0001654954-16-004120.txt : 20161116 0001654954-16-004120.hdr.sgml : 20161116 20161116142656 ACCESSION NUMBER: 0001654954-16-004120 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 61 CONFORMED PERIOD OF REPORT: 20160930 FILED AS OF DATE: 20161116 DATE AS OF CHANGE: 20161116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Echo Therapeutics, Inc. CENTRAL INDEX KEY: 0001031927 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411649949 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35218 FILM NUMBER: 162002091 BUSINESS ADDRESS: STREET 1: 99 WOOD AVENUE SOUTH STREET 2: SUITE 302 CITY: ISELIN STATE: NJ ZIP: 08830 BUSINESS PHONE: 732-549-0919 MAIL ADDRESS: STREET 1: 99 WOOD AVENUE SOUTH STREET 2: SUITE 302 CITY: ISELIN STATE: NJ ZIP: 08830 FORMER COMPANY: FORMER CONFORMED NAME: SONTRA MEDICAL CORP DATE OF NAME CHANGE: 20020702 FORMER COMPANY: FORMER CONFORMED NAME: CHOICETEL COMMUNICATIONS INC/MN/ DATE OF NAME CHANGE: 20020701 FORMER COMPANY: FORMER CONFORMED NAME: SONTRA MEDICAL CORP DATE OF NAME CHANGE: 20020701 10-Q 1 ecte10q_sep302016.htm FORM 10-Q SEC Connect

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________
FORM 10-Q
________________
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to __________
 
Commission File Number: 000-35218
 
ECHO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
________________
Delaware
41-1649949
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
99 Wood Avenue South, Suite 302, Iselin, NJ
08830
(Address of principal executive offices)
(Zip Code)
 
732-201-4194
(Registrant’s telephone number, including area code)
________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
 
Indicate by check mark whether the registrant has submitted electronically 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
 
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☑
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☑
 
As of October 30, 2016, 12,004,308 shares of the registrant’s Common Stock, $0.01 par value, were issued and outstanding.
 

 
 

ECHO THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2016
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 1 
     
2
     
3
     
     
 5 
 13 
 17 
 17 
 
    
 
    
17
 
 
 
18
19
 
 
 
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
 
ECHO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
September 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents 
 $172,725 
 $56,210 
Prepaid and other 
  229,229 
  244,534 
Total current assets 
  401,954 
  300,744 
 
    
    
Property and equipment, net 
  188,936 
  267,671 
 
    
    
Other assets:
    
    
Cash restricted pursuant to letters of credit 
  217,556 
  236,425 
Capitalized software development costs 
  267,811 
   
Other 
  250 
  250 
Total other assets 
  485,617 
  236,675 
Total assets 
 $1,076,507 
 $805,090 
 
    
    
LIABILITIES AND STOCKHOLDERS’ DEFICIT
    
    
 
    
    
Current liabilities:
    
    
Accounts payable 
 $1,851,043 
 $2,176,083 
Accrued and other 
  884,253 
  602,345 
Secured convertible notes, net 
  3,248,731 
   
Bridge loans 
  250,000 
  330,000 
Premium financing 
  22,638 
   
Derivative liabilities 
  1,010,694 
  127,000 
Total current liabilities 
  7,267,359 
  3,235,428 
Deferred revenue, net 
  95,535 
  95,535 
Total liabilities 
  7,362,894 
  3,330,963 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders’ deficit:
    
    
Preferred Stock, $0.01 par value; 40,000,000 shares authorized:
    
    
Convertible Series
    
    
C - 10,000 shares authorized;1,000 issued and outstanding 
  10 
  10 
D - 3,600,000 shares authorized;1,000,000 issued and outstanding
  10,000 
  10,000 
E - 1,748,613 shares authorized; issued and outstanding 
  17,486 
  17,486 
F - 6,000,000 shares authorized; 5,276,180 issued and outstanding
  52,762 
  52,762 
Common stock, $0.01 par value; 150,000,000 shares authorized; issued and outstanding 11,635,915 and 11,124,496 shares, respectively
    
    
Common stock, $0.01 par value; 150,000,000 shares authorized; issued and outstanding 11,635,915 and 11,124,496 shares, respectively
  116,358 
  111,243 
Additional paid-in capital 
  148,414,835 
  147,412,559 
Accumulated deficit 
  (154,897,838)
  (150,129,933)
Total stockholders’ deficit 
  (6,286,387)
  (2,525,873)
Total liabilities and stockholders’ deficit 
 $1,076,507 
 $805,090 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
ECHO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
For the Three Months Ended
September 30,
 
 
For the Nine Months Ended
September 30,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Licensing revenue 
 $ 
 $ 
 $ 
 $ 
     Total revenues  
   
   
   
   
 
    
    
    
    
Operating expenses:
    
    
    
    
    Research and development 
  588,551 
  558,995 
  1,943,287 
  2,027,896 
    Selling, general and administrative 
  1,198,328 
  820,662 
  2,927,716 
  3,815,746 
    Impairment charge 
   
   
   
  9,625,000 
    Loss (gain) on disposal of property and equipment 
   
  39,382 
  (4,000)
  278,816 
    Depreciation and amortization 
  26,925 
  39,171 
  85,090 
  487,491 
Total operating expenses  
  1,813,804 
  1,458,210 
  4,952,093 
  16,234,949 
 
    
    
    
    
Loss from operations 
  (1,813,804)
  (1,458,210)
  (4,952,093)
  (16,234,949)
 
    
    
    
    
Other income (expense):
    
    
    
    
    Gain (loss) on revaluation of derivative liabilities 
  3,675,826 
  (54,000)
  4,437,776 
  (61,845)
    Financing loss   
   
  (263,000)
   
  (4,620,000)
    Loss on early extinguishment of bridge loans 
   
   
  (2,143,960)
   
    Amortization of debt discount 
  (934,794)
   
  (1,830,012)
   
    Interest expense 
  (133,057)
  (212)
  (279,616)
  (4,938)
Other income (expense), net 
  2,607,975 
  (317,212)
  184,188 
  (4,686,783)
Net income (loss) 
 $794,171 
 $(1,775,422)
 $(4,767,905)
 $(20,921,732)
Deemed dividend on beneficial conversion feature of preferred stock 
   
   
  (6,460,818)
   
Net income (loss) applicable to common shareholders 
 $794,171 
 $(1,775,422)
 $(11,228,723)
 $( 20,921,732)
 
    
    
    
    
Net loss per common share, basic 
 $0.07 
 $(0.16)
 $(0.98)
 $(1.86)
Net loss per common share, diluted 
 $(0.11)
 $(0.16)
 $(0.98)
 $(1.86)
 
    
    
    
    
Basic weighted average common shares outstanding 
  11,603,868 
  11,127,475 
  11,418,653 
  11,266,571 
Diluted weighted average common shares outstanding  
  17,261,692 
  11,127,475 
  11,418,653
  11,266,571 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
 ECHO THERAPEUTICS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 (Unaudited)
 
 
 
    Preferred Stock 
 
 
Common Stock
 
 
Additional Paid-in 
 
 
Accumulated 
 
 
Total Stockholders' 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Deficit
 
 
    
    
    
    
    
    
    
Balance at December 31, 2015
  8,025,793 
 $80,258 
  11,124,496 
 $111,243 
 $147,412,559 
 $(150,129,933)
 $(2,525,873)
Share-based compensation, net of restricted stock cancellations
   
   
  275,695 
  2,757 
  700,106 
   
  702,863 
Exercise of stock options 
   
   
  2,246 
  23 
  (23)
   
   
Settlement of account payable
   
   
  57,121 
  571 
  93,079 
   
  93,650 
Payment of interest 
   
   
  101,357 
  1,014 
  130,614 
   
  131,628 
Payment of investor relations
   
   
  75,000 
  750 
  78,500 
   
  79,250 
Net loss 
   
   
   
   
   
  (4,767,905)
  (4,767,905)
Balance at September 30, 2016
  8,025,793 
 $80,258 
  11,635,915 
 $116,358 
 $148,414,835 
 $(154,897,838)
 $(6,286,387)
 
 See accompanying notes to the condensed consolidated financial statements.
 
 
 ECHO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
For the Nine Months Ended September 30,
 
 
 
2016
 
 
2015
 
Cash Flows From Operating Activities:
 
 
 
 
 
 
Net loss 
 $(4,767,905)
 $(20,921,732)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation and amortization 
  85,090 
  487,491 
Amortization of debt discount 
  1,830,012 
   
Share-based compensation, net 
  702,863 
  798,250 
Loss on early extinguishment of bridge loans 
  2,143,960 
   
(Gain) loss on revaluation of derivative liabilities 
  (4,437,776)
  61,845 
Warrant repricing charged to legal expense 
   
  328,000 
(Gain) Loss on disposal of assets 
  (4,000)
  278,816 
Impairment charge 
   
  9,625,000 
Financing loss 
   
  4,620,000 
Changes in assets and liabilities:
    
    
Prepaid and other 
  15,318 
  (4,853)
Accounts payable 
  (152,154)
  395,973 
Accrued and other 
  417,156 
  (100,836)
Net cash used in operating activities 
  (4,167,436)
  (4,432,046)
Cash Flows from Investing Activities:
    
    
Purchase of property and equipment 
  (6,354)
  (55,836)
Decrease in restricted cash 
  18,869 
  (183,938)
Capitalization of software development costs 
  (267,811)
   
Proceeds on disposal of property and equipment 
  4,000 
  126,082 
Net cash used in investing activities 
  (251,296)
  (113,692)
Cash Flows From Financing Activities:
    
    
Proceeds from secured convertible notes, net of related costs 
  2,512,609 
   
Proceeds from bridge loans 
  2,000,000 
   
Proceeds from equity financing 
   
  3,181,500 
Proceeds from premium financing 
  199,671 
  272,622 
Principal payments from premium financing 
  (177,033)
  (243,420)
Capital contribution 
   
  59,325 
Net cash provided by financing activities 
  4,535,247 
  3,270,027 
Net increase in cash and cash equivalents 
  116,515 
  (1,275,711)
Cash and cash equivalents:
    
    
Beginning of period 
  56,210 
  1,278,941 
End of period 
 $172,725 
 $3,230 
Supplemental disclosure of cash flow information:
    
    
Cash paid during the year:
    
    
Interest 
 $15,709 
 $5,043 
Income taxes 
 $2,761 
 $ 
Supplemental disclosure of non-cash financing transactions:
    
    
Deemed dividend on beneficial conversion feature of convertible preferred stock
 $6,460,818 
 $ 
Directors fees payable offset against prepaid insurance 
 $ 
 $272,200 
Security deposit offset against accounts payable 
 $ 
 $9,740 
Accrued legal fees settled with stock 
 $ 
 $550,000 
Accrued interest settled with stock 
 $131,628 
 $ 
Account payable settled with stock 
 $172,900 
 $ 
Bridge loans exchanged for secured convertible notes 
 $2,080,000 
 $ 
Derivatives offset against secured convertible notes 
 $5,321,470 
 $ 
Conversion of convertible preferred stock into common stock at par value 
 $ 
 $15,000 
Subscriptions receivable for Series F Preferred Stock 
 $ 
 $300,000 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
Echo Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 
(1) ORGANIZATION AND BASIS OF PRESENTATION
 
Echo Therapeutics, Inc. (the "Company") is a medical device company with expertise in advanced skin permeation technology. The Company is developing its non-invasive, wireless continuous glucose monitoring (CGM) system with potential use in the outpatient diabetes market. A significant opportunity may also exist in the wearable-health consumer market and in the hospital setting. Echo has also developed its needle-free skin preparation device as a platform technology that allows for enhanced skin permeation enabling extraction of analytes, such as glucose, enhanced delivery of topical pharmaceuticals and other applications.
 
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 30, 2016. These financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of September 30, 2016 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. These interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements as allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading. Certain amounts in prior periods have been reclassified to conform to the current presentation.
 
(2) LIQUIDITY AND MANAGEMENT’S PLANS
 
The accompanying financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2016, the Company had cash of $172,725, working capital deficit of ($6,865,405) and an accumulated deficit of ($154,897,838). The Company continues to incur recurring losses from operations. The Company’s losses have resulted principally from costs incurred in connection with its research and development activities and from general and administrative costs associated with its operations. The Company also expects to have negative cash flows for the foreseeable future as it funds its operational losses and capital expenditures. This will result in decreases in the Company’s working capital, total assets and stockholders’ equity, which may not be offset by future funding. The Company will need to secure additional capital to fund its product development, research, manufacturing and clinical programs in accordance with its current planned operations. The Company has funded its operations in the past primarily through debt and equity issuances. Management will continue to pursue financing to fund its operations. No assurances can be given that additional capital will be available on terms acceptable to the Company. The accompanying financial statements do not include any adjustments that might result from the outcome of the uncertainty.
 
(3) PROPERTY AND EQUIPMENT
 
The principal categories and estimated useful lives of property and equipment were:
 
 
 
09/30/16
 
 
 
12/31/15
 
 
Estimated
Useful Lives
 
Computer equipment 
 $335,298 
 $332,764 
  3 
Office and laboratory equipment 
  603,226 
  628,726 
  3-5 
Furniture and fixtures 
  228,099 
  228,099 
  7 
Manufacturing equipment 
  65,819 
  61,998 
  5 
Leasehold improvements 
  41,968 
  41,968 
  3-7 
  Total property and equipment
  1,274,410 
  1,293,555 
    
Less accumulated depreciation and amortization 
  1,085,474 
  1,025,884 
    
 Property and equipment, net 
 $188,936 
 $267,671 
    
 
 
 
(4) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
 
Software development costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological feasibility, are expensed as incurred. Once technological feasibility has been determined, a portion of the costs incurred in development, including coding, testing, and quality assurance, are capitalized. $25,170 and $267,811 of costs associated with the application programming of the Company’s smartphone application for its CGM were capitalized in the quarter and nine months ended September 30, 2016, respectively.
 
