☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2017
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
..
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Delaware
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36-4296006
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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4203 SW 34th
Street, Orlando,
FL
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32811
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
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Name of each exchange on which registered
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None
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Not Applicable
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Large Accelerated Filer ☐
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Accelerated Filer ☐
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Non-Accelerated Filer ☐
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Smaller Reporting Company ☒
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Emerging growth company ☐
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Page
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F-1
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F-2
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F-4
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F-5
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1
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7
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7
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8
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9
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Item 5. | Other Information. |
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9
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10
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11
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September
30, 2017
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December
31,
|
|
(unaudited)
|
2016
|
Assets
|
|
|
|
|
|
Current
Assets:
|
|
|
Cash
|
$1,654
|
$108
|
Restricted
cash
|
393
|
-
|
Accounts
receivable, net of allowance for doubtful accounts of $143 and
$123
|
672
|
1,346
|
Inventories
|
3,624
|
3,811
|
Prepaid
expenses and other current assets
|
256
|
79
|
Total
current assets
|
6,599
|
5,344
|
|
|
|
Property
and equipment, net
|
1,563
|
1,557
|
In-process
research and development
|
4,620
|
4,620
|
Trademarks,
trade names
|
1,240
|
1,240
|
Goodwill
|
4,658
|
4,658
|
Other
assets
|
348
|
351
|
Total
assets
|
$19,028
|
$17,770
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
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Current
Liabilities:
|
|
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Accounts
payable and accrued expenses
|
$3,548
|
$3,164
|
Secured
lines of credit and current portion of long-term debt
|
83
|
3,214
|
Note
payable and accrued interest
|
63
|
-
|
Notes
due to employees, current portion
|
335
|
681
|
Advances
– related parties
|
251
|
288
|
Total
current liabilities
|
4,280
|
7,347
|
Long-term
debt, net of current portion and debt discounts
|
4,459
|
60
|
Notes
due to employees, net of current portion
|
68
|
135
|
Deferred
tax liability
|
2,205
|
2,205
|
Total
liabilities
|
11,012
|
9,747
|
|
|
|
Commitments
and contingencies
|
|
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Stockholders’
equity :
|
|
|
Preferred
stock, $0.001 par value; 10,000,000 shares authorized; 198,355
shares issued and outstanding (liquidation value of all classes of
preferred stock $2,601 and $2,533 as of September 30, 2017 and
December 31, 2016, respectively)
|
962
|
962
|
Common
stock, $0.001 par value; 100,000,000 shares authorized, 28,855,580
and 22,421,987 shares issued and outstanding as of September 30,
2017 and December 31, 2016, respectively
|
29
|
23
|
Additional
paid-in capital
|
13,522
|
9,366
|
Stock
subscription
|
-
|
25
|
Treasury
stock
|
(327)
|
(327)
|
Accumulated
other comprehensive loss
|
(601)
|
(642)
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Accumulated
deficit
|
(5,569)
|
(1,384)
|
Total
stockholders’ equity
|
8,016
|
8,023
|
|
|
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Total
liabilities and stockholders’ equity
|
$19,028
|
$17,770
|
|
Three
Months Ended
September
30,
|
|
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2017
(unaudited)
|
2016
(unaudited)
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|
|
|
Net
sales
|
$1,686
|
$2,339
|
Cost
of revenues
|
1,317
|
1,336
|
Gross
profit
|
369
|
1,003
|
|
|
|
Operating
expenses
|
|
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Depreciation
and amortization expense
|
110
|
53
|
Research
and development
|
423
|
305
|
Selling,
general and administrative
|
1,248
|
860
|
Total
operating expenses
|
1,781
|
1,218
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Operating
loss
|
(1,412)
|
(215)
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|
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Other
expenses
|
|
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Interest
expense, net
|
200
|
170
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Other income,
net
|
(7)
|
(72)
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Total
other expense, net
|
193
|
98
|
|
|
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Loss
before income taxes
|
(1,605)
|
(313)
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Income
tax provision (benefit)
|
-
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(7)
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Net
loss
|
(1,605)
|
(306)
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Preferred
dividend
|
(22)
|
(23)
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Net
loss available to common stockholders
|
$(1,627)
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$(329)
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Loss
per share
|
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Basic
and diluted loss per share
|
$(0.06)
|
$(0.02)
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Weighted
average basic and diluted shares outstanding
|
27,695,967
|
21,269,307
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Condensed
consolidated statements of comprehensive loss
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Net
loss
|
$(1,605)
|
$(306)
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Other
comprehensive income (loss)
|
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Foreign
currency translation adjustments
|
(118)
|
177
|
Comprehensive
loss
|
$(1,723)
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$(129)
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Nine
Months Ended
September
30,
|
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2017
|
2016
|
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(unaudited)
|
(unaudited)
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Net
sales
|
$4,854
|
$7,286
|
Cost of
revenues
|
3,756
|
4,095
|
Gross
profit
|
1,098
|
3,191
|
|
|
|
Operating
expenses
|
|
|
Depreciation and
amortization expense
|
213
|
154
|
Research and
development
|
1,177
|
1,086
|
Selling, general
and administrative
|
3,258
|
2,635
|
|
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Total operating
expenses
|
4,648
|
3,875
|
Operating
loss
|
(3,550)
|
(684)
|
|
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Other
expenses
|
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Interest
expense
|
460
|
570
|
Loss
on extinguishment of notes payable due to employees
|
158
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-
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Other (income)
expenses, net
|
13
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(111)
|
Total other
expenses, net
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631
|
459
|
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Loss before income
taxes
|
(4,181)
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(1,143)
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Income tax
provision (benefit)
|
4
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(13)
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Net
loss
|
(4,185)
|
(1,130)
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Preferred
dividend
|
(68)
|
(69)
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Net loss to common
stockholders
|
$(4,253)
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$(1,199)
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Loss per
