NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018 AND 2017
1.
ORGANIZATION, BACKGROUND, AND BASIS OF PRESENTATION
Guided
Therapeutics, Inc. (formerly SpectRx, Inc.), together with its
wholly owned subsidiary, InterScan, Inc. (formerly Guided
Therapeutics, Inc.), collectively referred to herein as the
“Company”, is
a medical
technology company focused on developing innovative medical devices
that have the potential to improve healthcare. The Company’s
primary focus is the continued commercialization of its LuViva
non-invasive cervical cancer detection device and extension of its
cancer detection technology into other cancers, including
esophageal. The Company’s technology, including products in
research and development, primarily relates to biophotonics
technology for the non-invasive detection of
cancers.
Basis
of Presentation
All
information and footnote disclosures included in the consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United
States.
A 1:800
reverse stock split of all of the Company’s issued and
outstanding common stock was implemented on March 29, 2019. As a
result of the reverse stock split, every 800 shares of issued and
outstanding common stock were converted into 1 share of common
stock. All fractional shares created by the reverse stock split
were rounded to the nearest whole share. The number of authorized
shares of common stock did not change. The reverse stock split
decreased the Company’s issued and outstanding shares of
common stock from 2,652,309,322 shares to 3,319,486 shares as of
that date with rounding. See Note 4, Stockholders’ Deficit.
Unless otherwise specified, all per share amounts are reported on a
post-stock split basis, as of December 31, 2018.
The
Company’s prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by
entrants into the medical device industry. This industry is
characterized by an increasing number of participants, intense
competition and a high failure rate. The Company has experienced
net losses since its inception and, as of December 31, 2018, it had
an accumulated deficit of approximately $137.6 million. To date,
the Company has engaged primarily in research and development
efforts and the early stages of marketing its products. The Company
may not be successful in growing sales for its products. Moreover,
required regulatory clearances or approvals may not be obtained in
a timely manner, or at all. The Company’s products may not
ever gain market acceptance and the Company may not ever generate
significant revenues or achieve profitability. The development and
commercialization of the Company’s products requires
substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. The Company expects operating
losses to continue for the foreseeable future as it continues to
expend substantial resources to complete development of its
products, obtain regulatory clearances or approvals, build its
marketing, sales, manufacturing and finance capabilities, and
conduct further research and development.
Certain
prior year amounts have been reclassified in order to conform to
the current year presentation.
Going
Concern
The
Company’s consolidated financial statements have been
prepared and presented on a basis assuming it will continue as a
going concern. The factors below raise substantial doubt about the
Company’s ability to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary from the outcome of this uncertainty.
At
December 31, 2018, the Company had a negative working capital of
approximately $10.8 million, accumulated deficit of $137.6 million,
and incurred a net profit of $1.0 million for the year then ended
(the net profit for the year ended December 31, 2018 was primarily
realized due to a $3.2 million gain in the fair value of warrants
recorded in 2018 and a $1.0 million gain on the forgiveness of debt
from officers). Stockholders’ deficit totaled approximately
$15.8 million at December 31, 2018, primarily due to recurring net
losses from operations, deemed dividends on warrants and preferred
stock, offset by proceeds from the exercise of options and warrants
and proceeds from sales of stock.
The
Company’s capital-raising efforts are ongoing and the Company
has taken the following steps to increase the likelihood of a
successful financing: 1) Debt has been significantly reduced and
additional agreements are in place, contingent on a successful
financing, to reduce debt even further either by forgiveness of
debt and/or exchanges of debt for equity 2) Monthly operating
expenses have been reduced by nearly 50% since the beginning of
2017 and 3) Variable rate loans for the most part have either been
paid off or converted to equity. If sufficient capital cannot be
raised during 2019, 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 23.6 million
shares of its common stock outstanding at December 31, 2018, with
exercise prices ranging between $0.06 and $32.0 million per share.
Exercises of these warrants would generate a total of approximately
$6.2 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. However,
please refer to Footnote 11 - CONVERTIBLE DEBT IN DEFAULT in the
paragraph: Debt Restructuring for more information regarding our
warrants.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Significant areas where estimates are used include the
allowance for doubtful accounts, inventory valuation and input
variables for Black-Scholes, Monte Carlo simulations and binomial
calculations. The Company uses the Monte Carlo simulations and
binomial calculations in the calculation of the fair value of the
warrant liabilities and the valuation of embedded conversion
options and freestanding warrants.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts
of Guided Therapeutics, Inc. and its wholly owned subsidiary. All
intercompany transactions are eliminated.
Accounting
Standard Updates
Implemented
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued ASU 2014-09, “Revenue from Contracts with Distributors
(Topic 606),” (“ASU 2014-09”). ASU 2014-09
outlines a new, single comprehensive model for entities to use in
accounting for revenue arising from contracts with distributors and
supersedes most current revenue recognition guidance, including
industry-specific guidance. This new revenue recognition model
provides a five-step analysis in determining when and how revenue
is recognized. The new model requires revenue recognition to depict
the transfer of promised goods or services to distributors in an
amount that reflects the consideration a company expects to
receive. ASU 2014-09 also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments
and changes in judgments and assets recognized from costs incurred
to obtain or fulfill a contract. In August 2015, the FASB issued
ASU 2015-14, “Deferral of the Effective Date”, which
amends ASU 2014-09. As a result, the effective date will be the
first quarter of fiscal year 2018 with early adoption permitted in
the first quarter of fiscal year 2017. Subsequently, the FASB has
issued the following standards related to ASU 2014-09: ASU 2016-08,
“Revenue from Contracts with Distributors (Topic 606),
Principal versus Agent Considerations (Reporting Revenue Gross
versus Net),” (“ASU 2016-08”); ASU 2016-10,
“Revenue from Contracts with Distributors (Topic 606),
Identifying Performance Obligations and Licensing,”
(“ASU 2016-10”); ASU 2016-12, “Revenue from
Contracts with Distributors (Topic 606) Narrow-Scope Improvements
and Practical Expedients,” (“ASU 2016-12”); and
ASU 2016-20, “Technical Corrections and Improvements to Topic
606, Revenue from Contracts with Distributors,” (“ASU
2016-20”), which are intended to provide additional guidance
and clarity to ASU 2014-09. The Company must adopt ASU 2016-08, ASU
2016-10, ASU 2016-12 and ASU 2016-20 along with ASU 2014-09
(collectively, the “New Revenue Standards”). The New
Revenue Standards may be applied using one of two retrospective
application methods: (1) a full retrospective approach for all
periods presented, or (2) a modified retrospective approach that
presents a cumulative effect as of the adoption date and additional
required disclosures. The Company has evaluated the adoption of
this guidance and has taken a modified retrospective approach to
the presentation of revenue from contracts with distributors. The
Company adopted this standard on January 1, 2018, using the
modified retrospective method, with no impact on its 2018 financial
statements. The cumulative effect of initially applying the new
guidance had no impact on its financial statements in future
periods.
In July
2015, the FASB issued ASU 2015-11, “Simplifying the
Measurement of Inventory,” (“ASU 2015-11”). ASU
2015-11 requires inventory be measured at the lower of cost and net
realizable value and options that currently exist for market value
be eliminated. ASU 2015-11 defines net realizable value as
estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and
transportation. The guidance is effective for reporting periods
beginning after December 15, 2016 and interim periods within those
fiscal years with early adoption permitted. ASU 2015-11 should be
applied prospectively. The Company has adopted this guidance during
the year ended December 31, 2017 on a prospective basis. The
adoption of this guidance did not have a significant impact on the
operating results for the period ended December 31,
2017.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash
Flows (Topic 230), Classification of Certain Cash Receipts and Cash
Payments,” (“ASU 2016-15”). ASU 2016-15 reduces
the existing diversity in practice in financial reporting by
clarifying existing principles in ASC 230, “Statement of Cash
Flows,” and provides specific guidance on certain cash flow
classification issues. The effective date for ASU 2016-15 will be
the first quarter of fiscal year 2018, with early adoption
permitted. The Company adopted this guidance during the quarter
ended March 31, 2018 on a prospective basis. The adoption of this
guidance did not have a significant impact on the operating results
for the year ended December 31, 2018.
In
November 2016, the FASB issued ASU 2016-18, “Statement of
Cash Flows (Topic 230) - Restricted Cash,” (“ASU
2016-18”). ASU 2016-18 requires a statement of cash flows to
explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-year and end-of-year total amounts shown on the
statement of cash flows. The guidance is effective for annual
periods, and interim periods within those annual periods beginning
after December 15, 2017, with early adoption permitted. The Company
adopted this guidance during the quarter ended March 31, 2018 on a
prospective basis. The adoption of this guidance did not have a
significant impact on the operating results for the year ended
December 31, 2018.
In May
2017, the FASB issued ASU 2017-09, “Compensation –
Stock Compensation (Topic 718), Scope of Modification
Accounting)” (“ASU 2017-09”) which clarifies when
changes to the terms or conditions of a share-based payment award
must be accounted for as modifications. The new guidance will
reduce diversity in practice and result in fewer changes to the
terms of an award being accounted for as modifications. ASU 2017-09
will be applied prospectively to awards modified on or after the
adoption date. The guidance is effective for annual periods, and
interim periods within those annual periods beginning after
December 15, 2017, with early adoption permitted. The Company
adopted this guidance during the quarter ended March 31, 2018 on a
prospective basis. The adoption of this guidance did not have a
significant impact on the operating results for the year ended
December 31, 2018.
In March 2018, the FASB
issued ASU
2018-04,
Investments
– Debt Securities (Topic 320) and Regulated Operations (Topic
980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 117 and SEC Release
No. 33-9273.
The amendment of
ASU
2018-04
adds, amends and
supersedes various paragraphs that contain SEC guidance in ASC
320,
Investments-Debt
Securities
and ASC
980,
Regulated
Operations
. The amendments in
this update were effective upon issuance in March 2018. The
adoption of this new standard did not have a material impact on the
Company’s consolidated financial
statements.
In March 2018, the FASB issued
ASU 2018-05,
Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118
. The
amendment of ASU 2018-05 adds various paragraphs that
contain SEC guidance in ASC 740,
Income
Taxes
and SEC Staff
Accounting Bulletin No. 118. The amendments in this update
were effective upon issuance in March 2018. The adoption of this
new standard did not have a material impact on its consolidated
financial statements.
In June 2018, the FASB issued
ASU 2018-07,
Compensation – Stock
Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment Accounting
, which is
intended to improve the usefulness of the information provided to
the users of financial statements while reducing cost and
complexity in financial reporting. Under the new standard,
nonemployee share-based payment awards within the scope of Topic
718 are measured at grant-date fair value of the equity instruments
that an entity is obligated to issue when conditions necessary to
earn the right to benefit from the instruments have been satisfied.
These equity-classified non-employee share-based payment
awards are measured at the grant date. Consistent with the
accounting for employee share-based payment awards, an entity
considers the probability of satisfying performance conditions when
nonemployee share-based payment awards contain such conditions. The
new standard also eliminates the requirement to reassess
classification of such awards upon vesting. The new standard is
effective for annual periods, and interim periods within those
annual periods, beginning after December 15, 2018. Early
adoption is permitted, but no earlier than an entity’s
adoption date of Topic 606. The Company early adopted
ASU 2018-07 effective January 1, 2018. The adoption
of this new standard did not have a material impact on its
consolidated financial statements.
In July 2018, FASB issued ASU
2018-09
,
“Codification Improvements.”
This guidance affects a wide variety of topics in
the codification and represents changes to clarify, correct errors
in, or make minor improvements to the codification. The amendments
make the codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments apply to all reporting entities within the scope of the
affected accounting guidance. Some of the amendments in ASU 2018-09
do not require transition guidance and will be effective upon
issuance. However, many of the amendments do have transition
guidance with effective dates for annual periods beginning after
December 15, 2018, for public business entities. Adoption of this
guidance did not have a significant impact on the Company’s
consolidated financial statements.
Not Implemented
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic
842)” that requires lessees to recognize on the balance sheet
the assets and liabilities associated with the rights and
obligations created by those leases. Under the new guidance, a
lessee will be required to recognize assets and liabilities for
leases with lease terms of more than 12 months. Consistent with
current U.S. GAAP, the recognition, measurement, and presentation
of expenses and cash flows arising from a lease by a lessee
primarily will depend on its classification as finance or operating
lease. The update is effective for reporting periods beginning
after December 15, 2018. Adoption is not expected to have a
material effect on the Company’s consolidated financial
statements.
In June
2016, the FASB issued ASU 2016-13, “Financial Instruments -
Credit Losses,” (“ASU 2016-13”). ASU 2016-13 sets
forth a “current expected credit loss” model which
requires the Company to measure all expected credit losses for
financial instruments held at the reporting date based on
historical experience, current conditions and reasonable
supportable forecasts. The guidance in this new standard replaces
the existing incurred loss model and is applicable to the
measurement of credit losses on financial assets measured at
amortized cost and applies to some off-balance sheet credit
exposures. The effective date will be the first quarter of fiscal
year 2020. The Company is evaluating the impact that adoption of
this new standard will have on its consolidated financial
statements.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment,” (“ASU 2017-04”). ASU 2017-04
eliminates Step 2 from the goodwill impairment test. Instead, an
entity should perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its
carrying amount. An entity should recognize an impairment charge
for the amount by which the carrying amount exceeds the reporting
unit’s fair value, if any. The loss recognized should not
exceed the total amount of goodwill allocated to that reporting
unit. Additionally, an entity should consider income tax effects
from any tax-deductible goodwill on the carrying amount of the
reporting unit when measuring the goodwill impairment. The
effective date will be the first quarter of fiscal year 2020, with
early adoption permitted in 2017. Adoption is not expected to have
a material effect on the Company’s consolidated financial
statements.
In February 2018, the
FASB issued ASU
2018-02,
Income
Statement – Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income
. The amendment of
ASU
2018-02
states an entity
may elect to reclassify the income tax effects of the Tax Cuts and
Jobs Act of 2017 (the “Tax Cuts and Jobs Act”) on items
within accumulated other comprehensive income to retained earnings.
The amendments in this update are effective for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2018. Early adoption is permitted.
