During the three months ended March 31, 2017, the Company issued 2,360,000 shares of common stock for $1,180,000, less $83,400 of issuance costs. In connection with the secured promissory notes issued on May 25, 2016, as discussed in Note 5,issuance of common stock, the Company issued an aggregate of 150,0001,180,000 warrants to purchase shares of common stock with a par value of $0.001 for $0.80 per shares.    The warrants are exercisableat $0.50, for a period of five (5) years. 

This report contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: our ability to raise capital; our ability to retain key employees; our ability to engage third party distributors to sell our products; economic conditions; technological advances in the medical field; demand and market acceptance risks for new and existing products, technologies, and healthcare services; the impact of competitive products and pricing; U.S. and international regulatory, trade, and tax policies; product development risks, including technological difficulties; ability to enforce patents; and foreseeable and unforeseeable foreign regulatory and commercialization factors, our ability to develop new products and respond to technological changes in the markets in which we compete, our ability to obtain government approvals of our products, our ability to market our products, changes in third-party reimbursement procedures, and such other factors that may be identified from time to time in our Securities and Exchange Commission ("SEC") filings and other public announcements including those set forth under the caption “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Readers are cautioned not to place undue reliance on our forward-looking statements, as they speak only as of the date made. Except as required by law, we assume no duty to update or revise our forward-looking statements.

 

The Company operates in one industry segment for cancer diagnostics instruments and consumables for histology and cytology laboratories.

 

 

 

The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements presented in Part I, Item 1 of this Quarterly Report and the notes thereto, and our audited consolidated financial statements and notes thereto, as well as our Management’s Discussion and Analysis contained in our Annual Report on Form 10-K for the year ended December 31, 20152016 filed with the SEC on April 12, 2016.14, 2017.

 

 

 

Revenue for the three months ended June 30, 2016,March 31, 2017, was $2,816$1,891 as compared to $2,132$2,131 for the three months ended June 30, 2015.  The 32% revenue increase mainly comprised of histology equipment and consumables of $241 and $125 respectively.

 

 

Cost of revenues were $2,759,$1,211, or 55.77%64% of the revenues for the sixthree months ended June 30, 2016March 31, 2017, as compared to $2,535$1,213, or 57.36%57% of the revenues for the sixthree months ended June 30, 2015.  AMarch 31, 2016. The cost of revenue consisted of higher percentage of sales representing internally manufactured equipment improved our overall margins for the period.manufacturing and fixed costs during 2017 due delays in sourcing parts and some installation issues.

 

Research and development expenses are an important part of our business to keep our existing products competitive, and to develop new innovative solutions with interesting market potential that will help us grow future revenues. These expenses include research work for cancer marker consumables and developing work, including engineering and industrial design, for histology and cytology laboratories worldwide. The major components consist of payroll-related costs for in-house scientific research, mechanical and electrical engineering, instrument related software development staff, prototype expenses and material purchased for R&D.

 

For the first half of 2016,quarter 2017, research and development expenses stayed at the same level, $781increased to $425 compared to $603$360 for the first half 2015.  During 2016,quarter 2016. The Company expensed approximately $138 of development expense for the Company hired a project manager to oversee the planned field study for our newly developed cancer assay in China to shorten the time to market.  The new hire is a German-Chinese PhD in Biochemistry.three months ended March 31, 2017.

For the six months ended June 30, 2016,first quarter 2017, SG&A expenses were $1,775$782 as compared to $1,407$857 for the first six months ended June 30, 2015.  The six month ended June 30, 2016 compared to the same period in 2015 expense reflects a recovery of bad debts of $101 for 2015 compared to $38 expense for the same period inquarter 2016. The first quarter 2016 period included approximately $45 of professional fees attributed to the restatement of the intangible assets and deferred income tax liability in the financial statements for the year ended December 31, 20152015.  Professional fees were lower for the quarter ended March 31, 2017 specifically related to lower audit fees for the 2016 audit and higher professional fees attributed to increase board fees.  The directors fess were increased from $5,000 a director per quarter to $10,000 a director per quarter, an increasetiming of $30,000. the completion of the audit through April 2017.

The operating loss of $469$576 for the first halfquarter of 20162017, compares to anMEDITE’s operating loss of $191$350 for the first halfquarter of 20152016, and is directly related to higher general and administrative expenses relating to professional feeslower sales for the restatement, higher board feesperiod and research and development costs discussed above and bad debt expenses, offset by improved margins.

Interest expenses increaseddecreased by 260%26% to $400$193 in the sixthree months ended June 30, 2016March 31, 2017, compared to $111$261 for the first halfthree months ended June 30, 2015March 31, 2016, due to the amortization of the debt issuance costs and the amortization of the debt discount attributed to the secured promissory notes issued at December 31, 2015, which matured on March 31, 2016.  These notes bear interest at 15%, or $40$24 for the 2017 period compared to $19 for the 2016 period and the amortization of the debt issuance costs and debt discount totaled $220$200 for the sixthree months ended June 30, 2016 plusMarch 31, 2016.  The 2017 period did not have any amortization of the $54 attributeddebt issuance costs. During the three months ended March 31, 2017 the Company recorded $64 and $57 to interest expense related to repricing of the warrants related to the secured promissory notes and the fair value of 195,000 warrants issued forrelated to the default.penalty feature in secured promissory notes issued on December 31, 2015 and May 25, 2016.  The effect of the interest, debt issuance costs of $220and debt discount, repricing and the $54penalty warrants on the secured promissory notes was an effective yield of warrant expense are considered non-cash settlement on these Notes.89% and 175% for the three months ended March 31, 2017 and 2016, respectively.

The net loss for the six monthquarter ended June 30, 2016,March 31, 2017, totaled $824$955, as compared to net loss of $327$622 for the six monthquarter ended June 30, 2015 is due primaryMarch 31, 2016. The loss for 2016 directly related to a higher general and administrative expenses relating to professional feeslower sales for the restatementperiod and bad debt expense andhigher research and development costs anddiscussed above. Decreased interest costs attributed todiscussed above, resulted from the amortization of the debt issuance cost and debt discount with the secured promissory notes discussed above,of $200 in 2016 offset by improved margins.repricing and warrant issuances discussed above.

Due to promising new products and distributions contracts executed in the last two years and management believeschanges with increased focus on the various sales channels and manufacturing and quality systems, management anticipates the profitability and cash flow of the business will grow and improve. However, significant on-going operating expenditures may be necessary to manufacture and market new and existing products to achieve the accelerated sales growth targets outlined in the Company’s business plan. To realize the planned growth potential management will focus its efforts on 1)1.) finishing and gaining approval for the products currently under development and 2) increasing2.) increase direct sales in the USA and continuingcontinue to expand Chinese market sales by broadening the Company’s collaborations with the local distributor UNIC. We also will work on continuously optimizing manufacturing cost to increase our gross margin.

In summary, management believes current working capital is sufficient to fund current operations. The Company intends to continue growing using current working capital, however the growth of all these factors and conditionsthe Company could be slowed down if we are unable to obtain debt and/or equity financing.  Consequently, there is substantial doubt about our ability to continue as a going concern.

As of June 30, 2016,March 31, 2017, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Our chief executive officerChief Executive Officer and our chief financial officer,Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our chief executiveChief Executive and chief financial officersChief Financial Officers have concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that the information we are required to disclose in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to our management, including our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.