UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014.

2017.

OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 0-22179

GUIDED THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

58-2029543

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

5835 Peachtree Corners East, Suite D

B

Norcross, Georgia

(Address of principal executive offices)

30092

(Zip Code)

Registrant’s telephone number (including area code): (770) 242-8723

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Act: Common Stock, $0.001 par value

(Title

                                                                                       (Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ]  No [X]

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ]  No [X]

Yes [ ] No [X]

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

Yes [X ]  No [  ]

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X ]  No [  ]

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes [X ]  No [  ]

Yes [X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer
[ ]

Accelerated filer
[ ]
Non-accelerated filer
[ ]
(Do not check if a smaller reporting company)Smaller reporting company  [X]
[X]
Emerging growth company
[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [  ]  No [X]

Yes [ ] No [X]

The aggregate market value of the voting and non-voting common stockequity held by non-affiliates of the registrant was approximately $36,615,302$300,000 as of June 30, 20142017 (the last business day of the registrant’s most recently completed second fiscal quarter), based upon the closing sales price of the registrant’s Common Stock of $0.68, reported for such date by the OTC Bulletin Board.

.

As of March 16, 2015,April 8, 2018, the registrant had outstanding 97,184,34149,904,111 shares of Common Stock.

common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.

None.


TABLE OF CONTENTS

PART I43
Item 1. BusinessITEM 1.BUSINESS43
Item 1A. Risk FactorsITEM 1A.RISK FACTORS10
Item 1B. Unresolved Staff CommentsITEM 1B.UNRESOLVED STAFF COMMENTS1719
Item 2. PropertiesITEM 2.PROPERTIES1719
Item 3. Legal ProceedingsITEM 3.LEGAL PROCEEDINGS1719
Item 4. Mine Safety DisclosuresITEM 4.MINE SAFETY DISCLOSURES1719
PART II1820
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquityITEM 5.MARKET FOR REGUSTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES1920
SecuritiesITEM 6.SELECTED FINANCIAL DATA1920
Item 6. Selected Financial DataITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS1920
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsITEM 7A.QUANTITATIVE ANDqUALITATIVE dISCLOSURES ABOUT mARKET rISK2321
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA2429
Item 8. Financial Statements and Supplementary DataITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE4030
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureITEM 9A.CONTROLS AND PROCEDURES4057
Item 9A. Controls and ProceduresITEM 9B.OTHER INFORMATION4157
PART IIIItem 9B. Other Information4257
PART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE4258
Item 10. Directors, Executive Officers and Corporate GovernanceITEM 11.EXECUTIVE COMPENSATION4458
Item 11. Executive CompensationITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS4660
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE4761
Item 13. Certain Relationships and Related Transactions and Director IndependenceITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES4763
PART IVItem 14. Principal Accountant Fees and Services4964
PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES4965
Item 15. Exhibits and Financial Statement Schedules65
SIGNATURESItem 16. Form 10-K Summary67
SIGNATURES5168


PART I

Item 1. Business

Overview

We are a medical technology company focused on developing innovative medical devices that have the potential to improve healthcare. Our primary focus is the sales and marketing of our LuViva® Advanced Cervical Scan non-invasive cervical cancer detection device. OurThe underlying technology including potential future products,of LuViva primarily relates to the use of biophotonics for the non-invasive detection of cancers.

We are a Delaware corporation, originally incorporated in 1992 under LuViva is designed to identify cervical cancers and precancers painlessly, non-invasively and at the name “SpectRx, Inc.,”point of care by scanning the cervix with light, then analyzing the reflected and on February 22, 2008, changed our name to Guided Therapeutics, Inc. At the same time, we renamed our wholly owned subsidiary, InterScan, which originally had been incorporated as “Guided Therapeutics.”

Non-Invasive Cervical Cancer Detection

We believe fluorescent light.

LuViva will provideprovides a less invasive and painless alternative to conventional tests for cervical cancer screening and detection. We also believeAdditionally, LuViva can improveimproves patient well-being sincenot only because it reduces or eliminates pain, but also because it is convenient to use and provides rapid results at the point-of-care.point of care. We believe there arefocus on two primary applications offor LuViva: first, as a cancer screening tool in the developing world, as a primary screening tool where infrastructure to support the Pap testtraditional cancer-screening methods is limited or non-existent, and in the developed worldsecond, as a triage following existing and established Paptraditional screening in the developed world, where a high number of false positive results causedcause a high rate of unnecessary follow upand ultimately costly follow-up tests.

Screening for cervical cancer represents one of the most significant demands on the practice of diagnostic medicine. As cervical cancer is linked to a sexually transmitted disease—the human papillomavirus (HPV)—every woman essentially becomes “at risk” for cervical cancer simply after becoming sexually active. In the developing world, there are approximately 2.0 billion women aged 15 and older who are potentially eligible for screening with LuViva. Guidelines for screening intervals vary across the world, but U.S. guidelines call for screening every three years. Traditionally, the Pap smear screening test, or Pap test, is the primary cervical cancer screening methodology in the developed world. However, in developing countries, cancer screening using Pap tests is expensive and requires infrastructure and skill not currently existing, and not likely to be developed in the near future, in these countries.
We completed enrollmentbelieve LuViva is the answer to the developing world’s cervical cancer screening needs. Screening for cervical cancer in our U.S. Food and Drug Administration (“FDA”) pivotal trialthe developing world often requires working directly with foreign governments or non-governmental agencies (NGOs). By partnering with governments or NGOs, we can provide immediate access to cervical cancer detection to large segments of LuViva in 2008 and on November 18, 2010, the FDA accepted our completed premarket approval (“PMA”) application, effective September 23, 2010, for substantive review. On March 7, 2011, we announced that the FDA had inspected two clinical trial sitesa nation’s population as part of its review processnational or regional governmental healthcare programs, eliminating the need to develop expensive and raised no formal compliance issues. On January 20, 2012,resource-intensive infrastructures.
In the developed world, we announced our intentbelieve LuViva offers a more accurate and ultimately cost-effective triage medical device, to seek an independent panel reviewbe used once a traditional Pap test or HPV test indicates the possibility of our PMA application after receiving a “not-approvable” letter from the FDA. On November 14, 2012 we filed an amended PMA with the FDA. On September 6, 2013, we received a letter from the FDA with additional questions and met with the FDA on May 8, 2014 to discuss our response. On July 25, 2014, we announced that we had respondedcervical cancer. Due to the FDA’s most recent questions. Based on discussions with FDA and our regulatory legal counsel, wehigh number of false positive results from Pap tests, traditional follow-on tests entail increased medical treatment costs. We believe our PMA is under review, but is not under guidelines that require the agencythese costs can be minimized by utilizing LuViva as a triage to respond within a prescribed time limit. Additional dialog with the FDA is expected as we proceed toward approval of our PMA application. We expect to receive FDA approval in 2015, but cannot be assured of the timing. We currently anticipate a 2016 product launch in the United States, but cannot be assured we will be able to launch on that timetable, or at all. Internationally, we have had regulatory approval to sell LuViva in Europe upon receipt of our Edition 3CE Mark in January 2014. LuViva has marketing approval from Health Canada, COFEPRIS in Mexico and the Singapore Health Sciences Authority.

Other Cancers

determine whether follow-on tests are warranted.

We believe our non-invasive cervical cancer detection technology can be applied to the early detection of other cancers as well. To that end, from 2008 until earlyIn 2013, we had worked exclusivelyannounced a license agreement with Konica Minolta, Opto, Inc., a subsidiary of Konica Minolta, Inc., a Japanese corporation based in Tokyo (“Konica Minolta”), to adapt our cervical cancer detection technology primarily for the detection of esophageal cancer. On February 6, 2013, we announced that we had terminated and replaced our existing agreements with Konica Minolta with a new license agreement allowing us to manufacture and to develop a non-invasive esophageal cancer detection product from Konica Minolta and based on our biophotonic technology platform (see “—Lung and Esophageal Cancer Detection —Konica Minolta”).

Our Business Strategy

Our mission is to build a profitable business that develops and commercializes medical products that improve people’s lives and increases stockholder value. To achieve this mission, we have completed the FDA pivotal trial for our first product, called LuViva, filed our PMA application with the FDA, and have launched LuViva internationally. Development Early market analyses of our biophotonic technology indicated that skin cancer diagnostic technology has been financed to date through a combinationdetection was also promising, but currently we are focused primarily on the large-scale commercialization of government grants, strategic partners and direct investment. Bringing LuViva to market is the main focus of our business. In order to adequately finance the completion of the FDA review process and continue marketing LuViva, additional capital will be needed; however, we cannot be assured of the availability of adequate capital on terms or timing acceptable to us, or at all (see Item 1A. “Risk Factors”).

Industry Overview

Cervical LuViva.

Cancer Detection

Background

According to the American

Cancer Society, cancer is a group of many related diseases. All forms of cancer involve the out-of-control growth and spread of abnormal cells. Normal body cells grow, divide, and die in an orderly fashion. Cancer cells, however, continue to grow and divide and can spread to other parts of the body. In America, half of all men and one-third of all women will develop some form of cancer during their lifetimes. According to the American Cancer Society, the sooner a cancer is found and treatment begins, the better a patient’s chances are of being cured. We began investigating the applications of our technologiesbiophotonic technology to cancer detection before 1997, when we initiated a preliminary market analysis for these uses.analysis. We concluded that our biophotonic technologiestechnology had applications for the detection of a variety of cancers through the exposure of tissue to light. We selected detection of cervical cancer and skin cancer from a list of the ten most promising applications to pursue initially, and currently areultimately focused primarily on the development of our non-invasiveLuViva cervical cancer detection product.

Cervical Cancer

device.


Cervical cancer is a cancer that begins in the lining of the cervix (which is located in the lower part of the uterus). Cervical cancer forms over time and may spread to other parts of the body if left untreated. There is generally a gradual change from a normal cervix to a cervix with precancerous cells to cervical cancer. For some women, precancerous changes may go away without any treatment. While the majority of precancerous changes in the cervix do not advance to cancer, if precancers are treated, the risk that they will become cancers can be greatly reduced.
The Pap smearDeveloping World
According to the most recent data published by the World Health Organization (WHO), cervical cancer is the fourth most frequent cancer in women worldwide, with an estimated 530,000 new cases in 2012. For women living in less developed regions, however, cervical cancer is the second most common cancer, with an estimated 445,000 new cases in 2012 (84% of the new cases worldwide). In 2012, approximately 270,000 women died from cervical cancer; more than 85% of these deaths occurring in low- and middle-income countries.
As noted by the WHO, in developed countries, programs are in place that enable women to get screened, making most pre-cancerous lesions identifiable at stages when they can easily be treated. Early treatment prevents up to 80% of cervical cancers in these countries. In developing countries, however, limited access to effective screening test,means that the disease is often not identified until it is further advanced and symptoms develop. In addition, prospects for treatment of such late-stage disease may be poor, resulting in a higher rate of death from cervical cancer in these countries.
We believe that the greatest need and market opportunity for LuViva lies in screening for cervical cancer in developing countries where the infrastructure for traditional screening may be limited or non-existent.
We are actively working with distributors in the following countries to implement government-sponsored screening programs: Turkey, Indonesia, and Nigeria. The number of screening candidates in those countries is approximately 131 million and Indonesia and Nigeria represent 2 of the 10 most populous countries in the world.
The Developed World
The Pap test, which involves a sample of cervical tissue being placed on a slide and observed in a laboratory, is currently the most common form of cervical cancer screening.

Cervical Cancer Market

The American Cancer Society estimates that in 2015, about 12,900 cases of invasive cervical cancer would be diagnosed and about 4,100 women will die from cervical cancer in the United States. According to World Health Organization published data, cervical cancer results in about 266,000 deaths annually worldwide, with 528,000 new cases reported each year.

We believe that our major market opportunities related to cervical cancer are in screening followed by triage. We believe that the greatest need and market opportunity lie in screening for cervical cancer in developing countries where the infrastructure for traditional screening may be limited or non-existent. Our strategy is to work with governments and non-governmental agencies to introduce LuViva as a method for primary screening. We also plan to add screening claims to our CE Mark technical file to expand our claims beyond triage use.

Since the introduction of screening and diagnostic methods, the number of cervical cancer deaths in the United Statesdeveloped world has declined dramatically, due mainly to the increased use of the Pap test. However, over the last five years, the incidences have been increasing. Moreover, the Pap test has a wide variation in sensitivity, which is the ability to detect the disease, and specificity, which is the ability to exclude false positives. A study by Duke University for the U.S. Agency for Health Care Policy and Research published in 1999 showed Pap test performance ranging from a 22%-95% sensitivity and 78% - 10% specificity. About 60 million Pap tests are given annually in the United States. The average price of a Pap test in the United States is about $26. New-10% specificity, although new technologies improving the sensitivity and specificity of the Pap test have recently been introduced and are finding acceptance in the marketplace.

About 60 million Pap tests are given annually in the United States, at an average price of approximately $26 per test.

After screeninga Pap test returns a positive result for cervical cancer, by use of a Pap test, if necessary,accepted protocol calls for a visual examination of the cervix using a colposcope, is usually followed by a biopsy, or tissue sampling, at one or more locations.locations on the cervix. This method looks for visual changes attributable to cancer. There are about two million colposcope examinations annually in the United States and Europe. In 2003, the average cost of a stand-alone colposcope examination in the United States was $185 and the average cost of a colposcopy with biopsy was $277.

In April 2014, the FDA approved the use of the existence of Human papillomavirus, or HPV, as a primary screener for cervical cancer. This would make HPV testing a competitor to the Pap test. Due to its lower specificity,

Given this landscape, we believe that screening with HPV will increase the number of false positive results if widely adopted.

In 2006, a new vaccine for certain strains of the human papilloma virus, or HPV, was approved by the FDA. Most cervical cancers are associated with certain strains of HPV. The vaccine is administered in three doses, and according to guidelines, preferably to girls before they become sexually active. The approved vaccine is effective against 70% of the strains of HPV thought to be responsible for cervical cancer. Due to the limited availability and lack of 100% protection against all potentially cancer-causing strains of HPV, we believe that the vaccine will have a limited impact on the cervical cancer screening and diagnostic market for many years.

Our Non-invasive Cervical Cancer Product

LuVivathere is a non-invasive cervical cancer detection product, based on our proprietary biophotonic technology. material need and market opportunity for LuViva as a triage device in the developed world where LuViva represents a more cost-effective method of verifying a positive Pap test than the alternatives.

The deviceLuViva Advanced Cervical Scan
LuViva is designed to identify cervical cancers and precancers painlessly, non-invasively and at the point-of-carepoint of care by scanning the cervix with light, then analyzing the light reflected or emanating from the cervix. The information presented by the light would be used to indicate the likelihood of cervical cancer or precancers. Our product, in addition to detecting the structural changes attributed to cervical cancer, is also designed to detect the biochemical changes that precede the development of visual lesions. In this way, cervical cancer may be detected earlier in its development, which should increase the chances of effective treatment. The product uses aIn addition to the device itself, operation of LuViva requires employment of our single-use, disposable calibration and alignment component. FDA approval of the intended use of our device is required and initial approval may be for a limited set of the above potential capabilities. Internationally, we have approval to sell the product in Canada, Mexico, the European Union and several additional countries. Our strategy is to expand the availability of LuViva in developing countries as a primary screening device and continue the launch of LuViva in Europe and Canada as a triage product. In parallel with these international efforts we are continuing steps to procure FDA approval in the United States.

cervical guide.


To date, thousands of women in multiple international clinical settings have been tested with LuViva in multiple clinical settings and in many countries.LuViva. As a result, more than 25 papers and presentations have been published regarding LuViva in a clinical setting, including at the most recent being presentedInternational Federation of Gynecology and Obstetrics Congress in AfricaLondon in 2015 and Turkeyat the Indonesian National Obstetrics and Gynecology (POGI) Meeting in 2014.

In September 2006, we announced that the National Cancer Institute (“NCI”) awarded a grant of approximately $690,000 for development of our non-invasive cervical cancer detection technology. This grant was used to further the ongoing FDA pivotal clinical trial. In 2006 and 2007, we received approximately $523,000 and $398,000, respectively, of NCI grant funds. On October 5, 2009, we were awarded a $2.5 million matching grant by the NCI to bring to market and expand the array features for LuViva. The award provided resources to complete the regulatory process and begin manufacturing ramp up for LuViva and a single-patient-use disposable patient interface for the device and will be received over a period of three years.

The award was fully funded by December 31, 2013. Under the award, we recorded revenue of approximately $150,000Solo in 2013, $68,000 in 2012 and $912,000 in 2011.

2016.

Internationally, we contract with country-specific or regional distributors. We believe that the international market will be significantly larger than the U.S. market due to the needinternational demand for cervical cancer screening. We have formal distribution agreements in place covering 5254 countries and plan on adding additional countries in 2015.

In2018.

We have previously obtained regulatory approval to sell LuViva in Europe under our Edition 3 CE Mark. Additionally, LuViva has also obtained marketing approval from Health Canada, COFEPRIS in Mexico, Ministry of Health in Kenya and the United States, we plan on establishing and training a ten-person sales force during the first year after launch, which will initially focus on early adopters in the larger population centers.Singapore Health Sciences Authority. We expect the device itselfcurrently are seeking regulatory approval to be priced at approximately $25,000 to $30,000market LuViva in the United States, withbut have not yet received approval from the disposable priced around $30U.S. Food and Drug Administration (FDA). As of December 31, 2017, we have sold 138 LuViva devices and approximately 71,000 single-use-disposable cervical guides to $40. Profit margins oninternational distributors.
We believe our non-invasive cervical cancer detection technology can be applied to the disposable are expected to be approximately 90%.

Lung and Esophageal Cancer Detection

Konica Minolta

early detection of other cancers as well.From 2008 to early 2013, we worked with Konica Minolta to explore the feasibility of adapting our microporation and biophotonic cancer detection technologiestechnology to other areas of medicine and to determine potential markets for these products in anticipation of a development agreement.

In February 2013, we replaced our existing agreements with Konica Minolta with a new agreement, pursuant to which, subject to the payment of a nominal license fee due upon FDA approval, Konica Minolta has granted us a five-year, world-wide, non-transferable and non-exclusive right and license to manufacture and to develop a non-invasive esophageal cancer detection product from Konica Minolta and based on our biophotonic technology platform. The license permits us to use certain related intellectual property of Konica Minolta. In return for the license, we have agreed to pay Konica Minolta a royalty for each licensed product we sell. We continue to have the right to seek new collaborative partners to further develop our biophotonic technology.

Manufacturing, Sales Marketing and Distribution
We manufacture LuViva at our Norcross, Georgia facility. Most of the components of LuViva are custom made for us by third-party manufacturers. We adhere to ISO 13485:2003 quality standards in our manufacturing processes. Our single-use cervical guides are manufactured by a vendor that specializes in injection molding of plastic medical products. On January 22, 2017, we entered into a license agreement with Shandong Yaohua Medical Instrument Corporation (“SMI”) pursuant to which we granted SMI an exclusive global license to manufacture the LuViva device and related disposables (subject to a carve-out for manufacture in Turkey).
We rely on distributors to sell our products. Distributors can be country exclusive or cover multiple countries in a region. We manage these distributors, provide them marketing materials and train them to demonstrate and operate LuViva. We seek distributors that have experience in gynecology and in introducing new technology into their assigned territories.
We have only limited experience in the production planning, quality system management, facility development, and production scaling that will be needed to bring production to increased sustained commercial levels. We will likely need to develop additional expertise in order to successfully manufacture, market, and distribute any future products.
Research, Development and Engineering

To date, we

We have been engaged primarily in the research, development and testing of our LuViva non-invasive cervical cancer detection product and our core biophotonic technologies, as well as our since-discontinued glucose monitoring, diabetes detection and infant jaundice products. From inception in 1992 to December 31, 2014,technology. Since 2013, we have incurred about $61.0$7.5 million in research and development expenses, net of about $24.6 million$927,000 reimbursed through collaborative arrangements and government grants. Research and development costs were approximately $2.8$0.3 and $2.7$0.7 million in 20142017 and 2013,2016, respectively.

Since 2008,2013, we have focused our research and development and our engineering resources almost exclusively on development of our biophotonic cancer detection technology, with only limited support of other programs funded through government contracts or third partythird-party funding. Because our research and clinical development programs for other cancers are at a very early stage, substantial additional research and development and clinical trials will be necessary before we can produce commercial prototypes of ourother cancer detection products can be produced.

products.

Several of the components used in our product or planned productsLuViva currently are available from only one supplier, and substitutes for these components could not be obtained easily or would require substantial modifications to our products.

Manufacturing, Sales Marketing and Distribution

We manufacture the LuViva at our Norcross, GA facility. Most of the components of LuViva are custom made for us by third-party manufacturers. We adhere to ISO 13485 quality standards in our manufacturing processes. Our single-use cervical guides are manufactured by vendor that specializes in injection molding of plastic medical products.

We rely on distributors to sell our products. Distributors can be country exclusive or cover multiple countries in a region. We manage these distributors and provide marketing materials and train them to demonstrate and operate the LuViva. We seek distributors that have experience in gynecology and in introducing new technology into their assigned territory.

We have only limited experience in the production planning, quality system management, facility development, and production scaling that will be needed to bring production to commercial levels. We will need to develop additional expertise in order to successfully manufacture market and distribute any future products.


Patents

We have pursued a course of developing and acquiring patents and patent rights and licensing technology. Our success depends in large part on our ability to establish and maintain the proprietary nature of our technology through the patent process and to license from othersother’s patents and patent applications necessary to develop our products. As of December 31, 2014,2017, we have 2224 granted U.S. patents relating to our biophotonic cancer detection technology and six pending U.S. patent applications. We also have three granted patents that apply to our interstitial fluid analysis system.

Competition

The medical device industry in general and the markets for cervical cancer detection in particular, are intensely competitive. If successful in our product development, we will compete with other providers of cervical cancer detection and prevention products.

Current cervical cancer screening and diagnostic tests, primarily the Pap test, HPV test, and colposcopy, are well established and pervasive. Improvements and new technologies for cervical cancer detection and prevention, such as Thin-Prep from Hologic and HPV testing from Qiagen, have led to other new competitors. In addition, there are other companies attempting to develop products using forms of biophotonic technologies in cervical cancer detection, such as MediSpectra, Inc. (since acquired by Spectrascience, Inc.). MediSpectra was grantedwhich has a very limited U.S. FDA approval in March 2006 to market its device for detection of cervical cancers, but has not yet entered the market. The approval limits use of the MediSpectraSpectrascience device only after a colposcopy, as an adjunct. In addition to the MedispectraSpectrascience device, there are other technologies that are seeking to enter the market as adjuncts to colposcopy, including devices from Dysis and Zedco. While these technologies are not direct competitors to LuViva, modifications to them or other new technologies will require us to develop devices that are more accurate, easier to use or less costly to administer so that our products have a competitive advantage.

In April 2014, the U.S. FDA approved the use of the Roche cobas HPV test as a primary screener for cervical cancer.Using a sample of cervical cells, the cobas HPV test detects DNA from 14 high-risk HPV types. The test specifically identifies HPV 16 and HPV 18, while concurrently detecting 12 other types of high-risk HPVs. This wouldcould make HPV testing a competitor to the Pap test.

However, due to its lower specificity, we believe that screening with HPV will increase the number of false positive results if widely adopted.

In June 2006, the U.S. FDA approved the HPV vaccine Gardasil from drug maker Merck & Co., Inc.Merck. Gardasil is a prophylactic HPV vaccine, meaning that it is designed to prevent the initial establishment of HPV infections. For maximum efficacy, it is recommended that girls receive the vaccine prior to becoming sexually active. Since Gardasil will not block infection with all of the HPV types that can cause cervical cancer, the vaccine should not be considered a substitute for routine Pap tests. On October 16, 2009, GlaxoSmithKline PLC was granted approval in the United States for a similar preventive HPV vaccine, known as Cervarix.

Due to the limited availability and lack of 100% protection against all potentially cancer-causing strains of HPV, we believe that the vaccines will have a limited impact on the cervical cancer screening and diagnostic market for many years.

Government Regulation

All of our products are, or will be, regulated as

The medical devices. Medical device productsdevices that we manufacture are subject to rigorousregulation by numerous regulatory bodies, including the CFDA, the U.S. FDA, and other governmental agencycomparable international regulatory agencies. These agencies require manufacturers of medical devices to comply with applicable laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of medical devices. Devices are generally subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation program be conducted before a device receives approval for commercial distribution.
In the European Union, medical devices are required to comply with the Medical Devices Directive and obtain CE Mark certification in order to market medical devices. The CE Mark certification, granted following approval from an independent “Notified Body,” is an international symbol of adherence to quality assurance standards and compliance with applicable European Medical Devices Directives. During 2017 we were unable to pay the annual registration fees to maintain our ISO 13485:2003 certification and our CE Mark. Once our financing is completed, we will make the required payments and reobtain both certifications.
China has a regulatory regime similar to that of the European Union, but due to interaction with the U.S. regulatory regime, the CFDA also shares some similarities with its U.S. counterpart. Devices are classified by the CFDA’s Center for Medical Device Evaluation (CMDE) into three categories based on medical risk, with the level of regulatory oversight determined by degree of risk and invasiveness. CMDE’s device classifications and definitions are as follows:
Class I device: The safety and effectiveness of the device can be ensured through routine administration.
Class II device: Further control is required to ensure the safety and effectiveness of the device.

Class III device: The device is implanted into the human body; used for life support or sustenance; or poses potential risk to the human body, and thus must be strictly controlled in respect to safety and effectiveness.
Based on the above definitions and several discussions with regulatory consultants and potential partners, we believe that LuViva is most likely to be classified as a Class II device, however, this is not certain and the CFDA may determine that LuViva requires a Class III registration. Class III registrations are granted by the national CFDA office while Class I and II registrations occur at the provincial level. Typically, registration granted at the provincial level allows a medical device to be marketed in all of China’s provinces.
While Class I devices usually do not require clinical trial data from Chinese patients and Class III devices almost always do, Class II medical devices sometimes do and sometimes do not require Chinese clinical trials, and this determination may depend on the claim for the device and quality of clinical trials conducted outside of China. If clinical trials conducted in China are required, they usually are less burdensome for Class II devices than Class III devices.
CFDA labs also conduct electrical, mechanical and electromagnetic emission safety testing for medical devices similar to those required for the CE Mark. As is the case with the U.S. FDA, manufacturers in China undergo periodic inspections and must comply with international quality standards such as ISO 13485 for medical devices. As part of our agreement with SMI, SMI will underwrite the cost of securing approval of LuViva with the CFDA.
In the United States, permission to distribute a new device generally can be met in one of two ways. The first process requires that a pre-market notification (510(k) Submission) be made to the U.S. FDA to demonstrate that the device is as safe and effective as, or substantially equivalent to, a legally marketed device that is not subject to premarket approval (PMA). A legally marketed device is a device that (1) was legally marketed prior to May 28, 1976, (2) has been reclassified from Class III to Class II or I, or (3) has been found to be substantially equivalent to another legally marketed device following a 510(k) Submission. The legally marketed device to which equivalence is drawn is known as the “predicate” device. Applicants must submit descriptive data and, when necessary, performance data to establish that the device is substantially equivalent to a predicate device. In some instances, data from human clinical studies must also be submitted in support of a 510(k) Submission. If so, these data must be collected in a manner that conforms with specific requirements in accordance with federal regulations. The U.S. FDA must issue an order finding substantial equivalence before commercial distribution can occur. Changes to existing devices covered by a 510(k) Submission which do not significantly affect safety or effectiveness can generally be made by us without additional 510(k) Submissions.
The second process requires that an application for premarket approval (PMA) be made to the U.S. FDA to demonstrate that the device is safe and effective for its intended use as manufactured. This approval process applies to most Class III devices, including LuViva. In this case, two steps of U.S. FDA approval are generally required before marketing in the United States can begin. First, investigational device exemption (IDE) regulations must be complied with in connection with any human clinical investigation of the device in the United States. Second, the U.S. FDA must review the PMA application, which contains, among other things, clinical information acquired under the IDE. The U.S. FDA will approve the PMA application if it finds that there is a reasonable assurance that the device is safe and effective for its intended purpose.
We completed enrollment in our U.S. FDA pivotal trial of LuViva in 2008 and, after the U.S. FDA requested two-years of follow-up data for patients enrolled in the study, the U.S. FDA accepted our completed PMA application on November 18, 2010, effective September 23, 2010, for substantive review. On March 7, 2011, we announced that the U.S. FDA had inspected two clinical trial sites and audited our clinical trial data base systems as part of its review process and raised no formal compliance issues. On January 20, 2012, we announced our intent to seek an independent panel review of our PMA application after receiving a “not-approvable” letter from the U.S. FDA. On November 14, 2012 we filed an amended PMA with the U.S. FDA. On September 6, 2013, we received a letter from the U.S. FDA with additional questions and met with the U.S. FDA on May 8, 2014 to discuss our response. On July 25, 2014, we announced that we had responded to the U.S. FDA’s most recent questions.
We received a “not-approvable” letter from the U.S. FDA on May 15, 2015. We had a follow up meeting with the U.S. FDA to discuss a path forward on November 30, 2015, at which we agreed to submit a detailed clinical protocol for U.S. FDA review so that additional studies can be completed. These studies will not be completed in 2018, although we intend to pursue FDA approval and start studies in 2018 once funds are available. We remain committed to obtaining U.S. FDA approval, but we are focused on international sales growth, where we believe the commercial opportunities are larger and the clinical need is more significant.