Adoption is not expected to have a material effect on the
Company’s consolidated financial statements.
In August 2018, the FASB issued
ASU 2018-13,
Fair Value Measurement (Topic
820)
. The new standard modifies
the disclosure requirements on fair value measurements in Topic
820, Fair Value Measurement, including removals of, modification
to, and additional disclosure requirements from Topic 820. The
amendment of ASU 2018-13 removes disclosure requirements
from Topic 820 in the areas of (1) the amount of and reasons
for transfers between Level 1 and Level 2 of the fair
value hierarchy; (2) the policy for timing of transfers
between levels, and (3) the valuation processes for
Level 3 fair value measurements. The amendments in this update
are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019. Except for
certain amendments related to Level 3 fair value measurements,
all the other amendments should be applied retrospectively to all
periods presented upon their effective date. Early adoption is
permitted upon issuance of the ASU 2018-13. The Company
believes that the adoption of this new standard will have no
material impact on its consolidated financial position or results
of operations and has not elected to early adopt the
amendment.
In August 2018, the FASB issued
ASU 2018-15,
Intangibles – Goodwill
and Other – Internal-Use Software
(Subtopic 350-40), Customer’s Accounting for
Implementation Costs Incurred in a Cloud
Computing
Arrangement That Is a Service
Contract
(or
ASU 2018-15). ASU 2018-15 requires a customer that
is a party to a cloud computing service contract to follow
the internal-use software guidance in
Subtopic 350-40 to determine which implementation costs
to capitalize and which costs to expense. The amendments in this
update are effective for annual reporting periods beginning after
December 15, 2019, and interim periods within those fiscal
years. Early adoption of the amendments in this update is
permitted. The amendments in this update should
be applied either
retrospectively or prospectively to all implementation costs
incurred after the date of adoption.
The Company believes that the adoption of this new
standard will have no material impact on its consolidated financial
position or results of operations and has not elected to early
adopt the amendment.
Except
as noted above, the guidance issued by the FASB during the current
year is not expected to have a material effect on the
Company’s consolidated financial statements.
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. The Company does not accrue interest receivable 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.
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. The Company does not accrue interest receivable on
past due accounts receivable.
Inventory
Valuation
All
inventories are stated at lower of cost or net realizable value,
with cost determined substantially on a “first-in,
first-out” basis. Selling, general, and administrative
expenses are not inventoried, but are charged to expense when
incurred. At December 31, 2018 and 2017, our inventories were as
follows (in thousands):
|
|
|
|
|
Raw
materials
|
$
783
|
$
789
|
Work in
process
|
81
|
82
|
Finished
goods
|
17
|
27
|
Inventory
reserve
|
(767
)
|
(716
)
|
Total
|
$
114
|
$
182
|
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 is included in general and administrative
expense on the statement of operations. Expenditures for repairs
and maintenance are expensed as incurred. Property and equipment
are summarized as follows at December 31, 2018 and 2017 (in
thousands):
|
|
|
|
|
Equipment
|
$
1,378
|
$
1,378
|
Software
|
740
|
740
|
Furniture and
fixtures
|
124
|
124
|
Leasehold
Improvement
|
199
|
199
|
|
2,441
|
2,441
|
Less accumulated
depreciation
|
(2,420
)
|
(2,392
)
|
Total
|
$
21
|
$
49
|
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.
Other
Assets
Other
assets primarily consist of short- and long-term deposits for
various tooling inventory that are being constructed for the
Company.
Patent
Costs (Principally Legal Fees)
Costs
incurred in filing, prosecuting, and maintaining patents are
recurring, and expensed as incurred. Maintaining patents are
expensed as incurred as the Company has not yet received U.S. FDA
approval and recovery of these costs is uncertain. Such costs
aggregated approximately $11,000 and $15,000 in 2018 and 2017,
respectively.
Accrued
Liabilities
Accrued
liabilities are summarized as follows at December 31, 2018 and 2017
(in thousands):
|
|
|
|
|
Compensation
|
$
1,030
|
$
2,122
|
Professional
fees
|
203
|
223
|
Interest
|
892
|
511
|
Warranty
|
2
|
39
|
Vacation
|
53
|
152
|
Preferred
dividends
|
120
|
291
|
Stock subscription
for licenses
|
692
|
705
|
Other accrued
expenses
|
164
|
121
|
Total
|
$
3,156
|
$
4,164
|
Revenue
Recognition
The
Company follows, ASC 606 Revenue from Contracts with Customers
establishes a single and comprehensive framework which sets out how
much revenue is to be recognized, and when. The core principle is
that a vendor should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the vendor expects to be entitled in
exchange for those goods or services. Revenue will now be
recognized by a vendor when control over the goods or services is
transferred to the customer. In contrast, Revenue based revenue
recognition around an analysis of the transfer of risks and
rewards; this now forms one of a number of criteria that are
assessed in determining whether control has been transferred. The
application of the core principle in ASC 606 is carried out in five
steps: Step 1 – Identify the contract with a customer: a
contract is defined as an agreement (including oral and implied),
between two or more parties, that creates enforceable rights and
obligations and sets out the criteria for each of those rights and
obligations. The contract needs to have commercial substance and it
is probable that the entity will collect the consideration to which
it will be entitled. Step 2 – Identify the performance
obligations in the contract: a performance obligation in a contract
is a promise (including implicit) to transfer a good or service to
the customer. Each performance obligation should be capable of
being distinct and is separately identifiable in the contract. Step
3 – Determine the transaction price: transaction price is the
amount of consideration that the entity can be entitled to, in
exchange for transferring the promised goods and services to a
customer, excluding amounts collected on behalf of third parties.
Step 4 – Allocate the transaction price to the performance
obligations in the contract: for a contract that has more than one
performance obligation, the entity will allocate the transaction
price to each performance obligation separately, in exchange for
satisfying each performance obligation. The acceptable methods of
allocating the transaction price include adjusted market assessment
approach, expected cost plus a margin approach, and, the residual
approach in limited circumstances. Discounts given should be
allocated proportionately to all performance obligations unless
certain criteria are met and reallocation of changes in standalone
selling prices after inception is not permitted. Step 5 –
Recognize revenue as and when the entity satisfies a performance
obligation: the entity should recognize revenue at a point in time,
except if it meets any of the three criteria, which will require
recognition of revenue over time: the entity’s performance
creates or enhances an asset controlled by the customer, the
customer simultaneously receives and consumes the benefit of the
entity’s performance as the entity performs, and the entity
does not create an asset that has an alternative use to the entity
and the entity has the right to be paid for performance to
date.
Revenue
by product line:
|
|
|
|
|
Devices
|
$
17
|
$
177
|
Disposables
|
32
|
54
|
Other
|
1
|
3
|
Warranty
|
7
|
10
|
Total
|
$
57
|
$
244
|
Revenue
by geographic location:
|
|
|
|
|
Asia
|
$
49
|
$
288
|
Africa
|
8
|
(15
)
|
Europe
|
-
|
(14
)
|
North
America
|
-
|
(5
)
|
South
America
|
-
|
(10
)
|
Total
|
$
57
|
$
244
|
*During
2017, the Company had a buyback program on devices sold in prior
years that totaled $54,000.
Significant
Distributors
In 2018
and 2017, the majority of the Company’s revenues were from
one and two distributors, respectively. Revenue from these
distributors totaled approximately $40,750 or 82% and approximately
$277,625 or 88% of gross revenue for the year ended December 31,
2018 and 2017, respectively. There were no amounts due from these
distributors as of December 31, 2018 and 2017.
Deferred
revenue
The
Company defers payments received as revenue until earned based on
the related contracts and applying ASC 606 as required. As of
December 31, 2018, and 2017, the Company did not have deferred
revenue, respectively.
Customer
deposits
The
Company follows the same principal as explained in Revenue
Recognition and ASC 606. As of December 31, 2018, and 2017, the
Company has received prepayments for devices and disposables and
recorded this as customer deposits in the amount of $66,000 and
$21,000, respectively.
Research
and Development
Research and
development expenses consist of expenditures for research conducted
by the Company and payments made under contracts with consultants
or other outside parties and costs associated with internal and
contracted clinical trials. All research and development costs are
expensed as incurred.
Income
Taxes
The
Company uses the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Management provides valuation
allowances against the deferred tax assets for amounts that are not
considered more likely than not to be realized.
The
Company is currently delinquent with its federal and applicable
state tax return filings, payments and certain Federal and State
Unemployment Tax filings. Some of the federal income tax returns
are currently under examination by the U.S. Internal Revenue
Service (“IRS”). The Company has entered into an agreed
upon payment plan with the IRS for delinquent payroll taxes. The
Company is currently in process of setting up a payment arrangement
for its delinquent state income taxes with the State of Georgia and
the returns are currently under review by state authorities.
Although the Company has been experiencing recurring losses, it is
obligated to file tax returns for compliance with IRS regulations
and that of applicable state jurisdictions. At December 31, 2018
and 2017, the Company has approximately $77.2 and $82.9 million of
net operating losses, respectively. This net operating loss will be
eligible to be carried forward for tax purposes at federal and
applicable states level. A full valuation allowance has been
recorded related the deferred tax assets generated from the net
operating losses.
Corporate tax rates
in the U.S. have decreased from 34% to 21%.
Uncertain
Tax Positions
The
Company assesses each income tax position is assessed using a
two-step process. A determination is first made as to whether it is
more likely than not that the income tax position will be
sustained, based upon technical merits, upon examination by the
taxing authorities. If the income tax position is expected to meet
the more likely than not criteria, the benefit recorded in the
financial statements equals the largest amount that is greater than
50% likely to be realized upon its ultimate settlement. At December
31, 2018 and 2017 there were no uncertain tax
positions.
Warrants
The
Company has issued warrants, which allow the warrant holder to
purchase one share of stock at a specified price for a specified
period of time. The Company records equity instruments including
warrants issued to non-employees based on the fair value at the
date of issue. The fair value of warrants classified as equity
instruments at the date of issuance is estimated using the
Black-Scholes Model. The fair value of warrants classified as
liabilities at the date of issuance is estimated using the Monte
Carlo Simulation or Binomial model.
Stock
Based Compensation
The
Company records compensation expense related to options granted to
non-employees based on the fair value of the award.
Compensation cost
is recorded as earned for all unvested stock options outstanding at
the beginning of the first year based upon the grant date fair
value estimates, and for compensation cost for all share-based
payments granted or modified subsequently based on fair value
estimates.
For the
years ended December 31, 2018 and 2017, share-based compensation
for options attributable to employees, officers and Board members
were approximately $44,000 and $59,000, respectively. These amounts
have been included in the Company’s statements of operations.
Compensation costs for stock options which vest over time are
recognized over the vesting period. As of December 31, 2018, the
Company had approximately $7,000 of unrecognized compensation costs
related to granted stock options to be recognized over the
remaining vesting period of approximately one year.
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.
Derivatives
The
Company reviews the terms of convertible debt issued to determine
whether there are embedded derivative instruments, including
embedded conversion options, which are required to be bifurcated
and accounted for separately as derivative financial instruments.
In circumstances where the host instrument contains more than one
embedded derivative instrument, including the conversion option,
that is required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative
instrument
Bifurcated embedded
derivatives are initially recorded at fair value and are then
revalued at each reporting date with changes in the fair value
reported as non-operating income or expense. When the equity or
convertible debt instruments contain embedded derivative
instruments that are to be bifurcated and accounted for as
liabilities, the total proceeds received are first allocated to the
fair value of all the bifurcated derivative instruments. The
remaining proceeds, if any, are then allocated to the host
instruments themselves, usually resulting in those instruments
being recorded at a discount from their face value. The discount
from the face value of the convertible debt, together with the
stated interest on the instrument, is amortized over the life of
the instrument through periodic charges to interest
expense.
3.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The
guidance for fair value measurements, ASC820, Fair Value
Measurements and Disclosures, establishes the authoritative
definition of fair value, sets out a framework for measuring fair
value, and outlines the required disclosures regarding fair value
measurements. Fair value is the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at
the measurement date. The Company uses a three-tier fair value
hierarchy based upon observable and non-observable inputs as
follow:
●
Level 1 –
Quoted market prices in active markets for identical assets and
liabilities;
●
Level 2 –
Inputs, other than level 1 inputs, either directly or indirectly
observable; and
●
Level 3 –
Unobservable inputs developed using internal estimates and
assumptions (there is little or no market date) which reflect those
that market participants would use.
The
Company records its derivative activities at fair value, which
consisted of warrants as of December 31, 2018. The fair value of
the warrants was estimated using the Binomial Simulation model.
Gains and losses from derivative contracts are included in net gain
(loss) from derivative contracts in the statement of operations.
The fair value of the Company’s derivative warrants is
classified as a Level 3 measurement, since unobservable inputs are
used in the valuation.
The
following table presents the fair value for those liabilities
measured on a recurring basis as of December 31, 2018 and
2017:
FAIR
VALUE MEASUREMENTS (In Thousands)
The
following is summary of items that the Company measures at fair
value on a recurring basis:
|
Fair Value at
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in
connection with Distributor Debt
|
-
|
-
|
(114
)
|
(114
)
|
Warrants issued in
connection with Senior Secured Debt
|
-
|
-
|
(4,614
|
(4,614
)
|
Total
long-term liabilities at fair value
|
$
-
|
$
-
|
$
(4,728
|
$
(4,728
)
|
|
Fair Value at
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in
connection with Distributor Debt
|
-
|
-
|
(114
)
|
(114
)
|
Warrants issued in
connection with Short-Term Loans
|
-
|
-
|
(11
)
|
(114
)
|
Warrants issued in
connection with Senior Secured Debt
|
-
|
-
|
(7837
)
|
(7,837
)
|
Total
long-term liabilities at fair value
|
$
-
|
$
-
|
(7,962
)
|
$
(7,962
)
|
The
following is a summary of changes to Level 3 instruments during the
year ended December 31, 2018:
|
Fair Value
Measurements Using Significant Unobservable Inputs (Level
3)
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017
|
$
(11
)
|
$
(7,837
)
|
$
(114
)
|
$
(7,962
)
|
Warrants
issued during the year
|
-
|
-
|
-
|
-
|
Change
in fair value during the year
|
11
|
3,223
|
-
|
3,234
|
Balance, December
31, 2018
|
$
-
|
$
(4,614
)
|
$
(114
)
|
$
(4,728
)
|
As of
December 31, 2018, the fair value of warrants was approximately
$4.7 million. A net change of approximately $3.2 million has been
recorded to the accompanying statement of operations for the year
ended.
