QUANTRX BIOMEDICAL CORP - Quarter Report: 2014 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
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 No. 000-17119
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QUANTRX BIOMEDICAL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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33-0202574
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|
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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10190 SW 90th Avenue, Tualatin, Oregon 97123
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(Address of Principal Executive Offices) (Zip Code)
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503-575-9385
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(Registrant's Telephone Number, Including Area Code)
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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 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 [X] 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 (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of the issuer’s common stock as of May 12, 2014 was 60,739,930.
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PART I – FINANCIAL INFORMATION
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING EXHIBITS HERETO, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS “ANTICIPATES,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FORECASTS,” “PLANS,” “ESTIMATES,” “MAY,” “FUTURE,” “STRATEGY,” OR WORDS OF SIMILAR MEANING. VARIOUS FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS; INCLUDING THOSE DESCRIBED IN “RISK FACTORS” IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013. WE ASSUME NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
ITEM 1. Financial Statements
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
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March 31,
2014
(unaudited)
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December 31,
2013
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|||||||
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ASSETS
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||||||||
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Current Assets:
|
||||||||
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Cash and cash equivalents
|
$
|
120,546
|
$
|
4,457
|
||||
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Accounts receivable
|
413
|
917
|
||||||
|
Inventories
|
1,736
|
1,978
|
||||||
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Prepaid expenses
|
15,812
|
30,218
|
||||||
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Note receivable
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90,000
|
120,000
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||||||
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Total Current Assets
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228,507
|
157,570
|
||||||
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Investments
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200,000
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200,000
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||||||
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Property and equipment, net
|
3,012
|
3,285
|
||||||
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Intangible assets, net
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35,239
|
37,092
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||||||
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Total Assets
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$
|
466,758
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$
|
397,947
|
||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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||||||||
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Current Liabilities:
|
||||||||
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Accounts payable
|
$
|
306,426
|
$
|
285,412
|
||||
|
Accrued expenses
|
25,411
|
19,711
|
||||||
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Notes payable and accrued interest, net of discounts
|
924,648
|
738,694
|
||||||
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Total Current Liabilities
|
1,256,485
|
1,043,817
|
||||||
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Notes payable, long-term
|
44,000
|
44,000
|
||||||
|
Total Liabilities
|
1,300,485
|
1,087,817
|
||||||
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Commitments and Contingencies
|
-
|
-
|
||||||
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Stockholders’ Equity (Deficit):
|
||||||||
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Series B Convertible Preferred Stock; $0.01 par value, 20,500,000 authorized shares, 20,416,228 shares issued and outstanding at March 31, 2014 and December 31, 2013
|
204,162
|
204,162
|
||||||
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Common stock; $0.01 par value; 150,000,000 authorized; 52,728,644 shares issued and outstanding at March 31, 2014 and December 31, 2013
|
527,286
|
527,286
|
||||||
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Common stock to be issued
|
141,760
|
120,000
|
||||||
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Additional paid-in capital
|
48,157,303
|
48,138,544
|
||||||
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Accumulated deficit
|
(49,864,238
|
)
|
(49,679,862
|
)
|
||||
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Total Stockholders’ Equity (Deficit)
|
(833,727
|
)
|
(689,870
|
)
|
||||
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
$
|
466,758
|
$
|
397,947
|
||||
The accompanying condensed notes are an integral part of these consolidated financial statements.
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended
March 31,
|
||||||||
|
|
2014
|
2013
|
||||||
|
Revenue:
|
||||||||
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Revenue
|
$
|
602
|
$
|
3,341
|
||||
|
Total Revenue
|
602
|
3,341
|
||||||
|
Costs and Operating Expenses:
|
||||||||
|
Cost of goods sold (excluding depreciation and amortization)
|
241
|
80
|
||||||
|
Sales, general and administrative
|
39,994
|
16,921
|
||||||
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Professional fees
|
43,934
|
28,101
|
||||||
|
Research and development
|
6,098
|
1,347
|
||||||
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Amortization
|
1,853
|
1,853
|
||||||
|
Depreciation
|
274
|
274
|
||||||
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Total Costs and Operating Expenses
|
92,394
|
48,576
|
||||||
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Loss from Operations
|
(91,792
|
) |
(45,235
|
) | ||||
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Other Income (Expense):
|
||||||||
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Interest and dividend income
|
1,972
|
4,000
|
||||||
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Interest expense
|
(21,613
|
) |
(18,526
|
) | ||||
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Gain on exchange of equity investment
|
-
|
30,045
|
||||||
|
Other financing costs
|
(21,760
|
) |
(4,793
|
) | ||||
|
Amortization of debt discount to interest expense
|
(49,211
|
) |
(2,407
|
) | ||||
|
Loss on Impairment
|
(1,972
|
) |
(4,000
|
) | ||||
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Total Other Income (Expense), net
|
(92,584
|
) |
4,319
|
|||||
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Loss Before Taxes
|
(184,376
|
) |
(40,916
|
)
|
||||
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Provision for Income Taxes
|
-
|
-
|
||||||
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Net Loss
|
$
|
(184,376
|
) |
$
|
(40,916
|
) | ||
|
Basic and Diluted Net Loss per Common Share
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$
|
(0.00
|
) |
$
|
(0.00
|
) | ||
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Basic and Diluted Weighted Average Shares Used in per Share Calculation
|
52,728,644
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52,528,644
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||||||
The accompanying condensed notes are an integral part of these interim consolidated financial statements.
