QUANTRX BIOMEDICAL CORP - Quarter Report: 2017 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________
Commission File No. 000-17119
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QUANTRX BIOMEDICAL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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33-0202574
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(State or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S. Employer Identification Number)
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10190
SW 90th Avenue, Tualatin, Oregon 97123
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(Address of Principal Executive Offices) (Zip Code)
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(212)
980-2235
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(Registrant's Telephone Number, Including Area Code)
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Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No
[ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit
and post such files). Yes [X] No
[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-Accelerated filer
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[ ]
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Smaller reporting company
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[X]
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(do not check if a smaller reporting company)
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[ ]
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Emerging growth company
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[ ]
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
[ ] No [X]
The number of shares outstanding of the issuer’s common stock
as of November 21, 2017 was 78,696,461.
TABLE OF
CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING EXHIBITS HERETO,
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE
FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS
“ANTICIPATES,” “BELIEVES,”
“EXPECTS,” “INTENDS,”
“FORECASTS,” “PLANS,”
“ESTIMATES,” “MAY,” “FUTURE,”
“STRATEGY,” OR WORDS OF SIMILAR MEANING. VARIOUS
FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN THE FORWARD-LOOKING STATEMENTS; INCLUDING THOSE
DESCRIBED IN “RISK FACTORS” IN OUR ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016. WE ASSUME NO
OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT
NEW INFORMATION, ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES
IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
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September 30,
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December 31,
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2017
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2016
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(Unaudited)
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$8,914
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$691
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Prepaid
expenses
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-
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28,094
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Total
Current Assets
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8,914
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28,785
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Investments,
net of impairment of $30,051
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169,948
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169,948
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Intangible
assets, net
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11,193
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13,874
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Total
Assets
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$190,055
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$212,607
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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Current
Liabilities:
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Accounts
payable
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$170,613
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$160,671
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Accrued
expenses
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-
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36,342
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Shareholder
loans
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-
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36,000
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Notes
payable and accrued interest
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1,784,187
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1,059,784
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Notes
payable, related party and accrued interest
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117,801
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558,287
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Current
portion of LT notes payable
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3,568
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2,461
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Total
Current Liabilities
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2,076,169
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1,853,545
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Notes
payable, long-term
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35,117
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37,561
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Total
Liabilities
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2,111,286
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1,891,106
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Commitments
and Contingencies
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-
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-
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Stockholders’
Equity (Deficit):
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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
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166,769
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166,769
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Common
Stock; $0.01 par value; 150,000,000 authorized; 78,696,461
shares issued and outstanding
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786,964
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786,964
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Additional
paid-in capital
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48,739,606
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48,740,389
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Stock
to be issued
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8,600
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-
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Accumulated
deficit
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(51,623,170)
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(51,372,621)
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Total
Stockholders’ Equity (Deficit)
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(1,921,231)
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(1,678,499)
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Total
Liabilities and Stockholders’ Equity (Deficit)
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$190,055
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$212,607
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The accompanying condensed notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2017
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2016
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2017
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2016
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Operating
Expenses:
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Sales,
general and administrative
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$16,747
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$13,319
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$57,055
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$53,049
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Professional
fees
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15,106
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12,422
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44,543
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47,977
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Amortization
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894
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893
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2,682
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5,181
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Depreciation
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-
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274
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-
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822
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Total
Costs and Operating Expenses
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32,747
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26,908
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104,280
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107,029
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Loss
from Operations
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(32,747)
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(26,908)
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(104,280)
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(107,029)
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Other
Income (Expense):
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Interest
expense
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(38,252)
