ten percent (10%). The note may not be prepaid in whole or in part except as otherwise explicitly allowed. Any amount of principal or interest on the note which is not paid when due shall bear interest at the rate of the lessor of 24% or the maximum permitted by law (the “default interest”). The variable conversion prices shall equal the lesser of: (i) the lowest trading price on the issue date, and (ii) the variable conversion price. The variable conversion price shall mean 95% multiplied by the market price (the market price means the average of the five lowest trading prices during the period beginning on the issue date and ending on the maturity date), minus $0.04 per share, provided however that in no event shall the variable conversion price be less than $0.15. If an event of default under this note occurs and/or the note is not extinguished in its entirety prior to December 17, 2020 the $0.15 price shall no longer apply. The last tranche of $1.3 million will be received within 60 days of the S-1 registration statement becoming effective. The conversion price of the notes will be at market value with a minimum conversion amount of $0.15. In addition, as part of this transaction the Company was required to pay a 2.0% fee to a registered broker-dealer. As of September 30, 2021 and December 31, 2020, $400,000 remained outstanding and accrued interest of $54,556 and $24,222, respectively. Further, as of September 30, 2021 and December 31, 2020, the Company had unamortized debt issuance costs of $21,961 and $47,086, providing a net balance of $432,595 and $377,136. As of September 30, 2021 the bifurcated/derivative liability was $30,083.

 

 
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Convertible Notes in Default

 

On March 31, 2020, we entered into a securities purchase agreement with Auctus Fund, LLC for the issuance and sale to Auctus of $112,750 in aggregate principal amount of a 12% convertible promissory note. On June 30, 2020, we issued the note to Auctus and issued 250,000 five-year common stock warrants at an exercise price of $0.16. On April 3, 2020, we received net proceeds of $100,000. The note matured on January 26, 2021 and accrues interest at a rate of 12% per year. We may not prepay the note, in whole or in part. After the 90th calendar day after the issuance date and ending on the later of maturity date and the date of payment of the default amount, Auctus may convert the note, at any time, in whole or in part, provided such conversion does not provide Auctus with more than 4.99% of the outstanding common share stock. The conversion may be converted into shares of the our common stock, at a conversion price equal to the lesser of: (i) the lowest Trading Price during the twenty-five (25) trading day period on the last trading prior to the issue date and (ii) the variable conversion price (55% multiplied by the market price, market price means the lowest trading price for the common stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date. Trading price is the lowest trade price on the trading market as reported. The note includes customary events of default provisions and a default interest rate of 24% per year. As of September 30, 2021 and December 31, 2020, the note outstanding was $161,184 (which includes a default penalty of $48,434) and $112,750, respectively. In addition, as of September 30, 2021 and December 31, 2020, unamortized debt issuance costs of nil and $5,100 and interest of $26,542 and $10,260 are included in accrued expenses on the accompanying consolidated balance sheet, respectively.

 

The following table summarizes the Short-term Convertible Notes Payable, including debt in default (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Auctus Tranche 1

 

 

-

 

 

 

700

 

Auctus Tranche 2

 

$ 400

 

 

$ 400

 

Auctus prepayment penalty

 

 

350

 

 

 

-

 

Auctus (March 31, 2020 Note)

 

 

161

 

 

 

113

 

Debt discount and issuance costs to be amortizaed

 

 

(22 )

 

 

(262 )

Convertible notes payable - short-term

 

$ 889

 

 

$ 951

 

 

Troubled Debt Restructuring

 

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 $350,000. In addition, the gain recognized for the extinguishment of the derivative liability due to the payoff of the $700,000 loan to Auctus of $84,000 was recorded. This debt extinguished met the criteria for troubled debt. The basic criteria are that the borrower is troubled, i.e., they are having financial difficulties, and a concession is granted by the creditor. Due to the Company being in default on several of its loans the debt is considered troubled debt.