(5) FINANCING TRANSACTIONS
 
On January 29, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional and other accredited investors (the “Investors”) pursuant to which the Company agreed to issue up to $5,148,620 principal amount of 10% senior secured convertible notes of the Company (the “Notes”) and related common stock purchase warrants (the “Warrants”) in two tranches.  The Notes are secured by substantially all of the assets of the Company pursuant to a Security Agreement, dated January 29, 2016 (the “Security Agreement”). The initial closing of $1,787,000 occurred on January 29, 2016.  The second tranche of the financing, or $3,361,620, was subject to the Company obtaining shareholder approval which occurred on April 14, 2016. The Notes and Warrants are subject to customary antidilution provisions. With stockholder approval, the conversion price for the Notes is subject to a reset to eighty percent (80%) of the average of the ten lowest closing prices of the Common Stock less than $1.50 , subject to equitable adjustment, if any, as reported by Bloomberg LP for the principal market on which the Common Stock then trades during the ninety (90) days following the first effective date of a registration statement filed pursuant to the Registration Rights Agreement, but in no event less than $.80, subject to equitable adjustment. For the first closing, bridge notes in the principal amount of $680,000 were surrendered to the Company as payment by certain Investors. This was inclusive of $330,000 of bridge notes outstanding at December 31, 2015 and a $350,000 of promissory notes received at various dates in January 2016 from Beijing Yi Tang Bio Science & Technology, Ltd. (BYT). The Company recorded a loss on early extinguishment of these bridge loans of $415,725, representing the excess value of the consideration consisting of the $680,000 secured convertible note, and a proportional amount of the Warrants totaling $320,761 and the embedded conversion feature of the Notes totaling $94,964, exchanged for certain bridge loans to cancel them. Fees aggregating $368,080 were paid to the placement agent and others. The Notes issued in the first closing are initially convertible into 1,191,333 shares of common stock, par value $.01 per share, of the Company (the “Common Stock”), at $1.50 per share. In connection with the initial closing, the Company issued five-year Class A warrants to purchase 1,274,280 shares of Common Stock, inclusive of Class A warrants to purchase 82,947 share of Common Stock issued to the placement agent, at an exercise price of $1.50 per share, which are not exercisable for six months. These Warrants, whose exercise price is subject to adjustments should the Company consummate a future financing at a price less than $1.50, are considered a derivative. The initial value of these derivative warrants was $901,631 which was determined utilizing a Monte Carlo Binomial Model. The assumptions utilized for these derivative warrants, as well as embedded conversion feature, described hereafter, are disclosed in Note 10. Additionally the Notes contain an embedded conversion feature which adjusts the conversion price should the Company have a price reset during the ninety days after April 29, 2016 (the effective date of the Company’s registration) or consummate a future financing at a price less than $1.50, and is also considered a derivative. A price reset to $0.91 occurred on July 29, 2016 as is further described below. The initial value of the embedded conversion feature within the Notes was $249,559 which was also determined utilizing a Monte Carlo Binomial Model.
 
On February 4, 2016, the Company issued a promissory note to BYT in the aggregate principal amount of $300,000 in respect of a bridge loan made by such party.  On February 11, 2016, the Company issued a promissory note to Platinum Partners Value Arbitrage Fund L.P. (“PPVA”) in the aggregate principal amount of $100,000 in respect of a bridge loan made by such party.  On March 21, 2016, the Company issued a promissory note to PPVA in the aggregate principal amount of $150,000 in respect of a bridge loan made by such party.  On April 4, 2016, the Company issued a promissory note to PPVA in the aggregate principal amount of $350,000 in respect of a bridge loan made by such party.  On April 18, 2016, the Company issued a promissory note to PPVA in the aggregate principal amount of $450,000 in respect of a bridge loan made by such party. On April 29, 2016, the Company issued a promissory note to BYT in the aggregate principal amount of $50,000 in respect of a bridge loan made by such party. These promissory notes, aggregating $1,400,000, which bore interest at the prime rate (or 3.5%), were exchanged for the May 3, 2016 second tranche financing of the Notes described below.
 
On April 14, 2016, the Company held a Special Meeting of Stockholders. Of the 11,124,496 shares of common stock outstanding and entitled to vote, 6,197,024 shares, or 56%, were represented at the meeting in person or by proxy. The stockholders approved the issuance by the Company of shares of its Common Stock pursuant to and in accordance with the terms of the private placement financing transaction contemplated by the Securities Purchase Agreement, dated January 29, 2016, by and among the Company and the investors named therein, and the other documents and agreements related thereto, and the other transactions contemplated thereby, including the amendment to Company's Certificate of Designations governing the terms of its Series F Convertible Preferred Stock as described therein, for purposes of complying with applicable Delaware law and NASDAQ Listing Rule 5635(d), as disclosed in the Company’s proxy statement.
 
 
On May 3, 2016, the Company closed the second tranche of the Note financing and issued Notes in an aggregate principal amount of $3,361,620, inclusive of $3,620 of interest due on bridge loans. In exchange for the Notes, the Company received $1,188,000 in gross cash proceeds, a note receivable, payable in 30 days and bearing interest at 12%, of $770,000, from BYT, and $1,400,000 of bridge notes were cancelled. The Company recorded a loss on early extinguishment of these bridge loans of $1,728,235, representing the excess value of the consideration consisting of the $1,400,000 secured convertible note, and a proportional amount of the Warrants totaling $510,348 and the embedded conversion feature of the Notes totaling $1,217,887, exchanged for certain bridge loans to cancel them. The Company incurred placement, legal and other fees aggregating $184,311 which were deducted from the gross cash proceeds. Additionally, the placement agent received Class B warrants, with a 1½ year term, to purchase 37,520 shares of the Company’s Common Stock at $1.50 per share. The Notes are initially convertible into 2,241,075 shares of Common Stock at $1.50 per share. The Company also issued Class B warrants, with a 1½ year term, to purchase 2,241,075 shares of Common Stock at $1.50 per share. The Company may call the Class B Warrants in the event that Company’s Common Stock is trading at 200% above the strike price for 10 consecutive trading days (at $100,000 value traded per day) if the Warrant is saleable into the public markets, provided that the holder will have the option of ten trading days to exercise. These Warrants, whose exercise price is subject to adjustments should the Company do a future financing at a price less than $1.50, are considered a derivative. The initial value of these derivative warrants was $1,245,943 which was determined utilizing a Monte Carlo Binomial Model. The assumptions utilized for these derivative warrants, as well as embedded conversion feature, described hereafter, are disclosed in Note 10. Additionally the Notes contain an embedded conversion feature which adjusts the conversion price should the Company have a price reset during the ninety days after April 29, 2016 (the effective date of the Company’s registration) or consummate a future financing at a price less than $1.50, and is also considered a derivative. A price reset to $0.91 occurred on July 29, 2016 as is further described below. The initial value of the embedded conversion feature within the Notes was $2,924,337 which was also determined utilizing a Monte Carlo Binomial Model.
 
In connection with the Note closing, the Certificate of Amendment to the Certificate of Designations of the Company’s Series F Convertible Preferred Stock was filed which provides the holders of 5,276,180 shares of the Company’s Series F Convertible Preferred Stock the same reset rights afforded the Note holders. This modification to the Series F provided them with a beneficial conversion feature. As a result of this change, the Company recorded a deemed dividend of $6,460,818.
 
Effective as of July 29, 2016, notice was given that the Conversion Price of the Notes issued to the note holders pursuant to the Securities Purchase Agreement, dated January 29, 2016 (the “Purchase Agreement”), between Echo Therapeutics, Inc. and the purchasers, had been reset from $1.50 per share to $0.91 per share. Additionally and also effective as of the same date, notice was given that, pursuant to Section 5(c)(v) of the Certification of Designation, Preferences and Rights of the Series F Convertible Preferred Stock of Echo Therapeutics, Inc. (the “Series F Designation”), the Conversion Ratio has been reset from 1:1 to 1:1.65. These resets were based on an amount equal to 80% of the average of the ten lowest closing prices of the Common Stock less than $1.50 per share during the ninety day period immediately following the effectiveness of the Registration Statement, as contemplated by Section 4(b) of the Notes. This price reset resulted in the Series F Convertible Preferred Stockholders receiving the right to 3,429,517 additional common shares upon conversion.
 
The Purchase Agreement for the above described Note financing contains customary representations, warranties and affirmative and negative covenants.  The Purchase Agreement also requires management and certain shareholders to lock-up certain of their shares for the earlier of six months after the effective date of a registration statement, the first anniversary of the initial closing (January 29, 2017), or the date, if applicable, such holder of securities is no longer an officer or directors of the Company, subject to certain exceptions.  In addition, for up to one year following the effective date of a registration statement, the Investors have the right to participate, on a pro rata basis, in certain subsequent financings by the Company, subject to certain limitations. In connection with the transaction, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) that requires the Company to file one or more registration statements in respect of the shares of Common Stock underlying the Notes and Warrants. If the Company fails to make its filing deadlines or fails to maintain the registration statement for required periods of time, the Company will be subject to certain liquidated damages provisions. Newbridge Securities Corporation/Life Tech Capital (the “Placement Agent”) acted as the sole placement agent for the financing.  
 
The Company may redeem the Notes at par when the Company stock price remains above $5.00 for ten consecutive days, or alternatively, at 125% of principal below $5.00. Interest is payable quarterly or, subject to receipt of stockholder approval, at the Company’s option, in shares of Common Stock.
 
 
 
The assumptions utilized for the embedded conversion feature valuation, which reflect the initial valuation at January 29th, May 3rd and subsequent valuation at September 30, 2016, were as follows:
 
Risk-free interest rate %                                                                             
    0.34 – 0.48 
Expected dividend yield                                                                              
     
Expected term - years (contractual term)                                                                              
    0.33 – 0.59 
Forfeiture rate                                                                              
     
Expected volatility %                                                                              
    112 
Timing of down-round triggering event
   October 2016
 
Follows is a summary of the Notes and related discounts and the Loss on the early extinguishment of bridge loans:
 
 
 
Original Value
 
 
Loss on Early
Extinguishment of Bridge Loans
 
 
Secured
Convertible
Notes, net
 
Cash and other proceeds received from financing 
   
   
 $5,148,620 
   Warrants 
 $2,147,574 
  (831,109)
  (1,316,465)
   Embedded conversion feature in notes 
 $3,173,896 
  (1,312,851)
  (1,861,045)
   Financing costs 
   
   
  (552,391)
   Amortization of debt discount 
   
   
  1,830,012 
Totals, net 
 $5,321,470 
 $(2,143,960)
 $3,248,731 
 
On September 23, 2016, the Company issued a promissory note to Network Victory Limited (“NVL”) in the aggregate principal amount of $250,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at 18% per annum, may, at NVL’s option, be exchanged for securities issued in a subsequent financing by the Company.
 
(6) DERIVATIVE LIABILITIES
 
As a result of having warrants which are outstanding, issued in connection with a 2012 Credit Facility (which was terminated in October 2014), the Company is required to record the changes in the value of these derivative warrants through their expirations in November 2017. Additionally as indicated in Note 5 above, Notes and Warrants issued in connection with the Company’s January and May 2016 secured convertible note financing, included certain price/conversion features, which require them to be accounted for as derivatives.
 
The table below presents the changes in the derivative liability, which is measured at fair value on a recurring basis and classified as Level 3 in fair value hierarchy:
 
 
 
09/30/16
 
 
12/31/15
 
Derivative liabilities as of January 1 
 $127,000 
 $208,155 
Secured convertible note derivatives:
    
    
   Warrants 
  2,147,574 
   
   Embedded conversion feature in Notes 
  3,173,896 
   
Loss (gain) on revaluation 
  (4,437,776)
  (81,155)
Derivative liabilities as of end of period 
 $1,010,694 
 $127,000 
 
None of the derivative warrants were exercised in 2016 or 2015 pursuant to cashless exercise provisions.
 
(7) NET LOSS PER SHARE
 
For the three months ended September 30, 2016 dilutive EPS includes 5,657,824 incremental shares attributable to the assumed conversion of the January 29, 2016 and May 3, 2016 secured convertible notes and an adjustment of $2,720,727 in net loss for the change in fair value of the related conversion option for such period.  No such incremental shares were noted for the nine month period as the calculation is anti-dilutive.
 
 
 
(8) EQUITY COMPENSATION PLANS
 
In March 2003, the Company’s shareholders approved its 2003 Stock Option and Incentive Plan (the “2003 Plan”). Pursuant to the 2003 Plan, the Company’s Board of Directors (or its committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified stock options, restricted stock, and other stock-based awards to the Company’s employees, officers, directors, consultants and advisors. As of September 30, 2016, there were 5,000 restricted shares of Common Stock issued and options to purchase an aggregate of 26,500 shares of Common Stock outstanding under the 2003 Plan and no shares are available for future grants due to the 2003 Plan’s expiration.
 