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(55,738)
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(150,951)
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(157,716)
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Gain/(loss)
on impairment
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-
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(50,000)
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-
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(50,000)
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Discount
on notes payable
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(7,818)
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-
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(7,818)
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-
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Gain/(loss)
on disposition
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12,500
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-
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12,500
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540
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Gain/(loss)
on settlement of interest for common stock
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16,503
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-
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16,503
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Total
Other Income (Expense), net
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(33,570)
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(89,235)
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(146,269)
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190,673
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Loss
Before Taxes
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(66,317)
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(116,143)
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(250,549)
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(297,702)
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Provision
for Income Taxes
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-
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-
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-
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-
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Net
Loss
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$(33,317)
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$(116,143)
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$(250,549)
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$(297,702)
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Basic
and Diluted Net Loss per Common Share
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$(0.00)
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(0.00)
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$(0.00)
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$(0.00)
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Basic
and Diluted Weighted Average Shares Used in per Share
Calculation
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$78,696,461
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78,696,461
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78,696,461
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72,747,432
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The accompanying condensed notes are an integral part of these
interim consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Nine
Months Ended
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September
30,
2017
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September
30,
2016
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
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$(250,549)
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$(297,702)
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Adjustments
to reconcile net loss to net cash used by operating
activities:
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Depreciation
and amortization
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2,681
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6,003
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Non-cash
discount on notes payable
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7,818
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-
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(Gain)/loss
on disposition
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(12,500)
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-
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Loss
on Impairment
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-
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50,000
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(Gain)/loss
on issuance of common stock for settlement of interest
payable
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-
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(16,503)
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(Increase)
Decrease in:
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Prepaid
expenses
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28,094
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26,396
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Increase
(decrease) in:
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Accounts
payable
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9,943
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31,056
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Accrued
interest and expenses
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124,073
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132,790
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Net
Cash Used by Operating Activities
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(90,440)
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(67,960)
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Net
Cash Provided by Investing Activities
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-
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-
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CASH
FLOWS FROM FINANCING ACTIVITIES
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Principal
payments on long-term debt
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(1,337)
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(962)
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Proceeds
from the issuance of shareholder loans
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-
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15,000
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Proceeds
from the issuance of notes payable
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100,000
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-
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Net
Cash Provided (used) by financing activities
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98,663
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14,038
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Net
Increase (Decrease) in Cash and Cash Equivalents
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8,223
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(53,922)
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|
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Cash
and Cash Equivalents, Beginning of Period
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691
|
61,078
|
|
|
|
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Cash
and Cash Equivalents, End of Period
|
$8,914
|
$7,156
|
|
|
|
|
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Supplemental
Cash Flow Disclosures:
|
|
|
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Interest
expense paid in cash
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$1,467
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$-
|
|
Income
tax paid
|
$-
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$-
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The accompanying condensed notes are an integral part of these
interim consolidated financial statements.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Overview
QuantRx Biomedical Corporation was incorporated on December 5,
1986, in the State of Nevada. Our principal business office is
located at 10190 SW 90th Avenue, Tualatin, Oregon 97123. When used
in this Quarterly Report on Form 10-Q, the terms
“Company,”
“we,”
“our,”
“ours,”
or “us”
mean QuantRx Biomedical Corporation, a Nevada
corporation.
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 have also developed 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 remains contingent on the
receipt of financing required to execute our business and operating
plan, which is currently focused on the commercialization of our
over-the-counter PAD products 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 principal business line consists of our over-the-counter
business (the “OTC
Business”), which
includes commercialization of our InSync feminine hygienic
interlabial pad, the Unique® Miniform for hemorrhoid
application, and other treated miniforms, as well as maintaining
established and continuing licensing relationships related to the
OTC Business. We also maintain a diagnostic testing business (the
“Diagnostic
Business”) that is based
principally on our proprietary PadKit® technology, which we
believe provides a patented platform technology for genomic
diagnostics, including fetal genomics. 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.
We follow the accounting guidance outlined in the Financial
Accounting Standards Board Codification guidelines. The
accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted principles
for interim financial information and with the items under
Regulation S-X required by the instructions to Form 10-Q.
They may not include all information and footnotes required by
United States Generally Accepted Accounting Principles
(“GAAP”) for complete financial statements.