 

10. CONVERTIBLE DEBT

 

Convertible notes payable, past due

 

Senior Secured Promissory Note

 

As of September 30, 2021, all Senior Secured debt due to GPB had been exchanged for 2,236 Series F-2 preferred stock shares in accordance with the terms of the January 15, 2020 exchange agreement. In addition, the common stock purchase warrant exercise price had been adjusted to $0.20 and the number of common stock shares exchangeable for was 7,185,000. The exchange agreement was subject to the Company meeting repayment conditions, which the Company did. Those conditions involved in part the repayment of $450,000, $100,000 and $950,000 for the completion of each Auctus financing tranche. Further on September 2, 2020, the Company made a payment of $50,000, which provided the Company a four-month forbearance as well as paying an additional $150,000 to reduce the balance outstanding at that time. On January 8, 2021, the Company made the final payment of $750,000 as required by this exchange agreement with GPB.

 

 
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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 $1,437,500 senior secured convertible note for an aggregate purchase price of $1,029,000 (representing an original issue discount of $287,500 and debt issuance costs of $121,000). On May 28, 2016, the balance of the note was increased by $87,500 for a total principal balance of $1,525,000. On December 7, 2016, the Company entered into an exchange agreement with GPB and as a result the principal balance increased by a transfer $312,500 for a total principal balance of $1,837,500.

 

In connection with the transaction, on February 12, 2016, the Company and GPB entered into a four-year consulting agreement, pursuant to which the investor will provide management consulting services to the Company in exchange for a royalty payment, payable quarterly, equal to 3.85% of the Company’s revenues from the sale of products. On August 20, 2021, the Company made a royalty payment to GPB. As of September 30, 2021 and December 31, 2020, the balance related to royalties due to GPB was nil and $35,000, respectively. Based on the consulting agreement GPB will no longer earn royalties.

 

As of December 31, 2020, the balance due on the convertible debt was $1,709,414, consisting of principal of $1,362,384 and a prepayment penalty of $347,030. Interest accrued on the note totaled $1,233,637 at December 31, 2020, and is included in accrued expenses on the accompanying consolidated balance sheet.

 

The Company used a placement agent in connection with the transaction.For its services, the placement agent received a cash placement fee equal to 4% of the aggregate gross proceeds from the transaction and a warrant to purchase shares of common stock equal to an aggregate of 6% of the total number of shares underlying the securities sold in the transaction, at an exercise price equal to, and terms otherwise identical to, the warrant issued to the investor. Finally, the Company agreed to reimburse the placement agent for its reasonable out-of-pocket expenses. The warrants issued to the placement agent expired during the nine months ended September 30, 2021.

 

The following table summarizes the convertible notes past due (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

GBP

 

$ -

 

 

$ 1,709

 

GHS

 

 

-

 

 

 

181

 

Auctus

 

 

-

 

 

 

40

 

Convertible notes payable

 

$ -

 

 

$ 1,930

 

 

Troubled Debt Restructuring

 

During 2021, the Company restructured debt with GPB resulting in the exchange of $1,709,000 of convertible debt. This debt restructure met the criteria for troubled debt. The basic criteria are that the borrower is troubled, i.e., they are having financial difficulties, and a concession is granted by the creditor.

 

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 6% rate, with the principal and accrued interest due in total at the date of maturity or February 18, 2023.

    

 
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During the quarter ended September 30, 2018, the Company entered into an exchange agreement dated July 14, 2018, Dr. Faupel, agreed to exchange outstanding amounts due to him for loans, interest, bonus, salary and vacation pay in the amount of $661,000 for a $207,000 promissory note dated September 4, 2018. As a result of the exchange agreement, the Company recorded a gain for extinguishment of debt of $199,000 and a capital contribution of $235,000 during the year ended December 31, 2018. The resulting difference of $20,000 was recorded to accrued interest. In the July 20, 2018 exchange agreement, Dr, Cartwright, agreed to exchange outstanding amounts due to him for loans, interest, bonus, salary and vacation pay in the amount of $1,621,000 for a $319,000 promissory note dated September 4, 2018. As a result of the exchange agreement, the Company recorded a gain for extinguishment of debt of $840,000 and a capital contribution of $432,000 during the year ended December 31, 2018. The resulting difference of $30,000 was recorded to accrued interest and elimination of debt.

 

On February 19, 2021, the Company entered into new promissory notes replacing the original notes from September 4, 2018, with Mark Faupel and Gene Cartwright. For Dr. Cartwright the principal amount on the new note was $267,085, matures on February 18, 2023, and will accrue interest at a rate of 6%. For Dr. Faupel the principal amount on the new note was $153,178, matures on February 18, 2023, and will accrue interest at a rate of 6%.