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
|
Three Months Ended
|
||||||||
|
March 31, 2014
|
March 31, 2013
|
|||||||
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CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net loss
|
$
|
(184,376
|
)
|
$
|
(40,916
|
)
|
||
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
||||||||
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Depreciation and amortization
|
2,126
|
2,127
|
||||||
|
Interest expense related to amortization of non-cash discount, non-cash beneficial conversion feature and deferred financing costs
|
49,211
|
7,200
|
||||||
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Non-cash gain on exchange of equity investment
|
-
|
(30,045
|
) | |||||
|
Interest receivable
|
(1,972
|
) |
(4,000
|
)
|
||||
|
Loss on impairment
|
1,972
|
4,000
|
||||||
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Non-cash fair value of common stock issued & to be issued with notes payable
|
21,760
|
-
|
||||||
|
(Increase) Decrease in:
|
||||||||
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Accounts receivable
|
504
|
(959
|
)
|
|||||
|
Inventories
|
242
|
81
|
||||||
|
Prepaid expenses
|
14,406
|
7,514
|
||||||
|
Increase (decrease) in:
|
||||||||
|
Accounts payable
|
21,016
|
2,860
|
||||||
|
Accrued interest and expenses
|
25,201
|
10,140
|
||||||
|
Net Cash Used by Operating Activities
|
(49,911
|
)
|
(41,998
|
)
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Payments received on note receivable
|
30,000
|
-
|
||||||
|
Net Cash Provided by Investing Activities
|
30,000
|
-
|
||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Cash provided by Notes Payable
|
136,000
|
37,000
|
||||||
|
Net Cash Provided from financing activities
|
136,000
|
37,000
|
||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
116,089
|
(4,998
|
) | |||||
|
Cash and Cash Equivalents, Beginning of Period
|
4,457
|
9,989
|
||||||
|
Cash and Cash Equivalents, End of Period
|
$
|
120,546
|
$
|
4,991
|
||||
|
Supplemental Cash Flow Disclosures:
|
||||||||
|
Interest expense paid in cash
|
$
|
-
|
$
|
-
|
||||
|
Income tax paid
|
$
|
-
|
$
|
-
|
||||
|
NON CASH INVESTING & FINANCING ACTIVITIES:
|
||||||||
|
Shares issued for notes payable
|
$
|
21,760
|
$
|
-
|
||||
The accompanying condensed notes are an integral part of these interim consolidated financial statements.
QUANTRX BIOMEDICAL CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Overview
The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and laboratory markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PadKit® technology for the worldwide healthcare industry. These platforms include: inSync®, Unique™, PadKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology. These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs.
The Company’s efforts to commercialize its products are currently contingent on the receipt of additional financing required to execute its business and operating plan, which is currently focused on the commercialization of the Company’s PAD technology either directly or through a joint venture or other relationship intended to increase shareholder value. In the interim, the Company has had nominal operations, focused principally on the limited online sale of our Unique® Miniform PAD product and maintaining compliance with the public company reporting requirements. No assurances can be given that the Company will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize the Company’s PAD technology.
On June 20, 2012, the Company formed a wholly-owned subsidiary, QX Labs, Inc. (“QX”), to convey and transfer to QX all intellectual property and assets related to the Company’s diagnostic testing business ("Diagnostics Business"). The Diagnostic Business is based principally on the Company’s proprietary PadKit® technology, which the Company believes provides a patented platform technology for genomic diagnostics, including fetal genomics. Following the transfer of the Diagnostics Business to QX, which the Company intends to affect during the current fiscal year, the Company’s other business line will consist of its over-the-counter business, including the InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms (the “OTC Business”), as well as established and continuing licensing relationships related to the OTC Business. Management believes the creation of QX permits the Company to more efficiently explore different options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “Businesses”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.
The Company’s current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage its broad-based intellectual property (“IP”) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize its OTC Business and its Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets. As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on limited online sale of our Unique® Miniform PAD product, and obtaining financing necessary to maintain the Company as a going concern.
The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2014. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on previously reported losses, total assets or stockholders equity.
Recent Developments
Issuance of Notes
During the three months ended March 31, 2014, the Company issued two promissory notes to two investors in the principal amounts of $100,000, and $36,000, respectively (together, the “2014 Notes”). As additional consideration for the purchase of the 2014 Notes, the Company issued an aggregate total of 272,000 shares of common stock to the investors. The Company recorded debt discount of $18,769 related to the 2014 Notes and will amortize the expense over the life of the 2014 Notes. During the three months ended March 31, 2014, the Company recorded $1,292 of interest expense related to the debt discount on the 2014 Notes.