However, except as disclosed herein, there have been no material
changes in the information disclosed in the notes to the financial
statements for the year ended December 31, 2016 included in the
Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on April 17, 2017. The
interim unaudited financial statements presented herein should be
read in conjunction with those financial statements included in the
Form 10-K. In the opinion of Management, all adjustments
considered necessary for a fair presentation, which unless
otherwise disclosed herein, consisting primarily of normal
recurring adjustments, have been made. Operating results for the
nine months ended September 30, 2017 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2017.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation. These
reclassifications had no effect on previously reported losses,
total assets or stockholders’ equity.
Recent Developments
Memorandum of
Understanding. On February 27,
2017, the Company entered into a memorandum of understanding
(“MOU”) with an unrelated third party regarding
the sale of certain assets pertaining to the Company’s
Diagnostic Business, 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 relating to the OTC Business, which includes all assets
necessary to pursue marketing the over the counter miniform
products for female hygiene and hemorrhoid treatment. If the
transaction contemplated by the MOU is consummated, the Company
would receive gross proceeds of approximately $1.0 million 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.
MOU Notes. During the nine
months ended September 30, 2017, the Company issued two convertible
promissory demand notes in connection with the MOU in the aggregate
principal amount of $50,000 (the "MOU Notes"). The MOU Notes matured on September 30, 2017;
however, the maturity date has been extended to December 31, 2017.
The MOU Notes accrue interest at a rate of 8% per annum, and are
convertible, at the option of the holder, into that number of
shares of the Company's common stock, par value $0.001 per share
("Common
Stock") equal to the
outstanding balance, divided by $0.10.
Subsequent
to September 30, 2017, in October 2017, the Company issued an
additional MOU Note in the principal amount of
$15,000.
2017 Bridge Notes. In July and
August, 2017, the Company entered into Note Purchase Agreements
with two existing stockholders, pursuant to which the Company
issued convertible promissory demand notes in the aggregate
principal amount of $86,000 (the “2017 Bridge
Notes”). As additional
consideration for the purchase of the 2017 Bridge Notes, the
Company reserved for issuance an aggregate of 860,000 shares of the
Company’s Series B Convertible Preferred Stock
(“Series B
Preferred”) to be issued
to the purchasers of the 2017 Bridge Notes.
The 2017 Bridge Notes accrue interest at a rate of 10% per annum,
payable in either cash or shares of the Company’s Common
Stock, and matured on September 30, 2017. The 2017 Bridge Notes are
now payable on demand. Each 2017 Bridge Note is convertible, at the
option of the holder thereof, into that number of shares of Common
Stock equal to the outstanding principal balance of the 2017 Bridge
Note, plus accrued but unpaid interest (the
“Outstanding
Balance”), divided by
$0.08 (the “Conversion
Shares”). Additionally,
in the event the Company completes an equity or equity-linked
financing with gross proceeds to the Company of at least $1.5
million (a “Qualified
Financing”), the
Outstanding Balance of the 2017 Bridge Notes will, at the
discretion of each respective holder, either (i) convert into
securities sold in the Qualified Financing, or (ii) automatically
convert into Conversion Shares.
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. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is
presented to assist in understanding the Company’s financial
statements. The financial statements and notes are representations
of the Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to
GAAP and have been consistently applied in the preparation of the
financial statements.
Accounting for Share-Based Payments. The Company follows the provisions of ASC Topic
718, which establishes the accounting for transactions in which an
entity exchanges equity securities for services and requires
companies to expense the estimated fair value of these awards over
the requisite service period. The Company uses the Black-Scholes
option pricing model in determining fair value. Accordingly,
compensation cost has been recognized using the fair value method
and expected term accrual requirements as
prescribed. During the nine months ended September 30,
2017 and 2016, the Company had no stock compensation
expense.
The Company accounts for share-based payments granted to
non-employees in accordance with ASC Topic 505,
“Equity Based Payments to
Non-Employees.” The
Company determines the fair value of the stock-based payment as
either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably
measurable. If the fair value of the equity instruments
issued is used, it is measured using the stock price and other
measurement assumptions as of the earlier of either (i) the date at
which a commitment for performance by the counterparty to earn the
equity instruments is reached, or (ii) the date at which the
counterparty’s performance is
complete.