4.
STOCKHOLDER’S DEFICIT
Common
Stock
The
Company has authorized 1,000,000,000 shares of common stock with
$0.001 par value, of which 2,669,348 were issued and outstanding as
of December 31, 2018. For the year ended December 31, 2017, there
were 1,000,000,000 authorized shares of common stock, of which
61,954 were issued and outstanding.
For the
year ended December 31, 2018, the Company issued 2,607,394 shares
of common stock as listed below:
Series C Preferred
Stock Conversions
|
107,974
|
Series C Preferred
Stock Dividends
|
52,450
|
Equity Financing
Conversions
|
87,500
|
Convertible Debt
Conversions
|
2,359,470
|
Total
|
2,607,394
|
Balance at December
31, 2017
|
61,954
|
Issued in
2018
|
2,607,394
|
Balance at December
31, 2018
|
2,669,348
|
On
January 22, 2017, the Company entered into a license agreement with
Shandong Yaohua Medical Instrument Corporation, or SMI, pursuant to
which the Company granted SMI an exclusive global license to
manufacture the LuViva device and related disposables (subject to a
carve-out for manufacture in Turkey) and exclusive distribution
rights in the Peoples Republic of China, Macau, Hong Kong and
Taiwan. In exchange for the license, SMI will pay a $1.0 million
licensing fee, payable in five installments through November 2017,
as well as a royalty on each disposable sold in the territories. As
of December 31, 2018, SMI had paid $750,000. SMI will also
underwrite the cost of securing approval of LuViva with the Chinese
Food and Drug Administration, or CFDA. Pursuant to the SMI
agreement, SMI must become capable of manufacturing LuViva in
accordance with ISO 13485 for medical devices by the second
anniversary of the SMI agreement, or else forfeit the license.
Based on the agreement, SMI must purchase no fewer than ten devices
(with up to two devices pushed to 2018 if there is a delay in
obtaining approval from the CFDA). SMI purchased five devices in
2017 and have not purchased any in 2018. In the three years
following CFDA approval, SMI must purchase a minimum of 3,500
devices (500 in the first year, 1,000 in the second, and 2,000 in
the third) or else forfeit the license. As manufacturer of the
devices and disposables, SMI will be obligated to sell each to us
at costs no higher than our current costs. As partial consideration
for, and as a condition to, the license, and to further align the
strategic interests of the parties, the Company agreed to issue
$1.0 million in shares of its common stock to SMI, in five
installments through October 2017, at a price per share equal to
the lesser of the average closing price for the five days prior to
issuance and $1.25. These shares have not been issued as of
December 31, 2018.
In
order to facilitate the SMI agreement, immediately prior to its
execution the Company entered into an agreement with Shenghuo
Medical, LLC, regarding its previous license to Shenghuo (see Note
7, Commitments and Contingencies). Under the terms of the new
agreement, Shenghuo agreed to relinquish its manufacturing license
and its distribution rights in SMI’s territories, and to
waive its rights under the original Shenghuo agreement, all for as
long as SMI performs under the SMI agreement. As consideration, the
Company agreed to split with Shenghuo the licensing fees and net
royalties from SMI that the Company will receive under the SMI
agreement. Should the SMI agreement be terminated, the Company have
agreed to re-issue the original license to Shenghuo under the
original terms. The Company’s COO and director, Mark Faupel,
is a shareholder of Shenghuo, and another director, Richard
Blumberg, is a managing member of Shenghuo.
During
2018, the Company had exercised its rights under the $10,000,000
GHS Equity Financing Agreement entered into on March 1, 2018, to
exercise puts of $47,320 for the issuance of 87,500 common stock
shares. Pursuant to the agreement a put maybe executed for a price
that is 80% of the “market price” which is the average
of the two lowest volume weighted average prices of the
Company’s common stock for 15 consecutive trading days
preceding the put date.
Preferred
Stock
The
Company has authorized 5,000,000 shares of preferred stock with a
$.001 par value. The board of directors has the authority to issue
these shares and to set dividends, voting and conversion rights,
redemption provisions, liquidation preferences, and other rights
and restrictions. The board of directors designated 525,000 shares
of preferred stock redeemable convertible preferred stock, none of
which remain outstanding, 33,000 shares of preferred stock as
Series B Preferred Stock, none of which remain outstanding, 9,000
shares of preferred stock as Series C Convertible Preferred Stock,
(the “Series C1 Preferred Stock”), of which 286 and 970
were issued and outstanding at December 31, 2018 and 2017,
respectively, and 20,250 shares of preferred stock as Series C1
Preferred Stock, of which 1,050 and 4,312 shares were issued and
outstanding at December 31, 2018 and 2017,
respectively.
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 (the
“Exchange Agreements”), 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, par value $0.001 per share (the
“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.
Series C Convertible Preferred Stock
On June
29, 2015, the Company entered into a securities purchase agreement
with certain accredited investors, including John Imhoff and Mark
Faupel, members of the Board, for the issuance, exchange and sale
of an aggregate of 6,737 shares of Series C convertible preferred
stock, at a purchase price of $750 per share and a stated value of
$1,000 per share. Additionally, during October 2015 the Company
entered into an interim agreement amending the securities purchase
agreement to provide for certain of the investors to purchase an
additional aggregate of 1,166 shares. For a total of Series C
convertible preferred stock issued of 7,903 shares. Of the 7,903
Series C convertible preferred stock issued, 1,835 were issued in
exchange of Series B convertible preferred stock. Therefore 6,068
Series C preferred stock were issued at a purchase price of $750
for gross proceeds of $4,551,000. The Company received net cash
proceeds of $3,698,000, after cash and non-cash expenses of
$853,000.
Pursuant to the
Series C certificate of designations, shares of Series C preferred
stock are convertible into common stock by their holder at any time
and may be mandatorily convertible upon the achievement of
specified average trading prices for the Company’s common
stock. At December 31, 2018, there were 286 shares outstanding with
a conversion price of $2.099 per share, such that each share of
Series C preferred stock would convert into approximately 476
shares of the Company’s common stock, 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. In addition, upon conversion of
the Series C preferred stock prior to the Dividend End Date, the
Company will also pay to the converting holder a “make-whole
payment” equal to the number of unpaid dividends through the
Dividend End Date on the converted shares. At December 31, 2018,
the “make-whole payment” for a converted share of
Series C preferred stock would convert to 200 shares of the
Company’s common stock. The Series C preferred stock
generally has no voting rights except as required by Delaware law.
Upon the Company’s liquidation or sale to or merger with
another corporation, each share will be entitled to a liquidation
preference of $1,000, plus any accrued but unpaid dividends. In
addition, the purchasers of the Series C preferred stock received,
on a pro rata basis, warrants exercisable to purchase an aggregate
of approximately 1 share of Company’s common stock. The
warrants contain anti-dilution adjustments in the event that the
Company issues shares of common stock, or securities exercisable or
convertible into shares of common stock, at prices below the
exercise price of such warrants. As a result of the anti-dilution
protection, the Company is required to account for the warrants as
a liability recorded at fair value each reporting period. At
December 31, 2018, the exercise price per share was
$512,000.
On May
23, 2016, an investor canceled certain of these warrants,
exercisable into 903 shares of common stock. The same investor also
transferred certain of these warrants, exercisable for 150 shares
of common stock, to two investors who also had participated in the
2015 Series C financing.
Series C1 Convertible Preferred Stock
Between
April 27, 2016 and May 3, 2016, the Company entered into various
agreements with certain holders of Series C preferred stock,
including directors John Imhoff and Mark Faupel, pursuant to which
those holders separately agreed to exchange each share of Series C
preferred stock held for 2.25 shares of the Company’s newly
created Series C1 Preferred Stock and 12 (9,600 pre-split) shares
of the Company’s common stock (the “Series C
Exchanges”). In connection with the Series C Exchanges, each
holder also agreed to roll over the $1,000 stated value per share
of the holder’s shares of Series C1 Preferred Stock into the
next qualifying financing undertaken by the Company on a
dollar-for-dollar basis and, except in the event of an additional
$50,000 cash investment in the Company by the holder, to execute a
customary “lockup” agreement in connection with the
financing. In total, for 1,916 shares of Series C preferred stock
surrendered, the Company issued 4,312 shares of Series C1 Preferred
Stock and 29 shares of common stock. At December 31, 2018, there
were 1,050 shares outstanding with a conversion price of $2.099 per
share, such that each share of Series C preferred stock would
convert into approximately 381,098 shares of the Company’s
common stock.
On August 31, 2018, 3,262.25 shares of Series C1
Preferred Stock were surrendered, and the Company issued 3,262.25
shares of Series C2 Preferred Stock. At
December
31
, 2018, shares of Series C2 had a
conversion price of $2.099 per share, such that each share of
Series C preferred stock would convert into approximately 476
shares of the Company’s common stock.
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.
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.
Warrants
The
following table summarizes transactions involving the
Company’s outstanding warrants to purchase common stock for
the year ended December 31, 2018:
|
Warrants
(Underlying
Shares)
|
Outstanding,
January 1, 2018
|
367,611
|
Issuances
|
23,184,246
|
Exercised
|
-
|
Canceled /
Expired
|
-
|
Outstanding,
December 31, 2018
|
23,551,857
|
The
Company had the following shares reserved for the warrants as of
December 31, 2018:
Warrants(Underlying
Shares)
|
|
|
Exercise
Price
|
|
Expiration
Date
|
13
|
|
(1)
|
$60,000.00 per
share
|
|
June
14, 2021
|
3
|
|
(2)
|
$32,000,000.00 per
share
|
|
April
23, 2019
|
7
|
|
(3)
|
$28,800,000.00 per
share
|
|
May 22,
2019
|
3
|
|
(4)
|
$24,320,000.00 per
share
|
|
September 10,
2019
|
1
|
|
(5)
|
$29,491,840.00 per
share
|
|
September 27,
2019
|
4
|
|
(6)
|
$18,003,200.00 per
share
|
|
December 2,
2019
|
2
|
|
(7)
|
$5,760,000.00 per
share
|
|
December 2,
2020
|
2
|
|
(8)
|
$7,040,000.00 per
share
|
|
December 2,
2020
|
1
|
|
(9)
|
$7,603,200.00 per
share
|
|
June
29, 2020
|
13
|
|
(9)
|
$512,000.00 per
share
|
|
September 21,
2020
|
24
|
|
(10)
|
$512,000.00 per
share
|
|
June
29, 2020
|
12
|
|
(11)
|
$512,000.00 per
share
|
|
September 4,
2020
|
1
|
|
(12)
|
$7,603,200.00 per
share
|
|
September 4,
2020
|
1
|
|
(13)
|
$512,000.00 per
share
|
|
October
23, 2020
|
1
|
|
(14)
|
$7,603,200.00 per
share
|
|
October
23, 2020
|
22,460,938
|
|
(15)
|
$0.06
per share
|
|
June
14, 2021
|
1,078,125
|
|
(16)
|
$0.06
per share
|
|
February 21,
2021
|
22
|
|
(17)
|
$11,137.28 per
share
|
|
June 6,
2021
|
250
|
|
(18)
|
$1.82
per share
|
|
February 13,
2022
|
25
|
|
(19)
|
$144.00
per share
|
|
May 16,
2022
|
688
|
|
(20)
|
$15.20
per share
|
|
November 16,
2020
|
250
|
|
(21)
|
$15.20
per share
|
|
December 28,
2020
|
75
|
|
(22)
|
$16.08
per share
|
|
January
10, 2021
|
4,262
|
|
(23)
|
$1.82
per share
|
|
March
19, 2021
|
1,875
|
|
(24)
|
$16.08
per share
|
|
March
20, 2021
|
63
|
|
(25)
|
$48.00
per share
|
|
April
30, 2021
|
125
|
|
(26)
|
$48.00
per share
|
|
May 17,
2021
|
125
|
|
(27)
|
$48.00
per share
|
|
May 25,
2021
|
500
|
|
(28)
|
$48.00
per share
|
|
June 1,
2021
|
1,875
|
|
(29)
|
$200.00
per share
|
|
August
22, 2021
|
625
|
|
(30)
|
$200.00
per share
|
|
September 18,
2021
|
1,250
|
|
(31)
|
$1.12
per share
|
|
October
23, 2021
|
19
|
|
(32)
|
$0.64
per share
|
|
November 20,
2021
|
375
|
|
(33)
|
$0.32
per share
|
|
December 5,
2021
|
100
|
|
(34)
|
$0.16
per share
|
|
December 19,
2021
|
188
|
|
(35)
|
$0.24
per share
|
|
December 23,
2021
|
14
|
|
(36)
|
$0.24
per share
|
|
December 27,
2021
|
23,551,857*
|
|
|
|
|
|
*
However, please refer to
Footnote 11 - CONVERTIBLE DEBT IN
DEFAULT
in the paragraph: Debt Restructuring for more
information regarding our warrants.
|
|
(1)
|
Issued
in June 2015 in exchange for warrants originally issued as part of
a May 2013 private placement.
|
(2)
|
Issued
to a placement agent in conjunction with an April 2014 private
placement.
|
(3)
|
Issued
to a placement agent in conjunction with a September 2014 private
placement.
|
(4)
|
Issued
as part of a September 2014 Regulation S offering.
|
(5)
|
Issued
to a placement agent in conjunction with a 2014 public
offering.
|
(6)
|
Issued
in June 2015 in exchange for warrants originally issued as part of
a 2014 public offering.
|
(7)
|
Issued
as part of a March 2015 private placement.
|
(8)
|
Issued
to a placement agent in conjunction with a June 2015 private
placement.
|
(9)
|
Issued
as part of a June 2015 private placement.
|
(10)
|
Issued
as part of a June 2015 private placement.
|
(11)
|
Issued
as part of a June 2015 private placement.
|
(12)
|
Issued
to a placement agent in conjunction with a June 2015 private
placement.
|
(13)
|
Issued
as part of a June 2015 private placement.
|
(14)
|
Issued
to a placement agent in conjunction with a June 2015 private
placement.
|
(15)
|
Issued
as part of a February 2016 private placement.
|
(16)
|
Issued
to a placement agent in conjunction with a February 2016 private
placement.
|
(17)
(18)
|
Issued
pursuant to a strategic license agreement.