The 2014 Notes are due and payable on June 30, 2014 (the “Maturity Date), and, prior to the Maturity Date, accrue interest at a rate of 8% annually. Following the Maturity Date, the 2014 Notes accrue interest at a rate of 12% annually. The 2014 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, the holder may exchange the 2014 Notes for common stock in the event the Company consummates a qualified financing (the “Qualified Financing”), which is defined in the 2014 Notes as a financing resulting in gross proceeds to the Company of at least $500,000. While the Company intends to pay the 2014 Notes using proceeds from a Qualified Financing, such Qualified Financing may not occur prior to the date the holder of the 2014 Notes demands repayment.
The Company presently intends to issue additional promissory notes to finance its current working capital needs. However, there can be no assurance that the Company will be able to issue additional promissory notes.
2. Management Statement Regarding Going Concern
The Company currently is generating only nominal revenue from operations. The Company has historically financed its operations primarily through issuances of equity and the proceeds from the issuance of promissory notes. In the past, the Company also provided for its cash needs by issuing Common stock, options and warrants for certain operating costs, including consulting and professional fees, as well as divesting its minority equity interests and equity-linked investments.
The Company’s history of operating losses, limited cash resources and the absence of an operating plan necessary to capitalize on the Company’s assets raise substantial doubt about our ability to continue as a going concern absent a strengthening of our cash position. Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment holdings, as well as a strategic, merger or other transaction to obtain additional funding to continue the development of, and to successfully commercialize, its products. There can be no assurance that the Company will be successful in its efforts. Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.
There can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.
3. Summary of Significant Accounting Policies
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements.
Accounting for Share-Based Payments. The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed. During the three months ended March 31, 2014, the Company did not issue employee stock-based compensation expense.
The Company accounts for share-based payments granted to non-employees in accordance with ASC Topic 505, “Equity Based Payments to Non-Employees.” The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is complete.
In the case of modifications, the Black-Scholes model is used to value the warrant on the modification date by applying the revised assumptions. The difference between the fair value of the warrants prior to the modification and after the modification determines the incremental value. The Company has modified warrants in connection with the issuance of certain notes and note extensions. These modified warrants were originally issued in connection with previous private placement investments. In the case of debt issuances, the warrants were accounted for as original issuance discount based on their relative fair values. When modified in connection with a note issuance, the Company recognizes the incremental value as a part of the debt discount calculation, using its relative fair value in accordance with ASC Topic 470-20, “Debt with Conversion and Other Options.” When modified in connection with note extensions, the Company recognized the incremental value as prepaid interest, which is expensed over the term of the extension.
The fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year. During the three months ending March 31, 2014, the Company used an average risk-free interest rate of 2.73%, a dividend yield of 0%, and an average volatility of 544% to calculate the fair value of equity securities issued for services. During the year ended December 31, 2013, the Company used an average risk-free interest rate of 2.6%, expected volatility of 331%, and a dividend yield of zero.
Risk-Free Interest Rate. The interest rate used is based on the yield of a U.S. Treasury security as of the beginning of the year.
Expected Volatility. The Company calculates the expected volatility based on historical volatility of monthly stock prices over a three year period.
Dividend Yield. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield.
Expected Term. For options, the Company has no history of employee exercise patterns. Therefore, the Company uses the option term as the expected term. For warrants, the Company uses the actual term of the warrant.
Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures are based on Company experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
Earnings per Share. The Company computes net income (loss) per common share in accordance with ASC Topic 260. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as including common stock equivalents in the calculation of diluted earnings per share would have been antidilutive.
As of March 31, 2014, the Company had outstanding options exercisable for 289,500 shares of its common stock, warrants exercisable for 793,000 shares of its common stock, and preferred shares convertible into 20,416,228 shares of its common stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the three months ended March 31, 2014.
As of March 31, 2013, the Company had outstanding options exercisable for 304,500 shares of its common stock, warrants exercisable for 2,245,000 shares of its common stock, and preferred shares convertible into 20,416,228 shares of its common stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the three months ended March 31, 2013.
Fair Value. The Company has adopted ASC Topic 820, "Fair Value Measurements and Disclosures" for both financial and nonfinancial assets and liabilities. The Company has not elected the fair value option for any of its assets or liabilities.
Use of Estimates. The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions, which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
4. Investments
In May 2011, FluoroPharma, Inc. (“FPI”) entered into a reverse merger with FluoroPharma Medical, Inc. (“FPMI”). In connection with this transaction, the Company's warrants in FPI were exchanged for warrants in FPMI (the “FPMI Warrants”). During 2012, the Company recognized a gain in the amount of $115,752 as a result of the issuance of certain of these warrants to holders of promissory notes of the Company that matured during the period. Each FPMI Warrant is exercisable for $1.00 per share and expires on February 15, 2019. As of March 31, 2014, the Company retained control over 109,917 warrants, the value of which has been deemed by the Company to be fully impaired.