share
|
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Basic and diluted
loss per share
|
$(0.17)
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$(0.06)
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Weighted average
basic and diluted shares outstanding
|
25,389,152
|
21,127,811
|
|
|
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Condensed
statements of comprehensive loss
|
|
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Net
loss
|
(4,185)
|
(1,130)
|
Other comprehensive
income (loss)
|
|
|
Foreign currency
translation adjustments
|
41
|
232
|
|
|
|
Comprehensive
loss
|
$(4,144)
|
$(898)
|
|
Nine
Months Ended
September
30,
|
|
|
2017
|
2016
|
Cash
flows from operating activities:
|
|
|
Net
loss
|
$(4,185)
|
$(1,130)
|
Adjustments
to reconcile net loss to cash used in operating
activities
|
|
|
Depreciation
and amortization
|
213
|
154
|
Provision
for doubtful accounts
|
108
|
-
|
Stock-based
compensation
|
281
|
-
|
Amortization
of debt discounts
|
7
|
358
|
Amortization
of shares issued for consulting services
|
55
|
-
|
Estimated
fair value of warrants issued in connection with secured promissory
notes
|
196
|
-
|
Loss
on extinguishment of notes due to employees
|
158
|
-
|
Changes
in assets and liabilities:
|
|
|
Accounts
receivable
|
665
|
187
|
Inventories
|
560
|
(1,107)
|
Prepaid
expenses and other assets
|
(120)
|
64
|
Accounts
payable and accrued expenses
|
207
|
334
|
Net
cash used in operating activities
|
(1,855)
|
(1,140)
|
|
|
|
Cash
flows from investing activities:
|
|
|
Purchases
of equipment
|
(43)
|
(25)
|
Decrease
in other assets
|
-
|
28
|
Net
cash (used in) provided by investing activities
|
(43)
|
3
|
|
|
|
Cash
flows from financing activities:
|
|
|
Proceeds
from convertible debt, net
|
4,669
|
-
|
Restricted
cash
|
(393)
|
-
|
Net
(repayment) borrowings on lines of credit
|
(2,442)
|
313
|
Repayment
of secured promissory notes
|
(333)
|
-
|
Repayment
of notes payable due to employees
|
(182)
|
(62)
|
Proceeds
from related party advances, net
|
-
|
82
|
Proceeds
from sale of common stock, net of issuance costs
|
2,344
|
-
|
Net
cash provided by financing activities
|
3,663
|
333
|
|
|
|
Effect
of exchange rates on cash
|
(219)
|
249
|
Net
change in cash
|
1,546
|
(555)
|
Cash
at beginning of period
|
108
|
587
|
Cash
at end of the period
|
$1,654
|
$32
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
Cash
paid for interest
|
$156
|
$140
|
Cash
paid for income taxes
|
$34
|
$8
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
Reclassification
of warrant liability to additional paid in capital
|
$-
|
$90
|
Settlement
of liabilities through issuance of common stock
|
$-
|
$275
|
Issuance
of common stock for services
|
$55
|
$-
|
Issuance
of warrants on secured promissory notes classified as additional
paid-in capital and debt discount
|
$-
|
$248
|
Issuance
of common stock subscribed
|
$25
|
$-
|
Conversion
of secured promissory note plus accrued interest into common
stock
|
$58
|
$-
|
Secured
promissory notes exchanged for convertible notes
payable
|
$133
|
$-
|
Loan
fees settled through common stock
|
$75
|
$-
|
Estimated
fair value of warrants recorded as debt discount
|
$631
|
$-
|
Conversion
of accrued interest on secured promissory notes into common
stock
|
$102
|
$-
|
Increase
of convertible debt for settlement of DZ debt
|
$356
|
$-
|
|
September
30,
2017
(Unaudited)
|
December
31,
2016
|
Raw
materials
|
$1,315
|
$1,309
|
Work
in process
|
145
|
203
|
Finished
goods
|
2,164
|
2,299
|
|
$3,624
|
$3,811
|
|
September
30,
2017
(Unaudited)
|
December
31,
2016
|
Hannoversche
Volksbank credit line #1
|
$-
|
$1,321
|
Hannoversche
Volksbank credit line #2
|
-
|
397
|
Hannoversche
Volksbank term loan #3
|
-
|
117
|
Secured
promissory note
|
83
|
650
|
DZ
Equity Partners Participation rights
|
-
|
789
|
GPB
convertible note payable
|
5,356
|
-
|
Subordinated
convertible notes payable
|
573
|
-
|
Total
|
6,012
|
3,274
|
Less:
|
|
|
Loan
Fees and Original Issue Discount
|
(1,470)
|
-
|
Less
current portion of debt, net
|
(83)
|
(3,214)
|
Long-term
debt
|
$4,459
|
$60
|
|
September
30,
2017
(unaudited)
|
December
31,
2016
|
|
Shares
Issued &
|
Shares
Issued &
|
Offering
|
Outstanding
|
Outstanding
|
Series
A convertible
|
47,250
|
47,250
|
Series
B convertible, 10% cumulative dividend
|
93,750
|
93,750
|
Series
C convertible, 10% cumulative dividend
|
38,333
|
38,333
|
Series
E convertible, 10% cumulative dividend
|
19,022
|
19,022
|
Total
Preferred Stock
|
198,355
|
198,355
|
|
Options
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
Weighted
Average Remaining Contractual Life (Years)
|
Outstanding
at December 31, 2016
|
-
|
$-
|
—
|
-
|
Granted
|
2,100,000
|
0.50
|
—
|
10.00
|
Exercised
|
—
|
—
|
—
|
—
|
Expired
|
—
|
—
|
—
|
—
|
Outstanding
at September 30, 2017
|
2,100,000
|
$0.50
|
—
|
10.00
|
|
Warrants
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
Weighted
Average Remaining Contractual Life (Years)
|
Outstanding
at December 31, 2016
|
1,396,161
|
$1.08
|
—
|
4.11
|
Granted
|
9,746,123
|
0.55
|
—
|
4.79
|
Exercised
|
—
|
—
|
—
|
—
|
Expired
|
—
|
—
|
—
|
—
|
Outstanding
at September 30, 2017
|
11,142,284
|
$0.59
|
—
|
4.53
|
|
United
States
|
Germany
|
Poland
|
Total
|
||||
|
September
30,
2017
|
December
31,
2016
|
September
30,
2017
|
December
31,
2016
|
September
30,
2017
|
December
31,
2016
|
September
30,
2017
|
December
31,
2016
|
Assets
|
$12,928
|
$11,268
|
$6,055
|
$6,264
|
$45
|
$238
|
$19,028
|
$17,770
|
Property
& equipment, net
|
52
|
68
|
1,511
|
1,487
|
-
|
2
|
1,563
|
1,557
|
Intangible
assets
|
10,518
|
10,518
|
-
|
-
|
-
|
-
|
10,518
|
10,518
|
|
United States
|
Germany
|
Poland
|
Total
|
||||
For the three months
ended
|
September
30, 2017
|
September
30, 2016
|
September
30, 2017
|
September
30, 2016
|
September
30, 2017
|
September
30, 2016
|
September
30, 2017
|
September
30, 2016
|
Revenues:
|
|
|
|
|
|
|
|
|
Histology
Equipment
|
$36
|
$68
|
$763
|
$1,337
|
$12
|
$-
|
$811
|
$1,405
|
Histology
Consumables
|
82
|
26
|
495
|
613
|
-
|
20
|
577
|
659
|
Cytology
Consumables
|
-
|
88
|
298
|
187
|
-
|
-
|
298
|
275
|
Total
Revenues
|
$118
|
$182
|
$1,556
|
$2,137
|
$12
|
$20
|
$1,686
|
$2,339
|
Net
loss
|
$(830)
|
$(376)
|
$(884)
|
$70
|
$109
|
$-
|
$(1,605)
|
$(306)
|
|
United States
|
Germany
|
Poland
|
Total
|
||||
For
the nine months ended
|
September
30, 2017
|
September
30, 2016
|
September
30, 2017
|
September
30, 2016
|
September
30, 2017
|
September
30, 2016
|
September
30, 2017
|
September
30, 2016
|
Revenues:
|
|
|
|
|
|
|
|
|
Histology
Equipment
|
$220
|
$283
|
$1,743
|
$3,901
|
$25
|
$8
|
$1,691
|
$4,192
|
Histology
Consumables
|
322
|
96
|
1,735
|
1,770
|
-
|
27
|
2,354
|
1,893
|
Cytology
Consumables
|
-
|
356
|
809
|
842
|
-
|
3
|
809
|
1,201
|
Total
Revenues
|
$542
|
$735
|
$4,287
|
$6,513
|
$25
|
$38
|
$4,854
|
$7,286
|
Net
loss
|
$(2,067)
|
$(1,353)
|
$(2,021)
|
$314
|
$(97)
|
$(91)
|
$(4,185)
|
(1,130)
|
|
Definition:
|
Histology - Cancer diagnostics based on the structures of cells in
tissues
|
|
Cytology - Cancer screening and diagnostics based on the structures
of individual cells
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
10.1
|
|
Form of
First Amendment to Amended and Restated Securities Purchase
Agreement
|
|
|
|
|
Section 302 certification by the principal executive officer
pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.
|
|
|
|
|
|
Section 302 certification by the chief financial officer pursuant
to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act
of 2002.
|
|
|
|
|
|
Section 906 certification by the principal executive pursuant to 18
USC. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
|
|
|
|
|
Section 906 certification by the chief financial officer pursuant
to 18 USC. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
|
|
|
|
101.INS
|
|
XBRL Instance
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
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101.CAL
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XBRL Taxonomy Extension Calculation
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101.DEF
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XBRL Taxonomy Extension Definition
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101.LAB
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XBRL Taxonomy Extension Labels
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101.PRE
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XBRL Taxonomy Extension Presentation
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MEDITE Cancer Diagnostics, Inc.