In May 2008, the Company’s shareholders approved the 2008 Equity Compensation Plan, as amended (the “2008 Plan”). The 2008 Plan provides for grants of incentive stock options to employees and nonqualified stock options and restricted stock to employees, consultants and non-employee directors of the Company. The maximum number of shares available under the 2008 Plan is 10,000,000 shares. As of September 30, 2016, there were 288,866 restricted shares of Common Stock issued and options to purchase 2,403,565 shares of Common Stock outstanding under the 2008 Plan and 7,284,069 shares available for future grants.
 
The following table shows the remaining shares available for future grants for each plan and outstanding shares:
 
 
 
Equity Compensation Plans
 
 
Not Pursuant
 
 
 
2003 Plan
 
 
2008 Plan
 
 
to a Plan
 
Shares Available For Issuance
 
 
 
 
 
 
 
 
 
Total reserved for stock options and restricted stock 
  160,000 
  10,000,000 
 
 
 
Net restricted stock issued net of cancellations 
  (5,000)
  (288,866)
 
 
 
Stock options granted 
  (154,449)
  (4,293,693)
 
 
 
Add back options cancelled before exercise 
  92,349 
  1,866,628 
 
 
 
Less shares no longer available due to Plan expiration 
  (92,900)
   
 
 
 
Remaining shares available for future grants at September 30, 2016
   
  7,284,069 
 
 
 

Stock options granted 
  154,449 
  4,293,693 
  310,000 
Less:    Stock options cancelled
  (92,349)
  (1,866,628)
  (243,333)
            Stock options exercised 
  (35,600)
  (23,500)
  (66,667)
Net shares outstanding before restricted stock 
  26,500 
  2,403,565 
   
Net restricted stock issued net of cancellations 
  5,000 
  288,866 
  6,485 
Outstanding shares at September 30, 2016 
  31,500 
  2,692,431 
  6,485 
 
(9) STOCK OPTIONS
 
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model with certain assumptions noted below. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercise and employee termination and forfeitures within the valuation model. The expected term of stock options granted under the Company’s stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months). The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.
 
For options issued and outstanding during the nine month periods ended September 30, 2016 and 2015, the Company recorded additional paid-in capital and non-cash compensation expense of $521,494 and $756,000, respectively, each net of estimated forfeitures.
 
The assumptions used principally for stock options granted to employees and members of the Company’s Board of Directors in the nine months ended September 30, 2016 and 2015 were as follows:
 
 
2016
 
 
2015
 
Risk-free interest rate % 
  0.18 – 1.07 
  1.46 – 1.90 
Expected dividend yield 
   
   
Expected term - years 
  .25 – 4 
  5 – 5.5 
Forfeiture rate % (excluding fully vested stock options) 
  2 – 5 
  7.5 - 15 
Expected volatility % 
  0.94 – 1.28 
  0.92 – 0.93 
 
 
 
A summary of stock option activity for the nine months ended September 30, 2016 is as follows:
 
 
 
 
Stock Options
 
 
 
 
 
Shares
 
 
 
Weighted-
Average
Exercise
Price
 
 
Weighted-
Average
Remaining
Contractual
Term (years)
 
 
 
 
Aggregate
Intrinsic
Value
 
Outstanding options at January 1, 2016 
  1,667,233 
 $2.01 
 
 
 
 
 
 
Granted 
  1,222,810 
 $1.28 
 
 
 
 
 
 
Exercised 
  (10,500)
 $1.19 
 
 
 
 
 
 
Forfeited or expired 
  (449,478)
 $2.47 
 
 
 
 
 
 
Outstanding options at September 30, 2016 
  2,430,065 
 $1.56 
  8.63 
 $ 
Exercisable options at September 30, 2016 
  1,622,072 
 $1.59 
  8.48 
 $ 
 
The weighted-average grant-date fair value of stock options granted for the nine months period ended September 30, 2016 was $1.28 per share. As of September 30, 2016, there was $435,072 of total unrecognized compensation expense related to non-vested share-based option compensation arrangements. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain performance conditions related to FDA approval for the Company’s CGM system or the sale of substantially all of the stock or assets of the Company, unrecognized compensation is expected to be recognized over the next four years.
 
(10) RESTRICTED STOCK
 
For restricted stock issued and outstanding during the nine months ended September 30, 2016 and 2015, the Company incurred non-cash compensation expense of $181,369 and $42,000, respectively, each net of estimated forfeitures.
 
During the nine months ended September 30, 2016, the Company granted 280,000 restricted shares of Common Stock to its officers and Vice President of Operations and Product Development of the Company, in connection with their respective salary deferrals.
 
A summary of non-vested restricted stock activity for the nine months ended September 30, 2016 is as follows:
 
Restricted Stock
 
 
 
 
Shares
 
 
Weighted-
Average
Grant-Date
Fair Value
 
Non-vested shares at January 1, 2016 
  27,842 
 $13.06 
Granted 
  280,000 
 $1.13 
Vested 
  (2,020)
 $8.68 
Forfeited 
  (5,471)
 $7.67 
Non-vested shares at September 30, 2016 
  300,351 
 $2.07 
 
Among the 300,351 shares of non-vested restricted stock, the various vesting criteria include the following:
 
14,185 shares of restricted stock vest upon the FDA approval of the Company’s CGM system or the sale of the Company; and
6,166 shares of restricted stock vest over 4 years, at each of the anniversary dates of the grants, and
130,000 shares of restricted stock vest 18 months from the date of issuance, and
150,000 shares of restricted stock vest quarterly after the company receives debt/equity financing of at least $1 million
 
As of September 30, 2016, there was $438,429 of total unrecognized compensation expense related to non-vested share-based restricted stock arrangements granted pursuant to the Company’s equity compensation plans that vest over time in the foreseeable future. As of September 30, 2016, the Company cannot estimate the timing of completion of performance vesting requirements required by certain of these restricted stock grant arrangements. Compensation expense related to these restricted share grants will be recognized when the Company concludes that achievement of the performance vesting conditions is probable.
 
 
-10-
 
(11) WARRANTS
 
In the nine months ended September 30, 2016, the Company issued warrants to purchase 3,552,875 shares of the Company’s common stock in connection with its Note financing. See Note 5.
 
A summary of warrant activity for the nine months ended September 30, 2016 is as follows:
 
 
 
Warrants
 
 
 
 
Shares
 
 
Weighted-
Average
Exercise
Price
 
Outstanding warrants at January 1, 2016 
  4,530,428 
 $3.68 
Granted 
  3,552,875 
 $1.50 
Forfeited 
   
 $ 
Outstanding warrants at September 30, 2016 
  8,083,303 
 $2.72 
 
At September 30, 2016, the Company had the following outstanding warrants:
 
Type of Warrant/
Range of Exercise Prices  
 
 
 
Expirations
 
 
Number Outstanding
 
 
Weighted-Average Remaining
Contractual Life (years)
 
 
 
Weighted- Average Exercise Price
 
 
Number Exercisable
 
 
Derivative:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $1.50 
7/29/21
  1,274,280 
  4.83 
 $1.50 
  1,274,280 
 
 $1.50 
5/3/18
  2,278,595 
  1.59 
 $1.50 
  2,278,595 
 
 $7.50 
8/31/17 to 11/6/17
  700,000 
  0.97 
 $7.50 
  700,000 
Equity:
 
 
    
    
    
    
 
 $2.75 - $3.00 
12/10/18 to 10//30/20
  3,830,428 
  3.44 
 $2.98 
  3,830,428 
Total outstanding
 
 
  8,083,303 
    
    
  8,083,303 
 
The Company uses valuation methods and assumptions that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments.
 
The following assumptions were utilized by the Company:
 
By expiration:
 
 
7/29/21
 
 
 
5/3/18
 
 
8/31/17 - 11/6/17
 
Risk-free interest rate % 
  1.03 
  0.56 
  0.73 
Expected dividend yield 
   
   
   
Expected term - years (contractual term) 
  5.15 
  1.87 
  1.17 - 1.35 
Forfeiture rate 
   
   
   
Expected volatility % 
  103 
  103 
  84.95 
Timing of down-round triggering event 
 
August 2016
 
 
August 2016
 
 N/A
 
 
 
-11-
 
Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the warrant. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the warrant.
 
(12) LITIGATION & OTHER SIGNIFICANT MATTERS
 
From time to time, the Company is subject to legal proceedings, claims, investigations, and proceedings in the ordinary course of business. In accordance with generally accepted accounting principles, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. At September 30, 2016, no litigation loss is deemed probable or reasonably estimated.
 
On September 23, 2016, Scott W. Hollander, President and Chief Executive Officer and a director of the Company, and the Company entered into a separation agreement (the “Separation Agreement”) pursuant to which the parties mutually agreed to Mr. Hollander’s separation from the Company, effective September 23, 2016 (the “Separation Date”). Under the Separation Agreement, Mr. Hollander will receive: (i) severance pay equal to the gross amount of $420,000 (the “Severance Amount”), less applicable federal, state and local withholding and taxes, payable in monthly amounts of $17,500 commencing on October 15, 2016, subject to increase to $25,000 per month if the Company shall consummate a debt or equity financing as described in Section 3(a)(ii) of the Severance Agreement, until the Severance Amount is fully paid; (ii) 150,000 shares of restricted stock previously awarded in March 2016 pursuant to a restricted stock agreement shall vest in quarterly installments of 37,500 shares; (iii) accelerated vesting of all unvested stock options previously awarded to him in December 2014 and March 2016 with three (3) months from the Separation Date to exercise such options; and (iv) reimbursement of COBRA payments for up to eighteen (18) months.
 
 (13) SUBSEQUENT EVENTS
 
On October 19, 2016, the Company issued a promissory note to Network Victory Limited in the aggregate principal amount of $125,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at 18% per annum, may, at NVL’s option, be exchanged for securities issued in a subsequent financing by the Company.
 
On October 28, 2016, the Company issued stock options to its employees and a certain consultant aggregating 131,155 shares to purchase our common stock at $0.45 per share. These options vest in one year.
 
 
-12-
 
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.
 
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and elsewhere in this report. The matters discussed herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, which involve risks and uncertainties. This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, which involve risks and uncertainties. All statements other than statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed elsewhere in this report and the risks discussed in our other filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. Except as required by law, we undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.
 
Business
 
We are a medical device company with expertise in advanced skin permeation technology. We are developing a non-invasive, wireless continuous glucose monitoring (CGM) system for initial use in the outpatient diabetes market and potentially in the wearable-health consumer market. The transdermal skin preparation component of our CGM system allows for enhanced skin permeation that will enable extraction of analytes such as glucose, enhanced delivery of topical pharmaceuticals and other applications.
 
Research and Development
 
We believe that ongoing research and development (“R&D”) efforts are essential to our success. A major portion of our operating expenses to date is related to our research and development activities. R&D expenses generally consist of internal salaries and related costs, and third-party vendor expenses for product design and development. In addition, R&D costs include regulatory consulting, feasibility product testing (internal and external) and conducting nonclinical and clinical studies. R&D expenses were $1,943,287 for the nine months ended September 30, 2016. We intend to maintain our commitment to R&D as an essential component of our product development efforts. Our ability to raise sufficient financing may impact our level of R&D spending and progress towards milestones.
 
Critical Accounting Policies and Estimates
 
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.
 
On an ongoing basis, we evaluate our estimates and judgments for all assets and liabilities, including those related to long-lived asset impairment, stock-based compensation expense and the fair value of stock purchase warrants classified as derivative liabilities. We base our estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes in our critical accounting policies and estimates subsequent to those disclosed in our Annual Report on Form 10-K as filed with the SEC on March 30, 2016.
 
We believe that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements accurately reflect our best estimate of the results of operations, financial position and cash flows for the periods presented.
 
 
 
-13-
 
Results of Operations
 
Comparison of the Three and Nine Months ended September 30, 2016 and 2015
 
Net income (loss) — As a result of the factors described below, we had a net income (loss) of $(4,767,805) and $794,171 for the nine and three months ended 2016, respectively, compared to $(20,921,732) and $(1,775,422) for the nine and three months ended 2015, respectively.
 
Research and Development ExpensesR&D expenses increased by $29,556, or 5%, to $588,551 for the three months ended 2016 from $558,995 for the same period in 2015. R&D expenses represented 29% and 38% of total operating expenses during the three months ended 2016 and 2015, respectively. The increase in R&D expenses for the quarter was primarily attributable to an increase in rent expense of approximately $86,000, offset by a decline in wages and outside consultant costs of $23,000 as well as a decline in contracted services of $31,000. We incurred some unplanned turnover in our staffing during the quarter exemplary of a better economic climate.
 
R&D expenses decreased by $84,609, or 4%, to $1,943,287 for the nine months ended 2016 from $2,027,896 for the same period in 2015. R&D expenses represented 38% and 31%, of total operating expenses (excluding the impairment charge in 2015) during the nine months ended 2016 and 2015, respectively. The decrease in R&D expenses for the nine months was primarily attributable to lower facility costs of approximately $79,000.
 
We relocated our research facilities in July 2015 to less costly and more efficient space. Since we successfully terminated our lease in Franklin, Massachusetts early in 2015 we wrote off a large deferred credit for the difference between the actual rent charge and the straight line amortized amount which we were carrying on our balance sheet. This resulted in a rent credit in the third quarter of 2015 lowering our quarterly 2015 rent expense. R&D expenses for the quarter and nine months 2016 were additionally impacted by $25,170 and $267,811, respectively, of capitalized software development costs, consisting of contracted services, related to a smartphone API used with our CGM.
 