In the case of modifications, the Black-Scholes model is used to
value modified warrants on the modification date by applying the
revised assumptions. The difference between the fair value of the
warrants prior to the modification and after the modification
determines the incremental value. The Company has modified warrants
in connection with the issuance of certain notes and note
extensions. These modified warrants were originally issued in
connection with previous private placement investments. In the case
of debt issuances, the warrants were accounted for as original
issuance discount based on their relative fair values. When
modified in connection with a note issuance, the Company recognizes
the incremental value as a part of the debt discount calculation,
using its relative fair value in accordance with ASC Topic 470-20,
“Debt
with Conversion and Other Options.” When modified in connection with note
extensions, the Company recognized the incremental value as prepaid
interest, which is expensed over the term of the
extension.
The fair value of each share based payment is estimated on the
measurement date using the Black-Scholes model with the following
assumptions, which are determined at the beginning of each year and
utilized in all calculations for that year. During the nine months
ended September 30, 2017 and 2016, the Company did not make any
Black-Scholes model assumptions, as no share-based payments were
made during those periods.
Risk-Free Interest Rate. The interest rate used is based on the yield
of a U.S. Treasury security as of the beginning of the
year.
Expected Volatility. The
Company calculates the expected volatility based on historical
volatility of monthly stock prices over a three-year
period.
Dividend Yield. The
Company has never paid cash dividends, and does not currently
intend to pay cash dividends, and thus has assumed a 0% dividend
yield.
Expected Term. For
options, the Company has no history of employee exercise patterns.
Therefore, the Company uses the option term as the expected term.
For warrants, the Company uses the actual term of the
warrant.
Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures
are based on Company experience. The Company will adjust its
estimate of forfeitures over the requisite service period based on
the extent to which actual forfeitures differ, or are expected to
differ, from such estimates. Changes in estimated forfeitures will
be recognized through a cumulative catch-up adjustment in the
period of change and will also impact the amount of compensation
expense to be recognized in future periods.
Earnings per Share. The Company computes net income (loss) per common
share in accordance with ASC Topic 260. Net income (loss) per share
is based upon the weighted average number of outstanding common
shares and the dilutive effect of common share equivalents, such as
options and warrants to purchase Common Stock, convertible
preferred stock and convertible notes, if applicable, that are
outstanding each year. Basic and diluted earnings per share were
the same at the reporting dates of the accompanying financial
statements, as including Common Stock equivalents in the
calculation of diluted earnings per share would have been
antidilutive.
As of September 30, 2017, 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,
which options and preferred shares were deemed to be antidilutive
for the nine months ended September 30, 2017. At September 30,
2017, the Company has reserved for issuance to certain investors,
860,000 preferred shares, convertible into 860,000 shares of its
Common Stock.
As of September 30, 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,
which options and preferred shares were deemed to be antidilutive
for the nine months ended September 30, 2016.
Fair Value. The
Company has adopted ASC Topic 820, "Fair Value Measurements
and Disclosures" for both
financial and nonfinancial assets and liabilities. The
Company has not elected the fair value option for any of its assets
or liabilities.
Use of Estimates. The accompanying financial statements are prepared
in conformity with accounting principles generally accepted in the
United States of America, and include certain estimates and
assumptions, which affect the reported amounts of assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Accordingly, actual results may differ from
those estimates.
Recent Accounting Pronouncements.
Management has considered all recent accounting pronouncements in
the current period and identified no pronouncements that would have
an impact on our financial statements.
4.
INVESTMENTS
In May 2006, the Company purchased
144,024 shares of common stock of GMS Biotech, formerly Genomics
USA, Inc. (“GUSA”) for $200,000. After the investment, the
Company owned approximately 5% of the total issued and outstanding
common stock of GUSA. As 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
recorded a loss of $30,051 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.