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Date: November 14, 2017
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/s/ Stephen Von Rump
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Stephen Von Rump
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Chief Executive Officer
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Date: November 14, 2017
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/s/ Susan Weisman
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Susan Weisman
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Chief Financial Officer
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Date:
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November 14,
2017
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/s/ Stephen Von
Rump
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Stephen Von Rump,
Chief Executive Officer
(Principal
Executive Officer)
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Date:
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November
14, 2017
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/s/ Susan
Weisman
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Susan
Weisman, Chief Financial Officer
(Principal
Financial Officer)
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By:
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/s/ Stephen Von
Rump
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Dated:
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November
14, 2017
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Stephen
Von Rump
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Title:
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Chief
Executive Officer
(Principal
Executive Officer)
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By:
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/s/ Susan Weisman
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Dated:
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November
14, 2017
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Susan
Weisman
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Title:
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Chief
Financial Officer
(Principal
Financial Officer)
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Document And Entity Information - shares |
9 Months Ended | |
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Sep. 30, 2017 |
Nov. 10, 2017 |
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Document And Entity Information [Abstract] | ||
Entity Registrant Name | Medite Cancer Diagnostics, Inc. | |
Entity Central Index Key | 0000075439 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Trading Symbol | MDIT | |
Entity Common Stock, Shares Outstanding | 28,855,580 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2017 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
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Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 143 | $ 123 |
Preferred Stock, par value | $ 0.001 | $ 0.001 |
Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred Stock, shares issued | 198,355 | 198,355 |
Preferred Stock, shares outstanding | 198,355 | 198,355 |
Preferred Stock, liquidation preference value | $ 2,601 | $ 2,533 |
Common Stock, par value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 100,000,000 | 35,000,000 |
Common Stock, shares issued | 28,855,580 | 22,421,987 |
Common Stock, shares outstanding | 28,855,580 | 22,421,987 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Income Statement [Abstract] | ||||
Net sales | $ 1,686 | $ 2,339 | $ 4,854 | $ 7,286 |
Cost of revenues | 1,317 | 1,336 | 3,756 | 4,095 |
Gross profit | 369 | 1,003 | 1,098 | 3,191 |
Operating expenses | ||||
Depreciation and amortization expense | 110 | 53 | 213 | 154 |
Research and development | 423 | 305 | 1,177 | 1,086 |
Selling, general and administrative | 1,248 | 860 | 3,258 | 2,635 |
Total operating expenses | 1,781 | 1,218 | 4,648 | 3,875 |
Operating loss | (1,412) | (215) | (3,550) | (684) |
Other expenses | ||||
Interest expense, net | 200 | 170 | 460 | 570 |
Loss on extinguishment of notes due to employees | 158 | 0 | ||
Other (income) expenses, net | (7) | (72) | 13 | (111) |
Total other expense, net | 193 | 98 | 631 | 459 |
Loss before income taxes | (1,605) | (313) | (4,181) | (1,143) |
Income tax provision (benefit) | 0 | (7) | 4 | (13) |
Net loss | (1,605) | (306) | (4,185) | (1,130) |
Preferred dividend | (22) | (23) | (68) | (69) |
Net loss available to common stockholders | (1,627) | (329) | (4,253) | (1,199) |
Condensed consolidated statements of comprehensive income (loss) | ||||
Net loss | (1,605) | (306) | (4,185) | (1,130) |
Other comprehensive income (loss) | ||||
Foreign currency translation adjustments | (118) | 177 | 41 | 232 |
Comprehensive loss | (1,723) | (129) | (4,144) | (898) |
Loss per share | ||||
Net loss available to common stockholders | $ (1,627) | $ (329) | $ (4,253) | $ (1,199) |
Basic and diluted loss per share | $ (0.06) | $ (0.02) | $ (0.17) | $ (0.06) |
Weighted average basic and diluted shares outstanding | 27,695,967 | 21,269,307 | 25,389,152 | 21,127,811 |
Organization |
9 Months Ended |
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Sep. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | The Company
MEDITE Cancer Diagnostics, Inc. (“MDIT”, “MEDITE”, “we”, “us” or the “Company”) was incorporated in Delaware in December 1998.
These statements include the accounts of MEDITE Cancer Diagnostics, Inc. and its wholly owned subsidiaries, which consists of MEDITE Enterprise, Inc., MEDITE GmbH, Burgdorf, Germany, MEDITE GmbH, Salzburg, Austria, MEDITE Lab Solutions Inc., Orlando, USA, MEDITE sp. z o.o., Zilona-Gora, Poland and CytoGlobe, GmbH, Burgdorf, Germany.
MEDITE is a medical technology company specialized in the development, manufacturing, and marketing of molecular biomarkers, premium medical devices and consumables for detection, risk assessment and diagnosis of cancerous and precancerous conditions and related diseases. The Company has 74 employees in four countries, a distribution network to about 80 countries and a wide range of products for anatomic pathology, histology and cytology laboratories is available for sale.
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Summary of Significant Accounting Policies |
9 Months Ended |
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Sep. 30, 2017 | |
Summary Of Significant Accounting Policies | |
Summary of Significant Accounting Policies | Consolidation, Basis of Presentation and Significant Estimates
The accompanying condensed consolidated financial statements for the periods ended September 30, 2017 and 2016 included herein are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Such consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2017 or for any other period. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the interim information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements disclosed in the Report on Form 10-K for the year ended December 31, 2016 filed on April 14, 2017 and other filings with the Securities and Exchange Commission.
In preparing the accompanying condensed consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.
Going Concern
We have incurred significant operating losses and negative cash flows from operations. The Company incurred net losses of approximately $1.6 million and $0.3 million and $4.2 million and $1.1 million for the three and nine months ended September 30, 2017 and 2016, respectively, and had an accumulated deficit of approximately $5.6 million and $1.4 million as of September 30, 2017 and December 31, 2016, respectively. In addition, operating activities used cash of approximately $1.9 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company raised additional cash of $2.3 million, net of offering costs from the sale of 5,060,000 shares of common stock subsequent to December 31, 2016 through September 30, 2017. Management is actively seeking additional equity financing
On September 26, 2017, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with GPB Debt Holdings II, LLC (“GPB”), pursuant to which the Company issued to GPB a secured convertible promissory note and received gross proceeds of $4.9 million. The Company is required to make interest-only payments for the first 23 months after September 26, 2017 with quarterly principal payments beginning on month 24 at a rate of 10% of the face value of the Note with the remaining 60% due on September 26, 2020. The proceeds were used to pay (i) the outstanding balance of various credit facilities due to Hannoveresche Volksbank in the amount of $2.3 million, (ii) the outstanding balance of a settlement with VR Equity in the amount of $0.5 million and (iii) the outstanding balance on secured promissory notes in the amount of $0.3 million. In addition, issued subordinated notes to 3 other investors for net proceeds of $0.4 million with similar terms as the Purchase Agreement. See Note 4 for additional details of the transactions.
Management continues to expand its product offerings and has also expanded its sales and distribution channels during 2017. Management believes it will be able to reduce its operating losses through an increase in its revenues and reduction in manufacturing costs through process efficiencies. No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.
The condensed consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance of the Company’s operating loss and determined that the Company’s current operating plan and sources of capital would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.
In the future, we may require sources of capital in addition to cash on hand to continue operations and to implement our strategy. If our operations do not become cash flow positive, we may be forced to seek equity investments or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition. In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.
Restricted Cash
The Company is required to maintain restricted cash balances equal to 6 months of interest payments on the secured convertible promissory note to GPB.
Revenue Recognition
The Company derives its revenue primarily from the sale of medical products and supplies for the diagnosis and prevention of cancer. Product revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred or risk of loss transfers to the customer; (3) the selling price of the product is fixed or determinable; and (4) collectability is reasonably assured. The Company generates the majority of its revenue from the sale of inventory. For certain sales, the Company and its customers agree in the sales contract that risk of loss and title transfer upon the Company packing the items for shipment, segregating the items packaged and notifying the customer that their items are ready for pickup. The Company records such sales at time of completed packaging and segregation of the items from general inventory and notification has been confirmed by the customer.
Shipping and handling costs are included in cost of goods sold and charged to the customers based on the contractual terms.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first in first out method (FIFO) and market is based generally on net realizable value.
Inventories consists of parts inventory purchased from outside vendors, raw materials used in the manufacturing of equipment; work in process and finished goods. Management reviews inventory on a regular basis and determines if inventory is still useable. A reserve is established for the estimated decrease in carrying value for obsolete or excess inventory. Once a reserve is established, it is considered a permanent adjustment to the cost basis of the obsolete or excess inventory.
