QUANTRX BIOMEDICAL CORP - Annual Report: 2016 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to
___________
Commission file number: 000-17119
QUANTRX BIOMEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
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Nevada
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33-0202574
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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10190 SW 90th Avenue, Tualatin, Oregon 97123
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(212)
980-2235
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
[ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15 (d) of
the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed
all reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. [X]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
[ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
[ ]
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. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
(Do not check if smaller reporting
company)
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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). [
]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid
and asked price of such common equity, as of the last business day
of the registrant's most recently completed second fiscal quarter
(June 30, 2016): $1,573,929.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of April 14,
2017: 78,696,461 shares.
QUANTRX BIOMEDICAL CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
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8
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12
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13
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13
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PART II
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13
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14
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PART III
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Exhibits and Financial Statement Schedules
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27
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING EXHIBITS THERETO,
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”, “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” ON PAGE THIRTEEN HEREOF.
THE COMPANY ASSUMES NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING
STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR
CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
PART I
As
used in this Annual Report on Form 10-K, “we,”
“us,” “our,” “QuantRx” and
“Company” refer to QuantRx Biomedical Corporation,
unless the context otherwise requires.
ITEM
1. Business
QuantRx
Biomedical Corporation was incorporated on December 5, 1986, in the
State of Nevada. The Company’s principal business office is
located at 10190 SW 90th Avenue, Tualatin, Oregon 97123. When used
in this Annual Report on Form 10-K, the terms
“Company,” “we,” “our,”
“ours,” or “us” refer to QuantRx
Corporation, a Nevada corporation.
Overview
We have developed and
are working towards commercializing our patented miniform pads
(“PADs”)
and PAD based over-the-counter products for the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, general
catamenial uses and other medical needs. We are also developing and
intend to commercialize genomic diagnostics for the laboratory
market, based on our patented PadKit®technology.
Our platforms include: inSync®,
UniqueTM,
PadKit®and
OEM branded over-the-counter and laboratory testing products based
on the Company’s core intellectual property related to its
PAD technology.
The
continuation of our operations remain contingent on the receipt of
additional financing required to execute our business and operating
plan, which is currently focused on the commercialization of our
PAD technology either directly or through a joint venture or other
relationship intended to increase shareholder value. In the
interim, we have nominal operations, focused principally on
maintaining our intellectual property portfolio and maintaining
compliance with the public company reporting requirements. In order
to continue as a going concern, we will need to raise capital,
which may include the issuance of debt and/or equity securities. 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.
Our diagnostic testing business, operating under
our subsidiary QX Labs, Inc. (“QX”) (the “Diagnostic
Business”) is based
principally on the Company’s proprietary PadKit®
technology, which we believe provides a patented platform
technology for genomic diagnostics, including fetal genomics.
Outside of the Diagnostic Business, our business line consists of
our 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 this corporate structure permits
the Company to more efficiently explore 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 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 obtaining financing necessary to maintain the Company as
a going concern.
Our
Business
Management’s
objective is to develop the Company’s innovative PAD based
products through genomic testing, although commercialization
efforts are conditioned on securing adequate
financing. Assuming the availability of adequate working
capital, the Company’s objective is to target significant
market opportunities for its products through the following
platforms:
PAD/Health and Wellness
PAD
products are based on the Company’s non-woven disposable
absorbent pad technology, with products for aiding the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, the
over-the-counter catamenial markets, and other medical needs,
including diagnostic sampling products which enable self-collection
and worldwide transport for indications such as various cancers,
premature delivery, and genomic testing.
Diagnostic Products
Diagnostic
products historically constitute the core of the Company’s
product development focus. The Company’s healthcare
technologies are currently in different stages of development,
ranging from commercialization to proof of concept. The Company
ultimately plans to bring its products to commercialization;
however, commercialization of these technologies is contingent on
the development of a financing and operating plan that permits the
Company to successfully capitalize on its development efforts to
date. Such plan may include seeking a strategic or other
partner to economically commercialize or finance the
Company’s technologies. The Company’s objective in the
interim is to maintain strict cost control measures, as well as
maintain control of its technologies, in order to continue as a
going concern. The discussion below assumes the Company
continues with the development and commercialization of its
technologies, although no assurances can be given.
Product and Product Candidates
The
Company has historically operated under a two-fold product
development strategy: (i) maximize the value of internally
developed products that are market-ready for near-term
distribution, and (ii) aggressively develop technology platforms
for products the Company believes will address medical diagnostic
and treatment issues into the future.
When
introducing its PAD product lines and other products, the Company
sought to align itself with experienced marketing partners that
have established distribution channels. The Company teamed with a
manufacturing partner in Asia, as well as niche United States
manufacturers, in order to bring products to market in an efficient
manner while controlling product quality. While these
relationships are currently in effect, each has been suspended
pending the development of a financing and operating plan to
commercialize the Company’s products and
technology.
PADs for Diagnosis and Treatment
Our
miniform PAD is a patented technology that provides the basis for a
line of products that address an array of consumer health issues,
including temporary relief of hemorrhoid and minor vaginal
infection itch and discomfort, feminine urinary incontinence,
catamenial needs, drug delivery, and medical sample collection and
transport for diagnostic testing.
The
Company’s PAD products for the consumer markets are FDA Class
I over-the-counter devices, and are easy to use, non-invasive,
fully biodegradable, highly absorbent pads. Additionally, the
unique non-woven technology utilized for the PADs allows for a PAD
to be used as a sample collection device, providing a sample for
diagnostic purposes, or to provide local or systemic
therapy.
PADKit®
The
PADKit integrates the Company’s miniform technology with its
diagnostic expertise. The PADKit contains a miniform used as a
collection device to collect samples for diagnostic evaluation.
Vaginally, the miniform collects blood along with numerous cells,
vaginal mucous and discharge flushed out by the menstrual flow or
during normal daily exfoliation. The PADKit is designed
to provide the preferred sample collection system for use in
population scale testing of indications such as HPV, HIV and
general health screenings where healthcare professionals are not
readily accessible.
Although
significant improvements have been made in the area of Pap test
sample reading and sample preparation, clinical indications support
broad testing for HPV that will have a greater impact in lowering
the incidence of cervical cancer. The Company believes
the PADKit will provide a superior and more consistent sample, as
well as a simpler, more comfortable and convenient procedure for
HPV testing. The Company further hopes to demonstrate
viability of the PADKit as the basis of various other diagnostic
and screening tests.
The
Company holds several patents for the method and apparatus for
collecting vaginal fluid and exfoliated vaginal cells for
diagnostic purposes, collection of a sample for general diagnostic
screening, and the collection of an anal sample for prostate and
other diagnostic purposes. Several clinical studies have
been conducted with and on the PADKit, which have provided data
needed to show the degree to which the sample collected can be used
to replace other accepted samples, ability to provide a genomic
testing sample as well as its safety and ease of use.
Unique®Miniforms
Miniform
is a safe, convenient, and flushable technology for the underserved
over-the-counter hemorrhoid, feminine hygiene and urinary
incontinence markets. The disposable miniform pads
contain no adhesives, requires no insertion, and are small enough
to fit in the palm of a hand.
The Unique®miniform
is available as a treated pad for the temporary relief of the itch
and discomfort associated with hemorrhoids and minor vaginal
infection, and as an untreated pad, for the daily protection of
light urinary, vaginal or anal leakage.
While the Company initiated a limited
web-based domestic roll-out of the Unique® miniform,
it is in search of a strategic partnership(s) to expand the retail
availability of the product across the United States and
internationally.
The
Company has significant experience manufacturing its miniform and a
clear understanding of its costs. The miniform
technology is protected by numerous patents covering various
applications, the manufacturing process, and certain materials. The
Company previously contracted with a firm based in Taiwan to
manufacture its pads, although the manufacturing relationship is
currently suspended due to the Company’s financial condition,
and pending the development of a financing and operation plan that
allows the Company to recommence active operations.
Competition
Our industry
is highly competitive and characterized by rapid and significant
technological changes. Significant competitive factors in our
industry include, among others, product efficacy and safety, the
timing and scope of regulatory approvals, the government
reimbursement rates for and the average selling price of products,
the availability of raw materials and qualified manufacturing
capacity, manufacturing costs, intellectual property and patent
rights and their protection, and sales, marketing and distribution
capabilities.
We
face, and will continue to face, competition from organizations
such as pharmaceutical and biotechnology companies, as well as
academic and research institutions.
Any
product candidates that we successfully develop, which are cleared
for sale by the FDA or similar international regulatory authorities
in other countries, may compete with similar products currently
available or that may become available in the future. Most of our
competitors have substantially greater capital resources than we
have, and greater capabilities and resources for research,
conducting preclinical studies and clinical trials, regulatory
affairs, manufacturing, marketing and sales. As a result, we may
face competitive disadvantages relative to these organizations
should they develop or commercialize a competitive product. In
addition, given our current lack of working capital, our
competitors will have the opportunity to capture market
opportunities missed by the Company as we attempts to secure
additional financing necessary to commercialize our
products.
Raw Materials and Manufacturing
The
Company currently does not have manufacturing capacity for any of
its products and therefore has historically contracted for the
manufacturing of its products to third-party manufacturers, both in
and outside the United States. All manufactured products are
produced under FDA mandated Good Manufacturing Practices standard
operating procedures developed and controlled by the
Company’s quality system, which specifies approved raw
materials, vendors, and manufacturing methodology. During the
quarter ended June 30, 2012, the Company’s operations were
inspected by the FDA and found to be in full
compliance.
Intellectual Property Rights and Patents
As
of December 31, 2016, the Company had twelve (12) patents issued,
four (4) patents pending, one (1) allowed patent, and two (2)
licensed patents. Our issued patents expire between 2018
and 2030; however, the Company may obtain continuations, which
would extend the rights granted under our issued patents, and
additional patents to cover technology in
development. The Company also holds six
(6) registered U.S. and foreign trademarks and has one
(1) pending trademark.
Patents
and other proprietary rights are an integral part of our business.
It is our policy to seek patent protection for our inventions and
also to rely upon trade secrets and continuing technological
innovations and licensing opportunities to develop and maintain our
competitive position. However, our patent positions involve
complex legal and factual questions and, therefore, enforceability
of our patents cannot be predicted with any certainty. Our issued
patents, those licensed to us, and those that may be issued to us
in the future may be challenged, invalidated or circumvented, and
the rights granted thereunder may not provide us with proprietary
protection or competitive advantages against competitors with
similar technology. Furthermore, our competitors may independently
develop similar technologies or duplicate any technology developed
by us. Because of the extensive time required for development,
testing and regulatory review of a potential product, it is
possible that, before any of our product candidates can be approved
for sale and commercialized, our relevant patent rights may expire
or remain in force for only a short period following
commercialization. Expiration of patents we own or license could
adversely affect our ability to protect future product development
and, consequently, our operating results and financial
position.
Licensing, Distribution and Development Agreements
On August 14, 2008, the Company entered into
a ten-year Technology License Agreement with Church & Dwight
Co., Inc. (“Church &
Dwight”). Under the
terms of the Agreement, Church & Dwight acquired exclusive
world-wide rights to use certain Company technology related to a
jointly developed at-home diagnostic test and began distributing
the product in early 2009, resulting in the Company receiving
royalties on net sales of the product in 2016 and 2015 of $0 and
$156 respectively.
Regulatory Requirements
Some of our products and manufacturing
activities are, or will be subject to regulation by the FDA, and by
other federal, state, local and foreign regulatory authorities.
Pursuant to the Food, Drug and Cosmetic Act of 1938, commonly known
as the FD&C Act, and the regulations promulgated under it, the
FDA regulates the research, development, clinical testing,
manufacture, packaging, labeling, storage, distribution, promotion,
advertising and sampling of medical devices and medical imaging
products. Before a new device or pharmaceutical product can be
introduced to the market, the manufacturer must generally obtain
marketing clearance through a section 510(k) notification, through
a Premarket Approval (“PMA”), or New Drug Approval
(“NDA”).