On September 3, 2015, we entered into a non-binding letter of
intent (the “Global LOI”) with Global Cancer Diagnostics, Inc., a
privately held laboratory in Tempe, Arizona
(“Global”), for a proposed business combination. The
Global LOI had an original termination date of October 31, 2015
(the “Termination
Date”), but could be
terminated or extended anytime by the mutual written consent of the
parties. During the quarter ended September 30, 2016, in accordance
with the terms and conditions of the executed Global LOI, the
Company deemed the Global LOI terminated. Accordingly, Global is
obligated to issue to us a number of shares of Global’s
common stock equal to 10% of its then outstanding shares of common
stock, on a fully-diluted basis, as payment of the Global Advance.
In addition to the share issuance, the Company is evaluating
certain additional remedies related to the Global LOI and the
$50,000 advance. The Company deemed the $50,000 Global Advance to
be fully impaired as of September 30, 2016.
5.
INTANGIBLE ASSETS
Intangible assets as of the balance sheet dates consisted
of the following:
|
|
September 30,
2017
(unaudited)
|
December 31,
2016
|
|
Licensed
patents and patent rights
|
$50,000
|
$50,000
|
|
Patents
|
41,044
|
41,044
|
|
Lateral
Flow Licensed Technology
|
13,200
|
13,200
|
|
Less:
accumulated amortization
|
(93,051)
|
(90,370)
|
|
Intangibles,
net
|
$11,193
|
$13,874
|
The Company’s intangible assets consist of patents, licensed
patents and patent rights, are carried at the legal cost to obtain
them. Costs to renew or extend the term of intangible assets are
expensed when incurred. Intangible assets are amortized using the
straight-line method over the estimated useful life. Useful lives
are as follows:
|
Asset
Categories
|
Estimated Useful Life in Years
|
|
Patents
|
17
|
|
Patents
under licensing
|
10
|
|
Intangibles
acquired in 2008 (weighted average)
|
15
|
Amortization expense for the nine months ended September 30, 2017
and 2016 totaled $2,681 and $5,182, respectively.
6.
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.
During
each of the quarters ended March 31, 2017, and June 30, 2017, the
Company issued an MOU Note in the principal amount of
$25,000.
In July and August 2017, the Company issued 2017 Bridge Notes in
the aggregate principal amount of $86,000. Each 2017 Bridge Note
accrues interest at a rate of 10% per annum, and matured on
September 30, 2017. The 2017 Bridge Notes are now payable on
demand.
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, and is past due as of September 30, 2017. On
April 1, 2017, BHA assigned the BHA Note to certain of its
employees, including Michael Abrams who serves as a director of the
Company, under the same terms.
At September 30, 2017 and December 31, 2016, the Company’s
Convertible Notes Payable are as follows:
|
|
September 30,
2017
|
December 31,
2016
|
|
Notes
Payable
|
1,784,187
|
1,059,784
|
|
Notes
Payable, related party
|
117,801
|
558,287
|
|
Total
notes payable
|
1,901,988
|
1,618,071
|
Notes Payable, Related Party.
As of September 30, 2017, the Company owed Michael Abrams, a
director of the Company, an aggregate total of $117,801 for
outstanding principal and accrued and unpaid interest on certain
Bridge Notes. As of December
31, 2016, the Company owed Mr. Abrams an aggregate total of $2,059
and 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.
On April 1, 2017, BHA assigned its the BHA Note, including all
accrued but unpaid interest to its employees, and is no longer a
related party note payable. As
noted above, Michael Abrams, one of the Company’s directors
and an employee of BHA, was assigned $50,000 of the outstanding
principal amount of the BHA Note, plus all accrued but unpaid
interest on such amount.
7.
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
principal and interest through the life of the loan. During the
nine months ended September 30, 2017, the Company made principal
payments of $1,815 and payments towards accrued interest of $1,467.
The Company recorded interest expense on this loan of $1,941 and
$1,538 for the nine months ended September 30, 2017 and 2016,
respectively. At September 30, 2017 and December 31, 2016, the
balance of the loan payable was $38,685 and $40,022,
respectively.