Issued
as part of a February 2017 private placement.
|
(19)
|
Issued
as part of a May 2017 private placement.
|
(20)
|
Issued
to investors for a loan in November 2017.
|
(21)
|
Issued
to investors for a loan in December 2017.
|
(22)
|
Issued
to investors for a loan in January 2018.
|
(23)
|
Issued
to investors for a loan in March 2018.
|
(24)
|
Issued
to investors for a loan in March 2018.
|
(25)
|
Issued
to investors for a loan in April 2018.
|
(26)
|
Issued
to investors for a loan in May 2018.
|
(27)
|
Issued
to investors for a loan in May 2018.
|
(28)
|
Issued
to investors for a loan in June 2018
|
(29)
|
Issued
to investors for a loan in August 2018
|
(30)
|
Issued
to investors for a loan in September 2018
|
(31)
|
Issued
to investors for a loan in October 2018
|
(32)
|
Issued
to investors for a loan in November 2018
|
(33)
|
Issued
to investors for a loan in December 2018
|
(34)
|
Issued
to investors for a loan in December 2018
|
(35)
|
Issued
to investors for a loan in December 2018
|
(36)
|
Issued
to investors for a loan in December 2018
|
All
outstanding warrant agreements provide for anti-dilution
adjustments in the event of certain mergers, consolidations,
reorganizations, recapitalizations, stock dividends, stock splits
or other changes in the Company’s corporate structure; except
for (8). In addition, warrants subject to footnotes (1) and
(9)-(11), (13), and (15) – (36) in the table above are
subject to “lower price issuance” anti-dilution
provisions that automatically reduce the exercise price of the
warrants (and, in the cases of warrants subject to footnote (1),
(15) and (16) in the table above, increase the number of shares of
common stock issuable upon exercise), to the offering price in a
subsequent issuance of the Company’s common stock, unless
such subsequent issuance is exempt under the terms of the
warrants.
For the
warrants to footnote (15), the Company further agreed to amend the
warrant issued with the original senior secured convertible note,
to adjust the number of shares issuable upon exercise of the
warrant to equal the number of shares that will initially be
issuable upon conversion of the new convertible note (without
giving effect to any beneficial ownership limitations set forth in
the terms of the new convertible note).
The
warrants subject to footnote (1) are subject to a mandatory
exercise provision. This provision permits the Company, subject to
certain limitations, to require exercise of such warrants at any
time following (a) the date that is the 30th day after the later of
the Company’s receipt of an approvable letter from the U.S.
FDA for LuViva and the date on which the common stock achieves an
average market price for 20 consecutive trading days of at least
$832,000.00 with an average daily trading volume during such 20
consecutive trading days of at least 250 shares, or (b) the date on
which the average market price of the common stock for 20
consecutive trading days immediately prior to the date the Company
delivers a notice demanding exercise is at least $103,680,000.00
and the average daily trading volume of the common stock exceeds
250 shares for such 20 consecutive trading days. If these warrants
are not timely exercised upon demand, they will expire. Upon the
occurrence of certain events, the Company may be required to
repurchase these warrants, as well as the warrants subject to
footnote (1) in the table above. The holders of the warrants
subject to footnote (1) in the table above have agreed to surrender
the warrants, upon consummation of a qualified public financing,
for new warrants exercisable for 200% of the number of shares
underlying the surrendered warrants, but without certain
anti-dilution protections included with the surrendered
warrants.
The
warrants subject to footnote (4) in the table above are also
subject to a mandatory exercise provision. This provision permits
the Company, subject to certain limitations; to require the
exercise of such warrants should the average trading price of its
common stock over any 30-consecutive day trading period exceed
$73,728.00.
The
warrants subject to footnote (6) in the table above are also
subject to a mandatory exercise provision. This provision permits
the Company, subject to certain limitations, to require exercise of
50% of the then-outstanding warrants if the trading price of its
common stock is at least two times the initial warrant exercise
price for any 20-day trading period. Further, in the event that the
trading price of the Company’s common stock is at least 2.5
times the initial warrant exercise price for any 20-day trading
period, the Company will have the right to require the immediate
exercise of 50% of the then-outstanding warrants. Any warrants not
exercised within the prescribed time periods will be canceled to
the extent of the number of shares subject to mandatory
exercise.
Series
B Tranche B Warrants
As
discussed in Note 3, Fair Value Measurements, between June 13, 2016
and June 14, 2016, the Company entered into various agreements with
holders of the Company’s “Series B Tranche B”
warrants, pursuant to which each holder separately agreed to
exchange the warrants for either (1) shares of common stock equal
to 166% of the number of shares of common stock underlying the
surrendered warrants, or (2) new warrants exercisable for 200% of
the number of shares underlying the surrendered warrants, but
without certain anti-dilution protections included with the
surrendered warrants. In total, for surrendered warrants
then-exercisable for an aggregate of 1,482 shares of common stock
(but subject to exponential increase upon operation of certain
anti-dilution provisions), the Company issued or is obligated to
issue 21 shares of common stock and new warrants that, if exercised
as of the date hereof, would be exercisable for an aggregate of 271
shares of common stock. As of December 31, 2018, the Company had
issued 18 shares of common stock and rights to common stock shares
for 3. In certain circumstances, in lieu of presently issuing all
of the shares (for each holder that opted for shares of common
stock), the Company and the holder further agreed that the Company
will, subject to the terms and conditions set forth in the
applicable warrant exchange agreement, from time to time, be
obligated to issue the remaining shares to the holder. No
additional consideration will be payable in connection with the
issuance of the remaining shares. The holders that elected to
receive shares for their surrendered warrants have agreed that they
will not sell shares on any trading day in an amount, in the
aggregate, exceeding 20% of the composite aggregate trading volume
of the common stock for that trading day. The holders that elected
to receive new warrants will be required to surrender their old
warrants upon consummation of the Company’s next financing
resulting in net cash proceeds to the Company of at least $1
million. The new warrants will have an initial exercise price equal
to the exercise price of the surrendered warrants as of immediately
prior to consummation of the financing, subject to customary
“downside price protection” for as long as the
Company’s common stock is not listed on a national securities
exchange and will expire five years from the date of
issuance.
5.
INCOME TAXES
The
Company has incurred net operating losses ("NOLs") since inception.
As of December 31, 2018, the company had NOL carryforwards
available through 2037 of approximately $77.2 million to offset its
future income tax liability. The company has recorded deferred tax
assets but reserved against, due to uncertainties related to
utilization of NOLs as well as calculation of effective tax rate.
Utilization of existing NOL carryforwards may be limited in future
years based on significant ownership changes. The company is in the
process of analyzing their NOL and has not determined if the
company has had any change of control issues that could limit the
future use of NOL. NOL carryforwards that were generated after 2017
may only be used to offset 80% of taxable income and are carried
forward indefinitely. Components of deferred taxes are as follow at
December 31 (in thousands):
|
|
|
Deferred tax
assets:
|
|
|
Warrant
liability
|
$
1,182
|
$
1,990
|
Accrued executive
compensation
|
498
|
447
|
Reserves and
other
|
488
|
301
|
Net operating loss
carryforwards
|
19,297
|
20,726
|
|
21,465
|
23,464
|
Valuation
allowance
|
(21,465
)
|
(23,464
)
|
Net deferred tax
assets
|
$
0
|
$
0
|
The
following is a summary of the items that caused recorded income
taxes to differ from taxes computed using the statutory federal
income tax rate for the years ended December 31:
|
|
|
Statutory federal
tax rate
|
21
%
|
34
%
|
State taxes, net of
federal benefit
|
4
|
4
|
Nondeductible
expenses
|
-
|
-
|
Valuation
allowance
|
(25
)
|
(38
)
|
Effective tax
rate
|
0
%
|
0
%
|
On
December 22, 2017, the U.S. government enacted comprehensive tax
reform commonly referred to as the Tax Cuts and Jobs Act
(“TCJA”). Under ASC 740, the effects of changes in tax
rates and laws are recognized in the period which the new
legislation is enacted. Among other things, the TCJA (1) reduces
the U.S. statutory corporate income tax rate from 34% to 21%
effective January 1, 2018 (2) eliminates the corporate alternative
minimum tax (3) eliminates the Section 199 deduction (4) changes
rules related to uses and limitations of net operating loss
carryforwards beginning after December 31, 2018.
The
Company applies the applicable authoritative guidance which
prescribes a comprehensive model for the manner in which a company
should recognize, measure, present and disclose in its financial
statements all material uncertain tax positions that the Company
has taken or expects to take on a tax return. As of December 31,
2018, the Company has no uncertain tax positions. There are no
uncertain tax positions for which it is reasonably possible that
the total amounts of unrecognized tax benefits will significantly
increase or decrease within twelve months from December 31,
2018.
The
Company files federal income tax returns and income tax returns in
various state tax jurisdictions with varying statutes of
limitations.
The
provision for income taxes as of the dates indicated consisted of
the following (in thousands) December 31:
|
|
|
Current
|
$
-
|
$
-
|
Deferred
|
-
|
-
|
Deferred
provision
|
-
|
-
|
Impact of change in
enacted tax rates
|
-
|
12,139
|
Change in valuation
allowance
|
-
|
(12,139
)
|
Total provision for
income taxes
|
$
-
|
$
-
|
In
2018, our effective tax rate differed from the U.S. federal
statutory rate due to the valuation allowance over our deferred tax
assets.
In
2017, our effective tax rate differed from the U.S. federal
statutory rate primarily due to re-measuring deferred income taxes
at the new statutory tax rate and the related change of the
valuation allowance over our deferred tax assets. At the date of
enactment of the Tax Cuts and Jobs Act, we re-measured our deferred
tax assets and liabilities using a rate of 21%, which is the rate
expected to be in place when such deferred assets and liabilities
are expected to reverse in the future. The re-measurement reduced
our net deferred tax assets by $12,139,043. The remeasurement was
offset by a change in our valuation allowance, resulting in there
being no impact on our deferred tax assets.
6.
STOCK OPTIONS
The
Company’s 1995 Stock Plan (the “Plan”) has
expired pursuant to its terms, so zero shares remained available
for issuance at December 31, 2018 and 2017. The Plan allowed for
the issuance of incentive stock options, nonqualified stock
options, and stock purchase rights. The exercise price of options
was determined by the Company’s board of directors, but
incentive stock options were granted at an exercise price equal to
the fair market value of the Company’s common stock as of the
grant date. Options historically granted have generally become
exercisable over four years and expire ten years from the date of
grant.
Due to
the 1:800 reverse stock split of all of the Company’s issued
and outstanding common stock was implemented on March 29, 2019. As
a result of the reverse stock split, every 800 shares of issued and
outstanding common stock were converted into 1 share of common
stock. This resulted in the number of stock options outstanding to
be zero.
7.
LITIGATION AND CLAIMS
From
time to time, the Company may be involved in various legal
proceedings and claims arising in the ordinary course of business.
Management believes that the dispositions of these matters,
individually or in the aggregate, are not expected to have a
material adverse effect on the Company’s financial condition.
However, depending on the amount and timing of such disposition, an
unfavorable resolution of some or all of these matters could
materially affect the future results of operations or cash flows in
a particular year.
As of
December 31, 2018, and 2017, there was no accrual recorded for any
potential losses related to pending litigation.
8.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
December 2009, the Company moved its offices, which comprise its
administrative, research and development, marketing and production
facilities to 5835 Peachtree Corners East, Suite B, Norcross,
Georgia 30092. The Company leased approximately 23,000 square feet
under a lease that expired in June 2017. In July 2017, the Company
leased the offices on a month to month basis. On February 23, 2018,
the Company modified its lease to reduce its occupancy to 12,835
square feet. The fixed monthly lease expense will be: $13,859 each
month for the period beginning January 1, 2018 and ending March 31,
2018; $8,022 each month for the period beginning April 1, 2018 and
ending March 31, 2019; $8,268 each month for the period beginning
April 1, 2019 and ending March 31, 2020; and $8,514 each month for
the period beginning April 1, 2020 and ending March 31, 2021. The
Company recognizes rent expense on a straight-line basis over the
estimated lease term. Future minimum rental payments at December
31, 2018 under non-cancellable operating leases for office space
and equipment are as follows (in thousands):
Year
|
|
2019
|
98
|
2020
|
101
|
2021
|
26
|
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 (director Richard Blumberg is
that designee). As partial consideration for, and as a condition
to, the license, and to further align the strategic interests of
the parties, the Company agreed to issue a convertible note to
Shenghuo, in exchange for an aggregate cash investment of $200,000.
The note will provide for a payment to Shenghuo of $300,000,
expected to be due the earlier of 90 days from issuance and
consummation of any capital raising transaction by the Company with
net cash proceeds of at least $1.0 million. The note will accrue
interest at 20% per year on any unpaid amounts due after that date.
The note will be convertible into shares of the Company’s
common stock at a conversion price per share of $11,137, subject to
customary anti-dilution adjustment. The note will be unsecured and
is expected to provide for customary events of default. The Company
will also issue Shenghuo a five-year warrant exercisable
immediately for approximately 22 shares of common stock at an
exercise price equal to the conversion price of the note, subject
to customary anti-dilution adjustment. On January 22, 2017, the
Company entered into a license agreement with Shandong Yaohua
Medical Instrument Corporation, or SMI, pursuant to which the
Company granted SMI an exclusive global license to manufacture the
LuViva device and related disposables (subject to a carve-out for
manufacture in Turkey) and exclusive distribution rights in the
Peoples Republic of China, Macau, Hong Kong and Taiwan. In order to
facilitate the SMI agreement, immediately prior to its execution
the Company entered into an agreement with Shenghuo Medical, LLC,
regarding its previous license to Shenghuo. Under the terms of the
new agreement, Shenghuo agreed to relinquish its manufacturing
license and its distribution rights in SMI’s territories, and
to waive its rights under the original Shenghuo agreement, all for
as long as SMI performs under the SMI agreement.