In
the United States, medical devices intended for human use are
classified into three categories, Class I, II or III, on the basis
of the controls deemed reasonably necessary by the FDA to assure
their safety and effectiveness with Class I requiring the fewest
controls and Class III the most controls. Class I, unless exempted,
and Class II devices are marketed following FDA clearance of a
Section 510(k) premarket notification. Since Class III devices
(e.g., a device whose failure could cause significant human harm or
death) tend to carry the greatest risks, the manufacturer must
demonstrate that such a device is safe and effective for its
intended use by submitting a PMA application. PMA approval by the
FDA is required before a Class III device can be lawfully marketed
in the United States. Usually, the PMA process is significantly
more time consuming and costly than the 510(k)
process.
The
U.S. regulatory scheme for the development and
commercialization of new pharmaceutical products, which includes
the targeted molecular imaging agents, can be divided into three
distinct phases: an investigational phase including both
preclinical and clinical investigations leading up to the
submission of an NDA; a period of FDA review culminating in the
approval or refusal to approve the NDA; and the post-marketing
period.
All
of our over-the-counter products derived from the miniform
technology, including Unique(R), are currently classified as Class
I – exempt devices, requiring written notification to the FDA
before marketing.
In
addition, the FD&C Act requires device manufacturers to obtain
a new FDA 510(k) clearance when there is a substantial change or
modification in the intended use of a legally marketed device, or a
change or modification, including product enhancements, changes to
packaging or advertising text and, in some cases, manufacturing
changes, to a legally marketed device that could significantly
affect its safety or effectiveness. Supplements for approved PMA
devices are required for device changes, including some
manufacturing changes that affect safety or effectiveness, or
disclosure to the consumer, such as labeling. For devices marketed
pursuant to 510(k) determinations of substantial equivalence, the
manufacturer must obtain FDA clearance of a new 510(k) notification
prior to marketing the modified device. For devices marketed with
PMA, the manufacturer must obtain FDA approval of a supplement to
the PMA prior to marketing the modified device. Such regulatory
requirements may require the Company to retain records for up to
seven years, and be subject to periodic regulatory review and
inspection of all facilities and documents by the FDA.
The
FD&C Act requires device manufacturers to comply with Good
Manufacturing Practices regulations. The regulations require that
medical device manufacturers comply with various quality control
requirements pertaining to design controls, purchasing contracts,
organization and personnel, including device and manufacturing
process design, buildings, environmental control, cleaning and
sanitation; equipment and calibration of equipment; medical device
components; manufacturing specifications and processes;
reprocessing of devices; labeling and packaging; in-process and
finished device inspection and acceptance; device failure
investigations; and record keeping requirements including complaint
files and device tracking. Company personnel and non-affiliated
contract auditors periodically inspect the contract manufacturers
to assure they remain in compliance.
The
Company’s operations are currently in compliance with current
FDA requirements. In the quarter ended June 30, 2012,
the FDA audited the Company, and its operations were found to be
fully compliant.
Additionally, the Centers for Medicare &
Medicaid Services (“CMS”) regulates all laboratory testing (except
research) performed on humans in the U.S. through the Clinical
Laboratory Improvement Amendments (“CLIA”). In total, CLIA covers approximately
225,000 laboratory entities. The Division of Laboratory Services,
within the Survey and Certification Group, under the Office of
Clinical Standards and Quality (“OCSQ”) has the responsibility for implementing
the CLIA Program.
The
objective of the CLIA program is to ensure quality laboratory
testing. Although all clinical laboratories must be properly
certified to receive Medicare or Medicaid payments, CLIA has no
direct Medicare or Medicaid program responsibilities. In the event
the Company’s current operating plan includes such a
facility, it will fall under CLIA regulatory
requirements.
Certain
of our product candidates will require significant clinical
validation prior to obtaining marketing clearance from the FDA. The
Company intends to contract with appropriate and experienced CROs
(contract research organizations) to prepare for and review the
results from clinical field trials. The Company engages certain
scientific advisors, consisting of scientific Ph.D.s and
M.D.’s, who contribute to the scientific and medical validity
of its clinical trials when appropriate.
Research and Development Activities
The
Company spent $0 and $13,154 on research and development activities
during the years ended December 31, 2016 and 2015,
respectively. The Company did not engage in any research
and development efforts in the 2016 period, nor does the Company
expect to engage in any research and development activity and until
funding is secured and we develop a plan to commercialize its
products.
Employees
As
of December 31, 2016, we had no employees; however, the Company has
four part-time consultants providing services to the Company in
order to maintain the Company as a going concern and to protect the
Company’s intellectual property portfolio and other
assets.
ITEM 1A. RISK
FACTORS
You should consider carefully the following risks, along with other
information contained in this Annual Report on Form
10-K. The risks and uncertainties described below are
not the only ones that may affect us. Additional risks
and uncertainties may also adversely affect our business and
operations, including those discussed in Item 7 –
Management’s Discussion and Analysis of Financial Condition
and Results of Operation. If any of the following risks
actually occur, our business, result of operations, and financial
condition could be adversely affected.
We have a history
of incurring net losses and, currently, we are not generating any
revenue. There can be no assurances that we will generate any
revenue in the future, achieve profitable operations or continue as
a going concern.
As
of the year ended December 31, 2016, the Company had an accumulated
deficit of $51,372,621. Our losses resulted principally from
costs related to general and administrative costs relating to our
operations. Currently, we are not generating any revenue from
operations, and we will incur substantial and increasing losses in
2017. Historically, we have financed our operations with
the proceeds from issuances of equity and debt securities,
including, most recently, issuances of promissory
notes. In the past, we also provided for our cash needs
by issuing shares of our Common Stock, options and warrants as
payment for certain operating costs, including consulting and
professional fees, as well as divesting our minority equity
interests and equity-linked investments.
Our
history of operating losses, limited cash resources and the
absence of an operating plan necessary to capitalize on our 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 recommence operation and to continue
the development of, and to successfully commercialize, our
products. There can be no assurance that we will be
successful in our efforts. Should the Company be unable
to obtain adequate financing or generate sufficient revenue in the
future, our business, result of operations, liquidity and financial
condition would be materially and adversely harmed, and we will be
unable to continue as a going concern.
There
can be no assurance that, assuming we are able to strengthen
its cash position, we will achieve adequate revenue or profitable
operations sufficient to continue as a going concern.
Our ability to recommence and support operations and continue as a
going concern is dependent upon raising adequate
financing. We may not
be able to obtain such capital on a timely basis or under
commercially reasonable terms, if at all.
We
expect that the capital required to recommence our operations will
be substantial, and the extent of this need will depend on many
factors, some of which are beyond our control, including the
continued development of our product candidates; the costs
associated with maintaining, protecting and expanding our patent
and other intellectual property rights; future payments, if any,
received or made under existing or possible future collaborative
arrangements; the timing of regulatory approvals needed to market
our product candidates; and market acceptance of our products.
Although we are pursuing various funding and related options to
recommence operations and, ultimately, commercialize our innovative
PAD-based products, management has been unsuccessful to date in
securing financing other than bridge financing. There
can be no assurance that we will be successful in our efforts to
obtain adequate financing. Should we be unable to raise adequate
financing or generate revenue in the future, the Company’s
business prospects would be materially and adversely harmed. As a
result, 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 have promissory notes in the aggregate principal amount of
approximately $1.6 million outstanding that are all currently due
and payable on demand. In the event that demand for repayment
is made, and we are not able to raise sufficient capital
to pay such notes or otherwise restructure the same, we will be in
default and will not be able to continue as a going
concern.
Currently,
we have promissory notes with a principal amount aggregating
approximately $1.6 million outstanding, all of which approximately
are now due and payable on demand. In the event
the holders demand repayment and we are unable to pay such notes or
restructure the notes, the notes will be in default, and the
Company may not be able to continue as a going
concern.
Assuming the
Company is able to successfully develop a financing and operating
plan, and therefore recommence operations, there is no assurance
that the Company’s products will gain market
acceptance.
Efforts
to commercialize our products are conditioned on the development of
a financing and operating plan that allows the Company to
recommence operations. Assuming the successful
development of such a plan, the success of the Company will depend
in substantial part on the extent to which our products achieve
market acceptance. We cannot predict or guarantee that physicians,
patients, healthcare insurers or maintenance organizations, or the
medical community in general, will accept or utilize any products
of the Company.
The Company faces
intense competition.
If
successfully brought into the marketplace, any of the
Company’s products will likely compete with several existing
products. The Company anticipates that it will face intense and
increasing competition in the future as new products enter the
market and advanced technologies become available. We cannot assure
that existing products or new products developed by competitors
will not be more effective, or more effectively marketed and sold
than those by the Company. Competitive products may render the
Company’s products obsolete or noncompetitive prior to the
Company’s recovery of development and commercialization
expenses.
Many
of the Company’s competitors also have significantly greater
financial, technical and human resources and will likely be better
equipped to develop, manufacture and market products. Smaller
companies may also prove to be significant competitors,
particularly through collaborative arrangements with large
biotechnology companies. Furthermore, academic institutions,
government agencies and other public and private research
organizations are becoming increasingly aware of the commercial
value of their inventions and are actively seeking to commercialize
the technology they have developed. Accordingly, competitors may
succeed in commercializing products more rapidly or effectively
than the Company, which would have a material adverse effect on the
Company.
If we fail to
establish marketing and sales capabilities or fail to enter into
effective sales, marketing and distribution arrangements with third
parties, we may not be able to successfully commercialize our
products.
Upon
recommencement of operations, we will be primarily dependent on
third parties for the sales, marketing and distribution of our
products. We may enter into various agreements providing for the
commercialization of our product candidates. We intend to sell our
product candidates primarily through third parties and establish
relationships with other companies to commercialize them in other
countries around the world. We currently have no internal sales and
marketing capabilities, and only a limited infrastructure to
support such activities. Therefore, our future profitability will
depend in part on our ability to enter into effective marketing
agreements. To the extent that we enter into sales, marketing and
distribution arrangements with other companies to sell our products
in the United States or abroad, our product revenues will depend on
their efforts, which may not be successful.
Further testing of
certain of our product candidates is required and regulatory
approval may be delayed or denied, which would limit or prevent us
from marketing our product candidates and significantly impair our
ability to generate revenues.
Human
pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the
FDA and foreign regulatory authorities. Various federal and foreign
statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and
marketing of pharmaceutical products. The process of obtaining
these approvals and the subsequent compliance with appropriate U.S.
and foreign statutes and regulations is time-consuming and requires
the expenditure of substantial resources. In addition, these
requirements and processes vary widely from country to
country.
To
varying degrees based on the regulatory plan for each product
candidate, the effect of government regulation and the need for FDA
and other regulatory agency approval will delay commercialization
of our product candidates, impose costly procedures upon our
activities, and put us at a disadvantage relative to larger
companies with which we compete. There can be no assurance that FDA
or other regulatory approval for any products developed by us will
be granted on a timely basis, or at all. If we discontinue the
development of one of our product candidates, our business and
stock price may suffer.
The
Company’s success will be dependent on licenses and
proprietary rights it receives from other parties, and on any
patents it may obtain.
Our
success will depend in large part on the ability of the Company and
its licensors to (i) maintain license and patent protection with
respect to our products, (ii) defend patents and licenses once
obtained, (iii) maintain trade secrets, (iv) operate without
infringing upon the patents and proprietary rights of others, and
(v) maintain and obtain appropriate licenses to patents or
proprietary rights held by third parties if infringement would
otherwise occur, both in the United States and in foreign
countries.
The
patent positions of biomedical companies, including those of the
Company, are uncertain and involve complex legal and factual
questions. There is no guarantee that the Company or its licensors
have or will develop or obtain the rights to products or processes
that are patentable, that patents will issue from any of the
pending applications or that claims allowed will be sufficient to
protect the technology licensed to the Company. In addition, we
cannot be certain that any patents issued to or licensed by the
Company will not be challenged, invalidated, infringed or
circumvented, or that the rights granted thereunder will provide
competitive disadvantages to the Company.
Litigation,
which could result in substantial cost, may also be necessary to
enforce any patents to which the Company has rights, or to
determine the scope, validity and unenforceability of other
parties’ proprietary rights, which may affect the rights of
the Company. United States patents carry a presumption of validity
and generally can be invalidated only through clear and convincing
evidence. There can be no assurance that the Company’s
patents would be held valid by a court or administrative body or
that an alleged infringer would be found to be infringing. The mere
uncertainty resulting from the institution and continuation of any
technology-related litigation or interference proceeding could have
a material adverse effect on the Company pending resolution of the
disputed matters.