8. OTHER
BALANCE SHEET INFORMATION
Components of selected captions in the accompanying balance sheets
consist of:
|
Prepaid expenses:
|
September 30,
2017
(unaudited)
|
December 31,
2016
|
|
Prepaid
insurance
|
$-
|
$28,094
|
|
Prepaid expenses
|
$-
|
$28,094
|
|
|
|
|
|
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)
|
(33,506)
|
|
Property and equipment, net
|
$-
|
$-
|
|
|
|
|
|
Accrued expenses:
|
|
|
|
Other
Accrued expenses
|
$0
|
36,342
|
|
Accrued expenses
|
$0
|
36,342
|
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 September
30, 2017 consisted of computer and office equipment, machinery and
equipment with estimated useful lives of three to seven years. As
of December 31, 2016 and September 30, 2017, the Company’s
property and equipment was fully depreciated.
Expenditures for repairs and maintenance are expensed as
incurred.
9.
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. The remaining authorized preferred shares have not been
designated by the Company as of September 30, 2017.
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 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
affect any distribution with respect to Junior Stock. At
any time, the holders of Series B Preferred may, subject to
limitations, elect to convert all or any portion of their Series B
Preferred into fully paid non-assessable shares of Common Stock at
a 1:1 conversion rate.
As
disclosed under Note 1 above, in July and August, 2017, the Company
entered into Note Purchase Agreements with two existing
stockholders, pursuant to which the Company issued 2017 Bridge
Notes in the aggregate principal amount of $86,000. As additional
consideration for the purchase of the 2017 Bridge Notes, the
Company has reserved for issuance an aggregate of 860,000 shares of
Series B Preferred to be issued the purchasers of the 2017 Bridge
Notes. The Company has valued the Series B Preferred and has
recorded a discount on the 2017 Bridge Notes of $7,818 which was
amortized in full during the three months ended September 30,
2017.
As of September 30, 2017 and December 31, 2016, the Company had
16,676,942 shares of Series B Preferred issued and outstanding with
a liquidation preference of $166,769, respectively, and convertible
into 16,676,942 shares of Common Stock.
10. COMMON
STOCK, OPTIONS AND WARRANTS
The Company has authorized 150,000,000 shares of its Common Stock,
of which 78,696,461 were issued and outstanding at each of
September 30, 2017 and December 31, 2016.
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.
During the three months ended September 30, 2017 and 2016, there
were no warrants issued by the Company. As of September
30, 2017, the Company had no warrants issued and
outstanding.
2007 Incentive and Non-Qualified Stock Option Plan.
The fair value of options
granted under the Company’s 2007 Incentive and Non-Qualified
Stock Option Plan is recorded as compensation expense over the
vesting period, or, for performance based awards, the expected
service term. The Company did not
issue any options during the nine months ended September 30, 2017
or 2016.
11.
SUBSEQUENT EVENTS
In October 2017, the Company issued an additional MOU Note in the
principal amount of $15,000.
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 herein, no subsequent
events occurred that are reasonably likely to impact these
financial statements.
The following discussion of our financial condition should be read
in conjunction with the financial statements and notes to financial
statements included elsewhere in this filing. The
following discussion (as well as statements in Item 1 above and
elsewhere) contains forward-looking statements within the meaning
of the Private Securities Litigation Act of 1995 that involve risks
and uncertainties. Some or all of the results
anticipated by these forward-looking statements may not occur.
Forward-looking statements involve known and unknown risks and
uncertainties including, but not limited to, trends in the
biotechnology, healthcare, and pharmaceutical sectors of the
economy; competitive pressures and technological developments from
domestic and foreign genetic research and development organizations
which may affect the nature and potential viability of our business
strategy; and private or public sector demand for products and
services similar to what we plan to commercialize. We
disclaim any intention or obligation to publicly announce the
results of any revisions to any of the forward-looking statements
contained herein to reflect future events or
developments.
Unless otherwise indicated or the context otherwise requires, all
references in this report to “we,” “our,”
“ours,” “us,” the “Company” or
similar terms refer to QuantRx Biomedical Corporation, a Nevada
corporation.