5. Intangible Assets
Intangible assets as of the balance sheet dates consisted of the following:
|
March 31,
2014
|
December 31,
2013
|
|||||||
|
Licensed patents and patent rights
|
$
|
50,000
|
$
|
50,000
|
||||
|
Patents
|
41,004
|
41,004
|
||||||
|
NuRx licensed technology
|
13,200
|
13,200
|
||||||
|
Less: accumulated amortization
|
(68,965
|
)
|
(67,112
|
)
|
||||
|
Intangibles, net
|
$
|
35,239
|
$
|
37,092
|
||||
The Company’s intangible assets consist of patents, licensed patents and patent rights, and website development costs, and are carried at the legal cost to obtain them. Costs to renew or extend the term of intangible assets are expensed when incurred. In 2008, through our formerly majority owned subsidiary, the Company also held technology licenses and other acquired intangibles. Intangible assets are amortized using the straight-line method over the estimated useful life. Useful lives are as follows: patents, 17 years; patents under licensing, 10 years; website development costs, three years, and in 2008, acquired intangibles had a weighted average life of 15 years. Amortization expense for the three months ended March 31, 2014 and 2013 totaled $1,853 and $1,853, respectively.
On March 1, 2013, the Company entered into an Exchange Agreement with NuRx and QND, pursuant to which the Company exchanged the shares of NuRx common stock received under the terms of the settlement agreement with NuRx in July 2011 (the "Settlement Shares") for certain patents, trademarks and other intellect property formerly held by NuRx and QND covering point-of-care lateral flow diagnostics (RapidSense™) and related oral fluid collection technologies. The Company has recorded the value associates with this exchange at $13,200, and will amortize these costs over the remaining useful lives of the intellectual property exchanged.
6. Notes Payable
Convertible Notes Payable. In May 2012, in consideration for the extension of certain promissory notes due and payable on March 31, 2012 (the “2012 Notes”) to June 30, 2012, the Company assigned to the holders of the 2012 Notes FPMI Warrants to to purchase a total of 113,127 shares of FPMI common stock for $0.50 per share (the “$0.50 FPMI Warrants”). In August 2012, in consideration for the extension of the maturity date of the 2012 Notes to November 15, 2012, the Company agreed to assign a total of 155,877 $0.50 FPMI Warrants to the holders of the 2012 Notes. As a result, a total of 260,508 $0.50 FPMI Warrants have been assigned to holders of 2012 Notes.
Between August 2012 and July, 2013, the Company issued promissory notes in the aggregate principal amount of $114,000 (the “2013 Notes”). As additional consideration for the 2013 Notes, the Company issued an aggregate total of 200,000 of its common stock, 8,496 $0.50 FPMI Warrants and 64,000 FPMI Warrants exercisable for $1.00 per share.
The 2012 and 2013 Notes accrue interest at the rate of 6% annually prior to maturity, and 12% annually thereafter. All of the Notes have matured and are currently due and payable on demand. The Notes are convertible at the option of each respective holder into shares of common stock at a conversion price equal to $0.10 per share. In addition, the holders may exchange the Notes for common stock in the event the Company consummates a qualified financing (the “Qualified Financing”), which is defined in the Notes as a financing resulting in gross proceeds to the Company of at least $500,000. While the Company intends to pay the Notes using proceeds from a Qualified Financing, such Qualified Financing may not occur prior to the date the holders of the Notes demand repayment.
In connection with the issuance of the 2012 and 2013 Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $106,261 and $28,998, respectively. The Company will amortize these expenses over the life of the Notes. As of December 31, 2012, the Company recorded interest expense related to the debt discount of $21,905 and $3,777 related to the beneficial conversion feature.
In connection with the issuance of the 2013 Notes, the Company has recorded debt discount and expenses in the amount of $27,753 related to the value of the exchange of 64,000 FPMI warrants to the holders of the Notes. The Company will amortize the costs over the remaining life of these Notes. As of March 31, 2014, the Company recorded other financing costs of $47,919 related to the debt discount on these Notes.
On October 29, 2013, the holder of certain outstanding 2012 and 2013 Notes totaling approximately $217,000 in principal and accrued interest agreed to cancel such notes in exchange for a new promissory note with a face amount of $217,000 maturing on March 31, 2014 and 100,000 FPMI Warrants. Separately, our financial advisor agreed to exchange $216,000 of fees accrued from May 15, 2012 to October 15, 2013 that are payable in cash on December 31, 2013 for a note with a face amount of $250,000 maturing on March 31, 2014 and 100,000 FPMI Warrants. This notes accrued interest at a rate of 8% annually prior to maturity, and, following maturity of the note on March 31, 2014, now accrues interest at rate of 12% annually.
