QUANTRX BIOMEDICAL CORP - Quarter Report: 2011 March (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		2
	Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010		2
	Statements of Operations (Unaudited) for the three months ended March 31, 2011 and 2010		3
	Statements of Cash Flows (Unaudited) for the three months ended March 31, 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		12
ITEM 4.	Controls and Procedures		17
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings		18
ITEM 2.	Unregistered Sales of Equity Securities; and Use of Proceeds		18
ITEM 3.	Defaults Upon Senior Securities		18
ITEM 4.	Reserved		18
ITEM 5.	Other Information		18
ITEM 6.	Exhibits		18
Signatures

 

 

ITEM 1.

Financial Statements

		March 31,			December 31,
		2011			2010
ASSETS		Unaudited
Current Assets:
Cash and cash equivalents		$	12,223		$	229,944
Accounts receivable			9,064			4,457
Accounts receivable – related party			-			414,179
Interest receivable – related party			67,689			63,689
Inventories			3,139			3,770
Prepaid expenses			20,686			23,409
Note receivable – related party			200,000			200,000
Total Current Assets			312,801			939,448
Investments			200,000			200,000
Property and equipment, net			97,327			109,479
Intangible assets, net			44,739			46,805
Security deposits			6,093			6,093
Total Assets		$	660,960		$	1,301,825
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable		$	384,133		$	437,587
Accounts payable – related party			-			193,987
Accrued expenses			97,750			168,000
Deferred rent			3,900			-
Security deposit			2,000			2,000
Total Current Liabilities			487,783			801,574
Notes payable, long-term			44,000			44,000
Total Liabilities			531,783			845,574
Commitments and Contingencies			-			-
Stockholders’ Equity (Deficit):
Series B Convertible Preferred stock; $0.01 par value, 20,500,000 authorized shares, 17,916,228 shares issued and outstanding			179,162			179,162
Common stock; $0.01 par value; 150,000,000 authorized; 46,077,630 and 44,427,630 shares issued and outstanding, respectively			460,776			444,276
Common Stock to be issued			-			128,000
Additional paid-in capital			47,644,211			47,524,761
Accumulated deficit			(48,154,972)			(47,819,948)
Total Stockholders’ Equity (Deficit)			129,177			456,251
Total Liabilities and Stockholders’ Equity (Deficit)		$	660,960		$	1,301,825

		Three Months Ended March 31
		2011				2010
		(Unaudited)				(Unaudited)
Revenues:
Revenues		$	8,900			$	10,010
Revenues – related party			-				649,281
Total Revenues			8,900				659,291
Costs and Operating Expenses:
Cost of goods sold (excluding depreciation and amortization)			181				32
Sales, general and administrative			18,367				303,577
Professional fees			67,798				249,551
Research and development			26,832				604,346
Amortization			2,066				4,304
Depreciation			12,151				16,906
Total Costs and Operating Expenses			127,395				1,178,716
Loss from Operations			(118,495)				(519,425)
Other Income (Expense):
Interest and dividend income			4,000				6,260
Interest expense			(574)				(1,178)
Rental income			-				4,125
Gain (loss) on sale of investments			-				250,000
Net gain (loss) on disposition of assets			(1,320)				(2,429)
Loss from joint venture			(220,192)				(63,601)
Gain on settlement of accounts payable			1,557				-
Total Other Income (Expense), net			(216,529)				193,172
Income (Loss) Before Taxes		$	(335,024)			$	(326,248)
Provision for Income Taxes			-				-
Net Income (Loss) Available to Common Shareholders		$	(335,024)			$	(326,248)
Basic and Diluted Net Income (Loss) per Common Share		$	(0.01)			$	(0.01)
Basic and Diluted Weighted Average Shares Used in per Share Calculation			46,077,630				42,936,519

