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GTHP > SEC Filings for GTHP > Form 10-Q on 13-Nov-2013All Recent SEC Filings

Show all filings for GUIDED THERAPEUTICS INC

Form 10-Q for GUIDED THERAPEUTICS INC


13-Nov-2013

Quarterly Report


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

Statements in this report which express "belief," "anticipation" or "expectation," as well as other statements which are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those that may be set forth under "Risk Factors" below and elsewhere in this report, as well as in our annual report on Form 10-K for the year ended December 31, 2012 and subsequently filed quarterly reports on Form 10-Q. Examples of these uncertainties and risks include, but are not limited to:

the dependence on potential strategic partners or outside investors for funding, development assistance, clinical trials, distribution
and marketing of our products; 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;
whether and when we or any potential strategic partners will obtain approval from the FDA and corresponding foreign agencies;
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; and
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 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 development of our LuViva non-invasive cervical cancer detection device and extension of our cancer detection technology into other cancers, including lung and esophageal. Our technology, including products in research and development, primarily relates to biophotonics technology for the non-invasive detection of cancers.

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 majority owned subsidiary, InterScan, which originally had been incorporated as "Guided Therapeutics."

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

Our prospects must be considered in light of the substantial risks, expenses and difficulties encountered by entrants into the medical device industry. This industry is characterized by an increasing number of participants, intense competition and a high failure rate. We have experienced operating losses since our inception and, as of September 30, 2013, we had an accumulated deficit of about $ 98.3 million. To date, we have engaged primarily in research and development efforts. We do not have significant experience in manufacturing, marketing or selling our products. Our development efforts may not result in commercially viable products and we may not be successful in introducing 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 least the end of 2013 as we continue to expend substantial resources to introduce LuViva, further the development of our other products, obtain regulatory clearances or approvals, build our marketing, sales, manufacturing and finance organizations and conduct further research and development.

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.

Currently, our policies that could require critical management judgment are in the areas of revenue recognition, reserves for accounts receivable and inventory valuation.

Revenue Recognition:We recognize revenue from contracts on a straight 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.

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.

Stock Option Plan: We measure the cost of employees services received in exchange for equity awards, including stock options, based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards.

Warrants: We have issued warrants, which allow the warrant holder to purchase one share of stock at a specified price for a specified period of time. We record equity instruments, including warrants issued to non-employees, based on the fair value at the date of issue. The fair value of the warrants, at date of issuance, is estimated using the Black-Scholes Model.

Allowance for Inventory Valuation:We estimate losses from obsolete and damaged inventories quarterly and revise our reserves as a result.

Allowance for Accounts Receivable:We estimate losses from the inability of our customers to make required payments and periodically review the payment history of each of our customers, as well as their financial condition, and revise our reserves as a result. Since our inventory is stated at the lower of cost or market, we also estimate an allowance for the potential losses on the sale of inventory.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

Revenue: Net revenue decreased to approximately $86,000 for the three months ended September 30, 2013, from approximately $693,000 for the same period in 2012. Net revenue was lower for the three months ended September 30, 2013 than the comparable period in 2012, due to the decrease in revenue from contracts relating to our cervical cancer detection technology and our prior co-development agreement with Konica Minolta.

Sales Revenue, Cost of Sales and Gross Loss from Devices: Revenue from the sale LuViva devices for the three months ended September 30, 2013 was $58,000, with related cost of sales of approximately $117,000, resulting in a loss of approximately $59,000 on the devices. Revenue from the sale of a demonstration LuViva device for the quarter ended September 30, 2012, was approximately $43,000, with related cost of sales of approximately $55,000, resulting in a loss of approximately $12,000 on the devices.

Research and Development Expenses: Research and development expenses decreased to approximately $596,000 for the three months ended September 30, 2013, compared to $787,000 for the same period in 2012. The decrease, of approximately $191,000, was primarily due to a decrease in research and development expenses for the cervical cancer detection products.

Sales and Marketing Expenses: Sales and marketing expenses were approximately $249,000 during the three months ended September 30, 2013, compared to $132,000 for the same period in 2012. The increase of approximately $117,000 was primarily due to an increase in expenses relating to international marketing efforts for our cervical cancer detection products.

General and Administrative Expenses: General and administrative expenses increased to approximately $822,000 during the three months ended September 30, 2013, compared to $732,000 for the same period in 2012. The increase of approximately $90,000, is primarily related to accrued expenses relating to product warranties.

