UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015 |
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to |
Commission file number 001-08696
CALMARE THERAPEUTICS INCORPORATED |
(Exact name of registrant as specified in its
charter)
www.calmaretherapeutics.com |
Delaware |
36-2664428 |
(State or other jurisdiction of incorporation or
organization) |
(I. R. S. Employer Identification No.) |
|
|
1375 Kings Highway East, Suite 400 Fairfield,
Connecticut |
06824 |
(Address of principal executive offices) |
(Zip Code) |
(203) 368-6044 |
(Registrant’s telephone number, including area code) |
|
|
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months.
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,
large accelerated filer and smaller reporting company” as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company
(as defined in rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the registrant’s
common stock outstanding as of November 30, 2015 was 28,395,888 shares.
CALMARE THERAPEUTICS INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Interim Financial Statements
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
Condensed Consolidated Balance Sheets
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
(Unaudited) | | |
| |
Assets | |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash | |
$ | 75,148 | | |
$ | 5,745 | |
Receivables, net of allowance of $317,659 at June 30, 2015 and December 31, 2014 | |
| 1,048 | | |
| 2,319 | |
Inventory | |
| 4,098,220 | | |
| 4,118,220 | |
Prepaid expenses and other current assets | |
| 100,660 | | |
| 253,102 | |
Total current assets | |
| 4,275,076 | | |
| 4,379,386 | |
| |
| | | |
| | |
Property and equipment, net | |
| 27,277 | | |
| 35,640 | |
Security deposits | |
| 15,000 | | |
| 15,000 | |
TOTAL ASSETS | |
$ | 4,317,353 | | |
$ | 4,430,026 | |
| |
| | | |
| | |
Liabilities and Shareholders’ Deficit | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 1,718,733 | | |
$ | 1,346,138 | |
Liabilities under claims purchase agreement | |
| 1,995,320 | | |
| 1,995,320 | |
Accounts payable, GEOMC | |
| 4,182,380 | | |
| 4,182,380 | |
Accrued expenses and other liabilities | |
| 1,979,869 | | |
| 1,590,182 | |
Notes payable | |
| 2,800,878 | | |
| 2,536,830 | |
Deferred revenue | |
| 13,781 | | |
| 19,686 | |
Series C convertible preferred stock derivative liability | |
| 77,080 | | |
| 66,177 | |
Series C convertible preferred stock liability | |
| 375,000 | | |
| 375,000 | |
Total current liabilities | |
| 13,143,041 | | |
| 12,111,713 | |
| |
| | | |
| | |
Note payable – long-term | |
| 62,289 | | |
| 56,659 | |
| |
| | | |
| | |
Commitments and Contingencies | |
| | | |
| | |
Shareholders’ deficit: | |
| | | |
| | |
5% preferred stock, $25 par value, 35,920 shares authorized, 2,427 shares issued and outstanding | |
| 60,675 | | |
| 60,675 | |
Series B preferred stock, $0.001 par value, 20,000 shares authorized, no shares issued and outstanding | |
| — | | |
| — | |
Series C convertible preferred stock, $1,000 par value, 750 shares authorized, 375 shares issued and outstanding | |
| — | | |
| — | |
Common stock, $.01 par value, 40,000,000 shares authorized, 28,366,478 shares issued and outstanding at June 30, 2015 and 25,908,978 shares issued and outstanding at December 31, 2014 | |
| 283,664 | | |
| 259,089 | |
Capital in excess of par value | |
| 48,243,662 | | |
| 47,634,857 | |
Accumulated deficit | |
| (57,475,978 | ) | |
| (55,692,967 | ) |
Total shareholders’ deficit | |
| (8,887,977 | ) | |
| (7,738,346 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | |
$ | 4,317,353 | | |
$ | 4,430,026 | |
See accompanying notes
PART I. FINANCIAL INFORMATION
(Continued)
CALMARE THERAPEUTICS
INCORPORATED AND SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
| |
Three months ended | | |
Three months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
Revenue | |
| | | |
| | |
Product sales | |
$ | 200,000 | | |
$ | 316,000 | |
Cost of product sales | |
| 45,943 | | |
| 98,148 | |
Gross profit from product sales | |
| 154,057 | | |
| 217,852 | |
| |
| | | |
| | |
Other Revenue | |
| | | |
| | |
Retained royalties | |
| 2,256 | | |
| 2,348 | |
Other income | |
| 17,026 | | |
| 13,653 | |
Total other revenue | |
| 19,282 | | |
| 16,001 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling expenses | |
| 43,104 | | |
| 66,032 | |
Personnel and consulting expenses | |
| 366,901 | | |
| 424,121 | |
General and administrative expenses | |
| 326,522 | | |
| 317,305 | |
Total operating expenses | |
| 736,527 | | |
| 807,458 | |
| |
| | | |
| | |
Operating loss | |
| (563,188 | ) | |
| (573,605 | ) |
| |
| | | |
| | |
Other expense | |
| | | |
| | |
Interest expense | |
| 204,669 | | |
| 112,895 | |
Interest expense – accelerated upon conversion of OID notes | |
| — | | |
| 35,109 | |
Loss on conversion of notes | |
| — | | |
| 43,288 | |
Unrealized loss on derivative instruments | |
| 10,903 | | |
| 25,952 | |
Total other expense | |
| 215,572 | | |
| 217,244 | |
| |
| | | |
| | |
Loss before income taxes | |
| (778,760 | ) | |
| (790,849 | ) |
Provision (benefit) for income taxes | |
| — | | |
| — | |
| |
| | | |
| | |
Net loss | |
$ | (778,760 | ) | |
$ | (790,849 | ) |
| |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.03 | ) | |
$ | (0.03 | ) |
| |
| | | |
| | |
Basic and diluted weighted average number of common shares outstanding: | |
| 27,862,908 | | |
| 23,082,699 | |
See accompanying notes
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
| |
Six months ended | | |
Six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
Revenue | |
| | | |
| | |
Product sales | |
$ | 207,950 | | |
$ | 537,080 | |
Cost of product sales | |
| 48,240 | | |
| 168,366 | |
Gross profit from product sales | |
| 159,710 | | |
| 368,714 | |
| |
| | | |
| | |
Other Revenue | |
| | | |
| | |
Retained royalties | |
| 4,648 | | |
| 4,952 | |
Other income | |
| 25,533 | | |
| 17,474 | |
Total other revenue | |
| 30,181 | | |
| 22,426 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling expenses | |
| 44,340 | | |
| 138,026 | |
Personnel and consulting expenses | |
| 874,379 | | |
| 819,144 | |
General and administrative expenses | |
| 650,161 | | |
| 511,026 | |
Total operating expenses | |
| 1,568,880 | | |
| 1,468,196 | |
| |
| | | |
| | |
Operating loss | |
| (1,378,989 | ) | |
| (1,077,056 | ) |
| |
| | | |
| | |
Other expense | |
| | | |
| | |
Interest expense | |
| 390,531 | | |
| 217,681 | |
Interest expense – accelerated upon conversion of OID notes | |
| — | | |
| 35,109 | |
Loss on settlement of note and warrant | |
| — | | |
| 132,301 | |
Loss on conversion of notes | |
| 2,588 | | |
| 43,288 | |
Unrealized loss on derivative instruments | |
| 10,903 | | |
| 11,720 | |
Total other expense | |
| 404,022 | | |
| 440,099 | |
| |
| | | |
| | |
Loss before income taxes | |
| (1,783,011 | ) | |
| (1,517,155 | ) |
Provision (benefit) for income taxes | |
| — | | |
| — | |
| |
| | | |
| | |
Net loss | |
$ | (1,783,011 | ) | |
$ | (1,517,155 | ) |
| |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.07 | ) | |
$ | (0.07 | ) |
| |
| | | |
| | |
Basic and diluted weighted average number of common shares outstanding: | |
| 27,318,467 | | |
| 21,567,885 | |
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
Condensed Consolidated Statement of Changes
in Shareholders’ Deficit
For the Six Months Ended June 30, 2015
(Unaudited)
| |
Preferred Stock | | |
Common Stock | | |
Capital | | |
| | | |
Total | |
| |
Shares outstanding | | |
Amount | | |
Shares outstanding | | |
Amount | | |
in excess of par value | | |
Accumulated deficit | | |
shareholders’ deficit | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance January 1, 2015 | |
| 2,427 | | |
$ | 60,675 | | |
| 25,908,978 | | |
$ | 259,089 | | |
$ | 47,634,857 | | |
$ | (55,692,967 | ) | |
$ | (7,738,346 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,783,011 | ) | |
| (1,783,011 | ) |
Common
stock issued to directors | |
| — | | |
| — | | |
| 12,500 | | |
| 125 | | |
| 2,000 | | |
| — | | |
| 2,125 | |
Stock
option compensation expense | |
| — | | |
| — | | |
| — | | |
| — | | |
| 24,175 | | |
| — | | |
| 24,175 | |
Common
stock issued for consulting services | |
| — | | |
| — | | |
| 620,000 | | |
| 6,200 | | |
| 101,400 | | |
| — | | |
| 107,600 | |
Warrants
issued for consulting services | |
| — | | |
| — | | |
| — | | |
| — | | |
| 75,000 | | |
| — | | |
| 75,000 | |
Private
offering of common stock and warrants | |
| — | | |
| — | | |
| 1,825,000 | | |
| 18,250 | | |
| 346,750 | | |
| — | | |
| 365,000 | |
Warrant
and beneficial conversion feature on notes payable | |
| — | | |
| — | | |
| — | | |
| — | | |
| 59,480 | | |
| — | | |
| 59,480 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
June 30, 2015 | |
| 2,427 | | |
$ | 60,675 | | |
| 28,366,478 | | |
$ | 283,664 | | |
$ | 48,243,662 | | |
$ | (57,475,978 | ) | |
$ | (8,887,977 | ) |
See accompanying notes
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| |
Six months ended | | |
Six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
Cash flows from operating activities: | |
| | | |
| | |
| |
| | | |
| | |
Net loss | |
$ | (1,783,011 | ) | |
$ | (1,517,155 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 8,363 | | |
| 6,346 | |
Stock option compensation expense | |
| 24,175 | | |
| 41,123 | |
Share-based compensation – common stock | |
| 2,125 | | |
| 4,038 | |
Common stock and warrants issued to consultants | |
| 182,600 | | |
| — | |
Debt discount amortization | |
| 112,069 | | |
| 169,436 | |
Noncash finance charges | |
| — | | |
| 18,434 | |
Unrealized loss on derivative instruments | |
| 10,903 | | |
| 11,720 | |
Loss on conversion of notes | |
| 2,588 | | |
| 43,288 | |
Loss on settlement of note and warrant | |
| — | | |
| 132,301 | |
Changes in assets and liabilities: | |
| | | |
| | |
Receivables | |
| 1,271 | | |
| 211 | |
Prepaid expenses and other current assets | |
| 152,442 | | |
| 7,859 | |
Inventory | |
| 20,000 | | |
| 70,000 | |
Accounts payable, accrued expenses and other liabilities | |
| 762,283 | | |
| 456,927 | |
Deferred revenue | |
| (5,905 | ) | |
| 13,287 | |
Net cash used in operating activities | |
| (510,097 | ) | |
| (542,185 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| — | | |
| (46,424 | ) |
Cash used in investing activities | |
| — | | |
| (46,424 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from notes payable | |
| 257,000 | | |
| 120,000 | |
Repayment of note and warrant settlement | |
| (42,500 | ) | |
| (242,000 | ) |
Proceeds from common stock and warrants | |
| 365,000 | | |
| 670,000 | |
Net cash provided by financing activities | |
| 579,500 | | |
| 548,000 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| 69,403 | | |
| (40,609 | ) |
| |
| | | |
| | |
Cash at beginning of period | |
| 5,745 | | |
| 57,009 | |
| |
| | | |
| | |
Cash at end of period | |
$ | 75,148 | | |
$ | 16,400 | |
Supplemental disclosure of non-cash transactions:
During the quarter ended
March 31, 2015, the Company issued 500,000 shares with a fair value of $80,000 to an advisory firm for consulting services. The
Company is amortizing the $80,000 over the service period and recorded $20,000 and $40,000 of expense in the quarter and six months
ended June 30, 2015, respectively.