The process of obtaining clearance to market products is costly and time-consuming in virtually all of the major markets in which we sell, or expect to sell, our products and may delay the marketing and sale of our products. Countries around the world have recently adopted more stringent regulatory requirements, which are expected to add to the delays and uncertainties associated with new product releases, as well as the clinical and regulatory costs of supporting those releases. No assurance can be given that our products will be approved on a timely basis in any particular jurisdiction, if at all. In addition, regulations regarding the development, manufacture and sale of medical devices are subject to regulationsfuture change. We cannot predict what impact, if any, those changes might have on our business. Failure to comply with regulatory requirements could have a material adverse effect on our business, financial condition and results of relevant foreign agencies. operations.
Noncompliance with applicable requirements can result in import detentions, fines, civil penalties, injunctions, suspensions or losses of regulatory approvals or clearances, recall or seizure of products, operating restrictions, denial of export applications, governmental prohibitions on entering into supply contracts, and criminal prosecution. Failure to obtain regulatory approvals or the restriction, suspension or revocation of regulatory approvals or clearances, as well as any other failure to comply with regulatory requirements, would have a material adverse effect on our business, financial condition and results of operations.

The FDA regulates the clinical testing, design manufacture, labeling, packaging, marketing, distribution and record-keeping for these products to ensure that medical products distributed in the United States are safe and effective for their intended uses.

In the United States, medical devices are classified into one of three classes on the basis of the controls deemed necessary by the FDA to reasonably assure the devices’ safety and effectiveness. Under FDA regulations, Class I devices are subject to general controls, such as labeling requirements, notification to the FDA before beginning marketing activities and adherence to specified good manufacturing practices. Class II devices are subject to general and special controls, such as performance standards, surveillance after beginning market activities, patient registries, and FDA guidelines. Generally, Class III devices are those which must receive premarket approval from the FDA to ensure their safety and effectiveness. Examples of Class III devices include life-sustaining, life-supporting and implantable devices, as well as new devices that have not been found substantially equivalent to legally marketed Class I or II devices.

A medical device manufacturer may seek clearance to market a medical device by filing a 510(k) premarket notification with the FDA if the manufacturer establishes that a newly developed device is substantially equivalent to either a device that was legally marketed before May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or to a device that is currently legally marketed and has received 510(k) premarket clearance from the FDA. The 510(k) premarket notification must be supported by appropriate information, which may include data from clinical trials to establish the claim of substantial equivalence. Commercial distribution of a device for which a 510(k) premarket notification is required can begin only after the FDA determines the device to be substantially equivalent to a legally marketed device. The FDA has recently been requiring a more rigorous demonstration of substantial equivalence than in the past. It generally takes from three to twelve months from the date of submission to obtain clearance of a 510(k) submission, but it may take substantially longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or may require additional information.

An adverse determination or a request for additional information could delay the market introduction of new products that fall into this category, such as LuViva, which could have a material adverse effect on our business, financial condition and results of operations. For LuViva, any of our future products that have to be cleared through the PMA or 510(k) process, including modifications or enhancements that could significantly affect the safety or effectiveness of the device or that constitute a major change to the intended use of the device will require new PMA application and approval or a 510(k) premarket notification. Any modified device for which a new PMA or 510(k) premarket notification is required cannot be distributed until the PMA is approved or 510(k) clearance is obtained. We may not be able to obtain PMA approval or 510(k) clearance in a timely manner, if at all, for LuViva or any future devices or modifications to LuViva or such devices for which we may submit a PMA 510(k) application.

A PMA application must be submitted if a proposed device is not substantially equivalent to a legally marketed Class I or Class II device or for specified Class III devices. The application must contain valid scientific evidence to support the safety and effectiveness of the device, which includes the results of clinical trials, all relevant bench tests, and laboratory and animal studies. The application must also contain a complete description of the device and its components, as well as a detailed description of the methods, facilities and controls used for its manufacture, including, where appropriate, the method of sterilization and its assurance. In addition, the application must include proposed labeling, advertising literature and any required training methods. If human clinical trials of a device are required in connection with an application and the device presents a significant risk, the sponsor of the trial is required to file an application for an investigational device exemption before beginning human clinical trials. Usually, the manufacturer or distributor of the device is the sponsor of the trial. The application must be supported by data, typically including the results of animal and laboratory testing, and a description of how the device will be manufactured. If the application is reviewed and approved by the FDA and one or more appropriate institutional review boards, human clinical trials may begin at a specified number of investigational sites with a specified number of patients. If the device presents a non-significant risk to the patient, a sponsor may begin clinical trials after obtaining approval for the study by one or more appropriate institutional review boards, but FDA approval for the commencement of the study is not required. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study if the compensation received does not exceed the costs of manufacture, research, development and handling. A supplement for an investigational device exemption must be submitted to and approved by the FDA before a sponsor or an investigator may make a significant change to the investigational plan that may affect the plan’s scientific soundness or the rights, safety or welfare of human subjects.

Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit a substantive review. If the FDA makes this determination, it will accept the application for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the application. An FDA review of a PMA application generally takes one to two years from the date the application is accepted for filing. However, this review period is often significantly extended by requests for more information or clarification of information already provided in the submission. During the review period, the submission may be sent to an FDA-selected scientific advisory panel composed of physicians and scientists with expertise in the particular field. The FDA scientific advisory panel issues a recommendation to the FDA that may include conditions for approval. The FDA is not bound by the recommendations of the advisory panel. Toward the end of the PMA application review process, the FDA will conduct an inspection of the manufacturer’s facilities to ensure that the facilities are in compliance with applicable good manufacturing practice. If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will issue a letter. This letter usually contains a number of conditions, which must be met in order to secure final approval of the application. When those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue an approval letter authorizing commercial marketing of the device for specified indications and intended uses.

The PMA application review process is expensive, uncertain and lengthy. A number of devices for which a premarket approval has been sought have never been approved for marketing. The FDA may also determine that additional clinical trials are necessary, in which case the premarket approval may be significantly delayed while trials are conducted and data is submitted in an amendment to the PMA application. Modifications to the design, labeling or manufacturing process of a device that has received premarket approval may require the FDA to approve supplements or new applications. Supplements to a PMA application often require the submission of additional information of the same type required for an initial premarket approval, to support the proposed change from the product covered by the original application. The FDA generally does not call for an advisory panel review for PMA supplements, though applicants may request one. If any PMAs are required for our products, we may not be able to meet the FDA’s requirements or we may not receive any necessary approvals. Failure to comply with regulatory requirements or to receive any necessary approvals would have a material adverse effect on our business, financial condition and results of operations.

Regulatory approvals and clearances, if granted, may include significant labeling limitations and limitations on the indicated uses for which the product may be marketed. In addition, to obtain regulatory approvals and clearances, the U.S. FDA and some foreign regulatory authorities impose numerous other requirements with which medical device manufacturers must comply. U.S. FDA enforcement policy strictly prohibits the marketing of approved medical devices for unapproved uses. Any products we manufacture or distribute under U.S. FDA clearances or approvals are subject to pervasive and continuing regulation by the U.S. FDA. The U.S. FDA also requires us to provide it with information on death and serious injuries alleged to have been associated with the use of our products, as well as any malfunctions that would likely cause or contribute to death or serious injury.

The U.S. FDA requires us to register as a medical device manufacturer and list our products. We are also subject to inspections by the U.S. FDA and state agencies acting under contract with the U.S. FDA to confirm compliance with good manufacturing practice. These regulations require that we manufacture our products and maintain documents in a prescribed manner with respect to manufacturing, testing, quality assurance and quality control activities. The U.S. FDA also has promulgated final regulatory changes to these regulations that require, among other things, design controls and maintenance of service records. These changes will increase the cost of complying with good manufacturing practice requirements.

Distributors of medical devices may also be required to comply with other foreign regulatory agencies, and we or our distributors currently have marketing approval for LuViva from Health Canada, COFEPRIS in Mexico, the Ministry of Health in Kenya, and the Singapore Health Sciences Authority. The time required to obtain these foreign approvals to market our products may be longer or shorter than that required in China or the United States, and requirements for those approvals may differ from those required by the CFDA or the U.S. FDA.
We are also subject to a variety of other controls that affect our business. Labeling and promotional activities are subject to scrutiny by the U.S. FDA and, in some instances, by the U.S. Federal Trade Commission. The U.S. FDA actively enforces regulations prohibiting marketing of products for unapproved users. We are also subject, as are our products, to a variety of state and local laws and regulations in those states and localities where our products are or will be marketed. Any applicable state or local regulations may hinder our ability to market our products in those regions. Manufacturers are also subject to numerous federal, state and local laws relating to matters such as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may be required to incur significant costs to comply with these laws and regulations now or in the future. These laws or regulations may have a material adverse effect on our ability to do business.

International sales of

Although our products are subject tomarketing and distribution partners around the world assist in the regulatory requirements of each country in whichapproval process, ultimately, we market our products. The regulatory review process varies from country to country. The European Union has promulgated rules that require medical products to affix the CE mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical directives. The appropriate ISO certification is one of the CE mark requirements. We maintain ISO 13485:2003 certification, which has allowed us to issue a CE mark for our non-invasive cervical cancer detection device once development is complete and sell the device in the European Union and other markets. Losing the right to affix the CE mark to our cervical cancer detection device or any future products could have a material adverse effect on our business, financial condition and results of operations.

We willare be responsible for obtaining and maintaining regulatory approvals for our products. The inability or failure to comply with the varying regulations or the imposition of new regulations would materially adversely affect our business, financial condition and results of operations.

Employees and Consultants

As of December 31, 2014,2017, we had thirty-threenine regular employees and consulting or other contract arrangements with five additional personsone consultant to provide services to us on a full- or part-time basis. Of the thirty-eight peopleten-people employed or engaged by us, twelve2 are engaged in researchengineering, manufacturing and development, activities, seven4 are engaged in sales and marketing activities, one1 is engaged in clinical testing and regulatory affairs, ten are engaged in manufacturing and development, and eight3 are engaged in administration and accounting. No employees are covered by collective bargaining agreements, and we believe we maintain good relations with our employees.


Our ability to operate successfully and manage our potential future growth depends in significant part upon the continued service of key scientific, technical, managerial and finance personnel, and our ability to attract and retain additional highly qualified personnel in these fields. Two of these key employees have an employment contract with us; none are covered by key person or similar insurance. In addition, if we are able to successfully develop and commercialize our products, we likely will need to hire additional scientific, technical, marketing, managerial and finance personnel. We face intense competition for qualified personnel in these areas, many of whom are often subject to competing employment offers. The loss of key personnel or our inability to hire and retain additional qualified personnel in the future could have a material adverse effect on our business, financial condition and results of operations.

Corporate History
We are a Delaware corporation, originally incorporated in 1992 under the name “SpectRx, Inc.,” and, on February 22, 2008, changed our name to Guided Therapeutics, Inc. At the same time, we renamed our wholly owned subsidiary, InterScan, which originally had been incorporated as “Guided Therapeutics.”
Our principal executive and operations facility is located at 5835 Peachtree Corners East, Suite B, Norcross, Georgia 30092, and our telephone number is (770) 242-8723.

Item 1A. Risk Factors

In addition to the other information in this annual report on Form 10-K, the following risk factors should be considered carefully in evaluating us.

Risks Related to Our Business
Although we will be required to raise additional funds during the second quarter of 2015,in 2018, there is no assurance that such funds can be raised on terms that we would find acceptable, on a timely basis, or at all.

Additional debt or equity financing will be required for us to continue as a going concern. We may seek to obtain additional funds for the financing of our cervical cancer detection business through additional debt or equity financings and/or new collaborative arrangements. Management believes that additional financing, if obtainable, will be sufficient to support planned operations only for a limited period. Management has implemented operating actions to reduce cash requirements. Any required additional funding may not be available on terms attractive to us, on a timely basis, or at all.

If we cannot obtain additional funds or achieve profitability, we may not be able to continue as a going concern.

Because we must obtain additional funds through further financing transactions or through new collaborative arrangements in order to grow the revenues of our cervical cancer detection product line, there exists substantial doubt about our ability to continue as a going concern. Therefore, it will be necessary to raise additional funds. There can be no assurance that we will be able to raise these additional funds. If we do not secure additional funding when needed, we will be unable to conduct all of our product development efforts as planned, which may cause us to alter our business plan in relation to the development of our products. Even if we obtain additional funding, we will need to achieve profitability thereafter.

Our independent registered public accountants’ report on our consolidated financial statements as of and for the year ended December 31, 2014,2017, indicated that there was substantial doubt about our ability to continue as a going concern because we had suffered recurring losses from operations and had an accumulated deficit of $113.1$138.1 million at December 31, 2014,2017 summarized as follows:

Accumulated deficit, from inception to 12/31/2012$ 92.1 million
2015 $122.6 million
Preferred dividends $ 1.0 million
Net Loss for fiscal year 2013,2016, ended 12/31/2013$ 7.2 million
2016 $ 4.0 million
Deemed dividends for fiscal year 2013, ended 12/31/2013$ 3.7 million
Accumulated deficit, from inception to 12/31/2013$103.0 million
2016 $127.6 million
Preferred dividends$ 0.2 million
Net Loss for fiscal year 2014,to date ended 12/31/2014$ 9.9 million
2017 $ 10.2 million
Accumulated deficit, from inception to 12/31/2014$113.1 million
2017 $138.1 million

Our management has implemented reductions in operating expenditures and reductions in some development activities. We have determined to make cervical cancer detection the focus of our business. We are managing the development of our other programs only when funds are made available to us via grants or contracts with government entities or strategic partners. However, there can be no assurance that we will be able to successfully implement or continue these plans.

If we cannot obtain additional funds when needed, we will not be able to implement our business plan.

We will require substantial additional capital to develop our products, including completing product testing and clinical trials, obtaining all required regulatory approvals and clearances, beginning and scaling up manufacturing, and marketing our products. We have historically financed our operations though the public and private sale of preferred stockdebt and debt securities, public and private sales of common stock,equity, funding from collaborative arrangements, and grants. We believe funds on hand as of date of this report, along with funds from government contracts and grants; will be sufficient to support planned operations through the first quarter of 2015. Any failure to achieve adequate funding in a timely fashion would delay our development programs and could lead to abandonment of one or more of our development initiatives.business plan. To the extent we cannot obtain additional funding, our ability to continue to manufacture and sell our current products, or develop and introduce new products to market, will be limited. Further, financing our operations through the public or private sale of debt or equity may involve restrictive covenants or other provisions that could limit how we conduct our business or finance our operations. Financing our operations through collaborative arrangements generally means that the obligations of the collaborative partner to fund our expenditures are largely discretionary and depend on a number of factors, including our ability to meet specified milestones in the development and testing of the relevant product. We may not be able to obtain an acceptable collaboration partner, and even if we do, we may not be able to meet these milestones, or the collaborative partner may not continue to fund our expenditures.


We do not have a long operating history, especially in the cancer detection field, which makes it difficult to evaluate our business.

Although we have been in existence since 1992, we have only recently begun the process of commercializingto commercialize our cervical cancer detection technology. Because limited historical information is available on our revenue trends and operations for our cancer detection programsmanufacturing costs, it is difficult to evaluate our business. Our prospects must be considered in light of the substantial risks, expenses, uncertainties and difficulties encountered by entrants into the medical device industry, which is characterized by increasing intense competition and a high failure rate.

We have a history of losses, and we expect losses to continue.

We have never been profitable and we have had operating losses since our inception. We expect our operating losses to continue as we continue to expend substantial resources to complete developmentcommercialization of our products, obtain regulatory clearances or approvals,approvals; build our marketing, sales, manufacturing and finance organizations,capabilities, and conduct further research and development. The further development and commercialization of our products will require substantial development, regulatory, sales and marketing, manufacturing and other expenditures. We have only generated limited revenues from product sales. Our accumulated deficit was approximately $113.1$138.5 million at December 31, 2014.

2017.

We are currently delinquent with our federal and applicable state tax returns filings. Some of the federal income tax returns are currently under examination by the U.S. Internal Revenue Service (“IRS”). Therefore, we may incur additional taxes and costs. At this time, we are not yet able to determine whether or not such additional taxes or costs would have a material adverse effect on the company or our net operating losses, as discussed below.
Although we have been experiencing recurring losses, we are obligated to file tax returns for compliance with IRS regulations and that of applicable state jurisdictions. At December 31, 2017 and 2016, we have approximately $82.9 and $84.4 million of net operating losses, respectively. This net operating loss will be eligible to be carried forward for tax purposes at federal and applicable states level, but the use of such net operating losses may be subject to restrictions under applicable tax law. A full valuation allowance has been recorded related to the deferred tax assets generated from the net operating losses.
Our ability to sell our products is controlled by government regulations, and we may not be able to obtain any necessary clearances or approvals.

The design, manufacturing, labeling, distribution and marketing of medical device products are subject to extensive and rigorous government regulation in most of the markets in which we sell, or plan to sell, our products, which can be expensive and uncertain and can cause lengthy delays before we can begin selling our products.

In the United States, the FDA’s actions could delay or prevent our ability to sell our products, which would adversely affect our growth and strategy plans.

In order for us to market our products in the United States, we must obtain clearance or approval from the FDA. We cannot be sure that:

we, or any collaborative partner, will make timely filings with the FDA;those markets.
the FDA will act favorably or quickly on these submissions;
we will not be required to submit additional information or perform additional clinical studies; or
other significant difficulties and costs will not be encountered to obtain FDA clearance or approval.

It can take several years from initial filing of a PMA application and require the submission of extensive supporting data and clinical information. The FDA may impose strict labeling or other requirements as a condition of its clearance or approval, any of which could limit our ability to market our products. Further, if we wish to modify a product after FDA approval of a PMA application, including changes in indications or other modifications that could affect safety and efficacy, additional clearances or approvals will be required from the FDA. Any request by the FDA for additional data, or any requirement by the FDA that we conduct additional clinical studies, could result in a significant delay in bringing our products to market and substantial additional research and other expenditures. Similarly, any labeling or other conditions or restrictions imposed by the FDA could hinder our ability to effectively market our products. Any of the above actions by the FDA could delay or prevent altogether our ability to market and distribute our products. Further, there may be new FDA policies or changes in FDA policies that could be adverse to us.

In foreign countries, including European countries, we are also subject to government regulation, which could delay or prevent our ability to sell our products in those jurisdictions.

In order for us to market our products in Europe and some other international jurisdictions, we and our distributors and agents must obtain required regulatory registrations or approvals. We must also comply with extensive regulations regarding safety, efficacy and quality in those jurisdictions. We may not be able to obtain the required regulatory registrations or approvals, or we may be required to incur significant costs in obtaining or maintaining any regulatory registrations or approvals we receive. Delays in obtaining any registrations or approvals required for marketing our products, failure to receive these registrations or approvals, or future loss of previously obtained registrations or approvals would limit our ability to sell our products internationally. For example, international regulatory bodies have adopted various regulations governing product standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. These regulations vary from country to country. In order to sell our products in Europe, in 2018 we must maintainundergo an inspection and re-file for ISO 13485:2003 certification and the CE mark certification,Mark, which is an international symbol of quality and compliance with applicable European medical device directives. Failure to maintain ISO 13485:2003 certification or CE mark certification or other international regulatory approvals would prevent us from selling in some countries in the European Union.

In the United States, we are subject to regulation by the U.S. FDA, which could prevent us from selling our products domestically.
In order for us to market our products in the United States, we must obtain clearance or approval from the U.S. Food and Drug Administration, or U.S. FDA. We cannot be sure that:
● 
we, or any collaborative partner, will make timely filings with the U.S. FDA;
● 
the U.S. FDA will act favorably or quickly on these submissions;
● 
we will not be required to submit additional information or perform additional clinical studies; or
● 
we will not face other significant difficulties and costs necessary to obtain U.S. FDA clearance or approval.

It can take several years from initial filing of a PMA application and require the submission of extensive supporting data and clinical information. The U.S. FDA may impose strict labeling or other requirements as a condition of its clearance or approval, any of which could limit our ability to market our products domestically. Further, if we wish to modify a product after U.S. FDA approval of a PMA application, including changes in indications or other modifications that could affect safety and efficacy, additional clearances or approvals will be required from the U.S. FDA. Any request by the U.S. FDA for additional data, or any requirement by the U.S. FDA that we conduct additional clinical studies, could result in a significant delay in bringing our products to market domestically and require substantial additional research and other expenditures. Similarly, any labeling or other conditions or restrictions imposed by the U.S. FDA could hinder our ability to effectively market our products domestically. Further, there may be new U.S. FDA policies or changes in U.S. FDA policies that could be adverse to us.
Even if we obtain clearance or approval to sell our products, we are subject to ongoing requirements and inspections that could lead to the restriction, suspension or revocation of our clearance.

We, as well as any potential collaborative partners, will be required to adhere to applicable FDA regulations in the markets in which we operate and sell our products, regarding good manufacturing practice, which include testing, control, and documentation requirements. We are subject to similar regulations in foreign countries. Ongoing compliance with good manufacturing practice and other applicable regulatory requirements will be strictly enforced in the United States through periodic inspections by state and federal agencies, including the FDA, and in international jurisdictions by comparableapplicable regulatory agencies. Failure to comply with these regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure to obtain premarket clearance or premarket approval for devices, withdrawal of approvals previously obtained, and criminal prosecution. The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory requirements would limit our ability to operate and could increase our costs.

We depend on a limited number of distributors and any reduction, delay or cancellation of an order from these distributors or the loss of any of these distributors could cause our revenue to decline.
Each year we have had one or a few distributors that have accounted for substantially all of our limited revenues. As a result, the termination of a purchase order with any one of these distributors may result in the loss of substantially all of our revenues. We are constantly working to develop new relationships with existing or new distributors, but despite these efforts we may not be successful at generating new orders to maintain similar revenues as current purchase orders are filled. In addition, since a significant portion of our revenues is derived from a relatively few distributors, any financial difficulties experienced by any one of these distributors, or any delay in receiving payments from any one of these distributors, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
To successfully market and sell our products internationally, we must address many issues with which we have limited experience.
All of our sales of LuViva to date have been to distributors outside of the United States. We expect that substantially all of our business will continue to come from sales in foreign markets, through increased penetration in countries where we currently sell LuViva, combined with expansion into new international markets. However, international sales are subject to a number of risks, including:
difficulties in staffing and managing international operations;
difficulties in penetrating markets in which our competitors’ products may be more established;
reduced or no protection for intellectual property rights in some countries;
export restrictions, trade regulations and foreign tax laws;
fluctuating foreign currency exchange rates;
foreign certification and regulatory clearance or approval requirements;
difficulties in developing effective marketing campaigns for unfamiliar, foreign countries;
customs clearance and shipping delays;
political and economic instability; and
preference for locally produced products.
If one or more of these risks were realized, it could require us to dedicate significant resources to remedy the situation, and even if we are able to find a solution, our revenues may still decline.

To market and sell LuViva internationally, we depend on distributors and they may not be successful.
We currently depend almost exclusively on third-party distributors to sell and service LuViva internationally and to train our international distributors, and if these distributors terminate their relationships with us or under-perform, we may be unable to maintain or increase our level of international revenue. We will also need to engage additional international distributors to grow our business and expand the territories in which we sell LuViva. Distributors may not commit the necessary resources to market, sell and service LuViva to the level of our expectations. If current or future distributors do not perform adequately, or if we are unable to engage distributors in particular geographic areas, our revenue from international operations will be adversely affected
Our success largely depends on our ability to maintain and protect the proprietary information on which we base our products.

Our success depends in large part upon our ability to maintain and protect the proprietary nature of our technology through the patent process, as well as our ability to license from others patents and patent applications necessary to develop our products. If any of our patents are successfully challenged, invalidated or circumvented, or our right or ability to manufacture our products was to be limited, our ability to continue to manufacture and market our products could be adversely affected. In addition to patents, we rely on trade secrets and proprietary know-how, which we seek to protect, in part, through confidentiality and proprietary information agreements. The other parties to these agreements may breach these provisions, and we may not have adequate remedies for any breach. Additionally, our trade secrets could otherwise become known to or be independently developed by competitors.

As of December 31, 2014,2017, we have been issued, or have rights to, 2224 U.S. patents (including those under license). In addition, we have filed for, or have rights to, 6six U.S. patents (including those under license) that are still pending. There are additional international patents and pending applications. One or more of the patents we hold directly or license from third parties, including those for our cervical cancer detection products, may be successfully challenged, invalidated or circumvented, or we may otherwise be unable to rely on these patents. These risks are also present for the process we use or will use for manufacturing our products. In addition, our competitors, many of whom have substantial resources and have made substantial investments in competing technologies, may apply for and obtain patents that prevent, limit or interfere with our ability to make, use and sell our products, either in the United States or in international markets.

The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights. In addition, the U.S. Patent and Trademark Office, or USPTO, may institute interference proceedings. The defense and prosecution of intellectual property suits, USPTO proceedings and related legal and administrative proceedings are both costly and time consuming. Moreover, we may need to litigate to enforce our patents, to protect our trade secrets or know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings involving us may require us to incur substantial legal and other fees and expenses and may require some of our employees to devote all or a substantial portion of their time to the proceedings. An adverse determination in the proceedings could subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from selling our products in some or all markets. We may not be able to reach a satisfactory settlement of any dispute by licensing necessary patents or other intellectual property. Even if we reached a settlement, the settlement process may be expensive and time consuming, and the terms of the settlement may require us to pay substantial royalties. An adverse determination in a judicial or administrative proceeding or the failure to obtain a necessary license could prevent us from manufacturing and selling our products.

We may not be able to generate sufficient sales revenues to sustain our growth and strategy plans.

Our cervical cancer diagnostic activities have been financed to date through a combination of government grants, strategic partners and direct investment. Growing revenues for this product is the main focus of our business. In order to effectively market the cervical cancer detection product, additional capital will be needed. We need to complete the FDA filing process for our cervical cancer diagnostic product and obtain capital investment for a U.S. launch.

Additional product lines involve the modification of the cervical cancer detection technology for use in other cancers. These product lines are only in the earliest stages of research and development and are currently not projected to reach market for several years. Our goal is to receive enough funding from government grants and contracts, as well as payments from strategic partners, to fund development of these product lines without diverting funds or other necessary resources from the cervical cancer program.

Because our products, which use different technology or apply technology in different ways than other medical devices, are or will be new to the market, we may not be successful in launching our products and our operations and growth would be adversely affected.

Our products are based on new methods of cancer detection. If our products do not achieve significant market acceptance, our sales will be limited and our financial condition may suffer. Physicians and individuals may not recommend or use our products unless they determine that these products are an attractive alternative to current tests that have a long history of safe and effective use. To date, our products have been used by only a limited number of people, and few independent studies regarding our products have been published. The lack of independent studies limits the ability of doctors or consumers to compare our products to conventional products.


If we are unable to compete effectively in the highly competitive medical device industry, our future growth and operating results will suffer.

The medical device industry in general and the markets in which we expect to offer products in particular, are intensely competitive. Many of our competitors have substantially greater financial, research, technical, manufacturing, marketing and distribution resources than we do and have greater name recognition and lengthier operating histories in the health care industry. We may not be able to effectively compete against these and other competitors. A number of competitors are currently marketing traditional laboratory-based tests for cervical cancer screening and diagnosis. These tests are widely accepted in the health care industry and have a long history of accurate and effective use. Further, if our products are not available at competitive prices, health care administrators who are subject to increasing pressures to reduce costs may not elect to purchase them. Also, a number of companies have announced that they are developing, or have introduced, products that permit non-invasive and less invasive cancer detection. Accordingly, competition in this area is expected to increase.

Furthermore, our competitors may succeed in developing, either before or after the development and commercialization of our products, devices and technologies that permit more efficient, less expensive non-invasive and less invasive cancer detection. It is also possible that one or more pharmaceutical or other health care companies will develop therapeutic drugs, treatments or other products that will substantially reduce the prevalence of cancers or otherwise render our products obsolete.