Overview
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 have also developed 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 remains 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 principal business line consists of our over-the-counter
business (the “OTC
Business”), which
includes commercialization of our InSync feminine hygienic
interlabial pad, the Unique® Miniform for hemorrhoid
application, and other treated miniforms, as well as maintaining
established and continuing licensing relationships related to the
OTC Business. We also maintain a diagnostic testing business (the
“Diagnostic
Business”) that is based
principally on our proprietary PadKit® technology, which we
believe provides a patented platform technology for genomic
diagnostics, including fetal genomics. 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.
The following discussion of our financial condition should be read
together with our financial statements and related notes included
in the Annual Report on Form 10-K, filed on April 17,
2017.
Recent Developments
Memorandum of Understanding
On February 27, 2017, the Company
entered into a memorandum of understanding
(“MOU”) with an unrelated third party regarding
the sale of certain assets pertaining to the Company’s
Diagnostic Business, 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 related to the OTC Business, which includes all assets
necessary to pursue marketing the over the counter miniform
products for female hygiene and hemorrhoid treatment. If the
transaction contemplated by the MOU is consummated, the Company
would receive gross proceeds of approximately $1.0 million 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.
Issuance of Promissory Notes
MOU
Notes. During the nine months
ended September 30, 2017, the Company issued two convertible
promissory demand notes in connection with the MOU in the aggregate
principal amount of $50,000 (the "MOU Notes"). The MOU Notes matured on September 30, 2017;
however, the maturity date has been extended to December 31, 2017.
The MOU Notes accrue interest at a rate of 8% per annum, and are
convertible, at the option of the holder, into that number of
shares of the Company's common stock, par value $0.001 per share
("Common
Stock") equal to the
outstanding balance, divided by
$0.10.
Subsequent to September 30, 2017, in October 2017, the Company
issued an additional MOU Note in the principal amount of
$15,000.
2017 Bridge
Notes. Subsequent to June 30,
2017, the Company entered into Note Purchase Agreements with two
existing stockholders, pursuant to which the Company issued
convertible promissory demand notes in the aggregate principal
amount of $86,000 (the “2017 Bridge
Notes”). As additional
consideration for the purchase of the 2017 Bridge Notes, the
Company has reserved for issuance an aggregate of 860,000 shares of
Series B Convertible Preferred Stock, (“Series B
Preferred”), to be issued
the purchasers of the 2017 Bridge
Notes.
The 2017 Bridge Notes accrue interest
at a rate of 10% per annum, payable in either cash or shares of the
Company’s Common Stock, and matured on September 30, 2017.
The 2017 Notes are currently payable on demand. Each 2017 Bridge
Note is convertible, at the option of the holder thereof, into that
number of shares of Common Stock equal to the outstanding principal
balance of the 2017 Bridge Note, plus accrued but unpaid interest
(the “Outstanding
Balance”), divided by
$0.08 (the “Conversion
Shares”). Additionally,
in the event the Company completes an equity or equity-linked
financing with gross proceeds to the Company of at least $1.5
million (a “Qualified
Financing”), the
Outstanding Balance of the 2017 Bridge Notes will, at the
discretion of each respective holder, either (i) convert into
securities sold in the Qualified Financing, or (ii) automatically
convert into Conversion Shares.
Consolidated Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2017 to
the Three and Nine Months Ended September
30, 2016.
The Company did not generate any revenue during the three
and nine months ended September 30, 2017 or the three and nine
months ended September 30, 2016. The absence of revenue
is due to no royalty revenue attributable to the Company’s
PAD technology received during the periods. 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.
Sales, general and administrative expense for the three months
ended September 30, 2017 and 2016 was $16,747 and $13,319,
respectively. Sales, general and administrative expense for
the nine months ended September 30, 2017 and 2016 was $57,055 and
$53,049, respectively. The increase in sales,
general and administrative expense for the three and nine months ended September 30,
2017 is principally attributable to higher costs for maintaining
our intellectual property portfolio in the 2017 period, as compared
to the 2016 period.
Professional fees for the three months ended September 30, 2017 and
2016 were $15,106 and $12,422, respectively. Professional fees
for the nine months ended September 30, 2017 and 2016 were $44,543
and $47,977, respectively. Professional fees include the
costs of legal, consulting and auditing services provided to
us. The decrease in
professional fees for the 2017 periods compared to the
2016 periods is related to lower overall costs for professional
services during the 2017 periods.