The
Company may also rely on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in
part, by confidentiality agreements with employees, consultants and
others. There can be no assurance that these agreements will not be
breached or terminated, that the Company will have adequate
remedies for any breach, or that trade secrets will not otherwise
become known or be independently discovered by
competitors.
Protecting our
proprietary rights is difficult and costly.
The
patent positions of biotechnology companies can be highly uncertain
and involve complex legal and factual questions. Accordingly, we
cannot predict the breadth of claims allowed in these
companies’ patents or whether the Company may infringe or be
infringing these claims. Patent disputes are common and could
preclude the commercialization of our products. Patent litigation
is costly in its own right and could subject us to significant
liabilities to third parties. In addition, an adverse decision
could force us to either obtain third-party licenses at a material
cost or cease using the technology or product in
dispute.
We currently do
not have any full-time employees, resulting from our objective of
substantially reducing expenses. At such time as we
recommence operations, we may be unable to attract skilled
personnel and maintain key relationships.
The
success of our business will depend, in large part, on our ability
to attract and retain highly qualified management, scientific and
other personnel, and on our ability to develop and maintain
important relationships with leading research institutions and
consultants and advisors. Competition for these types of personnel
and relationships is intense among numerous pharmaceutical and
biotechnology companies, universities and other research
institutions. As a result of the suspension of the
development of our PAD based products, we do not have any full-time
employees, and currently rely on consultants and/or contract
managers to manage the business and operations of the
Company. There can be no assurance that the Company will
be able to attract and retain skilled personnel at such time as it
recommences operations, and the failure to do so would have a
material adverse effect on the Company.
The Company may
not be able to efficiently develop manufacturing capabilities or
contract for such services from third parties on commercially
acceptable terms.
The
Company has established relationships with third-party
manufacturers for the commercial production of our products, which
relationships have been suspended due to the suspension of direct,
active operations. There can be no assurance that the
Company will be able to reestablish or maintain relationships with
third-party manufacturers on commercially acceptable terms or that
third-party manufacturers will be able to manufacture our products
on a cost-effective basis in commercial quantities under good
manufacturing practices mandated by the FDA.
The
dependence upon third parties for the manufacture of products may
adversely affect future costs and the ability to develop and
commercialize our products on a timely and competitive basis.
Further, there can be no assurance that manufacturing or quality
control problems will not arise in connection with the manufacture
of our products or that third party manufacturers will be able to
maintain the necessary governmental licenses and approvals to
continue manufacturing such products. Any failure to establish
relationships with third parties for its manufacturing requirements
on commercially acceptable terms would have a material adverse
effect on the Company. Additionally, the Company may rely upon
foreign manufacturers. Any event which negatively impacts these
manufacturing facilities, manufacturing systems or equipment, or
suppliers, including, among others, wars, terrorist activities,
natural disasters and outbreaks of infectious disease, could delay
or suspend shipments of products or the release of new
products.
In the future, we
anticipate that we will need to obtain additional or increased
product liability insurance coverage and it is uncertain that such
increased or additional insurance coverage can be obtained on
commercially reasonable terms.
The
business of the Company will expose it to potential product
liability risks that are inherent in the testing, manufacturing and
marketing of pharmaceutical products. There can be no assurance
that product liability claims will not be asserted against the
Company. The Company has obtained insurance coverage; however,
there can be no assurance that the Company will be able to obtain
additional product liability insurance on commercially acceptable
terms or that the Company will be able to maintain such insurance
at a reasonable cost or in sufficient amounts to protect against
potential losses. A successful product liability claim or series of
claims brought against the Company could have a material adverse
effect on the Company.
Insurance coverage
is increasingly more difficult to obtain or
maintain.
Obtaining
insurance for our business, property and products is increasingly
more costly and narrower in scope, and we may be required to assume
more risk in the future. If we are subject to third-party claims or
suffer a loss or damage in excess of our insurance coverage, we may
be required to share that risk in excess of our insurance limits.
Furthermore, any first- or third-party claims made on any of our
insurance policies may impact our ability to obtain or maintain
insurance coverage at reasonable costs or at all in the
future.
The market price
of our shares, like that of many biotechnology companies, is highly
volatile.
Market
prices for the Company’s Common Stock and the securities of
other medical and biomedical technology companies have been highly
volatile and may continue to be highly volatile in the future.
Factors such as announcements of technological innovations or new
products by the Company or its competitors, government regulatory
action, litigation, patent or proprietary rights developments, and
market conditions for medical and high technology stocks in general
can have a significant impact on any future market for Common Stock
of the Company.
Trading of our
Common Stock is limited, which may make it difficult for you to
sell your shares at times and prices that you feel are
appropriate.
Trading
of our Common Stock, which is conducted on the OTCBB, has been
limited. This adversely affects the liquidity of our
Common Stock, not only in terms of the number of shares that can be
bought and sold at a given price, but also through delays in the
timing of transactions and reduction in security analysts and the
media’s coverage of us. This may result in lower
prices for our Common Stock than might otherwise be obtained and
could also result in a larger spread between the bid and ask prices
for our Common Stock.
The issuance of
shares of our preferred stock may adversely affect our Common
Stock.
The
board of directors of the Company is authorized to designate one or
more series of preferred stock and to fix the rights, preferences,
privileges and restrictions thereof, without any action by the
stockholders. The designation and issuance of such shares of our
preferred stock may adversely affect our Common Stock if the
rights, preferences and privileges of such preferred stock (i)
restrict the declaration or payment of dividends on our Common
Stock, (ii) dilute the voting power of our Common Stock, (iii)
impair the liquidation rights of our Common Stock, or (iv) delay or
prevent a change in control of the Company from occurring, among
other possibilities.
Our Common Stock
is subject to “penny stock” rules.
Our
stock is currently defined as a “penny stock” under
Rule 3a51-1 promulgated under the Exchange Act. “Penny
stocks” are subject to Rules 15g-2 through 15g-7 and Rule
15g-9, which impose additional sales practice requirements on
broker-dealers that sell penny stocks to persons other than
established customers and institutional accredited investors. Among
other things, for transactions covered by these rules, a
broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser’s written consent
to the transaction prior to sale. Consequently, these rules may
affect the ability of broker-dealers to sell our Common Stock and
affect the ability of holders to sell their shares of our Common
Stock in the secondary market. To the extent our Common Stock is
subject to the penny stock regulations, the market liquidity for
our shares will be adversely affected.
Because we do not
expect to pay dividends, you will not realize any income from an
investment in our Common Stock unless and until you sell your
shares at a profit.
We
have never paid dividends on our Common Stock and do not anticipate
paying any dividends for the foreseeable future. You
should not rely on an investment in our stock if you require
dividend income. Further, you will only realize income
on an investment in our shares in the event you sell or otherwise
dispose of your shares at a price higher than the price you paid
for your shares. Such a gain would result only from an
increase in the market price of our Common Stock, which is
uncertain and unpredictable.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM 2. PROPERTIES
We
did not maintain a corporate headquarters during the year ended
December 31, 2016 or 2015, nor do we have any further obligation
under any prior lease agreements. We currently plan to
transfer operations to a new facility pending obtaining financing
to recommence operations.
ITEM 3. LEGAL
PROCEEDINGS
As
of the date hereof, there are no material pending legal proceedings
to which we are a party to or of which any of our property is the
subject.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
PART II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock
Our common stock, par value $0.01 per share
(“Common
Stock”) trades on the
OTCBB under the symbol “QTXB”. The prices below are
based on high and low reported sales prices as reported by the OTC
Markets during the calendar quarters indicated. The prices
represent quotations between dealers without adjustment for retail
mark-up, mark-down or commission and do not necessarily represent
actual transactions.
|
|
High
|
Low
|
|
Year ended December 31, 2016
|
|
|
|
Fourth
Quarter
|
$0.01
|
$0.01
|
|
Third
Quarter
|
$0.02
|
$0.01
|
|
Second
Quarter
|
$0.02
|
$0.01
|
|
First
Quarter
|
$0.03
|
$0.02
|
|
|
|
|
|
Year ended December 31, 2015
|
|
|
|
Fourth
Quarter
|
$0.08
|
$0.02
|
|
Third
Quarter
|
$0.04
|
$0.02
|
|
Second
Quarter
|
$0.05
|
$0.02
|
|
First
Quarter
|
$0.05
|
$0.03
|
Stockholders
As
of December 31, 2016, there were approximately 735 shareholders of
record of our Common Stock, one of which was Cede & Co., a
nominee for the Depository Trust Company or DTC. Shares
of Common Stock that are held by financial institutions, as
nominees for beneficial owners, are deposited into principal
accounts at the DTC, and are considered to be held of record by
Cede & Co. as one stockholder.
Dividends
We
have not declared nor paid any cash dividends on our Common Stock.
We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business,
thus we do not anticipate paying any cash dividends on our Common
Stock in the foreseeable future.
Recent Sales of Unregistered Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
Not
required under Regulation S-K for “smaller reporting
companies.”
ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
We
have developed and are working towards commercializing our patented
miniform pads (“PADs”)
and PAD based over-the-counter products for the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, general
catamenial uses and other medical needs. We are also developing and
intend to commercialize genomic diagnostics for the laboratory
market, based on our patented PadKit® technology.
Our platforms include: inSync®,
Unique®,
PadKit®,
and OEM branded over-the-counter and laboratory testing products
based on the Company’s core intellectual property related to
its PAD technology.
The
continuation of our operations remain contingent on the receipt of
financing required to execute our business and operating plan,
which is currently focused on the commercialization of our PAD
technology either directly or through a joint venture, or other
relationship intended to increase shareholder value. In the
interim, we have nominal operations, focused principally on
maintaining our intellectual property portfolio and continuing to
comply with the public company reporting requirements. No
assurances can be given that we will obtain financing, or otherwise
successfully develop a business and operating plan or enter into an
alternative relationship to commercialize our PAD
technology.
Our diagnostic testing business, operating under
our subsidiary QX Labs, Inc. (“QX”) (the “Diagnostic
Business”) is based
principally on the Company’s proprietary PadKit®
technology, which we believe provides a patented platform
technology for genomic diagnostics, including fetal genomics.
Outside of the Diagnostic Business, our business line consists of
our 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 this corporate structure permits
the Company to more efficiently explore 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.
Our
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 our broad-based intellectual
property and patent portfolio to develop new and innovative
diagnostic products; (ii) commercialize our OTC Business and
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 our
investments in non-core assets. However, as a result of
our current financial condition, our efforts in the short-term will
be focused on obtaining financing necessary to continue as a going
concern.
Our Results of Operations
The
Company did not generate any revenue during the year
ended December 31, 2016. Total revenue for the for year ended
December 31, 2015 was $156. The absence of revenue is due to
no royalty revenue attributable to the Company’s PAD
technology received during the 2016 period. Management does
not anticipate that the Company will generate any
revenue until such time as the Company develops a plan to
commercialize its products, which is contingent on the receipt of
financing.
Total
costs and operating expenses for the years ended December 31, 2016
and 2015 were $138,839 and $358,865, respectively. Highlights of
the major components of our results of operations are detailed and
discussed below:
|
|
Year Ended
December 31,
2016
|
Year Ended
December 31,
2015
|
|
|
|
|
|
Sales, general and administrative
|
$75,434
|
$219,292
|
|
Professional fees
|
$56,231
|
$116,754
|
|
Research and development
|
$-
|
$13,154
|
|
Other operating expense, net
|
$7,174
|
$9,665
|
Sales, general and administrative expense
includes, but is not limited to, consulting expense, office and
insurance expense, accounting and other costs to maintain
compliance with the Company’s reporting requirements to the
Securities and Exchange Commission (the “SEC”). The decrease in sales, general
and administrative expenses in the year ended December 31, 2016
compared to the year ended December 31, 2015 is attributable to
lower legal fees related to maintaining our intellectual property
incurred during the 2016 period. Also included in sales, general
and administrative expense for the year ended December 31, 2016.