Foreign Currency Translation
The accounts of the US parent company are maintained in United States Dollar (“USD”). The functional currency of the Company’s German subsidiaries is the EURO (“EURO”). The accounts of the German subsidiaries were translated into USD in accordance with relevant accounting guidance. All assets and liabilities are translated at the exchange rate on the balance sheet dates, stockholders’ equity was translated at the historical rates and statements of operations transactions are translated at the average exchange rate for each period. The resulting translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders’ equity.
Research and Development
All research and development costs are expensed as incurred. Research and development costs consist of engineering, product development, testing, developing and validating the manufacturing process, and regulatory related costs.
Acquired In-Process Research and Development
Acquired in-process research and development (“IPR&D”) that the Company acquires through business combinations represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, MEDITE will make a determination as to the then useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. The Company tests IPR&D for impairment at least annually, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the IPR&D intangible asset is less than its carrying amount. If the Company concludes it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value is performed. If the fair value is less than the carrying amount, an impairment loss is recognized in operating results.
Impairment of Indefinite Lived Intangible Assets Other Than Goodwill
The Company has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if the Company concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with relevant accounting guidance.
Goodwill
Goodwill is recognized for the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (December 31 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.
The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.
Net Loss Per Share
Basic loss per share is calculated based on the weighted-average number of outstanding common shares. Diluted loss per share is calculated based on the weighted-average number of outstanding common shares plus the effect of dilutive potential common shares, using the treasury stock method and the if-converted method. MEDITE’s calculation of diluted net loss per share excludes potential common shares as of September 30, 2017 and 2016 as the effect would be anti-dilutive (i.e. would reduce the loss per share).
The Company computes its loss applicable to common stock holders by subtracting dividends on preferred stock, including undeclared or unpaid dividends if cumulative, from its reported net loss and reports the same on the face of the condensed consolidated statement of operations. The Company includes convertible securities into their EPS calculation when reporting net income through the "if-converted" method whereby the securities are assumed converted and an earnings per incremental share is computed.
Convertible securities outstanding for the entire period are assumed converted at the beginning of the period. Convertible securities issued during the period are treated as if they were converted at the date of issuance. The earnings per incremental share is the after-tax foregone interest expense divided by the number of shares of common stock that would have been issued from the conversion weighted for the period they would have been outstanding.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue with Contracts from Customers.” ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. The ASU introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The updated guidance is effective for public entities for interim and annual periods beginning after December 15, 2017 with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company will implement ASU 2014-09 effective January 1, 2018 and does not believe that there will be a material change to its current business practices upon implementation.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018 (i.e., calendar years beginning on January 1, 2019), including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows - Restricted Cash (Topic 230)”. This new standard requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, and requires retrospective application. The Company is currently assessing the impact that adopting ASU 2016-18 will have on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the definition of a business”. The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The guidance in this update is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Management does not anticipate the implementation to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB also issued ASU 2017-04, “Intangibles - Goodwill and other (Topic 350): Simplifying the test for goodwill impairment”. The amendments in this Update remove the second step of the current goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This guidance is effective for impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of ASU 2017-04 will have on the Company’s consolidated financial statements.
In July 2017, the FASB issued a two-part ASU No. 2017-11, “(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception.” The ASU will (1) “change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features” and (2) improve the readability of ASC 480-10 by replacing the indefinite deferral of certain pending content with scope exceptions. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018 (i.e., calendar years beginning on January 1, 2019), including interim periods within those fiscal years. Early adoption is permitted. The Company completed a transaction with a down round feature and has chosen to early adopt ASU 2017-11 for the current period.
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Inventories |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Inventories | The following is a summary of the components of inventories (in thousands):
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Debt |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | The Company’s outstanding debt was as follows as of (in thousands):
On September 26, 2017, the Company entered into the Purchase Agreement with GPB, pursuant to which the Company issued to GPB (i) a secured convertible promissory note in the aggregate principal amount of $5,356,400 (the “GPB Note”) at a purchase price equal to 97.5% of the face value of the of the original $5 million GPB Note and an additional discount of 300,000 Euro ($356,400 at September 26, 2017) attributed to the purchase and settlement of the 750,000 Euro ($890,325 at September 26, 2017) note with VR Equity Partners formerly DZ Equity Partners (“DZ”) by GPB and considered an additional purchase discount, with the Company receiving net proceeds of $4.7 million and (ii) a warrant to purchase an aggregate of 4,120,308 shares of common stock, of the Company (the “Warrant”). The Company allocated the proceeds received to the GPB Note and the warrants on a relative fair value basis at the time of issuance. The total debt discount will be amortized over the life of the GPB Note to interest expense. The estimated relative fair value of the warrants was $520,052. Amortization expense of the debt discount, which includes original issue discount, loan fees and the warrant value, during the three and nine months ended September 30, 2017 was $6,358. The GPB Note matures on the 36th month anniversary date following the Closing Date, as defined in the GPB Note (the “Maturity Date”). The GPB Note is secured by a senior secured first priority security interest on all of the assets of the Company and its subsidiaries evidenced b y a security agreement (the “Security Agreement”). Each subsidiary also entered into a guaranty agreement pursuant to which the subsidiaries have guaranteed all obligations of the Company to the GPB. The GPB Note bears interest at a rate of 13.25% per annum (which interest is increased to 18.25% upon an Event of Default). The GPB Note is initially convertible at a price of $0.65 (the “Conversion Price”) into 8,240,615 shares of common stock. There was no discount relate to the conversion feature. The exercise price of the Warrant is subject to a ratchet downside protection with a $0.30 per share floor price in the event the Company issues additional equity securities, and subject to adjustments for stock splits, dividends, combinations, recapitalizations and the like. The GPB Note is being amortized quarterly at a rate of 10% of the face value of the Note beginning on month 24, with the remaining 60% due at the Maturity Date. There is a flat 3% success fee which allows for the prepayment of the GPB Note and applies to the payment of principal during the Term through the Maturity Date. The GPB Note contains customary events of default. The GPB Notes contain certain covenants, such as restrictions on the incurrence of indebtedness, the existence of liens, the payment of restricted payments, redemptions, and the payment of cash dividends and the transfer of assets. GPB also has a right of participation for any Company offering, financing, debt purchase or assignment for 36 months after the closing date. The Company is required to maintain a 6 month interest reserve of $354,862. The shares underlying the convertible debt and the warrants are to be registered by the Company through a registration rights agreement within 60 days and the registration statement is to be declared effective within 180 days. Failure to file, or to meet other criteria defined as the event date will required the Company to pay 2% of the registrable securities times the price at the event date per month, up to 12% in cash payments.
In July 2006, MEDITE GmbH, Burgdorf, entered into a master credit line #1 with Hannoversche Volksbank. The line of credit was amended in 2012, 2015 and again in 2016. Borrowings on the master line of credit agreement #1 bore interest at a variable rate based on Euribor (Euro Interbank Offered Rate) depending on the type of advance elected by the Company and defined in the agreement. Interest rates depending on the type of advance elected ranged from 3.75 – 8.00% during the period ended September 30, 2017. The line of credit is collateralized by the accounts receivable and inventory of MEDITE GmbH, Burgdorf, and a mortgage on the building owned by the Company and was guaranteed by Michaela Ott and Michael Ott, stockholders of the Company. This master credit line was repaid with the proceeds of the GPB Note and the collateral and guarantees released.
In June 2012, CytoGlobe, GmbH, Burgdorf, entered into a credit line #2 with Hannoversche Volksbank. Borrowings on the master line of credit agreement #2 bore interest at a variable rate based on Euribor (Euro Interbank Offered Rate) depending on the type of advance elected by the Company and defined in the agreement. Interest rates ranged from 3.90 – 8.00% during the period ended September 30, 2017. The line of credit was collateralized by the accounts receivable and inventory of CytoGlobe GmbH, Burgdorf and was guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and the state of Lower Saxony (Germany) to support high-tech companies in the area. This credit line was repaid with the proceeds of the GPB Note and the collateral and guarantees released.