During the quarter ended
March 31, 2015, the Company issued 120,000 shares to an advisory firm for consulting services. The shares vested in two tranches,
with 60,000 shares vesting in the quarter ended December 31, 2014 and remaining 60,000 shares vesting in the quarter ended March
31, 2015. The Company recorded consulting expenses of $10,800 in the quarter ended December 31, 2014 and $27,600 of consulting
expenses in the quarter ended March 31, 2015. In each instance, the expense was based on the fair value on the vesting date.
During the quarter ended
March 31, 2015, the Company issued 333,333 stock warrants for consulting services performed and recorded consulting expense of
$75,000 for the fair value of the warrants.
During the quarter ended
March 31, 2015, the Company allocated $59,480 of convertible note proceeds for the fair value of warrants and beneficial conversion
feature to additional paid-in capital.
In June 2014, the Company
issued 798,825 shares of common stock upon conversion of OID notes (see Note 11).
In September 2013 the Company issued 1,618,235
shares of the Company’s common stock to ASC Recap. During September and October 2013, ASC Recap sold the Company’s
common stock and during the three months ended March 31, 2014 paid creditors approximately $80,000 from the proceeds and retained
a service fee of approximately $27,000 (see Note 10).
See accompanying notes
PART I. FINANCIAL INFORMATION
(Continued)
CALMARE THERAPEUTICS INCORPORATED AND
SUBSIDIARY
Notes to Condensed Consolidated Interim
Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The interim condensed consolidated
financial information presented in the accompanying condensed consolidated financial statements and notes hereto is unaudited.
Effective August 20, 2014,
Competitive Technologies, Inc. changed its name to Calmare Therapeutics Incorporated.
Calmare Therapeutics Incorporated
(“CTI”) and its majority-owned (56.1%) subsidiary, Vector Vision, Inc. (“VVI”), (collectively, the “Company”,
“we” or “us”) is a biotechnology company developing and commercializing innovative products and technologies.
CTI is the licensed distributor of the non-invasive Calmare® pain therapy device (the “Calmare Device”),
which was developed to treat neuropathic and cancer-derived pain.
These consolidated financial
statements include the accounts of CTI and VVI. Inter-company accounts and transactions have been eliminated in consolidation.
We believe we have made
all adjustments necessary, consisting only of normal recurring adjustments, to present the unaudited condensed consolidated financial
statements in conformity with accounting principles generally accepted in the U.S. The results for the three and six
months ended June 30, 2015 are not necessarily indicative of the results that can be expected for the full year ending December
31, 2015.
The interim unaudited condensed
consolidated financial statements and notes thereto, should be read in conjunction with our Annual Report on Form 10-K for the
year ended December 31, 2014 filed with the Securities and Exchange Commission (“SEC”) on June 24, 2015.
During the three and six
months ended June 30, 2015, we had a significant concentration of revenues from the Calmare® Device. The
percentages of gross revenue attributed to sales and rentals of Calmare Devices, in the three and six months ended June 30,
2015, were 94% and 92%, respectively; and 98% in both the three and six months ended June 30, 2014. Additionally,
the percentage of gross revenue attributed to other Calmare Device related sales of equipment and training, in the three and six
months ended June 30, 2015, was 5% and 6%, respectively; and 1%, in both the three and six months ended June 30, 2014. We
continue to attempt to expand our sales activities for the Calmare Device and expect the majority of our revenues to come from
this technology.
The Company has incurred
operating losses since fiscal 2006 and has a working capital and shareholders’ deficiency at June 30, 2015. The
Company has taken steps to reduce its operating expenses as well as increase revenue from sales of Calmare Devices and related
sales. However, even at the reduced spending levels, should the anticipated increase in revenue from sales of Calmare Devices
and related sales not occur the Company may not have sufficient cash flow to fund operations through 2015 and into 2016. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements
do not include adjustments to reflect the possible future effect of the recoverability and classification of assets or amounts
and classifications of liabilities that may result from the outcome of this uncertainty.
The Company’s continuation
as a going concern is dependent upon its developing recurring revenue streams sufficient to cover operating costs. The
Company does not have any significant individual cash or capital requirements in the budget going forward. If necessary,
CTI will attempt to meet anticipated operating cash requirements by further reducing costs, issuing debt and/or equity, and/or
pursuing sales of certain assets and technologies while we pursue licensing and distribution opportunities for our remaining legacy
portfolio of technologies. There can be no assurance that the Company will be successful in such efforts. Failure
to develop a recurring revenue stream sufficient to cover operating expenses could negatively affect the Company’s financial
position.
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED
AND SUBSIDIARY
Our liquidity requirements
arise principally from our working capital needs, including funds needed to sell our current technologies and obtain new technologies
or products, and protect and enforce our intellectual property rights, if necessary. We fund our liquidity requirements with a
combination of cash on hand, debt and equity financing, sales of common stock and cash flows from operations, if any, including
royalty legal awards. At June 30, 2015, the Company had outstanding debt in the form of promissory notes with a total principal
amount of $3,477,000 and a carrying value of $3,349,000.
The Company acquired the
exclusive, worldwide rights to the Scrambler Therapy® technology in 2007. The Company’s original 2007 agreement
with Giuseppe Marineo (the “Scrambler Therapy Agreement”), an inventor of Scrambler Therapy technology, and Delta
Research and Development (“Delta”), authorized CTI to manufacture and sell worldwide the device developed from the
patented Scrambler Therapy technology. The original agreement was amended in 2011 to provide the Company with exclusive
rights to the Scrambler Therapy technology through March 31, 2016. In July 2012, the Company attempted to negotiate a five-year
extension to the agreement with Marineo and Delta (the “2012 Amendment”). However, the Company believes that the 2012
Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void (see
Footnote 13. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES, CTI’s Distribution Rights, Marineo and Delta). The
Scrambler Therapy technology is patented in Italy and in the U.S. Applications for patents have been filed internationally
as well and are pending approval. The Calmare Device has CE Mark certification from the European Union as well as U.S. FDA 510(k)
clearance. CTI’s partner, GEOMC Co., Ltd. (“GEOMC”) of Korea, is manufacturing the product commercially under
a ten (10) year agreement through 2017. Sales of these devices are expected to provide a significant proportion of the Company’s
revenue through the term of the agreement.
2. NET LOSS PER COMMON SHARE
The following sets forth
the denominator used in the calculations of basic net loss per share and net loss per share assuming dilution:
| |
Three
months ended | |
Three months ended | |
Six
months ended | |
Six months ended |
| |
June
30,
2015 | |
June 30,
2014 | |
June
30,
2015 | |
June 30,
2014 |
Denominator for basic net loss per share, weighted average shares outstanding | |
| 27,862,908 | | |
| 23,082,699 | | |
| 27,318,467 | | |
| 21,567,885 | |
| |
| | | |
| | | |
| | | |
| | |
Dilutive effect of common stock options | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | |
Dilutive effect of Series C convertible preferred stock, convertible debt and warrants | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Denominator for diluted net loss per share, weighted average shares outstanding | |
| 27,862,908 | | |
| 23,082,699 | | |
| 27,318,467 | | |
| 21,567,885 | |
Due to the net loss
incurred for the three and six months ended June 30, 2015, and 2014, the denominator used in the calculation of basic net loss
per share was the same as that used for net loss per share, assuming dilution, since the effect of any options, convertible preferred
shares, convertible debt or warrants would have been anti-dilutive.
Potentially dilutive securities outstanding are summarized
as follows:
| |
June
30, 2015 | |
June 30, 2014 |
Exercise of common stock options | |
| 1,742,500 | | |
| 1,708,500 | |
Exercise of common stock warrants | |
| 6,452,248 | | |
| 2,818,890 | |
Conversion of Series C convertible preferred stock | |
| 1,329,646 | | |
| 1,297,578 | |
Conversion of convertible debt | |
| 6,305,390 | | |
| 4,649,011 | |
Total | |
| 15,829,784 | | |
| 10,473,979 | |
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue From Contracts With
Customers, as amended by ASU 2015-14,that outlines a single comprehensive model for entities to use in accounting for revenue
recognition and supersedes most current revenue recognition guidance, including industry-specific guidance. The amendments in this
accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability
of revenue recognition practices, and improve disclosure requirements. The amendments in this accounting standard update are effective
for interim and annual reporting periods beginning after December 15, 2017; with early adoption permitted after December 15, 2016.
The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements – Going Concern, which provides guidance on management’s responsibility
in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and the related
footnote disclosure. For each reporting period, management will be required to evaluate whether there are conditions or events
that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financials
are issued. When management identifies conditions or events that raise substantial doubt about the entity’s ability
to continue as a going concern, the ASU also outlines disclosures that are required in the company’s footnotes based on whether
or not there are any plans intended to mitigate the relevant conditions or events to alleviate the substantial doubt. The
ASU becomes effective for annual periods ending after December 15, 2016, and for any annual and interim periods thereafter.
Early application is permitted. The Company is currently assessing the impact that this standard will have on its consolidated
financial statements.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory – Simplifying the Measurement of Inventory, which requires that inventory be measured at the lower of cost
and net realizable value. Prior to the issuance of the new guidance, inventory was measured at the lower of cost or market. Replacing
the concept of market with the single measurement of net realizable value is intended to create efficiencies for preparers. Inventory
measured using the last-in, first-out (LIFO) method and the retail inventory method are not impacted by the new guidance. The ASU
becomes effective for fiscal years beginning after December 15, 2016, including interim periods with those fiscal years. Early
application is permitted. We do not expect the adoption to have a material impact on our consolidated financial statements.
4. RECEIVABLES
Receivables consist of
the following:
|
|
June
30,
2015 |
|
|
December
31,
2014 |
|
Calmare
device sales receivable, net of allowance of $209,533 at June 30, 2015 and December 31, 2014 |
|
$ |
— |
|
|
$ |
— |
|
Royalties, net
of allowance of $101,154 at June 30, 2015 and December 31, 2014 |
|
|
— |
|
|
|
— |
|
Other, net of
allowance of $6,972 at June 30, 2015 and December 31, 2014 |
|
|
1,048 |
|
|
|
2,319 |
|
Total |
|
$ |
1,048 |
|
|
$ |
2,319 |
|
5. AVAILABLE-FOR-SALE AND EQUITY SECURITIES
The fair value of the equity
securities we held were categorized as available-for-sale securities, which were carried at a fair value of zero, consisted of
shares in Security Innovation and Xion Pharmaceutical Corporation (“Xion”). We own 223,317 shares of stock
in the privately held Security Innovation, an independent provider of secure software located in Wilmington, MA.
In September 2009 we announced
the formation of a joint venture with Xion for the commercialization of our patented melanocortin analogues for treating sexual
dysfunction and obesity. CTI currently owns 60 shares of common stock or 30% of the outstanding stock of privately held
Xion. The Company has been notified that Xion Pharmaceutical Corporation will be dissolved in 2015 with no financial impact to
the Company.
6. FAIR VALUE MEASUREMEMENTS
The Company measures fair
value in accordance with Topic 820 of the FASB Accounting Standards Codification (“ASC”), Fair Value Measurement (“ASC
820”), which provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
under ASC 820 are described as follows:
|
Level 1 - |
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. |
|
|
|
|
|
Level 2 - |
Inputs to the valuation methodology include: |
|
|
· |
Quoted prices for similar assets or liabilities in active markets; |
|
|
· |
Quoted prices for identical or similar assets or liabilities in inactive markets; |
|
|
· |
Inputs other than quoted prices that are observable for the asset or liability; |
|
|
· |
Inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
|
|
|
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. |
|
|
|
|
|
Level 3 - |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement |
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
The asset’s or liability’s
fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable
inputs.