Included in the year ended December 31, 2015, there are non-cash
expense of $122,000 related to stock issued as compensation to the
Company’s board of directors, and $25,000 related to stock
issued as compensation under certain consulting
agreements.
Professional
fees include the costs of legal, consulting and auditing services
provided to us, each of which were lower in the 2016 period, as
compared to the 2015 period. The period over period decrease in
professional fees is directly related to lower overall costs for
professional services, including lower non-cash expenses for stock
based compensation paid to a consultant, lower general management
fees and lower costs of legal, accounting, consulting, and
financial services during the year ended December 31, 2016, as
compared to the year ended December 31, 2015.
The Company did not
incur any research and development costs during the year ended December 31,
2016. Research and development expense during fiscal
year 2015 primarily reflects technical consulting and expense
incurred to support international studies conducted on the
Company’s PadKit sampling technology during the year ended
December 31, 2015. The Company does not
expect to engage in any research and development activity and until
funding is secured and we develop a plan to commercialize its
products.
Other
operating expense for the years ended December 31, 2016 and 2015
was $7,174 and $9,665, respectively. The decrease in other
operating expense is attributable to lower costs for amortization
and depreciation during the 2016 period.
Other
income and expense for the years ended December 31, 2016 and 2015
include expenses of $259,155 and of $109,071,
respectively. Highlights of the major components of
other income and expense our results of operations are detailed and
discussed below:
|
|
Year Ended
December 31,
2016
|
Year Ended
December 31,
2015
|
|
|
|
|
|
Gain (loss) on settlement of accounts payable
|
$540
|
$57,066
|
|
Amortization of debt discount to interest expense
|
$-
|
$(35,075)
|
|
Interest expense
|
$(196,146)
|
$(123,899)
|
|
Loss on impairment
|
$(80,052)
|
$-
|
|
Gain (loss) on conversion of shares
|
$16,503
|
$(7,163)
|
During the year ended December 31, 2016,
interest expense increased to $196,146 from $128,899 during the
2015 period, primarily due to an increase in outstanding notes
payable in the 2016 period. The increase in
interest expense in the 2016 period compared to the 2015 period, is
related to a higher balance of outstanding notes payable and higher
interest rate calculated using the default interest rate during the
2016 period.
During the year ended December 31, 2016, the Company recorded a
non-cash expense of $80,052 due to impairment of certain assets
during the year.
Net loss for the 2016 period was $397,994,
compared to net loss of $467,780 reported for the 2015
period. This
decrease is primarily attributable to lower expenses,
including lower professional fees and sales, general and
administrative expense, as discussed above, and was offset by an
increase in interest expense in the 2016 period related to
a non-cash
loss of $80,052 due to losses from the impairment of assets during
the year.
The Company expects net loss to continue to
decrease in future periods due to the current suspension of our
active operations and our lack of revenue. We do not expect to
recommence active operations until we are able to secure financing
necessary to execute our business
and operating plan, including the development and launch of its
products, or to otherwise capitalize on our PAD
technology.
Liquidity and Capital Resources
At
December 31, 2016, the Company had cash and cash equivalents of
$691, as compared to $61,078 at December 31, 2015.
During
the year ended December 31, 2016, we used $94,643 of cash for
operating activities, as compared to $226,378 during the year ended
December 31, 2015. The overall net decrease in cash used for
operating activities during the year ended December 31, 2016, is
attributable to net losses incurred in the period, partially offset
by accrued and unpaid interest of $127,773 and non-expenses related
to losses on an impairment of $80,052 and losses due to the
issuance of common stock in exchange for interest on notes payable
of $52,201.
Cash
provided by financing activities during the year ended December 31,
2016 was $34.256 as compared to $118,910 during the year ended
December 31, 2015. The overall net decrease in cash provided by
financing activities for the year ended December 31, 2016 is
attributable to convertible note financing activities of $0 in 2016
compared to $121,500 in 2015. During 2016, the Company received
$36,000 from shareholder loans.
The
Company has not generated sufficient revenues from operations to
meet its operating expenses. The Company requires 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 other
financing transactions, 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.
Reclassifications – Prior
period financial statement amounts have been reclassified to
conform to current period presentation. The reclassifications have
no effect on net loss or earnings per share.
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, 2016 and 2015, 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.
Transactions with Related Parties
Mr. Michael Abrams, a director of the Company, is
an employee of Burnham Hill Advisors, LLC
(“BHA”). On October 29, 2013, we entered into a
new advisory agreement with BHA. 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 expired on December 31, 2014. BHA agreed to defer the
cash fees due under the new agreement until June 30, 2014. On July
1, 2014, the Company and BHA modified the terms of this agreement
to provide for a one-time $15,000 payment in August 2014, and
deferred all other remaining cash fees under this agreement through
December 31, 2014 in consideration for the issuance of the 109,917
FPMI Warrants.
During
the first quarter of 2016, BHA agreed to exchange the amounts owed
to BHA under the October 29, 2013 agreement for a promissory note,
on terms substantially similar to the Bridge Notes (the
“BHA
Note”), in the principal
amount of $283,000 with issuance date of March 31, 2016. The BHA
Note is payable on demand as of December 31, 2016. This note is
past due as of December 31, 2016.
As of
December 31, 2016, the Company owed Mr. Abrams an aggregate total
of $2,059 for outstanding principal and accrued and unpaid interest
on certain Bridge Notes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required under Regulation S-K for “smaller reporting
companies.”
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Audited
balance sheets for the years ended December 31, 2016 and 2015 and
audited statements of operations, changes in stockholders’
equity and cash flows for the years ended December 31, 2016 and
2015 are included immediately following the signature page to this
Annual Report, beginning on page F-1.
ITEM 9. CHANGE IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
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 amended
(the "Exchange
Act"), as of December 31, 2016.
Based on this evaluation, and in light of the material weaknesses
in internal controls over financial reporting described below, the
Company’s Chief Executive Officer and Principal Financial
Officer concluded that our disclosure controls and procedures were
not effective.
Management's Annual Report on Internal Control over Financial
Reporting
Our
Chief Executive Officer/Principal Accounting Officer is responsible
for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) and 15d-(f) under
the Exchange Act. Our internal control over financial reporting are
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with U.S.
generally accepted accounting principles. Our internal control over
financial reporting include those policies and procedures
that:
(i) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
our assets;
(ii) provide
reasonable assurance that transactions are recorded as necessary to
permit the preparation of our consolidated financial statements in
accordance with U.S. generally accepted accounting principles,
and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors;
and
(iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the consolidated financial
statements.
Our Chief Executive Officer/Principal
Accounting Officer assessed the effectiveness of our internal
control over financial reporting presented in conformity with
accounting principles generally accepted in the U.S. as
of December 31, 2016. In conducting its assessment, our Chief
Executive Officer/Principal Accounting Officer used the criteria
issued by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—2013
Integrated Framework. Based on
this assessment, our Chief Executive Officer/Principal Accounting
Officer concluded that, as of December 31, 2016, our internal
control over financial reporting was not effective based on those
criteria due to the material weakness in our entity level control
environment described in the 2010 Annual Report on Form
10-K.
In
an effort to remediate the identified material weaknesses in our
entity level control environment, we have initiated and/or
undertaken the following actions:
Management
has retained, and will continue to retain, additional personnel
with technical knowledge, experience, and training in the
application of generally accepted accounting principles
commensurate with our financial reporting and U.S. GAAP
requirements. Where necessary, we will supplement
personnel with qualified external advisors.
While
the Company has retained competent accounting and finance
professionals necessary to ensure timely and accurate reporting
with the SEC, the weaknesses in our entity level control
environment arguably persist, and will continue to persist pending
financing necessary to allow the Company to recruit additional
accounting and/or finance professionals to address the material
weakness in our entity level control environment.
Changes in Internal Control 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.
ITEM
9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
following table sets forth the Company’s executive officers
and directors:
|
Directors and Executive Officers
|
|
Age
|
|
Position
|
|
Dr. Shalom Hirschman
|
|
80
|
|
Chief Executive Officer, Principal Accounting Officer and
Chairman
|
|
Michael Abrams
|
|
47
|
|
Director
|
Shalom
Hirschman, M.D. was appointed Chief Executive Officer and
Principal Accounting Officer on December 31, 2010, and has served
as a Director of the Company since September 2005. Dr. Hirschman
was Professor of Medicine, Director of the Division of Infectious
Diseases and Vice-Chairman of the Department of Medicine at Mt.
Sinai School of Medicine and the Mount Sinai Hospital. He spent
nearly three decades at Mt. Sinai until his retirement. He then
became the CEO, President and Chief Scientific Officer of Advanced
Viral Research Corp. from which he retired in
2004.
Dr.
Hirschman’s extensive experience in healthcare, in both
academia and as an executive working in advanced clinical research,
contribute to the efforts of the Board of Directors in shaping the
direction of the Company as it seeks to execute its business
plan.
Michael
S. Abrams was appointed to the Board of Directors in March
2012. Mr. Abrams is currently the Chief Financial
Officer and Director of FitLife Brands, Inc., a publicly traded
company, and is a Managing Director of Burnham Hill Partners LLC, a
New York-based investment and merchant banking firm he joined in
August of 2003. Mr. Abrams holds a Master of Business
Administration with Honors from the Booth School of Business at the
University of Chicago.
The
Board of Directors believes that Mr. Abrams’ broad experience
in corporate finance, including restructurings, as well as his
experience as a finance executive working with public companies,
provides necessary and relevant experience to the Board of
Directors given the Company’s financing challenges and
efforts to restructure its business and operations.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”), requires the
Company’s Directors and Officers, and persons who own more
than 10% of a registered class of the Company’s equity
securities (“Section 16
Persons”), to file with
the SEC initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the
Company. Section 16 Persons are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports
they file. Based on the Company’s review of the forms it has
received, on other reports filed by Section 16 Persons with the SEC
and on the Company’s records, the Company believes Mr. Abrams
failed to file a required Section 16 report during
2016.
Code of Ethics
The
Company has adopted a code of ethics, which applies to all our
directors, officers and employees. Our code of ethics is intended
to comply with the requirements of Item 406 of Regulation S-K.
Any person may also obtain a copy of the Company’s code of
ethics without charge by sending a written request addressed to:
QuantRx Biomedical Corporation, 10190 SW 90th Avenue, No. 4690,
Tualatin, Oregon, 97123.
Audit Committee
At
December 31, 2016, the Company did not have an audit committee.
Considering the current suspension of active development of our PAD
based products, together with the costs associated with procuring
and providing the infrastructure to support an independent audit
committee and the Company’s limited number of transactions,
Management has concluded that the risks associated with the lack of
an independent audit committee are justified and
manageable. Management will, however, periodically
reevaluate its position with a view to establishing an audit
committee in the event it is deemed to be in the best interests of
the Company’s stockholders.
Compensation Committee
The
Company does not currently have a compensation committee due to the
lack of sufficient independent directors. At such time
as the Company actively recruits additional management in
connection with the recommencement of active operations, the Board
of Directors will establish a compensation committee to administer
the Company’s stock option plans and to reestablish general
policies relating to compensation.
Nominating Committee
The
Company’s entire Board participates in consideration of
director nominees. The Board will consider candidates who have
experience as a board member or senior officer of a company or who
are generally recognized in a relevant field as a well-regarded
practitioner, faculty member or senior government
officer. The Board will also evaluate whether the
candidate’s skills and experience are complementary to the
existing Board’s skills and experience as well as the
Board’s need for operational, management, financial,
international, technological or other expertise. The Board will
interview candidates that meet the criteria, and then select
nominees that the Board believes best suit the Company’s
needs.