 

On February 19, 2021, the Company exchanged $100,000 and $85,000 of long-term debt for Dr. Cartwright and Dr. Faupel in exchange for 100 and 85 shares of Series F-2 Preferred Stock, respectively.

 

The table below summarizes the detail of the exchange agreement:

 

For Dr. Faupel:

 

 

 

 

 

 

 

Salary

 

$ 134

 

Bonus

 

 

20

 

Vacation

 

 

95

 

Interest on compensation

 

 

67

 

Loans to Company

 

 

196

 

Interest on loans

 

 

149

 

Total outstanding prior to exchange

 

 

661

 

 

 

 

 

 

Amount forgiven

 

 

(454 )

Total Interest accrued through December 31, 2020

 

 

29

 

Balance outstanding at December 31, 2020

 

$ 236

 

 

 

 

 

 

Exchange for Series F-2 Preferred Stock

 

 

(85 )

Interest accrued through September 30, 2021

 

 

8

 

Balance outstanding at September 30, 2021

 

$ 159

 

 

For Dr.Cartwright

 

 

 

 

 

 

 

Salary

 

$ 337

 

Bonus

 

 

675

 

Loans to Company

 

 

528

 

Interest on loans

 

 

81

 

Total outstanding prior to exchange

 

 

1,621

 

 

 

 

 

 

Amount forgiven

 

 

(1,302 )

Total Interest accrued through December 31, 2020

 

 

45

 

Balance outstanding at December 31, 2020

 

$ 364

 

 

 

 

 

 

Exchange for Series F-2 Preferred Stock

 

 

(100 )

Interest accrued through September 30, 2021

 

 

13

 

Balance outstanding at September 30, 2021

 

$ 277

 

    

 
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On March 22, 2021, the Company entered into an exchange agreement with Richard Fowler. As of December 31, 2020, the Company owed Mr. Fowler $546,214 ($412,624 in deferred salary and $133,590 in accrued interest). The Company exchanged $50,000 of the amount owed of $546,214 for 50 share of Series F-2 Preferred Shares (convertible into 200,000 common stock shares), and a $150,000 unsecured note. The note accrues interest at the rate of 6% (18% in the event of default) beginning on March 22, 2022 and be payable in monthly installments of $3,580 for four years, with the first payment being due on March 15, 2022. The effective interest rate of the note is 6.18%. Mr. Fowler forgave $86,554 and may forgive up to $259,661 if the Company complies with the repayment plan described above. Mr. Fowler also has a short-term note for $26,400 and $18,718 in accrued interest.

 

Future debt obligations which are recorded in the Long-term debt-related parties includes: $271,000, $158,000 and $150,000 for a total of $579,000 for Dr. Cartwright, Dr. Faupel, and Mr. Fowler, respectively. Future debt obligations at September 30, 2021 for debt owed to related parties is as follows:

 

Year

 

Amount

 

2021

 

$ -

 

2022

 

 

30

 

2023

 

 

457

 

2024

 

 

39

 

2025

 

 

41

 

Thereafter

 

 

3

 

Total

 

$ 570

 

 

Small Business Administration Loan

 

On May 4, 2020, the Company received a loan from the Small Business Administration (SBA) pursuant to the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the amount of $50,184. The loan bears interest at a rate of 1.00%, and matures in 24 months, with the principal and interest payments being deferred until the date of forgiveness with interest accruing, then converting to monthly principal and interest payments, at the interest rate provided herein, for the remaining eighteen (18) months. Lender will apply each payment first to pay interest accrued to the day Lender received the payment, then to bring principal current, and will apply any remaining balance to reduce principal. Payments must be made on the same day as the date of this Note in the months they are due. Lender shall adjust payments at least annually as needed to amortize principal over the remaining term of the Note. Under the provisions of the PPP, the loan amounts will be forgiven as long as: the loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over a 24 week period after the loan is made; and employee and compensation levels are maintained. In addition, payroll costs are capped at $100,000 on an annualized basis for each employee. Not more than 40% of the forgiven amount may be for non-payroll costs. As of September 30, 2021 and December 31, 2020, the outstanding balance was $17,837 (this amount is recorded in current portion of long-term debt) and $50,477, including $331 and $293 in accrued interest, respectively. During the nine month period ended September 30, 2021, the Company was notified that the application for loan forgiveness was approved in the amount of $23,742 in principal and $234 in interest.