We have littlelimited manufacturing experience, which could limit our growth.

We do not have manufacturing experience that would enable us to make products in the volumes that would be necessary for us to achieve significant commercial sales, and we rely upon our suppliers. In addition, we may not be able to establish and maintain reliable, efficient, full scale manufacturing at commercially reasonable costs in a timely fashion. Difficulties we encounter in manufacturing scale-up, or our failure to implement and maintain our manufacturing facilities in accordance with good manufacturing practice regulations, international quality standards or other regulatory requirements, could result in a delay or termination of production. To date, our manufacturing activities have included since-discontinued products. In addition, we are only at the initial phase of manufacturing the LuViva device. In the past, we have had substantial difficulties in establishing and maintaining manufacturing for theseour products and those difficulties impacted our ability to increase sales. Companies often encounter difficulties in scaling up production, including problems involving production yield, quality control and assurance, and shortages of qualified personnel.

Since we rely on sole source suppliers for several of the components used in our products, any failure of those suppliers to perform would hurt our operations.

Several of the components used in our products or planned products, are available from only one supplier, and substitutes for these components could not be obtained easily or would require substantial modifications to our products. Any significant problem experienced by one of our sole source suppliers may result in a delay or interruption in the supply of components to us until that supplier cures the problem or an alternative source of the component is located and qualified. Any delay or interruption would likely lead to a delay or interruption in our manufacturing operations. For our products that require premarket approval, the inclusion of substitute components could require us to qualify the new supplier with the appropriate government regulatory authorities. Alternatively, for our products that qualify for premarket notification, the substitute components must meet our product specifications.

Because we operate in an industry with significant product liability risk, and we have not specifically insured against this risk, we may be subject to substantial claims against our products.

The development, manufacture and sale of medical products entail significant risks of product liability claims. We currently have no product liability insurance coverage beyond that provided by our general liability insurance. Accordingly, we may not be adequately protected from any liabilities, including any adverse judgments or settlements, we might incur in connection with the development, clinical testing, manufacture and sale of our products. A successful product liability claim or series of claims brought against us that result in an adverse judgment against or settlement by us in excess of any insurance coverage could seriously harm our financial condition or reputation. In addition, product liability insurance is expensive and may not be available to us on acceptable terms, if at all.


The availability of third party reimbursement for our products is uncertain, which may limit consumer use and the market for our products.

In the United States and elsewhere, sales of medical products are dependent, in part, on the ability of consumers of these products to obtain reimbursement for all or a portion of their cost from third-party payors, such as government and private insurance plans. Any inability of patients, hospitals, physicians and other users of our products to obtain sufficient reimbursement from third-party payors for our products, or adverse changes in relevant governmental policies or the policies of private third-party payors regarding reimbursement for these products, could limit our ability to sell our products on a competitive basis. We are unable to predict what changes will be made in the reimbursement methods used by third-party health care payors. Moreover, third-party payors are increasingly challenging the prices charged for medical products and services, and some health care providers are gradually adopting a managed care system in which the providers contract to provide comprehensive health care services for a fixed cost per person. Patients, hospitals and physicians may not be able to justify the use of our products by the attendant cost savings and clinical benefits that we believe will be derived from the use of our products, and therefore may not be able to obtain third-party reimbursement.

Reimbursement and health care payment systems in international markets vary significantly by country and include both government-sponsored health care and private insurance. We may not be able to obtain approvals for reimbursement from these international third-party payors in a timely manner, if at all. Any failure to receive international reimbursement approvals could have an adverse effect on market acceptance of our products in the international markets in which approvals are sought.

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business.
Our outstanding indebtedness, which is considered ordinary course payables and accrued payroll liabilities, was $5.3 million at December 31, 2017.
The loan with Tonaquintterms of our indebtedness could have negative consequences to us, such as:
● 
we may be unable to obtain additional financing to fund working capital, operating losses, capital expenditures or acquisitions on terms acceptable to us, or at all;
● 
the amount of our interest expense may increase if we are unable to make payments when due;
● 
our assets might be subject to foreclosure if we default on our secured debt (see “—We have outstanding debt that is collateralized by a general security interest in all of our current and future inventory and accounts receivable.assets, including our intellectual property. If we were to default underfail to repay the terms ofdebt when due, the loan, Tonaquintholders would have the right to foreclose on these assets.

On September 10, 2014 ”);

● 
our vendors or employees may, and some have, instituted proceedings to collect on amounts owed them;
● 
we entered intohave to use a loan with Tonaquint, Inc. (“Tonaquint”),substantial portion of our cash flows from operations to support generalrepay our indebtedness, including ordinary course accounts payable and accrued payroll liabilities, which reduces the amount of money we have for future operations, working capital, inventory, expansion, or general corporate or other business activities; and
● 
we may be unable to refinance our indebtedness on terms acceptable to us, or at all.
Our ability to meet our expenses and operations. As collateraldebt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. We will be unable to securecontrol many of these factors, such as economic conditions. We cannot be certain that our obligations underearnings will be sufficient to allow us to pay the loan,principal and interest on our debt and meet any other obligations. If we do not have granted Tonaquintenough money to service our debt, we may be required, but unable, to refinance all or part of our existing debt, sell assets, borrow money or raise equity on terms acceptable to us, if at all.
We have outstanding debt that is collateralized by a general security interest in all of our assets, including our intellectual property. If we were to fail to repay the debt when due, the holders would have the right to foreclose on these assets.
At April 8, 2018, we had notes outstanding that are collateralized by a security interest in our current and future inventory and accounts receivable. We also had a note outstanding that is collateralized by a security interest in all of our assets, including our intellectual property. When the loandebt is repaid, the lender’sholders’ security interestinterests on our current and future inventory and accounts receivableassets will be extinguished. IfHowever, if an event of default occurs under the loan and security agreementsnotes prior to ourtheir repayment, of the loan, the lenderholders may exercise its righttheir rights to foreclose on these secured assets for the payment of these obligations. Under “cross-default” provisions in each of the notes, an event of default under one note is automatically an event of default under the other notes. Any such default and resulting foreclosure couldwould have a material adverse effect on our business, financial condition and results of operations.


We are subject to restrictive covenants under the terms of our outstanding secured debt. If we were to default under the terms of these covenants, the holders would have the right to foreclose on the assets that secure the debt.
The instruments governing our outstanding secured debt contain restrictive covenants. For example, our senior secured convertible note prohibits us from incurring additional indebtedness for borrowed money, repurchasing any outstanding shares of our common stock, or paying any dividends on our capital stock, in each case without the note holder's prior written consent, If we were to breach any of these covenants, the holder could declare an event of default on the note, and exercise its rights to foreclose on the assets securing the note.
Our success depends on our ability to attract and retain scientific, technical, managerial and finance personnel.

Our ability to operate successfully and manage our future growth depends in significant part upon the continued service of key scientific, technical, managerial and finance personnel, as well as our ability to attract and retain additional highly qualified personnel in these fields. We may not be able to attract and retain key employees when necessary, which would limit our operations and growth. Only our Chief Executive Officer and our Senior Vice President of Engineering have employment contracts with us, and none of our employees are covered by key person or similar insurance. In addition, if we are able to successfully develop and commercialize our products, we will need to hire additional scientific, technical, marketing, managerial and finance personnel. We face intense competition for qualified personnel in these areas, many of whom are often subject to competing employment offers.

We are significantly influenced by our directors, executive officers and their affiliated entities.

Our directors, executive officers and entities affiliated with them beneficially owned an aggregatecontrolled approximately 2% of about 18.1%,the voting power of our outstanding common stock as of December 31, 2014.April 8, 2018.
Certain provisions of our certificate of incorporation that authorize the issuance of additional shares of preferred stock may make it more difficult for a third party to effect a change in control.
Our certificate of incorporation authorizes our board of directors to issue up to 5.0 million shares of preferred stock. Our undesignated shares of preferred stock may be issued in one or more series, the terms of which may be determined by the board without further stockholder action. These stockholders, acting together, wouldterms may include, among other terms, voting rights, including the right to vote as a series on particular matters, preferences as to liquidation and dividends, repurchase rights, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of our common stock. In addition, specific rights granted to future holders of preferred stock could be ableused to exert significant influence on substantially all matters requiring approval byrestrict our ability to merge with or sell assets to a third party. The ability of our board to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.
Risks Related to Our Common Stock
On November 7, 2016, a 1:800 reverse stock split of all of our issued and outstanding common stock was implemented. There are risks associated with a reverse stock split.
On November 7, 2016, a 1:800 reverse stock split of all of our issued and outstanding common stock was implemented. As a result of the reverse stock split, every 800 shares of issued and outstanding common stock were converted into 1 share of common stock. All fractional shares created by the reverse stock split were rounded to the nearest whole share. The number of authorized shares of common stock did not change.
There are certain risks associated with the reverse stock split, including the electionfollowing:
● 
We have additional authorized shares of directorscommon stock that the board could issue in future without stockholder approval, and such additional shares could be issued, among other purposes, in financing transactions or to resist or frustrate a third-party transaction that is favored by a majority of the independent stockholders. This could have an anti-takeover effect, in that additional shares could be issued, within the limits imposed by applicable law, in one or more transactions that could make a change in control or takeover of us more difficult.
● 
There can be no assurance that the reverse stock split will achieve the benefits that we hope it will achieve. The total market capitalization of our common stock after the reverse stock split may be lower than the total market capitalization before the reverse stock split.

The reverse stock split may decrease the liquidity of the shares of our common stock.
The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that were outstanding immediately following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may have increased the number of stockholders who own odd lots of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.
Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.
The number of shares of our common stock issuable upon the conversion of our outstanding convertible debt and preferred stock or exercise of outstanding warrants and options is substantial.
As of April 8, 2018, our outstanding convertible debt was convertible into an aggregate of 521,494,858 shares of our common stock, and the approvaloutstanding shares of mergersour Series C and other business combination transactions.

Series C1 preferred stock were convertible into an aggregate of 310,719,909 shares of common stock. Also, as of that date we had warrants outstanding that were exercisable for an aggregate of 294,090,053 shares, contractual obligations to issue 2,132 shares, and outstanding options to purchase 116 shares. The shares of common stock issuable upon conversion or exercise of these securities would have constituted approximately 96.0% of the total number of shares of common stock then issued and outstanding. However, please refer to Footnote 11 - CONVERTIBLE DEBT IN DEFAULT in the paragraph: Debt Restructuring for more information regarding our warrants.

Further, under the terms of our convertible debt and preferred stock, as well as certain of our outstanding warrants, the conversion price or exercise price, as the case may be, could be adjusted downward, causing substantial dilution. See “—Adjustments to the conversion price for our convertible debt and preferred stock, and the exercise price for certain of our warrants, will dilute the ownership interests of our existing stockholders.”
Adjustments to the conversion price of our convertible debt and preferred stock, and the exercise price for certain of our warrants, will dilute the ownership interests of our existing stockholders.
Under the terms of a portion of our convertible debt, the conversion price fluctuates with the market price of our common stock. Additionally, under the terms of our Series C preferred stock, any dividends we choose to pay in shares of our common stock will be calculated based on the then-current market price of our common stock. Accordingly, if the market price of our common stock decreases, the number of shares of our common stock issuable upon conversion of the convertible debt or upon payment of dividends on our outstanding Series C preferred stock will increase, and may result in the issuance of a significant number of additional shares of our common stock.
Under the terms of our preferred stock and certain of our convertible notes and outstanding warrants, the conversion price or exercise price will be lowered if we issue common stock at a per share price below the then-conversion price or then-exercise price for those securities. Reductions in the conversion price or exercise price would result in the issuance of a significant number of additional shares of our common stock upon conversion or exercise, which would result in dilution in the value of the shares of our outstanding common stock and the voting power represented thereby.
Our stock is thinly traded, so you may be unable to sell at or near ask prices or at all.

The shares of our common stock are dually listedquoted on the OTCBB and the OTCQB. Shares of our common stock are thinly traded, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including:

● 
we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume; and
● 
stock analysts, stock brokers and institutional investors may be risk-averse and be reluctant to follow a company such as ours that faces substantial doubt about its ability to continue as a going concern or to purchase or recommend the purchase of our shares until such time as we became more viable.


As a consequence, our stock price may not reflect an actual or perceived value. Also, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broader or more active public trading market for our common shares may not develop or if developed, may not be sustained. Due to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money or otherwise desire to liquidate your shares.

Trading in our common stock is subject to special sales practices and may be difficult to sell.

Our common stock is subject to the Securities and Exchange Commission’s “penny stock” rule, which imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customersdistributors or accredited investors. Penny stocks are generally defined to be an equity security that has a market price of less than $5.00 per share. For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of our stockholders to sell their securities in any market that might develop.

Stockholders should be aware that, according to Securities and Exchange Commission, Release No. 34-29093, the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:

● 
control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
● 
manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
● 
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons;
● 
excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
● 
the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.

Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our common stock.

Substantial future sales of shares of our common stock in the public market could cause our stock price to fall.

If our stockholders (including those persons who may become stockholders upon exercise of our warrants) sell substantial amounts of our common stock, or the public market perceives that stockholders might sell substantial amounts of our common stock, the market price of our common stock could decline significantly. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that our management deems appropriate.

Our need to raise additional capital in the near future or to use our equity securities for payments could have a dilutive effect on your investment.

In order to continue operations, we will need to raise additional capital. We may attempt to raise capital through the public or private sale of our common stock or securities convertible into or exercisable for our common stock. In addition, from time to time we have issued our common stock or warrants in lieu of cash payments. If we sell additional shares of our common stock or other equity securities, or issue such securities in respect of other claims or indebtedness, such sales or issuances will further dilute the percentage of our equity that you own. Depending upon the price per share of securities that we sell or issue in the future, if any, your interest in us could be further diluted by any adjustments to the number of shares and the applicable exercise price required pursuant to the terms of the agreements under which we previously issued convertible securities.

The number of shares of our common stock issuable upon the conversion of our outstanding convertible notes and Series B convertible preferred stock or exercise of outstanding warrants and options is substantial.

As of March 15, 2015, the outstanding convertible notes, including up to $150,000 in outstanding principal of the Tonaquint note, recently extended, were convertible into an aggregate of 7,676,902 shares of our common stock and the outstanding shares of our Series B convertible preferred stock were convertible into an aggregate of 8,524,700 shares of our common stock. In addition, as of that date we had warrants outstanding and issuable those are exercisable for an aggregate of 26,205,632 shares and outstanding options for 6,940,395 shares. Together, the shares of common stock issuable upon conversion or exercise of these securities constitute approximately 50.8% of the total number of shares of common stock then issued and outstanding. Further, under the terms of our convertible notes and Series B convertible preferred stock, as well as certain of our outstanding warrants, the conversion price or exercise price, as the case may be, could be adjusted downward, causing substantial dilution. See “—Adjustments to the conversion price for our convertible notes or our Series B convertible preferred stock, and the exercise price for certain of our warrants, will dilute the ownership interests of our existing stockholders.”

Substantial future sales of shares of our common stock in the public market could cause our stock price to fall.

If our common stockholders (including those persons who may become common stockholders upon conversion of our Series B Preferred Stock or convertible notes, or exercise of our warrants) sell substantial amounts of our common stock, or the public market perceives that stockholders might sell substantial amounts of our common stock, the market price of our common stock could decline significantly. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that our management deems appropriate.

In addition, our Series B Preferred Stock and certain of our outstanding warrants contain anti-dilution provisions that may, under certain circumstances, reduce the conversion or exercise price or increase the number of shares issuable, or both.

Adjustments to the conversion price for our convertible notes or our Series B Preferred Stock, and the exercise price for certain of our warrants will dilute the ownership interests of our existing stockholders.

Under the terms of our convertible notes, the conversion price fluctuates with the market price of our common stock. Accordingly, if the market price of our common stock decreases, the number of shares of our common stock issuable upon conversion of the convertible notes will increase, and may result in the issuance of a significant number of additional shares of our common stock upon conversion.

Under the terms of our Series B convertible preferred stock and certain warrants issued with the Series B convertible preferred stock, subject to certain exceptions, the conversion price for the Series B convertible preferred stock and the exercise price for the warrants will be lowered if we issue common stock at a per share price below the then conversion price for the Series B convertible preferred stock or the then exercise price for the warrants, respectively. Reductions in the conversion price for the Series B convertible preferred stock and the exercise price for the warrants may result in the issuance of a significant number of additional shares of our common stock upon conversion or exercise of these securities, which could result in dilution in the value of the shares of our outstanding common stock and the voting power represented thereby.

Due to the issuance of shares of common stock upon conversion of our convertible notes through March 15, 2015, the conversion price of the Series B convertible preferred stock has been lowered from $0.68 per share to $0.15 per share, such that, as of such date, each share was convertible into 6,676 shares of common stock, and one tranche of the warrants, previously exercisable for 1,858,089 shares of common stock at $1.08 per share, was exercisable for 13,196,019 shares at $0.15 per share.


FORWARD LOOKING STATEMENTS

Statements in this report, which express “belief,” “anticipation” or “expectation,” as well as other statements that are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Exchange Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those identified in the foregoing “Risk Factors” and elsewhere in this report. Examples of these uncertainties and risks include, but are not limited to:


access to sufficient debt or equity capital to meet our operating and financial needs;
• the effectiveness and ultimate market acceptance of our products;
• whether our products in development will prove safe, feasible and effective;

the effectiveness and ultimate market acceptance of our products;

whether our products in development will prove safe, feasible and effective;

whether and when we or any potential strategic partners will obtain approval fromrequired regulatory approvals in the FDAmarkets in which we plan to operate;

our need to achieve manufacturing scale-up in a timely manner, and corresponding foreign agencies;our need to provide for the efficient manufacturing of sufficient quantities of our products;
• our need to achieve manufacturing scale-up in a timely manner, and our need to provide for the efficient manufacturing of sufficient quantities of our products;

the lack of immediate alternate sources of supply for some critical components of our products;
• our patent and intellectual property position;
• the need to fully develop the marketing, distribution, customer service and technical support and other functions critical to the success of our product lines;

our patent and intellectual property position;

the need to fully develop the marketing, distribution, customer service and technical support and other functions critical to the success of our product lines;

the dependence on potential strategic partners or outside investors for funding, development assistance, clinical trials, distribution and marketing of some of our products; and

other risks and uncertainties described from time to time in our reports filed with the SEC.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

Item 1B. Unresolved Staff Comments

None.

Not applicable.

Item 2. Properties

Our corporate offices, which also comprise our administrative, research and development, marketing and production facilities, are located at 5835 Peachtree Corners East, Suite D,B, Norcross, Georgia 30092, where we lease approximately 23,00012,800 square feet under a lease that expires in June 2017.

March 2021.

Item 3. Legal Proceedings

We are subject to claims and legal actions that arise in the ordinary course of business. However, we are not currently subject to any claims or actions that we believe would have a material adverse effect on our financial position or results of operations.

Item 4. Mine Safety Disclosures

Not applicable.


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Market for Common Stock; Holders

Our common stock is dually listed on the OTC Bulletin Board (OTCBB) and the OTCQB quotation systems under the ticker symbol “GTHP.” The number of record holders of our common stock at March 16, 2015April 8, 2018 was 203.

210.

A 1:800 reverse stock split of all of our issued and outstanding common stock was implemented on November 7, 2016. As a result of the reverse stock split, every 800 shares of issued and outstanding common stock was converted into 1 share of common stock. All fractional shares created by the reverse stock split were rounded to the nearest whole share. The number of authorized shares of common stock did not change.
The high and low salescommon stock share prices for the second quarter of 2018 and calendar years 20142017 and 2013,2016, as reported by the OTCBB, are as follows:

  

2014

2013

 
  

High

Low

High

Low

 
 First Quarter$0.60$0.46$0.80$0.66 
 Second Quarter$0.60$0.40$0.94$0.68 
 Third Quarter$0.50$0.31$0.73$0.52 
 Fourth Quarter$0.34$0.21$0.68$0.46 

set forth in the following table. All share prices set forth in the table have been retroactively adjusted to reflect the reverse stock split (as discussed above) for all periods presented.

 
 
2018
 
 
2017
 
 
2016
 
 
 
  High
 
 
  Low
 
 High 
 Low 
 High 
 Low 
First Quarter
 $0.032 
 $0.006 
 $2.13 
 $0.31 
 $1,352.00 
 $85.60 
Second Quarter*
 $0.016 
 $0.0105 
 $0.40 
 $0.13 
 $140.00 
 $3.28 
Third Quarter
    
    
 $0.18 
 $0.03 
 $7.84 
 $0.80 
Fourth Quarter
    
    
 $0.055 
 $0.013 
 $1.35 
 $0.02 
*Through April 8, 2018.
Dividend Policy

We have not paid any dividends on our common stock since our inception and do not intend to pay any dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

All the securities we have provided our employees, directors and consultants have been issued under our stock option plans, which are approved by our stockholders. We have issued common stock to other individuals that are not employees or directors, in lieu of cash payments, that are not part of any plan approved by our stockholders.

Securities authorized for issuance under equity compensation plans as of December 31, 2014:

 

 

 

 

 

Plan category

 

 

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights 

 

 

 

Weighted-average

exercise price of

outstanding options, 

warrants and rights  

 

Number of securities

remaining available for future issuance under equity compensation plans (excluding securities reflected in column

(a))

  (a) (b) (c)
Equity compensation plans
approved by security
holders
  6,940,395  $0.66   6,314,824 
Equity compensation plans
not approved by security
holders
  —     —     —   
            TOTAL  6,940,395  $0.66   6,314,824 
2017:
Plan category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
 
Weighted-average exercise price of outstanding options, warrants and rights
 
 
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))
 
 
 
(a)
 
 
(b)
 
 
( c )
 
Equity compensation plans approved by security holders
  116 
 $37,090 
  - 
Equity compensation plans not approved by security holders
  - 
  - 
  - 
            TOTAL
  116 
 $37,090 
  - 

Item 6. Selected Financial Data

Not applicable.


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report.

Overview

We are a medical technology company focused on developing innovative medical devices that have the potential to improve healthcare. Our primary focus is the commercializationsales and marketing of our LuViva® Advanced Cervical Scan non-invasive cervical cancer detection device. OurThe underlying technology including products in research and development,of LuViva primarily relates to the use of biophotonics technology for the non-invasive detection of cancers.

LuViva is designed to identify cervical cancers and precancers painlessly, non-invasively and at the point of care by scanning the cervix with light, then analyzing the reflected and fluorescent light.

LuViva provides a less invasive and painless alternative to conventional tests for cervical cancer screening and detection. Additionally, LuViva improves patient well-being not only because it eliminates pain, but also because it is convenient to use and provides rapid results at the point of care. We focus on two primary applications for LuViva: first, as a cancer screening tool in the developing world, where infrastructure to support traditional cancer-screening methods is limited or non-existent, and second, as a triage following traditional screening in the developed world, where a high number of false positive results cause a high rate of unnecessary and ultimately costly follow-up tests.
We are a Delaware corporation, originally incorporated in 1992 under the name “SpectRx, Inc.,” and, on February 22, 2008, changed our name to Guided Therapeutics, Inc. At the same time, we renamed our wholly owned subsidiary, InterScan, which originally had been incorporated as “Guided Therapeutics.”

Since our inception, we have raised capital through the public and private sale of preferred stockdebt and debt securities, public and private sales of common stock,equity, funding from collaborative arrangements, and grants.

Our prospects must be considered in light of the substantial risks, expenses and difficulties encountered by entrants into the medical device industry. This industry is characterized by an increasing number of participants, intense competition and a high failure rate. We have experienced operating losses since our inception and, as of December 31, 2014,2017 we have an accumulated deficit of about $113.1approximately $138.5 million. To date, we have engaged primarily in research and development efforts and the early stages of marketing our products. We do not have significant experience in manufacturing, marketing or selling our products. We may not be successful in growing sales for our products. Moreover, required regulatory clearances or approvals may not be obtained in a timely manner, or at all. Our products may not ever gain market acceptance and we may not ever generate significant revenues or achieve profitability. The development and commercialization of our products requires substantial development, regulatory, sales and marketing, manufacturing and other expenditures. We expect our operating losses to continue through at leastfor the end of 2015foreseeable future as we continue to expend substantial resources to introduce LuViva,complete commercialization of our products, obtain regulatory clearances or approvals, build our marketing, sales, manufacturing and finance organizationscapabilities, and conduct further research and development.

Our product revenues to date have been limited. In 2013, the majority of our revenues were from grants from the NCI and NIH and revenue from the sale of LuViva devices. In 2014,2017, the majority of our revenues were from the sale of LuViva devices and disposables, as well as some revenue from grants from the NIH and licensing agreement fees received.disposables. We expect that the majority of our revenue in 20152018 will be derived from revenue from the sale of LuViva devices and disposables.

Recent Developments

On March 10, 2015, we amended the terms of

Current Demand for LuViva
Based on discussions with our loan with Tonaquint to extend the maturity until May 10, 2015. See “Liquidity and Capital Resources”

On March 16, 2015 and March 19, 2015, we entered into subscription agreements with certain accredited investors, pursuant to which we agreed to sell an aggregate of 4.0 million shares of our common stock and warrants to purchase an additional 2.0 million shares, for an aggregate purchase price of $720,000 in a private placement not involving a public offering under Section 4(a)(2) od the Securities Act. As of March 19, 2015, we had consummated $320,000 of the total transaction anddistributors, we expect to consummate the remaindergenerate purchase orders for approximately $2 million in LuViva devices and disposables in 2018, and expect those purchase orders to result in actual sales of $1.5 million in 2018, representing what we view as current demand for our products. We cannot be assured that we will generate all or any of these additional purchase orders, or that existing orders will not be canceled by the enddistributors or that parts to build product will be available to meet demand, such that existing orders will result in actual sales. Because we have a short history of sales of our products, we cannot confidently predict future sales of our products beyond this time frame, and cannot be assured of any particular amount of sales. Accordingly, we have not identified any particular trends with regard to sales of our products.

Recent Developments
On April 2, 2018 we signed a definitive, multiyear license agreement with its Turkish distribution partner ITEM Medical Technologies Group for the manufacture of patented single-patient-use Cervical Guides in Turkey. The production of Cervical Guides in Turkey exclusively for the Turkish market was recommended by the Turkish Ministry of Health to speed adoption of the technology in Turkey.

In return for the license and manufacturing rights for Cervical Guides in Turkey, the agreement calls for us to receive fees totaling $1,100,000 in 2018, with the first quarterpayment of 2015.$100,000 due by April 15. In addition, according to the contract, ITEM will pay us a royalty for each Cervical Guide made and sold exclusively in Turkey and ITEM will be obligated to purchase 540 LuViva Advanced Cervical Scans and produce 3,450,000 Cervical Guides for the Turkish market over the next twelve years. The warrants are immediately exercisable, have an exercise price per shareexpected minimum revenues for us over the twelve-year length of $0.255the contract will be approximately $19.4 million, roughly half of which will be product sales and expire three yearsthe other half royalty payments, according to the agreement.
We received Regulatory Approval from the dateIndian Ministry of issuance.

Health & Family Welfare to allow commercialization of the LuViva device and disposables. The Ministry concluded that the LuViva device is “Non Invasive” and as such is “not regulated under the Drugs and Cosmetics Act 1940 and Medical Device Rules 2017 thereunder.” As a result, LuViva can now be commercialized in India.

Critical Accounting Policies

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

Revenue Recognition:We recognize revenue from contracts on a straight linestraight-line basis, over the terms of the contract. We recognize revenue from grants based on the grant agreement, at the time the expenses are incurred. Revenue from the sale of the Company’s products is recognized upon shipment of such products to its customers. 

distributors.

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

Valuation of Equity Instruments Granted to Employee, Service Providers and Investors: On the date of issuance, the instruments are recorded at their fair value as determined using either the Black-Scholes valuation model or Monte Carlo Simulation model. See Note 43 to the consolidated financial statements accompanying this report for the assumptions used in the Black-Scholes valuation.

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

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

Reverse Stock Split: On November 7, 2016, the Company implemented a 1:800 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 800 shares of issued and outstanding common stock was 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 453,694,400 shares of Common Stock to 570,707 shares as of that date. See Note 4, Stockholders’ Deficit. Unless otherwise specified, all per share amounts are reported on a post-stock split basis, as of December 31, 2017. On February 24, 2016, the Company had also implemented a 1:100 reverse stock split of its issued and outstanding common stock.

Results of Operations

Comparison of 20142017 and 2013

General: Net loss attributable to common stockholders decreased to approximately $10.0 million or $0.13 per share in 2014, from $10.4 million or $0.16 per share in 2013.