ITEM 11. EXECUTIVE
COMPENSATION
Summary Compensation
The following
table sets forth information concerning the compensation paid to
the Company’s Chief Executive Officer, and the
Company’s two most highly compensated executive officers
other than its chief executive officer, who were serving as
executive officers as of December 31, 2016 and whose annual
compensation exceeded $100,000 during such year (collectively the
“Named
Executive Officers”):
|
Name And
Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option
Awards
($)
|
|
All other
Compensation
($)
|
|
Total
($)
|
|
||||
|
Dr. Shalom Hirschman
|
|
2016 (1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
Chief Executive Officer and Principal Accounting
Officer
|
|
2015
|
|
|
-
|
|
|
-
|
|
|
30,000
|
(2)
|
20,000
|
(3)
|
|
50,000
|
|
|
(1)
|
Dr. Hirschman did not receive compensation during the year ended
December 31, 2016.
|
|
(2)
|
Amount represents the grant date fair value
of stock options to purchase
750,000 shares of Common Stock issued to Dr. Hirschman on February
3, 2015, computed in accordance
with FASB guidance.
|
|
(3)
|
Amount represents the fair value of 1,000,000 shares of Common
Stock issued to Dr. Hirschman as compensation during
2015.
|
Outstanding Equity Awards at Fiscal
Year-End
|
|
Option Awards
|
||||
|
Name
|
Number of
Securities Underlying Unexercised
Options (#) Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity Incentive Plan Awards:
Number of
Securities
Underlying Unexercised
Unearned
Options (#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
Dr.
Shalom Hirschman
|
750,000
|
-
|
-
|
0.04
|
2/3/2020
|
|
Chief Executive Officer and Principal Accounting
Officer
|
|
|
|
|
|
Director Compensation
|
Name
|
Fees earned or Paid in Cash
($)
|
Option
Awards
($)
|
Stock
Awards
($)
|
Total
($)
|
|
None
|
$-
|
$-
|
-
|
-
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information as of April 10,
2017, concerning the ownership of Common Stock by (i) each
stockholder of the Company known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each current member of the Board of
Directors of Company, and (iii) each Executive Officer of the
Company named in the Summary Compensation Table appearing under
“Executive Compensation” above.
The
number and percentage of shares beneficially owned is determined in
accordance with Rule 13(d)(3) of the Securities Exchange Act and
the information is not necessarily indicative of beneficial
ownership for any other purpose. Under that rule, beneficial
ownership includes any shares as to which the individual or entity
has voting power or investment power and any shares that the
individual has the right to acquire within 60 days through the
exercise of any stock option or other right. Unless otherwise
indicated in the footnotes or table, each person or entity has sole
voting and investment power, or shares such powers with his or her
spouse, with respect to the shares shown as beneficially
owned.
|
Name and Address of Beneficial Owner (1)
|
|
Amount and Nature of
Beneficial Ownership
as of April 10, 2017
|
|
|
Percentage of Class (2)
|
|
||
|
|
|
|
|
|
|
|
||
|
Officers and Directors
|
|
|
|
|
|
|
||
|
Shalom Hirschman (3)
|
|
|
2,800,000
|
|
|
|
2.54
|
%
|
|
Chief Executive
Officer
|
|
|
|
|
|
|
|
|
|
Michael Abrams (4)
|
|
|
2,026,945
|
|
|
|
3.52
|
%
|
|
Director
|
|
|
|
|
|
|
|
|
|
Total Officers and Directors as a Group
(2 persons)
|
|
|
4,826,945
|
|
|
|
6.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
5% Beneficial Owners
|
|
|
|
|
|
|
|
|
|
Jason T. Adelman (5)
c/o Cipher Capital Partners LLC
1251 Avenue of Americas, Suite 936
New York, NY 10020
|
|
|
5,979,222
|
|
|
|
7.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Matthew Balk (6)
50 North 5th Street, Apt. 5GE
Brooklyn, NY 11249
|
|
|
5,696,780
|
|
|
|
7.24
|
%
|
|
*
|
Less than 1%.
|
|
(1)
|
Unless indicated otherwise, the address of each person listed in
the table is: c/o QuantRx Biomedical Corporation, 10190 SW 90th
Avenue, Tualatin, Oregon 97123.
|
|
(2)
|
The percentage of beneficial ownership of Common Stock is based
on 78,696,461 shares of Common Stock outstanding as of April
10, 2017 and excludes all shares of Common Stock issuable upon the
exercise of outstanding options or warrants to purchase Common
Stock or conversion of any Common Stock equivalents, other than the
shares of Common Stock issuable upon the exercise of options or
warrants to purchase Common Stock held by the named person to the
extent such options or warrants are exercisable within 60 days of
April 10, 2017.
|
|
(3)
|
Includes 750,000 shares issuable upon exercise of stock
options.
|
|
(4)
|
Includes 1,000,000 shares issuable upon exercise of stock
options.
|
|
(5)
|
Shares are owned by Mr. Adelman in JTWROS with Cass G. Adelman, Mr.
Adelman’s spouse. The shares exclude 3,085,336 shares of
Common Stock issuable upon conversion of shares of Series B
Preferred, and Common Stock issuable upon conversion of certain
convertible promissory notes in the principal amount of $467,000
beneficially owned by Mr. Adelman. The terms of the
promissory notes and the Series B Preferred contain provisions
preventing their conversion if as a result of such conversion the
holder thereof owns in excess of 4.99% and 9.99%, respectively, of
the issued and outstanding shares of the Company’s Common
Stock.
|
|
(6)
|
Shares exclude 300,000 shares of Common Stock issuable upon
conversion of shares of Series B Preferred, and Common Stock
issuable upon conversion of certain convertible promissory
notes in the principal amount of $74,000 beneficially
owned by Mr. Balk. The terms of the promissory notes and
the Series B Preferred contain provisions preventing their
conversion if as a result of such conversion or exercise the holder
thereof owns in excess of 4.99% and 9.99%, respectively, of the
issued and outstanding shares of the Company’s Common
Stock.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Transactions with Related Parties
Mr. Michael Abrams, a director of the Company, is
an employee of Burnham Hill Advisors, LLC
(“BHA”). On October 29, 2013, we entered into a
new advisory agreement with BHA. 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 expired on December 31, 2014. BHA agreed to defer the
cash fees due under the new agreement until June 30, 2014. On July
1, 2014, the Company and BHA modified the terms of this agreement
to provide for a one-time $15,000 payment in August 2014, and
deferred all other remaining cash fees under this agreement through
December 31, 2014 in consideration for the issuance of the 109,917
FPMI Warrants.
During the first quarter of 2016, BHA agreed to
exchange the amounts owed to BHA under the October 29, 2013
agreement for a promissory note, on terms substantially similar to
the Bridge Notes (the “BHA Note”), in the principal amount of $283,000 with
issuance date of March 31, 2016. The BHA Note is payable on demand
as of December 31, 2016. This note is past due as of December 31,
2016.
As of
December 31, 2016, the Company owed Mr. Abrams an aggregate total
of $2,059 for outstanding principal and accrued and unpaid interest
on certain Bridge Notes.
Director Independence
The
Company has determined that none of its directors were independent
as of December 31, 2016, as determined under Rule 10A-3(b)(1) of
the Securities Exchange Act of 1934 adopted pursuant to the
Sarbanes-Oxley Act.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The aggregate fees billed for professional
services rendered by Fruci & Associates II, PLLC
(“Fruci II”) for the audit of our annual financial
statements and the reviews of financial statements for years 2016
and 2015 were $26,414 and $29,901,
respectively.
Audit-Related Fees
During
the years ended December 31, 2016 and 2015, no assurance or
related services were performed Fruci II that were reasonably
related to the performance of the audit or review of our financial
statements.
Tax Fees
During
the year ended December 31, 2016 and 2015, no fees were billed
by Fruci II for tax compliance, tax advice or tax planning
services.
All Other Fees
During
the years ended December 31, 2016 and 2015, no fees were
billed by Fruci II other than the fees set forth under the captions
“Audit Fees” and “Tax Fees”
above.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this annual
report:
|
Exhibit No.
|
|
Description
|
|
3.1
|
|
Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed with Form 10-KSB
filed on April 16, 2001)
|
|
3.2
|
|
Certificate of Amendment to the Articles of Incorporation of the
Company, dated November 30, 2005 (incorporated by reference to
Exhibit 3.2 filed with Form 10-KSB on March 31, 2006)
|
|
3.3
|
|
Bylaws of the Company (incorporated by reference to Exhibit 3.2
filed with Form 10KSB40/A filed on September 23, 1999)
|
|
3.4
|
|
Certificate of Amendment to the Bylaws of the Company dated
December 2, 2005 (incorporated by reference to Exhibit 3.4 filed
with Form 10-KSB on March 31, 2006)
|
|
3.5
|
|
Certificate of Amendment to the Articles of Incorporation dated
January 25, 2010 (incorporated by reference to Exhibit 3.5 filed
with Form 10-K on April 14, 2014)
|
|
3.6
|
|
Certificate of Withdrawal of the Series A Convertible Preferred
Stock and Series A-1 Convertible Preferred Stock, dated November
19, 2010 (incorporated by reference to Exhibit 3.6 filed with Form
10-K on April 14, 2014)
|
|
3.7
|
|
Certificate of Designation for Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 3.6 filed with Form 10-K on
April 14, 2011)
|
|
4.1
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx
Biomedical Corporation, dated October 2007 (incorporated by
reference to Exhibit 10.2 filed with Form 8-K on October 24,
2007)
|
|
4.2
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx
issued by QuantRx in favor of Investors (incorporated by reference
to Exhibit 4.2 filed with Form 8-K on January 29,
2008)
|
|
4.3
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx,
dated June 2008, issued by QuantRx in favor of lender (incorporated
by reference to Exhibit 4.2 filed with Form 8-K on July 28,
2008)
|
|
4.4
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx,
dated August 2008, issued by QuantRx in favor of lender.
(incorporated by reference to Exhibit 4.2 filed with Form 8-K on
August 27, 2008)
|
|
4.5
|
|
Warrant to Purchase 2,000,000 Shares of Common Stock of QuantRx,
dated July 30, 2009, issued by QuantRx in favor of NuRx
(incorporated by reference to Exhibit 10.4 filed with Form 8-K on
August 5, 2009)
|
|
4.6
|
|
Warrant to Purchase 2,000,000 Shares of Common Stock of QuantRx,
dated July 30, 2009, issued by QuantRx in favor of NuRx
(incorporated by reference to Exhibit 10.5 filed with Form 8-K on
August 5, 2009)
|
|
10.1
|
|
2007 Incentive and Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit C filed with Schedule 14A on June 5,
2007)
|
|
10.2
|
|
Employment Agreement, dated July 30, 2009, by and between QuantRx
and William Fleming (incorporated by reference to Exhibit 10.8
filed with Form 8-K on August 5, 2009)
|
|
10.3
|
|
Settlement Agreement and Release, dated as of July 7, 2011, by and
between the Company and NuRx Pharmaceuticals, Inc. (incorporated by
reference to Exhibit 99.1 filed with Form 8-K on July 8,
2011).
|
|
14.1
|
|
Ethical Guidelines adopted by the Board of Directors of the Company
on May 31, 2005 (incorporated by reference to Exhibit 14.1 filed
with Form 10-KSB on March 31, 2006)
|
|
31**
|
|
Certification of Principal Executive and Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32**
|
|
Certification of Principal Executive and Financial Officer
pursuant to 18 USC Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
101.INS**
|
|
XBRL Instance 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
|
** Document
is filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
QuantRx Biomedical Corporation
|
|
|
|
|
|
|
|
|
Date: April 17, 2017
|
By:
|
/s/ Shalom Hirschman
|
|
|
|
|
Shalom Hirschman
Principal Executive and Principal Accounting Officer
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
|
QuantRx Biomedical Corporation
|
|
|
|
|
|
|
|
|
Date: April 17, 2017
|
By:
|
/s/ Shalom Hirschman
|
|
|
|
|
Shalom Hirschman
Chief Executive Officer and Director
|
|
|
|
|
|
|
|
Date: April 17, 2017
|
By:
|
/s/ Michael Abrams
|
|
|
|
|
Michael Abrams,
Director
|
|
FINANCIAL STATEMENTS
Table of Contents
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of QuantRx Biomedical Corp.
We have
audited the accompanying balance sheets of QuantRx Biomedical Corp.
as of December 31, 2016, and the related statements of operation,
stockholders’ equity, and cash flows for the year ended
December 31, 2016. QuantRx Biomedical Corp.’s management is
responsible for these financial statements. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of QuantRx
Biomedical Corp. as of December 31, 2016, and the results of its
operations and its cash flows for the year ended December 31 2016,
in conformity with accounting principles generally accepted in the
United States of America.