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).
9.
NOTES PAYABLE
As of
December 31, 2018, there have been no principal or interest
payments; however, Dr. Faupel and Dr. Cartwright did forgive debt.
In the July 24, 2018 exchange agreement, Dr Faupel, agreed to
exchange outstanding amounts due to him for loans, interest, bonus,
salary and vacation pay in the amount of $660,895 for a $207,111
promissory note. 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
$1,621,499 for a $319,204 promissory note. Debt due to officers has
been allocated to short-term and long-term debt, of which $266,286
and $353,957 was allocated to short-term debt, for December 31,
2018 and 2017, respectively. At December 31, 2018, $340,129 was
allocated to long-term debt and nil for December 31, 2017. At
December 31, 2018 the total undiscounted cash flow amount due was
$349,590 for Dr. Cartwright and $256,825 for Dr. Faupel. The
schedule below summarizes the detail of the outstanding
amounts:
For Dr.
Cartwright:
|
|
Salary
|
$
337
|
Bonus
|
675
|
Vacation
|
-
|
Interest on
compensation
|
59
|
Loans to
Company
|
528
|
Interest on
loans
|
22
|
Total
outstanding
|
$
1,621
|
Amount
forgiven
|
1,302
|
Promissory
note issued in exchange
|
319
|
Unpaid
interest on promissory note
|
10
|
Allocated
to short-term debt
|
143
|
Allocated
to long-term debt
|
206
|
For Dr.
Faupel:
|
|
Salary
|
$
134
|
Bonus
|
20
|
Vacation
|
95
|
Interest on
compensation
|
67
|
Loans to
Company
|
196
|
Interest on
loans
|
149
|
Total
outstanding
|
$
661
|
Amount
forgiven
|
454
|
Promissory
note issued in exchange
|
207
|
Unpaid
interest on promissory note
|
5
|
Allocated
to short-term debt
|
123
|
Allocated
to long-term debt
|
134
|
Notes
Payable in Default
At
December 31, 2018 and 2017, the Company maintained notes payable to
both related and non-related parties totaling $700,000 and
$1,091,000, 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 a 20%.
The
Company is accruing interest at the default rate of 18.0% on two of
the loans.
On
March 30, 2018, the Company entered into a securities purchase
agreement with GHS Investments, LLC, an existing investor,
providing for the purchase by GHS of a promissory note in the
aggregate principal amount of $15,000. The note matured on November
30, 2018. The note accrues interest at a rate of 10% per year. The
note includes customary event of default provisions and a default
interest rate of the lesser of 20% per year or the maximum amount
permitted by law. Upon the occurrence of an event of default, the
holder of the note may require us to redeem the note. As of
December 31, 2018, the Company has net debt of $15,000 and accrued
interest of $1,262. In addition, at December 31, 2018, the Company
recorded a $6,429 beneficial conversion feature which was fully
amortized at year end.
The
following table summarizes the
Notes payable in default, including related
parties
:
|
|
|
|
|
Dr.
Imhoff
|
$
199
|
$
49
|
Dr.
Cartwright
|
2
|
327
|
Dr.
Faupel
|
-
|
304
|
Ms.
Rosenstock
|
50
|
50
|
Mr.
Fowler
|
26
|
26
|
Mr.
Mermelstein
|
211
|
180
|
GHS
|
15
|
-
|
GPB
|
17
|
17
|
Aquarius
|
108
|
107
|
Mr.
Blumberg
|
70
|
30
|
Mr.
James
|
2
|
1
|
Notes
payable in default, including related parties
|
$
700
|
$
1,091
|
Short
Term Notes Payable
At
December 31, 2018 and 2017, the Company maintained short term notes
payable to both related and non-related parties totaling $649,000
and $447,000, respectively. These notes are short term,
straight-line amortizing notes. The notes carry annual interest
rates between 5% and 10%.
In July
2018, the Company entered into a premium finance agreement to
finance its insurance policies totaling $112,094. The note requires
monthly payments of $12,711, including interest at 4.91% and
matures in May 2019. As of December 31, 2018, a balance of $50,535
remained. The balance due on insurance policies totaled $93,000 at
December 31, 2017.
On
August 22, 2018, the Company issued a promissory note to an
investor for $150,000 in aggregate principal amount of a 6%
promissory note for an aggregate purchase price of $157,500
(representing a $7,500 original issue discount). Pursuant to the
promissory note the entire unpaid principal balance on the
promissory note together with all accrued and unpaid interest and
loan origination fees, if any, at the choice of the investor, shall
be due and payable in full from the funds received by the Company
from a financing of at least $2,000,000, or at the option of the
investor, to be included in the Company’s financing under the
same terms as the new investors with the most favorable terms
making a cash investment. If the Company does not complete a
financing of at least $2,000,000 within 90 days of the execution of
this promissory note, any unpaid amounts shall be due in full to
the investor and shall accrue interest at 12% (instead of 6%) per
annum from the date thereof (90 days after execution), if not paid
in full. In addition, the investor will be granted 1,500,000
warrants under this promissory note. The warrants shall be issued
and vest upon the financing of at least $2,000,000 and expire on
the third anniversary of said financing. The warrant exercise price
shall be set at the same price as for warrants granted to the
investors with the most favorable terms as part of any $2,000,000
or more financing of the Company or $0.25, whichever is lower. The
warrants shall have standard anti-dilution features to protect the
holder from dilution due to down rounds of financing. As of
December 31, 2018, the Company had not repaid the note and
therefore the accrued interest rate increased to 12%.
On
September 19, 2018, the Company issued a promissory note to an
investor for $50,000 in aggregate principal amount of a 6%
promissory note for an aggregate purchase price of $52,500
(representing a $2,500 original issue discount). Pursuant to the
promissory note the entire unpaid principal balance on the
promissory note together with all accrued and unpaid interest and
loan origination fees, if any, at the choice of the investor, shall
be due and payable in full from the funds received by the Company
from a financing of at least $2,000,000, or at the option of the
investor, to be included in the Company’s financing under the
same terms as the new investors with the most favorable terms
making a cash investment. If the Company does not complete a
financing of at least $2,000,000 within 90 days of the execution of
this promissory note, any unpaid amounts shall be due in full to
the investor and shall accrue interest at 12% (instead of 6%) per
annum from the date thereof (90 days after execution), if not paid
in full. In addition, the investor will be granted 500,000 warrants
under this promissory note. The warrants shall be issued and vest
upon the financing of at least $2,000,000 and expire on the third
anniversary of said financing. The warrant exercise price shall be
set at the same price as for warrants granted to the investors with
the most favorable terms as part of any $2,000,000 or more
financing of the Company or $0.25, whichever is lower. The warrants
shall have standard anti-dilution features to protect the holder
from dilution due to down rounds of financing. As of December 31,
2018, the Company had not repaid the note and therefore the accrued
interest rate increased to 12%.
On July
20, 2018, the Company entered into an exchange agreement and
promissory note with Dr. Cartwright. The agreements were entered
into in order to extinguish and restructure current amounts owed to
Dr. Cartwright. In the exchange agreement Dr. Cartwright, agreed to
exchange outstanding amounts due to him for loans, interest, bonus,
salary and vacation pay in the amount of $1,621,499 for $319,204
promissory note. Pursuant to the exchange agreement the note will
bear interest at 6%. In addition, Dr. Cartwright will receive 125
stock options, with 31 vesting immediately and the remaining
vesting monthly over three years. As a result of the exchange
agreement, the Company recorded a gain for extinguishment of debt
of $840,391 and a capital contribution of $431,519. As of December
31, 2018, Dr. Cartwright’s total undiscounted cash flow
amount due was approximately $349,590 including
interest.
On July
24, 2018, the Company entered into an exchange agreement and
promissory note with Dr. Faupel. The agreements were entered into
in order to extinguish and restructure current amounts owed to Dr.
Faupel. In the exchange agreement Dr. Faupel, agreed to exchange
outstanding amounts due to him for loans, interest, bonus, salary
and vacation pay in the amount of $660,895 for $207,111 promissory
note. Pursuant to the exchange agreement the note will bear
interest at 6%. In addition, Dr. Faupel will receive 94 stock
options, with 31 vesting immediately and the remaining vesting
monthly over three years. Dr. Faupel will also receive 560 options
at $200.00 or market price, whichever is less; contingent on
shareholder vote and board approval. If the options are not
granted, the Company shall owe Dr. Faupel $113,000. As a result of
the exchange agreement, the Company recorded a gain for
extinguishment of debt of $199,079 and a capital contribution of
$234,990. As of December 31, 2018, Dr. Faupel’s total
undiscounted cash flow amount due was approximately $256,825
including interest.
The
following table summarizes the
Short-term notes payable, including related
parties
:
|
|
|
|
|
|
$
135
|
$
33
|
|
144
|
296
|
|
123
|
-
|
|
25
|
25
|
|
150
|
-
|
|
50
|
-
|
K2
|
177
|
-
|
Premium
Finance (insurance)
|
50
|
93
|
|
45
|
-
|
Short-term
notes payable, including related parties
|
$
899
|
$
447
|
The
following table summarizes the
Long-term notes payable, including related
parties
:
|
|
|
|
|
Dr.
Cartwright
|
206
|
-
|
Dr.
Faupel
|
134
|
-
|
Long-term
notes payable, including related parties
|
$
340
|
$
296
|
10.
SHORT-TERM CONVERTIBLE DEBT
Related
Party Convertible Note Payable – Short-Term
On June
5, 2016, the Company entered into a license agreement with a
distributor pursuant to which the Company granted the distributor
an exclusive license to manufacture, sell and distribute the
Company’s LuViva Advanced Cervical Cancer device and related
disposables in Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar,
Philippines, Singapore, Thailand, and Vietnam. The distributor was
already the Company’s exclusive distributor in China, Macau
and Hong Kong, and the license will extend to manufacturing in
those countries as well.
As
partial consideration for, and as a condition to, the license, and
to further align the strategic interests of the parties, the
Company agreed to issue a convertible note to the distributor, in
exchange for an aggregate cash investment of $200,000. The note
will provide for a payment to the distributor of $240,000, due upon
consummation of any capital raising transaction by the Company
within 90 days and with net cash proceeds of at least $1.0 million.
As of December 31, 2018, the Company had a note due of $432,000.
The note accrues interest at 20% per year on any unpaid amounts due
after that date. The note will be convertible into shares of the
Company’s common stock at a conversion price per share of
$11,137.28, subject to customary anti-dilution adjustment. The note
will be unsecured, and is expected to provide for customary events
of default. The Company will also issue the distributor a five-year
warrant exercisable immediately for 22 shares of common stock at an
exercise price equal to the conversion price of the note, subject
to customary anti-dilution adjustment.
Convertible
Note Payable – Short-Term
On
December 28, 2016, the Company entered into a securities purchase
agreement with an investor for the issuance and sale to investor of
up to $330,000 in aggregate principal amount of 10% original
issuance discount convertible promissory notes, for an aggregate
purchase price of $300,000. On that date, the Company issued to the
investor a note in the principal amount of $222,000, for a purchase
price of $200,000. The note matures six months from their date of
issuance and, in addition to the 10% original issue discount,
accrue interest at a rate of 10% per year. The Company may prepay
the notes, in whole or in part, for 115% of outstanding principal
and interest until 30 days from issuance, for 125% of outstanding
principal and interest at any time from 31 to 60 days from
issuance, and for 130% of outstanding principal and interest at any
time from 61 days from issuance until immediately prior to the
maturity date. After six months from the date of issuance (i.e., if
the Company fails to repay all principal and interest due under the
notes at the maturity date), the investor may convert the notes, at
any time, in whole or in part, into shares of the Company’s
common stock, at a conversion price equal to 60% of the lowest
volume weighted average price of our common stock during the 20
trading days prior to conversion, subject to certain customary
adjustments and anti-dilution provisions contained in the note. The
convertible promissory note was paid off during 2017. As of
December 31, 2018, and 2017 the note had been converted and no
balance remained outstanding.
On
February 13, 2017, the Company entered into a securities purchase
agreement with Auctus Fund, LLC for the issuance and sale to Auctus
of $170,000 in aggregate principal amount of a 12% convertible
promissory note for an aggregate purchase price of $156,400
(representing a $13,600 original issue discount). On February 13,
2017, the Company issued the note to Auctus. Pursuant to the
purchase agreement, the Company also issued to Auctus a warrant
exercisable to purchase an aggregate of 250 shares of the
Company’s common stock. The warrant is exercisable at any
time, at an exercise price per share equal to $4.11 (110% of the
closing price of the common stock on the day prior to issuance),
subject to certain customary adjustments and price-protection
provisions contained in the warrant. The warrant has a five-year
term. The note matured nine months from the date of issuance and,
in addition to the original issue discount, accrues interest at a
rate of 12% per year. The Company could have prepaid the note, in
whole or in part, for 115% of outstanding principal and interest
until 30 days from issuance, for 125% of outstanding principal and
interest at any time from 31 to 60 days from issuance, and for 130%
of outstanding principal and interest at any time from 61 days from
issuance to 180 days from issuance. After six months from the date
of issuance, Auctus may convert the note, at any time, in whole or
in part, into shares of the Company’s common stock, at a
conversion price equal to the lower of the price offered in the
Company’s next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require the Company to redeem the
note (or convert it into shares of common stock) at 150% of the
outstanding principal balance plus accrued and unpaid interest. In
connection with the transaction, the Company agreed to reimburse
Auctus for $30,000 in legal and diligence fees, of which we paid
$10,000 in cash and $20,000 in restricted shares of common stock,
valued at $320.00 per share (a 42.86% discount to the closing price
of the common stock on the day prior to issuance). The Company
allocated proceeds of $90,000 to the warrants and common stock
issued in connection with the financing. As of December 31, 2018,
the notes had been converted and no balance remained outstanding as
compared to net debt and accrued interest of $76,664 for the period
ended December 31, 2017.