In November 2008, MEDITE GmbH, Burgdorf, entered into a Euro 400,000 ($472,510 as of September 30, 2017) term loan #3 with Hannoversche Volksbank with an interest rate of 4.7% per annum. The term loan was guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and was collateralized by a partial subordinated pledge of the receivables and inventory of MEDITE GmbH, Burgdorf. This term loan was repaid with the proceeds of the GPB Note and the collateral and guarantees released.
In March 2009, the Company entered into a participation rights agreement with DZ in the form of a debenture with a mezzanine lender who advanced the Company up to Euro 1.5 million, ($1.8 million as of September 30, 2017) in two tranches of Euro 750,000 each ($885,960 as of September 30, 2017). The first tranche was paid to the Company at closing with the second tranche being conditioned on MEDITE GmbH, Burgdorf and its subsidiaries hitting certain performance targets. Those targets were not met and the second tranche was never called. The debenture bore interest at the rate of 12.15% per annum. The rate of interest increased three percent, to 15.15% on June 1, 2017. GPB purchased the participation rights agreement with DZ and settled the debt owed by the Company and included the balance in the GPB Note.
On December 31, 2015, the Company entered into a Securities Purchase Agreement (the “2015 Purchase Agreement”) with seven individual accredited investors (collectively the “Purchasers”), pursuant to which the Company agreed to issue to the Purchasers secured promissory notes in the aggregate principal amount of $500,000 with interest accruing at an annual rate of 15% (the “Note(s)”) and warrants to purchase up to an aggregate amount of 250,000 shares of common stock of the Company (the “Warrant(s)”) with an initial exercise price of $1.60 per share, subject to adjustment and are exercisable for a period of five years. On March 15, 2016, the Board of Directors approved renegotiated terms to increase the warrants issued to the Purchasers from a total of 250,000 warrants to 500,000 and fixed the exercise price of the warrants to $0.80. The Notes mature on the earlier of the third month anniversary date following the Closing Date, as defined in the Note, or the third business day following the Company’s receipt of funds exceeding one million dollars from an equity or debt financing, not including the financing contemplated under the 2015 Purchase Agreement. The Notes are secured by the Company’s accounts receivable and inventories held in the United States. If the Notes are not redeemed by the Company on maturity, the Purchasers are entitled to receive 10% of the principal balance of the Notes outstanding in warrants for every month that the Notes are not redeemed. On March 31, 2016, these Notes matured and were not repaid. Therefore the Notes were in default on April 1, 2016. The Company agreed to pay the Purchasers 10% of the principal balance of the Notes in warrants until the Notes are repaid. During the nine month period ended September 30, 2017, the Company issued 50,000 warrants in connection with the default provision and 270,000 warrants in connection with the January 2017 extension provision (see below), which were valued at $11,443 and $76,083, respectively, and recorded it as interest expense in the condensed consolidated statements of operations. The Notes are secured by the Company’s accounts receivable and inventories held in the United States. In January 2017, the Company extended the term of the Notes in default on April 1, 2016 to June 30, 2017 and reduced the price on the warrants issued from $0.80 to $0.50. The Company recorded $64,405 attributed to the repricing of the warrants. One noteholder did not extend the term of the notes and the Company defaulted on July 1, 2017 and received 33,333 warrants to purchase shares of common stock which the Company valued at that date at $8,741.
Using the proceeds from the GPB Note, the Company repaid $166,667 of outstanding Notes. In addition, Notes totaling $133,333 converted into subordinated convertible notes at a purchase price of 97.5% of the Face Value of the $136,752 notes with substantially the same terms as the GPB Note. In connection, the Company issued 105,194 warrants to purchase common stock with a term of 5 years and an exercise price of $0.60 per share with a ratchet downside protection of $0.30 exercise price per share floor. The Company allocated the value of these notes and the warrants on a relative fair value basis at the time of issuance. The total debt discount will be amortized over the life of these notes to interest expense. The estimated relative fair value of the warrants was $13,277. Amortization expense of the debt discount, which includes original issue discount and the warrant value, during the three and nine months ended September 30, 2017 was insignificant.
Another Note with a principal and accrued interest balance of $63,250 remains unpaid and is not considered in default as the Company received notification to freeze this account. The remaining Notes with an aggregate balance of $83,333 will be repaid once the Company receives final paperwork from the investors for authorization for repayment. The accrued interest on the remaining Notes of $25,250 is expected to be converted into 50,500 shares of common stock.
On May 25, 2016, the Company entered into a Securities Purchase Agreement (the “May Purchase Agreement”) with two individual accredited investors, one of which who serves on the Company’s Board of Directors (collectively the “May Purchasers”), pursuant to which the Company agreed to issue to the May Purchasers secured promissory notes in the aggregate principal amount of $150,000 (the “May Note(s)”) with an interest rate of 15% and warrants to purchase up to an aggregate amount of 150,000 shares of common stock of the Company (the “May Warrant(s)”). The May Notes may be converted into Units issued pursuant to the Company’s private financing of up to $5,000,000 (the “Follow On Offering”) Units at a price of $0.80/Unit (the “Units”) consisting of: (i) a 2 year unsecured convertible note, which converts into shares of common stock at an initial conversion price of $0.80 per share and (ii) a warrant to purchase one half additional share of common stock, with an initial exercise price equal to $0.80 per share (the “Follow On Warrant”). The May Notes are secured by the Company’s accounts receivable and inventories held in the United States. The Company recorded a debt discount of $51,000 related to the relative fair value of the warrants on the date of the May Purchase Agreement, which was amortized to interest expense in the consolidated statement of operations during the year ended December 31, 2016. If the May Notes are not redeemed by the Company on maturity, the Purchasers are entitled to receive 10% of the principal balance of the Notes outstanding in warrants for every month that the Notes are not redeemed. On August 25, 2016, these Notes matured and were not repaid. Therefore the Notes were in default on August 26, 2016. The Company agreed to pay the Purchasers 10% of the principal balance of the May Notes in warrants until the May Notes are repaid. In January 2017, the Company extended the term of the Notes in default to June 30, 2017 and reduced the price on the warrants issued from $0.80 to $0.50. During the three and nine month periods ended September 30, 2017, the Company issued 0 and 80,000 warrants in connection with the January 2017 extension provision, which were valued at $0 and $27,058 and recorded it as interest expense in the consolidated statements of operations. One noteholder did not extend the term of the notes and the Company defaulted on July 1, 2017 and issued 33,333 warrants to purchase shares of common stock which the Company valued at that date at $8,741 and recorded the amount as interest expense. One noteholder converted a $50,000 note plus accrued interest of $8,417 into 116,833 shares of common stock on June 30, 2017.
Accrued interest of $101,917 associated with the Notes and the May Notes was converted into 203,834 shares of common stock at a value of $0.50 per share during the three months ended September 30, 2017.
On September 27, 2017, the Company received $425,000 and issued $435,897 subordinated convertible debt with an original issue debt discount of $10,897 and with similar terms as the GPB Note. The Company issued 335,306 warrants to purchase shares of common stock with a term of 5 years and an exercise price of $0.60 per share, with a ratchet down side protection of $0.30. The Company allocated the value of these notes and the warrants on a relative fair value basis at the time of issuance. The total debt discount will be amortized over the life of these notes to interest expense. The estimated relative fair value of the warrants was $42,321. Amortization expense of the debt discount, which includes original issue discount and the warrant value, during the three and nine months ended September 30, 2017 was insignificant.