During the three months ended March 31, 2014, the Company issued two 2014 Notes to two investors in the principal amounts of $100,000, and $36,000. As additional consideration for the purchase of the 2014 Notes, the Company issued an aggregate total of 272,000 shares of common stock. The Company recorded debt discount of $18,769 related to the 2014 Notes and will amortize the expense over the life of the 2014 Notes. During the three months ended March 31, 2014, the Company recorded $1,292 of interest expense related to the debt discount on the 2014 Notes.
Long-Term Notes Payable. The Company received a $44,000 loan from the Portland Development Commission in 2007. The loan matures in 20 years and was interest free through February 2010. The terms of the note stipulate monthly interest only payments from April 2010 through December 2014, at a 5% annual rate. The Company recorded interest expense on this loan of $540 for the three months ended March 31, 2014.
7. Other Balance Sheet Information
Components of selected captions in the accompanying balance sheets consist of:
|
Prepaid expenses:
|
March 31,
2014
|
December 31,
2013
|
||||||
|
Prepaid insurance
|
$
|
15,812
|
$
|
23,718
|
||||
|
Other
|
-
|
6,500
|
||||||
|
Prepaid expenses
|
$
|
15,812
|
$
|
30,218
|
||||
|
Property and equipment:
|
||||||||
|
Computers and office furniture, fixtures and equipment
|
$
|
28,031
|
$
|
28,031
|
||||
|
Machinery and equipment
|
5,475
|
5,475
|
||||||
|
Less: accumulated depreciation
|
(30,494
|
)
|
(30,221
|
)
|
||||
|
Property and equipment, net
|
$
|
3,012
|
$
|
3,285
|
||||
|
Accrued expenses:
|
||||||||
|
Other Accrued expenses
|
$
|
25,411
|
19,711
|
|||||
|
Accrued expenses
|
$
|
25,411
|
19,711
|
|||||
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment at March 31, 2014 and 2013 consisted of machinery and equipment with estimated useful lives of one to three years.
Depreciation expense for the three months ended March 31, 2014 and 2013 was $274.
Expenditures for repairs and maintenance are expensed as incurred.
8. Preferred Stock
The Company has authorized 25,000,000 shares of preferred stock, of which 20,500,000 shares are designated as Series B Convertible Preferred Stock, $0.01 par value, with a stated value of approximately $204,000 (“Series B Preferred”). The remaining 4,500,000 authorized preferred shares have not been designated by the Company as of March 31, 2014.
Series B Convertible Preferred Stock. The Company has authorized 20,500,000 shares of Series B Preferred, $0.01 par value. The Series B Preferred ranks prior to the common stock for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms did not rank senior to the Series B Preferred (“Junior Stock”). Holders of the Series B Preferred are entitled to receive cash dividends, when, as and if declared by the Board of Directors, and they shall be entitled to receive an amount equal to the cash dividend declared on one share of Common stock multiplied by the number of shares of Common stock equal to the outstanding shares of Series B Preferred, on an as converted basis. The holders of Series B Preferred have voting rights to vote as a class on matters (i) amending, altering or repealing the provisions of the Series B Preferred so as to adversely affect any right, preference, privilege or voting power of the Series B Preferred, or (ii) to effect any distribution with respect to Junior Stock. At any time, the holders of Series B Preferred may, subject to limitations, elect to convert all or any portion of their Series B Preferred into fully paid non-assessable shares of Common stock at a 1:1 conversion rate.
At March 31, 2014, the Company had 20,416,228 shares of Series B Preferred issued and outstanding with a liquidation preference of $204,162, and convertible into 20,416,228 shares of common stock.
9. Common Stock, Options and Warrants
The Company has authorized 150,000,000 shares of its common stock, $0.01 par value. The Company had issued and outstanding 52,728,644 shares of its common stock at March 31, 2014 and December 31, 2013. In December 2009, the shareholders of the Company approved an increase in the number of authorized common stock to 150,000,000 shares. The increase took effect in January 2010 with the filing of the amendment to the articles of incorporation with the State of Nevada.
On May 21, 2013, the Company’s authorized the issuance of 1.0 million shares of common stock to management as compensation for services with a fair value of $30,000.
On December 6, 2013, the Company authorized the issuance of 900,000 shares of common stock to management as compensation for services with a fair value of $9,000.
Other than the issuances to certain Note investors of an aggregate of 272,000 shares of the Company’s common stock, as described in Note 6 above, 1,800,000 shares of the Company’s common stock issued related to a professional services agreement, as described in Note 11 below, 300,000 shares issued as settlement of accounts payable, and 1,900,000 issued to management, no common stock, or options to purchase common stock, were issued or granted during the three months ended March 31, 2014.
During the three months ended March 31, 2014, approximately 15,000 options and 763,000 warrants to purchase the Company’s common stock expired.