The Company values its
derivative liability associated with the variable conversion feature on its Series C Convertible Preferred Stock (Note 12) based
on the market price of its common stock. For each reporting period the Company calculates the amount of potential common
stock that the Series C Preferred Stock could convert into based on the conversion formula (incorporating market value of our common
stock) and multiplies those converted shares by the market price of its common stock on that reporting date. The total
converted value is subtracted by the consideration paid to determine the fair value of the derivative liability. The Company classified
the derivative liability of approximately $77,000 at June 30, 2015 and $66,000 at December 31, 2014, in Level 2 of the fair value
hierarchy.
The methods described above
may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore,
while the Company believes its valuation method is appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value could result in a different fair value measurement at the reporting date.
The carrying amounts reported
in our Condensed Consolidated Balance Sheet for cash, accounts receivable, notes payable, deferred revenue, and preferred stock
liability approximate fair value due to the short-term maturity of those financial instruments.
7. PREPAID
EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other
current assets consist of the following:
| |
June 30, 2015 | | |
December 31, 2014 | |
Prepaid insurance | |
$ | 16,240 | | |
$ | 71,651 | |
Prepaid consulting services | |
| 40,000 | | |
| 37,500 | |
Clinical trial | |
| 27,119 | | |
| 109,119 | |
Other | |
| 17,301 | | |
| 34,832 | |
Prepaid expenses and other current assets | |
$ | 100,660 | | |
$ | 253,102 | |
PART
I. FINANCIAL INFORMATION (Continued)
CALMARE
THERAPEUTICS INCORPORATED AND SUBSIDIARY |
8. PROPERTY
AND EQUIPMENT
Property
and equipment, net, consist of the following:
|
|
June
30,
2015 |
|
December
31,
2014 |
|
Property and equipment, gross |
|
$ |
215,491 |
|
$ |
215,491 |
|
Accumulated depreciation and amortization |
|
|
(188,214 |
) |
|
(179,851 |
) |
Property and equipment, net |
|
$ |
27,277 |
|
$ |
35,640 |
|
Depreciation
and amortization expense was $3,904 and $8,363, respectively, during the three and six months ended June 30, 2015, and $4,522
and $6,346, respectively, for the three and six months ended June 30, 2014.
9. ACCRUED
EXPENSES AND OTHER LIABILITIES
Accrued
expenses and other liabilities consist of the following:
|
|
June
30,
2015 |
|
December
31,
2014 |
|
Royalties payable |
|
$ |
340,139 |
|
$ |
314,787 |
|
Accrued compensation |
|
|
81,271 |
|
|
23,573 |
|
Accrued interest payable |
|
|
1,264,367 |
|
|
987,659 |
|
Other |
|
|
294,092 |
|
|
264,163 |
|
Accrued expenses and other liabilities, net |
|
$ |
1,979,869 |
|
$ |
1,590,182 |
|
Excluded
above is approximately $217,000 of accrued expenses and other liabilities at June 30, 2015 and December 31, 2014, that fall under
the Liability Purchase Agreement (“LPA”) with ASC Recap, LLC (“ASC Recap”), and are expected to be repaid
using the process as described in Note 10. Because there can be no assurance that the Company will be successful in
completing this process, the Company retains ultimate responsibility for these liabilities, until fully paid down.
10. LIABILITIES
ASSIGNED TO LIABILITY PURCHASE AGREEMENT
During
2013, the Company negotiated a LPA with Southridge, Partners II, L.P. (“Southridge”). The LPA takes advantage of a
provision in the Securities Act of 1933, Section 3(a)(10), that allows the exchange of claims, securities, or property for stock
when the arrangement is approved for fairness by a court proceeding. The process, approved by the court in August 2013, has the
potential to eliminate nearly $2.1 million of our financial obligations to existing creditors who agreed to participate and executed
claims purchase agreements with Southridge’s affiliate ASC Recap accounting for $2,093,303 of existing payables, accrued
expenses and other current liabilities, and notes payable. The process began with the issuance in September 2013 of 1,618,235
shares of the Company’s common stock to ASC Recap. During September and October 2013, ASC Recap sold the Company’s
common stock and during the three months ended March 31, 2014 paid creditors approximately $80,000 from the proceeds and retained
a service fee of approximately $27,000. During 2014, the Company also made cash payments of $18,000 for accrued expenses previously
included in the LPA amount. As of November 30, 2015, no further shares of the Company’s common stock had been issued to ASC
Recap to settle creditors’ balances.
There
can be no assurance that the Company will be successful in completing this process with Southridge, and the Company retains ultimate
responsibility for this debt, until fully paid.
PART
I. FINANCIAL INFORMATION (Continued)
CALMARE
THERAPEUTICS INCORPORATED AND SUBSIDIARY |
11. NOTES
PAYABLE
Notes
payable consist of the following:
|
|
June 30, 2015 |
|
December 31, 2014 |
|
90 day Convertible Notes (Chairman of the Board) |
|
$ |
2,498,980 |
|
$ |
2,498,980 |
|
24 month Convertible Notes ($100,000 to Board member) |
|
|
225,000 |
|
|
225,000 |
|
10 day Note (Board member) |
|
|
— |
|
|
42,500 |
|
Series A3 15% OID Convertible Notes and Warrants |
|
|
14,353 |
|
|
11,765 |
|
Series B OID Convertible Notes and Warrants |
|
|
62,289 |
|
|
56,659 |
|
1 Year 15% OID Convertible Notes and Warrants |
|
|
548,525 |
|
|
244,565 |
|
Notes Payable, gross |
|
|
3,349,147 |
|
|
3,079,469 |
|
Less LPA amount |
|
|
(485,980 |
) |
|
(485,980 |
) |
Notes Payable, net |
|
$ |
2,863,167 |
|
$ |
2,593,489 |
|
Details
of notes payable as of June 30, 2015 are as follows:
| |
| | |
| | |
| | |
| | |
|
|
|
| |
Principal
Amount
| |
Carrying
Value
| |
Cash
Interest
Rate
| |
Common
Stock
Conversion
Price
| |
Maturity
Date
|
|
90
day Convertible Notes (Chairman of the Board) | |
$ | 2,498,980 | |
$ | 2,498,980 | |
| 6 | % |
$ | 1.05 | |
|
Various 2014 |
|
24
month Convertible Notes ($100,000 to Board member) | |
| 225,000 | |
| 225,000 | |
| 6 | % |
| 1.05 | |
|
March 2014 – June 2014 |
|
Series
A3 15% OID Convertible Notes and Warrants | |
| 11,765 | (1) |
| 14,353 | (1) |
| None | |
| 0.25 | |
|
January 2015 |
|
Series
B OID Convertible Notes and Warrants | |
| 80,000 | |
| 62,289 | |
| None | |
| 0.23 | |
|
March 2017 |
|
1
Year 15% OID Convertible Notes and Warrants | |
| 661,177 | |
| 548,525 | |
| None | |
| 0.20 | |
|
Aug. 2015 –
Feb. 2016 |
|
Notes
Payable, gross | |
$ | 3,476,922 | |
| 3,349,147 | |
| | |
| | |
|
|
|
Less
LPA amount | |
| | |
| (485,980 | ) |
| | |
| | |
|
|
|
Notes
Payable, net | |
| | |
$ | 2,863,167 | |
| | |
| | |
|
|
|
(1)
Includes $2,588 of accrued loss on conversion of OID note.
PART
I. FINANCIAL INFORMATION (Continued)
CALMARE
THERAPEUTICS INCORPORATED AND SUBSIDIARY |
90
day Convertible Notes
The
Company has issued 90-day notes payable to borrow funds from a director, now the chairman of our Board, as follows:
2013 |
|
$ |
1,188,980 |
|
2012 |
|
|
1,210,000 |
|
2011 |
|
|
100,000 |
|
Total |
|
$ |
2,498,980 |
|
These
notes have been extended several times and all bear 6.00% simple interest. A conversion feature was added to the Notes
when they were extended, which allows for conversion of the eligible principal amounts to common stock at any time after the six
month anniversary of the effective date – the date the funds are received – at a rate of $1.05 per
share. Additional terms have been added to all Notes to include additional interest of 1% simple interest per month
on all amounts outstanding for all Notes if extended beyond their original maturity dates and to provide the lender with a security
interest in unencumbered inventory and intangible assets of the Company other than proceeds relating to the Calmare Device and
accounts receivable.
Due
to the Board’s February 10, 2014 decision authorizing management to nullify certain actions taken by prior management, the
additional terms noted above were not approved and therefore, the additional interest for the extension of the Notes was not recorded.
During 2014 and 2015, management has been in negotiations to modify the terms of the Notes. However, until those negotiations
are resolved, the Company has agreed to honor the additional terms and as such, the Company recorded additional interest of approximately
$188,000 during the six months ended June 30, 2015, and has recorded additional interest in total of $807,000.
A
total of $485,980 of the aforementioned notes issued between December 1, 2012 and March 31, 2013 fall under the LPA with ASC Recap,
and are expected to be repaid using the process as described in Note 10. Because there can be no assurance that the
Company will be successful in completing this process, the Company retains ultimate responsibility for this debt, until fully
paid down. As a result, the Company continues to accrue interest on these notes and they remain convertible as described
above.
24
month Convertible Notes
In
March 2012, the Company issued a 24-month convertible promissory note to borrow $100,000. Additional 24-month convertible promissory
notes were issued in April 2012 ($25,000) and in June 2012 ($100,000). All of the notes bear 6.00% simple interest. Conversion
of the eligible principal amounts to common stock is allowed at any time at a rate of $1.05 per share.
As
of November 30, 2015 the Company has not repaid the principal due on the March 2012 $100,000 note, the April 2012 $25,000 note
or the June 2012 $100,000 note and is in default under the terms of the notes. As of June 30, 2015, there is also unpaid interest
of $25,000 related to these notes.
10
day Note
In
late December 2014, the Company issued a 10 day non-interest bearing note to a Board member in the amount of $42,500. This note
was repaid in early January 2015.
|
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
|
Series A 15% Original Issue Discount
(“OID”) Convertible Notes and Warrants
During the quarter ended
March 31, 2014, the Company did a private offering of a third tranche of convertible notes and warrants, under which it issued
$64,706 of convertible promissory notes for consideration of $55,000, the difference between the proceeds from the notes and principal
amount consists of $9,706 of original issue discount. The notes are convertible at an initial conversion price of $0.25 per share
any time after issuance thereby having an embedded beneficial conversion feature.
The note holders were
also issued market-related warrants for 129,412 in shares of common stock. The warrants have an exercise price of $0.60 and a term of 2 years. The beneficial conversion feature, if any, and the warrants were recorded to
additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial conversion feature and
the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized over the life of
the notes to interest expense.
The beneficial conversion
feature was valued at the intrinsic value on the issuance date. The intrinsic value represents the difference between the conversion
price and the fair value of the common stock multiplied by the number of share into which the note is convertible. We estimated
the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:
| |
|
Warrants |
|
Expected term | |
| 2 years | |
Volatility | |
| 184.88 | % |
Risk Free Rate | |
| 0.32 | % |
The proceeds of the Notes
issued during the three months ended March 31, 2014 were allocated to the components as follows:
|
|
Proceeds allocated at issue date |
|
Private Offering Notes |
|
$ |
32,390 |
|
Private Offering Warrants |
|
|
14,845 |
|
Beneficial Conversion feature |
|
|
7,765 |
|
Total |
|
$ |
55,000 |
|
During the quarter ended
June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to
the OID convertible notes. Due to the timing of receipt of the notices by the Company, certain Note holders (“Noteholders”)
received their shares during the quarter ended June 30, 2014, while other Noteholders received or are due to receive their shares
after June 30, 2014. Additionally, the Company offered certain Noteholders an inducement to convert their notes to shares. The
inducement, when offered, provided Noteholders a conversion price of $0.20. All other original terms, including the warrant terms,
remained the same. Upon notice of conversion and irrespective of whether the shares were delivered in the quarter ended June 30,
2014 or subsequent to June 30, 2014 to the Company: (i) accelerated and recognized as interest expense in the current period any
remaining discount, and (ii) recognized a loss for the fair value of the additional shares offered as the conversion inducement.