On May
17, 2017, the Company entered into a securities purchase agreement
with Eagle Equities, LLC, providing for the purchase by Eagle of
two convertible redeemable notes in the aggregate principal amount
of $88,000, with the first note being in the amount of $44,000, and
the second note being in the amount of $44,000. The first note was
fully funded on May 19, 2017, upon which the Company received
$40,000 of net proceeds (net of a 10% original issue discount). The
second note was issued on December 21, 2017 and was initially paid
for by the issuance of an offsetting $40,000 secured note issued by
Eagle. Eagle was required to pay the principal amount of its
secured note in cash and in full prior to executing any conversions
under the second note the Company issued. The notes bear an
interest rate of 8%, and are due and payable on May 17, 2018. The
notes may be converted by Eagle at any time after five months from
issuance into shares of our common stock (as determined in the
notes) calculated at the time of conversion, except for the second
note, which also requires full payment by Eagle of the secured note
it issued to us before conversions may be made. The conversion
price of the notes will be equal to 60% of the lowest trading price
of the common stock for the 20 prior trading days including the day
upon which the Company receive a notice of conversion. The notes
may be prepaid in accordance with the terms set forth in the notes.
The notes also contain certain representations, warranties,
covenants and events of default including if the Company are
delinquent in our periodic report filings with the SEC, and
increases in the amount of the principal and interest rates under
the notes in the event of such defaults. In the event of default,
at Eagle’s option and in its sole discretion, Eagle may
consider the notes immediately due and payable. As of December 31,
2018, the notes had been converted and no balance remained
outstanding, as compared to net debt of $41,322, including
unamortized original issue discount of $5,214, unamortized and debt
issuance costs of $11,160 for the period ended December 31, 2017.
In addition, at December 31, 2018, the Company recorded a $29,333
beneficial conversion feature which was fully amortized at year
end.
On May
17, 2017, the Company entered into a securities purchase agreement
with Adar Bays, LLC, providing for the purchase by Adar of two
convertible redeemable notes in the aggregate principal amount of
$88,000, with the first note being in the amount of $44,000, and
the second note being in the amount of $44,000. The first note was
fully funded on May 19, 2017, upon which the Company received
$40,000 of net proceeds (net of a 10% original issue discount). The
second note was issued on December 21, 2017 and was initially paid
for by the issuance of an offsetting $40,000 secured note issued by
Adar. Adar was required to pay the principal amount of its secured
note in cash and in full prior to executing any conversions under
the second note the Company issued. The notes bear an interest rate
of 8%, and are due and payable on May 17, 2018. The notes may be
converted by Adar at any time after five months from issuance into
shares of our common stock (as determined in the notes) calculated
at the time of conversion, except for the second note, which also
requires full payment by Adar of the secured note it issued to us
before conversions may be made. The conversion price of the notes
will be equal to 60% of the lowest trading price of the common
stock for the 20 prior trading days including the day upon which
the Company receive a notice of conversion. The notes may be
prepaid in accordance with the terms set forth in the notes. The
notes also contain certain representations, warranties, covenants
and events of default including if the Company are delinquent in
our periodic report filings with the SEC, and increases in the
amount of the principal and interest rates under the notes in the
event of such defaults. In the event of default, at Adar’s
option and in its sole discretion, Adar may consider the notes
immediately due and payable. As of December 31, 2018, the notes had
been converted and no balance remained outstanding, as compared to
net debt of $42,216, including unamortized original issue discount
of $5,214, unamortized and debt issuance costs of $11,160 for the
period ended December 31, 2017. In addition, at December 31, 2018,
the Company recorded a $29,333 beneficial conversion feature which
was fully amortized at year end.
On
August 18, 2017, the Company entered into a securities purchase
agreement with Power Up Lending Group Ltd., providing for the
purchase by Power Up from the Company of a convertible note in the
aggregate principal amount of $53,000. The note bears an interest
rate of 12%, and is due and payable on May 19, 2018. The note may
be converted by Power Up at any time after 180 days from issuance
into shares of Company’s common stock at a conversion price
equal to 58% of the average of the lowest two-day trading prices of
the common stock during the 15 trading days prior to conversion.
The note may be prepaid in accordance with its terms, at premiums
ranging from 15% to 40%, depending on the time of prepayment. The
note contains certain representations, warranties, covenants and
events of default, including if the Company is delinquent in its
periodic report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, 2018, the notes had been converted and no balance
remained outstanding as compared to a net debt of $46,405,
including unamortized debt issuance costs of $6,595 at December 31,
2017. In addition, at December 31, 2018, the Company recorded a
$38,379 beneficial conversion feature which was fully amortized at
year end.
On
October 12, 2017, the Company entered into a securities purchase
agreement with Power Up Lending Group Ltd. (“Power
Up”), providing for the purchase by Power Up from the Company
of a convertible note in the aggregate principal amount of $53,000.
The note bears an interest rate of 12%, and is due and payable on
July 20, 2018. The note may be converted by Power Up at any time
after 180 days from issuance into shares of Company’s common
stock at a conversion price equal to 58% of the average of the
lowest two-day trading prices of the common stock during the 15
trading days prior to conversion. The note may be prepaid in
accordance with its terms, at premiums ranging from 15% to 40%,
depending on the time of prepayment. The note contains certain
representations, warranties, covenants and events of default,
including if the Company is delinquent in its periodic report
filings with the SEC, and provides for increases in principal and
interest in the event of such defaults. As of December 31, 2018,
the note had been converted and no balance remained outstanding, as
compared to net debt of $47,288, including unamortized debt
issuance costs of $5,722 for the period ended December 31, 2017. In
addition, at December 31, 2018, the Company recorded a $38,379
beneficial conversion feature which was fully amortized at year
end.
On
December 11, 2017, the Company entered into a securities purchase
agreement with Power Up Lending Group Ltd. (“Power
Up”), providing for the purchase by Power Up from the Company
of a convertible note in the aggregate principal amount of $53,000.
The note bears an interest rate of 12%, and is due and payable on
September 20, 2018. The note may be converted by Power Up at any
time after 180 days from issuance into shares of Company’s
common stock at a conversion price equal to 58% of the average of
the lowest two-day trading prices of the common stock during the 15
trading days prior to conversion. The note may be prepaid in
accordance with its terms, at premiums ranging from 15% to 40%,
depending on the time of prepayment. The note contains certain
representations, warranties, covenants and events of default,
including if the Company is delinquent in its periodic report
filings with the SEC, and provides for increases in principal and
interest in the event of such defaults. As of December 31, 2018,
the note had been converted and no balance remained outstanding, as
compared to net debt of $45,565, including unamortized debt
issuance costs of $7,435 for the period ended December 31,
2017.
On
February 12, 2018, the Company entered into a securities purchase
agreement with Adar Bays, LLC, providing for the purchase by Adar
of three convertible redeemable notes in the aggregate principal
amount of $285,863, with the first note being in the amount of
$95,288, and the second and third note being in the same amount.
The first note was fully funded on February 13, 2018, upon which
the Company received $75,000 of net proceeds (net of a 10% original
issue discount). The notes bear an interest rate of 8% and were due
and payable on October 12, 2018. The notes may be converted by Adar
at any time after eight months from issuance into shares of our
common stock (as determined in the notes) calculated at the time of
conversion, except for the second note, which also requires full
payment by Adar of the secured note it issued to us before
conversions may be made. The conversion price of the notes will be
equal to 60% of the lowest trading price of the common stock for
the 20 prior trading days including the day upon which the Company
receive a notice of conversion. The notes may be prepaid in
accordance with the terms set forth in the notes. The notes also
contain certain representations, warranties, covenants and events
of default including if the Company are delinquent in our periodic
report filings with the SEC and increases in the amount of the
principal and interest rates under the notes in the event of such
defaults. In the event of default, at Adar’s option and in
its sole discretion, Adar may consider the notes immediately due
and payable. As of December 31, 2018, the note had been converted
and no balance remained outstanding. In addition, at December 31,
2018, the Company recorded a $63,525 beneficial conversion feature
which was fully amortized at year end.
On
February 22, 2018, the Company entered into a securities purchase
agreement with Power Up, providing for the purchase by Power Up
from the Company of a convertible note in the aggregate principal
amount of $53,000. The note bears an interest rate of 12% and is
due and payable on November 30, 2018. The note may be converted by
Power Up at any time after 180 days from issuance into shares of
Company’s common stock at a conversion price equal to 58% of
the average of the lowest two-day trading prices of the common
stock during the 15 trading days prior to conversion. The note may
be prepaid in accordance with its terms, at premiums ranging from
15% to 40%, depending on the time of prepayment. The note contains
certain representations, warranties, covenants and events of
default, including if the Company is delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, the note had been converted and no balance remained
outstanding. In addition, at December 31, 2018, the Company
recorded a $38,379 beneficial conversion feature which was fully
amortized at year end.
On
March 12, 2018, the Company entered into a securities purchase
agreement with Eagle Equities, LLC, providing for the purchase by
Eagle of a convertible redeemable note in the principal amount of
$66,667. The note was fully funded on March 14, 2018, upon which
the Company received $51,000 of net proceeds (net of a 10% original
issue discount and other expenses). The note bears an interest rate
of 8% and are due and payable on March 12, 2019. The note may be
converted by Eagle at any time after twelve months from issuance
into shares of our common stock (as determined in the notes)
calculated at the time of conversion, except for the second note,
which also requires full payment by Eagle of the secured note it
issued to us before conversions may be made. The conversion price
of the notes will be equal to 60% of the lowest trading price of
the common stock for the 20 prior trading days including the day
upon which the Company receive a notice of conversion. The notes
may be prepaid in accordance with the terms set forth in the notes.
The notes also contain certain representations, warranties,
covenants and events of default including if the Company are
delinquent in our periodic report filings with the SEC and
increases in the amount of the principal and interest rates under
the notes in the event of such defaults. In the event of default,
at Eagle’s option and in its sole discretion, Eagle may
consider the notes immediately due and payable. As of December 31,
2018, the outstanding balance was $3,095, including unamortized
debt issuance costs of $1,751, and unamortized discount of $1,297
and accrued interest of $177. In addition, at December 31, 2018,
the Company recorded a $44,444 beneficial conversion feature which
$35,701 was amortized leaving and unamortized balance of
$8,743.
On
April 30, 2018, the Company entered into a securities purchase
agreement with Power Up, providing for the purchase by Power Up
from the Company of a convertible note in the aggregate principal
amount of $103,000. The note bears an interest rate of 12% and is
due and payable on February 15, 2019. The note may be converted by
Power Up at any time after 180 days from issuance into shares of
Company’s common stock at a conversion price equal to 58% of
the average of the lowest two-day trading prices of the common
stock during the 15 trading days prior to conversion. The note may
be prepaid in accordance with its terms, at premiums ranging from
15% to 40%, depending on the time of prepayment. The note contains
certain representations, warranties, covenants and events of
default, including if the Company is delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, the note had been converted and no balance remained
outstanding. In addition, at December 31, 2018, the Company
recorded a $74,586 beneficial conversion feature which was fully
amortized at year end.
On June
7, 2018, the Company entered into a securities purchase agreement
with Power Up, providing for the purchase by Power Up from the
Company of a convertible note in the aggregate principal amount of
$53,000. The note bears an interest rate of 12% and is due and
payable on March 30, 2019. The note may be converted by Power Up at
any time after 180 days from issuance into shares of
Company’s common stock at a conversion price equal to 58% of
the average of the lowest two-day trading prices of the common
stock during the 15 trading days prior to conversion. The note may
be prepaid in accordance with its terms, at premiums ranging from
15% to 40%, depending on the time of prepayment. The note contains
certain representations, warranties, covenants and events of
default, including if the Company is delinquent in its periodic
report filings with the SEC, and provides for increases in
principal and interest in the event of such defaults. As of
December 31, 2018, the note had been fully converted. In addition,
at December 31, 2018, the Company recorded a $38,379 beneficial
conversion feature which was fully amortized at year
end.
The
following table summarizes the
Convertible notes payable
:
|
|
|
|
|
Shenghuo
|
$
432
|
$
357
|
Eagle
|
3
|
88
|
Auctus
|
-
|
91
|
Debt Discount to be
amortized
|
(10
)
|
-
|
Debt Discount
related to Beneficial Conversion
|
(45
)
|
-
|
Power
Up
|
-
|
159
|
Adar
|
-
|
88
|
Convertible
notes payable
|
$
380
|
$
783
|
11.
CONVERTIBLE NOTES IN DEFAULT
Secured Promissory Note.
On
September 10, 2014, the Company sold a secured promissory note to
an accredited investor with an initial principal amount of
$1,275,000, for a purchase price of $700,000 (an original issue
discount of $560,000). The Company may prepay the note at any time.
The note is secured by the Company’s current and future
accounts receivable and inventory, pursuant to a security agreement
entered into in connection with the sale. On March 10, 2015, May 4,
2015, June 1, 2015, June 16, 2015, June 29, 2015, January 21, 2016,
January 29, 2016, and February 12, 2016 the Company amended the
terms of the note to extend the maturity ultimately until August
31, 2016. During the extension, interest accrues on the note at a
rate of the lesser of 18% per year or the maximum rate permitted by
applicable law. On February 11, 2016, the Company consented to an
assignment of the note to two accredited investors. In connection
with the assignment, the holders waived an ongoing event of default
under the notes related to the Company’s minimum market
capitalization and agreed to eliminate the requirement going
forward. Pursuant to the terms of the amended note, the holder may
convert the outstanding balance into shares of common stock at a
conversion price per share equal to the lower of (1) $20,000.00 or
(2) 75% of the lowest daily volume weighted average price of the
common stock during the five days prior to conversion. If the
conversion price at the time of any conversion is lower than
$12,000.00, the Company has the option of delivering the conversion
amount in cash in lieu of shares of common stock. On March 7, 2016,
the Company further amended the note to eliminate the volume
limitations on sales of common stock issued or issuable upon
conversion. On July 13, 2016, the Company consented to the
assignment by one of the accredited investors of its portion of the
note of to a third accredited investor.