The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has not yet established an
ongoing source of revenues sufficient to cover its operating costs,
which raises substantial doubt about its ability to continue as a
going concern. The financial statements do not include any
adjustment that might result from the outcome of this
uncertainty.
|
/s/ Fruci & Associates II, PLLC
Fruci
& Associates II, PLLC
Spokane,
WA
|
|
|
April
17, 2017
|
|
|
|
|
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
December 31,
|
|
|
2016
|
2015
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
$691
|
$61,078
|
|
Deposit
on investment
|
-
|
50,000 -
|
|
Prepaid
expenses
|
28,094
|
26,396
|
|
Total
Current Assets
|
28,785
|
137,474
|
|
|
|
|
|
Investments,
net of impairment of $30,051
|
169,948
|
200,000
|
|
Property
and equipment, net
|
-
|
1,098
|
|
Intangible
assets, net
|
13,874
|
19,949
|
|
Total
Assets
|
$212,607
|
$358,521
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$160,671
|
$121,821
|
|
Accounts
payable, related party
|
-
|
283,000
|
|
Accrued
expenses
|
36,342
|
34,366
|
|
Shareholder
loans
|
36,000
|
-
|
|
Notes
payable, net of discount
|
1,059,784
|
1,042,529
|
|
Notes
payable, related party
|
558,287
|
267,244
|
|
Current
portion of LT notes payable
|
4,376
|
2,336
|
|
Total
Current Liabilities
|
1,855,460
|
1,751,296
|
|
Notes
payable, long-term
|
35,646
|
39,430
|
|
Total
Liabilities
|
1,891,106
|
1,790,726
|
|
|
|
|
|
Commitments
and Contingencies
|
-
|
-
|
|
|
|
|
|
Stockholders’
Equity (Deficit):
|
|
|
|
Preferred
stock; $0.01 par value, 25,000,000 authorized shares;
20,500,000 shares designated as Series B Convertible Preferred
Stock; Series B Convertible Preferred shares 16,676,942 issued
and outstanding
|
166,769
|
166,769
|
|
Common
Stock; $0.01 par value; 150,000,000 authorized; 78,696,461 and
69,772,918 shares issued and outstanding,
respectively
|
786,964
|
697,729
|
|
Additional
paid-in capital
|
48,740,389
|
48,677,924
|
|
Accumulated
deficit
|
(51,372,621)
|
(50,974,627)
|
|
Total
Stockholders’ Equity (Deficit)
|
(1,678,499)
|
(1,432,205)
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$212,607
|
$358,521
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
Year Ended December 31,
|
|
|
|
2016
|
2015
|
|
Revenues:
|
|
|
|
Revenues
|
$-
|
$156
|
|
Total
Revenues
|
-
|
156
|
|
|
|
|
|
Costs
and Operating Expenses:
|
|
|
|
Sales,
general and administrative
|
75,434
|
219,292
|
|
Professional
fees
|
56,231
|
116,754
|
|
Research
and development
|
-
|
13,154
|
|
Amortization
|
6,075
|
8,572
|
|
Depreciation
|
1,099
|
1,093
|
|
Total
Costs and Operating Expenses
|
138,839
|
358,865
|
|
|
|
|
|
Loss
from Operations
|
(138,839)
|
(358,709)
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
Interest
expense
|
(196,146)
|
(123,899)
|
|
Amortization
of debt discount to interest expense
|
-
|
(35,075)
|
|
Loss on impairment
|
(80,052)
|
-
|
|
Gain
(loss) on conversion of shares
|
16,503
|
(7,163)
|
|
Gain
(loss) on settlement of accounts payable
|
540
|
57,066
|
|
Total
Other Income (Expense), net
|
(259,155)
|
(109,071)
|
|
|
|
|
|
Income
(Loss) Before Taxes
|
(397,994)
|
(467,780)
|
|
|
|
|
|
Provision
for Income Taxes
|
-
|
-
|
|
|
|
|
|
Net
Income (Loss)
|
$(397,994
|
$(467,780)
|
|
|
|
|
|
Basic
and Diluted Net Income (Loss) per Common Share
|
$(0.01)
|
$(0.01)
|
|
|
|
|
|
Basic
and Diluted Weighted Average Shares Used in per Share
Calculation
|
74,246,914
|
66,834,677
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
Year Ended December 31,
|
|
|
|
2016
|
2015
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
income (loss)
|
(397,994)
|
$(467,780
|
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
Depreciation
and amortization
|
7,173
|
9,665
|
|
Interest
expense related to amortization of non-cash discount, non-cash
beneficial conversion feature and deferred financing
costs
|
-
|
28,612
|
|
Non-cash
fair value of Common Stock issued as compensation to
management
|
-
|
30,000
|
|
Non-cash
fair value of Common Stock issued as compensation to
consultant
|
-
|
25,000
|
|
Non-cash
fair value of Stock Options issued as compensation to
management
|
|
92,000
|
|
Non-cash
loss on equity issuance for other financing costs
|
-
|
7,163
|
|
Non-cash
loss on issuance of common stock in exchange for interest on notes
payable
|
68,704
|
35,700
|
|
Non-cash
gain on the conversion of shares
|
(16,503)
|
-
|
|
Non-cash
fair value of Common Stock issued in connection with notes
payable
|
-
|
99,672
|
|
(Increase)
decrease in:
|
|
|
|
Accounts
receivable
|
-
|
352
|
|
Loss
on impairment
|
80,042
|
-
|
|
Inventories
|
|
-
|
|
Prepaid
expenses
|
(1,698)
|
14,506
|
|
Increase
(decrease) in:
|
|
|
|
Accounts
payable
|
38,850
|
(57,485)
|
|
Accrued
expenses
|
(126,783)
|
(43,783)
|
|
|
|
|
|
Net
Cash Used by Operating Activities
|
(94,643)
|
(226,378)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Deposit
on Investment
|
-
|
(50,000)
|
|
Net
Cash Provided (Used) by Investing Activities
|
-
|
(50,000)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Principal
payment on long term debt
|
(1,744)
|
(2,590)
|
|
Proceeds
from the issuance of shareholder loans
|
36,000
|
-
|
|
Proceeds
from issuance of convertible promissory notes
|
-
|
121,500
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
34,256
|
118,910
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(60,387)
|
(157,468)
|
|
Net
Cash of Deconsolidated Subsidiary
|
|
|
|
Cash
and Cash Equivalents, Beginning of Period
|
61,078
|
218,546
|
|
|
|
|
|
Cash
and Cash Equivalents, End of Period
|
$691
|
$61,078
|
|
|
|
|
|
Supplemental
Cash Flow Disclosures:
|
|
|
|
Interest
expense paid in cash
|
$-
|
$-
|
|
Income
tax paid
|
$-
|
$-
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Activities:
|
|
|
|
Common Stock issued for interest conversion
|
$151,700
|
$81,173
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
|
|
Preferred Stock
|
Common Stock
|
|
|
|
|
||
|
|
Number
of Shares
|
Amount
|
Number of
Shares
|
Amount
|
Additioal
Paid-in
Capital
|
Stock to be
Issued
|
Accumulated Defecit
|
Total
Stockholders’
Equity
|
|
BALANCE, DECEMBER 31, 2014
|
16,676,942
|
$166,769
|
63,341,163
|
$633,412
|
$48,428,724
|
$63,000
|
$(50,506,847)
|
$(1,214,942)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to notes payable
|
|
|
1,029,500
|
10,295
|
46,888
|
(42,000)
|
|
15,183
|
|
Issuance
of common stock in exchange for interest payable
|
|
|
2,690,752
|
26,908
|
54,265
|
-
|
|
81,173
|
|
Issuance
of common stock for services to consultant
|
|
|
1,211,503
|
27,115
|
41,048
|
(21,000)
|
|
32,163
|
|
Issuance
of common stock for services to management
|
|
|
1,500,000
|
|
30,000
|
|
|
30,000
|
|
Issuance
of stock options as compensation
|
|
|
|
|
92,000
|
|
|
92,000
|
|
Net
loss for the year ended December 31, 2015
|
|
|
|
|
|
|
(467,780)
|
(467,780)
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2015
|
16,676,942
|
$166,769
|
69,772,918
|
$697,729
|
$48,677,927
|
$-
|
$(50,974,627)
|
$(1,432,205)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for interest payable
|
-
|
-
|
8,923,543
|
89,235
|
62,465
|
-
|
-
|
151,700
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2016
|
|
|
|
|
|
|
(397,994)
|
(397,994)
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2016
|
16,676,972
|
166,769
|
78,696,461
|
786,964
|
48,740,389
|
-
|
(51,372,621)
|
(1,648,499)
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL
CORPORATION
NOTES TO FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF BUSINESS
|
Overview
We have
developed and
intend to commercialize our innovative PAD based products for the
over-the-counter markets for the treatment of hemorrhoids, minor
vaginal infection, urinary incontinence, general catamenial uses
and other medical needs. We are developing and intend to
commercialize genomic diagnostics for the laboratory market, based
on our patented PadKit®
technology.
Our platforms include: inSync®, Unique™,
PadKit®,
and OEM branded over-the-counter and laboratory testing products
based on our core intellectual property related to our PAD
technology.
The
continuation of our operations remain contingent on the receipt of
financing required to execute our business and operating plan,
which is currently focused on the commercialization of our PAD
technology either directly or through a joint venture, or other
relationship intended to increase shareholder value. In the
interim, we have nominal operations, focused principally on
maintaining our intellectual property portfolio and continuing to
comply with the public company reporting requirements. No
assurances can be given that we will obtain financing, or otherwise
successfully develop a business and operating plan or enter into an
alternative relationship to commercialize our PAD
technology.
Our diagnostic testing business,
operating under our subsidiary QX Labs, Inc.
(“QX”)
(the “Diagnostic
Business”) is based principally on
the Company’s proprietary PadKit®
technology, which we
believe provides a patented platform technology for genomic
diagnostics, including fetal genomics. Outside of the Diagnostic
Business, our business line consists of our 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 this corporate structure permits the Company to
more efficiently explore 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.
Our
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 our broad-based intellectual
property and patent portfolio to develop new and innovative
diagnostic products; (ii) commercialize our OTC Business and
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 our
investments in non-core assets. However, as a result of
our current financial condition, our efforts in the short-term will
be focused on obtaining financing necessary to continue as a going
concern.
|
2.
|
MANAGEMENT STATEMENT REGARDING GOING CONCERN
|
The
Company currently is not generating revenue from operations, and
does not anticipate generating meaningful revenue from operations
or otherwise in the short-term. 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.
|
CONSOLIDATED SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
This summary of significant accounting
policies of the Company is presented to assist in understanding the
Company’s consolidated financial statements. The consolidated
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 consolidated 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, which resulted in employee stock-based
compensation expense for the years ended December 31, 2016 and 2015
of $0 and $122,000, respectively.
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. Accordingly, compensation cost has been
recognized for the issuance of common stock to non-employee
consultants for the years ended December 31, 2016 and 2015 of $0
and $25,000, respectively.
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
2016, the Company had no share based payments. During
2015, the fair value of each share based payment is estimated on
the measurement date using the Black-Scholes model using an average
risk free interest rate of 0.52%, expected volatility of 417%, 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, 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.
Cash and Cash Equivalents
The
Company considers all highly liquid investments and short-term debt
instruments with maturities of three months or less from date of
purchase to be cash equivalents. Cash equivalents consisted of
money market funds at December 31, 2016 and 2015.
Concentration of Risks
Financial
instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents. The
Company primarily maintains its cash balances with financial
institutions in federally insured accounts. At times, such balances
may exceed federally insured limits. The Company has not
experienced any losses to date resulting from this practice. At
December 31, 2016 and 2015, our cash was not in excess of these
limits.
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 December 31, 2016, the Company had outstanding options
exercisable for 2,352,000 shares of its Common Stock, and preferred
shares convertible into 16,676,942 shares of its Common Stock. The
above options and preferred shares were deemed to be antidilutive
for the year ended December 31, 2016.
As
of December 31, 2015, the Company had outstanding options
exercisable for 2,452,000 shares of its Common Stock, and preferred
shares convertible into 16,676,942 shares of its Common Stock. The
above options and preferred shares were deemed to be antidilutive
for the year ended December 31, 2015.