During the third quarter of 2016, the Research and Development team split its focus between supporting our Chinese partner, Medical Technologies Innovation Asia, Ltd. (MTIA) with respect to our older CGM product, and continuing to develop and test the NextGen CGM system.
 
In order to improve clinical performance of the older CGM product that MTIA is testing, the R&D team made a number of specific updates to the design of the Exfoliator and the Sensor Module. Extensive clinical testing was done both before the changes were made and afterwards. MTIA is now transferring these changes into their production facilities and will be completing the design verification activities, prior to the initiation of the CFDA clinical trial.
 
While this focus on improving the older generation product has enabled MTIA to make more forward progress in moving this system forward towards an anticipated approval in China, the effort resulted in a delay in the development our NextGen system. Furthermore, a lack of adequate funding has delayed the critical R&D spending necessary to complete the design. Once funding has been re-established a new set of milestones will be published.
 
Despite the focus on the older generation and the funding issues, the R&D team continued to make progress in the development and testing of the NextGen system. The team began testing its sensor with a hydrogel that is kept wet until time of use.
 
Rigorous testing of each component independently and as an integrated system will continue as the Company optimizes its system in preparation for future clinical and regulatory trials. With respect to specific components of the NextGen system, our progress was as follows during this third quarter:
 
Skin Preparation Device: We continued hardware and software testing of the NextGen Exfoliator. In addition, a new design for the abrasive tip has been tested with excellent results. This new self-exfoliator will be lower cost, easier to use and fully integrated with the new sensor and Target Base. 
 
Sensor: We continued internal clinical testing of our NextGen sensor module, using a “wet” version of the hydrogel. This new module includes a new sensor element, new hydrogel and a new housing. Echo selected a local partner to help develop a prototype production process for the most complicated parts of the NextGen sensor module.
 
Transmitter & software: We continued to develop new embedded software for use in the reusable transmitter and continued the integration testing of the hardware and software elements. The new software is designed to be compatible with our Android based Application Programming Interface (API) and software application (APP). 
 
Application Programming Interface: We completed verification testing of the API that will allow Android programmers to write APPs that use our sensors.
 
CGM APP: We have completed a CGM APP that will be able to display glucose information from either the original Echo technology, or the NextGen sensor. 
 
 
 
-14-
 
Selling, General and Administrative Expenses — S,G&A expenses increased by $377,666, or 46%, to $1,198,328 for the three months ended 2016 from $820,662 for the same period in 2015. S,G&A expenses represented 66% and 56% of total operating expenses during the quarter ended 2016 and 2015, respectively. We saw a net increase in salary and other benefits of $363,000 in this quarter which was primarily attributable to severance payable to our chief executive officer of approximately $462,000. This is also inclusive of share-based compensation charges for the accelerated vesting of our former CEO’s 150,000 shares of restricted stock and options to purchase 500,000 shares of our common stock in accordance with the terms of his separation agreement.
 
S,G&A expenses decreased by $888,030, or 23%, to $2,927,716 for the nine months ended 2016 from $3,815,746 for the same period in 2015. S,G&A expenses represented 59% and 58% of total operating expenses (excluding the impairment charge in 2015) during the nine months ended 2016 and 2015, respectively. The decline for the 2016 quarter was attributable to approximate declines in: legal fees of $804,000, salary and benefits of $130,000, telephone and internet expenses of $73,000, information technology costs of $51,000, insurance expense of $70,000, relocation costs of $35,000, rent of $21,000, and website costs of $10,000. These declines were offset by an approximate increase in investor relations charges of $87,000 as well as increased costs relative to our former chief executive’s separation agreement more fully described above.
 
In 2015, the Company settled its litigation with the former CEO, Patrick Mooney, and has not had any significant litigation since, causing the decrease in legal fees. In 2015, we settled a long duration contract with an internet vendor that resulted in $40,000 of early termination expenses. In 2015 we relocated both our Philadelphia and Franklin, MA facilities. During 2016 we reduced our overall director and officer coverage from the prior year resulting in lower premium charges. Stock compensation for 2015 included the stock compensation for new board members as well as recently hired executive staff, which was not present in 2016.
 
Impairment Charge — The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses by grouping assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. In connection with the preparation of the financial statements in the second quarter of fiscal 2015, the Company concluded it had a triggering event requiring assessment of impairment for its intangibles in conjunction with an expected out-licensing strategy that new management had hoped to pursue. Extremely limited financial resources coupled with the remaining short patent lives, discussions with previous consultants regarding their progress with bringing value to the intangibles, a review of competitive formulations and discussions with new consultants to explore out-licensing strategies led newly-hired corporate management to conclude it was best to abandon its initial hope to garner value from its intangibles. Accordingly, due to this change in strategy, no monies are now expected to be obtained relating to the Azone Drug Master File, the Durhalieve and MAZ Investigational New Drug applications and the MAZ Orphan Drug application (collectively, the AzoneTS-based technology acquired in 2007) intangibles. As a result, the Company reviewed its intangibles for impairment and recorded a $9.625 million impairment charge, or the full value of the intangibles, on the consolidated statement of operations in the second quarter of 2015.
 
Loss on disposal of property and equipment — We recorded a gain for the quarter and nine months 2016 of $4,000 on the sale of certain excess fully depreciated equipment. The loss on disposal of $39,382 and $278,816 for the quarter and nine months ended 2015 represented furniture and fixtures that were sold and the write-off of leasehold improvements in our Philadelphia office when we relocated to the Iselin, New Jersey office in January 2015.
 
Depreciation and amortization expense — Depreciation expense decreased by $12,246 and $402,401 for the quarter and nine months ended 2016, to $26,925 and $85,090 from $39,171 and $487,491 for the same periods in 2015. This decline reflects the write-off of a substantial amount of leasehold improvements due to our relocations of our Massachusetts research facility and Philadelphia corporate office in 2015.
 
Gain (loss) on revaluation of derivative liabilities — Changes in the fair value of derivative financial instruments are recognized each period as a derivative gain or loss. The primary underlying risk exposure pertaining to the secured convertible notes, consisting of derivative warrants and embedded conversion options, and other derivative warrants, is the change in fair value of the underlying common stock. The gain (loss) on revaluation of the derivative liabilities for the quarter ended 2016 and 2015 was $3,675,826 and $(54,000), respectively, and for the nine months ended 2016 and 2015, $4,437,776 and $(61,845), respectively.
 
 
 
-15-
 
Financing gain (loss) — This is a non-cash charge with two components representing: (i) the excess value given to investors in 2015, who received shares of Series F Stock and warrants to purchase the same number of shares of our common stock, when the closing market price was above the $1.50 purchase price they paid for their shares and warrants. We recorded a non-cash charge of $3,938,000 related to these investors, and (ii) the potential excess future value represented by the 333,333 shares and warrants to purchase the same number of shares for the remaining $500,000 of investment still outstanding under our December 2014 financing, based on our closing market price at June 30, 2015 of $1.70. We recorded a non-cash charge of $419,000 related to these future investments. For the quarter ended 2015 we recorded a loss of $263,000 representing the difference between what we had estimated the value of the derivative transactions would cost the Company at the end of the first quarter and what they actually represented during the third quarter.
 
Loss on early extinguishment of bridge loans — We recorded a loss on early extinguishment of these bridge loans of $2,143,960 for the nine months ended 2016 representing the aggregate excess consideration of the Notes and warrants exchanged for the bridge loans.
 
Amortization of debt discount — $934,794 and $1,830,012 for the quarter and nine months ended 2016 represents the amortization of the various components offsetting the Notes issued on January 29, 2016 and May 3, 2016 over the one year respective terms of the Notes. Such amounts consisted of amortization of debt issuance costs, and values related to the derivative warrants and embedded conversion features that were not exchanged, respectively.
 
Interest Expense — Interest expense increased to $133,057 and $279,616 for the quarter and nine months ended 2016 from $212 and $4,938 for similar periods in 2015, respectively. The increase is primarily related to the 10% interest on the secured convertible notes payable.
 
Deemed Dividend on Beneficial Conversion Feature of Preferred Stock — In connection with the sale of Secured convertible notes, we agreed to give the holders of Series F Convertible Preferred Stock the same rights as the holders of the Notes, i.e., a reset of their conversion price calculated during the ninety day period post the April 29, 2016 effective registration. This modification to the conversion rights of the Series F shares increased the value of the Series F and caused us to record a deemed dividend of $6,460,818 calculated using a Monte Carlo Valuation Model.
 
Liquidity and Capital Resources
 
We have financed our operations since inception primarily through sales of our equity, the issuance of convertible promissory notes, draws from a non-revolving credit facility, unsecured and secured promissory notes, non-refundable payments received under license agreements and cash received in connection with exercises of Common Stock options and warrants. As of September 30, 2016, we had $172,725 of cash and cash equivalents, with no other short-term investments.
 
Cash Flows for the Nine Months ended September 30, 2016
 
Net cash used in operating activities was $4,167,436. The use of cash in operating activities was primarily attributable to the net loss of $4,767,905 offset by non-cash expenses of $85,090 for depreciation and amortization, $1,830,012 for amortization of debt discount, $702,863 for share-based compensation expense, a loss on early extinguishment of bridge loans of $2,143,960, a gain on revaluation of $4,437,776 related to derivative credit facility warrants as well as derivative warrants and derivative embedded conversion feature of our secured convertible notes, a gain on the disposal of fixed assets of $4,000, offset decreases in: prepaid and other of $15,318, accounts payable of $152,153 and accrued expenses of approximately $417,156.
 
Net cash used in investing activities was $251,296. The Company suffered a minor charge to its letter of credit due to the landlord requiring a payment for certain construction related activities prior to its relocation to the Littleton, MA location. The Company capitalized software development costs of $267,811, had proceeds from the sale of assets of $4,000, and the Company purchased property and equipment of $6,354.
 
Net cash provided by financing activities was $4,535,247. We received $2,512,609 of net proceeds from our secured convertible notes as well as $2,000,000 from bridge loans received in the period subsequent to the closing of the January 29, 2016 financing. We also received $199,671 of insurance premium financing. Principal payments made on the premium financing used were $177,033.
 
On September 23, 2016, we issued a promissory note to Network Victory Limited (“NVL”) in the aggregate principal amount of $250,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at 18% per annum, may, at NVL’s option, be exchanged for securities issued in a subsequent financing by the Company.
 
On October 19, 2016, we issued a promissory note to NVL in the aggregate principal amount of $125,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at 18% per annum, may, at NVL’s option, be exchanged for securities issued in a subsequent financing by the Company.
 
 
 
-16-
 
Effect of Inflation and Changes in Prices
 
We do not believe that inflation and changes in prices will have a material effect on our operations.
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not applicable.
 
ITEM 4.    CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures
 
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation and the material weaknesses described below, our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as a result of the material weaknesses.
 
Our Chief Financial Officer concluded that as of September 30, 2016 the following material weaknesses existed:
 
(1) We lacked a sufficient complement of personnel with an appropriate level of knowledge and experience in the application of U.S. generally accepted accounting principles, or GAAP, commensurate with our financial reporting requirements. The monitoring of our accounting and reporting functions were either not designed and in place or not operating effectively, and
 
(2) We lacked the quantity of resources to implement an appropriate level of review controls to properly evaluate the completeness and accuracy of transactions entered into by our Company.
 
Our management believes that these weaknesses are due in part to the small size of our staff and limited funding which makes it challenging to maintain adequate disclosure controls. To remediate the material weaknesses in disclosure controls and procedures, we have sought assistance with complex filing matters beginning in 2016 and continue to take additional steps to improve our financial reporting systems and implement new policies, procedures and controls.
 
Internal Control over Financial Reporting
 
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II—OTHER INFORMATION
 
ITEM 6.    EXHIBITS.
 
The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed with or incorporated by reference in this report, except as noted.
 
 
 
-17-
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
Date: November 16, 2016
ECHO THERAPEUTICS, INC.
 