	QUANTRX BIOMEDICAL CORPORATION
	STATEMENTS OF CASH FLOWS
				March 31,				March 31,
			2011				2010
			(Unaudited)				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(335,024)			$	(326,248)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization				14,218				21,210
Expenses related to employee stock based compensation				7,950				23,042
Expenses related to common stock warrants issued for consulting				-				(1,000)
Net Gain on settlement of accounts payable				1,557				-
Loss from joint venture				220,192				63,601
Gain(loss) on disposition of assets				-				(247,571)
(Increase) decrease in:
Accounts receivable				(4,607)				(11,189)
Interest receivable				4,000				(4,000)
Inventories				631				6
Prepaid expenses				2,723				56,808
Increase (decrease) in:
Accounts payable				(55,011)				45,358
Accrued expenses				(70,250)				52,500
Deferred revenue				3,900				(96,200)
Net Cash Used by Operating Activities				(217,721)				(423,683)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from sale of investment securities				-				250,000
Net Cash Provided (Used) by Investing Activities				-				250,000
CASH FLOWS FROM FINANCING ACTIVITIES				-				-
Net Increase (Decrease) in Cash and Cash Equivalents				(217,721)				(173,683)
Net Cash of Deconsolidated Subsidiary				-
Cash and Cash Equivalents, Beginning of Period				229,944				376,211
Cash and Cash Equivalents, End of Period			$	12,223			$	202,528
Supplemental Cash Flow Disclosures:
Interest expense paid in cash			$	574			$	1,178
Income tax paid			$	-			$
NON CASH INVESTING & FINANCING ACTIVITIES:
Shares issued for:
Accounts payable			$	128,000			$	-

 

QUANTRX BIOMEDICAL CORPORATION

CONDENSED NOTES TO FINANCIAL STATEMENTS

 

1.	Management Statement Regarding Going Concern

	·	resolve the litigation with NuRx relating to the Company’s interest in QND;
	·	consummate a strategic transaction with its joint venture partner;

·

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

·

manage or control working capital requirements by reducing operating expenses; and

·

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

 

Under the terms of certain agreements related to QND, QND made a $2.0 million cash distribution to the Company.  The Company is committed to further capital contributions to QND, consisting of the transfer of certain fixed assets with a fair value of $100,000 at QND’s discretion, and a $700,000 sustaining capital contribution as required by QND.  The Company believes, however, that it has unreimbursed costs and expenses in excess of $800,000 for services provided to or on behalf of QND.  As a result, the Company believes it has substantially satisfied its initial sustaining capital contribution requirement. The Company was also required to make certain milestone payments to PRIA Diagnostics, LLC ("PRIA"). Subsequent to March 31, 2011, however, the Company settled its obligations to PRIA in consideration for the payment to PRIA of $5,000 and the issuance to PRIA of 500,000 shares of the Company's Common Stock.  See Note 10. 

On August 24, 2010, NuRx filed suit naming as a defendant Dr. William Fleming, a member of the Company’s Board of Directors.  On October 20, 2010, on its own motion to intervene, the Company was added as a defendant.  The suit is based on allegations that QND is deadlocked over the Company’s rejection of a required capital call, and NuRx’s allegation that the Company has not met a “milestone” requirement in the Development Agreement, that would give NuRx the right to have a Company appointed board member removed and replaced with a member appointed by NuRx.  The suit is currently stayed by mutual agreement of the parties to allow the parties to explore an amicable resolution of the proceedings.  Settlement discussions are currently at an impasse; however, management continues to pursue avenues of mutual interest to resolve the litigation.  No assurances can be given that any the terms of any resolution with NuRx will be favorable, or that the Company will successfully retain its current interest in QND.