Presented below is summary
information related to the conversion:
Statement of Operations | |
| | |
Loss on conversion of notes | |
$ | 43,288 | |
Accelerated interest expense | |
$ | 35,109 | |
| |
| | |
Balance Sheet | |
| | |
Shares issued as of June 30, 2014 | |
| 798,825 | |
Shares to be issued subsequent to June 30, 2014 | |
| 529,415 | |
Principal amount of notes converted | |
$ | 265,648 | |
During the quarter ended
March 31, 2015, a holder of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID
convertible notes. Additionally, the Company offered the Noteholder an inducement to convert his/her notes to shares. The inducement
provided the Noteholder a conversion price of $0.20. All other original terms, including the warrant terms, remained the same.
Upon notice of conversion, the Company: (i) accelerated and recognized as interest expense in the current period any remaining
discount, and (ii) recognized a loss for the fair value of the additional shares offered as the conversion inducement. As of June
30, 2015, the Company had not issued the shares due related to the conversion notice.
|
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
|
Presented below is summary
information related to the conversion:
Statement of Operations |
|
|
|
|
Loss on conversion of notes |
|
$ |
2,588 |
|
Accelerated interest expense |
|
$ |
— |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
Shares issued |
|
|
— |
|
|
|
|
|
|
Principal amount of notes converted |
|
$ |
11,765 |
|
Series B Original Issue Discount Convertible
Notes and Warrants
During the quarter
ended March 31, 2014, the Company did a private offering of convertible notes and warrants, under which it issued $80,000 of convertible
promissory notes for consideration of $65,000, the difference between the proceeds from the notes and principal amount consists
of $15,000 of original issue discount. The notes are convertible at an initial conversion price of $0.35 per share any time after
issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for
185,714 in shares of common stock. The warrants have an exercise price of $0.45 and a 4-year term. The beneficial conversion feature
and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial
conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized
over the life of the notes to interest expense.
The beneficial conversion
feature was valued at the intrinsic value on the issuance date. The intrinsic value represents the difference between the conversion
price and the fair value of the common stock multiplied by the number of share into which the note is convertible. We estimated
the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:
|
|
Warrants
March 20,
2014 |
|
Expected term |
|
|
4 years |
|
Volatility |
|
|
151.52 |
% |
Risk Free Rate |
|
|
1.32 |
% |
The proceeds of the Notes
were allocated to the components as follows:
|
|
Proceeds
allocated
at issue date |
|
Private Offering Notes |
|
$ |
34,272 |
|
Private Offering Warrants |
|
|
26,811 |
|
Beneficial Conversion feature |
|
|
3,917 |
|
Total |
|
$ |
65,000 |
|
The Series B OID notes include an anti-dilution provision that if
the Company issues more than 20 million shares of its common stock, subject to certain exceptions, the conversion price of the
notes and the conversion price of the warrants would be subject to an automatic pre-determined price adjustment. During the quarter
ended December 31, 2014 the Series B OID noteholder and the Company agreed that this anti-dilution provision had been triggered
and the OID note share conversion price was adjusted down to $0.23 per share, which increased the number of shares available upon
conversion to 347,826. The anti-dilution provision in the Warrant changed the share purchase price downward to $0.33 per share
but did not change the number of shares available under the Warrant.
As a result of the triggering of the above noted
one time anti-dilution provision, the Company reallocated the proceeds of the Notes during the quarter ended December 31, 2014
as follows:
|
|
Proceeds
allocated
at issue date |
|
Private Offering Notes |
|
$ |
46,222 |
|
Private Offering Warrants |
|
|
18,778 |
|
Beneficial Conversion feature |
|
|
— |
|
Total |
|
$ |
65,000 |
|
1 Year 15% OID Convertible Notes and Warrants
During the quarter ended
March 31, 2015, the Company did an additional private offering of convertible notes and warrants, under which it issued $302,353
of convertible promissory notes for consideration of $257,000, the difference between the proceeds from the notes and principal
amount consists of $45,353 of original issue discount. The notes are convertible at an initial conversion price of $0.20 per share
any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related
warrants for 755,882 in shares of common stock. The warrants have an exercise price of $0.60 and a 1-year term. The beneficial
conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to
the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total
debt discount is amortized over the life of the notes to interest expense.
The beneficial conversion
feature was valued at the intrinsic value on the issuance date. The intrinsic value represents the difference between the conversion
price and the fair value of the common stock multiplied by the number of shares into which the note is convertible. We estimated
the fair value of the warrants on the issue date using a Black-Scholes pricing model with the following assumptions:
|
|
Warrants
three months
ended March 31, 2015 |
|
Expected term |
|
|
1 year |
|
Volatility |
|
|
180.15-185.71 |
% |
Risk Free Rate |
|
|
0.18-0.22 |
% |
The proceeds of the Notes
were allocated to the components as follows:
|
|
Proceeds
allocated
at issue date |
|
Private Offering Notes |
|
$ |
197,521 |
|
Private Offering Warrants |
|
|
46,097 |
|
Beneficial Conversion feature |
|
|
13,382 |
|
Total |
|
$ |
257,000 |
|
During the quarter ended
June 30, 2015, a holder of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID
convertible notes, with a principal amount of $5,882. As of June 30, 2015, the Company had not issued the shares due related to
the conversion notice. The shares were issued in September 2015.
Tonaquint 9% Original Issue Discount Convertible Notes and
Warrants
During the quarter ended
September 30, 2013, the Company entered into a securities purchase agreement with Tonaquint, Inc., under which it was issued a
$112,500 convertible promissory note in consideration for $100,000, the difference between the proceeds from the Note and the principal
amount consisted of a $10,000 original issue discount and a carried transaction expense of $2,500. The original issue discount
was being amortized over the life of the note. The note was convertible at an initial conversion price of $0.30 per share at any
time, and contained a “down-round protection” feature that requires the valuation of a derivative liability associated
with the note. The note bore interest at 7% and was due in May 2014. Tonaquint was also issued a market-related warrant for $112,500
in shares of common stock with a “cashless” exercise feature. The warrant had a $0.35 exercise price, a 5-year term
and included a “down-round protection” feature that required it to be classified as a liability rather than as equity.
During the first quarter
of 2014 the Company executed a debt settlement agreement with Tonaquint related to the note and warrant. The warrant was settled
during the first quarter of 2014 for a cash payment of $98,000, resulting in a loss of $98,000. The note was settled during the
second quarter of 2014 for cash payments totaling $144,000 ($20,000 paid in the first quarter of 2014 and $124,000 paid in the
second quarter of 2014). Because the execution of the debt settlement agreement in the first quarter of 2014 resulted in a significant
modification of the original terms of the note agreement, the Company adjusted the carrying value of the note in the first quarter
of 2014 and recorded a related loss of approximately $34,000.
Southridge
During 2013, the Company
issued a six-month $12,000 convertible note payable to Southridge to cover legal expenses as part of the LPA. The convertible note
was convertible into the Company’s common stock at the greater of $0.25 or 85% of the average closing bid price during the
five (5) trading days prior to conversion and was due in June 2014.
During the third quarter
of 2014, the Company issued to Southridge 50,000 shares in exchange for and in full satisfaction for the note and recorded a $5,500
loss upon conversion of the note.
|
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED AND SUBSIDIARY
|
12. SHAREHOLDERS’ DEFICIENCY
Stock Option Plan
On May 2, 2011 the Company
adopted and executed the Employees’ Directors’ and Consultants Stock Option Plan (the “Plan”). During the
three months ended March 31, 2015, the Company granted 50,000 options to non-employee directors which were fully vested upon issuance.
During the three months ended March 31, 2014, the Company granted 42,500 options to non-employee directors which were fully vested
upon issuance. No options were granted during the three months ended June 30, 2015. During the three months ended June 30, 2014,
the Company granted 320,000 options to employees. 20% of the options vested upon issuance and the remaining options vest ratably
over a four (4) year period.
We estimated the fair value
of each option on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
Six-months ended |
|
|
Six-months ended |
|
|
|
June 30, 2015 |
|
|
June 30, 2014 |
|
Dividend yield (1) |
|
|
0.00 |
% |
|
|
0.00 |
% |
Expected volatility (2) |
|
|
164.5 |
% |
|
|
118.5-122.4 |
% |
Risk-free interest rates (3) |
|
|
1.61 |
% |
|
|
1.19-1.72 |
% |
Expected lives (2) |
|
|
5.0 YEARS |
|
|
|
4.0-5.0 YEARS |
|
|
(1) |
We have not paid cash dividends on our common stock since 1981, and currently do not have plans to pay or declare cash dividends. Consequently, we used an expected dividend rate of zero for the valuations. |
|
(2) |
Estimated based on our historical experience. Volatility was based on historical experience over a period equivalent to the expected life in years. |
|
(3) |
Based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted. |
During the six months ended
June 30, 2015, the Company recognized expense of $7,963 for stock options issued to directors and recognized expense of $8,106
and $16,212, respectively, for the three and six months ended June 30, 2015, for stock options issued to employees.
During the six months ended
June 30, 2014, the Company recognized expense of $11,178 for stock options issued to directors and recognized expense of $26,795
and $29,945, respectively, for the three and six months ended June 30, 2014, for stock options issued to employees.
Preferred Stock
Holders of 5% preferred
stock are entitled to receive, if, as, and when declared by the Board of Directors, out of funds legally available therefore, preferential
non-cumulative dividends at the rate of $1.25 per share per annum, payable quarterly, before any dividends may be declared or paid
upon or other distribution made in respect of any share of common stock. The 5% preferred stock is redeemable, in whole at any
time or in part from time to time, on 30 days’ notice, at the option of the Company, at a redemption price of $25. In the event
of voluntary or involuntary liquidation, the holders of preferred stock are entitled to $25 per share in cash before any distribution
of assets can be made to holders of common stock.
Each share of 5% preferred
stock is entitled to one vote. Holders of 5% preferred stock have no preemptive or conversion rights. The preferred stock is not
registered to be publicly traded.
|
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED
AND SUBSIDIARY |
The rights of the Series
C Convertible Preferred Stock are as follows:
|
a) |
Dividend rights – The shares of Series C Convertible Preferred Stock accrue a 5% cumulative dividend on a quarterly basis and is payable on the last day of each fiscal quarter when declared by the Company’s Board. As of June 30, 2015, dividends declared were $93,748, of which $4,675 and $9,298, respectively, were declared during the three and six months ended June 30, 2015 and $75,000 have not been paid and are shown in accrued and other liabilities at June 30, 2015. |
|
b) |
Voting rights – Holders of these shares of Series C Convertible Preferred Stock shall have voting rights equivalent to 1,000 votes per $1,000 par value Series C Convertible Preferred share voted together with the shares of Common Stock |
|
c) |
Liquidation rights – Upon any liquidation these Series C Convertible Preferred Stock shares shall be treated as equivalent to shares of Common stock to which they are convertible. |
|
d) |
Conversion rights – Holder has right to convert each share of Series C Convertible Preferred Stock at any time into shares of the Company’s common stock at a conversion price for each share of common stock equal to 85% of the lower of (a) the closing market price at the date of notice of conversion or (b) the mid-point of the last bid price and the last ask price on the date of the notice of conversion. The variable conversion feature creates an embedded derivative that was bifurcated from the Series C Convertible Preferred Stock on the date of issuance and was recorded at fair value. The derivative liability will be recorded at fair value on each reporting date with any change recorded in the Statement of Operations as an unrealized (gain) loss on derivative instrument. |
The Company recorded a
convertible preferred stock derivative liability of $77,080 and $66,177, respectively, associated with the 375 shares of Series
C Convertible Preferred Stock outstanding at June 30, 2015 and December 31, 2014.
The Company has classified
the Series C Convertible Preferred Stock as a liability at June 30, 2015 and December 31, 2014 because the variable conversion
feature may require the Company to settle the conversion in a variable number of its common shares.
Common Stock
On October 15, 2015 the
shareholders approved an increase in the number of authorized shares of common stock from 40 million to 100 million.
On August 14, 2014 the
shareholders approved an amendment to the Company’s certification of incorporation to effect up to a one-for-ten reverse
stock split (the “reverse Stock Split” of the Company’s issued and authorized outstanding common stock. The Board
of Directors, in its sole discretion, has discretion to implement the Reverse Stock Split. As of November 20, 2015, the Board of Directors has not implemented the Reverse Stock Split.