In November 2015 and February 2016, the Company entered into promissory notes totaling $927,000 with certain employees to repay wages earned prior to December 31, 2014 not paid (“Notes Due to Employees"). The Notes Due to Employees are to be paid monthly through September 2019, with no interest due on the outstanding balances. The monthly amounts increase over the payment term. The amounts due become immediately due and payable if payments are more than ten days late either one or two consecutive months as defined in the agreement with the employee. On March 30, 2017, the Company entered into a settlements with three current employees that hold notes, in the amount of $580,000 plus accrued vacation. The agreement supersedes all prior agreements with the group and was effective December 31, 2016. The Company was to pay these employees approximately $330,000, the first payment of $94,000 was paid in April 2017, the second payment of $94,000 was due 30 days from signing the agreement and the final payment of $142,000 was due 60 days from signing the agreements however the remaining payments remained due at September 30, 2017. In November 2017, the employees have agreed to renegotiate the March 30, 2017 agreement in good faith with the Company as to a future payment plan mutually agreeable by all parties. The Company issued 1,029,734 warrants to purchase common stock at $0.50 a share with a term of 5 years. The fair value of the warrants issued of $389,000 for the nine months ended September 30, 2017, was valued based on the Black Scholes model based on a stock price of $0.70, an interest free rate of 1.33% and volatility of 50%. The settlement was accounted for as an extinguishment under the applicable accounting guidance. The Company recorded a loss on extinguishment on notes payable due to employees of $158,000.
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Related Party Transactions |
9 Months Ended |
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Sep. 30, 2017 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Included in advances – related parties are amounts owed to the Company’s former CFO and Chairman of the Board of $50,000 at September 30, 2017 and December 31, 2016. Also included in advances – related parties are amounts owed to Michaela Ott, stockholder and former CEO of the Company, of 20,000 Euros, ($23,626 as September 30, 2017) and 75,000 Euros ($88,596 as of September 30, 2017) related to two short term bridge loans. The Company has made arrangements to settle these obligations to Ms. Ott evenly over a 24 month period, starting on October 31, 2017. In addition, the Company settled obligations related to accrued salaries, vacation and related expenses totaling $152,000 owed to Michael Ott, stockholder and former COO of the Company and Ms. Ott. The Company made an upfront payment to each Mr. and Ms. Ott of $6,750 and will pay the remaining amount owed over a period of 18 months scheduled to start in October 2017. The Company is reviewing additional agreements to settle the debt owed from the US entity where the wages were earned versus the German entity. The Company is working with Mr. and Ms. Ott to get these payments paid as of the date of this filing due to the changes requested by Michaela and Michael Ott.
The loans noted above are interest-free loans. The Company paid Mr. and Ms. Ott the agreed upon severance payments however the upfront payment was paid in November 2017. Total severance payments totaled $118,810. Mr. Ott and Ms. Ott remain as Directors of the Company and continue to work with the Company.
On June 30, 2017, one secured noteholder, an affiliate of a member of our Board of Directors, converted a $50,000 secured promissory note plus accrued interest of $8,417 into 116,833 shares of common stock. The Company issued 50,000 warrants to purchase shares of common stock at a price of $0.50, with a term of five years. See further discussion related to secured promissory notes in Note 4.
On February 12, 2016, one of the Purchasers of a $100,000 secured promissory note and holder of 50,000 (increased to 100,000 warrants as of December 31, 2016) warrants to purchase shares of common stock at the time of his election, was elected to the Board of Directors to serve as Director and Chairman of the Company’s audit committee. Total warrants due to this director related to the above secured promissory notes for original issuance, modifications, default period and the modification period at September 30, 2017 was 260,000 warrants to purchase common stock. On September 27, 2017, the remaining balance of $66,667 was converted into a subordinated convertible note discussed in Note 4 of $68,376 subordinated convertible debt and received 52,597 warrants to purchase shares of common stock at $0.60 a share. The Company issued 48,000 shares of common stock for $24,000 of accrued interest at $0.50. See relative fair value and additional discussion in Note 4.
At September 30, 2017 and December 31, 2016, the Company has accrued $70,000 and $55,000, respectively to the above Director and Chairman of the audit committee for services for 2016 as a member of the Board of $35,000 and an additional $20,000 for audit committee services for the year ended December 31, 2016 and $15,000 for the audit committee services for the nine months ended September 30, 2017.
Included in accounts payable and accrued expense includes $18,508 due to its current CFO’s company for past services performed as a consultant to the Company at September 30, 2017.
The Company has accrued wages and vacation of approximately $1.1 million payable to the former CFO at September 30, 2017 and December 31, 2016. In August 2017, the Company offered a settlement for the legal matter with a settlement term sheet whereby a formal settlement agreement and forbearance agreement must be entered with the court. Pursuant to the settlement proposal, the Company is to issue a combination of stock, warrants and payments over a period of up to three years. See Note 8 for further discussion regarding the legal proceedings with the Company’s former CFO.
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Common Stock |
9 Months Ended |
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Sep. 30, 2017 | |
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract] | |
Common Stock | Effective April 28, 2017, the Company increased the authorized shares from 35,000,000 to 50,000,000. On August 1, 2017 the Company received written consent of the holders of the majority of the issued and outstanding shares of our Common Stock, to amend the 2017 Employee/Consultant Common Stock Compensation Plan and to file a Certificate of Amendment to our Certificate of Incorporation (the “Certificate of Incorporation”) to increase the Company’s authorized common stock, par value $0.001 per share (the “Common Stock”), from 50,000,000 shares to 100,000,000 shares, (the “Amendment”) and keep the authorized shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), unchanged.
During the nine months ended September 30, 2017, the Company issued 5,060,000 shares of common stock for $2,530,000, less $186,000 of issuance costs. In connection with the issuance of common stock, the Company issued 2,530,000 warrants to purchase shares of common stock at $0.50, for a term of 5 years. We also issued 50,000 shares from stock subscriptions of $25,000 at December 31, 2016 and issued 25,000 warrants on the same terms and conditions. During the nine months ended September 30, 2016, the Company issued 292,167 shares to settle certain liabilities totaling $274,870.
On March 7, 2017 the Company filed a $4,250,000 Form D to issue up to 8.5 million shares of common stock and approximately 2.2 million warrants to issue common stock at $0.50 a share. The Company had extended this offering through September 29, 2017.
The Board appointed two officers on May 4, 2017, who received 350,000 shares of restricted common stock with a three year vesting schedule. In addition, on April 26, 2017, the Company appointed an officer who received 200,000 shares of restricted common stock with a three year vesting schedule. On June 9, 2017 the Company issued 160,000 shares of restricted common stock with a vesting schedule through December 31, 2019. Amortization associated with restricted stock to officers and management, including shares issued in 2016, is $50,484 and $113,569 for the three and nine months ended September 30, 2017, respectively. In addition, the Company issued 50,000 shares of common stock to an investor relations firm in June 2017 at a value of $0.50 per share for services through September 30, 2017. For the three and nine months ended September 30, 2017, the Company recorded $18,750 and $25,000, respectively included in selling, general and administrative expenses for professional fees for investor relations expense.
Accrued interest of $101,917 associated with the Notes and the May Notes was converted into 203,834 shares of common stock at a value of $0.50 per share. See Note 4 for additional discussions. On June 30, 2017, one secured noteholder, an affiliate of a member of our Board of Directors converted a $50,000 secured promissory note for $50,000 plus $8,417 of accrued interest into 116,833 shares of common stock. The Company issued 50,000 warrants to purchase shares of common stock at a price of $0.50, with a term of five years. See additional discussion in Note 4.
In September 2017, the Company issued 182,927 of shares of common stock valued at $75,000 for compensation to its broker related to the GPB Note. The value was recorded as a debt discount, see Note 4.
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Options, Preferred Stock and Warrants |
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Options, Preferred Stock and Warrants | A summary of the Company’s preferred stock as of September 30, 2017 and December 31, 2016 is as follows.
As of September 30, 2017 and December 31, 2016, the Company had cumulative preferred undeclared and unpaid dividends of $1,480,082 and $1,411,946, respectively. In accordance with the relevant accounting guidance, these dividends were added to the net loss in the net loss per share calculation.
Options
The Company’s 2017 Employee/Consultant Common Stock Compensation Plan (the “Plan”) for the issuance of up to 3,000,000 options to grant common stock to the Company’s employees, directors and consultants was adopted pursuant to the written consent of holders of a majority of the Company’s common stock obtained as of March 7, 2017 and was considered approved on April 21, 2017. The Company amended the Plan on August 1, 2017 and was considered approved on September 1, 2017 to include certain technical changes and increased the shares from 3,000,000 to 5,000,000. At September 30, 2017, the Company issued 2.1 million of non-qualified stock options with a term of 10 years, with a strike price above the market on the date of issuance of $0.50, to vest one-third upon issuance, one-third at the beginning of the calendar year of service, or January 1, 2018 and one-third on January 1, 2019, to the Board of Directors valued at $520,307 using the Black Scholes Model. Included in selling, general and administrative in the accompanying condensed consolidated statement of operations and comprehensive loss for the period is $173,436 for the three and nine months ended September 30, 2017, related to the non-qualified options issued to the Board of Directors.