Other Income: Other income was approximately $213,000 for the three months ended September 30, 2013. There was no other income for the three months ended September 30, 2012. Other income for the quarter then ended was related to royalty receipts from our Licensing Agreement from Freedom Meditech and the change in fair value of warrants.

Interest Expense: Interest expense decreased to approximately $11,000 for the three months ended September 30, 2013, as compared to interest expense of approximately $16,000, for the same period in 2012. The decrease in interest expense was a result of lower loan balances for the three months ended September 30, 2013.

Taxes: There was no provision for income taxes for the three months ended September 30, 2013, due to the approximately $61.8 million NOL carry forward at December 31, 2012. A full valuation allowance has been recorded related to any deferred tax assets created from the NOL.

Net loss was approximately $1.6 million for the three months ended September 30, 2013, compared to a net loss of approximately $986,000, for the same period in 2012, for the reasons described above.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

Revenue: Net revenue decreased to approximately $474,000 for the nine months ended September 30, 2013, from approximately $2.3 million for the same period in 2012. Net revenue was lower for the nine months ended September 30, 2013, than the comparable period in 2012, due to the decrease in revenue from contracts relating to our cervical cancer detection technology and our prior co-development agreement with Konica Minolta.

Sales Revenue, Cost of Sales and Gross Loss from Devices: Revenue from the sale of LuViva devices for the nine months ended September 30, 2013 was $306,000, with related cost of sales of approximately $394,000, resulting in a loss of approximately $88,000 on the devices. Revenue from the sale of demonstration LuViva devices for the nine months ended September 30, 2012, was approximately $72,000, with related cost of sales of approximately $130,000, resulting in a loss of approximately $58,000 on the devices.

Research and Development Expenses: Research and development expenses decreased to approximately $2.2 million for the nine months ended September 30, 2013, compared to approximately $2.4 million for the same period in 2012. The decrease was attributed to decrease in activities related to our ISF Technology.

Sales and Marketing Expenses: Sales and marketing expenses were approximately $608,000 during the nine months ended September 30, 2013, compared to $271,000 for the same period in 2012. The increase of approximately $337,000 was primarily due to an increase in expenses relating to marketing efforts for the cervical cancer detection products.

General and Administrative Expenses: General and administrative expenses remained essentially unchanged at approximately $2.7 million for the nine months ended September 30, 2013 and 2012.

Other Income: Other income was approximately $289,000 for the nine months ended September 30, 2013. Other income consisted of a one-time payment from our old insurance company for policy dividends and the change in fair value of warrants. There was no other income for the same period in 2012.

Interest Expense: Interest expense decreased to approximately $35,000 for the nine months ended September 30, 2013, as compared to approximately $52,000 for the same period in 2012. The decrease was primarily due to the decrease in interest expense on lower loan balances for the nine months ended September 30, 2013. The Company was also able to pay off one of its notes payable and PI Bank loan during the first six months of 2013.

Taxes: There was no provision for income taxes for the nine months ended September 30, 2013, due to the approximately $61.8 million NOL carry forward at December 31, 2012. A full valuation allowance has been recorded related to any deferred tax assets created from the NOL.

Net loss was approximately $5.1 million during the nine months ended September 30, 2013, compared to approximately $3.2 million for the same period in 2012, for the reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have raised capital through the private sale of preferred stock and debt securities, public and private sales of common stock, funding from collaborative arrangements and grants. At September 30, 2013, we had cash of approximately $400,000 and a negative working capital of approximately $104,000.

Our major cash flows for the nine months ended September 30, 2013, consisted of cash out-flows of approximately $4.5 million from operations, including approximately $5.0 million of net loss, cash outflow of $111,000 from investing activities, and net cash provided by financing activities of approximately $3.9 million, which primarily represents the proceeds received from the exercise of outstanding warrants and options, offset in part by cash utilized for loan repayment.

On May 24, 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 our Series B Preferred Stock at a purchase price of $1,000 per share, subject to the terms of a Securities Purchase Agreement, dated May 21, 2013, between us and certain accredited investors. 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 at an exercise price of $1.08 per share, subject to certain customary adjustments contained in the respective warrants.

We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements. We believe our existing and available capital resources will be sufficient to satisfy our funding requirements through the second quarter of 2014. 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.

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.

Our financial statements have been prepared and presented on a basis assuming we will continue as a going concern. However, we have experienced operating losses since our inception and, as of September 30, 2013, had an accumulated deficit of approximately $98.3 million, a negative working capital of approximately $104,000 and stockholders' equity of approximately $522,000. These 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 contained in our annual report on Form 10-K for the year ended December 31, 2012.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value.

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