2007 Incentive and Non-Qualified Stock Option Plan. The fair value of options granted under the Company’s 2007 Incentive and Non-Qualified Stock Option Plan is recorded as compensation expense over the vesting period, or, for performance based awards, the expected service term. During the three months ended March 31, 2014 and 2013, the Company had no compensation expense related to employee stock options.
10. Commitments and Contingencies
Professional Services Agreement. On May 16, 2011, the Company entered into a consulting agreement with its financial advisor, pursuant to which it will provide certain business, corporate development, litigation support, financial and strategic consulting services to the Company for and in consideration of the payment of $12,000 per month. Under the terms of the consulting agreement, however, amounts due thereunder were not paid, and instead were accrued, until the earlier to occur of such time as the Company's cash balance exceeded $1.5 million, or 24 months from the date of execution.
On August 1, 2012, the consulting agreement was amended to extend the deferral period for accrued cash compensation from May 16, 2013 to December 31, 2013, and the provision related to monthly warrant issuances was replaced with a provision requiring the Company to issue 100,000 shares of restricted stock monthly in lieu of the issuance of 200,000 warrants. In addition, all warrants previously issued under the consulting agreement were exchanged for shares of common stock at a ratio of one share of restricted common stock for every two warrants issued under the terms of the consulting agreement, resulting in the cancellation of warrants to issue 3.0 million shares of common stock and the issuance of a total of 1.5 million shares of restricted common stock.
On October 29, 2013, we entered into a new advisory agreement with our financial advisor. Pursuant to this agreement, we agreed to pay a retainer in the amount of $100,000 and $15,000 per month beginning on November 29, 2013. The initial term of the agreement expires on December 31, 2014. The advisor agreed to defer the cash fees due under the new agreement until June 30, 2014.
11. Subsequent Events
On May 1, 2014, the Company received and accepted a notice of conversion to, in accordance with the procedures set forth in the Certificate of Designation for the Series B Convertible Preferred Stock, convert 921,543 shares of Series B Preferred into approximately 3.7 million shares of common stock.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition should be read in conjunction with the financial statements and notes to financial statements included elsewhere in this filing. The following discussion (as well as statements in Item 1 above and elsewhere) contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 that involve risks and uncertainties. Some or all of the results anticipated by these forward-looking statements may not occur. Forward-looking statements involve known and unknown risks and uncertainties including, but not limited to, trends in the biotechnology, healthcare, and pharmaceutical sectors of the economy; competitive pressures and technological developments from domestic and foreign genetic research and development organizations which may affect the nature and potential viability of our business strategy; and private or public sector demand for products and services similar to what we plan to commercialize. We disclaim any intention or obligation to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
Unless otherwise indicated or the context otherwise requires, all references in this report to “we,” “our,” “ours,” “us,” the “Company” or similar terms refer to QuantRx Biomedical Corporation, a Nevada corporation.
Overview
The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and laboratory markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PadKit® technology for the worldwide healthcare industry. These platforms include: inSync®, Unique™, PadKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology. These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs.
The Company’s efforts to commercialize its products are currently contingent on the receipt of additional financing required to execute its business and operating plan, which is currently focused on the commercialization of the Company’s PAD technology either directly or through a joint venture or other relationship intended to increase shareholder value. In the interim, the Company has had nominal operations, focused principally on the limited online sale of our Unique® Miniform PAD product and maintaining compliance with the public company reporting requirements. No assurances can be given that the Company will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize the Company’s PAD technology.
On June 20, 2012, the Company formed a wholly-owned subsidiary, QX Labs, Inc. (“QX”), to convey and transfer to QX all intellectual property and assets related to the Company’s diagnostic testing business ("Diagnostics Business"). The Diagnostic Business is based principally on the Company’s proprietary PadKit® technology, which the Company believes provides a patented platform technology for genomic diagnostics, including fetal genomics. Following the transfer of the Diagnostics Business to QX, which the Company intends to affect during the current fiscal year, the Company’s other business line will consist of its over-the-counter business, including the InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms (the “OTC Business”), as well as established and continuing licensing relationships related to the OTC Business. Management believes the creation of QX permits the Company to more efficiently explore different options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “Businesses”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.
The Company’s current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage its broad-based intellectual property (“IP”) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize its OTC Business and its Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets. As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on limited online sale of our Unique® Miniform PAD product, and obtaining financing necessary to maintain the Company as a going concern.
The following discussion of our financial condition should be read together with our financial statements and related notes included in the Annual Report on Form 10-K, filed on April 14, 2014.
Recent Developments
Issuance of Additional Promissory Notes. During the three months ended March 31, 2014, the Company issued two promissory notes to two investors in the principal amounts of $100,000, and $36,000 (together, the “2014 Notes”). As additional consideration for the purchase of the Notes, the Company issued an aggregate total of 272,000 shares of common stock. The Company recorded debt discount of $18,769 related to the 2014 Notes and will amortize the expense over the life of the 2014 Notes. During the three months ended March 31, 2014, the Company recorded $1,292 of interest expense related to the debt discount on the 2014 Notes.
