QUANTRX BIOMEDICAL CORP - Quarter Report: 2011 September (Form 10-Q)

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x	QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Nevada		33-0202574
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

 

PART I - FINANCIAL INFORMATION
			PAGE
ITEM 1.	Financial Statements
	Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010		2
	Statements of Operations (Unaudited) for the three and nine months ended September 30, 2011 and 2010		3
	Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010		4
	Condensed Notes to (Unaudited) Financial Statements		5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
ITEM 4.	Controls and Procedures		14
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings		15
ITEM 2.	Unregistered Sales of Equity Securities; and Use of Proceeds		15
ITEM 3.	Defaults Upon Senior Securities		15
ITEM 4.	Reserved		15
ITEM 5.	Other Information		15
ITEM 6.	Exhibits		15
Signatures

 

 

 

 

		September 30,			December 31,
		2011			2010
ASSETS		unaudited
Current Assets:
Cash and cash equivalents		$	31,325		$	229,944
Accounts receivable			3,866			4,457
Accounts receivable – related party			-			414,179
Interest receivable – related party			75,689			63,689
Inventories			2,981			3,770
Prepaid expenses			23,511			23,409
Note receivable – related party			200,000			200,000
Total Current Assets			337,372			939,448
Investments			200,000			200,000
Property and equipment, net			39,413			109,479
Intangible assets, net			41,246			46,805
Security deposits			6,093			6,093
Total Assets		$	624,124		$	1,301,825
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable		$	187,496		$	437,587
Accounts payable – related party			-			193,987
Accrued expenses			30,804			168,000
Deferred rent			15,626			-
Notes payable, net of amortized discount			147,910			-
Security deposit			-			2,000
Total Current Liabilities			381,836			801,574
Notes payable, long-term			44,000			44,000
Total Liabilities			425,836			845,574
Commitments and Contingencies						-
Stockholders’ Equity (Deficit):						-
Series B Convertible preferred stock; $0.01 par value, 20,500,000 authorized shares, 20,416,228 and 17,916,228 shares issued and outstanding, respectively			204,162			179,162
Common stock; $0.01 par value; 150,000,000 authorized; 50,346,630 and 44,427,630 shares issued and outstanding, respectively			503,466			444,276
Common stock to be issued			-			128,000
Additional paid-in capital			47,807,741			47,524,761
Accumulated deficit			(48,317,081)			(47,819,948)
Total Stockholders’ Equity (Deficit)			198,288			456,251
Total Liabilities and Stockholders’ Equity (Deficit)		$	624,124		$	1,301,825

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Revenues:
Revenues		$	4,014			$	30,941			$	14,802			$	60,379
Revenues – related party			-				159,067								1,429,960
Total Revenues			4,014				190,008				14,802				1,490,339
Costs and Operating Expenses:
Cost of goods sold (excluding depreciation and amortization)			58				135				339				264
Sales, general and administrative			16,419				472,614				72,051				1,055,717
Professional fees			121,192				125,556				399,215				553,986
Research and development			15,371				309,784				55,179				1,443,217
Amortization			1,428				2,066				5,559				10,910
Depreciation			4,864				14,823				22,494				47,638
Total Costs and Operating Expenses			159,318				924,978				554,837				3,111,732
Loss from Operations			(155,318)				(734,970	)			(540,035)				(1,621,393	)
Other Income (Expense):
Interest and dividend income			4,000				6,629				12,000				18,016
Interest expense			(3,567)				(1,653	)			(5,127)				(4,430	)
Rental income			-				2,750								11,000
Gain on settlement of accounts payable			2,000								259,223				(63,601)
Loss from deconsolidation of subsidiary
Gain (loss) from joint venture											-
Gain on sale of investments							195,251				-				946,501
Net gain (loss) on dispositions			13,598				(29,045)				(223,204)				(11,223)
Total Other Income (Expense), net			16,031				173,932				42,902				896,263
Income (Loss) Before Taxes			(139,287)				(561,038)				(497,133)				(725,130	)
Provision for Income Taxes			-				-				-				-
Preferred Stock Dividend			-				(324,831)				-				(324,831)
Net Income (Loss)		$	(139,287)			$	(885,869)			$	(497,133)			$	(1,049,961	)
Basic and Diluted Net Loss per Common Share		$	(0.00)			$	(0.02)			$	(0.01)			$	(0.02)
Basic and Diluted Weighted Average Shares Used in per Share Calculation			49,771,630				44,427,630				48,260,818				44,427,630