Warrants outstanding
During the three and nine month periods ended September 30, 2017, the Company issued 141,667 and 466,666 warrants in connection with the default provisions of the Notes and the May Notes, which were valued at $34,365 and $132,065. The value of the warrants were determined using the Black-Scholes model, at an interest free rate of 1.33%, volatility of 50% and a remaining term of 5 years and a market price of between $0.50 to $0.80 during the three and nine months ended September 30, 2017.
On September 26, 2017, the Company closed on a loan with GPB discussed in Note 4. The Company issued 4,120,308 warrants with a relative fair value of $520,052 and an initial exercise price of $0.60 per share (the “Exercise Price”). The Exercise Price is subject to a ratchet downside protection with a $0.30 per share floor price in the event the Company issues additional equity securities, and subject to adjustments for stock splits, dividends, combinations, recapitalizations and the like. The Warrants is exercisable for a period of five years (the “Term”) and provides for cashless exercise it at the time of exercise a registration statement registering the underlying securities is not available. The Warrant is not to be exercisable until 6 months after the closing date. In connection with the GPB Note, The Company issued 375,000 warrants to purchase common stock at $0.60 to its broker related to the GPB Note on similar terms as provided to GPB. The estimated fair value of the warrants was $52,421, which was recorded as a debt discount.
On September 27, 2017, the Company closed on subordinated loans, including Notes converted into subordinated loans discussed in Note 4 with similar terms and conditions. The Company issued an aggregate of 440,500 of warrants with a relative fair value of $55,598, with an initial exercise price of $0.60 per share (the “Exercise Price”). The Exercise Price is subject to a ratchet downside protection with a $0.30 per share floor price in the event the Company issues additional equity securities, and subject to adjustments for stock splits, dividends, combinations, recapitalizations and the like. The Company is required to maintain a 6 month interest reserve of $37,938. In connection with the loans, the Company issued 24,375 warrants to purchase common stock at $0.60 to its broker. The estimated fair value of the warrants was $3,407, which was recorded as a debt discount.
In January 2017, the Company reached an agreement with all secured promissory noteholders, to extend the maturity of the secured promissory notes to June 30, 2017, whereby the warrants were repriced from $0.80 a share to $0.50 a share. The notes continue to bear interest at 15% and the secured promissory noteholders continue to receive warrants amounting to 10% of the principal balance, as long as the notes remain outstanding. The Company repriced all warrants issued totaling 1.2 million warrants amounting to a $64,405 incremental value using the Black-Scholes model on January 16, 2017, the date of the amendments at a current market price of $0.36 a share, at an interest free rate of 1.33% and a remaining terms ranging from 4 years to 4 years and 11.5 months.
During the nine months ended September 30, 2017, the Company issued 5,060,000 shares of common stock for $2,530,000, less $186,000 of issuance costs. In connection with the issuance of common stock, the Company issued 2,530,000 warrants to purchase shares of common stock at $0.50, for a term of 5 years. We also issued 50,000 shares from stock subscriptions of $25,000 at December 31, 2016 and issued 25,000 warrants on the same terms and conditions. On January 16, 2017 the Company also amended the original equity raise closed on December 7, 2016 and issued an additional 411,915 warrants to purchase shares of common stock at an exercise price of $0.50, for a term of 5 years. The Company issued 176,625 warrants to purchase common stock to brokers related to the above transaction for 2017.
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Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and contingencies | Legal Proceedings
On November 13, 2016, the Company’s former CFO filed a complaint against the Company and certain officers and directors of the Company in the United States District Court for the Northern District of Illinois, Eastern Division, Case No. 1:16-cv-10554, whereby he is alleging (i) breach of the Illinois Wage and Protection Act, (ii) breach of employment contract and (iii) breach of loan agreement. He is seeking monetary damages up to approximately $1,665,972. The Company has denied the substantive allegations in the complaint and is vigorously defending the suit. Management believes that the claims set forth in the complaint against the Company are without merit. The Company has accrued wages and vacation of approximately $1.1 million and a $50,000 note payable to the former CFO at September 30, 2017 and December 31, 2016. The presiding Federal Judge has referred the lawsuit to mediation. No settlement was reach during the April 2017 meditation. The Company has proactively initiated settlement offer. In August 2017, the parties reached a Settlement Term Sheet whereby a final forbearance and settlement agreement must be filed with the magistrate judge. On November 8, 2017 the Plaintiff filed a motion to compel settlement with a meeting before a magistrate judge on November 14, 2017.
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Segment Information | The Company operates in one operating segment. However, the Company has assets and operations in the United States, Germany and Poland. The following tables show the breakdown of the Company’s operations and assets by region (in thousands):
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Subsequent Events |
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Sep. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | On October 16, 2017 the Company filed a Form D to issue up to $6.9 million of convertible secured promissory notes and approximately 5.3 million warrants to issue common stock at $0.60 a share.
On November 5, 2017, the Board of Directors (the “Board”) of the Company held a meeting whereby David E. Patterson informed the Board of his decision to retire as Chief Executive Officer of the Company, and resign his position as Chairman of the Board and Board member of the Company, all effective immediately. Mr. Patterson shall receive three equal monthly payments with each payment being equal to his monthly salary, and all future restricted stock grants in the amount of 166,667 shares pursuant to his employment agreement shall fully vest as of January 1, 2018, and be issued in consideration for assisting the Company through a transition period.
Thereafter, Stephen Von Rump was appointed by a unanimous vote of the Board to the position of Chief Executive Officer of the Company upon the same terms and conditions as his current employment, to serve until his resignation or removal.
The Board thereafter, by unanimous consent, appointed current Board member, William Austin Lewis IV, to the position of Chairman of the Board of Directors of Company to serve until such time as his removal or resignation.
On November 12, 2107, the Board of Directors of the Company held a meeting whereby they appointed Joel Kanter, age 61, to the position of Director to serve until such time as his resignation or termination. Mr. Kanter’s appointment fills the vacancy created by the resignation of David E. Patterson.
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Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Consolidation, Basis of Presentation and Significant Estimates | The accompanying condensed consolidated financial statements for the periods ended September 30, 2017 and 2016 included herein are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Such consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2017 or for any other period. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the interim information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements disclosed in the Report on Form 10-K for the year ended December 31, 2016 filed on April 14, 2017 and other filings with the Securities and Exchange Commission.
In preparing the accompanying condensed consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates. |
Going Concern | We have incurred significant operating losses and negative cash flows from operations. The Company incurred net losses of approximately $1.6 million and $0.3 million and $4.2 million and $1.1 million for the three and nine months ended September 30, 2017 and 2016, respectively, and had an accumulated deficit of approximately $5.6 million and $1.4 million as of September 30, 2017 and December 31, 2016, respectively. In addition, operating activities used cash of approximately $1.9 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company raised additional cash of $2.3 million, net of offering costs from the sale of 5,060,000 shares of common stock subsequent to December 31, 2016 through September 30, 2017. Management is actively seeking additional equity financing
On September 26, 2017, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with GPB Debt Holdings II, LLC (“GPB”), pursuant to which the Company issued to GPB a secured convertible promissory note and received gross proceeds of $4.9 million. The Company is required to make interest-only payments for the first 23 months after September 26, 2017 with quarterly principal payments beginning on month 24 at a rate of 10% of the face value of the Note with the remaining 60% due on September 26, 2020. The proceeds were used to pay (i) the outstanding balance of various credit facilities due to Hannoveresche Volksbank in the amount of $2.3 million, (ii) the outstanding balance of a settlement with VR Equity in the amount of $0.5 million and (iii) the outstanding balance on secured promissory notes in the amount of $0.3 million. In addition, issued subordinated notes to 3 other investors for net proceeds of $0.4 million with similar terms as the Purchase Agreement. See Note 4 for additional details of the transactions.