By:  /s/ Alan W. Schoenbart
        Alan W. Schoenbart
        Chief Financial Officer
        (Principal Executive Officer)
 
 
By:  /s/ Alan W. Schoenbart
        Alan W. Schoenbart
        Chief Financial Officer
        (Principal Financial and Accounting Officer)
 
 

 
 
 
-18-
 
EXHIBIT INDEX
 
Exhibit No.
Description
10.1 
Promissory Note with Network Victory Limited dated September 23, 2016 is incorporated by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-K filed September 23, 2016.
10.2 
Separation Agreement, dated as of September 23, 2016, between Scott W. Hollander and Echo Therapeutics, Inc.2016 is incorporated by reference to Exhibit 10.2 on the Company’s Current Report on Form 8-K filed September 23, 2016.
31.1 
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 
The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (Extensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

 
 
-19-
EX-31.1 2 ex31-1.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 SEC Connect
Exhibit 31.1
 
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Alan W. Schoenbart, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended September 30, 2016;
 
2.            
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;
 
3.            
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the Company as of and for the periodspresented in this report;
 
4.            
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period on which this report is being prepared;
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
 
(d)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
 
5.            
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the Company’s auditors and the audit committee of the Company’s Board of Directors:
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
 
(b)
Any fraud, whether or not material, that involves Management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
Date: November 16, 2016
 
/s/ Alan W. Schoenbart                                                                            
Alan W. Schoenbart
Chief Financial Officer
(Principal Executive Officer)
 
 
 
EX-31.2 3 ex31-2.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 SEC Connect
Exhibit 31.2
 
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Alan W. Schoenbart, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended September 30, 2016;
 
2.            
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;
 
3.            
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the Company as of and for the periodspresented in this report;
 
4.            
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period on which this report is being prepared;
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
 
(d)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
 
5.            
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the Company’s auditors and the audit committee of the Company’s Board of Directors:
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
 
(b)
Any fraud, whether or not material, that involves Management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
Date: November 16, 2016
 
/s/ Alan W. Schoenbart                                                                            
Alan W. Schoenbart
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
 
EX-32.1 4 ex32-1.htm CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 SEC Connect
Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan W. Schoenbart, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002:
 
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Alan W. Schoenbart                                                                            
Alan W. Schoenbart
Chief Financial Officer
(Principal Executive Officer)
 
Date: November 16, 2016
 
 
 
 
 
EX-32.2 5 ex32-2.htm CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 SEC Connect
Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan W. Schoenbart, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002:
 
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Alan W. Schoenbart                                                                                 
Alan W. Schoenbart
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
Date: November 16, 2016
 
 
 
 
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Sep. 30, 2016
Oct. 30, 2016
Document And Entity Information    
Entity Registrant Name Echo Therapeutics, Inc.  
Entity Central Index Key 0001031927  
Document Type 10-Q  
Document Period End Date Sep. 30, 2016  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Trading Symbol ECTE  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   12,004,308
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2016  
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Current Assets:    
Cash and cash equivalents $ 172,725 $ 56,210
Prepaid and other 229,229 244,534
Total current assets 401,954 300,744
Property and equipment, net 188,936 267,671
Other Assets:    
Cash restricted pursuant to letters of credit 217,556 236,425
Capitalized software development costs 267,811 0
Other 250 250
Total other assets 485,617 236,675
Total assets 1,076,507 805,090
Current Liabilities:    
Accounts payable 1,851,043 2,176,083
Accrued and other 884,253 602,345
Secured convertible notes, net 3,248,731 0
Bridge loans 250,000 330,000
Premium financing 22,638 0
Derivative liabilities 1,010,694 127,000
Total current liabilities 7,267,359 3,235,428
Deferred revenue, net 95,535 95,535
Total liabilities 7,362,894 3,330,963
Commitments and contingencies
Stockholders' deficit:    
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Additional paid-in capital 148,414,835 147,412,559
Accumulated deficit (154,897,838) (150,129,933)
Total stockholders' deficit (6,286,387) (2,525,873)
Total liabilities and stockholders' deficit 1,076,507 805,090
Series C Preferred Stock [Member]    
Stockholders' deficit:    
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Stockholders' deficit:    
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Series E Preferred Stock [Member]    
Stockholders' deficit:    
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Series F Preferred Stock [Member]    
Stockholders' deficit:    
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2016
Dec. 31, 2015
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Convertible Preferred Stock, Share Issued 1,000 1,000
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Stockholders' Equity:    
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Convertible Preferred Stock, authorized 3,600,000 3,600,000
Convertible Preferred Stock, outstanding 1,000,000 1,000,000
Convertible Preferred Stock, Share Issued 1,000,000 1,000,000
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Stockholders' Equity:    
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Convertible Preferred Stock, Share Issued 1,748,613 1,748,613
Series F Preferred Stock [Member]    
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Convertible Preferred Stock, outstanding 5,276,180 5,276,180
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3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Income Statement [Abstract]        
Licensing revenue $ 0 $ 0 $ 0 $ 0
Total revenues 0 0 0 0
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Research and development 588,551 558,995 1,943,287 2,027,896
Selling, general and administrative 1,198,328 820,662 2,927,716 3,815,746
Impairment charge 0 0 0 9,625,000
Loss (gain) on disposal of property and equipment 0 39,382 (4,000) 278,816
Depreciation and amortization 26,925 39,171 85,090 487,491
Total operating expenses 1,813,804 1,458,210 4,952,093 16,234,949
Loss from operations (1,813,804) (1,458,210) (4,952,093) (16,234,949)
Other Income (Expense):        
Gain (loss) on revaluation of derivative liabilities 3,675,826 (54,000) 4,437,776 (61,845)
Financing loss 0 (263,000) 0 (4,620,000)
Loss on early extinguishment of bridge loans 0 0 (2,143,960) 0
Amortization of debt discount (934,794) 0 (1,830,012) 0
Interest expense (133,057) (212) (279,616) (4,938)
Other income (expense), net 2,607,975 (317,212) 184,188 (4,686,783)
Net income (loss) 794,171 (1,775,422) (4,767,905) (20,921,732)
Deemed dividend on beneficial conversion feature of preferred stock 0 0 (6,460,818) 0
Net income (loss) applicable to common shareholders $ 794,171 $ (1,775,422) $ (11,228,773) $ (20,921,732)
Net loss per common share, basic $ 0.07 $ (0.16) $ (0.98) $ (1.86)
Net loss per common share, diluted $ (.11) $ (0.16) $ (.98) $ (1.86)
Basic weighted average common shares outstanding  11,603,868 11,127,475 11,418,653 11,266,571
Diluted weighted average common shares outstanding   17,261,692 11,127,475 11,418,653 11,266,571
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited) - 9 months ended Sep. 30, 2016 - USD ($)
Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total
Beginning Balance, Shares at Dec. 31, 2015 8,025,793 11,124,496      
Beginning Balance, Amount at Dec. 31, 2015 $ 80,258 $ 111,243 $ 147,412,559 $ 150,129,933 $ (2,525,873)
Share-based compensation, net of restricted stock cancellations, Shares   275,695      
Share-based compensation, net of restricted stock cancellations, Amount   $ 2,757 700,106   702,863
Exercise of stock options, Shares   2,246      
Exercise of stock options, Amount   $ 23 (23)   0
Settlement of account payable, Shares   57,121      
Settlement of account payable, Amount   $ 571 93,079 0 93,650
Payment of interest, Shares   101,357      
Payment of interest, Amount   $ 1,014 130,614 0 131,628
Payment of investor relations, Shares   75,000      
Payment of investor relations, Amount   $ 750 78,500   79,250
Net loss       (4,767,905) (4,767,905)
Ending Balance, Shares at Sep. 30, 2016 8,025,793 11,635,915      
Ending balance, Amount at Sep. 30, 2016 $ 80,258 $ 116,358 $ 148,414,835 $ 154,897,838 $ (6,286,387)
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.5.0.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Cash Flows From Operating Activities:    
Net loss $ (4,767,905) $ (20,921,732)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 85,090 487,491
Amortization of debt discount 1,830,012 0
Share-based compensation, net 702,863 798,250
Loss on early extinguishment of bridge loans 2,143,960 0
(Gain) loss on revaluation of derivative liabilities (4,437,776) 61,845
Warrant repricing charged to legal expense 0 328,000
(Gain) Loss on disposal of assets (4,000) 278,816
Impairment charge 0 9,625,000
Financing loss 0 4,620,000
Changes in assets and liabilities:    
Prepaid and other 15,318 (4,853)
Accounts payable (152,154) 395,973
Accrued and other 417,156 (100,836)
Net cash used in operating activities (4,167,436) (4,432,046)
Cash Flows from Investing Activities:    
Purchase of property and equipment (6,354) (55,836)
Decrease in restricted cash 18,869 (183,938)
Capitalization of software development costs (267,811) 0
Proceeds on disposal of property and equipment 4,000 126,082
Net cash used ininvesting activities (251,296) (113,692)
Cash Flows From Financing Activities:    
Proceeds from secured convertible notes, net of related costs 2,512,609 0
Proceeds from bridge loans 2,000,000 0
Proceeds from equity financing 0 3,181,500
Proceeds from premium financing 199,671 272,622
Principal payments from premium financing (177,033) (243,420)
Capital contribution 0 59,325
Net cash provided by financing activities 4,535,247 3,270,027
Net increase in cash and cash equivalents 116,515 (1,275,711)
Beginning of period 56,210 1,278,941
End of period 172,725 3,230
Supplemental disclosure of cash flow information:    
Interest 15,709 5,043
Income taxes 2,761 0
Supplemental disclosure of non-cash financing transactions:    
Deemed dividend on beneficial conversion feature of convertible preferred stock 6,460,818 0
Directors fees payable offset against prepaid insurance 0 272,200
Security deposit offset against accounts payable 0 9,740
Accrued legal fees settled with stock 0 550,000
Bridge loans exchanged for secured convertible notes 2,080,000 0
Derivatives offset against secured convertible notes 5,321,470 0
Conversion of convertible preferred stock into Common Stock at par value 0 15,000
Accrued interest settled with stock 131,628 0
Account payable settled with stock 172,900 0
Subscriptions receivable for Series F Preferred Stock  $ 0 $ 300,000
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.5.0.2
ORGANIZATION AND BASIS OF PRESENTATION
9 Months Ended
Sep. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
ORGANIZATION AND BASIS OF PRESENTATION

Echo Therapeutics, Inc. (the "Company") is a medical device company with expertise in advanced skin permeation technology. The Company is developing its non-invasive, wireless continuous glucose monitoring (CGM) system with potential use in the outpatient diabetes market. A significant opportunity may also exist in the wearable-health consumer market and in the hospital setting. Echo has also developed its needle-free skin preparation device as a platform technology that allows for enhanced skin permeation enabling extraction of analytes, such as glucose, enhanced delivery of topical pharmaceuticals and other applications.

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 30, 2016. These financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of September 30, 2016 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. These interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements as allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading. Certain amounts in prior periods have been reclassified to conform to the current presentation.

 

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
LIQUIDITY AND MANAGEMENT'S PLANS
9 Months Ended
Sep. 30, 2016
Liquidity And Managements Plans  
LIQUIDITY AND MANAGEMENT'S PLANS

The accompanying financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2016, the Company had cash of $172,725, working capital deficit of ($6,865,405) and an accumulated deficit of ($154,897,838). The Company continues to incur recurring losses from operations. The Company’s losses have resulted principally from costs incurred in connection with its research and development activities and from general and administrative costs associated with its operations. The Company also expects to have negative cash flows for the foreseeable future as it funds its operational losses and capital expenditures. This will result in decreases in the Company’s working capital, total assets and stockholders’ equity, which may not be offset by future funding. The Company will need to secure additional capital to fund its product development, research, manufacturing and clinical programs in accordance with its current planned operations. The Company has funded its operations in the past primarily through debt and equity issuances. Management will continue to pursue financing to fund its operations. No assurances can be given that additional capital will be available on terms acceptable to the Company. The accompanying financial statements do not include any adjustments that might result from the outcome of the uncertainty.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
PROPERTY AND EQUIPMENT
9 Months Ended
Sep. 30, 2016
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT

The principal categories and estimated useful lives of property and equipment were:

   

 

09/30/16

   

 

12/31/15

   

Estimated

Useful Lives

 
Computer equipment    $ 335,298     $ 332,764       3  
Office and laboratory equipment      603,226       628,726       3-5  
Furniture and fixtures      228,099       228,099       7  
Manufacturing equipment      65,819       61,998       5  
Leasehold improvements      41,968       41,968       3-7  
  Total property and equipment     1,274,410       1,293,555          
Less accumulated depreciation and amortization      1,085,474       1,025,884          
 Property and equipment, net    $ 188,936     $ 267,671          
XML 21 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
9 Months Ended
Sep. 30, 2016
Capitalized Software Development Costs  
CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Software development costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological feasibility, are expensed as incurred. Once technological feasibility has been determined, a portion of the costs incurred in development, including coding, testing, and quality assurance, are capitalized. $25,170 and $267,811 of costs associated with the application programming of the Company’s smartphone application for its CGM were capitalized in the quarter and nine months ended September 30, 2016, respectively.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
FINANCING TRANSACTIONS
9 Months Ended
Sep. 30, 2016
Financing Transactions  
FINANCING TRANSACTIONS

On January 29, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional and other accredited investors (the “Investors”) pursuant to which the Company agreed to issue up to $5,148,620 principal amount of 10% senior secured convertible notes of the Company (the “Notes”) and related common stock purchase warrants (the “Warrants”) in two tranches.  The Notes are secured by substantially all of the assets of the Company pursuant to a Security Agreement, dated January 29, 2016 (the “Security Agreement”). The initial closing of $1,787,000 occurred on January 29, 2016.  The second tranche of the financing, or $3,361,620, was subject to the Company obtaining shareholder approval which occurred on April 14, 2016. The Notes and Warrants are subject to customary antidilution provisions. With stockholder approval, the conversion price for the Notes is subject to a reset to eighty percent (80%) of the average of the ten lowest closing prices of the Common Stock less than $1.50 , subject to equitable adjustment, if any, as reported by Bloomberg LP for the principal market on which the Common Stock then trades during the ninety (90) days following the first effective date of a registration statement filed pursuant to the Registration Rights Agreement, but in no event less than $.80, subject to equitable adjustment. For the first closing, bridge notes in the principal amount of $680,000 were surrendered to the Company as payment by certain Investors. This was inclusive of $330,000 of bridge notes outstanding at December 31, 2015 and a $350,000 of promissory notes received at various dates in January 2016 from Beijing Yi Tang Bio Science & Technology, Ltd. (BYT). The Company recorded a loss on early extinguishment of these bridge loans of $415,725, representing the excess value of the consideration consisting of the $680,000 secured convertible note, and a proportional amount of the Warrants totaling $320,761 and the embedded conversion feature of the Notes totaling $94,964, exchanged for certain bridge loans to cancel them. Fees aggregating $368,080 were paid to the placement agent and others. The Notes issued in the first closing are initially convertible into 1,191,333 shares of common stock, par value $.01 per share, of the Company (the “Common Stock”), at $1.50 per share. In connection with the initial closing, the Company issued five-year Class A warrants to purchase 1,274,280 shares of Common Stock, inclusive of Class A warrants to purchase 82,947 share of Common Stock issued to the placement agent, at an exercise price of $1.50 per share, which are not exercisable for six months. These Warrants, whose exercise price is subject to adjustments should the Company consummate a future financing at a price less than $1.50, are considered a derivative. The initial value of these derivative warrants was $901,631 which was determined utilizing a Monte Carlo Binomial Model. The assumptions utilized for these derivative warrants, as well as embedded conversion feature, described hereafter, are disclosed in Note 10. Additionally the Notes contain an embedded conversion feature which adjusts the conversion price should the Company have a price reset during the ninety days after April 29, 2016 (the effective date of the Company’s registration) or consummate a future financing at a price less than $1.50, and is also considered a derivative. A price reset to $0.91 occurred on July 29, 2016 as is further described below. The initial value of the embedded conversion feature within the Notes was $249,559 which was also determined utilizing a Monte Carlo Binomial Model.