During the quarter ended
March 31, 2015, the Company did a private offering of its common stock and warrants, for consideration of $75,000. 375,000 shares
of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 187,500
shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional
paid-in-capital.
During the quarter ended
June 30, 2015, the Company did an additional private offering of its common stock and warrants, for consideration of $290,000.
1,450,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants
to purchase 725,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded
to additional paid-in-capital.
During the quarter ended
March 31, 2014, the Company did a private offering of its common stock and warrants, for consideration of $500,000. 2,500,000 shares
of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to purchase 1,250,000
shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded to additional
paid-in-capital.
During the quarter ended
June 30, 2014, the Company did an additional private offering of its common stock and warrants, for consideration of $170,000.
850,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued warrants to
purchase 425,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants were recorded
to additional paid-in-capital.
During the quarter ended
March 31, 2015, the Company issued 500,000 shares with a fair value of $80,000 to an advisory firm for consulting services. The
Company is amortizing the $80,000 over the service period and recorded $20,000 of expense in the quarter ended June 30, 2015 and
$40,000 of expense in the six months ended June 30, 2015.
During the quarter ended
March 31, 2015, the Company issued 120,000 shares to an advisory firm for consulting services. The shares vested in two tranches,
with 60,000 shares vesting in the quarter ended December 31, 2014 and remaining 60,000 shares vesting in the quarter ended March
31, 2015. The Company recorded consulting expenses of $10,800 in the quarter ended December 31, 2014 and $27,600 of consulting
expenses in the quarter ended March 31, 2015. In each instance, the expense was based on the fair value on the vesting date.
During the quarter ended
March 31, 2015, the Company issued 333,333 stock warrants for consulting services performed and recorded consulting expense of
$75,000 for the fair value of the warrants.
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED
AND SUBSIDIARY |
During the three months
ended March 31, 2015 and 2014, the Company issued 12,500 and 10,625 shares of its common stock to non-employee directors under
its Director Compensation Plan. The Company recorded expense of $2,125 and $4,038 for director stock compensation expense in the
three months ended March 31, 2015 and 2014. No shares were issued during the three months ended June 30, 2015 and 2014. Additionally,
no expense was recorded in the three months ended June 30, 2015 and 2014.
13. CONTRACTUAL
OBLIGATIONS AND CONTINGENCIES
As of June 30, 2015, CTI
and its majority owned subsidiary, VVI, have remaining obligations, contingent upon receipt of certain revenues, to repay up to
$165,788 and $198,334, respectively, in consideration of grant funding received in 1994 and 1995. CTI also is obligated
to pay at the rate of 7.5% of its revenues, if any, from transferring rights to certain inventions supported by the grant funds. VVI
is obligated to pay at rates of 1.5% of its net sales of supported products or 15% of its revenues from licensing supported products,
if any.
Contingencies –
Litigation
Tim Conley (case
pending) - On August 18, 2014, notice was issued to the Company that on June 23, 2014, Timothy Conley (the “Plaintiff”)
filed a complaint against the Company, in the United States District Court for the District of Rhode Island. The complaint alleges
that the Company’s former acting interim CEO, Johnnie Johnson, and Plaintiff entered into an agreement whereby the Company
agreed to make payments to Plaintiff. Among other allegations, Plaintiff claims that the Company’s nonpayment to Plaintiff
constitutes a breach of contract. The Company believes it has meritorious defenses to the allegations and the Company intends to
vigorously defend against the litigation.
GEOMC (case pending)
- On August 22, 2014, GEOMC filed a complaint against the Company in the United States District Court for the District
of Connecticut. The complaint alleges that the Company and GEOMC entered into a security agreement whereby in exchange for GEOMC’s
sale and delivery of the Scrambler Therapy devices (the “Devices”), the Company would grant GEOMC a security interest
in the Devices. Among other allegations, GEOMC claims that the Company has failed to comply with the terms of the security agreement
and seeks an order to the Court to replevy the Devices or collect damages. The Company believes it has meritorious defenses to
the allegations and the Company intends to vigorously defend against the litigation.
Summary –
We may be a party to other legal actions and proceedings from time to time. We are unable to estimate legal expenses or losses
we may incur, if any, or possible damages we may recover, and we have not recorded any potential judgment losses or proceeds in
our financial statements to date. We record expenses in connection with these suits as incurred.
An unfavorable resolution
of any or all matters, and/or our incurrence of significant legal fees and other costs to defend or prosecute any of these actions
and proceedings may, depending on the amount and timing, have a material adverse effect on our consolidated financial position,
results of operations or cash flows in a particular period.
PART I. FINANCIAL INFORMATION (Continued)
CALMARE THERAPEUTICS INCORPORATED
AND SUBSIDIARY |
CTI’s Distribution
Rights, Marineo and Delta
On April 8, 2014, Mr. Giuseppe
Marineo, an inventor of the Calmare® pain therapy device, and Delta Research and Development (“Delta”), Mr. Marineo’s
research company, and Delta International Services and Logistics (“DIS&L”), Delta’s commercial arm in which
Mr. Marineo is the sole beneficiary of all proceeds as its founder and sole owner (collectively the “Group”), issued
a press release (the “Group’s Press Release”) regarding CTI stating that the Company did not have authority to
sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group. CTI issued a corporate response in a press
release dated April 11, 2014 stating that the Group’s Press Release was inaccurate and has since been purged by the overseeing
body of wire services.
This issue between the
Company and the Group is over the validity of a 2012 Amendment to a Sales and Representation Agreement (the “Amendment”)
which, if valid and enforceable, may have compromised its rights to sell, distribute and manufacture the Calmare Device as an exclusive
agent of the Group in the global marketplace, especially in the European, Middle Eastern and North African (“EMENA”)
territory which was responsible for approximately 70% of gross Calmare Device sales in 2011. However, the Company believes that
the Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void
as disclosed on April 16, 2014 in the Form 10-K filing. Therefore, the parties’ rights are determined by an earlier agreement
whereby the Company possesses the authority to sell, distribute and manufacture the Calmare Device as a world-wide exclusive agent
of the Group.
On April 16, 2014, counsel
for the Group (“Group Counsel”) sent a cease and desist letter (“Cease and Desist Letter”) to the Company,
requesting a confirmation that the Company would no longer hold itself out as an agent of the Group permitted to sell, distribute
and manufacture the Calmare Device world-wide including the EMENA territory.
The Company responded on
April 25, 2014 to the Cease and Desist Letter, disputing Group Counsel’s interpretation of the events surrounding the execution
of the Amendment. At this time, the Company continues to work to find a reasonable and amicable resolution to the situation.
Unsigned Agreements
The Company uses two unrelated
firms to provide marketing and investor relations services, CME Acuity (“CMEA”) and Legend Capital Management (“LCM”),
respectively. The LCM and CMEA agreements were not signed due to an inability to come to final terms due to certain nuances in
either agreement that included but were not limited to assignment of human capital and allowable performance based bonus(es). However,
from the start date until June 30, 2015, the respective firms were compensated for services rendered on a “pay-as-we go”
basis (the “Arrangement”). The aforementioned Arrangement is expected to continue for the next few consecutive quarters
until such time as their agreements can be consummated.
14. RELATED
PARTY TRANSACTIONS
Our board of directors
determined that when a director’s services are outside the normal duties of a director, we compensate the director at the rate
of $1,000 per day, plus expenses, which is the same amount we pay a director for attending a one-day Board meeting. We
classify these amounts as consulting expenses, included in personnel and consulting expenses.
At June 30, 2015,
$2,598,980 of the outstanding Notes payable were Notes payable to related parties; $2,498,980 to the chairman of our Board
and $100,000 to another director.
15. SUBSEQUENT
EVENTS
From
July 1, 2015 to November 30, 2015 the Company obtained additional funding, including $600,000 of hybrid debt funding. From July
1, 2015 to November 30, 2015, the Company did a private offering of convertible notes and warrants, under which it issued $706,000
of convertible promissory notes for consideration of $600,000, the difference between the proceeds from the notes and principal
amount consists of $106,000 of original issue discount. The notes are convertible at a conversion price of $0.25 per share. The
note holder was also issued market-related warrants for 1,412,000 in shares of common stock. The warrants have an exercise price
of $0.60 and a 1-year term.
On September 15, 2015,
the Company announced the appointment of Stephen J. D’Amato, M.D. as Chief Medical Officer of the Company. During 2010, CALMARx
Pain Relief, LLC, purchased 10 Calmare devices from the Company for an aggregate purchase price of $550,000. Additionally, during
2015 and 2014, CALMARx purchased certain supplies from the Company. Dr. D’Amato is one of the owners and managers of CALMARx
Pain Relief, LLC.
On October 15, 2015,
the Company entered into a consulting agreement with VADM Robert T. Conway, Jr., U.S. Navy, (Ret) (the “Admiral”), a member of the
Company’s Board of Directors. The agreement is for one year and includes compensation of a monthly retainer fee of
$7,500 and a five year warrant to purchase 167,000 shares of common stock of the Company, fully vested on the date of
issuance, at a strike price of $.60 per share with an aggregate estimate fair value of $33,734. As a result of this
agreement, the Board of Directors has determined that the Admiral is no longer an independent director of the Company.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
Statements about our future
expectations are “forward-looking statements” within the meaning of applicable Federal Securities Laws, and are not
guarantees of future performance. When used in herein, the words “may,” “will,” “should,” “anticipate,”
“believe,” “intend,” “plan,” “expect,” “estimate,” “approximate,”
and similar expressions are intended to identify such forward-looking statements. These statements involve risks and uncertainties
inherent in our business, including those set forth in Item 1A under the caption “Risk Factors,” in our most recent Annual
Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (“SEC”)
on June 24, 2015, and other filings with the SEC, and are subject to change at any time. Our actual results could differ materially
from these forward-looking statements. We undertake no obligation to update publicly any forward-looking statement.
Overview
Calmare Therapeutics Incorporated
(“CTI”) was incorporated in Delaware in 1971, succeeding an Illinois corporation incorporated in 1968. CTI and its
majority-owned subsidiary (collectively, “we,” “our,” or “us”), is a biotechnology company developing
and commercializing innovative products and technologies. CTI is the licensed distributor of the non-invasive, Calmare pain therapy
medical device, which was designed and developed to treat neuropathic and cancer-derived pain.
Effective August 20, 2014,
CTI changed its name from Competitive Technologies, Inc. to Calmare Therapeutics Incorporated.
Since 2011, the Company
has controlled the sales process for the Calmare Device. We are the primary obligor, responsible for delivering devices as well
as training our customers in the proper use of the device. We deal directly with customers, setting pricing and providing training;
contribute to the development, new specifications and changes thereto, and to select and contract with manufacturing partners;
and retain significant credit risk for amounts billed to customers. Therefore, all product sales are recorded following a gross
revenue methodology. We record in product sales, the total funds earned from customers and record the costs of the device as cost
of product sales, with gross profit from product sales being the result.
Sales of our Calmare
device continue to be the major source of revenue for the Company. The Company’s original 2007 agreement with Giuseppe Marineo
(the “Scrambler Therapy Agreement”), an inventor of Scrambler Therapy technology (“ST”), and Delta
Research and Development (“Delta”), authorized CTI to manufacture and sell worldwide the device developed from the
patented ST. The original agreement was amended in 2011 to provide the Company with exclusive rights to the ST through March 31,
2016. In July 2012, the Company attempted to negotiate a five-year extension to the agreement with Marineo and Delta (the “2012
Amendment”). However, the Company believes that the 2012 Amendment is neither valid nor enforceable as it was never duly
signed or authorized and subsequently deemed null and void. The Scrambler Therapy
technology is patented in Italy and the U.S. Additional applications for patents have been filed internationally and are pending
approval. The Calmare® device has CE Mark certification from the European Union as well as U.S. FDA 510(k) clearance.