The Notes accrue interest at the rate of 8% annually. The 2014 Notes are due and payable on June 30, 2014 (the “Maturity Date”). The 2014 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, the holder may exchange the 2014 Notes for common stock in the event the Company consummates a qualified financing (the “Qualified Financing”), which is defined in the 2014 Notes as a financing resulting in gross proceeds to the Company of at least $500,000. While the Company intends to pay the 2014 Notes using proceeds from a Qualified Financing, such Qualified Financing may not occur prior to the date the holder of the 2014 Notes demands repayment.
The Company presently intends to issue additional promissory notes to finance its current working capital needs. However, there can be no assurance that the Company will be able to issue additional promissory notes.
Consolidated Results of Operations
Comparison of the Three Months Ended March 31, 2014 to the Three Months Ended March 31, 2013
Total revenue for the three months ended March 31, 2014 and 2013 was $602 and $3,341, respectively. The decrease in revenue during the 2014 period, as compared to the same period in 2013, is due to a decrease in royalty revenue attributable to the Company’s PAD technology. Until such time as the Company develops a plan to commercialize its products, which is contingent on the receipt of additional financing, management does not anticipate that revenue will materially increase above amounts received in the current fiscal quarter.
Sales, general and administrative expense for the three months ended March 31, 2014 and 2013 was $39,995 and $16,921 respectively. The increase in sales, general and administrative expense is principally attributable to higher legal fees related to intellectual property incurred during the 2014 period.
Professional fees for the three months ended March 31, 2014 and 2013 were $43,934 and $28,101, respectively. Professional fees include the costs of legal, consulting and auditing services provided to us. The increase in professional fees in the 2014 periods is directly related to increased costs of consulting and professional services provided to the Company, principally consisting of legal fees related to the Company’s intellectual property.
Research and development costs for the three months ended March 31, 2014 and 2013 were $6,098 and $1,347, respectively. The increase in research and development fees in the 2014 period is directly attributable to the costs associated with clinical trial expense in the 2014 period.
Interest income for the three month periods ended March 31, 2014 and 2013, was $1,972 and $4,000, respectively. The interest income related to the Company’s investment has been deemed to be fully impaired, accordingly the Company has recorded a loss on impairment in 2014 of $1,972.
Interest expense for the three months ended March 31, 2014 and 2013, was $21,614 and $18,526, respectively. The increase in interest expense in the 2014 period is related to a higher notes payable balance.
During the three months ended March 31, 2014, the Company recorded non-cash interest expense related to the amortization of debt discount on notes payable of $49,211. During the three months ended March 31, 2013, non-cash interest expense related to the amortization of debt discount on notes payable was $2,407.
During the three months ended March 31, 2014, the Company recorded non-cash other financing expenses related to the amortization of the debt discount related to the exchange of FPMI Warrants on Notes payable of $21,760 and $4,793, respectively.
During the three months ended March 31, 2013, the Company recorded a gain on equity investment of $30,045, representing gains related to the exchange of FPMI Warrants related to Notes payable and the reacquisition of the NuRx intellectual property.
The Company’s net loss for the three months ended March 31, 2014 was $184,376 compared to net loss for the three months ended March 31, 2013 of $40,916. The increase in net losses in the three month periods ended March 31, 2014 compared to the comparable periods in 2013 is due to higher expenses related to higher intellectual property and higher professional fees over the 2013 period.
Liquidity and Capital Resources
As of March 31, 2014, the Company had cash and cash equivalents of $120,546, as compared to cash and cash equivalents of $4,457 as of December 31, 2013. During the three months ended March 31, 2014, the Company’s cash flows from investing activities totaled $30,000 and cash flows from financing activities totaled $136,000. The overall net increase in cash of 116,089 for the three months ended March 31, 2014, is attributable to net cash used for operating activities offset by cash received from financing activities.
The Company has not generated sufficient revenues from operations to meet its operating expenses. The Company will require additional funding to complete the development and launch of its products, or to otherwise capitalize on its PAD technology. The Company has historically financed its operations primarily through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees.
Management believes that, given the current economic environment and the continuing need to strengthen our cash position, there is substantial doubt about our ability to continue as a going concern. We are pursuing various funding options, including licensing opportunities and the sale of investment holdings, as well as a strategic transaction with our joint venture partner, to obtain additional funding to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be successful in our efforts. Should we be unable to raise adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed.
The Company believes that the ability of the Company to recommence operations, and therefore continue as a going concern is dependent upon its ability to do any or all of the following:
|
●
|
obtain adequate sources of funding to pay operating expenses and fund long-term business operations;
|
|
|
●
|
enter into a licensing or other relationship that allows the Company to commercialize its products;
|
|
|
●
|
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.
|
There can be no assurance that the Company will be successful in achieving its short- or long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
Critical Accounting Policies
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue and recognizes it when it becomes due and payable. Up-front engagement fees are recorded as deferred revenue and amortized to income on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings process.