 

On February 4, 2016, the Company issued a promissory note to BYT in the aggregate principal amount of $300,000 in respect of a bridge loan made by such party.  On February 11, 2016, the Company issued a promissory note to Platinum Partners Value Arbitrage Fund L.P. (“PPVA”) in the aggregate principal amount of $100,000 in respect of a bridge loan made by such party.  On March 21, 2016, the Company issued a promissory note to PPVA in the aggregate principal amount of $150,000 in respect of a bridge loan made by such party.  On April 4, 2016, the Company issued a promissory note to PPVA in the aggregate principal amount of $350,000 in respect of a bridge loan made by such party.  On April 18, 2016, the Company issued a promissory note to PPVA in the aggregate principal amount of $450,000 in respect of a bridge loan made by such party. On April 29, 2016, the Company issued a promissory note to BYT in the aggregate principal amount of $50,000 in respect of a bridge loan made by such party. These promissory notes, aggregating $1,400,000, which bore interest at the prime rate (or 3.5%), were exchanged for the May 3, 2016 second tranche financing of the Notes described below.

 

On April 14, 2016, the Company held a Special Meeting of Stockholders. Of the 11,124,496 shares of common stock outstanding and entitled to vote, 6,197,024 shares, or 56%, were represented at the meeting in person or by proxy. The stockholders approved the issuance by the Company of shares of its Common Stock pursuant to and in accordance with the terms of the private placement financing transaction contemplated by the Securities Purchase Agreement, dated January 29, 2016, by and among the Company and the investors named therein, and the other documents and agreements related thereto, and the other transactions contemplated thereby, including the amendment to Company's Certificate of Designations governing the terms of its Series F Convertible Preferred Stock as described therein, for purposes of complying with applicable Delaware law and NASDAQ Listing Rule 5635(d), as disclosed in the Company’s proxy statement.

 

On May 3, 2016, the Company closed the second tranche of the Note financing and issued Notes in an aggregate principal amount of $3,361,620, inclusive of $3,620 of interest due on bridge loans. In exchange for the Notes, the Company received $1,188,000 in gross cash proceeds, a note receivable, payable in 30 days and bearing interest at 12%, of $770,000, from BYT, and $1,400,000 of bridge notes were cancelled. The Company recorded a loss on early extinguishment of these bridge loans of $1,728,235, representing the excess value of the consideration consisting of the $1,400,000 secured convertible note, and a proportional amount of the Warrants totaling $510,348 and the embedded conversion feature of the Notes totaling $1,217,887, exchanged for certain bridge loans to cancel them. The Company incurred placement, legal and other fees aggregating $184,311 which were deducted from the gross cash proceeds. Additionally, the placement agent received Class B warrants, with a 1½ year term, to purchase 37,520 shares of the Company’s Common Stock at $1.50 per share. The Notes are initially convertible into 2,241,075 shares of Common Stock at $1.50 per share. The Company also issued Class B warrants, with a 1½ year term, to purchase 2,241,075 shares of Common Stock at $1.50 per share. The Company may call the Class B Warrants in the event that Company’s Common Stock is trading at 200% above the strike price for 10 consecutive trading days (at $100,000 value traded per day) if the Warrant is saleable into the public markets, provided that the holder will have the option of ten trading days to exercise. These Warrants, whose exercise price is subject to adjustments should the Company do a future financing at a price less than $1.50, are considered a derivative. The initial value of these derivative warrants was $1,245,943 which was determined utilizing a Monte Carlo Binomial Model. The assumptions utilized for these derivative warrants, as well as embedded conversion feature, described hereafter, are disclosed in Note 10. Additionally the Notes contain an embedded conversion feature which adjusts the conversion price should the Company have a price reset during the ninety days after April 29, 2016 (the effective date of the Company’s registration) or consummate a future financing at a price less than $1.50, and is also considered a derivative. A price reset to $0.91 occurred on July 29, 2016 as is further described below. The initial value of the embedded conversion feature within the Notes was $2,924,337 which was also determined utilizing a Monte Carlo Binomial Model.

 

In connection with the Note closing, the Certificate of Amendment to the Certificate of Designations of the Company’s Series F Convertible Preferred Stock was filed which provides the holders of 5,276,180 shares of the Company’s Series F Convertible Preferred Stock the same reset rights afforded the Note holders. This modification to the Series F provided them with a beneficial conversion feature. As a result of this change, the Company recorded a deemed dividend of $6,460,818.

 

Effective as of July 29, 2016, notice was given that the Conversion Price of the Notes issued to the note holders pursuant to the Securities Purchase Agreement, dated January 29, 2016 (the “Purchase Agreement”), between Echo Therapeutics, Inc. and the purchasers, had been reset from $1.50 per share to $0.91 per share. Additionally and also effective as of the same date, notice was given that, pursuant to Section 5(c)(v) of the Certification of Designation, Preferences and Rights of the Series F Convertible Preferred Stock of Echo Therapeutics, Inc. (the “Series F Designation”), the Conversion Ratio has been reset from 1:1 to 1:1.65. These resets were based on an amount equal to 80% of the average of the ten lowest closing prices of the Common Stock less than $1.50 per share during the ninety day period immediately following the effectiveness of the Registration Statement, as contemplated by Section 4(b) of the Notes. This price reset resulted in the Series F Convertible Preferred Stockholders receiving the right to 3,429,517 additional common shares upon conversion.

 

The Purchase Agreement for the above described Note financing contains customary representations, warranties and affirmative and negative covenants.  The Purchase Agreement also requires management and certain shareholders to lock-up certain of their shares for the earlier of six months after the effective date of a registration statement, the first anniversary of the initial closing (January 29, 2017), or the date, if applicable, such holder of securities is no longer an officer or directors of the Company, subject to certain exceptions.  In addition, for up to one year following the effective date of a registration statement, the Investors have the right to participate, on a pro rata basis, in certain subsequent financings by the Company, subject to certain limitations. In connection with the transaction, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) that requires the Company to file one or more registration statements in respect of the shares of Common Stock underlying the Notes and Warrants. If the Company fails to make its filing deadlines or fails to maintain the registration statement for required periods of time, the Company will be subject to certain liquidated damages provisions. Newbridge Securities Corporation/Life Tech Capital (the “Placement Agent”) acted as the sole placement agent for the financing.  

 

The Company may redeem the Notes at par when the Company stock price remains above $5.00 for ten consecutive days, or alternatively, at 125% of principal below $5.00. Interest is payable quarterly or, subject to receipt of stockholder approval, at the Company’s option, in shares of Common Stock.

 

The assumptions utilized for the embedded conversion feature valuation, which reflect the initial valuation at January 29th, May 3rd and subsequent valuation at September 30, 2016, were as follows:

 

Risk-free interest rate %                                                                                  0.34 – 0.48 
Expected dividend yield                                                                                   — 
Expected term - years (contractual term)                                                                                   0.33 – 0.59 
Forfeiture rate                                                                                   — 
Expected volatility %                                                                                   112 
Timing of down-round triggering event    October 2016

 

Follows is a summary of the Notes and related discounts and the Loss on the early extinguishment of bridge loans:

 

    Original Value    

Loss on Early

Extinguishment of Bridge Loans

   

Secured

Convertible

Notes, net

 
Cash and other proceeds received from financing                $ 5,148,620  
   Warrants    $ 2,147,574       (831,109 )     (1,316,465 )
   Embedded conversion feature in notes    $ 3,173,896       (1,312,851 )     (1,861,045 )
   Financing costs                  (552,391 )
   Amortization of debt discount                  1,830,012  
Totals, net    $ 5,321,470     $ (2,143,960 )   $ 3,248,731  

 

On September 23, 2016, the Company issued a promissory note to Network Victory Limited (“NVL”) in the aggregate principal amount of $250,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at 18% per annum, may, at NVL’s option, be exchanged for securities issued in a subsequent financing by the Company.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
DERIVATIVE LIABILITIES
9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITY

As a result of having warrants which are outstanding, issued in connection with a 2012 Credit Facility (which was terminated in October 2014), the Company is required to record the changes in the value of these derivative warrants through their expirations in November 2017. Additionally as indicated in Note 5 above, Notes and Warrants issued in connection with the Company’s January and May 2016 secured convertible note financing, included certain price/conversion features, which require them to be accounted for as derivatives.

 

The table below presents the changes in the derivative liability, which is measured at fair value on a recurring basis and classified as Level 3 in fair value hierarchy:

 

    09/30/16     12/31/15  
Derivative liabilities as of January 1    $ 127,000     $ 208,155  
Secured convertible note derivatives:                
   Warrants      2,147,574        
   Embedded conversion feature in Notes      3,173,896        
Loss (gain) on revaluation      (4,437,776 )     (81,155 )
Derivative liabilities as of end of period    $ 1,010,694     $ 127,000  

 

None of the derivative warrants were exercised in 2016 or 2015 pursuant to cashless exercise provisions.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
NET LOSS PER SHARE
9 Months Ended
Sep. 30, 2016
Net Loss Per Share  
NET LOSS PER SHARE

For the three months ended September 30, 2016 dilutive EPS includes 5,657,824 incremental shares attributable to the assumed conversion of the January 29, 2016 and May 3, 2016 secured convertible notes and an adjustment of $2,720,727 in net loss for the change in fair value of the related conversion option for such period. No such incremental shares were noted for the nine month period as the calculation is anti-dilutive.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
EQUITY COMPENSATION PLANS
9 Months Ended
Sep. 30, 2016
Equity Compensation Plans  
EQUITY COMPENSATION PLANS

 

In March 2003, the Company’s shareholders approved its 2003 Stock Option and Incentive Plan (the “2003 Plan”). Pursuant to the 2003 Plan, the Company’s Board of Directors (or its committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified stock options, restricted stock, and other stock-based awards to the Company’s employees, officers, directors, consultants and advisors. As of September 30, 2016, there were 5,000 restricted shares of Common Stock issued and options to purchase an aggregate of 26,500 shares of Common Stock outstanding under the 2003 Plan and no shares are available for future grants due to the 2003 Plan’s expiration.

 

In May 2008, the Company’s shareholders approved the 2008 Equity Compensation Plan, as amended (the “2008 Plan”). The 2008 Plan provides for grants of incentive stock options to employees and nonqualified stock options and restricted stock to employees, consultants and non-employee directors of the Company. The maximum number of shares available under the 2008 Plan is 10,000,000 shares. As of September 30, 2016, there were 288,866 restricted shares of Common Stock issued and options to purchase 2,403,565 shares of Common Stock outstanding under the 2008 Plan and 7,284,069 shares available for future grants.

 

The following table shows the remaining shares available for future grants for each plan and outstanding shares:

 

    Equity Compensation Plans     Not Pursuant  
    2003 Plan     2008 Plan     to a Plan  
Shares Available For Issuance                  
Total reserved for stock options and restricted stock      160,000       10,000,000        
Net restricted stock issued net of cancellations      (5,000 )     (288,866 )      
Stock options granted      (154,449 )     (4,293,693 )      
Add back options cancelled before exercise      92,349       1,866,628        
Less shares no longer available due to Plan expiration      (92,900 )            
Remaining shares available for future grants at September 30, 2016           7,284,069        
                   
Stock options granted      154,449       4,293,693       310,000  
Less:    Stock options cancelled     (92,349 )     (1,866,628 )     (243,333 )
            Stock options exercised      (35,600 )     (23,500 )     (66,667 )
Net shares outstanding before restricted stock      26,500       2,403,565        
Net restricted stock issued net of cancellations      5,000       288,866       6,485  
Outstanding shares at September 30, 2016      31,500       2,692,431       6,485  
XML 26 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
STOCK OPTIONS
9 Months Ended
Sep. 30, 2016
Stock Options  
STOCK OPTIONS

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model with certain assumptions noted below. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercise and employee termination and forfeitures within the valuation model. The expected term of stock options granted under the Company’s stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months). The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

 

For options issued and outstanding during the nine month periods ended September 30, 2016 and 2015, the Company recorded additional paid-in capital and non-cash compensation expense of $521,494 and $756,000, respectively, each net of estimated forfeitures.