Management continues to expand its product offerings and has also expanded its sales and distribution channels during 2017. Management believes it will be able to reduce its operating losses through an increase in its revenues and reduction in manufacturing costs through process efficiencies. No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.
The condensed consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance of the Company’s operating loss and determined that the Company’s current operating plan and sources of capital would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.
In the future, we may require sources of capital in addition to cash on hand to continue operations and to implement our strategy. If our operations do not become cash flow positive, we may be forced to seek equity investments or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition. In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.
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Restricted Cash | The Company is required to maintain restricted cash balances equal to 6 months of interest payments on the secured convertible promissory note to GPB.
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Revenue Recognition | The Company derives its revenue primarily from the sale of medical products and supplies for the diagnosis and prevention of cancer. Product revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred or risk of loss transfers to the customer; (3) the selling price of the product is fixed or determinable; and (4) collectability is reasonably assured. The Company generates the majority of its revenue from the sale of inventory. For certain sales, the Company and its customers agree in the sales contract that risk of loss and title transfer upon the Company packing the items for shipment, segregating the items packaged and notifying the customer that their items are ready for pickup. The Company records such sales at time of completed packaging and segregation of the items from general inventory and notification has been confirmed by the customer.
Shipping and handling costs are included in cost of goods sold and charged to the customers based on the contractual terms.
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Inventories | Inventories are stated at the lower of cost or market. Cost is determined using the first in first out method (FIFO) and market is based generally on net realizable value.
Inventories consists of parts inventory purchased from outside vendors, raw materials used in the manufacturing of equipment; work in process and finished goods. Management reviews inventory on a regular basis and determines if inventory is still useable. A reserve is established for the estimated decrease in carrying value for obsolete or excess inventory. Once a reserve is established, it is considered a permanent adjustment to the cost basis of the obsolete or excess inventory.
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Foreign Currency Translation | The accounts of the US parent company are maintained in United States Dollar (“USD”). The functional currency of the Company’s German subsidiaries is the EURO (“EURO”). The accounts of the German subsidiaries were translated into USD in accordance with relevant accounting guidance. All assets and liabilities are translated at the exchange rate on the balance sheet dates, stockholders’ equity was translated at the historical rates and statements of operations transactions are translated at the average exchange rate for each period. The resulting translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders’ equity.
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Research and Development | All research and development costs are expensed as incurred. Research and development costs consist of engineering, product development, testing, developing and validating the manufacturing process, and regulatory related costs.
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Acquired In-Process Research and Development | Acquired in-process research and development (“IPR&D”) that the Company acquires through business combinations represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, MEDITE will make a determination as to the then useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. The Company tests IPR&D for impairment at least annually, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the IPR&D intangible asset is less than its carrying amount. If the Company concludes it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value is performed. If the fair value is less than the carrying amount, an impairment loss is recognized in operating results.
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Impairment of Indefinite Lived Intangible Assets Other Than Goodwill | The Company has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if the Company concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with relevant accounting guidance.
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Goodwill | Goodwill is recognized for the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (December 31 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.
The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.
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Net Loss Per Share | Basic loss per share is calculated based on the weighted-average number of outstanding common shares. Diluted loss per share is calculated based on the weighted-average number of outstanding common shares plus the effect of dilutive potential common shares, using the treasury stock method and the if-converted method. MEDITE’s calculation of diluted net loss per share excludes potential common shares as of September 30, 2017 and 2016 as the effect would be anti-dilutive (i.e. would reduce the loss per share).
The Company computes its loss applicable to common stock holders by subtracting dividends on preferred stock, including undeclared or unpaid dividends if cumulative, from its reported net loss and reports the same on the face of the condensed consolidated statement of operations. The Company includes convertible securities into their EPS calculation when reporting net income through the "if-converted" method whereby the securities are assumed converted and an earnings per incremental share is computed.
Convertible securities outstanding for the entire period are assumed converted at the beginning of the period. Convertible securities issued during the period are treated as if they were converted at the date of issuance. The earnings per incremental share is the after-tax foregone interest expense divided by the number of shares of common stock that would have been issued from the conversion weighted for the period they would have been outstanding.
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Recent Accounting Pronouncements | In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue with Contracts from Customers.” ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. The ASU introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The updated guidance is effective for public entities for interim and annual periods beginning after December 15, 2017 with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company will implement ASU 2014-09 effective January 1, 2018 and does not believe that there will be a material change to its current business practices upon implementation.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018 (i.e., calendar years beginning on January 1, 2019), including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows - Restricted Cash (Topic 230)”. This new standard requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, and requires retrospective application. The Company is currently assessing the impact that adopting ASU 2016-18 will have on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the definition of a business”. The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The guidance in this update is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Management does not anticipate the implementation to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB also issued ASU 2017-04, “Intangibles - Goodwill and other (Topic 350): Simplifying the test for goodwill impairment”. The amendments in this Update remove the second step of the current goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This guidance is effective for impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of ASU 2017-04 will have on the Company’s consolidated financial statements.
In July 2017, the FASB issued a two-part ASU No. 2017-11, “(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception.” The ASU will (1) “change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features” and (2) improve the readability of ASC 480-10 by replacing the indefinite deferral of certain pending content with scope exceptions. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018 (i.e., calendar years beginning on January 1, 2019), including interim periods within those fiscal years. Early adoption is permitted. The Company completed a transaction with a down round feature and has chosen to early adopt ASU 2017-11 for the current period. |
Inventories (Tables) |
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Schedule of Inventory |
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Debt (Tables) |
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Outstanding note payable indebtedness |
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Options, Preferred Stock and Warrants (Tables) |
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Summary of Company's Preferred Stock |
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Warrants outstanding
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information |
|
Summary of Significant Accounting Policies (Details Narrative) € in Thousands, $ in Thousands |
Sep. 30, 2017
USD ($)
|
Sep. 30, 2017
EUR (€)
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2016
EUR (€)
|
---|---|---|---|---|
Accounting Policies [Abstract] | ||||
Cash | € | € 1,654 | € 108 | ||
Accrued wages and notes payable due to employees | $ | $ 1,100 | $ 1,100 |
Inventories (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 1,315 | $ 1,309 |
Work in process | 145 | 203 |
Finished Goods | 2,164 | 2,299 |
Inventory, Net | $ 3,624 | $ 3,811 |
Debt (Details Narrative) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Line of Credit Facility [Line Items] | ||
Notes Payable, Current | $ 335 | $ 681 |
Long-term Debt, Current Maturities, Total | $ (83) | $ (3,214) |
Related Party Advances (Details Narrative) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Due to Related Parties, Current [Abstract] | ||
Due To Related Parties Current | $ 251 | $ 288 |
Accrued wages | $ 1,052 | $ 1,052 |
Common Stock (Details Narrative) |
9 Months Ended |
---|---|
Sep. 30, 2017
shares
| |
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract] | |
Common stock issued for cash | 5,060,000 |
Conversion of secured promissory notes plus accrued interest into shares of common stock | 116,833 |
Options, Preferred Stock and Warrants (Details) - shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Class of Stock [Line Items] | ||
Preferred stock, shares issued | 198,355 | 198,355 |
Preferred stock, shares outstanding | 198,355 | 198,355 |
Series A Preferred Stock [Member] | ||
Class of Stock [Line Items] | ||
Preferred stock, shares issued | 47,250 | 47,250 |
Preferred stock, shares outstanding | 47,250 | |
Series B Preferred Stock [Member] | ||
Class of Stock [Line Items] | ||
Preferred stock, shares issued | 93,750 | 93,750 |
Preferred stock, shares outstanding | 93,750 | |
Series C Preferred Stock [Member] | ||
Class of Stock [Line Items] | ||
Preferred stock, shares issued | 38,333 | 38,333 |
Preferred stock, shares outstanding | 38,333 | |
Series E Preferred Stock [Member] | ||
Class of Stock [Line Items] | ||
Preferred stock, shares issued | 19,022 | 19,022 |
Preferred stock, shares outstanding | 19,022 |
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