CTI’s Distribution
Rights, Marineo and Delta
On April 8, 2014, Mr. Giuseppe
Marineo, an inventor of the Calmare Device, and Delta Research and Development (“Delta”), Mr. Marineo’s research
company, and Delta International Services and Logistics (“DIS&L”), Delta’s commercial arm in which Mr. Marineo
is the sole beneficiary of all proceeds as its founder and sole owner (collectively the “Group”), issued a press release
(the “Group’s Press Release”) regarding CTI, stating that the Company did not have authority to sell, distribute
and manufacture the Calmare Device as an exclusive agent of the Group. CTI issued a corporate response in a press release dated
April 11, 2014 stating that the Group’s Press Release was inaccurate and has since been purged by the overseeing body of
wire services.
This issue between the
Company and the Group is over the validity of a 2012 Amendment to a Sales and Representation Agreement (the “Amendment”)
which, if valid and enforceable, may have compromised its rights to sell, distribute and manufacture the Calmare Device as an exclusive
agent of the Group in the global marketplace, especially in the European, Middle Eastern and North African (“EMENA”)
territory which was responsible for approximately 70% of gross Calmare Device sales in 2011. However, the Company believes that
the Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void.
Therefore, the parties’ rights are determined by an earlier agreement whereby the Company still possesses the authority to
sell, distribute and manufacture Calmare Devices as a world-wide exclusive agent of the Group.
On April 16, 2014, counsel
for the Group (“Group Counsel”) sent a cease and desist letter (“Cease and Desist Letter”) to the Company,
requesting a confirmation that the Company would no longer hold itself out as an agent of the Group permitted to sell, distribute
and manufacture Calmare Devices world-wide including the EMENA territory.
The Company responded on
April 25, 2014 to the Cease and Desist Letter, disputing Group Counsel’s interpretation of the events surrounding the execution
of the Amendment. At this time, the Company continues to work to find a reasonable and amicable resolution to the situation.
Presentation
All amounts in this Item
2 are rounded to the nearest thousand dollars.
The following discussion
and analysis provides information that we believe is relevant to an assessment and understanding of our financial condition and
results of operations. This discussion and analysis should be read in conjunction with our Consolidated Financial Statements
and Notes thereto.
Results of Operations – Three months ended June 30, 2015
vs. three months ended June 30, 2014
Summary of Results
Our net loss, for the quarter
ended June 30, 2015, decreased to $779,000 or $0.03 per basic and diluted share as compared with a net loss of $791,000 or $0.03
per basic and diluted share for the comparable quarter of 2014. This net loss decrease is primarily attributable to
a $57,000 decrease in personnel and consulting expenses and a $23,000 decrease in selling expenses, partially offset by a $64,000
decrease in gross profit from product sales related to an $116,000 decrease in products sales.
Revenue and Gross Profit
from Sales
Revenue from the sale
and shipment of Calmare® pain therapy medical devices (the “Devices”), in the three months ended June 30, 2015,
decreased $116,000 to $200,000 as compared with $316,000 for the comparable quarter of 2014.
Cost of product sales,
in the three months ended June 30, 2015, decreased $52,000 to $46,000 as compared with $98,000 for the comparable quarter of
2014. This decrease in cost of product sold is attributable to the decrease in sales as well as an increase in gross margin.
Device sales, in
the three months ended June 30, 2015, decreased with the sale of two (2) Devices as compared with four (4) Device sales for the
comparable quarter of 2014. Device sales for the three months ended June 30, 2015 were comprised of two (2) U.S. private sector
sales. Device sales for the three months ended June 30, 2014 were comprised of three (3) U.S. private sector and one (1) U.S. military
sales.
Due to the relatively long
sales cycle for a Device, Device sales and related revenues and expenses can and will vary significantly from quarter to quarter.
Other Revenue
Retained royalties, in
the three months ended June 30, 2015 of $2,000, were substantially unchanged compared to $2,000 in the three months ended June
30, 2014.
Other income, for the three
months ended June 30, 2015, was $17,000 as compared with $14,000 in the three months ended June 30, 2014. Other income
includes:
|
|
Three Months Ended
June 30, 2015 |
|
|
Three Months Ended
June 30, 2014 |
|
Training
payments and the sale of supplies i.e., electrodes and cables for use with our Calmare Devices |
|
$ |
11,000 |
|
|
$ |
3,000 |
|
Rental income from
customers who were renting Calmare Devices from CTI |
|
$ |
6,000 |
|
|
$ |
11,000 |
|
Expenses
Total
expenses decreased $73,000 or 7% to $952,000 in the three months ended June 30, 2015 as compared with $1,025,000 in the three
months ended June 30, 2014.
Total
operating expenses decreased $70,000 or 9% to $737,000 in the three months ended June 30, 2015 as compared with $807,000 in
the three months ended June 30, 2014.
Selling
expenses decreased 35% or $23,000 to $43,000 in the three months ended June 30, 2015 as compared with $66,000 in the three
months ended June 30, 2014 and reflects decreased commissions as a result of decreased Devices sales.
Personnel
and consulting expenses, in the three months ended June 30, 2015, decreased 13% or $57,000 to $367,000 as compared with $424,000
in the three months ended June 30, 2014. This decrease is primarily attributable to a decrease in consulting costs related to
sales and corporate activities.
General
and administrative expenses, in the three months ended June 30, 2015, increased 3% or $10,000 to $327,000 as compared with
$317,000 in the three months ended June 30, 2014. The increase primarily relates an increase in litigation costs, partially
offset by a decrease in corporate, sales and marketing travel costs.
Interest
expense, in the three months ended June 30, 2015, increased $92,000 or 81% to $205,000 as compared with $113,000 in the three
months ended June 30, 2014 primarily as a result of the 1% additional monthly interest for the 90 day Convertible Notes (see Note
11 of the Notes to Condensed Consolidated Interim Financial Statements).
Unrealized
loss on derivative instruments, in the three months ended June 30, 2015, was $11,000, as compared with a $25,000 loss in the
three months ended June 30, 2014. This reflects the impact of the movement in CTI’s share price on the Class
C Preferred Stock at the end of each period.
Results
of Operations – Six months ended June 30, 2015 vs. six months ended June 30, 2014
Summary
of Results
Our
net loss, for the six months ended June 30, 2015, increased to $1,783,000 or $0.03 per basic and diluted share as compared with
a net loss of $1,517,000 or $0.03 per basic and diluted share for the comparable six months of 2014. This net loss
increase is primarily attributable to $209,000 decrease in gross profit from product sales related to a $329,000 decrease in products
sales, partially offset by a $94,000 decrease in selling expenses.
Revenue
and Gross Profit from Sales
Revenue
from the sale and shipment of Calmare® pain therapy medical devices (the “Devices”), in the six months ended
June 30, 2015, decreased $329,000 to $208,000 as compared with $537,000 for the comparable six months of 2014.
Cost
of product sales, in the six months ended June 30, 2015, decreased $120,000 to $48,000 as compared with $168,000 for the comparable
six months of 2014. This decrease in cost of product sold is attributable to the decrease in sales as well as an increase in gross
margin.
Device
sales, in the six months ended June 30, 2015, decreased with the sale of two (2) Devices as compared with seven (7) Device
sales for the comparable six months of 2014. Device sales for the six months ended June 30, 2015 were comprised of two (2) U.S.
private sector sales. Device sales for the six months ended June 30, 2014 were comprised of six (6) U.S. private sector and one
(1) U.S. military sales.
Due
to the relatively long sales cycle for a Device, Device sales and related revenues and expenses can and will vary significantly
from quarter to quarter.
Other
Revenue
Retained
royalties, in the six months ended June 30, 2015 of $5,000, were substantially unchanged compared to $5,000 in the six months
ended June 30, 2014.
Other
income, for the six months ended June 30, 2015, was $26,000 as compared with $17,000 in the six months ended June 30, 2014. Other
income includes:
| |
| | |
| |
| |
Six Months Ended
June 30, 2015 | | |
Six Months Ended
June 30, 2014 | |
Training
payments and the sale of supplies i.e., electrodes and cables
for use with our Calmare Devices | |
$ | 14,000 | | |
$ | 4,000 | |
Rental
income from customers who were renting Calmare Devices
from CTI | |
$ | 12,000 | | |
$ | 13,000 | |
Expenses
Total
expenses increased $65,000 or 3% to $1,973,000 in the six months ended June 30, 2015 as compared with $1,908,000 in the six
months ended June 30, 2014.
Total
operating expenses increased $101,000 or 7% to $1,569,000 in the six months ended June 30, 2015 as compared with $1,468,000
in the six months ended June 30, 2014.
Selling
expenses decreased 68% or $94,000 to $44,000 in the six months ended June 30, 2015 as compared with $138,000 in the six months
ended June 30, 2014 and reflects decreased commissions as a result of decreased Devices sales.
Personnel
and consulting expenses, in the six months ended June 30, 2015, increased 7% or $55,000 to $874,000 as compared with $819,000
in the six months ended June 30, 2014. This increase is primarily related to an increase in consulting costs of $154,000, principally
in the form of equity compensation (stock and warrants) in the areas of sales and investor advisory services, partially offset
by an $97,000 decrease in personnel costs, principally related to incentive compensation.
General
and administrative expenses, in the six months ended June 30, 2015, increased 27% or $139,000 to $650,000 as compared with
$511,000 in the six months ended June 30, 2014. The increase primarily relates an increase in litigation costs, partially
offset by a decrease in corporate, sales and marketing travel costs.
Interest
expense, in the six months ended June 30, 2015, increased $173,000 or 79% to $391,000 as compared with $218,000 in the six
months ended June 30, 2014 primarily as a result of the 1% additional monthly interest for the 90 day Convertible Notes (see Note
11 of the Notes to Condensed Consolidated Interim Financial Statements).
Unrealized
loss on derivative instruments, in the six months ended June 30, 2015, was $11,000, as compared with a $12,000 loss in the
six months ended June 30, 2014. This reflects the impact of the movement in CTI’s share price on the Class C
Preferred Stock at the end of each period.
Financial
Condition and Liquidity
Our
liquidity requirements arise principally from our working capital needs, including funds needed to sell our current technologies
and obtain new technologies or products, and protect and enforce our intellectual property rights, if necessary. We fund our liquidity
requirements with a combination of cash on hand, debt and equity financing, sales of common stock and cash flows from operations,
if any. At June 30, 2015, the Company had outstanding debt in the form of promissory notes with a total principal amount of $3,477,000
and a carrying value of $3,349,000.
Our
future cash requirements depend on many factors, including results of our operations and marketing efforts, results and costs
of our legal proceedings, and our equity financing. To achieve and sustain profitability, we are implementing a corporate
reengineering effort, which commenced on September 26, 2013 under the direction of CTI’s new president & CEO, Mr. Conrad
Mir. This plan design will change the inherent design of the current distributor network and focus on opportunities within the
US Departments of Defense (the “DOD”) and Veterans Affairs (“VA”), and set out to upgrade CTI’s
current U.S. Food and Drug Administration (“FDA”) clearance designation for the Calmare Device to approval. Although
we cannot be certain that we will be successful in these efforts, we believe the combination of our cash on hand and revenue from
executing our strategic plan will be sufficient to meet our obligations of current and anticipated operating cash requirements.
In
fiscal 2010, the Company incorporated revenue from the sale of inventory into its revenue stream. That source of revenue
is expected to continue as sales of its Calmare Device continue to expand and other products are added to the Company’s portfolio
of technologies.
At
June 30, 2015, cash was $75,000, as compared with $6,000 at December 31, 2014. Net cash used in operating activities was $(510,000)
for the six months ended June 30, 2015 as compared to $(542,000) for the six months ended June 30, 2014, primarily reflecting
an increase in net loss partially offset by an increase in accounts payable, accrued expenses and other liabilities and non-cash
equity expenses. There was minimal investing activity year to date in both 2015 and 2014. Net cash provided by financing activities
was $580,000 for the six months ended June 30, 2015 as compared to $548,000 for the six months ended June 30, 2014, primarily
as a result of the Company’s debt and equity financing activities in both periods.
We
currently have the benefit of using a portion of our accumulated net operating losses (“NOLs”) to eliminate any future
regular federal and state income tax liabilities. We will continue to receive this benefit until we have utilized all
of our NOLs, federal and state. However, we cannot determine when and if we will be profitable enough to utilize the
benefit of the remaining NOLs before they expire.