 

The assumptions used principally for stock options granted to employees and members of the Company’s Board of Directors in the nine months ended September 30, 2016 and 2015 were as follows:

    2016     2015  
Risk-free interest rate %      0.18 – 1.07       1.46 – 1.90  
Expected dividend yield             
Expected term - years      .25 – 4       5 – 5.5  
Forfeiture rate % (excluding fully vested stock options)      2 – 5       7.5 - 15  
Expected volatility %      0.94 – 1.28       0.92 – 0.93  

 

A summary of stock option activity for the nine months ended September 30, 2016 is as follows:

 

 

 

 

Stock Options

 

 

 

 

 

Shares

   

 

Weighted-

Average

Exercise

Price

   

Weighted-

Average

Remaining

Contractual

Term (years)

   

 

 

Aggregate

Intrinsic

Value

 
Outstanding options at January 1, 2016      1,667,233     $ 2.01              
Granted      1,222,810     $ 1.28              
Exercised      (10,500 )   $ 1.19              
Forfeited or expired      (449,478 )   $ 2.47              
Outstanding options at September 30, 2016      2,430,065     $ 1.56       8.63     $  
Exercisable options at September 30, 2016      1,622,072     $ 1.59       8.48     $  

 

The weighted-average grant-date fair value of stock options granted for the nine months period ended September 30, 2016 was $1.28 per share. As of September 30, 2016, there was $435,072 of total unrecognized compensation expense related to non-vested share-based option compensation arrangements. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain performance conditions related to FDA approval for the Company’s CGM system or the sale of substantially all of the stock or assets of the Company, unrecognized compensation is expected to be recognized over the next four years.

 

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
RESTRICTED STOCK
9 Months Ended
Sep. 30, 2016
Restricted Stock  
RESTRICTED STOCK

For restricted stock issued and outstanding during the nine months ended September 30, 2016 and 2015, the Company incurred non-cash compensation expense of $181,369 and $42,000, respectively, each net of estimated forfeitures.

 

During the nine months ended September 30, 2016, the Company granted 280,000 restricted shares of Common Stock to its officers and Vice President of Operations and Product Development of the Company, in connection with their respective salary deferrals.

 

A summary of non-vested restricted stock activity for the nine months ended September 30, 2016 is as follows:

 

Restricted Stock  

 

 

 

Shares

   

Weighted-

Average

Grant-Date

Fair Value

 
Non-vested shares at January 1, 2016      27,842     $ 13.06  
Granted      280,000     $ 1.13  
Vested      (2,020 )   $ 8.68  
Forfeited      (5,471 )   $ 7.67  
Non-vested shares at September 30, 2016      300,351     $ 2.07  

 

Among the 300,351 shares of non-vested restricted stock, the various vesting criteria include the following:

 

14,185 shares of restricted stock vest upon the FDA approval of the Company’s CGM system or the sale of the Company; and
6,166 shares of restricted stock vest over 4 years, at each of the anniversary dates of the grants, and

 

130,000 shares of restricted stock vest 18 months from the date of issuance, and
150,000 shares of restricted stock vest quarterly after the company receives debt/equity financing of at least $1 million

 

As of September 30, 2016, there was $438,429 of total unrecognized compensation expense related to non-vested share-based restricted stock arrangements granted pursuant to the Company’s equity compensation plans that vest over time in the foreseeable future. As of September 30, 2016, the Company cannot estimate the timing of completion of performance vesting requirements required by certain of these restricted stock grant arrangements. Compensation expense related to these restricted share grants will be recognized when the Company concludes that achievement of the performance vesting conditions is probable.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
WARRANTS
9 Months Ended
Sep. 30, 2016
Warrants  
WARRANTS

In the nine months ended September 30, 2016, the Company issued warrants to purchase 3,552,875 shares of the Company’s common stock in connection with its Note financing. See Note 5.

 

A summary of warrant activity for the nine months ended September 30, 2016 is as follows:

 

 

 

Warrants

 

 

 

 

Shares

   

Weighted-

Average

Exercise

Price

 
Outstanding warrants at January 1, 2016      4,530,428     $ 3.68  
Granted      3,552,875     $ 1.50  
Forfeited          $  
Outstanding warrants at September 30, 2016      8,083,303     $ 2.72  

 

At September 30, 2016, the Company had the following outstanding warrants:

Type of Warrant/Range of Exercise Prices        Expirations  Number Outstanding  Weighted-Average RemainingContractual Life (years)  Weighted- Average Exercise Price  Number Exercisable
 Derivative:                              
        $1.50    7/29/21    1,274,280    4.83   $1.50   1,274,280
        $1.50    5/3/18    2,278,595    1.59   $1.50   2,278,595
        $7.50    8/31/17 to 11/6/17    700,000    0.97   $7.50   700,000
Equity:                              
    $    2.75 - $3.00    12/10/18 to 10//30/20    3,830,428    3.44   $2.98   3,830,428
Total outstanding             8,083,303                  8,083,303

 

 

The Company uses valuation methods and assumptions that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments.

 

The following assumptions were utilized by the Company:

 

By expiration:

 

 

7/29/21

   

 

5/3/18

    8/31/17 - 11/6/17  
Risk-free interest rate %      1.03       0.56       0.73  
Expected dividend yield                   
Expected term - years (contractual term)      5.15       1.87       1.17 - 1.35  
Forfeiture rate                   
Expected volatility %      103       103       84.95  
Timing of down-round triggering event 

 

 

  August 2016       N/A        

 

 

Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the warrant. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the warrant.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
LITIGATION & OTHER SIGNIFICANT MATTERS
9 Months Ended
Sep. 30, 2016
Litigation Other Significant Matters  
LITIGATION & OTHER SIGNIFICANT MATTERS

From time to time, the Company is subject to legal proceedings, claims, investigations, and proceedings in the ordinary course of business. In accordance with generally accepted accounting principles, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. At September 30, 2016, no litigation loss is deemed probable or reasonably estimated.

 

On September 23, 2016, Scott W. Hollander, President and Chief Executive Officer and a director of the Company, and the Company entered into a separation agreement (the “Separation Agreement”) pursuant to which the parties mutually agreed to Mr. Hollander’s separation from the Company, effective September 23, 2016 (the “Separation Date”). Under the Separation Agreement, Mr. Hollander will receive: (i) severance pay equal to the gross amount of $420,000 (the “Severance Amount”), less applicable federal, state and local withholding and taxes, payable in monthly amounts of $17,500 commencing on October 15, 2016, subject to increase to $25,000 per month if the Company shall consummate a debt or equity financing as described in Section 3(a)(ii) of the Severance Agreement, until the Severance Amount is fully paid; (ii) 150,000 shares of restricted stock previously awarded in March 2016 pursuant to a restricted stock agreement shall vest in quarterly installments of 37,500 shares; (iii) accelerated vesting of all unvested stock options previously awarded to him in December 2014 and March 2016 with three (3) months from the Separation Date to exercise such options; and (iv) reimbursement of COBRA payments for up to eighteen (18) months.

 

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2016
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

On October 19, 2016, the Company issued a promissory note to Network Victory Limited in the aggregate principal amount of $125,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at 18% per annum, may, at NVL’s option, be exchanged for securities issued in a subsequent financing by the Company.

 

On October 28, 2016, the Company issued stock options to its employees and a certain consultant aggregating 131,155 shares to purchase our common stock at $0.45 per share. These options vest in one year.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
PROPERTY AND EQUIPMENT (Tables)
9 Months Ended
Sep. 30, 2016
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT
   

 

09/30/16

   

 

12/31/15

   

Estimated

Useful Lives

 
Computer equipment    $ 335,298     $ 332,764       3  
Office and laboratory equipment      603,226       628,726       3-5  
Furniture and fixtures      228,099       228,099       7  
Manufacturing equipment      65,819       61,998       5  
Leasehold improvements      41,968       41,968       3-7  
  Total property and equipment     1,274,410       1,293,555          
Less accumulated depreciation and amortization      1,085,474       1,025,884          
 Property and equipment, net    $ 188,936     $ 267,671          
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
FINANCING TRANSACTIONS (Tables)
9 Months Ended
Sep. 30, 2016
Debt Disclosure [Abstract]  
Summary of the Notes and related discounts
Risk-free interest rate %                                                                                  0.34 – 0.48 
Expected dividend yield                                                                                   — 
Expected term - years (contractual term)                                                                                   0.33 – 0.59 
Forfeiture rate                                                                                   — 
Expected volatility %                                                                                   112 
Timing of down-round triggering event    October 2016
Schedule of assumptions for embedded converstion feature valuation
   Original Value 

Loss on Early

Extinguishment of Bridge Loans

 

Secured

Convertible

Notes, net

Cash and other proceeds received from financing   —      —     $5,148,620 
  Warrants  $2,147,574    (831,109)   (1,316,465)
  Embedded conversion feature in notes  $3,173,896    (1,312,851)   (1,861,045)
  Financing costs   —      —      (552,391)
  Amortization of debt discount   —      —      1,830,012 
Totals, net  $5,321,470   $(2,143,960)  $3,248,731 
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
DERIVATIVE LIABILITIES (Tables)
9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative warrant liability
    09/30/16     12/31/15  
Derivative liabilities as of January 1    $ 127,000     $ 208,155  
Secured convertible note derivatives:                
   Warrants      2,147,574        
   Embedded conversion feature in Notes      3,173,896        
Loss (gain) on revaluation      (4,437,776 )     (81,155 )
Derivative liabilities as of end of period    $ 1,010,694     $ 127,000  
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
EQUITY COMPENSATION PLANS (Tables)
9 Months Ended
Sep. 30, 2016
Equity Compensation Plans  
EQUITY COMPENSATION PLANS
    Equity Compensation Plans     Not Pursuant  
    2003 Plan     2008 Plan     to a Plan  
Shares Available For Issuance                  
Total reserved for stock options and restricted stock      160,000       10,000,000        
Net restricted stock issued net of cancellations      (5,000 )     (288,866 )      
Stock options granted      (154,449 )     (4,293,693 )      
Add back options cancelled before exercise      92,349       1,866,628        
Less shares no longer available due to Plan expiration      (92,900 )            
Remaining shares available for future grants at September 30, 2016           7,284,069        
                   
Stock options granted      154,449       4,293,693       310,000  
Less:    Stock options cancelled     (92,349 )     (1,866,628 )     (243,333 )
            Stock options exercised      (35,600 )     (23,500 )     (66,667 )
Net shares outstanding before restricted stock      26,500       2,403,565        
Net restricted stock issued net of cancellations      5,000       288,866       6,485  
Outstanding shares at September 30, 2016      31,500       2,692,431       6,485  
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
STOCK OPTIONS (Tables)
9 Months Ended
Sep. 30, 2016
Stock Options  
Assumption used for stock option granted
    2016     2015  
Risk-free interest rate %      0.18 – 1.07       1.46 – 1.90  
Expected dividend yield             
Expected term - years      .25 – 4       5 – 5.5  
Forfeiture rate % (excluding fully vested stock options)      2 – 5       7.5 - 15  
Expected volatility %      0.94 – 1.28       0.92 – 0.93  
Stock option activity

 

 

 

 

Stock Options

 

 

 

 

 

Shares

   

 

Weighted-

Average

Exercise

Price

   

Weighted-

Average

Remaining

Contractual

Term (years)

   

 

 

Aggregate

Intrinsic

Value

 
Outstanding options at January 1, 2016      1,667,233     $ 2.01              
Granted      1,222,810     $ 1.28              
Exercised      (10,500 )   $ 1.19              
Forfeited or expired      (449,478 )   $ 2.47              
Outstanding options at September 30, 2016      2,430,065     $ 1.56       8.63     $  
Exercisable options at September 30, 2016      1,622,072     $ 1.59       8.48     $  
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
RESTRICTED STOCK (Tables)
9 Months Ended
Sep. 30, 2016
Restricted Stock  
Nonvested restricted stock activity
Restricted Stock  

 

 

 

Shares

   

Weighted-

Average

Grant-Date

Fair Value

 
Non-vested shares at January 1, 2016      27,842     $ 13.06  
Granted      280,000     $ 1.13  
Vested      (2,020 )   $ 8.68  
Forfeited      (5,471 )   $ 7.67  
Non-vested shares at September 30, 2016      300,351     $ 2.07  
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
WARRANTS (Tables)
9 Months Ended
Sep. 30, 2016
Warrants  
Warrant Activity

 

 

 

Warrants

 

 

 

 

Shares

   

Weighted-

Average

Exercise

Price

 
Outstanding warrants at January 1, 2016      4,530,428     $ 3.68  
Granted      3,552,875     $ 1.50  
Forfeited          $  
Outstanding warrants at September 30, 2016      8,083,303     $ 2.72  
Outstanding Warrants

  

 

Type of Warrant/Range of Exercise Prices        Expirations  Number Outstanding  Weighted-Average RemainingContractual Life (years)  Weighted- Average Exercise Price  Number Exercisable
 Derivative:                              
        $1.50    7/29/21    1,274,280    4.83   $1.50   1,274,280
        $1.50    5/3/18    2,278,595    1.59   $1.50   2,278,595
        $7.50    8/31/17 to 11/6/17    700,000    0.97   $7.50   700,000
Equity:                              
    $    2.75 - $3.00    12/10/18 to 10//30/20    3,830,428    3.44   $2.98   3,830,428
Total outstanding             8,083,303                  8,083,303
Warrants assumptions utilized by the Company

 

By expiration:

 

 

7/29/21

   

 