 

 
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10% Senior Unsecured Convertible Debenture

 

On May 17, 2021, the Company issued 10% Senior Unsecured convertible debentures to investors, which mature on May 17, 2024 (the “Maturity Date”). The Company subscribed $1,130,000 of the $1,000 convertible debentures. The terms of the debentures are as follows: 1) the principal amount of some or all of the convertible debentures and accrued interest are convertible into common stock shares at the holder’s option, at a price of $0.50 per common stock share (the “conversion price”), subject to adjustment in certain events, at any time prior to maturity date; 2) upon successful uplist to a U.S. National Exchange, the note will automatically convert into the uplisting financing; 3) each debenture unit will have a right to 1,000 warrants for common stock shares, warrants have an exercise price of $0.80 and an expiration date of May 17, 2023; 4) if a Change of Control (as defined in the Convertible Debenture Certificate) occurs prior to the Maturity Date, unless the holder elects in writing to convert the Convertible Debentures into common shares, the Company will repay in cash upon the closing of such Change of Control all outstanding principal and accrued interest under each Convertible Debenture plus a Change of Control premium equal to an additional 3% of the outstanding principal sum under such Convertible Debenture. Prior to the closing of an Change of Control, in lieu of repayment as set forth in the preceding sentence, the holder has the right to elect in writing to convert, effective immediately prior to the effective date of such Change of Control, all outstanding principal and accrued Interest under the Convertible Debentures into common shares at the Conversion Price; 5) Subject to a holder’s option of electing conversion prior to the Redemption Date (as such term is defined below), on or after the date that is 24 months from the Closing Date if the daily volume weighted average trading price of the common shares is $1.50 per common share or more for each trading day over a 30 consecutive trading day period, the Company may, at any time (the “Redemption Date”), at its option, redeem all, or any portion of the Convertible Debentures for either: (i) a cash payment (in the form of a certified cheque or bank draft) that is equal to all outstanding principal and accrued interest under each Convertible Debenture up to the Redemption Date; or (ii) by issuing and delivering common shares to the holders of Convertible Debentures at a deemed price of US$0.50 per common share that is equal to all outstanding principal and accrued interest under each Convertible Debenture up to the Redemption Date, or any combination of (i) or (ii), upon not less than 30 days and not more than 60 days prior written notice in the manner provided in the Debenture Certificate, to the holder of Convertible Debentures.

 

At September 30, 2021, the balance due on the 10% Senior Secured Convertible Debenture was $1,130,000 and accrued interest of $43,341. At September 30, 2021, the Company had also recorded a bond payable discount of $266,413 and had also unamortized debt issuance costs of $76,320, for a net balance of $787,267.

 

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.

 

 
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The following table sets forth pertinent data relating to the computation of basic and diluted net loss per share attributable to common shareholders (in thousands, except for per-share data):

 

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Net loss

 

 

(1,922 )

 

 

(2,520 )

Basic weighted average number of shares outstanding

 

 

13,291

 

 

 

9,985

 

Net loss per share (basic)

 

 

(0.14 )

 

 

(0.25 )

Diluted weighted average number of shares outstanding

 

 

13,291

 

 

 

9,985

 

Net loss per share (diluted)

 

 

(0.14 )

 

 

(0.25 )

 

 

 

 

 

 

 

 

 

Dilutive equity instruments (number of equivalent units):

 

 

 

 

 

 

 

 

Stock options

 

 

2,252

 

 

 

-

 

Preferred stock

 

 

17,837

 

 

 

-

 

Convertible debt

 

 

908

 

 

 

59,179

 

Warrants

 

 

16,979

 

 

 

8,048

 

Total Dilutive instruments

 

 

37,976

 

 

 

67,227

 

 

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 past due or in default on several of its loans, the debt is considered troubled debt. As of September 30, 2021, the troubled debt restructuring in total would have decreased the net loss by $85,000 and causing the per share calculation to change from .14 to .15 net loss per share.

 

13. SUBSEQUENT EVENTS

 

The Company had no material reportable events subsequent to September 30, 2021.