Going
Concern
The
Company has incurred operating losses since fiscal 2006 and has a working capital and shareholders’ deficiency at June 30,
2015. During the three and six months ended June 30, 2015 and 2014, we had a significant concentration of revenues
from our Calmare Device technology. We continue to seek revenue from new and existing technologies or products to mitigate
the concentration of revenues, and replace revenues from expiring licenses on other technologies.
Although
we have taken steps to significantly reduce operating expenses going forward, even at these reduced spending levels, should the
anticipated increase in revenue from sales of Calmare® medical devices and other technologies not occur, the Company may not
have sufficient cash flow to fund operations through 2015 and into 2016. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company’s continuation as a going concern is dependent upon its developing recurring revenue streams sufficient to cover operating
costs. The Company does not have any significant individual cash or capital requirements in the budget going forward. If
necessary, CTI will meet anticipated operating cash requirements by further reducing costs, issuing debt and/or equity, and/or
attempt to pursuing sales of certain assets and technologies while we pursue licensing and distribution opportunities for our
remaining legacy portfolio of technologies. There can be no assurance that the Company will be successful in such efforts. Failure
to develop a recurring revenue stream sufficient to cover operating expenses could negatively affect the Company’s financial
position.
Debt
Financing
Details
of notes payable as of June 30, 2015 are as follows:
| |
Principal
Amount | | |
Carrying
Value | | |
Cash
Interest Rate | | |
Common
Stock Conversion Price | | |
Maturity
Date |
90
day Convertible Notes (Chairman of the Board) | |
$ | 2,498,980 | | |
$ | 2,498,980 | | |
| 6 | % | |
$ | 1.05 | | |
Various 2014 |
24
month Convertible Notes ($100,000 to Board member) | |
| 225,000 | | |
| 225,000 | | |
| 6 | % | |
| 1.05 | | |
March 2014 – June 2014 |
Series
A3 15% OID Convertible Notes and Warrants | |
| 11,765 | (1) | |
| 14,353 | (1) | |
| None | | |
| 0.25 | | |
January 2015 |
Series
B OID Convertible Notes and Warrants | |
| 80,000 | | |
| 62,289 | | |
| None | | |
| 0.23 | | |
March 2017 |
1
Year 15% OID Convertible Notes and Warrants | |
| 661,177 | | |
| 548,525 | | |
| None | | |
| 0.20 | | |
Aug. 2015 –
Feb. 2016 |
Notes
Payable, gross | |
$ | 3,476,922 | | |
| 3,349,147 | | |
| | | |
| | | |
|
Less
LPA amount | |
| | | |
| (485,980 | ) | |
| | | |
| | | |
|
Notes
Payable, net | |
| | | |
$ | 2,863,167 | | |
| | | |
| | | |
|
(1)
Includes $2,588 of accrued loss on conversion of OID note.
90
day Convertible Notes
The
Company has issued 90-day notes payable to borrow funds from a director, now the chairman of our Board, as follows:
|
|
|
|
|
2013 |
|
$ |
1,188,980 |
|
2012 |
|
|
1,210,000 |
|
2011 |
|
|
100,000 |
|
Total |
|
$ |
2,498,980 |
|
These
notes have been extended several times and all bear 6.00% simple interest. A conversion feature was added to the Notes
when they were extended, which allows for conversion of the eligible principal amounts to common stock at any time after the six
month anniversary of the effective date – the date the funds are received – at a rate of $1.05 per
share. Additional terms have been added to all Notes to include additional interest 1% simple interest per month on
all amounts outstanding for all Notes if extended beyond their original maturity dates and to provide the lender with a security
interest in unencumbered inventory and intangible assets of the Company other than proceeds relating to the Calmare Device and
accounts receivable.
Due
to the Board’s February 10, 2014 decision authorizing management to nullify certain actions taken by prior management, the
additional terms noted above were not approved and therefore, the additional interest for the extension of the Notes was not recorded.
During 2014, management has been in negotiations to modify the terms of the Notes. However, until those negotiations are resolved,
the Company has agreed to honor the additional terms and as such, the Company recorded additional interest of approximately $188,000
during the six months ended June 30, 2015, and has recorded additional interest in total of $807,000.
A
total of $485,980 of the aforementioned notes issued between December 1, 2012 and March 31, 2013 fall under the liabilities purchase
agreement with ASC Recap, and are expected to be repaid using the process as described in Note 10. Because there can
be no assurance that the Company will be successful in completing this process, the Company retains ultimate responsibility for
this debt, until fully paid down. As a result, the Company continues to accrue interest on these notes and they remain
convertible as described above.
24 month Convertible
Notes
In March 2012, the Company
issued a 24-month convertible promissory note to borrow $100,000. Additional 24-month convertible promissory notes were issued
in April 2012 ($25,000) and in June 2012 ($100,000). All of the notes bear 6.00% simple interest. Conversion of the eligible principal
amounts to common stock is allowed at any time after at a rate of $1.05 per share.
As of November 30, 2015 the Company has not repaid the principal due on the March 2012 $100,000 note, the April 2012 $25,000 note or the
June 2012 $100,000 note and is in default under the terms of the notes. As of June 30, 2015, there is also unpaid interest of $25,000
related to these notes.
Series A 15% Original
Issue Discount Convertible Notes and Warrants
During the quarter ended
March 31, 2014, the Company did a private offering of a third tranche of convertible notes and warrants, under which it issued
$64,706 of convertible promissory notes for consideration of $55,000, the difference between the proceeds from the notes and principal
amount consists of $9,706 of original issue discount. The notes are convertible at an initial conversion price of $0.25 per share
any time after issuance thereby having an embedded beneficial conversion feature.
The note holders were also
issued market-related warrants for 129,412 in shares of common stock. The warrants have
exercise price of $0.60 and a term of 2 years. The beneficial conversion feature, if any, and the warrants
were recorded to additional paid-in-capital. The total debt discount is amortized over the life of the notes to interest expense.
During the quarter ended
June 30, 2014, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to
the OID convertible notes. Due to the timing of receipt of the notices by the Company, certain Note holders (“Noteholders”)
received their shares during the quarter ended June 30, 2014, while other Noteholders received or are due to receive their shares
after June 30, 2014. Additionally, the Company offered certain Noteholders an inducement to convert their notes to shares. The
inducement, when offered, provided Noteholders a conversion price of $0.20. All other original terms, including the warrant terms,
remained the same. Upon notice of conversion and irrespective of whether the shares were delivered in the quarter ended June 30,
2014 or subsequent to June 30, 2014 to the Company: (i) accelerated and recognized as interest expense in the current period any
remaining discount, and (ii) recognized a loss for the fair value of the additional shares offered as the conversion inducement.
During the quarter ended
March 31, 2015, certain holders of OID convertible notes and warrants delivered to the Company a notice of conversion related to
the OID convertible notes. Additionally, the Company offered certain Noteholders an inducement to convert their notes to shares.
The inducement, when offered, provided Noteholders a conversion price of $0.20. All other original terms, including the warrant
terms, remained the same. Upon notice of conversion Company: (i) accelerated and recognized as interest expense in the current
period any remaining discount and (ii) recognized a loss for the fair value of the additional shares offered as the conversion
inducement. As of June 30, 2015, the Company had not issued the shares due related to the conversion notice.
Series B Original Issue
Discount Convertible Notes and Warrants
During the quarter ended
March 31, 2014, the Company did a private offering of convertible notes and warrants, under which it issued $80,000 of convertible
promissory notes for consideration of $65,000, the difference between the proceeds from the notes and principal amount consists
of $15,000 of original issue discount. The notes are convertible at an initial conversion price of $0.35 per share any time after
issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related warrants for
185,714 in shares of common stock. The warrants have an exercise price of $0.45 and a 4-year term. The beneficial conversion feature
and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to the notes, the beneficial
conversion feature and the warrants on a relative fair value basis at the time of issuance. The total debt discount is amortized
over the life of the notes to interest expense.
The Series B OID notes include an anti-dilution provision that if
the Company issues more than 20 million shares of its common stock, subject to certain exceptions, the conversion price of the
notes and the conversion price of the warrants would be subject to an automatic pre-determined price adjustment. During the quarter
ended December 31, 2014 the Series B OID noteholder and the Company agreed that this anti-dilution provision had been triggered
and the OID note share conversion price was adjusted down to $0.23 per share, which increased the number of shares available upon
conversion to 347,826. The anti-dilution provision in the Warrant changed the share purchase price downward to $0.33 per share
but did not change the number of shares available under the Warrant.
1 Year 15% OID Convertible Notes and Warrants
During the quarter ended
March 31, 2015, the Company did an additional private offering of convertible notes and warrants, under which it issued $302,353
of convertible promissory notes for consideration of $257,000, the difference between the proceeds from the notes and principal
amount consists of $45,353 of original issue discount. The notes are convertible at an initial conversion price of $0.20 per share
any time after issuance thereby having an embedded beneficial conversion feature. The note holders were also issued market-related
warrants for 755,882 in shares of common stock. The warrants have an exercise price of $0.60 and a 1-year term. The beneficial
conversion feature and the warrants were recorded to additional paid-in-capital. The Company allocated the proceeds received to
the notes, the beneficial conversion feature and the warrants on a relative fair value basis at the time of issuance. The total
debt discount is amortized over the life of the notes to interest expense.
During the quarter ended
June 30, 2015, a holder of OID convertible notes and warrants delivered to the Company a notice of conversion related to the OID
convertible notes with a principal amount of $5,882. As of June 30, 2015, the Company had not issued the shares due related to
the conversion notice.
Capital requirements
We continue to seek revenue
from new technology licenses to mitigate the concentration of revenue, and replace revenue from expiring licenses. We
have created a new business model for appropriate technologies that allows us to move beyond our usual royalty arrangement and
share in the profits of distribution.
For the remainder of 2015,
we expect our capital expenditures to be less than $100,000.
Contractual Obligations and Contingencies
Contingencies
Our directors, officers,
employees and agents may claim indemnification in certain circumstances.
Many of our license and
service agreements provide that upfront license fees, license fees and/or royalties we receive are applied against amounts that
our clients or we have incurred for patent application, prosecution, issuance and maintenance costs. If we incur such
costs, we expense them as incurred, and reduce our expense if we are reimbursed from future fees and/or royalties we receive. If
the reimbursement belongs to our client, we record no revenue or expense.
As
of June 30, 2015, CTI and its majority-owned subsidiary, VVI, have remaining obligations, contingent upon receipt of certain revenue,
to repay up to $165,788 and $198,334, respectively, in consideration of grant funding received in 1994 and 1995. CTI
also is obligated to pay at the rate of 7.5% of its revenues, if any, from transferring rights to certain inventions supported
by the grant funds. VVI is obligated to pay at rates of 1.5% of its net sales of supported products or 15% of its revenues
from licensing supported products, if any.
Critical
Accounting Estimates
There
have been no significant changes in our accounting estimates described under the caption “Critical Accounting Estimates”
included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
in our Annual report on Form 10-K for the year ended December 31, 2014.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Not
applicable.
Item
4. Controls and Procedures
(a) Evaluation
of disclosure controls and procedures
Management
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2014. Our disclosure controls and procedures are designed to
ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C.
78a et seq.) is recorded, processed, summarized, and reported, within the time periods specified in the Commission’s rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and
communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation,
management concluded that our disclosure controls and procedures were effective as of June 30, 2015.
(b) Change
in Internal Controls
During
the period ending June 30, 2015, there were no changes in our internal control over financial reporting during that period that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
From
time to time, the Company is involved in litigation matters relating to claims arising from the ordinary course of business. While
the results of such claims and legal actions cannot be predicted with certainty, with the exception of items disclosed in previous
filings, the Company’s management does not believe that there are claims or actions, pending or threatened against the Company,
the ultimate disposition of which would have a material adverse effect on our business, results of operations, financial condition
or cash flows.