The Company assesses the probability of collection based on a number of factors, including past transaction history with the customer and the current financial condition of the customer. If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes reasonably assured. Significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.
The Company recognizes revenue from nonrefundable minimum royalty agreements from distributors or resellers upon delivery of product to the distributor or reseller, provided no significant obligations remain outstanding, the fee is fixed and determinable, and collection is probable. Once minimum royalties have been received, additional royalties are recognized as revenue when earned based on the distributor’s contractual reporting obligations. The Company is able to recognize minimum royalty payments on an accrual basis, as they are specified in the contract. However, since the Company cannot forecast product sales by licensees, royalty payments that are based on product sales by the licensees are not determinable until the licensee has completed their computation of the royalties due and/or remitted their cash payment to us. Should information on licensee product sales become available so as to enable the Company to recognize royalty revenue on an accrual basis, materially different revenues and results of operations could occur.
Our strategy includes entering into collaborative agreements with strategic partners for the development, commercialization and distribution of our product candidates. Such collaboration agreements may have multiple deliverables. In arrangements with multiple deliverables where we have continuing performance obligations, contract, milestone and license fees are recognized as revenue together with any up-front payments over the term of the arrangement as performance obligations are completed, unless the deliverable has stand-alone value and there is objective, reliable evidence of fair value of the undelivered element in the arrangement. In the case of an arrangement where it is determined there is a single unit of accounting, all cash flows from the arrangement are considered in the determination of all revenue to be recognized. Cash received in advance of revenue recognition is recorded as deferred revenue.
Use of Estimates
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 3 of the attached financial statements.
Impairment of Assets
We assess the impairment of long-lived assets, including our other intangible assets, at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. Changes in our strategic plan and/or market conditions could significantly impact these judgments and could require adjustments to recorded asset balances. We hold investments in companies having operations or technologies in areas which are within or adjacent to our strategic focus when acquired, all of which are privately held and whose values are difficult to determine. We record an investment impairment charge if we believe an investment has experienced a decline in value that is other than temporary. Future changes in our strategic direction, adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.
In determining fair value of assets, the Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets that are not readily apparent from other sources. Actual fair value may differ from management estimates resulting in potential impairments causing material changes to certain assets and results of operations.
Share-Based Payments
We grant options to purchase our common stock to our employees and directors under our stock option plan. We estimate the value of stock option awards on the date of grant using a Black-Scholes pricing model (Black-Scholes model). The determination of the fair value of share-based payment awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, and risk-free interest rate. If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
We determine the fair value of the share-based compensation awards granted to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is complete.
Estimates of share-based compensation expenses are significant to our financial statements, but these expenses are based on option valuation models and will never result in the payment of cash by us.
The above listing is not intended to be a comprehensive list of all of our accounting policies. In most cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States.
Deferred Taxes
We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and tax bases of assets and liabilities, which requires management to perform estimates of future transactions and their respective valuations. We review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that the Company will not realize the benefit of the net deferred tax asset. At December 31, 2013 and 2012, a valuation allowance has been established. The likelihood of a material change in the valuation allowance depends on our ability to generate sufficient future taxable income. In the future, if management determines that the likelihood exists to utilize the Company’s deferred tax assets, a reduction of the valuation allowance could materially increase the Company’s net deferred tax asset.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our principal executive officer/ 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 amended, as of September 30, 2013. Based on this evaluation, the Company’s principal executive officer/ principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed in the reports submitted under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission 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/ principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controls over financial reporting.
There has been no change in our internal control over financial reporting that occurred during our most recent fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There has been no progress towards remediating our previously disclosed material weakness due to the lack of funding.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 8, 2013, the Company filed a Summary Judgment in Lieu of Complaint (the "Complaint") against Genomics USA, Inc. ("GUSA") to recover all amounts due the Company under the terms of a promissory note in the principal amount of $200,000 (the "GUSA Note"). The Complaint was filed in the Supreme Court of the State of New York, and sought repayment of all amounts due under the terms of the GUSA Note, and accrued interest thereon, plus attorney's fees. On May 24, 2013, the Company and GUSA settled the Company’s complaint. The settlement agreement entered into by the parties provides for the payment to the Company of $200,000, of which $20,000 was paid on June 7, 2013, and $10,000 per month shall be paid on the 7th day of each consecutive month thereafter for a total of 18 months.
As of the date hereof, there are no additional material pending legal proceedings to which we are a party to or of which any of our property is the subject.
ITEM 2. Unregistered Sales of Equity Securities, and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not Applicable.
ITEM 5. Other Information
None.
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.
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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.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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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.
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Date: May 20, 2014
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/s/ Shalom Hirschman
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Shalom Hirschman
Principal Executive, Financial and Accounting Officer
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