2016

Sales Revenue, Cost of Sales and Gross Loss from Devices and Disposables: Revenues from the sale of LuViva devices for the years ended December 31, 20142017 and 20132016 were approximately $758,000$244,000 and $359,000,$605,000, respectively. Revenues in 2017 were approximately, $361,000 or 60% lower when compared to the same period in 2016, due to lack of funding to support sales and marketing efforts. In addition, revenues were lower for 2017 and 2016 due to the repurchase of inventory in the amount of $83,000 and $92,000, respectively. Related costs of sales and valuation allowances on the Net Realizable Values were approximately $891,000$530,000 and $611,000$493,000 in 20142017 and 2013, respectively, which2016, respectively. Costs of sales in 2017, were approximately, $37,000 or 8% higher when compared to the same period in 2016, due to an increase in the inventory allowance. This resulted in a gross loss of approximately $286,000 on the devicesales of devices and disposabledisposables for 2017 compared with a gross profit of approximately $133,000 and $252,000, in 2014 and 2013, respectively.

Revenue from Grants and other Agreements: Total revenues decreased to approximately $65,000 in 2014, from $820,000 in 2013, primarily due to the termination of grant income from the National Cancer Institute in the fourth quarter of 2013. There were no costs of sales associated with this revenue in 2014 and 2013.

Research and Development Expenses: Research and development expenses remained unchanged at approximately $2.8 and $2.7 million in 2014 and 2013, respectively.

Sales and Marketing Expenses: Sales and marketing expenses increased to approximately $1.2 million in 2014, compared to approximately $901,000 in 2013, due to an increase in expenses associated with marketing efforts for LuViva.

General and Administrative Expense: General and administrative expense increased to approximately $4.6 million in 2014, from about $3.5 million in 2013. The increase, of approximately $1.1 million or 31.5%, has been classified as an increase in cash expenses of approximately $517,000 and non-cash expenses of approximately $599,000. Cash related expenses - primarily related to increase in employee-related expenses of approximately $260,000; professional fees in conjunction with the Company’s on-going financing efforts of approximately $283,000, as well as clinical trial expenses for our product efficacy testing and travel expenses of approximately $138,000, offset in part by overall reduction in other operating expenses of approximately $164,000. Non-cash related expenses primarily related to executive restricted stock expenses of approximately $393,000, offset in part by a decrease in employee stock option expenses of approximately $104,000; an increase in directors’ compensation stock issued in lieu of cash for approximately $182,000, as well as inventory write off for obsolescence of approximately $128,000.

Other Income: Other income was approximately $25,000 in 2014, compared to $110,000 in 2013. The decrease was primarily related to approximately $73,000 received from our insurance provider as a distribution in the year ended December 31, 2013.

Interest Expense: Interest expense increased to approximately $979,000 for the year ended December 31, 2014, as compared to interest expense of approximately $45,000$112,000 for the same period in 2013.2016.

Research and Development Expenses: Research and development expenses for 2017, decreased to approximately $334,000, from approximately $733,000 in 2016. The increasedecrease of $399,000, or 54%, was primarily due to cost reduction plans in research and development payroll expenses.
Sales and Marketing Expenses: Sales and marketing expenses for 2017, decreased to approximately $245,000, compared to $393,000 in 2016. The decrease, of approximately $148,000, or 38% was primarily due to Company-wide expense reduction and cost savings efforts.
General and Administrative Expense: General and administrative expenses for 2017, decreased to approximately $2,256,000, compared to $2,806,000 for the same period in 2016. The decrease of approximately $550,000, or 20%, was primarily related to lower compensation and option expenses incurred during the same period. For 2017, general and administrative expenses consisted primarily of professional fees, insurance, allowance for doubtful accounts, and paid and accrued compensation costs.
Other Income: Other income was approximately $18,000 in 2017, compared to $68,000 in the same period in 2016, a decrease of $50,000 or 73%.
Interest Expense: Interest expense for 2017 decreased to approximately $1,106,000, compared to $1,895,000 for the same period in 2016. The decrease of approximately $789,000, or 42%, was primarily related to amortization expense of debt issuance cost and amortizationpenalty on event default of convertible debt discount,that were higher in conjunction with our financing efforts,2016.
Fair Value of Warrants Expense: Fair value of warrants expense for 2017, increased to approximately $6,487,000 compared to fair value of warrants recovery of $1,677,000 for the same period in 2016. The increase of approximately $761,000.

Loss on extinguishment of debt: Loss on extinguishment of debt$8,164,000, or 487% was approximately $325,000 forprimarily due to the year ended December 31, 2014. There was no loss on extinguishment of debt forsignificant changes in warrant conversion prices, in the fiscal year ended December 31, 2013.

Fair Value2017.

Net Loss: Net loss attributable to common stockholders increased to approximately $10,974,000, or $1.29 per share, in 2017, from $4,995,000, or $24.62 per share, in 2016. The increase in the net loss of Warrants Expense: Fair value of warrants recovery$5,979,000, or 120% was approximately $65,000 for the year ended December 31, 2014, as compared to expense of $674,000 for the same period in 2013.

reasons outlined above.

There was no income tax benefit recorded for the years ended December 31, 2014 and 2013,2017 or 2016, due to recurring net operating losses.

Liquidity and Capital Resources

Since our inception, we have raised capital through the public and private sale of preferred stockdebt and debt securities, public and private sales of common stock,equity, funding from collaborative arrangements, and grants. At December 31, 2014,2017, we had cash of approximately $162,000$1,000 and a negative working capital of approximately $2.8$11.6 million.

Our major cash flows for the year ended December 31, 20142017 consisted of cash out-flows of $6.3$1.1 million from operations, including approximately $9.9$10.7 million of net loss, cash outflows of $150,000 from investing activities and a net change from financing activities of $6.0$1.1 million, which primarily represented the proceeds received from issuance of common stock and warrants, proceeds from debt financing, as well as exercise of outstanding warrants and options.

On May 23, 2013, we completed a private placement of our Series B Preferred Stock and warrants to purchase shares of our common stock. We issued an aggregate of 2,527 shares of Series B Preferred Stock at a purchase price of $1,000 per share. The initial conversion price of the Series B Preferred Stock was $0.68 per share, such that each share would convert into 1,471 shares of our common stock, subject to customary adjustments, including for any accrued but unpaid dividends and pursuant to certain anti-dilution provisions. We also issued warrants, on a pro rata basis to the investors, exercisable to purchase an aggregate of 3,716,177 shares of our common stock. The warrants, which carry a five-year term, were split evenly into two tranches, one of which is subject to a mandatory exercise provision. The warrants are exercisable at any time and had an initial exercise price of $1.08 per share, subject to certain customary adjustments contained in the respective warrants. As a result of the conversion of our convertible note described below, the conversion price of the Series B Preferred Stock has been lowered to $0.15 per share, such that each share is now convertible into 6,676 shares of common stock, and one tranche of the warrants, previously exercisable for 1,858,089 shares of common stock at $1.08 per share, is now exercisable for 13,196,019 shares at $0.15 per share.

In November 2013, we completed a warrant exchange program pursuant to which we exchanged warrants exercisable for a total of 3,573,691 shares of common stock, or 99.5% of the warrants eligible to participate, for new warrants exercisable for the same number of shares of common stock, but with a reduced exercise price of $0.40 per share and a shortened exercise period ending on November 27, 2013. As of December 31, 2014, we had issued 3,399,965 shares of common stock and received approximately $1.4 million in cash in connection with the exercise of these new warrants.

On April 23, 2014, we entered into a securities purchase agreement with Magna Equities II, LLC (f/k/a Hanover Holdings I, LLC), an affiliate of Magna Group, referred to as Magna. Pursuant to the purchase agreement, we sold Magna a 6% senior convertible note with an initial principal amount of $1.5 million and an 18-month term, for a purchase price of $1.0 million (an approximately 33.3% original issue discount). Additionally, pursuant to the purchase agreement, Magna purchased on May 23, 2014 an additional 6% senior convertible note with a principal amount of $2.0 million and an 18-month term, for a fixed purchase price of $2.0 million. Pursuant to the terms of the initial senior convertible note, $500,000 of the outstanding principal amount (together with any accrued and unpaid interest with respect to such portion) was automatically extinguished upon satisfaction of certain conditions. Magna participated in the public offering described below by extinguishing $1,732,614 in then-outstanding principal amount of senior convertible notes on a dollar-for-dollar basis. Subject to certain limitations, the remaining $779,094 in outstanding principal amount of senior convertible notes is convertible at any time, in whole or in part, at Magna’s option, into shares of our common stock, at a conversion price equal to the lesser of $0.55 per share and a 25% discount from the lowest daily volume-weighted average price of our common stock in the five trading days prior to conversion.

On September 2, 2014, we entered into a subscription agreement with ITEM Medikal Teknolojileri LTD STI, a Turkish corporation, referred to as ITEM, pursuant to which, on September 27, 2014 we sold l 651,042 shares of our common stock and a warrant to purchase an additional 325,521 shares, for an aggregate purchase price of $200,000 in a private placement pursuant to Regulation S promulgated under the Securities Act. The warrant is immediately exercisable, has an exercise price per share of $0.4608, and expires five years from the date of issuance. The warrant is subject to a mandatory exercise provision should the average trading price of our common stock over any 30 consecutive day trading period exceed $0.9216.

On September 10, 2014, we entered into a note purchase agreement with Tonaquint, Inc., pursuant to which we sold a secured promissory note to Tonaquint with an initial principal amount of $1,275,000, for a purchase price of $700,000 (an original issue discount of $560,000). We may prepay the note at any time. The note is secured by our current and future accounts receivable and inventory, pursuant to a security agreement entered into in connection with the note purchase agreement. On March 10, 2015, we amended the note to extend the maturity until May 10, 2015. During the extension, interest will accrue on the note at a rate of the lesser of 18% per year or the maximum rate permitted by applicable law. In addition, while the note remains outstanding, Tonaquint will have the right to convert up to $150,000 of the outstanding balance of the note into shares of our common stock, at a conversion price per share equal to the lower of (1) $0.25 and (2) 75% of the lowest daily volume weighted average price per share of our common stock during the five business days prior to conversion. If the conversion price would be lower than $0.15 per share, we have the option of delivering the conversion amount in cash in lieu of shares.

On October 23, 2014 and May 21, 2014, our President and CEO, Gene Cartwright, advanced us $30,000 and $100,000, respectively, in cash for 5% simple interest notes, and on August 4, 2014, Mr. Cartwright advanced us $200,000 in cash for a 5% simple interest note. On October 24, 2014, October 7, 2014 and August 26, 2014, our Senior Vice President of Engineering, Richard Fowler, advanced us $6,100, $20,000 and $75,000, respectively, in cash for 6% simple interest notes. On October 7, 2014, our Director of Marketing advanced us $10,000 in cash for a 6% simple interest note.

On November 4, 2014, Richard Blumberg, one of our stockholders, advanced us $100,000 in cash for a note for $106,500 in aggregate principal and interest due November 30, 2014. On February 20, 2014, Messrs. Cartwright and James, and Imhoff, advanced us $50,000, $50,000, and $25,000 in cash, respectively, for 10% simple interest notes. Each participated in the public offering described below by extinguishing all the debt on a dollar-for-dollar basis.

On November 26, 2014, we entered into a securities purchase agreement with certain accredited investors providing for the issuance and sale in a public offering of an aggregate of 16,785,415 shares of our common stock and warrants to purchase an aggregate of 8,392,708 additional shares at a purchase price of $0.225 per share, for aggregate gross proceeds (including non-cash extinguishment of debt) of approximately $3.8 million. We consummated the public offering on December 2, 2014. Pursuant to the terms of the securities purchase agreement, at the closing each purchaser was issued a warrant to purchase up to a number of shares of our common stock equal to 50% of the shares issued to such purchaser. The warrants have an exercise price of $0.225 per share, are exercisable immediately upon issuance and have a five-year term.

On March 16, 2015 and March 19, 2015, we entered into subscription agreements with certain accredited investors, pursuant to which we agreed to sell an aggregate of 4.0 million50 shares of our common stock and three-year warrants to purchase an additional 2.0 million25 shares with an exercise price per share of $20,400, for an aggregate purchase price of $720,000$720,000.

On June 29, 2015, we entered into a securities purchase agreement with certain accredited investors (including John Imhoff and Mark Faupel, two of our directors), amended on September 3, 2015, for the issuance and sale of shares of an aggregate of 7,903 shares of our Series C preferred stock, at a purchase price of $750 per share and an initial conversion price of $76.00 per share, and five-year warrants exercisable to purchase an aggregate of approximately 156,000 shares of our common stock at an initial exercise price of $76.00 per share, subject to certain customary adjustments and anti-dilution provisions.
On February 11, 2016, we consented to an assignment of our outstanding secured promissory note to two accredited investors, Aquarius Opportunity Fund and GPB Debt Holdings II LLC. In connection with the assignment, the holders waived an ongoing event of default under the notes related to our minimum market capitalization, and agreed to eliminate the requirement going forward. On March 7, 2016, we further amended the notes to eliminate the volume limitations on sales of common stock issued or issuable upon conversion of the notes. GPB subsequently sold the note to GHS.
On February 11, 2016, we 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). The note matured on the second anniversary of issuance and, in addition to the 20% original issue discount, accrues interest at a rate of 17% per year. Subject to certain restrictions, it is convertible at any time, in whole or in part, at the holder’s option, into shares of our common stock, at an initial conversion price equal to $640.00 per share, subject to certain customary adjustments and anti-dilution provisions. In addition, the investor received a five-year warrant exercisable to purchase an aggregate of approximately 2,247 shares of our common stock with an initial exercise price of $640.00 per share, subject to certain customary adjustments and anti-dilution provisions. As of April 8, 2018, as a result of the operation of the anti-dilution provisions, the conversion price of the note and the exercise price of the warrants were $0.00514 per share. On March 18, 2016, our placement agent received a warrant with similar terms exercisable for 108 shares. In connection with the transaction, on February 12, 2016, we and the investor entered into a four-year consulting agreement, pursuant to which the investor will provide management consulting services to us in exchange for a royalty payment, payable quarterly, equal to 3.5% of our revenues from the sale of products.
On February 24, 2016, we implemented a 1:100 reverse stock split of all of our issued and outstanding common stock. As a result of the reverse stock split, every 100 shares of issued and outstanding common stock was 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.
Between April 27, 2016 and May 3, 2016, we entered into various agreements with certain holders of our Series C preferred stock, including John Imhoff and Mark Faupel, two of our directors, pursuant to which those holders separately agreed to exchange each share of Series C preferred stock held for 2.25 shares of our newly created Series C1 preferred stock and 12 shares of our common stock. In connection with these exchanges, each holder also agreed to exchange the $1,000 stated value per share of the holder’s shares of Series C1 preferred stock for new securities that we separately issue in the next qualifying financing we undertake on a dollar-for-dollar basis. In total, for 1,916 shares of Series C preferred stock surrendered, we issued 4,311 shares of Series C1 preferred stock and 22,996 shares of 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.” Separately, on April 27, 2016, we entered into a rollover and amendment agreement with a prior holder of Series C preferred stock, Aquarius Opportunity Fund, pursuant to which Aquarius agreed to exchange any shares of Series C preferred stock (stated value plus make-whole dividend), as well as any remaining principal and accrued interest on our secured promissory note Aquarius holds, for new securities that we issue in our next financing, all on a dollar-for-dollar basis, as long as the next financing involves at least $1 million in cash from investors unaffiliated with Aquarius. Aquarius sold all of its shares of Series C preferred stock and its portion of our secured promissory note to GHS. Aquarius also agreed to return to us for cancelation warrants exercisable for 903 shares of our common stock that it held. Except in the event of an additional $50,000 cash investment by Aquarius in the qualifying financing, Aquarius has agreed to execute a customary “lockup” agreement in connection with the financing. Finally, Aquarius, as the holder of a majority of the outstanding Series C preferred stock, agreed to amend the Series C stock purchase agreement to eliminate any participation rights held by the Series C shareholders and to waive operation of certain anti-dilution provisions of the Series C that would otherwise have been triggered.
On May 4, 2016, May 26, 2016, and June 22, 2016, Aquarius Opportunity Fund advanced us a total of $107,500 for 2% simple interest notes due the earlier of December 31, 2017 or consummation of our next public offering. Also on May 26, 2016, GPB Debt Holdings II LLC, holder of our outstanding senior secured convertible note, advanced as an additional $87,500, on the same terms as their note. We intend to offer Aquarius the opportunity to participate in our next public offering at least up to the extent of the outstanding principal and interest on its cash advances, by extinguishing all or a portion of the debt on a dollar-for-dollar basis.

On June 5, 2016, we entered into a license agreement with Shenghuo Medical, LLC pursuant to which we 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 our 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 us 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 would 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 our 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 our 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 our board of directors (and 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, we have agreed to issue a convertible note to Shenghuo, in exchange for an aggregate cash investment of $200,000. The note will provide for a payment to Shenghuo of $300,000, expected to be due the earlier of 90 days from issuance and consummation of any capital raising transaction by us with net cash proceeds of at least $1.0 million. The note will accrue interest at 20% per year on any unpaid amounts due after that date. The note will be convertible into shares of our common stock at a conversion price per share of $13.92, subject to customary anti-dilution adjustment. The note will be unsecured, and is expected to provide for customary events of default. We will also issue Shenghuo a five-year warrant exercisable immediately for approximately 17,239 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, we entered into a license agreement with SMI, pursuant to which we granted SMI an exclusive global license to manufacture the LuViva device and related disposables (subject to a carve-out for manufacture in Turkey) 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 we entered into an agreement with Shenghuo, regarding the 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. See “—Recent Developments.”
Between June 13, 2016 and June 14, 2016, we entered into various agreements with holders of certain warrants (including John Imhoff, one of our directors) originally issued in May 2013, and with GPB Debt Holdings II LLC, holder of a warrant issued February 12, 2016, pursuant to which each holder separately agreed to exchange 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. As a result of the exchanges, we effectively eliminate any potential exponential increase in the number of underlying shares issuable upon exercise of our outstanding warrants. In total, for surrendered warrants then-exercisable for an aggregate of 1,814,598 shares of common stock (but subject to exponential increase upon operation of certain anti-dilution provisions), we issued or are obligated to issue 16,898 shares of common stock and new warrants that, if exercised as of June 14, 2016, would have been exercisable for an aggregate of 3,608,835 shares of common stock. In certain circumstances, in lieu of presently issuing all of the shares (for each holder that opted for shares of common stock), we and the holder further agreed that we 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 our next public offering. 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 offering, subject to customary “downside price protection” for as long as our common stock is not listed on a national securities exchange, and will expire five years from the date of issuance.
On September 6, 2016, we entered into a royalty agreement with one of our directors, John Imhoff, and another stockholder, Dolores Maloof, pursuant to which we 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, we 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 we sell (or that is sold by a third party pursuant to a licensing arrangement with us).

On November 2, 2016, we entered into a lockup and exchange agreement with GHS Investments, LLC, holder of approximately $221,000 in outstanding principal amount of our secured promissory note and all of the outstanding shares of our 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 our securities that they beneficially owned. We agreed that, upon consummation of our next financing, we 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 we separately issue in the next qualifying financing we undertake, on a dollar-for-dollar basis in a private placement exchange.
A 1:800 reverse stock split of all of our issued and outstanding common stock was implemented on November 7, 2016. As a result of the reverse stock split, every 800 shares of issued and outstanding common stock was 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 involvingchange.
On December 7, 2016, we entered into an exchange agreement with GPB Debt Holdings II LLC 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 our secured promissory note that GPB holds. 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 public offeringnew 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. We will pay monthly interest coupons and, beginning one year after issuance, will pay amortized quarterly principal payments. Subject to resale restrictions under Section 4(a)(2) odFederal securities laws and the Securities Act.availability of sufficient authorized but unissued shares of our 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 our 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 us 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 of our assets, including our intellectual property, pursuant to the security agreement entered into by us and GPB in connection with the issuance of the original senior secured convertible note. We 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, we agreed to increase the royalty payable to GPB pursuant to its consulting agreement with us from 3.5% to 3.85% of revenues from the sales of our products.
On December 28, 2016, we 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, we 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. We 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 we 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 we’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. As of March 19, 2015,December 31, 2017, we had consummated $320,000has fully amortized debt issuance costs $30,000 and original issue discount of $22,000. As of December 31, 2017, the total transactionbalance due to the investor for the December 28, 2016 note, is zero.

On February 13, 2017, we 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, we expectissued the note to consummateAuctus. Pursuant to the remainder by the endpurchase agreement, we also issued to Auctus a warrant exercisable to purchase an aggregate of the first quarter200,000 shares of 2015.we’s common stock. The warrants are immediatelywarrant is exercisable haveat any time, at an exercise price per share equal to $0.00514 (110% of $0.255the closing price of the common stock on the day prior to issuance), subject to certain customary adjustments and expire three yearsprice-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. We 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 we’s common stock, at a conversion price equal to the lower of the price offered in we’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 we 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, we 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 $0.40 per share (a 42.86% discount to the closing price of the common stock on the day prior to issuance). We allocated proceeds of $90,000 to the warrants and common stock issued in connection with the financing. As of December 31, 2017, we has net debt of $76,664.

On May 17, 2017, we 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 we 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 we 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 we receive a notice of conversion. The notes may be prepaid in accordance with the terms set forth in the notes. The notes also contain certain representations, warranties, covenants and events of default including if we are delinquent in our periodic report filings with the SEC, and increases in the amount of the principal and interest rates under the notes in the event of such defaults. In the event of default, at Eagle’s option and in its sole discretion, Eagle may consider the notes immediately due and payable. As of December 31, 2017, we has net debt of $41,322, including unamortized original issue discount of $5,214, unamortized and debt issuance costs of $11,160.
On May 17, 2017, we 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 we 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 we 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 we receive a notice of conversion. The notes may be prepaid in accordance with the terms set forth in the notes. The notes also contain certain representations, warranties, covenants and events of default including if we are delinquent in our periodic report filings with the SEC, and increases in the amount of the principal and interest rates under the notes in the event of such defaults. In the event of default, at Adar’s option and in its sole discretion, Adar may consider the notes immediately due and payable. As of December 31, 2017, we has net debt of $42,216, including unamortized original issue discount of $5,214, unamortized and debt issuance costs of $11,160.

On May 18, 2017, we 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. We 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, 2017, we has net debt of $66,000.
On August 18, 2017, we entered into a securities purchase agreement with Power Up Lending Group Ltd., providing for the purchase by Power Up from we 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 we 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, 2017, we has a net debt of $46,405, including unamortized debt issuance costs of $6,595.
On October 12, 2017, we entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”), providing for the purchase by Power Up from we 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 we 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, 2017, we has a net debt of $47,288, including unamortized debt issuance costs of $5,722.
On December 11, 2017, we entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”), providing for the purchase by Power Up from we 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 we 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, 2017, we has a net debt of $45,565, including unamortized debt issuance costs of $7,435.
On August 7, 2017, we 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 we’s failure to pay the monthly interest due and owing on the note. In consideration for the forbearance, we 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 we and GPB, or we’s equity holders and GPB, in connection with the note. Pursuant to the forbearance agreement, we 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 we. During the forbearance period, we 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.
See “—Recent Developments” for information regarding capital-raising activities since December 31, 2017.
We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements.arrangements, as soon as possible. We believecannot be certain that our existing and available capital resources will be sufficient to satisfy our funding requirements through the first quarter of 20152018. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including loans and additional sales of our equity, but cannot be assured we will be able to do so on terms or timing acceptable to us, or at all.

Substantialloans.

Generally, substantial capital will be required to develop our products, including completing product testing and clinical trials, obtaining all required U.S. and foreign regulatory approvals and clearances, and commencing and scaling up manufacturing and marketing our products. Any failure to obtain capital would have a material adverse effect on our business, financial condition and results of operations.

Based on discussions with our distributors, we expect to generate purchase orders for approximately $2 million in LuViva devices and disposables in 2018, and expect those purchase orders to result in actual sales of $1.5 million in 2018, representing what we view as current demand for our products. We cannot be assured that we will generate all or any of these additional purchase orders, or that existing orders will not be canceled by the distributors or that parts to build product will be available to meet demand, such that existing orders will result in actual sales. Because we have a short history of sales of our products, we cannot confidently predict future sales of our products beyond this time frame, and cannot be assured of any particular amount of sales. Accordingly, we have not identified any particular trends with regard to sales of our products.

Our financial statements have been prepared and presented on a basis assuming we will continue as a going concern. The above factors raise substantial doubt about our ability to continue as a going concern, as more fully discussed in Note 1 to the consolidated financial statements contained herein and in the report of our independent registered public accounting firm accompanying our financial statements.

statements contained in our annual report on Form 10-K for the year ended December 31, 2017.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements;arrangements, no special purpose entities; nor doentities, and no activities that include non-exchange-traded contracts accountaccounted for at fair value.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable

applicable.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Guided Therapeutics, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Guided Therapeutics, Inc. and Subsidiary, Inc. (the “Company”) as of December 31, 20142017 and 2013,2016, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. The Company’s management is responsible for theseended, and the related notes (collectively, the “financial statements”). In our opinion, the consolidated financial statements.statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of our audits we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidatedpresentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guided Therapeutics, Inc. and Subsidiary as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 to the consolidated financial statements, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s recurring losses from operations and accumulated deficit raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ UHY LLP

UHY LLP

Sterling Heights, Michigan

March 25, 2015

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2014 AND 2013
(In Thousands)
     
ASSETS  2014   2013 
CURRENT ASSETS:        
    Cash and cash equivalents $162  $613 
    Accounts receivable, net of allowance for doubtful accounts of  $76 and $18 at
         December 31, 2014 and 2013, respectively
  338   133 
    Inventory, net of reserves of $144 and $184 at December 31, 2014 and 2013, respectively  1,180   1,193 
    Other current assets  99   101 
                    Total current assets  1,779   2,040 
         
    Property and equipment, net  587   920 
    Other assets  101   356 
    Debt Issue Cost  564   —   
                    Total noncurrent assets  1,252   1,276 
         
                    TOTAL ASSETS  3,031  $3,316 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES:        
    Short-term notes payable  646  $35 
    Current portion of long term debt  123   109 
    Short-term notes payable, net of discount  1,062   —   
    Accounts payable  1,733   891 
    Accrued liabilities  1,015   723 
    Deferred revenue  24   14 
                    Total current liabilities  4,603   1,772 
         
    Warrants, at fair value  2,070   1,548 
    Long-term debt, net  40   103 
    Convertible note, net of discount  783   —   
                    Total long-term liabilities  2,893   1,651 
         
                    TOTAL LIABILITIES  7,496   3,423 
         
COMMITMENTS & CONTINGENCIES (Note 5)        
         
STOCKHOLDERS’ DEFICIT:        
Series B convertible preferred stock, $.001 par value; 3 shares authorized, 1.2 and 2.1 shares
issued and outstanding as of December 31, 2014 and 2013, respectively (liquidation
preference of $1,200 and $2,100 at December 31, 2014 and 2013, respectively)
  678   1,139 
   Common stock, $.001 par value; 195,000 and 145,000 shares authorized, 96,889 and 70,479 shares issued and outstanding as of December 31, 2014 and 2013, respectively  97   71 
   Additional paid-in capital  107,952   101,840 
   Treasury stock, at cost  (132)  (132)
   Accumulated deficit  (113,060)  (103,025)
                   TOTAL GUIDED THERAPEUTICS STOCKHOLDERS’ DEFICIT  (4,465)  (107)
         
                   TOTAL STOCKHOLDERS’ DEFICIT  (4,465)  (107)
         
  TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $3,031  $3,316 

We have served as the Company’s auditor since 2007.
Sterling Heights, Michigan
April 17, 2018

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
AS OF DECEMBER 31,
ASSETS
 
2017
 
 
2016
 
CURRENT ASSETS:
 
 
 
 
 
 
    Cash and cash equivalents
 $1 
 $14 
    Accounts receivable, net of allowance for doubtful accounts of $160 and $279 at December 31, 2017 and 2016, respectively
  3 
  - 
    Inventory, net of reserves of $716 and $278 at December 31, 2017 and 2016, respectively
  265 
  773 
    Other current assets
  111 
  259 
                    Total current assets
  380 
  1,046 
 
    
    
    Property and equipment, net
  49 
  126 
    Other assets
  60 
  320 
                    Total noncurrent assets
  109 
  446 
 
    
    
                    TOTAL ASSETS
  489 
  1,492 
 
    
    
LIABILITIES AND STOCKHOLDERS’ DEFICIT
    
    
CURRENT LIABILITIES:
    
    
    Notes payable in default, including related parties
  1,091 
  1,008 
    Short-term notes payable, including related parties
  447 
  197 
    Convertible notes in default
  2,321 
  2,361 
    Convertible notes payable, net
  783 
  468 
    Accounts payable
  3,019 
  2,600 
    Accrued liabilities
  4,247 
  2,670 
    Deferred revenue
  21 
  34 
                    Total current liabilities
  11,929 
  9,338 
 
    
    
    Warrants, at fair value
  7,962
  1,420 
 
    
    
                    TOTAL LIABILITIES
  19,891
  10,758 
 
    
    
COMMITMENTS & CONTINGENCIES (Note 8)
    
    
 
    
    
STOCKHOLDERS’ DEFICIT:
    
    
  Series C convertible preferred stock, $.001 par value; 9.0 shares authorized, 0.9 and 1.6 shares issued and outstanding as of December 31, 2017 and 2016, respectively. (Liquidation preference of $970 and $1,643 at December 31, 2017 and 2016, respectively).
  355 
  601 
  Series C1 convertible preferred stock, $.001 par value; 20.3 shares authorized, 4.3 shares issued and outstanding as of December 31, 2017 and 2016, respectively. (Liquidation preference of $4,312 at December 31, 2017 and 2016, respectively).
  701 
  701 
   Common stock, $.001 par value; 1,000,000 shares authorized, 49,563 and 669 shares issued and outstanding as of December 31, 2017 and 2016, respectively
  791 
  742 
   Additional paid-in capital
  117,416 
  116,380 
   Treasury stock, at cost
  (132)
  (132)
   Accumulated deficit
  (138,533)
  (127,558)
 
    
    
                   TOTAL STOCKHOLDERS’ DEFICIT
  (19,402)
  (9,266)
 
    
    
  TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 $489 
 $1,492 
The accompanying notes are an integral part of these consolidated statements.