  

 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act), which provides a “safe harbor” for forward-looking statements made by us. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends, and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, and projections will occur or can be can achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

 

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those that may be set forth under “Risk Factors” below and elsewhere in this report, as well as in our annual report on Form 10-K for the year ended December 31, 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.

 

 
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OVERVIEW

 

We are a medical technology company focused on developing innovative medical devices that have the potential to improve healthcare. Our primary focus is the sales and marketing of our LuViva® Advanced Cervical Scan non-invasive cervical cancer detection device. The underlying technology of LuViva primarily relates to the use of biophotonics for the non-invasive detection of cancers. LuViva is designed to identify cervical cancers and precancers painlessly, non-invasively and at the point of care by scanning the cervix with light, then analyzing the reflected and fluorescent light.

 

LuViva provides a less invasive and painless alternative to conventional tests for cervical cancer screening and detection. Additionally, LuViva improves patient well-being not only because it eliminates pain, but also because it is convenient to use and provides rapid results at the point of care. We focus on two primary applications for LuViva: first, as a cancer screening tool in the developing world, where infrastructure to support traditional cancer-screening methods is limited or non-existent, and second, as a triage following traditional screening in the developed world, where a high number of false positive results cause a high rate of unnecessary and ultimately costly follow-up tests.

 

We are a Delaware corporation, originally incorporated in 1992 under the name “SpectRx, Inc.” and, on February 22, 2008, changed our name to Guided Therapeutics, Inc. At the same time, we renamed our wholly owned subsidiary, InterScan, which originally had been incorporated as “Guided Therapeutics.”

 

Since our inception, we have raised capital through the public and private sale of debt and equity, funding from collaborative arrangements, and grants.

 

Our prospects must be considered in light of the substantial risks, expenses and difficulties encountered by entrants into the medical device industry. This industry is characterized by an increasing number of participants, intense competition and a high failure rate. We have experienced operating losses since our inception and, as of September 30, 2021 we have an accumulated deficit of approximately $141.9 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. In order to increase demand for LuViva, the Company in 2021 is focused on three primary markets: the United States, China and Europe.

 

In addition, as of November 10, 2021, the Company had filed its initial application for listing on the Nasdaq stock exchange, been assigned a reviewer for its application and received an official review letter from Nasdaq which the Company expects to respond to within the next several days.  The goal is to uplist to Nasdaq by the end of this year, although there can be no assurance that this will happen.  

 

 
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In the United States, the Company is actively pursuing FDA approval by initiating a clinical trial protocol involving approximately 400 study participants.  The protocol was drafted with input from FDA and two prestigious clinical centers that will participate in enrolling the 400 women at multiple sites within their hospital systems.  As of November 10, 2021, clinical trial agreements have been drafted and agreed upon, the budget at one institution has been agreed upon and is under negotiation at the other institution. The LuViva devices have been prepared and have passed bench testing in order to begin the study.  All requested materials have been submitted for review by the respective hospital institutional review boards (IRBs).  Once the IRB’s have approved the study, enrollment may begin, which is expected prior to the end of this year and last approximately eight to nine months; however, there can be no assurance that the study will begin in 2021 or that it will be completed by the end of 2022.

  

In China, the study protocol and budgets have been agreed upon at two clinical centers and the study has begun at one center, with two more to be added this year. This study will enroll approximately 320 women and is expected to be completed in the first half of 2022, although there can be no assurance that the study will be completed within this time frame.

  

In Europe, the Company attended a meeting in Bucharest, Romania on November 3-4, 2021, hosted by our central Eastern and Russian distribution partner. The LuViva system was demonstrated for doctors at a local clinic and the head Ob-Gyn physician intends to keep the LuViva device and order additional Cervical Guides to test patients as part of her practice.

  

CRITICAL ACCOUNTING POLICIES

 

Our material accounting policies, which we believe are the most critical to investors understanding of our financial results and condition, are discussed below. Because we are still early in our enterprise development, the number of these policies requiring explanation is limited. When we begin to generate revenue from different sources, we expect that the number of applicable policies and complexity of the judgments required will increase.