5/3/18

    8/31/17 - 11/6/17  
Risk-free interest rate %      1.03       0.56       0.73  
Expected dividend yield                   
Expected term - years (contractual term)      5.15       1.87       1.17 - 1.35  
Forfeiture rate                   
Expected volatility %      103       103       84.95  
Timing of down-round triggering event 

 

August 2016

 

  August 2016       N/A        
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
LIQUIDITY AND MANAGEMENT'S PLANS (Details Narrative) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Liquidity And Managements Plans    
Cash $ 172,725  
Working capital deficit (6,865,405)  
Accumulated deficit $ (154,897,838) $ (150,129,933)
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
PROPERTY AND EQUIPMENT (Details) - USD ($)
9 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Total property and equipment $ 1,274,410 $ 1,293,555
Less accumulated depreciation and amortization 1,085,474 1,025,884
Property and equipment, net 188,936 267,671
Computer Equipment [Member]    
Total property and equipment $ 335,298 332,764
Estimated Useful Lives 3 years  
Office and laboratory equipment [Member]    
Total property and equipment $ 603,226 628,726
Office and laboratory equipment [Member] | Minimum [Member]    
Estimated Useful Lives 3 years  
Office and laboratory equipment [Member] | Maximum [Member]    
Estimated Useful Lives 5 years  
Furniture and fixtures [Member]    
Total property and equipment $ 228,099 228,099
Estimated Useful Lives 7 years  
Manufacturing equipment [Member]    
Total property and equipment $ 65,819 61,998
Estimated Useful Lives 5 years  
Leasehold improvements [Member]    
Total property and equipment $ 41,968 $ 41,968
Leasehold improvements [Member] | Minimum [Member]    
Estimated Useful Lives 3 years  
Leasehold improvements [Member] | Maximum [Member]    
Estimated Useful Lives 7 years  
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
CAPITALIZED SOFTWARE DEVELOPMENT COSTS (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2016
Capitalized Software Development Costs    
Costs associated with the application programming $ 25,170 $ 267,811
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
FINANCING TRANSACTIONS (Details)
9 Months Ended
Sep. 30, 2016
USD ($)
Debt Disclosure [Abstract]  
Cash and other proceeds received from financing $ 5,148,620
Financing costs (552,391)
Warrants (1,316,465)
Embedded conversion feature in Notes (1,861,045)
Amortization of debt discount 1,830,012
Secured convertible notes, net $ 3,248,731
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
FINANCING TRANSACTIONS (Details 1)
9 Months Ended
Sep. 30, 2016
USD ($)
STOCK OPTIONS AND RESTRICTED STOCK  
Risk-free interest rate minimum 0.34%
Risk-free interest rate maximum 0.48%
Expected dividend yield $ 0
Forfeiture rate 0.00%
Expected volatility 112.00%
Timing of down-round triggering event October 2016
Minimum [Member]  
STOCK OPTIONS AND RESTRICTED STOCK  
Expected term - years 3 months 29 days
Maximum [Member]  
STOCK OPTIONS AND RESTRICTED STOCK  
Expected term - years 7 months 2 days
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.5.0.2
FINANCING TRANSACTIONS (Details Narrative) - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Debt Disclosure [Abstract]    
Bridge loans $ 250,000 $ 330,000
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.5.0.2
DERIVATIVE LIABILITY (Details) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]    
Derivative warrant liability as of January 1 $ 127,000 $ 208,155
Warrants 2,147,574 0
Embedded conversion feature in Notes 3,173,896 0
Loss (gain) on revaluation (4,437,776) (81,155)
Derivative liabilities as of end of period $ 1,010,694 $ 127,000
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.5.0.2
NET LOSS PER SHARE (Details Narrative)
3 Months Ended
Sep. 30, 2016
USD ($)
shares
Net Loss Per Share  
Antidilutive securities | shares 5,657,824
Net (loss) in fair value of derivative | $ $ (2,720,727)
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.5.0.2
EQUITY COMPENSATION PLANS (Details)
9 Months Ended
Sep. 30, 2016
USD ($)
shares
Shares Available For Issuance  
Add back options cancelled before exercise (449,478)
Plan2003Member  
Shares Available For Issuance  
Total reserved for stock options and restricted stock | $ $ 160,000
Net restricted stock issued net of cancellations | $ $ (5,000)
Stock options granted (154,449)
Add back options cancelled before exercise 92,349
Less shares no longer available due to Plan expiration | $ $ (92,900)
Remaining shares available for future grants at September 30, 2016 0
Outstanding Options and Restricted Stock  
Stock options granted | $ $ 154,449
Less: Stock options cancelled | $ $ (92,349)
Stock options exercised (35,600)
Net shares outstanding before restricted stock 26,500
Net restricted stock issued net of cancellations 5,000
Outstanding shares at September 30, 2016 31,500
Plan2008Member  
Shares Available For Issuance  
Total reserved for stock options and restricted stock | $ $ 10,000,000
Net restricted stock issued net of cancellations | $ $ (288,866)
Stock options granted (4,293,693)
Add back options cancelled before exercise 1,866,628
Less shares no longer available due to Plan expiration | $ $ 0
Remaining shares available for future grants at September 30, 2016 7,284,069
Outstanding Options and Restricted Stock  
Stock options granted | $ $ 4,293,693
Less: Stock options cancelled | $ $ (1,866,628)
Stock options exercised (23,500)
Net shares outstanding before restricted stock 2,403,565
Net restricted stock issued net of cancellations 288,866
Outstanding shares at September 30, 2016 2,692,431
Not Pursuant to a Plan [Member]  
Outstanding Options and Restricted Stock  
Stock options granted | $ $ 310,000
Less: Stock options cancelled | $ $ (243,333)
Stock options exercised (66,667)
Net shares outstanding before restricted stock 0
Net restricted stock issued net of cancellations 6,485
Outstanding shares at September 30, 2016 6,485
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.5.0.2
EQUITY COMPENSATION PLANS (Details Narrative) - shares
Sep. 30, 2016
Dec. 31, 2015
Restricted stock 300,351 27,842
Options to purchase an aggregate of shares 1,622,072  
Maximun share authorized 150,000,000 150,000,000
Plan2003Member    
Restricted stock 5,000  
Options to purchase an aggregate of shares 26,500  
Shares available for future grant 0  
Plan2008Member    
Restricted stock 288,866  
Options to purchase an aggregate of shares 2,403,565  
Shares available for future grant 7,284,069  
Maximun share authorized 10,000,000  
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.5.0.2
STOCK OPTIONS (Details) - USD ($)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
STOCK OPTIONS AND RESTRICTED STOCK    
Risk-free interest rate minimum 0.34%  
Risk-free interest rate maximum 0.48%  
Expected dividend yield $ 0  
Forfeiture rate (excluding fully vested stock options) 0.00%  
Expected volatility 112.00%  
Director [Member]    
STOCK OPTIONS AND RESTRICTED STOCK    
Risk-free interest rate minimum 0.18% 1.46%
Risk-free interest rate maximum 1.07% 1.90%
Expected dividend yield $ 0 $ 0
Minimum [Member]    
STOCK OPTIONS AND RESTRICTED STOCK    
Expected term - years 3 months 29 days  
Minimum [Member] | Director [Member]    
STOCK OPTIONS AND RESTRICTED STOCK    
Expected term - years 3 months 5 years
Forfeiture rate (excluding fully vested stock options) 2.00% 7.50%
Expected volatility 0.94% 0.92%
Maximum [Member]    
STOCK OPTIONS AND RESTRICTED STOCK    
Expected term - years 7 months 2 days  
Maximum [Member] | Director [Member]    
STOCK OPTIONS AND RESTRICTED STOCK    
Expected term - years 4 years 5 years 6 months
Forfeiture rate (excluding fully vested stock options) 5.00% 15.00%
Expected volatility 1.28% 0.93%
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.5.0.2
STOCK OPTIONS (Details1)
9 Months Ended
Sep. 30, 2016
USD ($)
$ / shares
shares
Shares  
Beginning Balance | shares 1,667,233
Granted | shares 1,222,810
Exercised | $ $ (10,500)
Forfeited or expired | shares (449,478)
Ending Balance | shares 2,430,065
Exercisable at September 30, 2016 | shares 1,622,072
Weighted-Average Exercise Price  
Beginning Balance $ 2.01
Weighted-average stock options granted 1.28
Exercised 1.19
Forfeited or expired 2.47
Ending Balance 1.56
Exercisable at September 30, 2016 $ 1.59
Weighted-Average Remaining Contractual Term  
Outstanding remaining term 8 years 7 months 17 days
Exercisable remaining term 8 years 5 months 23 days
Aggregate Intrinsic Value  
Beginning Balance | $ $ 0
Ending Balance | $ $ 0
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.5.0.2
STOCK OPTIONS (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Stock Options    
Additional paid-in capital $ 521,494 $ 756,000
Unrecognized compensation expense related to non $ 435,072  
Granted $ 1.28  
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.5.0.2
RESTRICTED STOCK (Details)
9 Months Ended
Sep. 30, 2016
$ / shares
shares
Shares  
Non-vested shares at January 1, 2016 | shares 27,842
Granted | shares 280,000
Vested | shares (2,020)
Forfeited | shares (5,471)
Non-vested shares at June 30, 2016 | shares 300,351
Weighted- Average Grant-DateFair Value  
Non-vested shares at January 1, 2016 | $ / shares $ 13.06
Granted | $ / shares 1.13
Vested | $ / shares 8.68
Forfeited | $ / shares 7.67
Non-vested shares at June 30, 2016 | $ / shares $ 2.07
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.5.0.2
RESTRICTED STOCK (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Restricted Stock    
Non-cash restricted stock compensation expense $ 181,369 $ 42,000
Vesting criteria

Among the 300,351 shares of non-vested restricted stock, the various vesting criteria include the following:

 

14,185 shares of restricted stock vest upon the FDA approval of the Company’s CGM system or the sale of the Company; and
6,166 shares of restricted stock vest over 4 years, at each of the anniversary dates of the grants, and

 

130,000 shares of restricted stock vest 18 months from the date of issuance, and
150,000 shares of restricted stock vest quarterly after the company receives debt/equity financing of at least $1 million
 
Unrecognized compensation expense $ 438,429  
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.5.0.2
WARRANTS (Details)
9 Months Ended
Sep. 30, 2016
$ / shares
shares
Shares  
Outstanding warrants at January 1, 2016 | shares 4,530,428
Granted | shares 3,552,875
Forfeited | shares 0
Outstanding warrants at September 30, 2016 | shares 8,083,303
Weighted-Average Exercise Price  
Outstanding warrants at January 1, 2016 | $ / shares $ 3.68
Granted | $ / shares 1.50
Forfeited | $ / shares 0
Outstanding warrants at September 30, 2016 | $ / shares $ 2.72
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.5.0.2
WARRANTS (Details 1)
9 Months Ended
Sep. 30, 2016
$ / shares
shares
Warrants  
Number Outstanding 8,083,303
Weighted-Average Exercise price | $ / shares $ 1.13
Number Exercisable 8,083,303
Derivative: $7.50 [Member]  
Warrants  
Exercise Price | $ / shares $ 7.50
Expirations 8-31-17 to 11-6-17
Number Outstanding 700,000
Weighted- Average Remaining Contractual Life (years) 7 years 6 months
Weighted-Average Exercise price | $ / shares $ 7.50
Number Exercisable 700,000
Derivative: $1.50 [Member]  
Warrants  
Exercise Price | $ / shares $ 1.50
Expirations 7-29-2021
Number Outstanding 1,274,280
Weighted- Average Remaining Contractual Life (years) 4 years 9 months 29 days
Weighted-Average Exercise price | $ / shares $ 1.50
Number Exercisable 1,274,280
Derivative: $1.50 [Member]  
Warrants  
Exercise Price | $ / shares $ 1.50
Expirations 5-30-2018
Number Outstanding 2,278,595
Weighted- Average Remaining Contractual Life (years) 1 year 7 months 2 days
Weighted-Average Exercise price | $ / shares $ 1.50
Number Exercisable 2,278,595
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.5.0.2
WARRANTS (Details 2)
9 Months Ended
Sep. 30, 2016
Forfeiture rate 0.00%
Expected volatility 112.00%
Timing of down-round triggering event October 2016
8/31/17 - 11/6/17 [Member]  
Risk-free interest rate 0.73%
Expected dividend yield 0.00%
Forfeiture rate 0.00%
Expected volatility 84.95%
Timing of down-round triggering event N/A
7/29/21 [Member]  
Risk-free interest rate 1.03%
Expected dividend yield 0.00%
Expected term (contractual term) 5 years 1 month 24 days
Forfeiture rate 0.00%
Expected volatility 103.00%
Timing of down-round triggering event August 2016
5/3/18 [Member]  
Risk-free interest rate 0.56%
Expected dividend yield 0.00%
Expected term (contractual term) 1 year 10 months 13 days
Forfeiture rate 0.00%
Expected volatility 103.00%
Timing of down-round triggering event August 2016
Minimum [Member]  
Expected term (contractual term) 3 months 29 days
Minimum [Member] | 8/31/17 - 11/6/17 [Member]  
Expected term (contractual term) 1 year 2 months 1 day
Maximum [Member]  
Expected term (contractual term) 7 months 2 days
Maximum [Member] | 8/31/17 - 11/6/17 [Member]  
Expected term (contractual term) 1 year 4 months 6 days
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.5.0.2
WARRANTS (Details Narrative)
9 Months Ended
Sep. 30, 2016
shares
Warrants  
Warrants issued to purchase shares 3,552,875
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