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(In Thousands Except Per Share Data)
     
   2014   2013 
REVENUE:        
 
Sales – devices and disposables
 $758  $359 
          Cost of goods sold  891   611 
                Gross loss  (133)  (252)
         
        Contract and grant revenue  65   820 
         
OPERATING EXPENSES:        
         
         Research and development  2,788   2,742 
         Sales and marketing  1,164   901 
         General and administrative  4,649   3,533 
                  Total operating expenses  8,601   7,174 
         
                  Operating loss  (8,669)  (6,606)
         
OTHER INCOME (EXPENSES):        
          Other income  25   110 
          Interest expense  (979)  (45)
          Loss on extinguishment of debt  (325)  —   
          Change in fair value of warrants  65   (674)
                  Total other income  (1,214)  (609)
         
LOSS  FROM OPERATIONS  (9,883)  (7,215)
         
PROVISION FOR INCOME TAXES  —     —   
         
NET LOSS  (9,883)  (7,215)
  DEEMED DIVIDENDS  —     (3,175)
PREFERRED STOCK DIVIDENDS  (152)  —   
         
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(10,035) $(10,390)
         

BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE

   TO COMMON STOCKHOLDERS

 $(0.13) $(0.16)
   
WEIGHTED AVERAGE SHARES OUTSTANDING  77,061   65,884 



GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
FOR THE YEARS ENDED DECEMBER 31,
 
 
2017
 
 
2016
 
REVENUE:
 
 
 
 
 
 
          Sales – devices and disposables, net
 $244 
 $605 
          Cost of goods sold
  530 
  493 
                Gross (loss) profit
  (286)
  112 
 
    
    
OPERATING EXPENSES:
    
    
 
    
    
         Research and development
  334 
  733 
         Sales and marketing
  245 
  393 
         General and administrative
  2,256 
  2,806 
                  Total operating expenses
  2,835 
  3,932 
 
    
    
                  Operating loss
  (3,121)
  (3,820)
 
    
    
OTHER INCOME (EXPENSES):
    
    
          Other income
  18 
  68 
          Interest expense
  (1,106)
  (1,895)
          Change in fair value of warrants
  (6,487)
  1,677 
                  Total other income (expenses)
  (7,575)
  (150)
 
    
    
LOSS FROM OPERATIONS
  (10,696)
  (3,970)
 
    
    
PROVISION FOR INCOME TAXES
  - 
  - 
 
    
    
NET LOSS
  (10,696)
  (3,970)
 
    
    
DEEMED DIVIDENDS
  - 
  - 
 
    
    
PREFERRED STOCK DIVIDENDS
  (278)
  (1,025)
 
    
    
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
 $(10,974)
 $(4,995)
 
    
    
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
 $(1.29)
 $(24.62)
 
    
    
WEIGHTED AVERAGE SHARES OUTSTANDING
  8,479 
  203 
 
 
 
 
The accompanying notes are an integral part of these consolidated statements.
 

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands)
 
 
Preferred Stock
Series C
 
 
Preferred Stock Series C1
 
 
 
Common Stock
 
 
Additional Paid-In
 
 
 
Treasury
 
 
 
Accumulated
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Stock
 
 
Deficit
 
 
TOTAL
 
BALANCE, January 1, 2016
  6 
 $2,052 
  - 
 $- 
  3 
 $236 
 $114,845 
 $(132)
 $(122,563)
 $(5,562)
Preferred dividends
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (191)
  (191)
Issuance of common stock and warrants
  - 
  - 
  - 
  - 
  - 
  - 
  54 
  - 
  - 
  54 
Conversion of Series C preferred stock to common stock
  (2)
  (750)
  - 
  - 
  531 
  456 
  1,128 
  - 
  (834)
  - 
Conversion of debt into common stock
  - 
  - 
  - 
  - 
  53 
  20 
  238 
  - 
  - 
  258 
Issuance of common stock due to Series B, Tranche B warrants exchanged for shares and rights to shares
  - 
  - 
  - 
  - 
  19 
  12 
  (12)
  - 
  - 
  - 
Series C preferred stock exchanged for Series C1 preferred stock
  (2)
  (751)
  4 
  701 
  23 
  18 
  (18)
  - 
  - 
  - 
Issuance of common stock for cash
  - 
  - 
  - 
  - 
  40 
  - 
  50 
  - 
  - 
  50 
Stock-based compensation
    
    
    
    
  - 
  - 
  95 
  - 
  - 
  95 
Net Loss
    
    
    
    
  - 
  - 
  - 
  - 
  (3,970)
  (3,970)
 
BALANCE, December 31, 2016
  2 
 $601 
  4 
 $701 
  669 
 $742 
 $116,380 
 $(132)
 $(127,558)
 $(9,266)
 
    
    
    
    
    
    
    
    
    
    
Preferred dividends
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (2)
  (2)
Conversion of Series C preferred stock to common stock
  (1)
  (246)
  - 
  - 
  17,272 
  17 
  506 
  - 
  (277)
  - 
 
Conversion of debt into common stock
  - 
  - 
  - 
  - 
  31,572 
  32 
  436 
  - 
  - 
  468 
 
Issuance of common stock for note agreement
  - 
  - 
  - 
  - 
  50 
  - 
  35 
  - 
  - 
  35 
 
Stock-based compensation
    
    
    
    
  - 
  - 
  59 
  - 
  - 
  59 
 
Net Loss
    
    
    
    
  - 
  - 
  - 
  - 
  (10,696)
  (10,696)
 
BALANCE, December 31, 2017
  1 
 $355 
  4 
 $701 
  49,563 
 $791 
 $117,416 
 $(132)
 $(138,533)
 $(19,402)
The accompanying notes are an integral part of these consolidated statements.


GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(In Thousands)
 
 
2017
 
 
2016
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
     Net loss
 $(10,696)
 $(3,970)
     Adjustments to reconcile net loss to net cash used in operating activities:
    
    
        Bad debt expense
  174 
  221 
        Depreciation and amortization
  213 
  1,223 
        Stock-based compensation
  59 
  95 
        Change in fair value of warrants
  6,487
  (1,677)
    Changes in operating assets and liabilities:
    
    
        Accounts receivable
  (9)
  (31)
        Inventory
  508 
  345 
        Other current assets
  152 
  519 
        Other assets
  260 
  (247)
        Accounts payable
  420 
  775 
        Deferred revenue
  (13)
  (183)
        Accrued liabilities
  1,301 
  1,128 
                Total adjustments
  9,552
  2,168 
 
    
    
                Net cash used in operating activities
  (1,144)
  (1,802)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
      Net proceeds from issuance of common stock and warrants
  1,572 
  50 
      Proceeds from debt financing, net of discount and debt issuance costs
  - 
  1,958 
      Payments on notes
  (441)
  (227)
 
    
    
                Net cash provided by financing activities
  1,131 
  1,781 
 
    
    
NET CHANGE IN CASH AND CASH EQUIVALENTS
  (13)
  (21)
 
    
    
CASH AND CASH EQUIVALENTS, beginning of year
  14 
  35 
 
    
    
CASH AND CASH EQUIVALENTS, end of year
 $1 
 $14 
 
    
    
SUPPLEMENTAL SCHEDULE OF:
    
    
Cash paid for:
    
    
        Interest
 $46 
 $- 
NONCASH INVESTING AND FINANCING ACTIVITIES:
    
    
   Issuance of common stock as debt repayment
 $468 
 $258 
   Dividends on preferred stock
 $278 
 $1,025 
 
The accompanying notes are an integral part of these consolidated statements.

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

(In Thousands)

  

 

 

Preferred StockSeries B

 

 

 

 

Common Stock

 

 

 

Additional

Paid-In

 

 

 

 

Treasury

 

 

 

 

Accumulated

  
   Shares   Amount   Shares   Amount   Capital   Stock   Deficit   TOTAL 
BALANCE, January 1, 2013  —    $—     62,282  $62  $93,273  $(104) $(92,098) $1,133 
                                 
Issuance of Series B preferred stock  3   1,341   —     —     —     —     —     1,341 
Deemed dividends on beneficial con-
   version feature of preferred stock
  —     —     —     —     3,148   —     (3,148)  —   
Preferred dividends  —     —     —     —     —     —     (27)  (27)
Conversion of preferred stock  (1)  (202)  878   1   201       —     —   
Issuance of common stock  —     —     670   1   462   —     —     463 
Issuance of stock options  —     —     —     —     126   —     —     126 
Exercise of warrants and options  —     —     6,649   7   3,269   —     —     3,276 
Stock-based compensation expense  —     —     —     —     824   —     —     824 
Deemed dividends on replacement of warrants  —     —     —     —     537   —     (537)  —   
Acquisition of treasury stock  —     —     —     —     —     (28)  —     (28)
Net Loss  —     —     —     —     —     —     (7,215)  (7,215)
BALANCE, December 31, 2013  2  $1,139   70,479  $71  $101,840  $(132) $(103,025) $(107)
                         
Preferred dividends  —    $—     —    $—    $—    $—    $(152) $(152)
Conversion of preferred stock  (1)  (461)  2,311   2   459   —     —     —   

Issuance of common stock and warrants

  —     —     20,872   21   3,348   —     —     3,369 

Exercise of warrants and options into common stock

  —     —     441   —     96   —     —     96 

Conversion of debt into common stock

  —     —     2,784   3   890   —     —     893 
Issuance of warrants  —     —     —     —     372   —     —     372 
Issuance of stock options  —     —     —     —     61   —     —     61 
Stock-based compensation  —     —     2   —     886   —     —     886 
Net Loss  —     —     —     —     —     —     (9,883)  (9,883)
BALANCE, December 31, 2014  1  $678   96,889  $97  $107,952  $(132) $(113,060) $(4,465)
                                 

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

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(In Thousands)
  2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES:        
     Net loss $(9,883) $(7,215)
     Adjustments to reconcile net loss to net cash used in operating activities:        
        Bad debt expense  63   7 
        Loss on extinguishment of debt  325   —   
        Depreciation  483   461 
        Amortization  757   —   
        Stock-based compensation  886   824 
        Change in fair value of warrants  (65)  674 
    Changes in operating assets and liabilities:        
        Accounts receivable  (267)  (33)
        Inventory  14   (669)
        Other current assets  2   97 
        Other assets  254   (25)
        Accounts payable  842   126 
        Deferred revenue  10   (26)
        Accrued liabilities  296   223 
                Total adjustments  3,600   1,659 
         
                Net cash used in operating activities  (6,283)  (5,556)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
       Additions to fixed assets  (150)  (107)
         
                Net cash used in investing activities  (150)  (107)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
      Net proceeds from issuance of common stock and warrants, net  1,730   2,214 
      Proceeds from debt financing, net of discount  5,263   115 
      Loan acquisition costs  (452)  —   
      Payments on notes payable  (656)  (374)
      Proceeds from options and warrants exercised  97   3,276 
         
                Net cash provided by financing activities  5,982   5,231 
         
NET CHANGE IN CASH AND CASH EQUIVALENTS  (451)  (432)
         
CASH AND CASH EQUIVALENTS, beginning of year  613   1,045 
         
CASH AND CASH EQUIVALENTS, end of year $162  $613 
         
SUPPLEMENTAL SCHEDULE OF:        
Cash paid for:        
        Interest $33  $31 
NONCASH INVESTING AND FINANCING ACTIVITIES:        
   Conversion of accrued expenses into common stock $207  $126 
   Payment of debt issuance costs via warrants and common stock $522  $—   
   Conversion of convertible debt into common stock $893  $—   
   Repayment of debt via issuance of common stock and warrants $1,697  $—   
   Issuance of common stock as board compensation $355  $463 
   Deemed dividends in the form of warrants to purchase common stock. $—    $537 
   Deemed dividends on preferred stock $—    $3,148 



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

GUIDED THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 20142017 AND 2013

2016

1. Organization, Background, and Basis of Presentation

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™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 November 7, 2016. As a result of the reverse stock split, every 800 shares of issued and outstanding common stock was 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 453,694,400 shares to 570,707 shares as of that date. See Note 4, Stockholders’ Deficit. Unless otherwise specified, all per share amounts are reported on a post-stock split basis, as of December 31, 2017. On February 24, 2016, the Company had also implemented a 1:100 reverse stock split of its issued and outstanding common stock.
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, 2014,2017, it had an accumulated deficit of approximately $113.1$138.5 million. Through December 31, 2014,To date, the Company has devoted substantial resources toengaged primarily in research and development efforts. The Company first generated revenue from product sales in 1998, but does not have significant experience in manufacturing,efforts and the early stages of marketing or selling its products. The Company’s development efforts may not result in commercially viable products and itCompany may not be successful in growing sales for its products. Moreover, required regulatory clearances or approvals may not be obtained.obtained in a timely manner, or at all. The Company’s products may not ever gain market acceptance and the Company may not ever achieve levels of revenue to sustain further development costs and support ongoing operationsgenerate significant revenues or achieve profitability. The development and commercialization of the Company’s products will requirerequires substantial development, regulatory, sales and marketing, manufacturing and other expenditures. The Company expects operating losses to continue throughfor the foreseeable future as it continues to expend substantial resources to complete development of its products, obtain regulatory clearances or approvals, build its marketing, sales, manufacturing and finance capabilities, and conduct further research and development.

Going Concern

The Company’s consolidated financial statements have been prepared and presented on a basis assuming it will continue as a going concern. The factors below raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty. Notwithstanding the foregoing, the Company believes it has made progress in recent years in stabilizing its financial situation by execution of multiyear contracts from Konica Minolta Opto, Inc., a subsidiary of Konica Minolta, Inc., a Japanese corporation based in Tokyo (“Konica Minolta”) and grants from the National Cancer Institute (“NCI”), while at the same time simplifying its capital structure and significantly reducing debt. However, the Company has replaced its prior agreements with Konica Minolta with a new licensing agreement, and therefore will no longer receive direct payments from Konica Minolta, and will have to pay a royalty to Konica Minolta should the Company sell any products licensed from Konica Minolta.

At December 31, 2014,2017, the Company had a negative working capital of approximately $2.8$11.6 million, accumulated deficit of $113.1$138.5 million, and incurred a net loss of $9.9$10.7 million for the year then ended. Stockholders’ deficit totaled approximately $4.5$19.4 million at December 31, 2014,2017, 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. If sufficient capital cannot be raised during the second quarter of 2015,2018, the Company haswill continue its plans to curtailof curtailing operations by reducing discretionary spending and staffing levels, and attempting to operate by only pursuing activities for which it has external financial support and additional NCI, NHI or other grant funding.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 29.8294.1 million shares of its common stock outstanding at December 31, 2014,2017, with exercise prices of $0.15 to $1.08ranging between $0.005 and $40,000 per share. Exercises of these warrants would generate a total of approximately $10.1$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 preferred stockdebt or debt securities, public and private sales of common stock,equity, and grants, if available.

Assuming the Company receives FDA approval for its LuViva cervical cancer detection device in 2015, the Company currently anticipates an early 2016 product launch However, please refer to Footnote 11 - CONVERTIBLE DEBT IN DEFAULT in the United States. Product launch outside the United States began in the second half of 2013.

paragraph: Debt Restructuring for more information regarding our warrants.

2. Summary of Significant Accounting Policies

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 Lattice Modelbinomial calculations.

The Company uses the Monte Carlo simulations and binomial calculations in the calculation of the fair value of the warrant liabilities and the valuation of embedded conversion options and freestanding warrants.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Guided Therapeutics, Inc. and its wholly owned subsidiary.

All intercompany transactions are eliminated.

Accounting Standard Updates

In May 2014, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers,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 customersdistributors and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five stepfive-step analysis in determining when and how revenue is recognized. The new model will requirerequires revenue recognition to depict the transfer of promised goods or services to customersdistributors in an amount that reflects the consideration a company expects to receivereceive. 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 exchangejudgments 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 those goodsall periods presented, or services.(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 will take 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 2017 financial statements. The cumulative effect of initially applying the new guidance had no impact on its financial statements in future periods. However, additional disclosures will be included in future reporting periods in accordance with requirements of the new guidance.
In July 2015, the FASB issued ASU 2014-092015-11, “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 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. Early adoption is permitted. The Company is evaluating the impact adoption of this guidance will have on determination or reporting of its financial results.
In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815),” (“ASU 2016-05”). ASU 2016-05 provides guidance clarifying that novation of a derivative contract (i.e., a change in counterparty) in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. The effective date was the first quarter of fiscal year 2017, with early adoption permitted. The Company adopted this guidance during the quarter ended March 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 March 2016, the FASB issued ASU 2016-06, “Derivatives and Hedging (Topic 815),” (“ASU 2016-06”). ASU 2016-06 simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by clarifying that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis. The effective date was the first quarter of fiscal year 2017, with early adoption permitted. The Company adopted this guidance during the quarter ended March 31, 2017 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, 2017.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting,” (“ASU 2016-09”). ASU 2016-09 is intended to simplify several aspects related to how share-based payments are accounted for and presented in the financial statements, such as requiring all income tax effects of awards to be recognized in the income statement when the awards vest or are settled and allowing a policy election to account for forfeitures as they occur. In addition, all related cash flows resulting from share-based payments will be reported as operating activities on the statement of cash flows. ASU 2016-09 could result in increased volatility of the Company’s provision for income taxes and earnings per share, depending on the Company’s share price at exercise or vesting of share-based awards compared to grant date. The effective date was the first quarter of fiscal year 2017, with early adoption permitted. The Company adopted this guidance during the quarter ended March 31, 2017 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, 2017.
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 guidancenew standard will have on the determination or reporting of its consolidated financial results.

statements.

In June 2014,August 2016, the FASB issued ASU 2014-12, “Accounting for Share-Based2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period,” (“ASU 2014-12”2016-15”). ASU 2014-12 requires that a performance target that affects vesting,2016-15 reduces the existing diversity in practice in financial reporting by clarifying existing principles in ASC 230, “Statement of Cash Flows,” and that couldprovides specific guidance on certain cash flow classification issues. The effective date for ASU 2016-15 will be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. ASU 2014-12 is effective for the reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact that adoption of this guidance will have on the determination or reporting of its financial results.

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” (“ASU 2014-15”). ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern for a one year period subsequent to the date of the financial statements, as entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The guidance is effective for all entities for the first annual period ending after December 15, 2016 and interim periods thereafter,quarter of fiscal year 2018, with early adoption permitted. The Company is evaluatingadopted this guidance during the impact thatquarter ended March 31, 2018 on a prospective basis. The adoption of this guidance willdid not have a significant impact on the determinationoperating results for the year ended December 31, 2017.

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, 2017.

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 itsgoodwill 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 results.

statements.

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, 2017.
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 customers’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 customers’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 market,net realizable value, with cost determined substantially on a “first-in, first-out” basis. Selling, general, and administrative expenses are not inventoried, but are charged to expense when purchased.incurred. At December 31, 20142017 and December 31, 2013,2016, our inventories were as follows (in thousands):

    Year Ended December 31, 
    2014   2013 
 Raw materials $884  $1,013 
 Work in process  304   268 
 Finished goods  136   96 
 Inventory reserve  (144)  (184)
        Total $1,180  $1,193 

 
 
Year Ended December 31,
 
 
 
2017
 
 
2016
 
Raw materials
 $789 
 $795 
Work in process
  82 
  115 
Finished goods
  27 
  141 
Consigned inventory
  83 
  - 
Inventory reserve
  (716)
  (278)
  Total
 $265 
 $773 

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 depreciatedamortized 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, 20142017 and 20132016 (in thousands):

    Year Ended December 31, 
    2014   2013 
 Equipment $1,391  $1,277 
 Software  737   737 
 Furniture and fixtures  124   124 
 Leasehold Improvement  180   189 
    2,432   2,327 
 Less accumulated depreciation  (1,845)  (1,407)
             Total $587  $920 

 
 
Year Ended December 31,
 
 
 
2017
 
 
2016
 
Equipment
 $1,378 
 $1,378 
Software
  740 
  740 
Furniture and fixtures
  124 
  124 
Leasehold Improvement
  199 
  199 
 
  2,441 
  2,441 
Less accumulated depreciation
  (2,392)
  (2,315)
            Total
 $49 
 $126 
Debt Issuance Costs

Debt issuance costs incurred in securing the Company’s financing arrangements are capitalized and amortized over the term of the associated debt. Deferred financingDebt issuance costs are includedpresented in other long term assets.

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 projectsinventory that are being constructed for the Company.

At December 31, 2014 and 2013, such balances were approximately $72,000 and $326,000, respectively.

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 $50,000$15,000 and $75,000$23,000 in 20142017 and 2013,2016, respectively.

Accrued Liabilities

Accrued liabilities are summarized as follows at December 31, 20142017 and 20132016 (in thousands):

   

As of

December 31,

   2014 2013
 Accrued compensation $447  $426 
 Accrued professional fees  203   116 
 Deferred rent  54   68 
 Accrued warranty  119   58 
 Accrued vacation  144   —   
 Other accrued expenses  48   55 
             Total $1,015  $723 

 
 
Year Ended December 31,
 
 
 
2017
 
 
2016
 
Accrued compensation
 $2,122 
 $1,656 
Accrued professional fees
  223 
  161 
Accrued interest
  511 
  109 
Deferred rent
  - 
  13 
Accrued warranty
  39 
  58 
Accrued vacation
  152 
  175 
Accrued dividends
  291 
  296 
Stock subscription
  276 
  - 
Accrued expenses for licensee
  429 
  - 
Other accrued expenses
  204 
  202 
            Total
 $4,247 
 $2,670 

Revenue Recognition

Revenue from the sale of the Company’s products is recognized upon shipment of such products to its customers.distributors. The Company recognizes revenue from contracts on a straight linestraight-line basis, over the terms of the contracts. The Company recognizes revenue from grants based on the grant agreements, at the time the expenses are incurred.

Significant Customers

Distributors

In 20142017 and 2013,2016, the majority of the Company’s revenues were from twoone and three customers,distributors, respectively. Revenue from these customersdistributors totaled approximately $414,000$216,000 or 50%89% and approximately $653,000$534,000 or 65%73% of totalgross revenue for the year ended December 31, 20142017 and 2013,2016, respectively. Accounts receivable due from those customersdistributors represents 17% and 27%43% of unreserved accounts receivable as of December 31, 2014 and 2013, respectively.

2016. There were no amounts due from these distributors as of December 31, 2017.

Deferred Revenue

The Company defers payments received as revenue until earned based on the related contracts on a straight linestraight-line basis, over the terms of the contract.

As of December 31, 2017 and 2016, the Company has received prepayments for devices and disposables and deferred revenue in the amount of $21,000 and $34,000, 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, 2017 and 2016, the Company has approximately $82.9 and $84.4 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

Effective January 1, 2007 the

The Company adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all income tax positions.  Eachassesses 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, 20142017 and 2013,2016 there were no uncertain tax positions.

The Company is current with its federal and applicable state tax returns filings. Although we have been experiencing recurring losses, we are obligated to file tax returns for compliance with Internal Revenue Service (“IRS”) regulations and that of applicable state jurisdictions. As of December 31, 2014, the Company has approximately $68.4 million of net operating loss eligible to be carried forward for tax purposes at federal and applicable states level.

None of the Company’s federal or state income tax returns are currently under examination by the IRS or state authorities.  However, fiscal years 2011 and later remain subject to examination by the IRS and applicable states. 

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, 20142017 and 2013,2016, share-based compensation for options attributable to employees, officers and officersBoard members were approximately $886,000$59,000 and $824,000,$95,000, 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, 2014,2017, the Company had approximately $568,000$50,000 of unrecognized compensation costs related to granted stock options to be recognized over the remaining vesting period of approximately threetwo years.

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.

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, 2014.2017. The fair value of the warrants was estimated using the Monte CarloBinomial 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, 20142017 and 2013:

2016:

FAIR VALUE MEASUREMENTS ( In(In Thousands)

Description Level 1 Level 2 Level 3 Total Asset
(Liability)
Total
 Date
Public Offering warrants $—    $—    $(587) $(587) $(587)  December 31, 2014 
Series B Warrants $—    $—    $(1,483) $(1,483) $1,483)  December 31, 2014 
   Total 2014 $—    $—    $(2,070) $(2,070) $(2,070)    
                         
Series B Warrants $—    $—    $1,548) $(1,548) $(1,548)  December 31, 2013 

The following is summary of items that the Company measures at fair value on a recurring basis:
 
 
Fair Value at December 31, 2017
 
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrants issued in connection with Distributor Debt
  - 
  - 
  (114)
  (114)
Warrants issued in connection with Short-Term Loans
  - 
  - 
  (11)
  (11)
Warrants issued in connection with Senior Secured Debt
  - 
  - 
  (7,837)
  (7,837)
            Total long-term liabilities at fair value
 $- 
 $- 
 $(7,962)
 $(7,962)

 
 
Fair Value at December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrants issued in connection with Distributor Debt
 $ 
 $ 
 $(114)
 $(114)
Warrants issued in connection with Senior Secured Debt
   
   
  (1,306)
  (1,306)
            Total long-term liabilities at fair value
 $ 
 $ 
 $(1,420)
 $(1,420)
The following is a summary of changes to Level 3 instruments during the year ended December 31, 2017:
 
 
Fair Value Measurements Using Significant Unobservable
Inputs (Level 3)
 
 
 
Series C Warrants
 
 
Series B Warrants
 
 
Senior Secured Debt
 
 
Distributor Debt
 
 
Total
 
Balance, December 31, 2016
 $- 
 $- 
 $(1,306)
 $(114)
 $(1,420)
Warrants issued during the year
  - 
  - 
  (55)
  - 
  (55)
Change in fair value during the year
  - 
  - 
  (6,487)
  - 
  (6,487)
Balance, December 31, 2017
 $- 
 $- 
 $(7,848)
 $(114)
 $(7,962)
As of December 31, 2017, the fair value of warrants was approximately $8.0 million. A net change of approximately $6.5 million has been recorded to the accompanying statement of operations for the year ended.
4. Stockholders’ Equity

STOCKHOLDER’S DEFICIT

Common Stock

The Company has authorized 195 million1,000,000,000 shares of common stock with $0.001 par value, of which 96.9 million49,562,810 were issued and outstanding as of December 31, 2014.2017. For the year ended December 31, 2013,2016, there were 145 million1,000,000,000 authorized shares of common stock, of which 70.5 million668,651 were issued and outstanding.

A 1:800 reverse stock split of all of our issued and outstanding common stock was implemented on November 7, 2016. As a result of the reverse stock split, every 800 shares of issued and outstanding common stock was 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. On February 24, 2016, the Company had also implemented a 1:100 reverse stock split of its issued and outstanding common stock. The number of the authorized shares did not change.
For the year ended December 31, 2014,2017, the Company issued 26,409,89348,894,159 shares of common stock as listed below:

Public Offering - Issuance - For CashSeries C Preferred Stock Conversions8,985,410
Public Offering - Issuance - For Debt Repayment7,800,005
Reg. S - New Issuance - For Cash651,042
11,906,931
Series B ConversionC Preferred Stock Dividends2,311,089
5,365,298
Series B DividendsConvertible Debt Conversions342,389
31,571,930
Commitment Shares / 2014 Senior Convertible NotesIssuance of shares for note agreement321,820
50,000
2014 Senior Convertible Note2,783,959
Option Exercised242,439
Warrant  Exercised200,000
Board Compensation771,740
Restricted Shares CEO 20142,000,000
Total26,409,893
48,894,159

Preferred Stock; Series B Convertible


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, 2017, 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, 2017.
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 8, 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, as well as Dr. John Imhoff, a director and another director, Richard Blumberg, is a managing member of Shenghuo.
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 as redeemable convertible preferred stock, none of which remain outstanding, and 3,000outstanding; 33,000 shares of preferred stock as Series B Preferred Stock, none of which 1,277remained outstanding, 9,000 shares of preferred stock as Series C Convertible Preferred Stock, of which 970 and 2,147 shares1,643 were issued and outstanding as ofat December 31, 20142017 and 2013, respectively.