Fair Value of Financial Instruments
Current
U.S. generally accepted accounting principles establishes a fair
value hierarchy that prioritizes the inputs used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement).
The
three levels of the fair value hierarchy are as
follows:
Level
1 – Quoted prices are available in active markets for
identical assets or liabilities. Active markets are those in which
transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing
basis.
Level
2 – Pricing inputs are other than quoted prices in active
markets included in Level 1, which are either directly or
indirectly observable as of the reporting date. Level 2 includes
those financial instruments that are valued using models or other
valuation methodologies. These models are primarily
industry-standard models that consider various assumptions,
including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for
the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in
the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels
at which transactions are executed in the marketplace.
Level
3 – Pricing inputs include significant inputs that are
generally unobservable from objective sources. These inputs may be
used with internally developed methodologies that result in
management’s best estimate of fair value. Level 3 instruments
include those that may be more structured or otherwise tailored to
the Company’s needs.
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.
In
determining fair value of our investment from GUSA (which
investment is further described in Note 6 below), the Company
estimated fair value based 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 the carrying value of this investment that are not
readily apparent from other sources.
Impairments
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.
During 2016, the Company recorded losses from
impairments totaling $80,042 (the “2016
Impairments”). The 2016
Impairments consist the following:
Genomics USA, Inc.
(“GUSA”)
During the year ended December 31,
2016, the Company has recorded a loss of $30,052 on an impairment
on the value of its common stock investment in GUSA. The Company
has valued the impairment based on the dilution of the
Company’s investment and certain other
factors.
Global Cancer
Diagnostics, Inc. (“GCD”):
During 2015, the Company entered into a letter of intent with GCD,
which provided for, among other things, the advance payment of
$50,000 towards a potential business combination. During 2016, the
Company determined the full amount of the advanced payment to be
impaired.
Income Taxes
The
Company accounts for income taxes and the related accounts under
the liability method. Deferred tax assets and liabilities are
determined based on the differences between the financial statement
carrying amounts and the income tax bases of assets and
liabilities. A valuation allowance is applied against any net
deferred tax asset if, based on available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized.
Our
policy is to recognize interest and/or penalties related to income
tax matters in income tax expense. We had no accrual for interest
or penalties on our balance sheets at December 31, 2016 or
2015, and have not recognized interest and/or penalties in the
statement of operations for the years ended December 31, 2016
or 2015. See Note 11, Income Taxes, below.
Intangible Assets
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
years ended December 31, 2016 and 2015, totaled $6,075 and $8,572.
The remaining unamortized costs will be amortized through
2024. The Company estimates its amortization expense for
2017 will be $3,575.
Inventories
Inventories,
consisting solely of products available for sale, are accounted for
using the first-in, first-out (FIFO) method, and are valued at the
lower of cost of market value. This valuation requires us to
make judgments, based on current market conditions, about the
likely method of dispositions and expected recoverable value
inventories.
Property and Equipment
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 December 31,
2016 and 2015 consisted of computer and office equipment, machinery
and equipment and leasehold improvements with estimated useful
lives of three to seven years. Estimated useful lives of leasehold
improvements do not exceed the remaining lease term. Depreciation
expense was $1,099 and $1,093 for the years ended December 31, 2016
and 2015. Expenditures for repairs and maintenance are expensed as
incurred. See Note 4below.
Research and Development Costs
Research
and development costs are expensed as incurred. The cost of
intellectual property purchased from others that is immediately
marketable or that has an alternative future use is capitalized and
amortized as intangible assets. Capitalized costs are amortized
using the straight-line method over the estimated economic life of
the related asset.
Revenue Recognition
The
Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin Topic 13 when persuasive evidence of an arrangement exists
and delivery or performance 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.
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 or reseller’s contractual reporting
obligations.
The Company’s strategy includes
entering into collaborative agreements with strategic partners for
the development, commercialization and distribution of its product
candidates. Such collaborative agreements may have multiple
deliverables. The Company evaluates multiple deliverable
arrangements pursuant to ASC Topic 605-25,
“Revenue Recognition:
Multiple-Element Arrangements.” Pursuant to this Topic, in
arrangements with multiple deliverables where the Company has
continuing performance obligations, contract, milestone and license
fees are recognized together with any up-front payments over the
term of the arrangement as performance obligations are completed,
unless the deliverable has standalone 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.
Development Agreements and Royalties
In 2007, the Company entered into a
development agreement for an at-home diagnostic test with Church
& Dwight Co., Inc. (“C&D”). The C&D agreement included milestone
based payments, which were recognized in 2007 and 2008. On August
14, 2008, the Company entered into a Technology License Agreement
with C&D. Under the terms of the agreement, C&D
acquired exclusive worldwide rights to use certain Company
technology related to the jointly developed test. Under the
ten-year agreement, the Company received royalties on net sales of
the product of $0 and $156 in 2016 and 2015,
respectively.
Reclassifications
Prior
period financial statement amounts have been reclassified to
conform to current period presentation.. The reclassifications had
no effect on net loss or earnings per share.
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.
Recent Accounting Pronouncements
As of
December 31, 2016 and December 31, 2015, the Company does not
expect any of the recently issued accounting pronouncements to have
a material impact on its financial condition or results of
operations.
|
4.
|
OTHER BALANCE SHEET INFORMATION
|
Components
of selected captions in the accompanying balance sheets as of
December 31, 2016 and 2015 consist of:
|
|
2016
|
2015
|
|
Prepaid expenses:
|
|
|
|
Prepaid
insurance
|
28,094
|
26,396
|
|
Other
|
|
-
|
|
Prepaid expenses
|
$28,094
|
$26,396
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
Computers
and office furniture, fixtures and equipment
|
$28,031
|
$28,031
|
|
Machinery
and equipment
|
5,475
|
5,475
|
|
Less:
accumulated depreciation
|
(33,506)
|
(32,408)
|
|
Property and equipment, net
|
$-
|
$1,098
|
|
|
|
|
|
Accrued expenses:
|
|
|
|
Other
accrued expenses
|
36,342
|
34,366
|
|
Accrued expenses
|
$36,342
|
$34,366
|
|
5.
|
INVESTMENTS
|
In
May 2006, the Company purchased 144,024 shares of common stock of
for $200,000. After the investment, QuantRx owned approximately 5%
of the total issued and outstanding common stock of GUSA. As of the
end of December 31, 2016, the Company’s position had been
diluted to approximately 2% of the issued and outstanding common
stock of GUSA. The investment is recorded at historical
cost and is assessed at least annually for impairment. During the
year ended December 31, 2016, the Company has recorded a loss of
$30,052 as an impairment on the value of its common stock
investment in GUSA. The Company has valued the impairment based on
the dilution of the Company’s investment and certain other
factors. Genomics USA, Inc. now does business as GMS
Biotech.
|
6.
|
INTANGIBLE ASSETS
|
Intangible
assets as of December 31, 2016 and 2015 consisted of the
following:
|
|
2016
|
2015
|
|
Licensed
patents and patent rights
|
$50,000
|
$50,000
|
|
Patents
|
41,044
|
41,044
|
|
NuRx
licensed technology
|
13,200
|
13,200
|
|
Less:
accumulated amortization
|
(90,370)
|
(84,295)
|
|
Intangibles,
net
|
$13,874
|
$19,949
|
|
Asset
Categories
|
Estimated Useful Life in Years
|
|
Patents
|
17
|
|
Patents
under licensing
|
10
|
|
Intangibles
acquired in 2008 (weighted average)
|
15
|
Patent under Licensing
The
Company licenses patent rights and know-how for certain hemorrhoid
treatment pads and related coatings from The Procter & Gamble
Company. The five-year license agreement was entered into July 2006
and has a five-year automatic renewal option. Although
the Company renewed the agreement in 2011, payments have been
suspended due to the Company’s current financial
condition. The Company has subsequently filed for a
patent to address the technology used in its treated miniforms,
which was issued during 2015.
|
7.
|
CONVERTIBLE NOTES PAYABLE
|
On
January 2, 2015, the Company issued an additional Bridge Note in
the principal amount of $36,500 and issued 73,000 shares of Common
Stock to the purchaser of the additional Bridge Note. Additionally,
we issued 500,000 shares of Common Stock in January 2015 to certain
investors who purchased Bridge Notes during the year ended December
31, 2014, which were previously classified as shares to be
issued.
In
February 2015, the Company issued an aggregate total of 815,061
shares of Common Stock as payment for accrued interest for the
period from July 1, 2014 through December 31, 2014 under
certain convertible notes payable.
On
June 30, 2015, the Company issued two additional Bridge Notes in
the aggregate principal amount of $50,000 and issued an aggregate
total of 100,000 shares of Common Stock to the purchasers of these
Bridge Notes. In connection with the issuance of these notes, the
Company recorded debt discount expenses totaling $2,830 and will
amortize these costs over the life of the notes.
In
June 2015, the Company authorized the issuance of an aggregate
total of 1,875,691 shares of Common Stock as payment for accrued
interest for the period from January 1, 2015 through June 30, 2015
under certain convertible notes payable. The Company
settled a total of $70,256 in accrued interest, recognizing a gain
on settlement in the amount of $23,364. The Company and
the holders of the Bridge Notes also agreed to extend the maturity
date of the Bridge Notes from June 30, 2015 to December 31, 2015.
As consideration for the extension of the maturity date of the
Bridge Notes, the Company issued an aggregate total of 286,500
shares of Common Stock to the Bridge Note holders.
In
July 2015, the Company issued a Bridge Note in the principal amount
of $35,000 and issued an aggregate total of 70,000 shares of Common
Stock to the purchaser of the Bridge Note.
BHA Note. On March 31, 2016, Burnham Hill Advisors, LLC
(“BHA”) agreed to exchange the amounts owed to BHA under
the October 29, 2013 agreement for a promissory note, on terms
substantially similar to the Bridge Notes (the
“BHA
Note”), in the principal
amount of $283,000 with issuance date of March 31, 2016. The BHA
Note is payable on demand as of December 31, 2016. This note is
past due as of December 31, 2016.
At
December 31, 2016 and 2015, the Company’s Convertible Notes
Payable are as follows:
|
|
December 31,
|
|
|
|
2016
|
2015
|
|
Notes
Payable
|
1,058,784
|
1,042,529
|
|
Notes
Payable, related party
|
558,287
|
267,244
|
|
Total
notes payable, net of discount
|
1,618,071
|
1,309,773
|
Notes Payable, Related
Party.
As of December 31,
2016, the Company owed Mr. Michael Abrams, a director of the
Company, an aggregate total of $2,059 for outstanding principal and
accrued and unpaid interest on certain Bridge Notes. As of December
31, 2016, the Company owes BHA an aggregate total of $556,168 for
outstanding principal and accrued and unpaid interest on certain
Bridge Notes. Mr. Abrams is an employee of
BHA.
|
10.
|
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. Effective January 1, 2015, the Company began a
payment program whereby it would make quarterly payments towards
towards principal and interest through the life of the loan. During
the year ended December 31, 2016, the Company made principal
payments of $1,744 and payments towards accrued interest of $1,539.
During the year ended December 31, 2015, the Company made principal
payments of $2,234 and payments towards accrued interest of $2,137.
The Company recorded interest expense on this loan of $2,040 and
$2,137 for the year ended December 31, 2016 and 2015,
respectively.
|
11.
|
INCOME TAXES
|
Pursuant
to ASC 740, income taxes are provided for based upon the liability
method of accounting. Under this approach, deferred income
taxes are recorded to reflect the tax consequences on future years
of differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end.
We
are subject to taxation in the U.S. and the state of Oregon. The
Company is not current on its tax filings and is subject to
examination until the filings take place.
At
December 31, 2016 and 2015, the Company had gross deferred tax
assets calculated at an expected blended rate of 38% of
approximately $10,800,000 and $10,700,000, respectively,
principally arising from net operating loss carryforwards for
income tax purposes. As management of the Company cannot determine
that it is more likely than not that the Company will realize the
benefit of the deferred tax asset, a valuation allowance of
$10,800,000 and $10,700,000 has been established at December 31,
2016 and 2015, respectively.