 

Revenue Recognition: ASC 606, Revenue from Contracts with Customers establishes a single and comprehensive framework which sets out how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will now be recognized by a vendor when control over the goods or services is transferred to the customer. In contrast, Revenue based revenue recognition around an analysis of the transfer of risks and rewards; this now forms one of a number of criteria that are assessed in determining whether control has been transferred. The application of the core principle in ASC 606 is carried out in five steps:

 

Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled.

 

Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract.

 

Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties.

 

Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted.

 

 
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Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.

 

Valuation of Deferred Taxes: We account for income taxes in accordance with the liability method. Under the liability method, we recognize deferred assets and liabilities based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.

 

Valuation of Equity Instruments Granted to Employee, Service Providers and Investors: On the date of issuance, the instruments are recorded at their fair value as determined using either the Black-Scholes valuation model or Monte Carlo Simulation model.

 

Beneficial Conversion Features of Convertible Securities: Conversion options that are not bifurcated as a derivative pursuant to ASC 815 and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine whether they are beneficial to the investor at inception (a beneficial conversion feature) or may become beneficial in the future due to potential adjustments. The beneficial conversion feature guidance in ASC 470-20 applies to convertible stock as well as convertible debt which are outside the scope of ASC 815. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as a dividend over either the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.

 

Allowance for Accounts Receivable: We estimate losses from the inability of our distributors to make required payments and periodically review the payment history of each of our distributors, as well as their financial condition, and revise our reserves as a result.

 

Inventory Valuation: All inventories are stated at lower of cost or net realizable value, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative expenses are not inventoried, but are charged to expense when purchased.

 

RESULTS OF OPERATIONS

 

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

 

Sales Revenue, Cost of Goods Sold and Gross Profit from Devices and Disposables: Revenues from the sale of LuViva devices for the three months ended September 30, 2021 were $19,000, compared to $77,000 for the three months ended September 30, 2020, a decrease of $58,000 or 75%. The decline in revenue was due to fewer sales of LuViva devices and components in the three months ended September 30, 2021 versus the same period in 2020. Cost of goods was $42,000 during the three months ended September 30, 2021, compared to $12,000 during the three months ended September 30, 2020 an increase of $30,000 or 250%. Cost of goods sold increased during the three months ended September 30, 2021 due to inventory write-offs of slow-moving inventory. This resulted in a gross loss of $23,000 on the sales of devices and disposables for the three months ended September 30, 2021 compared with a gross profit of $65,000 for the same period in 2020.

 

 
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Research and Development Expenses: Research and development expenses were $16,000 during the three months ended September 30, 2021, compared to $41,000 during the three months ended September 30, 2020, a decrease of $25,000 or 61%. The decrease was primarily due to a reduction in research and development clinical costs and payroll-related expenses.

 

Sales and Marketing Expenses: Sales and marketing expenses were $41,000 during the three months ended September 30, 2021, compared to $36,000 during the three months ended September 30, 2020, an increase of $5,000 or 14%. The increase was primarily due to higher travel and payroll-related expenses.

 

General and Administrative Expense: General and administrative expenses were $407,000 for the three months ended September 30, 2021, compared to $141,000 during the three months ended September 30, 2020, an increase of $266,000 or 189%. The increase was primarily due to a reversal of a $292,000 reserve recorded for a deposit made for inventory parts for the Company’s devices during 2020, which decreased general and administrative expenses in the prior period.

 

Other Income: Other income during the three months ended September 30, 2021 was $387,000, compared to zero during the three months ended September 30, 2020. The increase was primarily due to the write-off of a $350,000 subscription receivable liability in the third quarter of 2021.

 

Interest Expense: Interest expense during the three months ended September 30, 2021 was $594,000, compared to $317,000 during the three months ended September 30, 2020, an increase of $277,000, or 87%. The increase was mainly due to a $350,000 reclassification of expenses that were previously classified as extinguishment of debt during the three months ended September 30, 2021. The increase was offset by lower interest recognized for outstanding notes payable and convertible debt during the three months ended September 30, 2021 versus the same period in the prior year.

 

Gain from extinguishment of debt: Gain from extinguishment of debt during the three months ended September 30, 2021 was $763,000, compared to a gain from extinguishment of debt of $20,000 during the three months ended September 30, 2020, an increase of $743,000. The increase was primarily due to (i) reclassification of $350,000 of expenses previously classified as extinguishment of debt in the three months ended September 30, 2020 and (ii) the write-off of a $412,000 note payable that the Company can no longer be required to repay.