Pursuant to the terms2016, respectively, and 20,250 shares of Series C1 Convertible Preferred Stock, of which 4,312 were issued and outstanding at December 31, 2017 and 2016.

Series B Convertible Preferred Stock
Holders of the Series B Preferred Stock set forthwere entitled to quarterly dividends at an annual rate of 10.0%, payable in cash or, subject to certain conditions, common stock, at the Certificate of Designations, Preferences and Rights designating theCompany’s option.
The Series B Preferred Stock (the “Preferredwere issued with Tranche A warrants to purchase 24 shares of common stock and Tranche B warrants purchasing 7,539 shares of common stock, at an exercise price of $8,364 and $75 per share, respectively.
At December 31, 2015, as a result of the operation of certain anti-dilution provisions, the Tranche B warrants were convertible into 1 shares of common stock. These warrants were re-measured based upon their fair value each reporting period and classified as a liability on the Balance Sheet. 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.

Series C Convertible Preferred Stock Designation”),
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 and sale of an aggregate of 6,737 shares of Series B Preferred StockC convertible preferred stock, at a purchase price of $750 per share and a stated value of $1,000 per share. On September 3, 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. Total cash and non-cash expenses were valued at $853,000, resulting in net proceeds of $3,698,000.
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 willmay be mandatorily convertible upon the achievement of certain conditions, including the receipt of certain approvals from the U.S. Food and Drug Administration and the achievement by the Company of specified average trading prices and volumes for the Company’s common stock. The originalAt December 31, 2017, there were 970 shares outstanding with a conversion price was $0.68of $0.017 per share, such that each share of Preferred StockSeries C preferred stock would convert into 1,471approximately 58,824 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 Preferred Stock Designation. As a resultSeries C certificate of anti-dilution provisions, the currentdesignations. The conversion price is set at $0.15 per share, such that each sharewill automatically adjust downward to 80% of Preferred Stock would convert into 6,676 sharesthe then-current market price of the Company’s common stock.

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 B Preferred StockC preferred stock are entitled to quarterly cumulative dividends at an annual rate of 5.0%, for12.0% until 42 months after the quarter ended December 31, 2014, and at an annual rate of 10.0% thereafter, in each case,original issuance date (the “Dividend End Date”), payable in cash or, subject to certain conditions, common stock, at the Company’s option. Accruedcommon 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 amount of unpaid dividends totaled approximately $32,500 atthrough the Dividend End Date on the converted shares. At December 31, 2014. Each2017, the “make-whole payment” for a converted share of Series B Preferred Stock is entitledC preferred stock would convert to a number of votes equal to the number of shares of common stock into which the Series B Preferred Stock is convertible. As long as24,706 shares of the Company’s common stock. The Series B Preferred Stock are outstanding, and until the receipt of certain approvals from the U.S. Food and Drug Administration and the achievementC preferred stock generally has no voting rights except as required by the Company of specified average trading prices and volumes for the common stock, the Company may not incur indebtedness for borrowed money secured by the Company’s intellectual property or in excess of $2.0 million without the prior consent of the holders of two-thirds of the outstanding shares of Series B Preferred Stock. The Company may redeem the Series B Preferred Stock after the second anniversary of issuance, subject to certain conditions.Delaware law. Upon the Company’s liquidation or sale to or merger with another corporation, each share of Series B Preferred Stock will be entitled to a liquidation preference of $1,000, per share, plus any accrued but unpaid dividends.

The

In addition, the purchasers of the Series B Preferred Stock was issued with Tranche AC preferred stock received, on a pro rata basis, warrants exercisable to purchase 1,858,089an aggregate of approximately 150 shares of Company’s common stock. The warrants contain anti-dilution adjustments in the event that the Company issues shares of common stock, and Tranche B warrants purchasing 1,858,088or securities exercisable or convertible into shares of common stock, both at anprices below the exercise price of $1.08 per share. Pursuant to the terms of the Tranche B warrants, their exercise price will be reduced, and the number of shares of common stock into which those warrants are exercisable will be increased, if the Company issues shares at a price below the then-current exercise price. The exercise price of Tranche B warrants is currently $0.15 per share, convertible into 13,196,019 shares of common stock.such warrants. As a result of these provisions,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, 2017, the exercise price per share was $640.
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 22,996 shares of common stock. At December 31, 2017, there were 4,312 shares outstanding with a conversion price of $0.017 per share, such that each share of Series C preferred stock would convert into approximately 58,824 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.
Warrants
The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the year ended December 31, 2017:
Warrants
(Underlying Shares)
Outstanding, January 1, 2017
4,349,762
Issuances
289,739,376
Exercised
-
Canceled / Expired
-
Outstanding, December 31, 2017
294,089,138
The Company valueshad the following shares reserved for the warrants usingas of December 31, 2017:
Warrants(Underlying Shares) Exercise Price
 
Expiration Date
23(1)$8,368.00 per share
 
May 23, 2018
7,538(2)$75.00 per share
 
June 14, 2021
3(3)$40,000.00 per share
 
April 23, 2019
7(4)$36,000.00 per share
 
May 22, 2019
4(5)$30,400.00 per share
 
September 10, 2019
2(6)$36,864.80 per share
 
September 27, 2019
9(7)$22,504.00 per share
 
December 2, 2019
105(8)$7,200.00 per share
 
December 2, 2020
105(9)$8,800.00 per share
 
December 2, 2020
25(11)$20,400.00 per share
 
March 30, 2018
22(12)$9,504.00 per share
 
June 29, 2020
145(10)$640.00 per share
 
June 29, 2020
150(11)$640.00 per share
 
September 4, 2020
362(12)$640.00 per share
 
September 21, 2020
6(13)$9,504.00 per share
 
September 4, 2020
1(14)$640.00 per share
 
October 23, 2020
6(15)$9,504.00 per share
 
October 23, 2020
279,669,261(16)$0.00514 per share
 
June 14, 2021
13,424,125(17)$0.00514 per share
 
February 21, 2021
17,239(18)$13.92 per share
 
June 6, 2021
200,000(19)$0.00514 per share
 
February 13, 2022
20,000(20)$0.18 per share
 
May 16, 2022
550,000(21)$0.019 per share
 
November 16, 2020
200,000(22)$0.029 per share
 
December 28, 2020
294,089,138*  
 
 
* 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 in June 2015 in exchange for warrants originally issued as part of a May 2013 private placement.
(3)Issued to a placement agent in conjunction with an April 2014 private placement.
(4)Issued to a placement agent in conjunction with a September 2014 private placement.
(5)Issued as part of a September 2014 Regulation S offering.
(6)Issued to a placement agent in conjunction with a 2014 public offering.
(7)Issued in June 2015 in exchange for warrants originally issued as part of a 2014 public offering.
(8)Issued as part of a March 2015 private placement.
(9)Issued to a placement agent in conjunction with 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 as part of a June 2015 private placement.
(13)Issued to a placement agent in conjunction with a June 2015 private placement.
(14)Issued as part of a June 2015 private placement.
(15)Issued to a placement agent in conjunction with a June 2015 private placement.
(16)Issued as part of a February 2016 private placement.
(17)Issued to a placement agent in conjunction with a February 2016 private placement.
(18)
(19)
Issued pursuant to a strategic license agreement.
Issued as part of a February 2017 private placement.
(20)Issued as part of a May 2017 private placement.
(21)Issued to investors for a loan in November 2017.
(22)Issued to investors for a loan in December 2017.
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 (9). In addition, warrants subject to footnotes (2) and (10)-(12), (14), and (16) – (22) 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 (2), (16) and (17) in the table above, increase the number of shares of common stock issuable upon exercise), to the offering price in a Monte Carlo Simulation model. Of the $2.6 million in proceeds fromsubsequent issuance of the Series B Preferred Stock,Company’s common stock, unless such subsequent issuance is exempt under the Company originally allocated $873,000 to the fair valueterms of the warrants. At
For the warrants to footnote (16), 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 (2) 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 $1,040.00 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 $129,600 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 (2) in the table above.
The warrants subject to footnote (5) 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 $92.16.
The warrants subject to footnote (7) 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.

The holders of the warrants subject to footnote (2) 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.
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 1,185,357 shares of common stock (but subject to exponential increase upon operation of certain anti-dilution provisions), the Company issued or is obligated to issue 16,897 shares of common stock and new warrants that, if exercised as of the date hereof, would be exercisable for an aggregate of 216,707 shares of common stock. As of December 31, 2014,2017, the fair valueCompany had issued 14,766 shares of thesecommon stock and rights to common stock shares for 2,131. 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 washave 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, 2017, the company had NOL carryforwards available through 2036 of approximately $1.5 million.

Stock Options

$82.9 million to offset its future income tax liability. The NOL carryforwards began to expire in 2008. 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.

Components of deferred taxes are as follow at December 31 (in thousands):
 
 
2017
 
 
2016
 
Deferred tax assets:
 
 
 
 
 
 
Warrant liability
 $1,990
 $697 
Accrued executive compensation
  447 
  540 
Reserves and other
  301
  255 
Net operating loss carryforwards
  20,726 
  27,958 
 
  23,464
  29,450 
  Valuation allowance
  (23,464)
  (29,450)
 
 $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:
 
 
2017
 
 
2016
 
Statutory federal tax rate
  34%
  34%
State taxes, net of federal benefit
  4 
  4 
Nondeductible expenses
  - 
  - 
  Valuation allowance
  (38)
  (38)
 
  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, 2017.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.
The TCJA reduces the corporate tax rate to 21% effective January 1, 2018. The Company has recorded a provisional decrease in its deferred tax assets and liabilities for the year ended December 31, 2017. While the Company may be able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analyses related to the TCJA.
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, 2017, 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, 2017.
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:
 
 
2017
 
 
2016
 
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 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.

6. STOCK OPTIONS
The Company’s 1995 Stock Plan (the “Plan”), a total of 6,314,824 has expired pursuant to its terms, so zero shares remained available for issuance at December 31, 20142017 and 6,940,395 shares were subject to stock options outstanding as of that date, bringing the total number of shares subject to stock options outstanding and those remaining available for issue to 13,255,219 shares of common stock as of December 31, 2014.2016. The Plan allowsallowed for the issuance of incentive stock options, nonqualified stock options, and stock purchase rights. The exercise price of options iswas determined by the Company’s board of directors, but incentive stock options must bewere granted at an exercise price equal to the fair market value of the Company’s common stock as of the grant date. Options historically granted have generally become exercisable over four years and expire ten years from the date of grant.

As of December 31, 2017, the Company has issued and outstanding options to purchase a total of 116 shares of common stock pursuant to the Plan, at a weighted average exercise price of $37,090 per share.
The fair value of stock options granted in 2014 and 2013the year ended December 31, 2017 were estimated using the Black-Scholes option pricing model. A summary of the assumptions used in determining the fair value of options follows:

   2014 2013
 Expected volatility  157.70%  174.00%
 Expected option life in years  9.98   10.00 
 Expected dividend yield  0.00%  0.00%
 Risk-free interest rate  2.55%  1.87%
 Weighted average fair value per option at grant date $0.40  $0.69 

Application of the Black-Scholes option pricing model involves assumptions that are judgmental and affect compensation expense. Historical information is the primary basis for the selection of expected volatility, expected option life and expected dividend yield. Expected volatility is based on the most recent historical period equal to the expected life of the option. The risk-free interest rate is based on yields of U.S. Treasury zero-coupon issues with a term equal to the expected life of the option on the date the stockNo options were granted.

Stock option activity for each of the two years ended December 31 is as follows:

  2014 2013
    

Weighted

Average

Exercise

   Weighted
Average
Exercise
  Shares Price Shares Price
Outstanding at beginning of year  6,531,192  $0.68   6,463,206  $0.67 
   Options granted  754,761  $0.40   977,276  $0.50 
   Options exercised  (242,439) $0.32   (580,540) $0.31 
   Options expired/forfeited  (103,119) $0.68   (328,750) $1.15 

Outstanding at end of year  6,940,395  $0.66   6,531,192  $0.66 
Options vested and exercisable at year-end  5,988,119  $0.66   5,463,963  $0.58 
Options available for grant at year-end  6,314,824       6,724,027     
Aggregate intrinsic value – options exercised $49,675      $236,059     
Aggregate intrinsic value – options outstanding $494,119      $625,412     
Aggregate intrinsic value – options vested and
exercisable
 $612,946      $612,946     
Options unvested, balance at beginning of year (1)  1,067,229  $1.12   1,819,087  $1.18 
   Options granted (1)  754,761  $0.40   977,276  $0.50 
   Vested (1)  (766,595) $0.66   (1,582,034) $0.80 
Cancelled/Forfeited  (103,119) $0.68   (147,100  $1.22 
Balance, end of period (1)  952,276       1,067,229  $1.12 

__________________

(1)Includes awards not captured in valuation fragments

The Company estimates the fair value of stock options using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected term, expected volatility of the Company’s common stock, the risk free interest rate, option forfeiture rates, and dividends, if any. The expected term of the options is based upon the historical term until exercise or expiration of all granted options. The expected volatility is derived from the historical volatility of the Company’s stock on the OTCBB market for a period that matches the expected term of the option. The risk-free interest rate is the constant maturity rate published by the U.S. Federal Reserve Board that corresponds to the expected term of the option.

Warrants

In November 2013, the Company completed a warrant exchange program, pursuant to which it exchanged warrants exercisable for a total of 3,560,869 shares of common stock, or 99% of the warrants eligible to participate. These exchanges resulted in a deemed dividend of approximately $537,000, reflected as a non-cash disclosure in this financial statement of cash flows.

The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock forissued during the year ended December 31, 2014:

Warrants

(Underlying Shares)

Outstanding, January 1, 201411,258,939
Issuances19,238,727
Canceled / Expired(501,512)
Exercised(200,000)
Outstanding, December 31, 201429,796,154

The Company had the following shares reserved2017.

Stock option activity for the warrants as of December 31, 2014:

 

Warrants
(Underlying Shares)

 

Exercise Price

Expiration Date

 
      
 3,590,522(1)$0.8000 per shareMarch 1, 2015 
 6,790(2)$1.0100 per shareSeptember 10, 2015 
 439,883(3)$0.6800 per shareMarch 31, 2016 
 285,186(4)$1.0500 per shareNovember 20, 2016 
 1,858,089(5)$1.0800 per shareMay 23, 2018 
 13,196,103(5)(6)$0.1498 per shareMay 23, 2018 
 200,000(7)$0.5000 per shareApril 23, 2019 
 561,798(7)$0.4500 per shareMay 22, 2019 
 184,211(8)$0.3800 per shareSeptember 10, 2019 
 325,521(9)$0.4601 per shareSeptember 27, 2019 
 8,392,707(10)$0.2250 per shareDecember 2, 2019 
 755,344(11)$0.2812 per shareDecember 2, 2019 

(1)Consists of outstanding warrants issued in conjunction with a June 2012 warrant exchange program.
(2)Consists of outstanding warrants issued in conjunction with a September 2010 private placement.
(3)Consists of outstanding warrants issued in conjunction with a buy-back of a minority interest in Interscan in December 2012, which were issued in February 2014.
(4)Consists of outstanding warrants issued in conjunction with a November 2011 private placement.
(5)Consists of outstanding warrants issued in conjunction with a May 2013 private placement.
(6)Underlying shares increased from 1,858,089 to 9,138,141, and per share exercise price decreased from $1.08 to $0.2196, pursuant2017 and 2016 as follows:
 
 
2016   
 
 
 
 
 
 
Weighted Average  
 
 
 
Shares
 
 
Exercise Price   
 
Outstanding at beginning of year
  132 
 $36,000 
   Options granted
  - 
 $- 
   Options exercised
  - 
 $- 
   Options expired/forfeited
  (7)
 $74,160 
Outstanding at end of year
  125 
 $37,920 
Options available for issue
  - 
    
 
 
 2017    
 
 
 
 
 
 
 Weighted Average 
 
 
 
Shares
 
 
 Exercise Price 
 
Outstanding at beginning of year
  125 
 $37,920 
   Options granted
  - 
 $- 
   Options exercised
  - 
 $- 
   Options expired/forfeited
  (7)
 $48,613 
Outstanding at end of year
  118 
 $37,090 
Options available for issue
  - 
    
 
 
 
 
 
Weighted Average
 
 
 
Shares
 
 
Exercise Price
 
Options Vested as of December 31, 2016
  117 
 $38,640 
   Options vested in 2017
  - 
 $- 
Options vested as of December 31, 2017
  117 
 $38,640 
 
 
 
 
 Weighted Average
 
 
Shares
 
 
 Exercise Price 
 
Options Unvested as of December 31, 2016
  8 
 $39,200 
   Options vested in 2017
  (-)
 $- 
   Options expired/forfeited in 2017
  (7)
 $48,613 
Options Unvested as of December 31, 2017
  1 
    

7.   LITIGATION AND CLAIMS
From time to time, the anti-dilution provisions in the warrants, as a result of conversions of the senior convertible notes.
(7)Consists of warrants issued to the placement agent in connection with the private placement of our senior convertible notes.
(8)Consists of outstanding warrants issued to a placement agent in conjunction with the secured note offering.
(9)Consists of outstanding warrants issued in conjunction with the Regulation S offering.
(10)Consists of outstanding warrants issued in conjunction with the 2014 public offering.
(11)Consists of outstanding warrants issued to the Placement Agent in conjunction with the 2014 public offering.

5. Income Taxes

The Company has incurred net operating losses (“NOLs”) since inception. 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, 2014, the Company had NOL carryforwards available through 2034 of approximately $68.4 million to offset its future income tax liability. The NOL carryforwards began to expire in 2008. The Company has2017 and 2016, there was no accrual recorded a valuation allowance for all deferred tax assetsany potential losses related to the NOLs. Utilization of existing NOL carry forwards may be limited in future years based on significant ownership changes. The Company is in the process of analyzing its NOLs and has not determined if it is subject to any restrictions in the Internal Revenue Code that could limit the future use of NOL.

Components of deferred taxes are as follows at December 31 (in thousands):

   2014 2013
 Deferred tax assets:    
    Net operating loss carry forwards $466  $287 
 Deferred tax liabilities:        
    Intangible assets and other  25,994    22,737 
    26,460   23,025 
 Valuation allowance  (26,460)  (23,025)
   $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:

   2014 2013
 Statutory federal tax rate  34%  34%
 State taxes, net of federal benefit  4   4 
 Nondeductible expenses  —     —   
 Valuation allowance  (38)  (38)
    0%  0%

6. Commitments and Contingencies

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 D,B, Norcross, Georgia 30092. The Company leasesleased approximately 23,000 square feet under a lease that expiresexpired 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 is approximately $15,000 plus common charges.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 also leases office and equipment under operatingcompany recognizes the rent expense on a straight-line basis over the estimated lease agreements with monthly payments of approximately $2,000.  These leases expire at various dates through April 2016.term. Future minimum rental payments at December 31, 20142017 under non-cancellable operating leases for office space and equipment are as follows (in thousands):

 

 

Year

 Amount (,000) 
 2015 $         211 
 2016 201 
 2017 98 
 Total $        510 

Rental expense was approximately $170, 000 in 2014 and 2013.

Litigation and Claims

For the years ended December 31, 2014 and 2013, there was no accrual needed for any potential losses related to pending litigation.

Year Amount
2018 114
2019 98
2020 101
2021 26
Related Party Contracts

In February 2013,

On June 5, 2016, the Company replaced its existing agreementsentered into a license agreement with Konica Minolta with a new agreement,Shenghuo Medical, LLC pursuant to which subjectthe 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 paymentCompany’s exclusive distributor in China, Macau and Hong Kong, and the license extended to manufacturing in those countries as well. Under the terms of a nominalthe license fee due upon FDA approval, Konica Minolta has grantedagreement, once Shenghuo was capable of manufacturing LuViva in accordance with ISO 13485 for medical devices, Shenghuo would pay the Company a five-year, world-wide, non-transferable and non-exclusive right and licenseroyalty equal to manufacture and$2.00 or 20% of the distributor price (subject to develop a non-invasive esophageal cancer detection product from Konica Minolta and based on the Company’s biophotonic technology platform. The license permits the Company to usediscount under certain related intellectual property of Konica Minolta.circumstances), whichever is higher, per disposable distributed within Shenghuo’s exclusive territories. In return forconnection with the license grant, Shenghuo was to underwrite the Company has agreedcost of securing approval of LuViva with Chinese Food and Drug Administration. At its option, Shenghuo also would provide up to pay Konica Minolta a royalty for each licensed product the Company sells.

7. License and Technology Agreements

As part$1.0 million in furtherance of the Company’s efforts to conduct researchsecure regulatory approval for LuViva from the U.S. Food and development activitiesDrug 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 commercialize potential products,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 time to time, enters into agreements with certain organizationsissuance and individuals that further those efforts but also obligateconsummation 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 $13.92, subject to make future minimum payments orcustomary anti-dilution adjustment. The note will be unsecured, and is expected to remit royalties ranging from 1% to 3%provide for customary events of revenue from the sale of commercial products developed from the research.default. The Company generally is requiredwill also issue Shenghuo a five-year warrant exercisable immediately for approximately 21,549 shares of common stock at an exercise price equal to make minimum royalty payments for 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 develop certain technology.

8. 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
Notes Payable

Short Term Notes Payable

in Default

At December 31, 2014,2017 and 2016, the Company maintained notes payable and accrued interest to both related and non-related parties totaling $609,000.$1,091,000 and $1,008,000, respectively. These notes are short term, straight-line amortizing notes. The notes carry an annual interest rate ofrates between 5% and 10% and have default rates as high a 16.5%.

The Company is accruing interest at the default rate of 16.5%.

Short Term Notes Payable
At December 31, 2014,2017 and 2016, the Company maintained a noteshort term notes payable and accrued interest to Premium Assignment Corporation, an insurance premium financing company, of approximately $100,000. This note is 10 monthboth related and non-related parties totaling $354,000 and $127,000, respectively. These notes are short term, straight-line amortizing loan dated June 24, 2014.notes. The note carriesnotes carry annual interest of 4.6%rates between 5% and 10%. The balance due to on the Premium Assignment note was approximately $37,000 at December 31, 2014.

On September 10, 2014,

In July 2017, the Company entered into a premium finance agreement to finance its insurance policies totaling $206,293. The note requires monthly payments of $18,766, including interest at 4.89% and matures in May 2018. The balance due on this note totaled $93,000 at December 31, 2017.
In June 2016, the Company entered into a premium finance agreement to finance its insurance policies totaling $193,862. The note required monthly payments of $17,622, including interest at 4.87% and matured in April 2017.
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, 2017, the Company had a note due of $417,160. 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 $13.92, 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 17,239 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 February 13, 2017, the Company entered into a securities purchase agreement with Tonaquint, Inc.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 200,000 shares of the Company’s common stock. The warrant is exercisable at any time, at an exercise price per share equal to $0.00514 (110% of the closing price of the common stock on the day prior to issuance), pursuantsubject 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 $0.40 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, 2017, the Company has net debt of $76,664.
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, 2017, the Company has net debt of $41,322, including unamortized original issue discount of $5,214, unamortized and debt issuance costs of $11,160.
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, 2017, the Company has net debt of $42,216, including unamortized original issue discount of $5,214, unamortized and debt issuance costs of $11,160.

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, 2017, the Company has net debt of $66,000.
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, 2017, the Company has a net debt of $46,405, including unamortized debt issuance costs of $6,595.
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, 2017, the Company has a net debt of $47,288, including unamortized debt issuance costs of $5,722.
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, 2017, the Company has a net debt of $45,565, including unamortized debt issuance costs of $7,435.
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. As of December 31, 2017, the Company has fully amortized debt issuance costs $30,000 and original issue discount of $22,000. As of December 31, 2017, the balance due to the investor for the December 28, 2016 note, is zero.

11.  CONVERTIBLE DEBT IN DEFAULT
Secured Promissory Note.
On September 10, 2014, the Company sold a secured promissory note to Tonaquintan 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 note purchase agreement.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 May 10, 2015. See Note 12, Subsequent Events.

In connection with the offering, the Company issued its placement agent warrants exercisable for 184,211 shares at $0.38 per share, with an expiration date of September 10, 2019.

Total debt issuance cost capitalized was approximately $130,000. This amount is being amortized over six months. Total amortized expense for the year ended December 31, 2014 was approximately $81,000.

For the year ended December 31, 2014, the Company recorded amortization of approximately $347,000 on the discount.

Notes Payable

At December 31, 2012, the Company was past due on two short-term notes totaling approximately $419,000 of principal and accrued interest. Interest charged on these notes prior to amendment ranged between 15-18%. On February 27, 2013, the Company renegotiated one of the two past due notes. The new note accrued interest at 6% and was paid in full during the quarter ended June 30, 2013. On April 16, 2013, the Company renegotiated the other note. The renegotiated note accrues interest at 9.0%, with a 16.0% default rate, requires monthly payments of $10,000, including interest, and matures November 2015. The balance due on this note was approximately $159,000 and $208,000 at December 31, 2014 and 2013, respectively. As of December 31, 2014, the note is accruing interest at the default rate, of which principal and interest of $130,000 is payable during the year ending December 31, 2015 and $29,000 is payable during the year ending DecemberAugust 31, 2016.

Convertible debt

On April 23, 2014, the Company entered into a securities purchase agreement (the “Purchase Agreement”), with Magna Equities II, LLC (formerly Hanover Holdings I, LLC), an affiliate of Magna Group (“Magna”). Pursuant to the Purchase Agreement, the Company sold Magna a 6% senior convertible note with an initial principal amount of $1.5 million and an 18-month term (the “Initial Convertible Note”), for a purchase price of $1.0 million (an approximately 33.3% original issue discount). Additionally, pursuant to the Purchase Agreement, on May 23, 2014 Magna purchased an additional senior convertible note with an initial principal amount of $2.0 million and an 18-month term (the “Additional Convertible Note” and, with the Initial Convertible Note, (the “Convertible Notes”), for a fixed purchase price of $2.0 million.

Pursuant to the terms of the Initial Convertible Note, $500,000 of the outstanding principal amount (together with any accrued and unpaid interest with respect to such portion) was automatically extinguished (without any cash payment by the Company) upon satisfaction of certain conditions.

Subject to certain limitations, the Convertible Notes are convertible at any time, in whole or in part, at Magna’s option, into shares of the Company’s common stock, at a conversion price equal to the lesser of $0.55 per share and a discount from the lowest daily volume-weighted average price of the Company’s common stock in the five trading days prior to conversion. Beginning December 19, 2014, the discount is 25%. At no time will Magna be entitled to convert any portion of the Convertible Notes to the extent that after such conversion, Magna (together with its affiliates) would beneficially own more than 9.99% of the outstanding shares of the Company’s common stock as of such date. As long as Magna or its affiliates beneficially own any of the shares issued upon conversion, they may not engage in any “short sale” transactions in the Company’s common stock and may not sell more than the greater of $15,000 or 15% of the trading volume of the common stock in any single trading day.

The Convertible Notes include customary event of default provisions and a default interest rate of 16%. Upon the occurrence of an event of default, Magna may require the Company to pay in cash the “Event of Default Redemption Price,” which is defined in the Convertible Notes to mean the greater of (i) the product of (A) the amount to be redeemed multiplied by (B) 135% (or 100% if an insolvency related event of default) and (ii) the product of (X) the conversion price in effect at that time multiplied by (Y) the product of (1) 135% (or 100% if an insolvency related event of default) multiplied by (2) the greatest closing sale price of the common stock on any trading day during the period commencing on the date immediately preceding such event of default and ending on the date the Company makes the entire payment required to be made under this provision.

The Company paid to Magna a commitment fee for entering into the Purchase Agreement in the form of 321,820 shares of common stock. The Company also paid $50,000 of attorneys’ fees and expenses incurred by Magna in connection with the transaction. Total debt issuance costs incurred on the Senior Convertible Note was approximately $844,000. This amount is being amortized over 18 months. Total amortization expense for the year ended was approximately $328,000.