Item
1A. Risk Factors
We are a
smaller reporting company and are not required to provide the information under this item.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
During
the quarter ended June 30, 2015, the Company did an additional private offering of its common stock and warrants, for consideration
of $290,000. 1,450,000 shares of common stock were issued at a per share price of $0.20. The common stock holders were also issued
warrants to purchase 725,000 shares of common stock. The warrants have an exercise price of $0.60 and a 3-year term. The warrants
were recorded to additional paid-in-capital.
The Company issued the shares in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act and Rule 506(b) of Regulation D. The Company’s reliance on Section
4(2) of the Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction
by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or
contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations;
and (e) the negotiations for the sale of the stock took place directly between the offeree and the Company.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not applicable.
Item
5. Other Information
None.
Item
6. Exhibits
Exhibit No |
|
Description |
|
Filing
Method |
3.1 |
|
Unofficial restated certificate of incorporation of the registrant
as amended to date filed.(1) |
|
Incorporated by reference |
|
|
|
|
|
3.2 |
|
Bylaws of the registrant as amended effective October 15, 2015
(2) |
|
Incorporated by reference |
|
|
|
|
|
10.1 |
|
VADM Conway Consulting Agreement |
|
Filed herewith |
|
|
|
|
|
31.1 |
|
Certification by the Chief Executive Officer of Calmare Therapeutics
Incorporated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). |
|
Filed herewith |
|
|
|
|
|
31.2 |
|
Certification by the Chief Financial Officer of Calmare Therapeutics
Incorporated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). |
|
Filed herewith |
|
|
|
|
|
32.1 |
|
Certification by the Chief Executive Officer of Calmare Therapeutics
Incorporated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|
Furnished herewith |
|
|
|
|
|
32.2 |
|
Certification by the Chief Financial Officer of Calmare Therapeutics
Incorporated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|
Furnished herewith |
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
Filed herewith |
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy Schema |
|
Filed herewith |
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Calculation Linkbase |
|
Filed herewith |
|
|
|
|
|
101.DEF |
|
XBRL Taxonomy Definition Linkbase |
|
Filed herewith |
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy Label Linkbase |
|
Filed herewith |
|
|
|
|
|
101.PRE |
|
XBRL Taxonomy Presentation Linkbase |
|
Filed herewith |
|
(1) |
Filed as Exhibit 4.1 to the registrant’s
registration statement on Form S-8 with the SEC on April 1, 1998. |
|
(2) |
Filed as Exhibit 3.1 to the registrant’s Form 8-K filed with
the SEC on October 23, 2015 |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
CALMARE THERAPEUTICS INCORPORATED |
|
(the registrant) |
|
|
|
|
By |
/s/ Conrad Mir
|
|
|
Conrad Mir |
|
|
President and Chief Executive Officer |
December 2, 2015 |
|
Authorized Signer (Duly Authorized Officer and Principal Executive
Officer) |
Exhibit 10.1
NON-EXCLUSIVE CONSULTING AGREEMENT
NON-EXCLUSIVE CONSULTING
AGREEMENT (this “Agreement”), dated as of October 15, 2015 (the “Commencement Date”),
by and between, Calmare Therapeutics Incorporated, a Delaware corporation (referred to herein, collectively with its affiliates
and subsidiaries, as “CTI”), having its principal place of business at 1375 Kings Highway East, Suite
400, Fairfield, CT 06824, and VADM Robert T. Conway, Jr., U.S. Navy, (Ret), the Consultant as so described in Appendix 1 hereto
(the “Consultant”).
WITNESSETH
WHEREAS, CTI is engaged in the business
of selling, distributing and licensing pain management equipment, and is located in Fairfield, Connecticut;
WHEREAS, Consultant has skills,
contacts, in-roads and experience from his career in dealing with the U.S. Department of Defense, Military, and similar organizations
that are synergistic with CTI’s business, and is willing to help further CTI’s business for certain compensation;
WHEREAS,
Consultant is an independent contractor and a related-party member of CTI’s Board of Directors for the purpose of
carrying out the aforementioned tasks; and
WHEREAS, CTI and Consultant are desirous
of entering into this annual consulting agreement, commencing monthly, in accordance with the terms and conditions hereinafter
set forth.
NOW, THEREFORE, the parties hereto do hereby
agree as follows:
1. Integration. The terms and
conditions set forth in the preamble and recitals above are hereby fully integrated into and made a part of this Agreement.
2. Role of Consultant. CTI acknowledges and agrees that
Consultant, acting primarily as a consultant on a non-exclusive basis, shall have no authority to enter into any binding commitments
or negotiations in connection with any contract on CTI’s behalf without approval and written authorization by CTI.
Notwithstanding
the foregoing, Consultant shall have the right to:
| a. | introduce CTI or any of its representatives to any and all: |
| i. | persons, companies, organizations, et al., that can help further
Calmare Pain Mitigation Therapy (“Calmare PMT”) and/or CTI; provided, however, that after such introduction,
Consultant shall have no continuing obligation in the negotiations or relationship between CTI and such parties.
|
| ii. | potential sales prospects, Government-related or otherwise. |
| b. | advise CTI Management or any of its representatives with respect to those skills, talents and situation Consultant is
suited to be a value-add to the situation or potential transaction; provided, however, that after such introduction, Consultant
shall have no continuing obligation in the negotiations or relationship between CTI and such parties. |
3. Independent
Contractor. In all matters relating to this Agreement, Consultant shall be acting as an independent contractor. Neither
the Consultant nor employees or subcontractors of the Consultant, if any, are employees of CTI under the meaning or application
of any U.S. Federal or State Unemployment or Insurance Laws, Old Age Benefit Laws, Social Security Laws, any Workmen's Compensation,
or Industrial Laws and/or otherwise. Consultant agrees to assume all liabilities or obligations imposed by any one or more
of such laws with respect to employees or subcontractors of Consultant, if any, in the performance of this Agreement. Moreover,
Consultant shall not have any authority to assume or create any obligation, expressed or implied, on behalf of CTI, and Consultant
shall have no authority to represent CTI as agent, employee or in any other capacity than as hereinbefore set forth. Consultant
shall be solely responsible for filing all returns and paying any income, social security or other tax levied upon or determined
with respect to the payments made to Consultant pursuant to this Agreement. And in the event that Consultant is provided a CTI
business card, Consultant may only use the card in carrying out his or her obligations hereunder.
| 4. | Consideration. CTI agrees to compensate Consultant as follows: |
| a. | Retainer Fee.
There shall be a monthly retainer fee (the “Retainer”) of $7,500.00
per month paid in cash, payable on the 15th of each month.
|
| b. | Equity. In addition to the retainer fee, Consultant shall be issued five year warrants to
purchase 167,000 shares of common stock of the Corporation, immediately issued and vested, at a strike price of $.60 per share. |
| c. | Expenses. All expenses shall be paid on the 15th
or 30th of each month, Pari-passu with CTI’s payroll cycle. All expenses
that exceed $1000.00, require prior approval. |
5. General. This Agreement shall: (i) contain the
entire understanding of the parties with respect to its subject matter, and no modification, amendment or waiver of any
provision hereof shall be valid unless in writing, signed by each of the parties hereto; (ii) be governed by and construed in accordance
with the laws of the State of New York, without regard to the conflicts of law provisions of such State; and (iii) be signed in
counterparts, any one of which will be deemed to be an original and all of which, when taken together, will constitute one and
the same agreement.
| a. | Delivery. All delivery of an executed counterpart of a signature page of this Agreement by telephone facsimile transmission
will be effective as delivery of a manually executed counterpart of this Agreement. |
| b. | Headings. The paragraph headings contained herein are for convenience only and shall not
affect the construction of this Agreement. |
6. Term of the Agreement. This
Agreement shall become effective as of the Commencement Date and shall continue for one (1) calendar year, or until CTI and/or
Consultant delivers notice of termination to the other party, as so delineated herein (See Section 7, “Termination”
below).
| 7. | Termination. This Agreement may be terminated as follows: |
| i. | Breach or default of any obligation of Consultant and including but not limited to “Confidentiality”
of this Agreement, and any other material obligation in this Agreement |
| ii. | Any breach or default that is not cured within seven (7) days of written notice from the Company. |
| i. | Breach or default of any material obligation of Company, which breach or default is not cured within
fifteen (15) days of written notice from Consultant. |
8. Confidentiality.
During the term of this Agreement, and thereafter for a period of two (2) years, Consultant shall not, without
the prior written consent of Company, disclose to anyone any Confidential Information. “Confidential Information”
for the purposes of this Agreement shall include Company’s proprietary and confidential information such as, but not
limited to, customer lists, business plans, marketing plans, financial information, designs, drawing, specifications, models,
software, source codes and object codes. Confidential Information shall not include any information that:
| a. | is disclosed by Company without restriction |
| b. | becomes publicly available through no act of Consultant |
| c. | is rightfully received by Consultant from a third party |
9. Entire Contract. This Agreement
contains all the terms and conditions agreed upon by the Parties and constitutes the only agreement in force and effect
between the Parties relating to the subject matter herein.
10. Titles.
The titles, if any, used to introduce the Articles of this Agreement are provided for convenience purposes only and
shall not be interpreted to alter the meaning of any Article.
11. Notice. Any notice required
to be given or otherwise given pursuant to this Agreement shall be in writing and shall be hand delivered, mailed by certified
mail, return receipt requested or sent by recognized overnight courier service as follows:
If to CONSULTANT:
VADM Robert T. Conway, Jr., U.S. Navy, (Ret)
1910 So Ocean Blvd Apt 218
Delray Beach, FL 33483
Telephone: (202) 256-5540
Facsimile: ( )
Attn: VADM Robert T. Conway, Jr. U.S. Navy, (Ret)
If to CTI:
Calmare Therapeutics Incorporated
1375 Kings Highway East
Fairfield, CT 06824
Telephone: (203) 386-6400
Facsimile: (203) 386-5399
Attn: Conrad Mir, President & CEO
With copies to:
Szaferman, Lakind, Blumstein & Blader, P.C.
101 Grovers Mill Road, Second Floor
Lawrenceville, New Jersey 08648
Telephone: (609) 275-0400
Facsimile: (609) 275-4511
Attn: Gregg E. Jaclin, Esq.
12. Severability.
If any provisions of this Agreement shall be invalid, illegal or unenforceable for any reason, the remaining terms
and provisions shall be unaffected thereby and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have
duly executed this Agreement as of the date first above written.
|
CALMARE THERAPEUTICS INCORPORATED |
|
|
|
|
By: |
/s/ Conrad Mir |
|
|
Conrad Mir |
|
|
President & CEO |
|
|
|
CONSULTANT |
|
|
|
|
By: |
/s/ Robert T. Conway, Jr. |
|
|
VADM Robert T. Conway, Jr., U.S. Navy, (Ret) |
Exhibit
31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER,
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I, Conrad Mir, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of
Calmare Therapeutics Incorporated.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I
are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I
have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Dated: December 2,
2015 |
By: |
/s/ Conrad Mir |
|
|
Conrad Mir
President and Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER,
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I, Ian Rhodes, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of
Calmare Therapeutics Incorporated;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I
are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I
have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Dated: December 2, 2015 |
By: |
/s/ Ian Rhodes |
|
|
Ian Rhodes
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer) |
Exhibit
32.1
CERTIFICATION PURSUANT TO 18 U.SC. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Calmare Therapeutics
Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2015 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), Conrad Mir, chief executive officer of the Company, certifies, pursuant
to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: December 2, 2015 |
By: |
/s/ Conrad Mir |
|
|
Conrad Mir
President and Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer) |
This certification accompanies this Quarterly Report on Form
10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended,
or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Exhibit
32.2
CERTIFICATION PURSUANT TO 18 U.SC. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Calmare Therapeutics
Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2015 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), Ian Rhodes, chief financial officer of the Company, certifies, pursuant
to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: December 2,
2015 |
By: |
/s/ Ian Rhodes |
|
|
Ian Rhodes
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer) |
This certification accompanies this Quarterly Report on Form
10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended,
or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Calmare Therapeutics (CE) (USOTC:CTTC)
Historical Stock Chart
From Apr 2024 to May 2024
Calmare Therapeutics (CE) (USOTC:CTTC)
Historical Stock Chart
From May 2023 to May 2024