 

 

5.	Intangible Assets

		March 31, 2011				December 31, 2010
Licensed patents and patent rights		$	50,000			$	50,000
Patents			41,004				41,004
Less: accumulated amortization			(46,265)				(44,199	)
Intangibles, net		$	44,739			$	46,085

The Company’s intangible assets are carried at the legal cost to obtain them. Intangible assets are amortized using the straight line method over the estimated useful life. Useful lives are as follows: licensed patents and patent rights, eight to 15 years; patents, 17 years; technology license, five years; and website development costs, three years. Amortization expense totaled $2,066 and $4,304 for the three months ended March 31, 2011 and 2010, respectively.  Impairment will be considered in accordance with the Company’s impairment policy which requires at least an annual analysis. No impairment was recognized as of March 31, 2011. 

6.	Other Balance Sheet Information

		March 31,				December 31,
		2011				2010
Prepaid expenses:
Prepaid insurance		$	14,789			$	17,386
Other			5,897				6,023
Prepaid expenses		$	20,686			$	23,409
Property and equipment:
Computers and office furniture, fixtures and equipment		$	90,660			$	90,660
Machinery and equipment			173,295				173,295
Leasehold improvements			92,233				92,233
Less: accumulated depreciation			(258,861)				(246,709)
Property and equipment, net		$	97,328			$	109,479
Accrued expenses:
Payroll and related		$	15,750			$	86,000
Professional fees			82,000				82,000
Accrued expenses		$	97,750			$	168,000

 

 

 

8.	Common Stock, Options and Warrants

 

 

 

 

In consideration for the management and other executive services provided by Drs. Shalom Hirschman and William Fleming, the Company issued 500,000 restricted shares of the Company's Common Stock to each of Drs. Hirschman and Fleming.  Drs. Hirschman and Fleming serve as the Company's Principal Executive Officer and Principal Accounting Officer, and President and Chief Science Officer, respectively.

 

 

On May 16, 2011, the Company entered into a Consulting Agreement with Burnham Hill Advisors, LLC ("BHA"), pursuant to which BHA will provide certain business, corporate development, litigation support, financial and strategic consulting services to the Company for and in consideration of the payment to BHA of $12,000 per month; provided, however, such amount shall not be paid, and shall accrue, until the earlier to occur of such time as the Company's cash balance exceeds $1.5 million, or twenty-four months from the date of execution.  For each month in which payment of the cash component is deferred, BHA shall be issued a warrant exercisable for 200,000 shares of the Company's Common Stock at an exercise price of the higher of $.20 per share or 105% of the closing price on the date of issue.  The term of the Consulting Agreement is 18 months, and the term of the warrants is five years.  Additionally, BHA was issued 2. 5 million shares of the Series B Preferred, with a deemed value of $37,500, in consideration for past professional services provided the Company, consisting of financial advisory, strategic consulting, litigation support, among other services.

 

 

On May 19, 2011, the Company reached an agreement with a lender to provide up to $100,000 in debt financing, of which the lender has currently provided $60,000 on May 19, 2011.  Amounts loaned under the terms of the agreement shall bear simple interest at 3% annually, which amount increases to 12% upon an event of default.  All amounts loaned under the terms of the agreement are due and payable the lender on or before November 19, 2011 (the "Maturity Date").

 

Concurrently with this debt financing commitment, the lender agreed to surrender and cancel 2,069,000 warrants held by it and the Company agreed to issue to the lender 2,069,000 shares of Common Stock.

 

 

 

Other income and expense for the three months ended March 31, 2011 were net expenses of $216,529 as compared to net income of $193,177 for the three months ended March 31, 2010.  The decrease of $409,206 was primarily comprised of net loss in the 2011 period related to net losses of $220,192 for the impairment of QND accounts receivable offset by the Company’s accounts payable obligations due to the Company’s current litigation, offset by the 2010 activity primarily comprised of gains on the sale of investments in FlouroPharma of $250,000, interest income of $6,260, and rental income of $4,125. Partially offsetting these gains are losses of $63,601 for the Company’s equity method losses from QND for the period from January through March 2010, and losses of $2,429 from the disposition of assets.

 

 

ITEM 4.

Controls and Procedures

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.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 20, 2011	/s/ Shalom Hirschman
	Shalom Hirschman Principal Executive, Financial and Accounting Officer