The
balance due on the note was $151,974 and $184,245 at December 31,
2018 and December 31, 2017, respectively. The balance was reduced
by $306,863 as part of a debt restructuring on December 7,
2016.
Total
debt issuance costs as originally capitalized were approximately
$130,000. This amount was amortized over nine months and was fully
amortized as of December 31, 2015. The original issue discount of
$560,000 was fully amortized as of December 31, 2015.
On
November 2, 2016, the Company entered into a lockup and exchange
agreement with GHS Investments, LLC, holder of approximately
$221,000 in outstanding principal amount of the Company’s
secured promissory note and all the outstanding shares of the its
Series C preferred stock. Pursuant to the agreement, upon the
effectiveness of the 1:800 reverse stock split and continuing for
45 days after, GHS and its affiliates were prohibited from
converting any portion of the secured promissory note or any of the
shares of Series C preferred stock or selling any of the
Company’s securities that they beneficially owned. The
Company agreed that, upon consummation of its next financing, the
Company would use $260,000 of net cash proceeds first, to repay
GHS’s portion of the secured promissory note and second, with
any remaining amount from the $260,000, to repurchase a portion of
GHS’s shares of Series C preferred stock. In addition, GHS
has agreed to exchange the stated value per share (plus any accrued
but unpaid dividends) of its remaining shares of Series C preferred
stock for new securities of the same type that the Company
separately issue in the next qualifying financing it undertakes, on
a dollar-for-dollar basis in a private placement
exchange.
Senior Secured Promissory Note
On
February 11, 2016, the Company entered into a securities purchase
agreement with GPB Debt Holdings II LLC for the issuance and sale
on February 12, 2016 of $1.4375 million in aggregate principal
amount of a senior secured convertible note for an aggregate
purchase price of $1.15 million (a 20% original issue discount of
$287,500) and a discount for debt issuance costs paid at closing of
$121,000 for a total of $408,500. In addition, GPB received a
warrant exercisable to purchase an aggregate of approximately 2,246
shares of the Company’s common stock. The Company allocated
proceeds totaling $359,555 to the fair value of the warrants at
issuance. This was recorded as an additional discount on the debt.
The convertible note matures on the second anniversary of issuance
and, in addition to the 20% original issue discount, accrues
interest at a rate of 17% per year. The Company is required to pay
monthly interest coupons and beginning nine months after issuance,
the Company is required to pay amortized quarterly principal
payments. If the Company does not receive, on or before the first
anniversary after issuance, an aggregate of at least $3.0 million
from future equity or debt financings or non-dilutive grants, then
the holder will have the option of accelerating the maturity date
to the first anniversary of issuance. The Company may prepay the
convertible note, in whole or in part, without penalty, upon 20
days’ prior written notice. Subject to resale restrictions
under Federal securities laws and the availability of sufficient
authorized but unissued shares of the Company’s common stock,
the convertible note is convertible at any time, in whole or in
part, at the holder’s option, into shares of the
Company’s common stock, at a conversion price equal to the
lesser of $640.00 per share or 70% of the average closing price per
share for the five trading days prior to issuance, subject to
certain customary adjustments and anti-dilution provisions
contained in the convertible note. On May 28, 2016, in exchange for
an additional $87,500 in cash from GPB to the Company, the
principal balance was increased by the same amount. The Company is
currently in default as they are past due on the required monthly
interest payments. In the event of default, the Company shall
accrue interest at a rate the lesser of 22% or the maximum
permitted by law. The Company has accrued $117,000 for past due
interest payments at December 31, 2016. Upon the occurrence of an
event of default, the holder may require the Company to redeem the
convertible note at 120% of the outstanding principal balance (but
as of December 31, 2018, had not done so). As of December 31, 2018,
the balance due on the convertible debt was $2,198,236 as the
Company has fully amortized debt issuance costs of $47,675 and the
debt discount of $768,055 and recorded a 20% penalty totaling
$366,373. In addition, the Company has accrued $699,743 of interest
expense for the year ended December 31, 2018. As of December 31,
2017, the balance due on the convertible debt was $2,136,863 as the
Company has fully amortized debt issuance costs of $47,675 and the
debt discount of $768,055 and recorded a 20% penalty totaling
$305,000. In addition, the Company has accrued $498,91043 of
interest expense for the year ended December 31, 2017. The
convertible note is secured by a lien on all the Company’s
assets, including its intellectual property, pursuant to a security
agreement entered into by the Company and GPB.
The
warrant is exercisable at any time, pending availability of
sufficient authorized but unissued shares of the Company’s
common stock, at an exercise price per share equal to the
conversion price of the convertible note, subject to certain
customary adjustments and anti-dilution provisions contained in the
warrant. The warrant has a five-year term. As of December 31, 2018,
the exercise price had been adjusted to $0.06 and the number of
common stock shares exchangeable for was 22,460,938. As of December
31, 2018, the effective interest rate considering debt costs was
29%.
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.
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 3.5% of the Company’s revenues from the sale of
products. As of December 31, 2018, and December 31, 2017, GPB had
earned approximately $31,000 and $29,000 in royalties,
respectively.
Debt Restructuring
On December 7, 2016, the Company entered into an
exchange agreement with GPB with regard to the $1,525,000 in
outstanding principal amount of senior secured convertible note
originally issued to GPB on February 11, 2016, and the $306,863 in
outstanding principal amount of the Company’s secured
promissory note that GPB holds (see “—Secured
Promissory Note”). Pursuant to the exchange agreement, upon
completion of the next financing resulting in at least $1 million
in cash proceeds, GPB will exchange both securities for a new
convertible note in principal amount of $1,831,863. The new
convertible note will mature on the second anniversary of issuance
and will accrue interest at a rate of 19% per year. The Company
will pay monthly interest coupons and, beginning one year after
issuance, will pay amortized quarterly principal payments. Subject
to resale restrictions under Federal securities laws and the
availability of sufficient authorized but unissued shares of the
Company’s common stock, the new convertible note will be
convertible at any time, in whole or in part, at the holder’s
option, into shares of common stock, at a conversion price equal to
the price offered in the qualifying financing that triggers the
exchange, subject to certain customary adjustments and
anti-dilution provisions contained in the new convertible note. The
new convertible note will include customary event of default
provisions and a default interest rate of the lesser of 21% or the
maximum amount permitted by law. Upon the occurrence of an event of
default, GPB will be entitled to require the Company to redeem the
new convertible note at 120% of the outstanding principal balance.
The new convertible note will be secured by a lien on all the
Company’s assets, including its intellectual property,
pursuant to the security agreement entered into by the Company and
GPB in connection with the issuance of the original senior secured
convertible note.
Additionally, the Company further agreed to amend
the warrant issued with the original senior secured convertible
note, to adjust the number of shares issuable upon exercise of the
warrant to equal the number of shares that will initially be
issuable upon conversion of the new convertible note (without
giving effect to any beneficial ownership limitations set forth in
the terms of the new convertible note). As an inducement to GPB to
enter into these transactions, the Company agreed to increase the
royalty payable to GPB pursuant to its consulting agreement with us
on December 7, 2016 from 3.5% to 3.85% of revenues from the sales
of the Company’s products.
On
August 8, 2017, the Company entered into a forbearance agreement
with GPB, with regard to the senior secured convertible note. Under
the forbearance agreement, GPB has agreed to forbear from
exercising certain of its rights and remedies (but not waive such
rights and remedies), arising as a result of the Company’s
failure to pay the monthly interest due and owing on the note. In
consideration for the forbearance, the Company agreed to waive,
release, and discharge GPB from all claims against GPB based on
facts existing on or before the date of the forbearance agreement
in connection with the note, or the dealings between the Company
and GPB, or the Company’s equity holders and GPB, in
connection with the note. Pursuant to the forbearance agreement,
the Company has reaffirmed its obligations under the note and
related documents and executed a confession of judgment regarding
the amount due under the note, which GPB may file upon any future
event of default by the Company. During the forbearance period, the
Company must continue to comply will all the terms, covenants, and
provisions of the note and related documents.
The
“Forbearance Period” shall mean the period beginning on
the date hereof and ending on the earliest to occur of: (i) the
date on which Lender delivers to Company a written notice
terminating the Forbearance Period, which notice may be delivered
at any time upon or after the occurrence of any Forbearance Default
(as hereinafter defined), and (ii) the date Company repudiates or
asserts any defense to any Obligation or other liability under or
in respect of this Agreement or the Transaction Documents or
applicable law, or makes or pursues any claim or cause of action
against Lender; (the occurrence of any of the foregoing clauses (i)
and (ii), a “Termination Event”). As used herein, the
term “Forbearance Default” shall mean: (A) the
occurrence of any Default or Event of Default other than the
Specified Default; (B) the failure of Company to timely comply with
any material term, condition, or covenant set forth in this
Agreement; (C) the failure of any representation or warranty made
by Company under or in connection with this Agreement to be true
and complete in all material respects as of the date when made; or
(D) Lender’s reasonable belief that Company: (1) has ceased
or is not actively pursuing mutually acceptable restructuring or
foreclosure alternatives with Lender; or (2) is not negotiating
such alternatives in good faith. Any Forbearance Default will not
be effective until one (1) Business Day after receipt by Company of
written notice from Lender of such Forbearance Default. Any
effective Forbearance Default shall constitute an immediate Event
of Default under the Transaction Documents.
Other
Convertible Debt in Default
On May
18, 2017, the Company entered into a securities purchase agreement
with GHS Investments, LLC, an existing investor, providing for the
purchase by GHS of a convertible promissory note in the aggregate
principal amount of $66,000, for $60,000 in net proceeds
(representing a 10% original issue discount). The transaction
closed on May 19, 2017. The note matures upon the earlier of our
receipt of $100,000 from revenues, loans, investments, or any other
means (other than the Eagle and Adar bridge financings) and
December 31, 2017. In addition to the 10% original issue discount,
the note accrues interest at a rate of 8% per year. The Company may
prepay the note, in whole or in part, for 110% of outstanding
principal and interest until 30 days from issuance, for 120% of
outstanding principal and interest at any time from 31 to 60 days
from issuance and for 140% of outstanding principal and interest at
any time from 61 days to 180 days from issuance. The note may not
be prepaid after 180 days. After six months from the date of
issuance, the note will become convertible, at any time thereafter,
in whole or in part, at the holder’s option, into shares of
our common stock, at a conversion price equal to 60% of the lowest
trading price during the 25 trading days prior to conversion. The
note includes customary event of default provisions and a default
interest rate of the lesser of 20% per year or the maximum amount
permitted by law. Upon the occurrence of an event of default, the
holder of the note may require us to redeem the note (or convert it
into shares of common stock) at 150% of the outstanding principal
balance. As of December 31, 2018, the Company’s total
outstanding amount was $94,411, (which includes $37,926 for a
default penalty) and accrued interest of $517. GHS converted
$29,642 of principal and accrued interest payable. This was
compared to net debt of $66,000 for the period ended December 31,
2017.
On
March 20, 2018, the Company entered into a securities purchase
agreement with Auctus Fund, LLC for the issuance and sale to Auctus
of $150,000 in aggregate principal amount of a 12% convertible
promissory note. On March 20, 2018, the Company issued the note to
Auctus. Pursuant to the purchase agreement, the Company also issued
to Auctus a warrant exercisable to purchase an aggregate of 4,262
shares of the Company’s common stock. The warrant is
exercisable at any time, at an exercise price per share equal to
$1.82 (110% of the closing price of the common stock on the day
prior to issuance), subject to certain customary adjustments and
price-protection provisions contained in the warrant. The warrant
has a five-year term. The note matures nine months from the date of
issuance and accrues interest at a rate of 12% per year. The
Company could have prepaid the note, in whole or in part, for 115%
of outstanding principal and interest until 30 days from issuance,
for 125% of outstanding principal and interest at any time from 31
to 60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance to 180 days from
issuance. After nine months from the date of issuance, Auctus may
convert the note, at any time, in whole or in part, into shares of
the Company’s common stock, at a conversion price equal to
the lower of the price offered in the Company’s next public
offering or a 40% discount to the average of the two lowest trading
prices of the common stock during the 20 trading days prior to the
conversion, subject to certain customary adjustments and
price-protection provisions contained in the note. The note
includes customary events of default provisions and a default
interest rate of 24% per year. Upon the occurrence of an event of
default, Auctus may require the Company to redeem the note (or
convert it into shares of common stock) at 150% of the outstanding
principal balance plus accrued and unpaid interest. As of December
31, 2018, the Company has net debt of $133,870 and accrued interest
of $635. In addition, at December 31, 2018, the Company recorded a
$97,685 beneficial conversion feature which was fully amortized at
year end.
Upon the occurrence of an
event of default, Auctus may require the Company to redeem the note
(or convert it into shares of common stock) at 150% of the
outstanding principal balance plus accrued and unpaid interest,
this has not occurred as of May 6, 2019.
On May
17, 2018, the Company entered into a securities purchase agreement
with GHS Investments, LLC, an existing investor, providing for the
purchase by GHS of a convertible promissory note in the aggregate
principal amount of $9,250 (with $750 representing a 10% original
issue discount and $1,000 for transaction costs). The note matures
on June 17, 2019. In addition to the 10% original issue discount,
the note accrues interest at a rate of 10% per year. The Company
may prepay the note, in whole or in part, for 110% of outstanding
principal and interest until 30 days from issuance, for 120% of
outstanding principal and interest at any time from 31 to 60 days
from issuance and for 140% of outstanding principal and interest at
any time from 61 days to 180 days from issuance. The note may not
be prepaid after 180 days. After nine months from the date of
issuance, the note will become convertible, at any time thereafter,
in whole or in part, at the holder’s option, into shares of
our common stock, at a conversion price equal to 30% of the lowest
trading price during the 25 trading days prior to conversion (if
note cannot be converted due to issues with DTC then rate increases
to 40%). The note includes customary event of default provisions
and a default interest rate of the lesser of 20% per year or the
maximum amount permitted by law. Upon the occurrence of an event of
default, the holder of the note may require us to redeem the note
(or convert it into shares of common stock) at 150% of the
outstanding principal balance. As of December 31, 2018, the Company
has net debt of $14,187 (which includes $4,937 for a default
penalty), including unamortized debt issuance costs of $424,
unamortized discount of $318 and accrued interest of $1,135. In
addition, at December 31, 2018, the Company recorded a $3,964
beneficial conversion feature which $2,280 was amortized leaving
and unamortized balance of $1,685.