 

Change in Fair Value of Warrants: Change in fair value of warrants during the three months ended September 30, 2021 was zero, compared to a $2,061,000 gain recorded during the three months ended September 30, 2020. The decrease was primarily due to (i) a change in the terms of the warrants during 2021, which resulted in reclassification of the warrant instruments from liabilities to equity and (ii) expiration of the warrants previously outstanding.

 

Net Income: Net loss attributable to common stockholders was ($51,000) for the three months ended September 30, 2021, compared to net income of $1,529,000 for the three months ended September 30, 2020. The reasons for the fluctuation are outlined above.

 

There was no income tax benefit recorded for the three months ended September 30, 2021 and 2020, due to recurring net operating losses.

 

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 30, 2021 and 2020 were approximately $21,000 and $77,000, respectively. Revenues for the nine months ended September 30, 2021 were $56,000 lower when compared to the same period in 2020. Related cost of sales was $42,000 and $19,000 in the nine months ended September 30, 2021 and 2020, respectively. Cost of sales for the nine months ended September 30, 2021, were $23,000 higher when compared to the same period in 2020, due to increases in the inventory reserve in 2021. This resulted in a gross loss of $21,000 on the sales of devices and disposables for the nine months ended September 30, 2021 compared with a gross profit of $58,000 for the same period in 2020.

 

 
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Research and Development Expenses: Research and development expenses for the nine months ended September 30, 2021 decreased to $52,000 from $121,000 in the same period in 2020. The decrease of $69,000 or 57% was primarily due to a reduction in research and development clinical costs and payroll expenses.

 

Sales and Marketing Expenses: Sales and marketing expenses for the nine months ended September 30, 2021 has remained consistent with the nine months ended September 30, 2020 of $107,000.

 

General and Administrative Expense: General and administrative expenses for the nine months ended September 30, 2021, increased to $1,747,000, compared to $593,000 for the same period in 2020. The increase of $1,154,000, or 195%, was primarily due to a charge of $556,000 for warrants issued to Mr. Blumberg for consulting services and consulting expenses of $228,000 for warrants issued to finders in the capital raises. Additionally, during the nine months ended September 2020, the Company reversed $292,000 of a reserve taken for a deposit made for inventory parts for its devices, which lowered general and administrative expenses in the prior period. The remaining increase in current period general and administrative expenses was due to minimal increases in rent expense, payroll-related expenses, and miscellaneous other expenses.

 

Other Income: Other income for the nine months ended September 30, 2021 increased to $414,000, compared to $51,000 for the same period in 2020. The increase of $363,000, or 712%, was primarily due to the write-off of a $350,000 subscription receivable liability in the third quarter of 2021.

 

Interest Expense: Interest expense for the nine months ended September 30, 2021 increased to $1,050,000 from $910,000 for the same period in 2020. The increase of $140,000, or 15%, was primarily due to $350,000 prepayment penalty related to Short-term Convertible Notes Payable, offset by lower interest incurred for outstanding notes payable and convertible debt during the nine months ended September 30, 2021 compared to the same period in 2020.

 

Change in fair value of derivative liability: Loss from change in fair value of derivative liability was $89,000 during the nine-month period ended September 30, 2021, compared to a loss of $36,000 in the nine months ended September 30, 2020. The increase in the loss of $53,000, or 147%, was due to changes in the fair value of the associated derivative liability and extinguishment due to a $700,000 payoff of the associated loan.

 

Gain (loss) from extinguishment of debt: Gain (loss) from extinguishment of debt was $578,000 and ($296,000) for the nine months ended September 30, 2021 and 2020, respectively. The gain from debt extinguished in 2021 was primarily due to forgiveness of debt principal and accrued interest totaling $578,000 during the nine-months ended September 30, 2021. The loss of $296,000 recognized in the prior period was related to debt eliminated from debt exchange agreements.

 

Change in Fair Value of Warrants: Gain (loss) from change in fair value of warrants recovery was $448,000 and ($490,000) for the nine months ended September 30, 2021 and 2020, respectively. The favorable change was primarily due to favorable changes in warrant conversion prices and an increase in the stock price.