 

		September 30,				September 30,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(497,133)			$	(725,130)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization			28,053				58,548
Interest expense related to amortization of non-cash discount, non-cash beneficial conersion feature and deferred financing costs			1,554				-
Non-cash expenses related to employee stock based compensation			7,950				38,943
Non-cash expense related to common stock issued as compensation			10,000				-
Non-cash expenses related to common stock warrants issued for consulting			63,664				250
Non-cash expenses related to fair value of common stock issued in warrant exchange			62,070				-
Non-cash fair value of preferred stock issued as compensation			37,500				49,083
Net Gain on settlement of accounts payable			257,235				-
Loss from joint venture			-				63,601
Gain(loss) on disposition of assets			236,333				(759,778)
(Increase) decrease in:
Accounts receivable			414,770				(619,909)
Interest receivable			(12,000)				(12,000)
Inventories			789				302
Prepaid expenses			(102)				89,291
Increase (decrease) in:
Accounts payable			(847,074)				501,227
Security deposits			(2,000)				-
Accrued expenses			(135,854)				498,335
Deferred rent			15,626				-
Deferred revenue			-				(297,868)
							-
Net Cash Used by Operating Activities			(358,619)				(1,123,105)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from sale of investment securities			-				771,501
Net Cash Provided (Used) by Investing Activities			-				771,501
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from the issuance of notes payable			160,000				25,000
Net Cash Provided by Financing Activities			160,000				25,000
Net Increase (Decrease) in Cash and Cash Equivalents			(198,619)				(326,604)
Cash and Cash Equivalents, Beginning of Period			229,944				376,211
Cash and Cash Equivalents, End of Period		$	31,325			$	49,607
Supplemental Cash Flow Disclosures:
Interest expense paid in cash		$	1,326			$	4,430
Income tax paid		$	-			$	-
NON CASH INVESTING & FINANCING ACTIVITIES:
Shares issued for accounts payable		$	43,000			$	-
Shares issued related to notes payable		$	20,000			$	-
Fair value of warrants issued as compensation		$	-			$	49,083
Debt discount on convertible notes payable		$	14,986			$	-

 

QUANTRX BIOMEDICAL CORPORATION

CONDENSED NOTES TO FINANCIAL STATEMENTS

1.	Description of Business and Basis of Presentation

2.	Management Statement Regarding Going Concern

 

·

obtain adequate sources of funding to pay unfunded operating expenses, execute its business plan and fund long-term business operations;

·

manage or control working capital requirements by continuing to reduce operating expenses; and

·

develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.

3.	Summary of Significant Accounting Policies

4.	Investments

   NuRx Pharmaceuticals, Inc. ("NuRx").  In July 2011, the Company settled all disputes between the parties relating to the Company's interest in QN Diagnostics, LLC, a joint venture between the Company and NuRx.  Under the terms of the settlement, the Company received 12.0 million shares of common stock in NuRx.  As a result of the issuance, the Company holds an approximate 25% equity interest in NuRx. The Company deems the value of the NuRx shares to be fully impaired at September 30, 2011.

 

5.	Intangible Assets

		September 30, 2011				December 31, 2010
Licensed patents and patent rights		$	50,000			$	50,000
Patents			41,004				41,004
Less: accumulated amortization			(50,158)				(44,199	)
Intangibles, net		$	41,246			$	46,085

6.	Settlements of Accounts Payable

7.	Notes Payable

 

In accordance with ASC Topic 470, the Company allocated the proceeds of the Q3Notes to the common stock issued and the convertible instruments based upon the relative fair values of the debt instruments without the common stock and shares of common stock itself at the time of issuance of the Q3 Notes. The fair value of the common stock was determined as the closing price of the shares on the date the Q3 Notes were issued, with the value allocated to the common shares reflected in Stockholders’ Equity and a debt discount. Based upon the respective fair values as of the original issuance dates, $14,986 of the $160,000 in total debt was allocated to discounts associated with the common stock. Giving effect to the monthly amortization of the discount, totaling $1,554 as of September 30, 2011, $13,432 of the discount remains to be amortized over the remaining life of the Q3 Notes.