On June
22, 2018, the Company entered into a securities purchase agreement
with GHS Investments, LLC, an existing investor, providing for the
purchase by GHS of a convertible promissory note in the aggregate
principal amount of $68,000 (with $6,000 representing a 10%
original issue discount and $2,000 for transaction costs). The note
matures on June 22, 2019. In addition to the 10% original issue
discount, the note accrues interest at a rate of 10% per year. The
Company may prepay the note, in whole or in part, for 110% of
outstanding principal and interest until 30 days from issuance, for
120% of outstanding principal and interest at any time from 31 to
60 days from issuance and for 140% of outstanding principal and
interest at any time from 61 days to 180 days from issuance. The
note may not be prepaid after 180 days. After nine months from the
date of issuance, the note will become convertible, at any time
thereafter, in whole or in part, at the holder’s option, into
shares of our common stock, at a conversion price equal to 30% of
the lowest trading price during the 25 trading days prior to
conversion (if note cannot be converted due to issues with DTC then
rate increases to 40%). The note includes customary event of
default provisions and a default interest rate of the lesser of 20%
per year or the maximum amount permitted by law. Upon the
occurrence of an event of default, the holder of the note may
require us to redeem the note (or convert it into shares of common
stock) at 150% of the outstanding principal balance. As of December
31, 2018, the Company has net debt of $103,285 (which includes
$35,285 for a default penalty), including unamortized debt issuance
costs of $3,318, unamortized discount of $2,844 and accrued
interest of $8,263. In addition, at December 31, 2018, the Company
recorded a $29,143 beneficial conversion feature which $15,288 was
amortized leaving and unamortized balance of $13,855.
On July
3, 2018, the Company entered into a securities purchase agreement
with Auctus Fund, LLC for the issuance and sale to Auctus of
$89,250 in aggregate principal amount of a 12% convertible
promissory note. On July 3, 2018, the Company issued the note to
Auctus. The note matures on April 3, 2019 and accrues interest at a
rate of 12% per year. The Company could have prepaid the note, in
whole or in part, for 115% of outstanding principal and interest
until 30 days from issuance, for 125% of outstanding principal and
interest at any time from 31 to 60 days from issuance, and for 130%
of outstanding principal and interest at any time from 61 days from
issuance to 180 days from issuance. After nine months from the date
of issuance, Auctus may convert the note, at any time, in whole or
in part, into shares of the Company’s common stock, at a
conversion price equal to the lower of the price offered in the
Company’s next public offering or a 40% discount to the
average of the two lowest trading prices of the common stock during
the 20 trading days prior to the conversion, subject to certain
customary adjustments and price-protection provisions contained in
the note. The note includes customary events of default provisions
and a default interest rate of 24% per year. Upon the occurrence of
an event of default, Auctus may require the Company to redeem the
note (or convert it into shares of common stock) at 150% of the
outstanding principal balance plus accrued and unpaid interest. As
of December 31, 2018, the Company has net debt of $81,528,
including unamortized original issue discount of $1,443,
unamortized debt issuance costs of $6,279 and accrued interest of
$5,385. In addition, at December 31, 2018, the Company recorded a
$59,500 beneficial conversion feature which $39,233 was amortized
leaving and unamortized balance of $20,267.
Upon the occurrence of an event of default, Auctus
may require the Company to redeem the note (or convert it into
shares of common stock) at 150% of the outstanding principal
balance plus accrued and unpaid interest, this has not occurred as
of May 6, 2019.
The
following table summarizes the
Convertible notes in
default
:
|
|
|
|
|
GPB
|
$
2,198
|
$
2,137
|
GHS
|
364
|
184
|
Auctus
|
223
|
-
|
Debt Discount to be
amortized
|
(7
)
|
-
|
Convertible
notes in default
|
$
2,778
|
$
2,321
|
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 convertible preferred stock, convertible debt,
convertible preferred dividends and warrants convertible into
common stock shares.
The
following table sets forth pertinent data relating to the
computation of basic and diluted net loss per share attributable to
common shareholders.
In
thousands
|
|
|
|
|
|
|
|
Net income (loss)
|
$
900
|
$
(10,974
)
|
Basic weighted average number of shares outstanding
|
462
|
11
|
Net income (loss) per share (basic)
|
$
1.95
|
$
997.64
|
Diluted weighted average number of shares outstanding
|
65,227
|
-
|
Net income (loss) per share (diluted)
|
$
0.0138
|
-
|
|
|
|
Dilutive equity instruments (number of equivalent
units):
|
|
|
Stock options
|
-
|
-
|
Preferred stock
|
-
|
-
|
Convertible debt
|
42,226
|
-
|
Warrants
|
22,530
|
-
|
Total Dilutive instruments
|
65,227
|
-
|
13. SUBSEQUENT
EVENTS
On
January 7, 2019 the Company entered into a promissory note for
$25,000 with Richard Blumberg. The entire unpaid principal balance
due on this Promissory Note (this "Note"), together with all
accrued and unpaid interest and fees, if any, at the choice of Mr.
Blumberg, shall be due and payable in full from the funds received
by the Company from a financing of at least $1,000,000 or to be
included as part of the Company's financing. Should the Company not
complete a financing of at least $1,000,000 within 90 days of the
execution of this Promissory Note, any unpaid amounts shall be due
in full to the Mr. Blumberg and shall accrue 6% annual interest
from the date thereof if not paid in full. In addition, Mr.
Blumberg shall be granted ten common stock warrants for each dollar
loaned to the Company under this Promissory Note, representing 313
warrants. The warrants shall vest upon the financing of at least
$1,000,000 and expire on the third anniversary of said financing.
The warrant exercise price shall be set at market price as defined
by the five-day volume adjusted weighted price (VWAP), or
alternatively the same as for warrants granted to investors as part
of any $1 million dollar or more financing of the
Company.
On
January 17, 2019 the Company entered into a promissory note for
$15,000 with Bryan Mamula. The entire unpaid principal balance due
on this Promissory Note (this "Note"), together with all accrued
and unpaid interest and fees, if any, at the choice of Mr. Mamula,
shall be due and payable in full from the funds received by the
Company from a financing of at least $1,000,000 or to be included
as part of the Company's financing. Should the Company not complete
a financing of at least $1,000,000 within 90 days of the execution
of this Promissory Note, any unpaid amounts shall be due in full to
Mr. Mamula and shall accrue 6% annual interest from the date
thereof if not paid in full. In addition, Mr. Mamula shall be
granted ten common stock warrants for each dollar loaned to the
Company under this Promissory Note, representing 188 warrants. The
warrants shall vest upon the financing of at least $1,000,000 and
expire on the third anniversary of said financing. The warrant
exercise price shall be set at market price as defined by the
five-day volume adjusted weighted price (VWAP), or alternatively
the same as for warrants granted to investors as part of any $1
million dollar or more financing of the Company.
On
January 30, 2019 the Company entered into a promissory note for
$35,000 with Richard Blumberg. The entire unpaid principal balance
due on this Promissory Note (this "Note"), together with all
accrued and unpaid interest and fees, if any, at the choice of Mr.
Blumberg, shall be due and payable in full from the funds received
by the Company from a financing of at least $1,000,000 or to be
included as part of the Company's financing. Should the Company not
complete a financing of at least $1,000,000 within 90 days of the
execution of this Promissory Note, any unpaid amounts shall be due
in full to Mr. Blumberg and shall accrue 6% annual interest from
the date thereof if not paid in full. In addition, Mr. Blumberg
shall be granted ten common stock warrants for each dollar loaned
to the Company under this Promissory Note, representing 438
warrants. The warrants shall vest upon the financing of at least
$1,000,000 and expire on the third anniversary of said financing.
The warrant exercise price shall be set at market price as defined
by the five-day volume adjusted weighted price (VWAP), or
alternatively the same as for warrants granted to investors as part
of any $1 million dollar or more financing of the
Company.
On
February 14, 2019, the Company entered into a Purchase and Sale
Agreement with Everest Business Funding for the sale of its
accounts receivable. The transaction provided the Company with
$48,735 after $1,265 in bank costs for a total purchase amount of
$50,000, in which the Company would have to repay $68,500. At a
minimum the Company would need to pay $535.16 per day or 20.0% of
the future collected accounts receivable or
“receipts.”
On
February 8, 2019, a note payable in default as reported in
Footnote 9: Notes payable –
Note payable in default
, was exchanged for a note with a
convertible option. The note amount was for $145,544. At the sole
discretion of the Company, rather than paying the holder in cash,
the note can be exchanged for equity in the new financing of at
least $1,000,000. The debt will be exchanged for C3 preferred
shares. If the Company elects to pay the balance in cash, the note
shall accrue simple interest of 6% per annum commencing on the date
of the new financing of at least $1,000,000.
On
February 15, 2019 the Company entered into a promissory note for
$50,000 with John Gould. The entire unpaid principal balance due on
this Promissory Note (this "Note"), together with all accrued and
unpaid interest and fees, if any, at the choice of Mr. Gould, shall
be due and payable in full from the funds received by the Company
from a financing of at least $1,000,000 or to be included as part
of the Company's financing. Should the Company not complete a
financing of at least $1,000,000 within 90 days of the execution of
this Promissory Note, any unpaid amounts shall be due in full to
the Mr. Gould and shall accrue 6% annual interest from the date
thereof if not paid in full. In addition, Mr. Gould shall be
granted ten common stock warrants for each dollar loaned to the
Company under this Promissory Note, representing 625 warrants. The
warrants shall vest upon the financing of at least $1,000,000 and
expire on the third anniversary of said financing. The warrant
exercise price shall be set at market price as defined by the
five-day volume adjusted weighted price (VWAP), or alternatively
the same as for warrants granted to investors as part of any $1
million dollar or more financing of the Company.
During
March 2019, the Company entered into promissory notes for $46,000
with Richard Blumberg. The entire unpaid principal balance due on
this Promissory Note (this "Note"), together with all accrued and
unpaid interest and fees, if any, at the choice of Mr. Blumberg,
shall be due and payable in full from the funds received by the
Company from a financing of at least $1,000,000 or to be included
as part of the Company's financing. Should the Company not complete
a financing of at least $1,000,000 within 90 days of the execution
of this Promissory Note, any unpaid amounts shall be due in full to
the Mr. Gould and shall accrue 6% annual interest from the date
thereof if not paid in full.
On
March 29, 2019, the Company entered into a securities purchase
agreement with Auctus Fund, LLC for the issuance and sale to Auctus
of $65,000 in aggregate principal amount of a 12% convertible
promissory note. On March 29, 2019, the Company issued the note to
Auctus. Pursuant to the purchase agreement, the Company also issued
to Auctus a warrant exercisable to purchase an aggregate of 325,000
shares of the Company’s common stock. The warrant is
exercisable at any time, at an exercise price per share equal to
$0.176 (110% of the closing price of the common stock on the day
prior to issuance), subject to certain customary adjustments and
price-protection provisions contained in the warrant. The warrant
has a five-year term. The note matures nine months from the date of
issuance and accrues interest at a rate of 12% per year. The
Company could have prepaid the note, in whole or in part, for 115%
of outstanding principal and interest until 30 days from issuance,
for 125% of outstanding principal and interest at any time from 31
to 60 days from issuance, and for 130% of outstanding principal and
interest at any time from 61 days from issuance to 180 days from
issuance. After nine months from the date of issuance, Auctus may
convert the note, at any time, in whole or in part, into shares of
the Company’s common stock, at a conversion price equal to
the lower of the price offered in the Company’s next public
offering or a 40% discount to the average of the two lowest trading
prices of the common stock during the 20 trading days prior to the
conversion, subject to certain customary adjustments and
price-protection provisions contained in the note. The note
includes customary events of default provisions and a default
interest rate of 24% per year. Upon the occurrence of an event of
default, Auctus may require the Company to redeem the note (or
convert it into shares of common stock) at 150% of the outstanding
principal balance plus accrued and unpaid interest.
On
April 16, 2019, the Company entered into a promissory note for
$20,000 with Richard Blumberg. The entire unpaid principal balance
due on this Promissory Note (this "Note"), together with all
accrued and unpaid interest and fees, if any, at the choice of Mr.
Blumberg, shall be due and payable in full from the funds received
by the Company from a financing of at least $1,000,000 or to be
included as part of the Company's financing. Should the Company not
complete a financing of at least $1,000,000 within 90 days of the
execution of this Promissory Note, any unpaid amounts shall be due
in full to the Mr. Blumberg and shall accrue 6% annual interest
from the date thereof if not paid in full.
On
April 26, 2019, the Company entered into a promissory note for
$50,000 with Fred Grimm. The entire unpaid principal balance due on
this Promissory Note (this "Note"), together with all accrued and
unpaid interest and fees, if any, at the choice of Mr. Grimm, shall
be due and payable in full from the funds received by the Company
from a financing of at least $1,000,000 or to be included as part
of the Company's financing. Should the Company not complete a
financing of at least $1,000,000 within 90 days of the execution of
this Promissory Note, any unpaid amounts shall be due in full to
the Mr. Grimm and shall accrue 6% annual interest from the date
thereof if not paid in full. If upon financing Mr. Grimm decides to
exchange any amount remaining under this promissory note into
equity as part of the Company’s financing, Mr. Grimm shall
receive a minimum of two common shares of the Company’s
common stock and warrants to purchase two additional common stock
shares of the Company’s common stock. In addition, Mr. Grimm
shall be granted four common stock shares and four common stock
warrants for each dollar loaned to the Company under this
Promissory Note, representing 200,000 warrants. The warrants shall
vest upon the financing of at least $1,000,000 and expire on the
third anniversary of said financing. The warrant exercise price
shall be set at market price as defined by the five-day volume
adjusted weighted price (VWAP), or alternatively the same as for
warrants granted to investors as part of any $1 million dollar or
more financing of the Company.
The
Company was not able to meet its filing date deadline for the 10K
due to financial issues.