The Company did not incur any research and development costs
during the three and nine
months ended September 30, 2017 or the three and nine
months ended September 30, 2016. The Company did not
engage in any research and development efforts in the 2017 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.
Interest expense for the three months ended September 30, 2017 and
2016 was $38,352 and $55,738, respectively. Interest expense for
the nine months ended September 30, 2017 and 2016 was $150,951 and
$157,716, respectively. The decrease in
interest expense in the 2017 periods compared to the 2016 periods
is related to a higher balance of outstanding notes payable and
higher interest rate calculated using the default interest rate
during the 2016 periods.
During the three and nine months ended September 30, 2017, the
Company recorded amortization expense of $7,818 related to the
discount on the 2017 Bridge Notes.
During the three and nine months ended September 30, 2017, the
Company recorded a gain on a disposition in the amount of $12,500
related to a previously accrued liability under a contract that was
terminated.
The Company’s net loss for the three months ended September
30, 2017 was $66,317 compared to net loss for the three months
ended September 30, 2016 of $116,143. The Company’s net loss for the nine months
ended September 30, 2017 was $250,549 compared to net loss for the
nine months ended September 30, 2016 of $297,702. The decrease in
net losses in the three and nine months period ending September 30,
2017 compared to the comparable periods in 2016 is due to higher
expenses, including higher professional fees and sales, general and
administrative expense, as discussed above.
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 September 30, 2017, the Company had cash and cash equivalents of
$8,914, as compared to $7,156 at September 30, 2016. During the
nine months ended September 30, 2017, the Company used $90,440 for
operating activities, compared to $67,960 used during the nine
months ended September 30, 2016.
During the nine months ended September 30, 2017, the Company had
$98,663 provided by financing activities, as compared to $14,038
during the nine months ended September 30, 2016. The overall
increase in cash provided by financing activities for the nine
months ended September 30, 2017 is primarily attributable to the
issuance of the 2017 Bridge Notes during the period.
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.
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 September 30, 2017 and December 31, 2016, 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.
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the
design and operations of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”), as of September
30, 2017. Based on this evaluation, and in light of the previously
disclosed material weaknesses in internal controls over financial
reporting, the Company’s Chief Executive Officer, who also
serves as its Principal Financial Officer, concluded that our
disclosure controls and procedures were not
effective.
(b) Changes in internal controls over financial reporting.
There has been no change in our internal control over financial
reporting that occurred during our most recent fiscal year that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting. There has been no
progress towards remediating our previously disclosed material
weakness due to the lack of funding. In addition, as a
result of the death of our Chief Scientific Officer, any progress
toward remediating our material weaknesses will continue to be
delayed.
PART II - OTHER INFORMATION
As of the date hereof, there are no additional material pending
legal proceedings to which we are a party to or of which any of our
property is the subject.
Our results of operations and financial condition are subject to
numerous risks and uncertainties described in our Annual Report on
Form 10-K for our fiscal year ended December 31, 2016, filed on
April 17, 2017. You should carefully consider these risk factors in
conjunction with the other information contained in this Quarterly
Report. Should any of these risks materialize, our business,
financial condition and future prospects could be negatively
impacted. As of September 30, 2017, there have been no material
changes to the disclosures made in the above-referenced Form
10-K.
None.
None.
Not Applicable.
None.
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Exhibit
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Description
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Form of Convertible Promissory Demand Note.
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Certification of Chief Executive Officer and Principal Financial
and Accounting Officer required under Rule 13a-14(a) or Rule
15d-14(a) of the Securities and Exchange Act of 1934, as
amended.
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Certification of Chief Executive Officer and Principal Financial
and Accounting Officer required under Rule 13a-14(a) or Rule
15d-14(a) of the Securities and Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
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Date: November 20, 2017
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/s/ Shalom Hirschman
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Shalom Hirschman
Principal Executive, Financial and Accounting Officer
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