8.	Other Balance Sheet Information

		September 30,				December 31,
		2011				2010
Prepaid expenses:
Prepaid insurance		$	22,957			$	17,386
Other			554				6,023
Prepaid expenses		$	23,511			$	23,409
Property and equipment:
Computers and office furniture, fixtures and equipment		$	87,370			$	90,660
Machinery and equipment			99,015				173,295
Leasehold improvements			8,902				92,233
Less: accumulated depreciation			(155,874	)			(246,709	)
Property and equipment, net		$	39,414			$	109,479

Accrued expenses:
Payroll and related		$	5,250			$	86,000
Professional fees			25,554				82,000
Accrued expenses		$	30,804			$	168,000

 

9.	Preferred Stock

10.	Common Stock, Options and Warrants

Other than (i) the issuances to Drs. Hirschman and Fleming of 1.0 million shares of common stock, (ii) the issuance of 2,069,000 shares of common stock, with a deemed value of $62,070, to a lender in connection with a certain debt financing, as described in Note 7, (iii) the issuance of 500,000 shares of the Company’s common stock to PRIA, as described in Note 6, (iv) the issuance of 900,000 shares of common stock as settlement of accounts payable, as described in Note 6, (v) the issuance of 300,000 shares of common stock related to notes payable, as described in Note 7, and (vi) the issuance of warrants to the Company's financial advisor to purchase 1,000,000 shares of common stock, as described in Note 11 below, in the nine months ended September 30, 2011, no common stock, or options purchase common stock, were issued or granted.  

 

11.	Commitments and Contingencies

 

12.	Subsequent Events

In October 2011, the Company issued promissory notes to certain investors, resulting in gross proceeds to the Company of $15,000 (the "Q4 Notes").  The Q4 Notes accrue interest at the rate of 6% annually, and are due and payable on or before March 31, 2012.  The Q4 Notes are convertible at the option of the holder into shares of the Company's common stock at a conversion price equal to $0.10 per share.  In addition, at the option of the holder, 110% of the face value of the Q4 Notes may be exchanged for securities issued in connection with a qualified financing, resulting in gross proceeds to the Company of at least $1.0 million.  The Company has reserved for issuance 75,000 shares of its common stock related to the Q4 Notes.  The Company will record a discount on the Q4 Notes in the amount of $6,177 and a beneficial conversion feature of $21,162, each will be amortized as non-cash interest expense over the life of the Q4 Notes.

 

Professional fees for the three months ended September 30, 2011 and 2010, were $121,192 and $125,556, respectively, and for the nine months ended September 30, 2011 and 2010, were $399,215 and $553,986, respectively. Professional fees include the costs of legal, consulting and auditing services provided to us.  The decrease in professional fees in the 2011 periods is directly related to the suspension of operations at December 31, 2010.  Included in the three and nine months periods in 2011 are non-cash expenses of $136,522 related to stock and warrants issued as payment for professional services.

 

 

      During the three and nine months ended September 30, 2011, the Company recorded interest expense of $3,567 and $5,127, respectively.  Included in interest expense for the 2011 periods is non-cash interest expense of $1,554 related to the amortization of the debt discount on notes payable.

 

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The accounting policies discussed below are considered by management to be the most important to the Company’s financial condition and results of operations, and require management to make its most difficult and subjective judgments due to the inherent uncertainty associated with these matters. All significant estimates and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and adjusted when necessary. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. Additional information on significant accounting principles is provided in Note 1 of the attached financial statements.

 

 

(a)	Evaluation of disclosure controls and procedures.

    Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of September 30, 2011. Based on this evaluation, the Company’s Chief Executive Officer/Principal Accounting Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

ITEM 1.

Legal Proceedings.

ITEM 2.

Unregistered Sales of Equity Securities, and Use of Proceeds

ITEM 3.

Defaults Upon Senior Securities

ITEM 4.

Reserved

ITEM 5.

Other Information

ITEM 6.

Exhibits

Exhibit		Description
31		Certification of Chief Executive Officer and Principal Financial and Accounting Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended.
32*		Certification of Chief Executive Officer and Principal Financial and Accounting Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

 

Date: November 18, 2011	/s/ Shalom Hirschman
	Shalom Hirschman Principal Executive, Financial and Accounting Officer