 

Net loss: Net loss attributable to common stockholders was ($1,922,000) and ($2,520,000) for the nine months ended September 30, 2021 and 2020, respectively. The reasons for the decreased are outlined above.

 

There was no income tax benefit recorded for the nine months ended September 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. As of September 30, 2021, we had cash of approximately $541,000 and a negative working capital of $3,748,000.

 

Our major cash flows for the nine months ended September 30, 2021 consisted of cash used by operating activities of $1,751,000, cash used for investing activities of $10,000, and net cash provided by financing activities of $2,120,000, which primarily represented the proceeds received from issuance of preferred stock.

 

 
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Capital resources for 2021

 

During 2021, the Company received 10% debenture unit investments in the amount of $1,130,000 and incurred fees due on these debentures of $86,400. The Company also issued the finders 413,600 warrants for the Company’s common stock shares. The investors received a total of 1,130,000 warrants for common stock shares. The debentures are convertible into 2,260,000 of the Company’s common stock shares.

 

During 2021, the Company received equity investments in the amount of $2,114,000 and incurred fees due on these investments of $139,000. The Company also issued the finders 98,000 of the Company’s common stock shares and 643,700 warrants for the Company’s common stock shares. These investors received a total of 1,436 and 3,237 shares of Series F and Series F-2 preferred stock, respectively. If the Investor elects to convert their Series F or Series F-2 preferred stock, each Series F or Series F-2 preferred stock shares converts into 4,000 shares of the Company’s common stock shares.

 

During 2021, the Company finalized an investment by Power Up Lending Group Ltd. Power Up invested $132,000, net to the Company is $125,000, for 153,000 shares of Series G preferred stock. As of September 30, 2021, all Series G preferred shares were redeemed.

 

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 option pricing model). 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 $0.15)

 

 

Warrants (Exercise $0.20)

 

 

Warrants (Exercise $0.25)

 

 

Warrants (Exercise $0.50)

 

 

Warrants (Exercise $0.75)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

-

 

 

 

496,602

 

 

 

704,334

 

 

 

-

 

 

 

704,334

 

Mr. Blumberg

 

 

305,320

 

 

 

292,290

 

 

 

13,030

 

 

 

1,167,630

 

 

 

-

 

 

 

928,318

 

 

 

119,656

 

 

 

-

 

 

 

119,656

 

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

 

 

 

-

 

 

 

1,497,367

 

 

 

100,944

 

 

 

-

 

 

 

100,944

 

Ms. Rosenstock1

 

 

50,000

 

 

 

50,000

 

 

 

-

 

 

 

100,000

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

Mr. James2

 

 

2,286

 

 

 

2,000

 

 

 

286

 

 

 

7,745

 

 

 

-

 

 

 

5,291

 

 

 

1,227

 

 

 

-

 

 

 

1,227

 

Auctus

 

 

328,422

 

 

 

249,119

 

 

 

79,303

 

 

 

500,000

 

 

 

700,000

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

Mr. Clavijo

 

 

125,000

 

 

 

125,000

 

 

 

-

 

 

 

500,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,000

 

 

 

-

 

Mr. Wells4

 

 

220,000

 

 

 

220,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

$ 2,737,847

 

 

$ 2,496,316

 

 

$ 241,531

 

 

 

7,957,013

 

 

 

700,000

 

 

 

4,713,603

 

 

 

1,121,705

 

 

 

250,000

 

 

 

1,121,705

 

 

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 forgave $20,000 of debt principal and received 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. As of September 30, 2021, the note is in default and accrues default interest of 24% per year.

 

On May 4, 2020, we received a loan from the Small Business Administration (SBA) pursuant to the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the amount of $50,184. The Company 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, with a total principal amount of $249,119 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). The note is no longer outstanding as of September 30, 2021.

 

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 September 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 September 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 for additional information.

 

ITEM 1A. RISK FACTORS

 

Not applicable for a smaller reporting company.

 

ITEM 2. UNREGISTERRED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. EXHIBITS

 

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

 

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

 

GUIDED THERAPEUTICS, INC.

 

By:

/s/ Gene S. Cartwright

Gene S. Cartwright

President, Chief Executive Officer and

Acting Chief Financial Officer

 

Date: November 15, 2021

 

 
48

 

 

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