In connection with the sale of the Convertible Notes, the Company issued its placement agent warrants exercisable for 200,000 shares of common stock at $0.50 per share with an expiration date of April 23, 2019, and warrants exercisable for 561,798 shares of common stock at $0.45 per share with an expiration date of May 22, 2019.

As of December 31, 2014, the Company had issued a total of 2,783,959 shares of common stock, in conjunction with conversions of the Convertible Notes.

Loss on Extinguishment of Debt

As part of our public offering of sale of common stock, consummated on December 2, 2014, the Company repaid approximately $1.4 of debt via the issuance of 7,700,504 shares of common stock and warrants to purchase an additional 3,850,252 shares at an exercise price of $0.225 per share, expiring in December 2, 2019. Pursuant to the convertible note agreement, the Company had to pay a prepayment penalty of 25% of the amount prepaid.  The penalty on the transaction was approximately $325,000 and was charged to loss on extinguishment of debt on the statement of operations for the year ended December 31, 2014.

9.Related Party Transactions

At December 31, 2014, the Company maintained notes payable and accrued interest to related parties totaling approximately $609,000. These notes are short term, straight-line amortizing notes.  The notes carry an annual interest rate of between 5% and 10%. 

Our Directors and Officers participated in our public offering dated December 2, 2014 for a total of $182,603 and received 811,571 shares of common stock as well as warrants to purchase an additional 405,786 shares at $0.225, expiring in December 2, 2019.

10. Valuation and Qualifying Accounts

Allowance for Doubtful Accounts

The Company has the following allowances for doubtful accounts (in thousands):

   

 

Year Ended December 31,

   2014 2013
 Beginning balance $18  $12 
 Additions / (Adjustments)  58   6 
         Balance $76  $18 
          

Inventory Reserves

The Company has the following reserves for inventory balance (in thousands):

   

Year Ended December 31,

   2014 2013
 Beginning balance $184  $52 
 Additions / (Adjustments)  (40)  132 
         Balance $144  $184 
          

11. Loss Per Common Share

Basic net loss per share attributable to common stockholders amounts are computed by dividing the net loss plus preferred stock dividends and deemed dividends on preferred stock by the weighted average number of shares outstanding during the period.

12.Subsequent Events

Between January 1, 2015 and March 25, 2015, we received approximately $17,000 from the Company’s officers as short-term advances.

On February 2, 2015, we received $70,000 from an investor as a deposit for the purchase of LuViva devices for exportation. As of March 25, 2015, negotiation of a definitive purchase agreement was on-going.

On March 16, 2015 and March 19, 2015, the Company entered into subscription agreements with certain accredited investors, pursuant to which we agreed to sell an aggregate of 4.0 million shares of our common stock and warrants to purchase an additional 2.0 million shares, for an aggregate purchase price of $720,000 in a private placement not involving a public offering under Section 4(a)(2) of the Securities Act. As of March 19, 2015, the Company had consummated $320,000 of the total transaction and we expect to consummate the remainder by the end of the first quarter of 2015. The warrants are immediately exercisable, have an exercise price per share of $0.255 and expire three years from the date of issuance.

On March 10, 2015, the Company amended the Tonaquint note to extend the maturity until May 10, 2015. During the extension, interest will accrueaccrues on the note at a rate of the lesser of 18% per year or the maximum rate permitted by applicable law. In addition, whileOn February 11, 2016, the Company consented to an assignment of the note remains outstanding, Tonaquint will haveto two accredited investors. In connection with the rightassignment, the holders waived an ongoing event of default under the notes related to convert upthe Company’s minimum market capitalization, and agreed to $150,000eliminate the requirement going forward. Pursuant to the terms of the amended note, the holder may convert the outstanding balance of the note into shares of the Company’s common stock at a conversion price per share equal to the lower of (1) $0.25 and$25.0 or (2) 75% of the lowest daily volume weighted average price per share of the common stock during the five business days prior to conversion. If the conversion price would beat the time of any conversion is lower than $0.15 per share,$15.00, 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 $184,245 and $530,691 at December 31, 2017 and December 31, 2016, 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 of 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 $0.80 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, 2017, had not done so). 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 $424,011 of interest expense. The convertible note is secured by a lien on all of 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, 2017, the exercise price had been adjusted to $0.00514 and the number of common stock shares exchangeable for was 279,669,261. As of December 31, 2017, 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, 2017, GPB had earned approximately $29,000 in royalties.
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 of 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 from 3.5% to 3.85% of revenues from the sales of the Company’s products.
On August 7, 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.
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.

Diluted net loss per common share is the same as basic net loss per common share since the Company was operating in a loss position for 2017 and 2016. 
13.  SUBSEQUENT EVENTS
During February and March 2018, the Company entered into short-term convertible notes similar to those detailed in Note 10 - Short-Term Convertible Debt. The notes with Adar, Power-Up, Eagle and Auctus were for $87,000, $53,000, $66,000 and $150,000, respectively. Additionally, John Imhoff loaned the Company $150,000.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported, within the time periods specified in Securities and Exchange Commission (“Commission”) rules and forms. We carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer/Acting Chief Financial Officer, Gene Cartwright, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer/Acting Chief Financial Officer has concluded that our disclosure controls and procedures were ineffective as of December 31, 2014,2017, due to the existence of a material weakness in our internal control over financial reporting, described below, that we have yet to fully remediate.

Management’s Annual Report on Internal Control over Financial Reporting: Our management, including our Chief Executive Officer/Acting Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer/Chief Financial Officer and implemented by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and (ii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of their inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Principal Executive Officer/Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 19922013 version of the Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation, our management concluded that our internal control over financial reporting was ineffective as of December 31, 2014,2017, due to the existence of the material weakness described below:

The Company lacks the resources to properly research and account for complex transactions. This deficiency has resulted in a material weakness in our internal control over financial reporting.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Commission that permit non-accelerated filers to provide only the management’s report in their annual reports on Form 10-K.

Except as described above, there were no changes to the Company’s internal controls over financial reporting occurred during the quarteryear ended December 31, 20142017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.


PART III

Item 10. Directors, Executive Officers and Corporate Governance

Our executive officers are elected by and serve at the discretion of our board of directors. The following table lists information about our directors and executive officers:

NameAgePosition with Guided Therapeutics
Gene S. Cartwright, Ph.D.6163Chief ExecuteExecutive Officer, President, Acting Chief Financial Officer and Director
Mark Faupel, Ph.D.62Chief Operating Officer and Director
Richard L. Fowler5861Senior Vice President of Engineering
Ronald W. Hart, Ph.D.Richard P. Blumberg7361Director
John E. Imhoff, M.D.6668Director
Michael C. James5659Chairman and Director
Jonathan M. Niloff, M.D. 61Director 
Linda Rosenstock, M.D.64Director

Except as set forth below, all of the executive officers have been associated with us in their present or other capacities for more than the past five years. Officers are elected annually by the board of directors and serve at the discretion of the board. There are no family relationships among any of our executive officers and directors.

Gene S. Cartwright, Ph.D. joined us in January 2014 as the President, Chief Executive Officer and Acting Chief Financial Officer. He was elected as a director on January 31,11, 2014. His most recent position was with Omnyx, LLC, a Joint Venture between GE Healthcare and the University of Pittsburgh Medical Center, where, as CEO for over four years he founded and managed the successful development of products for the field of Digital Pathology. Prior to his work with Omnyx, LLC, he was President of Molecular Diagnostics for GE Healthcare. Prior to GE, Dr. Cartwright was Divisional Vice President/General Manager for Abbott Diagnostics’ Molecular Diagnostics business. In his 24 year career at Abbott, he also served as Divisional Vice President for U.S. Marketing for five years. He received a Masters of Management degree from Northwestern’s Kellogg School of Management and also holds a Ph.D. in chemistry from Stanford University and an AB from Dartmouth College.

Dr. Cartwright brings over 30 years of experience working in the IVD diagnostics industry. He has great experience in the diagnostics market both in the development and introduction of new diagnostics technologies, as well as extensive successful commercial experience with global businesses. With his background and experience, Dr. Cartwright, as President CEO and Director will workChief Executive Officer, as well as Acting Chief Financial Officer, works with and adviseadvises the board as to how we can successfully market and build the LuViva international sales.

Mark Faupel, Ph.D., rejoined us as Chief Operating Officer and director on December 8, 2016. He previously served on our board of directors through 2013 and has more than 30 years of experience in developing non-invasive alternatives to surgical biopsies and blood tests, especially in the area of cancer screening and diagnostics. Dr. Faupel was one of our co-founders and also served as our Chief Executive Officer from May 2007 through 2013. Prior thereto was our Chief Technical Officer from April 2001 to May 2007. Dr. Faupel has served as a National Institutes of Health reviewer, is the inventor on 26 U.S. patents and has authored numerous scientific publications and presentations, appearing in such peer-reviewed journals as The Lancet. Dr. Faupel earned his Ph.D. in neuroanatomy and physiology from the University of Georgia. Dr. Faupel is also a shareholder of Shenghuo Medical, LLC. See Item 13, Certain Relationships and Related Transactions and Director Independence
Rick Fowler, Mr. Fowler, Sr. VPSenior Vice President of Engineering is an accomplished Executive with significant experience in the management of businesses that sell, market, produce and develop sophisticated medical devices and instrumentation. Mr. Fowler’s 25 plus years of experience includes assembling and managing teams, leading businesses and negotiating contracts, conducting litigation, and developing ISO, CE, FDA QSR, GMP and GCP compliant processes and products. He is adept at providing product life cycle management through effective process definition and communication - from requirements gathering, R&D feasibility, product development, product launch, production startup and support. Mr. Fowler combines outstanding analytical, out-of-the-box, and strategic thinking with strong leadership, technical, and communication skills and he excels in dynamic, demanding environments while remaining pragmatic and focused. He is able to deliver high risk projects on time and under budget as well as enhance operational effectiveness through outstanding cross-functional team leadership (R&D, marketing, product development, operations, QA,quality assurance, sales, service, and finance). In addition, Mr. Fowler is well versed in global medical device regulatory and product compliance requirements.

Ronald W. Hart, Ph.D.has served as a member of our


Richard P. Blumberg was appointed to the Board of Directors since March 2007.  He has published over 600 peer-reviewed publications,on November 10, 2016. Mr. Blumberg has been appointeda long-time investor in the Company. Since 1978, Mr. Blumberg has been a Principal at Webster, Mrak & Blumberg, a medical-legal and class action labor litigation firm. He is also currently the Managing Member of Elysian Medical, LLC, a company with world-wide rights for certain breast cancer detection technology. He served from 2004 to 2007 as Chief Executive Officer of Energy Logics, a number of academic positionswind power company that developed projects in Alberta, Canada and is credited with developing the first direct proof that DNA is causalMontana. Mr. Blumberg holds a B.S. in certain forms of cancer.  He chaired a number of federal committeesElectrical Engineering and task forces, including the development and implementation of the Technology Transfer Act of 1986 and the White House Task Force on Chemical Carcinogenesis.  In 1980, Dr. Hart was appointed Director of the National Center for Toxicological Research, the research arm of the FDA, a position he held until 1992. In 1992, Dr. Hart was the first ever Presidential Appointee to the position of Distinguished Scientist in Residence for the US Public Health Service/FDA, a position he held until his retirement in 2000. Dr. Hart received his Ph.D. in physiology and biophysicsComputer Science from the University of Illinois.  Dr. Hart has helpedIllinois and received a J. D. from Stanford University. He also brings extensive experience as a venture capitalist specializing in the developmenthigh-tech and life science companies. Mr. Blumberg is also a Managing Member of business strategy for a number of start-up companies.

Dr. Hart adds considerable value to the Board as:  a former FDA bureau chief, he advises the BoardShenghuo Medical, LLC. See Item 13, Certain Relationships and management on our FDA relationshipRelated Transactions and strategy and as an expert in international trade, he advises the Board and management on international partnering and distribution agreements.

Director Independence.

John E. Imhoff, M.D.has served as a member of our Board of Directors since April 2006. Dr. Imhoff is an ophthalmic surgeon who specializes in cataract and refractive surgery. He is one of our principal stockholders and invests in many other private and public companies. He has a B.S. in Industrial Engineering from Oklahoma State University, an M.D. from the University of Oklahoma and completed his ophthalmic residency at the Dean A. McGee Eye Institute. He has worked as an ophthalmic surgeon and owner of Southeast Eye Center since 1983.

Dr. Imhoff has experience in clinical trials and in other technical aspects of a medical device company. His background in industrial engineering is especially helpful to our company,us, especially as Dr. Imhoff can combine this knowledge with clinical applications. His experience in the investment community also lends itself asis invaluable to a public company that participates in equity transactions.

often undertaking capital raising efforts.

Michael C. Jameshas served as a member of our Board of Directors since March 2007 and as Chairman of the Board since October 15, 2013. Mr. James is also the Managing Partner of Kuekenhof Capital Management, LLC, a private investment management company, Chief Executive Officer and the Chief Financial Officer of Inergetics, Inc., a nutraceutical supplements company and also the Chief Financial Officer of Terra Tech Corporation, which is a hydroponic and agricultural company. He also holds the position of Managing Director of Kuekenhof Equity Fund, L.P. and Kuekenhof Partners, L.P. Mr. James currently sits on the Board of Directors of Inergetics; Inc. Mr. James was Chief Executive Officer of Nestor, Inc. from January 2009 to September 2009 and served on their Board of Directors from July 2006 to June 2009. He was employed by Moore Capital Management, Inc., a private investment management company from 1995 to 1999 and held position of Partner. He was employed by Buffalo Partners, L.P., a private investment management company from 1991 to 1994 and held the position of Chief Financial and Administrative Officer. He began his career in 1980 as a staff accountant with Eisner LLP. Mr. James received a B.S. degree in Accounting from Farleigh Dickinson University in 1980.

Mr. James has experience both in the areas of company finance and accounting, which is invaluable to us during financial audits and offerings. Mr. James has extensive experience in the management of both small and large companies and his entrepreneurial background is relevant as we develop as a company.

Jonathan M. Niloff, M.D.was elected as a director in April 2010.Dr. Niloff is Vice President and Chief Medical Officer at McKesson Technology Solutions, a medical software company. Prior to that, Dr. Niloff was the Founder, Chairman of the Board and Chief Medical Officer of MedVentive Inc.  Prior to joining MedVentive, Dr. Niloff served as President of the Beth Israel Deaconess Physicians Organization, Medical Director for Obstetrics and Gynecology for its Affiliated Physicians Group, and Chief of Gynecology at New England Deaconess Hospital.  He served as an Associate Professor of Obstetrics, Gynecology, and Reproductive Biology at Harvard Medical School.  He has deep expertise in all aspects of medical cost and quality improvement, and has published extensively on the topic of gynecologic oncology including the development of the CA125 test for ovarian cancer.  Dr. Niloff received his undergraduate education at The Johns Hopkins University, an M.D. degree from McGill University, and an MBA degree from Boston University.

Dr. Niloff is uniquely qualified to assist the Board and management because he combines his clinical background as a Harvard Ob-Gyn with his business acumen developed through an MBA degree and as CMO of MedVentive.  Dr. Niloff has specific experience in evaluating new medical technology (e.g., CA125) and its implications to cost containment and reimbursement.  Furthermore, Dr. Niloff has numerous professional contacts in the Ob-Gyn community that can aid in our development and marketing of our cervical cancer detection technology.

Linda Rosenstock, M.D. was appointed to the Board in April 2012. Dr. Linda Rosenstock is Dean Emeritus (served as Dean from 2000 - 2012) of the University of California, Los Angeles (UCLA) Fielding School of Public Health. She holds appointments at UCLA as Professor of Health Policy and Management, Medicine and Environmental Health Sciences and is a recognized authority in broad areas of public health and science policy. Internationally, Dr. Rosenstock has been active in teaching and research in many developing countries and has served as an advisor to the World Health Organization. Dr. Rosenstock also chaired the United Auto Workers/General Motors Occupational Health Advisory Board. She is an Honorary Fellow of the Royal College of Physicians and an elected member of the National Academy of Sciences' Institute of Medicine where she has served as a member of their Board on Health Sciences Policy and Chair of the Committee for Preventive Services for Women. In January 2011, she was appointed by President Obama to the Advisory Group on Prevention, Health Promotion and Integrative and Public Health. She has served on the Board of Directors for Skilled Health Care since 2009.

Before coming to UCLA in 2000, Dr. Rosenstock served as Director of the National Institute for Occupational Safety and Health (NIOSH) for nearly seven years.  As Director of NIOSH, Dr. Rosenstock led the only federal agency with a mandate to undertake research and prevention activities in occupational safety and health.  During her tenure, she was instrumental in creating the National Occupational Research Agenda, a framework for guiding occupational safety and health research, and in expanding the agency's responsibilities.  In recognition of her efforts, Dr. Rosenstock received the Presidential Distinguished Executive Rank Award, the highest executive service award in the government and was also the James P. Keogh Award Winner for 2011 in appreciation of a lifetime of extraordinary leadership in occupational health and safety.  Dr. Rosenstock received her M.D. and M.P.H. from The Johns Hopkins University.  She conducted her advanced training at the University of Washington, where she was Chief Resident in Primary Care Internal Medicine and a Robert Wood Johnson Clinical Scholar.

Dr. Rosenstock is uniquely qualified as a Board Member for Guided Therapeutics.  First, as a trained physician who has  also chaired  the Preventive Services for Women Committee of the  National Academies’ Institute of Medicine, she has been directly involved in setting institutional and government policy for breast and cervical cancer screening, which is directly relevant to our LuViva cervical cancer detection device.  Secondly, she brings a wealth of international experience in developing countries, which is a focus of our product distribution effort in cancer detection.  Thirdly, she has demonstrated a lifetime of extraordinary leadership and her international recognition as an expert in health policy will provide outstanding credibility to Guided Therapeutics as a leading innovator in women’s healthcare.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. These persons are required by regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) forms they file.

Based solely on our review of the copies of these forms received by us, we believe that, with respect to fiscal year 2014,2016, our officers, directors were in compliance with all applicable filing requirements.

Code of Ethics

We have adopted a code of ethics that applies to all of our directors, officers and employees. To obtain a copy without charge, contact our Corporate Secretary, Guided Therapeutics, Inc., 5835 Peachtree Corners East, Suite D,B, Norcross, Georgia 30092. If we amend our code of ethics, other than a technical, administrative or non-substantive amendment, or we grant any waiver, including any implicit waiver, from a provision of the code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, we will disclose the nature of the amendment or waiver on our website, www.guidedinc.com, under the “Investor Relations” tab under the tab “About Us.” Also, we may elect to disclose the amendment or waiver in a report on Form 8-K filed with the Securities and Exchange Commission.


Material Changes to Security Holders Nomination Procedure

There has been no material change to the procedures by which security holders may recommend nominees to the registrant’s board of directors, since the last disclosure.

Item 11. Executive Compensation

Summary Compensation Table

The following table lists specified compensation we paid or accrued during each of the fiscal years ended December 31, 20142017 and 20132016 to the Chief Executive Officer and our two other most highly compensated executive officers, collectively referred to as the named“named executive officers, in 2014:

20142016:

2017 and 20132016 Summary Compensation Table

 

 

Name and Principal Position

 

 

Year

 

Salary

($)

 

Bonus

($)

Option Awards

($)(1)

 

Total

($)

Gene S. Cartwright, Ph.D.

President, CEO, Acting CFO and Director (2)

2014300,000150,000$731,000$1,046,000
2013----

Mark Faupel, Ph.D.

Former President, CEO and Acting CFO (3)

2014264,09713,60017,000294,697
2013243,000-24,000267,000

Richard Fowler,

Senior Vice President of Engineering

2014

2013

203,000

197,000

-

-

17,000

24,000

220,000

221,000

Shabbir Bambot, Ph.D. (4)

Former Vice President of Research and Development

2014----
201380,222--80,222
(1)See Note 3 to the consolidated financial statements that accompany this report.
(2)Dr. Cartwright was hired in January 2014.
(3)Dr. Faupel currently serves as the Company’s Chief Scientific Officer.
(4)Dr. Bambot resigned from the Company on May 10, 2013.

Name and Principal PositionYear
Salary
($)
Bonus
($)
Option Awards
 ($)(1)
Total
($)
Gene S. Cartwright, Ph.D.
President, CEO, Acting CFO and Director (2)
2017
2016
-
104,990
150,000
150,000
-
-
-
254,990
Mark Faupel, Ph.D.
COO and Director(3)
2017
2016
-
132,557
-
-
-
-
-
132,557
Richard Fowler,
Senior Vice President of Engineering
2017
2016
107,500
129,995
-
-
-
-
107,500
129,995
(1)
See Note 4 to the audited consolidated financial statements that accompany this prospectus.
(2)
All amounts reported as accrued. Dr. Cartwright has elected to get paid partial salary, due to our cash position.
(3)
In 2016, Dr. Faupel was not employed by us, but instead provided consulting services to us on an as-needed basis. On December 8, 2016, the board of directors appointed Dr. Faupel as our new COO and director.
For 2017, Dr. Cartwright did not receive salary compensation. While in 2016, Dr. Cartwright agreed to reduce his base salary compensation to $75,000 from $300,000. The board-granted performance bonus remained the same at $150,000 for both years, and he received usual customary company benefits. During 2015, he also received 20,000 performance-based restricted shares of common stock, which will vest as follows: (1) seven shares will vest if the stock price closes at or above $1,200 for 30 consecutive trading days, and an additional seven will vest on the first anniversary of such vesting date, in each case subject to continuous employment through the applicable vesting date; and (2) seven shares will vest if the stock price closes at or above $200,000 for 30 consecutive trading days, and an additional seven will vest on the first anniversary of such vesting date, in each case subject to continuous employment through the applicable vesting date. As of December 31, 2017, Dr. Cartwright’s 2014deferred salary plus interest was $383,039 and his deferred bonus was $600,000.
Dr. Faupel’s 2017 and 2016 compensation consisted of a base salary of $300,000, with $150,000 performance condition related bonus,zero and the usual customary company benefits. He also received 2,000,000 both market and performance condition restricted shares of common stock (1,000,000 GT stock price closes at/above $1.50 for 30 consecutive trading days (the “Tier 1 Vesting Date”); subject to the Executive’s continuous employment with the Company through the applicable vesting date; (i) 500,000 shares will vest on the Tier 1 Vesting Date; and (ii) 500,000 shares will vest on the first anniversary of the Tier 1 Vesting Date. 1,000,000 GT stock price closes at/above $2.50 for 30 consecutive trading days (the “Tier 2 Vesting Date”); subject to the Executive’s continuous employment with the Company through the applicable vesting date: (i) 500,000 shares will vest on the Tier 2 Vesting Date; and (ii) 500,000 shares will vest on the first anniversary of the Tier 2 Vesting Date). Dr. Cartwright was also issued 35,000 and 250,000 of stock options that vest over 48 months in 2014. As of December 31, 2014, Dr. Cartwright’s deferred salary was $42,516 and his deferred bonus was $150,000.

Dr. Faupel’s 2014 and 2013 compensation consisted of a base salary of $264,097 and $243,000,$132,577, respectively, andplus usual and customary company benefits. He received no bonus in the years ended December 31, 2017 and 35,0002016. In 2015, he received options to purchase 1,900 shares of common stock, options, which vest over 48 months in 2014 and 2013.months. As of December 31, 2014,2017, Dr. Faupel’s remaining deferred salary plus interest and bonus was $31,173.$178,035. He also holds a promissory note of $217,064$346,960 for past un-paid salary.

For 2017, Mr. Fowler’s 2014 and 2013 compensation consisted of aFowler accrued base salary of $203,000$88,894. On March 2016, Mr. Fowler began working half-time and $197,000, respectively, andagreed to reduce his base salary compensation to $107,500 from $243,000 in 2015. For both years he received the usual and customary company benefits. He received no bonus in the years ended December 31, 2017 and 35,0002016. In 2015, he received options to purchase 1,930 shares of common stock, options, which vest over 48 months in 2014 and 2013.months. As of December 31, 2014,2017, Mr. Fowler’s total deferred salary plus interest was approximately $123,080.

Dr. Bambot’s 2014 and 2013 compensation consisted of a base salary of zero and $193,000, respectively, and usual and customary company benefits.

$429,053.


Outstanding Equity Awards to Officers at December 31, 2014

 Option Awards

Name and Principal

Position

Number of

Securities

 Underlying

Options

Exercisable

(#)(1)

Number of Securities

Underlying

Options Un-exercisable

(#)

Equity Incentive

Plan

Awards: Number of

Securities Under-

lying Un-exercised

Unearned Options

(#)

Option

 Exercise

Price

($)(2)

Option

Expiration

Date

Gene S. Cartwright, Ph.D.

President, CEO, Acting CFO and Director

16,249-268,7510.2512/31/2024

Mark Faupel, Ph.D.

Former President, CEO & Acting CFO

2,155,832-29,1670.7112/31/2024

Richard Fowler

Senior Vice President of Engineering

577,823-74,1680.5912/31/2024
(1)Represents fully vested options.
(2)Based on all outstanding options.

2017

 Option Awards
Name and Principal
Position
Number of
Securities
 Underlying
Options
Exercisable (#)(1)
Number of Securities Underlying
Options Un-exercisable (#)
Equity Incentive Plan Awards: Number of Securities Under-
lying Unexercised
Unearned Options (#)
Option
 Exercise
Price
($)(2)
Option
Expiration
Date
Gene S. Cartwright, Ph.D.
President, CEO, Acting CFO and Director
2-321,600.0012/31/2024
Mark Faupel, Ph.D.
COO and Director
32-357,600.0012/31/2024
Richard Fowler
Senior Vice President of Engineering
11-347,200.0012/31/2024
(1)
Represents fully vested options.
(2)
Based on all outstanding options.
Outstanding Equity Awards to Directors at December 31, 2014

 Option Awards
Name and Principal Position

Option Awards

(#)

Exercise Price

($)

Ronald W. Hart, Ph.D., Director

655,0000.37

John E. Imhoff, M.D., Director

303,7500.78

Michael C. James, Chairman and Director

107,5000.78

Jonathan Niloff, M.D., Director

142,9170.74

Linda Rosenstock, M.D., Director

125,0000.76

2017

 Option Awards
Name and Principal Position
Option Awards
(#)
Exercise Price
($)
Ronald W. Hart, Ph.D., Director (resigned as of December 11, 2015)1817,600.00
John E. Imhoff, M.D., Director1626,400.00
Michael C. James, Chairman and Director1316,000.00
Jonathan Niloff, M.D., former Director1417,600.00
Linda Rosenstock, M.D., former Director1416,800.00
Risk Oversight

Our board as a whole has responsibility for risk oversight, with reviews of certain areas being conducted by the relevant board committees that report on their deliberations to the full board, as further described below. Given the small size of the board, the board feels that this structure for risk oversight is appropriate (except for those risks that require risk oversight by independent directors only). The audit committee is specifically charged with discussing risk management (primarily financial and internal control risk), and receives regular reports from management and independent auditors on risks related to, among others, our financial controls and reporting. The compensation committee reviews risks related to compensation and makes recommendations to the board with respect to whether the Company’s compensation policies are properly aligned to discourage inappropriate risk-taking, and is regularly advised by management. In addition, the Company’s management regularly communicates with the board to discuss important risks for their review and oversight, including regulatory risk, and risks stemming from periodic litigation or other legal matters in which we are involved.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table lists information regarding the beneficial ownership of our common stockequity securities as of March 15, 2015April 8, 2018 by (i)(1) each person whom we know to beneficially own more than 5% of the outstanding shares of our common stock, (a “5% stockholder”), (ii)(2) each director, (iii)(3) each officer named in the summary compensation table below, and (iv)(4) all directors and executive officers as a group. Unless otherwise indicated, the address of each officer and director is 5835 Peachtree Corners East, Suite D.B, Norcross, Georgia 30092.