Topic
740 in the Accounting Standards Codification (ASC 740) prescribes
recognition threshold and measurement attributes for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. ASC 740 also provides
guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. At
December 31, 2016, the Company had taken no tax positions that
would require disclosure under ASC 740.
The
Company has analyzed its filing positions in all jurisdictions
where it is required to file income tax returns and found no
positions that would require a liability for unrecognized income
tax benefits to be recognized. We are subject to examinations
for all unfiled tax years. We deduct interest and penalties
as interest expense on the financial statements.
Additionally,
the future utilization of our net operating loss and R&D credit
carryforwards to offset future taxable income may be subject to an
annual limitation, pursuant to IRC Sections 382 and 383, as a
result of ownership changes that may have occurred previously or
that could occur in the future.
There
is no unrecognized tax benefit included in the balance sheet that
would, if recognized, affect the effective tax
rate.
|
|
2016
|
2015
|
|
Gross deferred tax
assets:
|
|
|
|
Net operating loss
carryforwards
|
$9,800,000
|
$9,700,000
|
|
Difference between
book and tax basis of former subsidiary stock held
|
|
|
|
Stock based
expenses
|
250,000
|
250,000
|
|
Tax credit
carryforwards
|
200,000
|
200,000
|
|
All
others
|
550,000
|
550,000
|
|
|
10,800,000
|
10,700,000
|
|
|
|
|
|
Deferred tax asset
valuation allowance
|
(10,800,000)
|
(10,700,000)
|
|
Net deferred tax
asset (liability)
|
$-
|
-
|
At
December 31, 2016, the Company has net operating loss carryforwards
of approximately $9,800,000, which expire in the years 2015 through
2033. The net change in the allowance account was an increase of
approximately $100,000 for the year ended December 31, 2016 and
approximately $150,000 for the year ended December 31,
2015.
|
12.
|
CAPITAL STOCK
|
Preferred Stock
The Company has authorized 25,000,000 shares
of preferred stock, of which 20,500,000 is designated as Series B
Convertible Preferred Stock, $0.01 par value, with a stated value
of approximately $204,000 (“Series B
Preferred”). The remaining authorized
preferred shares have not been designated by the Company as of
December 31, 2016.
On November 19, 2010, the Company filed a
Certificate of Withdrawal of the Certificates of Designations of
the Series A Preferred Stock (“Series A
Preferred”) with the
Nevada Secretary of State, as there were no shares of Series A
Preferred issued and outstanding after the exchange transaction
discussed below.
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 a) 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 b) 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 nonassessable shares of Common Stock at a
1:1 conversion rate.
As
of December 31, 2016 and 2015, the Company had 16,676,942 shares of
Series B Preferred Stock issued and outstanding with a liquidation
preference of $166,769 and convertible into 16,676,942 shares of
Common Stock.
Common Stock
The
Company has authorized 150,000,000 shares of its Common Stock,
$0.01 par value. The Company had issued and outstanding 78,696,461
and 69,772,918 shares of its Common Stock at December 31, 2016 and
2015.
On
January 2, 2015, the Company issued 73,000 shares of Common Stock
to the purchaser of a $36,500 note. Additionally, we issued 500,000
shares of Common Stock to certain investors who purchased Bridge
Notes during the year ended December 31, 2014, which were
previously classified as shares to-be-issued.
In
February 2015, the Company agreed to issue Common Stock to two
consultants for services rendered under the terms of their
respective agreements, although neither consultant had fully
completed the obligations of their agreements. An aggregate of
925,003 common shares were issued during the three months ended
March 31, 2015.
In
February 2015, the Company issued 815,061 shares of Common Stock as
payment for accrued interest for the period from July 1, 2014
through December 31, 2014 under certain convertible notes
payable.
On
February 3, 2015, the Board of Directors granted an aggregate of
2.3 million stock options to its executive management at an
exercise price of $0.04 per share. The options have a
five-year term and are fully vested on the date of
grant.
In
May 2013, the executive management received an aggregate of 1.0
million shares of Common Stock as compensation for the completion
of certain objectives. On February 20, 2015, the Board of Directors
agreed to cancel these shares, as the Company had failed to meet
the specified objectives.
In
June 2015, the Company’s Board of Directors authorized the
following issuances of Common Stock: (i) an aggregate total of
286,500 shares issuable to the Bridge Note holders as consideration
for the extension of the maturity date of the Bridge Notes to
December 31, 2015; (ii) an aggregate total of 1,875,691 shares of
Common Stock as payment of accrued but unpaid interest on certain
of the Company’s convertible promissory notes; and (iii) an
aggregate total of 100,000 shares of Common Stock to certain
investors who purchased Bridge Notes in the aggregate principal
amount of $50,000 during the three months ended June 30,
2015.
In
July 2015, the Company issued an aggregate total of 70,000 shares
of Common Stock to the purchaser of a $35,000 Bridge
Note.
In
September 2015, the Company authorized an aggregate total of 1.5
million shares of Common Stock to its officers and directors as
consideration for services rendered to the Company, subject to
certain vesting schedules. These shares were issued subsequent to
September 30, 2015, and all shares were fully vested as of December
31, 2015. Since the shares fully vested during the year ended
December 31, 2015, the Company elected to expense the full amount
during the 2015 period, rather than amortizing the amount over
multiple periods.
In
July 2016, the Company authorized an aggregate total of 8.9 million
shares of Common Stock to be issued to certain convertible note
holders as payment of accrued and unpaid interest in the amount of
$151,700.
|
13.
|
STOCK PURCHASE WARRANTS
|
During the years ended December 31, 2016 and 2015,
there were no warrants issued by the Company. As of
December 31, 2016, the Company had no warrants issued and
outstanding.
|
14.
|
COMMON STOCK OPTIONS
|
In 2007, the Company adopted the 2007
Incentive and Non-Qualified Stock Option Plan (hereinafter the
“Plan”), which replaced the 1997 Incentive and
Non-Qualified Stock Option Plan, as amended in 2001, and under
which 8,000,000 shares of Common Stock are reserved for issuance
under qualified options, nonqualified options, stock appreciation
rights and other awards as set forth in the
Plan.
Under the Plan, qualified options are available for issuance to
employees of the Company and non-qualified options are available
for issuance to consultants and advisors. The Plan provides
that the exercise price of a qualified option cannot be less than
the fair market value on the date of grant and the exercise price
of a nonqualified option must be determined on the date of grant.
Options granted under the Plan generally vest three to five years
from the date of grant and generally expire ten years from the date
of grant.
During the year ended December 31, 2016, no stock options were
granted by the Company. During the year ended December 31, 2015,
the Company issued options to purchase 2,300,000 shares of common
stock to its management team. Each option has an expiration date of
February 3, 2020, and are exercisable for $0.04 per
share.
The
following is a summary of all Common Stock option activity during
the year ended December 31, 2016 and 2015:
|
|
|
Shares Under
Options Outstanding
|
|
|
Weighted Average
Exercise Price
|
|
||
|
Outstanding at December 31, 2014
|
|
|
152,000
|
|
|
$
|
1.34
|
|
|
Options granted
|
|
|
2,300,000
|
|
|
|
0.04
|
|
|
Options
forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at December 31, 2015
|
|
|
2,452,000
|
|
|
|
0.12
|
|
|
Options granted
|
|
|
-
|
|
|
$
|
|
|
|
Options forfeited
|
|
|
(100,000)
|
|
|
$
|
1.60
|
|
|
Options exercised
|
|
|
|
|
|
$
|
|
|
|
Outstanding at December 31, 2016
|
|
|
2,352,000
|
|
|
$
|
$0.06
|
|
|
|
Options
Exercisable
|
Weighted Average Exercise Price Per Share
|
|
Exercisable
at December 31, 2015
|
2,352,000
|
$0.06
|
|
Exercisable
at December 31, 2016
|
2,352,000
|
$0.06
|
The
following represents additional information related to Common Stock
options outstanding and exercisable at December 31,
2016:
|
|
Outstanding
|
Exercisable
|
|||
|
Exercise
Price
|
Number of
Shares
|
Weighted Average
Remaining
Contract Life in Years
|
Weighted
Average
Exercise Price
|
Number of
Shares
|
Weighted Average
Exercise Price
|
|
$0.04
|
2,300,000
|
3.09
|
$0.04
|
2,300,000
|
$0.04
|
|
$0.80
|
1,000
|
1.16
|
$0.80
|
1,000
|
$0.80
|
|
$0.85
|
51,000
|
0.77
|
$0.85
|
51,000
|
$0.85
|
|
|
|
|
$
|
|
$
|
|
|
2,352,000
|
2.00
|
$0.06
|
2,352,000
|
$0.06
|
The
weighted average remaining contractual term for both fully vested
share options (exercisable, above) and options expected to vest
(outstanding, above) is 2 years.
A
summary of the status of the Company’s nonvested stock
options as of December 31, 2016 and changes during the year ended
December 31, 2016 is presented below:
|
Nonvested Stock Options
|
Shares
|
Weighted Average Grant Date Fair Value
|
|
Nonvested
at December 31, 2014
|
100,500
|
$100,000
|
|
Options
granted
|
-
|
-
|
|
Options
vested
|
-
|
$-
|
|
Options
forfeited
|
|
-
|
|
Nonvested
at December 31, 2015
|
100,000
|
$100.000
|
|
Options
granted
|
|
|
|
Options
vested
|
|
|
|
Options
forfeited
|
(100,000)
|
(100,000)
|
|
Nonvested
at December 31, 2016
|
-
|
-
|
|
15.
|
COMMITMENTS AND CONTINGENCIES
|
On May 28, 2014, we entered into a Consulting
Services Agreement for financial related services with Mayer &
Associates (“Mayer”) through November 30, 2014. Under the
terms of the agreement, Mayer will receive 300,000 shares of Common
Stock and four payments of $12,500. During the year ended December
31, 2014, the Company has recorded the expenses under this
agreement totaling $50,000 of which $25,000 has been paid,
additionally the Company has reserved for issuance 300,000 shares
of its Common Stock in connection with this agreement. Although the
Company has yet to receive proceeds sufficient to constitute an
initial capital raise of $500,000, in February 2015, the Company
agreed to issue 300,000 shares of Common Stock to Mayer as
consideration for services rendered under the
agreement. In June 2015, the Company also authorized the
issuance of an aggregate total of 286,500 shares of Common Stock to
Mayer for services rendered under the Consulting Services Agreement
first executed on May 28, 2014. As of December 31, 2016, the
requirements under the Mayer agreement had not been met and the
Company has terminated this agreement and no further compensation
is due or will be paid.
On May 28, 2014, the Company entered into a
Consulting Services Agreement for financial related services from
JFS Investments PR LLC ( “JFS”
). Under the terms of the
agreement, JFS could receive a total of 2.5 million restricted
shares of Common Stock as compensation under the agreement. In
February 2015, the Company agreed to issue an initial payment of
625,003 shares as consideration for services rendered. As of
September 30, 2016, the requirements under the JFS agreement had
not been met and the Company has terminated this agreement and no
further compensation is due or will be paid.
|
16.
|
SUBSEQUENT EVENTS
|
For the
quarter ended March 31, 2017, the Company received proceeds of
$75,000 from the issuance of promissory notes.
On
February 27, 2017, the Company entered into a memorandum of
understanding (“MOU”) with an unrelated third
party regarding the sale of certain assets of QX Labs, including
the intellectual property, trade-secrets and diagnostic
applications related to the Company’s PadKit technology and
the lateral flow diagnostics technology. Under the MOU, the Company
retains all rights and assets necessary to pursue marketing the
over the counter miniform products for female hygiene and
hemorrhoid treatment. If the transaction outlined in the MOU is
completed, the Company would receive a $1.0 million cash payment at
closing, a 15% percent ownership interest in the acquiring company
and future cash payments ranging from 1.5%-2% of gross revenue
generated from the Padkit and lateral flow
technologies. The MOU is subject to numerous
contingencies and conditions, and there is no assurance that a
transaction will be completed.
We have evaluated subsequent events through the date of this filing
in accordance with the Subsequent Events Topic of the FASB ASC 855,
and have determined that, except as disclosed in this note, no
subsequent events occurred that are reasonably likely to impact
these financial statements.
F-18