 

 

 

Name and Address of Beneficial Owner

 Amount and Nature of Beneficial Ownership (1) 

 

 

Percent of Class (2)

John E. Imhoff (3) 16,412,921 14.18%
Magna Equities II (4) 11,550,756 9.94%

The Whittemore Collection, Ltd. / George Landegger (5)

4 International Drive

Rye Brook, NY 10573

 7,042,411 6.22%
Michael C. James / Kuekenhof Equity Fund, LLP (6)     1,038,701 *%
Ronald Hart (7) 1,659,960 1.47%
Gene Cartwright (8) 2,357,984 2.10%
Mark L. Faupel (9) 3,068,550 2.67%
Richard L. Fowler (10) 668,543 *%
Linda Rosenstock (11) 412,174 *%
Jonathan Niloff (12) 482,383 *%
      
All directors and executive officers as a group (7 persons) (13) 23,032,666 15.8%

_____________


 
 
Common Stock (2)
 
 
Series C
Preferred Stock (3)
 
 
Series C1
Preferred Stock (4)
 
Name and Address of Beneficial Owner (1)
 
Number of Shares
 
 
Percentage
 
 
Number of Shares
 
 
Percentage
 
 
Number of Shares
 
 
Percentage
 
John E. Imhoff (5)
  333,455,380 
  69.85%
  - 
  - 
  2,400.75 
  55.67%
Lynne Imhoff (6)
  93,754,585 
  39.45%
  - 
  - 
  675.00 
  15.65%
Michael C. James/Kuekenhof Equity Fund, LLP (7)
  28 
  * 
  - 
  - 
  - 
  - 
Gene Cartwright (8)
  38 
  * 
  - 
  - 
  - 
  - 
Richard L. Fowler (9)
  16 
  * 
  - 
  - 
  - 
  - 
Richard P. Blumberg (10)
  37 
  * 
  - 
  - 
  - 
  - 
Mark Faupel (11)
  41,667,705 
  22.45%
    
    
  300.00 
  6.96%
All directors and executive officers as a group (4 persons) (12)
  375,123,204 
  72.28%
  - 
  - 
  2,700.75 
  62.63%
(*)Less than 1%.
(1)Except as otherwise indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
(2)Percentage ownership is based on 97,184,341143,912,938 shares of common stock outstanding as of March 15, 2015.April 8, 2018. Beneficial ownership is determined in accordance with the rules of the SEC, based on factors that include voting and investment power with respect to shares. Shares of common stock subject to currently exercisable options, warrants, convertible preferred stocksecurities convertible or convertible notes, or any such securities exercisable within 60 days after March 15, 2015,the record date, are deemed outstanding for purposes of computing the percentage ownership of the person holding those options,securities, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
(3)Consists Note that certain of 9,694,212our outstanding securities, including certain warrants and the shares of Series C1 preferred stock held by the persons listed in this table, have anti-dilution “ratchet”  or “price-protection” provisions that, when triggered, will increase the number of shares of common stock 500 shares of Series B preferred stock convertible into 3,337,784underlying such securities. Subject to customary exceptions, these provisions are triggered anytime we issue shares of common stock 3,077,175 warrants to purchasethird parties at a price lower than the then-current conversion price or exercise price of the subject securities. As a result, the beneficial ownership reported in this table is only as of the date presented, and the beneficial ownership amounts of the persons in this table may increase on a future date, even though such persons have not actually acquired any additional shares of common stock.
(3)As of April 8, 2018, there were 970 shares of Series C preferred stock outstanding, and each such share was convertible into approximately 138,889 shares of common stock.
(4)As of April 8, 2018, there were 4,312.50 shares of Series C1 preferred stock outstanding, and each such share was convertible into approximately 138,889 shares of common stock.
(5)Shares of common stock at an average priceconsist of $0.26 per share and 303,75012,952 shares of common stock directly held, 4,912 shares issuable upon exercise of warrants, 16 shares subject to stock options.options, and 333,437,500 shares issuable upon conversion of 2,400.75 shares of Series C1 preferred stock. Dr. Imhoff is on the board of directors.
(4)(6)ConsistsShares of 7,700,504common stock consist of 3,612 shares of common stock directly held, 973 shares issuable upon exercise of warrants, and common equivalent, 3,850,252 warrants to purchase common stock at an average price93,750,000 shares issuable upon conversion of $0.225 per share. MAGNA Equities II is a Company’s Investor.675.00 shares of Series C1 preferred stock.
(5)(7)ConsistsShares of 6,153,575commons stock consist of 10 shares of common stock directly held, 4 shares issuable upon exercise of warrants, and 888,836 warrants to purchase common stock at an average price of $0.52 per share.   
(6)Consists of 707,620 shares of common stock and 105,711 warrants to purchase common stock at an average price of $0.80 per share and 107,50014 shares subject to stock options held by Michael James; and 117,870warrants to purchase common stock at an average price of $0.23 per share held by Kuekenhof Equity Fund, LP, Michael James, managing partners.options. Mr. James is on the board of directors.
(7)(8)
ConsistsShares of 687,160commons stock consist of 29 shares of common stock 25directly held, 4 shares issuable upon exercise of Series B preferredwarrants, and 5 shares subject to options.  Dr. Cartwright is the CEO and on the board of directors.
(9)
Shares of commons stock convertible into 166,889consist of 2 shares of common stock 150,911 warrants to purchase common stock at an average price of $0.26 per sharedirectly held and 655,00014 shares subject to stock optionsoptions.held by Ronald Hart Dr. Hart is on the Board of Directors.
(8)(10)ConsistsShares of 2,235,739common stock consist of 23 shares of common stock 117,870 warrants to purchasedirectly held and 14 shares issuable upon exercise of warrants.
(11)Shares of common stock at an average priceconsist of $0.225 per share and 4,375 shares subject to stock options.
(9)Consists of 646,3821,600 shares of common stock 111,111directly held, 46 shares issuable upon exercise of warrants, to purchase common stock at an average price of $0.225 per share and 2,311,05727 shares subject to stock options.options, and 41,666,032 shares issuable upon conversion of 300.00 shares of Series C1 preferred stock. Dr. Faupel is the COO and on the board of directors.
(10)(12)ConsistsShares of 98,115commons stock consists of 14,616 shares of common stock and 570,428directly held, 4,920 shares issuable upon exercise of warrants, 49 shares subject to stock options.
(11)Consistsoptions, and 375,103,532 shares issuable upon conversion of 287,174 sharesof common stock and 125,000 shares subject to stock options  Dr. Rosenstock is on the Board of Directors.
(12)Consists of 339,4662,700.75 shares of common stock, 142,917 shares subject to stock options. Jonathan M. Niloff.  Dr. Niloff is on the Board of Directors.
(13)Consists of 17,554,159 shares of common stock, 3,569,537 warrants to purchase common stock at $0.15 to $.80 per share and 1,908,970 shares subject to stock options.  Series C1 preferred stock.

See Item 5 of this report for information regarding Securities Authorized for Issuance under Equity Compensation Plans.


Item 13. Certain Relationships and Related Transactions and Director Independence

Our Boardboard recognizes that related person transactions present a heightened risk of conflicts of interest. The Audit Committeeaudit committee has the authority to review and approve all related party transactions involving our directors or executive officers of the Company.

officers.

Under the policy, when management becomes aware of a related person transaction, management reports the transaction to the Audit Committeeaudit committee and requests approval or ratification of the transaction. Generally, the Audit Committeeaudit committee will approve only related party transactions that are on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third person. The Audit Committeeaudit committee will report to the full Boardboard all related person transactions presented to it.

Based on the definition of independence of the NASDAQ Stock Market, the board has determined that Mr. James and Drs. Hart, Niloff,Dr. Imhoff and Rosenstock are independent directors.

Director

John E. Imhoff investedis one of our directors. In June 2015, Dr. Imhoff agreed to exchange certain of his warrants, originally issued in December 2014 and exercisable for 1 share of our common stock, for two new warrants that, unlike the original warrant, do not contain any price or share reset provisions. Each new warrant is exercisable for the same number of shares of our common stock as the original warrant, at any time until December 2, 2020. The exercise price of the first new warrant is $72 per share and the second new warrant is $88 per share but, aside from the exercise price, the new warrants are identical in terms to each other. As additional consideration, we issued Dr. Imhoff an additional 1 share of common stock. Dr. Imhoff participated on terms equal to those of other holders of the December 2014 warrants. As a totalresult of $586,568these transactions, Dr. Imhoff’s beneficial ownership of our common stock increased from approximately 11.7% immediately prior to convert 1,466,420 warrants at $0.40 in November 2013. Hethe exchange, to approximately 11.8% immediately afterward.
In September 2015, Dr. Imhoff participated in our Series C preferred stock issuance by exchanging all of his shares of Series B preferred issuance during the fiscal year ended December 31, 2013stock and investing $300,000 in cash, for a total of $500,000. In December 2014, he also1,067 shares of Series C preferred stock and warrants to purchase 211 shares of common stock. Dr. Imhoff participated inon terms equal to those of other Series C investors. As a result of these transactions, Dr. Imhoff’s beneficial ownership of our public offering for a totalcommon stock increased from approximately 14% immediately prior to his first acquisition of $26,520.55 andshares of Series C preferred stock, to 25% immediately afterward.
On March 11, 2016, Dr. Imhoff received 117,87024 shares of common stock as wella dividend on his Series B preferred stock (previously accrued but unpaid), in accordance with the terms of the Series B preferred stock.
In April 2016, Dr. Imhoff exchanged his shares of Series C preferred stock for a total of 2,400.75 shares of Series C1 preferred stock and 12,804 shares of common stock. Dr. Imhoff participated on terms equal to those of other Series C1 investors. As a result of this transaction, Dr. Imhoff’s beneficial ownership of our common stock increased from approximately 25% immediately prior to the transaction, to 77% immediately afterward.
In June 2016, Dr. Imhoff agreed to exchange certain of his warrants, exercisable for 4,560 shares of our common stock and subject to certain anti-dilution provisions, in exchange for new warrants, exercisable for 9,120 shares of our common stock, but without those anti-dilution provisions. Dr. Imhoff will be required to surrender his old warrants upon consummation of our next financing resulting in net cash proceeds to us of at least $1 million. The new warrants will have an initial exercise price equal to the exercise price of the surrendered warrants as of immediately prior to consummation of the financing, subject to customary “downside price protection” for as long as our common stock is not listed on a national securities exchange, and will expire five years from the date of issuance.
On September 6, 2016, we entered into a royalty agreement with Dr. Imhoff and another party. Pursuant to the royalty agreement, in exchange for a payment of $50,000 by Dr. Imhoff and the other party, we granted them a royalty on future sales of our single-use cervical guides. The royalty rate was initially $0.10 per disposable, until October 2, 2016, at which point the royalty rate increased to $0.20 per disposable. Any royalty payments will be split evenly between Dr. Imhoff and the other party.
Lynne Imhoff (no relation) currently beneficially owns in excess of 10% of our outstanding common stock. In September 2015, Ms. Imhoff participated in our Series C preferred stock issuance by exchanging all of her shares of Series B preferred stock and investing $125,000 in cash, for a total of 300 shares of Series C preferred stock and warrants to purchase 592 shares of common stock. Ms. Imhoff participated on terms equal to those of other Series C investors. As a result of these transactions, Ms. Imhoff’s beneficial ownership of our common stock increased from approximately 2% immediately prior to her first acquisition of shares of Series C preferred stock, to 4% immediately afterward.

In April 2016, Ms. Imhoff exchanged her shares of Series C preferred stock for a total of 675 shares of Series C1 preferred stock and 3,600 shares of common stock. Ms. Imhoff participated on terms equal to those of other Series C1 investors. As a result of this transaction, Ms. Imhoff’s beneficial ownership of our common stock increased from approximately 4% immediately prior to the transaction, to 45% immediately afterward.
In June 2016, Ms. Imhoff agreed to exchange certain of her warrants, exercisable for 912 shares of our common stock and subject to certain anti-dilution provisions, in exchange for new warrants, exercisable for 1,824 shares of our common stock, but without those anti-dilution provisions. Ms. Imhoff will be required to surrender her old warrants upon consummation of our next financing resulting in net cash proceeds to us of at least $1 million. The new warrants will have an additional 58,935initial exercise price equal to the exercise price of the surrendered warrants as of immediately prior to consummation of the financing, subject to customary “downside price protection” for as long as our common stock is not listed on a national securities exchange, and will expire five years from the date of issuance.
Mark Faupel is one of our directors and our Chief Operating Officer, and Richard Blumberg is another one of our directors. Dr. Faupel is a shareholder of Shenghuo, and Mr. Blumberg, is a managing member of Shenghuo. We entered into a license agreement with Shenghuo pursuant to which we granted Shenghuo an exclusive license to manufacture, sell and distribute our LuViva Advanced Cervical Cancer device and related disposables in Taiwan, Brunei Darussalam, Cambodia, Laos, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Shenghuo has been our exclusive distributor in China, Macau and Hong Kong, and the license extends to manufacturing in those countries as well. Pursuant to the license agreement, Shenghuo had the option to have a designee appointed to our board of directors. As partial consideration for, and as a condition to, the license, and to further align the strategic interests of the parties, we agreed to issue a convertible note to Shenghuo, in exchange for an aggregate cash investment of $200,000. The note will provide for a payment to Shenghuo of $300,000, expected to be due the earlier of 90 days from issuance and consummation of any capital raising transaction by us with net cash proceeds of at least $1.0 million. The note will accrue interest at 20% per year on any unpaid amounts due after that date. The note will be convertible into shares of our common stock at $0.225, expiringa conversion price per share of $13.92, subject to customary anti-dilution adjustment. The note will be unsecured, and is expected to provide for customary events of default. We will also issue Shenghuo a five-year warrant exercisable immediately for 17,239 shares of common stock at an exercise price equal to the conversion price of the note, subject to customary anti-dilution adjustment.
In September 2015, Dr. Faupel participated in December 2, 2019.

our Series C preferred stock issuance by investing $100,000 in cash, for a total of 133 shares of Series C preferred stock and warrants to purchase 46 shares of common stock. Dr. Faupel participated on terms equal to those of other Series C investors. In April 2016, Dr. Faupel exchanged his shares of Series C preferred stock for a total of 300 shares of Series C1 preferred stock and 1,600 shares of common stock. Dr. Faupel participated on terms equal to those of other Series C1 investors.

Item 14. Principal Accountant Fees and Services

UHY LLP is our current independent registered public accounting firm. Representatives of UHY LLP are expected to attend the annual meeting of stockholders, will have the opportunity to make a statement if they desire, and will be available to respond to appropriate questions.

We were billed by UHY LLP $220,000$147,000 and $187,000$176,000 during the fiscal years ended December 31, 20142017 and 2013,2016, respectively, for professional services, which include fees associated with the annual audit of financial statements and review of our quarterly reports on Form 10-Q, and other SEC filings.

   2014 2013
 Audit fees $165,000  $175,000 
 Audit related fees  38,000   —   
 Tax fees  17,000   12,000 
 All other fees  —     —   
 Total Fees $220,000  $187,000 

   
 
2017
 
 
2016
 
Audit fees
 $116,000 
 $154,000 
Audit related fees
  24,000 
  15,000 
Tax fees
  7,000 
  7,000 
Total Fees
 $147,000 
 $176,000 
Audit Committee Pre-Approval Policy and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

Our Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Our independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with the pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.


PART IV

Item 15. Exhibits and Financial Statement Schedules

The consolidated financial statements included in Item 8 of this report are filed as part of this report.

The exhibits listed below are filed as part hereof, or incorporated by reference into, this Report. All documents referenced below were filed pursuant to the Securities and Exchange Act of 1934 by Guided Therapeutics, Inc. (f/k/a SpectRx, Inc.), file number 0-22179, unless otherwise indicated.

EXHIBIT INDEX

EXHIBIT NO.DESCRIPTION
3.1Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the quarterly report on Form 10-Q for the period ended June 30, 2014, filed August 13, 2014)through November 3, 2016
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed March 23, 2012).
4.1Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the amended registration statement on Form S-1/A (No. 333-22429), filed April 24, 1997).
Amended and Restated Loan Agreement by and among SpectRx, Inc., the Agent, and the Noteholders, dated March 1, 2007 (incorporated by reference to Exhibit 4.1 to the quarterly report on Form 10-QSB, filed August 24, 2007).
4.3First Amendment to the Amended and Restated Loan Agreement (incorporated by reference to Exhibit 4.2 to the quarterly report on Form 10-QSB, filed August 24, 2007).
4.4Amendment to Amended and Restated Loan Agreement (incorporated by reference to Exhibit 4.12 to the quarterly report on Form 10-Q for the period ended June 30, 2010, filed August 12, 2010).

4.5Form of Warrant (incorporated by reference to Annex 1 to the proxy statement on Schedule 14A, filed February 3, 2010).
4.6Form of Warrant Agreement (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K, filed September 14, 2010).
4.7Form of Warrant Agreement (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K, filed September 2, 2011).
4.8Form of Warrant Agreement (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K/A, filed November 28, 2011).
4.9Form of New Warrant Exchangeable for Original Warrants (incorporated by reference to Exhibit 99.5 to the tender offer statement on Schedule T-O, filed on May 30, 2012).
4.10Form of Warrant (Tranche A) (incorporated by reference to Exhibit 10.2 to amendment no. 1 to the current report on Form 8-K, filed May 23, 2013).
4.11Form of Warrant (Tranche B) (incorporated by reference to Exhibit 10.3 to amendment no. 1 to the current report on Form 8-K, filed May 23, 2013).
4.12Form of New Warrant (incorporated by reference to Exhibit 99.5 to the tender offer statement on Schedule T-O, filed on October 15, 2013).
4.13Form of InterScan Warrant (incorporated by reference to Exhibit 4.13 to the annual report on Form 10-K for the year ended December 31, 2013, filed March 27, 2014).
4.14Senior Convertible Note (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K, filed April 24, 2014).
4.15Form of Warrant (Regulation S) (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K, filed September 8, 2014).
4.16Secured Promissory Note, dated September 10, 2014 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed September 10, 2014).
4.17Amendment #1 to Secured Promissory Note, dated March 10, 2015 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed March 19, 2015)
Amendment #2 to Secured Promissory Note, dated May 4, 2015 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed May 7, 2015)
Amendment #3 to Secured Promissory Note, dated June 1, 2015 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed June 5, 2015)
Amendment #4 to Secured Promissory Note, dated June 16, 2015 (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K filed June 30, 2015)
Amendment #5 to Secured Promissory Note, dated June 29, 2015 (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K filed June 30, 2015)
Amendment #6 to Secured Promissory Note, dated January 20, 2016 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed February 16, 2016)
Amendment #7 to Secured Promissory Note, dated February 11, 2016 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed February 16, 2016)
Amendment #8 to Secured Promissory Note, dated March 7, 2016 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed March 7, 2016)
Senior Secured Convertible Note, dated February 12, 2016 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed February 16, 2016)
Form of WarrantExchange Note (GPB) (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed December 4,7, 2016)
10% OID Convertible Promissory Note (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed December 30, 2016)
Convertible Promissory Note (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed February 16, 2017)
Form of Warrant (Standard Form) (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K, filed September 14, 2010)
Form of Warrant (InterScan) (incorporated by reference to Exhibit 4.13 to the annual report on Form 10-K for the year ended December 31, 2013, filed March 27, 2014)
4.18Form of Warrant (November 2011 Private Placement) (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K/A, filed November 28, 2011)
Form of Warrant (Series B-Tranche A) (incorporated by reference to Exhibit 10.2 to amendment no. 1 to the current report on Form 8-K, filed May 23, 2013)
Form of Warrant (Series B-Tranche B) (incorporated by reference to Exhibit 10.3 to amendment no. 1 to the current report on Form 8-K, filed May 23, 2013)
Form of Warrant (Regulation S) (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K, filed September 8, 2014)
Form of Warrant (2014 Public Offering Placement Agent WarrantAgent) (incorporated by reference to Exhibit 4.2 to the current report on Form 8-K filed December 4, 2014)

Form of Warrant (2014 Public Offering Warrant Exchanges) (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed June 30, 2015)
Form of Warrant (Series C) (incorporated by reference to Exhibit 4.3 to the current report on Form 8-K filed June 30, 2015)
Form of Warrant (Senior Secured Convertible Note) (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K filed February 12, 2016)
Form of Warrant (Series B-Tranche B Exchanges; GPB Exchange) (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed June 14, 2016)
Common Stock Purchase Warrant (Convertible Promissory Note) (incorporated by reference to Exhibit 4.2 to the current report on Form 8-K filed February 16, 2017)
10.11995 Stock Plan and form of Stock Option Agreement thereunder (incorporated by reference to Exhibit 10.2 to the registration statement on Form S-1 (No. 333-22429) filed February 27, 1997).
2005 Amendment No. 2 to the 1995 Stock Plan as amended (incorporated by reference to Appendix 1 to the proxy statement on Schedule 14A, filed May 10, 2005).
2010 Amendment to the 1995 Stock Plan (incorporated by reference to Exhibit 10.3 to the registration statement on Form S-8 (File No. 333-178261), filed December 1, 2011.2011)

2012 Amendment to the 1995 Stock Plan (incorporated by reference to Annex 1 to the proxy statement on Schedule 14A, filed April 30, 2012.2012)
Registration Rights Agreement, dated August 30, 2011 (incorporated by reference to 10.2 to the current report on Form 8-K, filed September 2, 2011).
10.6Agreement and Release, dated August 30, 2011 (incorporated by reference to 10.2 to the current report on Form 8-K, filed September 2, 2011).
10.7Termination Agreement Re: Spectroscopic Technology Development Collaboration (incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q for the period ended March 31, 2013, filed May 16, 2013).
10.8Securities Purchase Agreement, by and among the Company and the Purchasers named therein, dated May 21, 2013 (incorporated by reference to Exhibit 10.1 to amendment no. 1 to the current report on Form 8-K, filed May 23, 2013).
10.9Registration Rights Agreement, by and among the Company and the Purchasers named therein, dated May 21, 2013 (incorporated by reference to Exhibit 10.4 to amendment no. 1 to the current report on Form 8-K, filed May 23, 2013).
10.10Employment Agreement between the Company and Mark Faupel dated March 24, 2013 (incorporated by reference to Exhibit 10.10 to the annual report on Form 10-K for the year ended December 31, 2013, filed March 27, 2014).
10.11Employment Agreement between the Company and Gene Cartwright, dated January 6, 2014 (incorporated by reference to Exhibit 10.11 to the annual report on Form 10-K for the year ended December 31, 2013, filed March 27, 2014).
10.12Employment Agreement between the Company and Rick L. Fowler, automatically renewed on May 9, 2013 (incorporated by reference to Exhibit 10.12 to the annual report on Form 10-K for the year ended December 31, 2013, filed March 27, 2014).

10.13Consulting Agreement between the Company and GPB Debt Holdings II LLC, dated February 12, 2016 (incorporated by reference to Exhibit 10.6 to the current report on Form 8-K filed February 12, 2016)
Securities Purchase Agreement (Magna Note), dated April 23, 2014, by and between the Company and Hanover Holdings I, LLC (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed April 24, 2014).
10.14Registration RightsStandstill Agreement (Magna Note), dated April 23,as of November 6, 2014, by and between the Company and Hanover Holdings I,Magna Equities II, LLC (incorporated by reference to Exhibit 10.110.19 to the registration statement on Form S-1 (No. 333-198733) filed November 10, 2014)
Exchange Agreement (Magna Note), dated as of June 25, 2015 (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K filed April 24, 2014).June 30, 2015)
10.15Subscription Agreement (Regulation S), accepted September 2, 2014 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed September 8, 2014).
10.16Form of Registration Rights Agreement (Regulation S), dated September 8, 2014 by and between the Company and the investor party thereto (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed September 8, 2014).
10.17Note Purchase Agreement (Secured Promissory Note), dated as of September 10, 2014, by and between the Company and Tonaquint, Inc. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed September 10, 2014).
10.18Security Agreement (Secured Promissory Note), dated as of September 10, 2014, by the Company and Tonaquint, Inc. (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed September 10, 2014).
10.19Standstill Agreement, dated as of November 6, 2014, by and between the Company and Magna Equities II, LLC (incorporated by reference to Exhibit 19 to the registration statement on Form S-1 (No. 333-198733) filed November 10, 2014)
10.20Form of Securities Purchase Agreement (2014 Public Offering) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed December 4, 2014)
10.21Placement Agent Agreement (2014 Public Offering), by and between the Company and Olympus Securities, LLC (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed December 4, 2014).
10.22Amendment to Securities Purchase Agreement (2014 Public Offering), dated March 10,as of June 26, 2015 (incorporated by and betweenreference to Exhibit 10.2 to the Company and Tonaquintcurrent report on Form 8-K filed June 30, 2015)

Form of Letter Agreement (2014 Public Offering Warrant Exchanges) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed March 19,June 30, 2015).
Securities Purchase Agreement (Series C), dated June 29, 2015 (incorporated by reference to Exhibit 10.6 to the current report on Form 8-K filed June 30, 2015)
Registration Rights Agreement (Series C), dated June 29, 2015 (incorporated by reference to Exhibit 10.7 to the current report on Form 8-K filed June 30, 2015)
Form of Joinder Agreement (Series C) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed July 13, 2015)
Interim Securities Purchase Agreement (Series C), dated September 3, 2015 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed September 3, 2015)
Securities Purchase Agreement (Senior Secured Convertible Note), dated February 11, 2016 (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K filed February 12, 2016)
Security Agreement (Senior Secured Convertible Note), dated February 11, 2016 (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K filed February 12, 2016)
Rollover and Amendment Agreement, dated April 27, 2016, by and between the Company and Aquarius Opportunity Fund (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed May 3, 2016)
Form of Letter Agreement (Series C Exchanges) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed May 3, 2016)
License Agreement, dated June 5, 2016 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed June 8, 2016)
Form of Warrant Exchange Agreement (Warrant-for-Shares) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed June 14, 2016)
Form of Warrant Exchange Agreement (Warrant-for-Warrant) (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed June 14, 2016)
Royalty Agreement, dated September 6, 2016, between the Company and Imhoff and Maloof (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed September 8, 2016)
Lockup and Exchange Agreement, dated November 2, 2016, by the Company and GHS Investments, LLC (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed November 4, 2016)
Exchange Agreement, dated December 7, 2016, between the Company and GPB Debt Holdings II LLC (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed December 7, 2016)
Amendment to Consulting Agreement, dated December 7, 2016, between the Company and GPB Debt Holdings II LLC (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed December 7, 2016)
Securities Purchase Agreement, dated December 28, 2016, between the Company and RedDiamond (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed December 30, 2016)
Agreement between Shandong Yaohua Medical Instrument Corporation and Guided Therapeutics, Inc., Confidential, Final 22 January 2017 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed January 26, 2017)
Guided Therapeutics-Shenghuo Medical Agreement, 22 Jan 2017 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed January 26, 2017)
Securities Purchase Agreement, dated as of February 13, 2017, by and between Guided Therapeutics, Inc. and Auctus Fund, LLC (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed February 16, 2017)
Securities Purchase Agreement, dated as of March 17, 2017, by and between Guided Therapeutics, Inc. and Eagle Equities LLC and Adar Bays LLC and on May 18, 2017 with GHS Investments LLC (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed May 24, 2017)
Forbearance Agreement, dated as of August 8, 2017, by and between Guided Therapeutics, Inc. and GPB Debt Holdings II LLC (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed August 14, 2017)
Securities Purchase Agreement, dated as of August 18, 2017, by and between Guided Therapeutics, Inc. and Power Up Lending Group LTD (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed August 24, 2017)
Securities Purchase Agreement, dated as of October 12, 2017, by and between Guided Therapeutics, Inc. and Power Up Lending Group LTD (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed October 25, 2017)
Subsidiaries (incorporated by reference to Exhibit 21.1 to the registration statement on Form S-1 (No. 333-169755) filed October 5, 2010).
23.1*Consent of UHY LLP.
31*Rule 13a-14(a)/15d-14(a) Certification
32*Section 1350 CertificationLLP
101.1*Interactive Data File.File
*Filed herewith

______________________

* Filed herewith.

Item 16. Form 10-K Summary
None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
GUIDED THERAPEUTICS, INC.
  
 By:/s/  
 /s/Gene S. Cartwright
         Gene Cartwright, Ph.D.
 President, and Chief Executive Officer and Acting
 Chief Financial Officer
 
Date:        March 25, 2015April 17, 2018

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

DATESIGNATURETITLE 

March 25, 2015 

 /s/ Gene Cartwright

President, Chief Executive Officer,

Acting Chief Financial Officer and

SIGNATURE
 
 Gene CartwrightDirector (Principal Executive Officer)TITLE
    
March 25, 2015April 17, 2018 /s//s/ Gene S. CartwrightPresident, Chief Executive Officer, Acting Chief Financial
Gene S. CartwrightOfficer (Principal Executive Officer and Principal Financial and Accounting Officer)
April 17, 2018/s/ Michael C. James Chairman of the Board and Director
 Michael C. James  
    
March 25, 2015April 17, 2018 /s/ Ronald W. HartDirector/s/ John E. Imhoff  Director
  Ronald W. Hart John E. Imhoff  
    
March 25, 2015April 17, 2018 /s/  John E. Imhoff Director/s/ Richard P. Blumberg  Director
  John E. Imhoff Richard P. Blumberg  
    
March 25, 2015   /s/ Jonathan M. NiloffDirector 
   Jonathan M. NiloffApril 17, 2018 /s/ Mark FaupelChief Operating Officer and Director
   
March 25, 2015   /s/ Linda RosenstockDirector
   Linda RosenstockMark Faupel  

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