QUANTRX BIOMEDICAL CORP - Quarter Report: 2019 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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 every Interactive Data File required to be submitted
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 such files). Yes [ ] No
[X]
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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[X]
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Smaller reporting company
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[X]
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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]
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Trading
Symbol(s)
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Name of
each exchange on which registered
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Common
Stock, par value $0.01 per share
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QTXB
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OTC:PINK
Marketplace
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The number of shares outstanding of the issuer’s common stock
as of May 20, 2019 was 78,696,461.
TABLE OF
CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
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PART II - OTHER INFORMATION
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PART I – FINANCIAL
INFORMATION
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, 2018. WE ASSUME NO
OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT
NEW INFORMATION, ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES
IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
ITEM 1. Financial
Statements
QUANTRX BIOMEDICAL CORPORATION
BALANCE SHEETS
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March 31,
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December 31,
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2019
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2018
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ASSETS
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(unaudited)
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Current
Assets:
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Cash
and cash equivalents
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$281,920
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$322,024
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Prepaid
expense
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27,510
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37,764
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Total
Current Assets
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309,430
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359,788
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Investments,
net of impairment of $478,000
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222,000
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222,000
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Total
Assets
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$531,430
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$581,788
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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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$58,142
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$48,611
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Accounts
payable, related party
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17,500
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7,000
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Accrued
expense
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15,161
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26,165
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Notes
payable and accrued interest
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1,919,759
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1,870,685
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Notes
payable, related party and accrued interest
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139,486
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135,728
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Total
Liabilities
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2,150,048
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2,088,189
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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 6,196,893 issued
and outstanding
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61,969
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61,969
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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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48,876,398
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48,876,398
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Stock
to be issued
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8,600
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8,600
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Accumulated
deficit
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(51,352,549)
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(51,240,332)
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Total
Stockholders’ Equity (Deficit)
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(1,618,618)
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(1,506,401)
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Total
Liabilities and Stockholders’ Equity (Deficit)
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$531,430
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$581,788
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The accompanying condensed notes are an integral part of
these financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
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Three
Months Ended
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March 31,
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2019
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2018
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Revenue:
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Revenue
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$-
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$-
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Total
Revenue
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-
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-
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Costs
and Operating Expense:
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Sales,
general and administrative
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22,579
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27,980
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Professional
fees
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36,425
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18,323
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Total
Costs and Operating Expenses
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59,004
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46,603
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Loss
from Operations
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(59,004)
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(46,603)
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Other
Income (Expense):
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Interest
expense
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(53,213)
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(58,916)
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Interest
Income
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-
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219
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Total
Other Income (Expense), net
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(53,213)
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(58,697)
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Profit
(Loss) Before Taxes
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(112,217)
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(105,000)
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Provision
for Income Taxes
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-
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-
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Net
Profit (Loss)
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(112,217)
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$(105,000)
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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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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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The accompanying condensed notes are an integral part of these
interim financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
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Three
Months Ended
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March
31,
2019
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March
31,
2018
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
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$(112,217)
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$(105,000)
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Adjustments
to reconcile net loss to net cash used by operating
activities:
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Interest
earned on escrow account
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-
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(219)
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(Increase)
Decrease in:
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Prepaid
expense
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10,254
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9,386
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Increase
(decrease) in:
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Accounts
payable
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20,031
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(10,542)
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Accrued
interest and expense
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52,832
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49,127
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Net
Cash Used by Operating Activities
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(40,104)
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(57,248)
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Net
Cash Provided by (Used in) Investing Activities
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-
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-
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CASH
FLOWS FROM FINANCING ACTIVITIES
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Net
Cash Provided (used) by financing activities
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$-
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$-
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Net
Increase (Decrease) in Cash and Cash Equivalents
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(40,104)
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(57,248)
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Cash
and Cash Equivalents, Beginning of Period
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322,024
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460,111
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Cash
and Cash Equivalents, End of Period
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$281,920
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$402,863
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Supplemental
Cash Flow Disclosures:
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Interest
expense paid in cash
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$381
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$261
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Income
tax paid
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$-
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$-
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The accompanying condensed notes are an integral part of these
interim financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
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Preferred
Stock
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Common
Stock
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Additional
|
Stock
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Total
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Number
of
Shares
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Amount
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Number
of
Shares
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Amount
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Paid-in
Capital
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To
Be
Issued |
Accumulated
Deficit
|
Stockholders’
Equity
|
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Balance,
January 1, 2018
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16,676,942
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$166,769
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78,696,461
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$786,964
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$48,791,598
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8,600
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$(50,503,482)
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$(749,551)
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Net
Loss
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-
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-
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-
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-
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-
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-
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(105,000)
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(105,000)
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Balance,
March 31, 2018
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16,676,942
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$166,769
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78,696,461
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$786,964
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$48,791,598
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8,600
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$(50,608,482)
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$(854,551)
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Balance,
January 1, 2019
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6,196,893
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$61,969
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78,696,461
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$786,964
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$48,876,398
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8,600
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$(51,240,332)
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$(1,506,401)
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Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
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(112,217)
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(112,217)
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Balance,
March 31, 2019
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6,196,893
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$61,969
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78,696,461
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$786,964
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$48,876,398
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8,600
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$(51,352,549)
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$(1,618,618)
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The accompanying condensed notes are an integral part of these
interim financial statements.
QUANTRX BIOMEDICAL CORPORATION
CONDENSED NOTES TO FINANCIAL
STATEMENTS
(unaudited)
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, unless context otherwise
requires.
We have developed and intend to commercialize 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 lateral flow patents. Our platforms include:
inSync®, UniqueTM, 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 upon 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 through the issuance
of debt and/or equity securities. No assurances can be given that
we will be able to obtain additional financing under terms
favorable to us, if at all, 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 over-the-counter
commercialization of our InSync feminine hygienic interlabial pad,
the Unique® Miniform for hemorrhoid application, and other
treated miniforms (the “OTC
Business”), as well as
maintaining established and continuing licensing relationships
related to these products. We also own certain diagnostic testing
technology (the “Diagnostic
Business”) that is based
on our lateral flow patents. Management believes this corporate
structure permits us to more efficiently explore options to
maximize the value of our products and intellectual property
portfolio, with the objective of maximizing the value of the
Businesses for the benefit of the Company and our
shareholders.
Our current focus is to obtain additional working capital necessary
to continue as a going concern, and to develop a longer term
financing and operating plan to: (i) commercialize our
over-the-counter products either directly or through joint
ventures, mergers or similar transactions intended to capitalize on
potential commercial opportunities; (ii) contract manufacturing of
our over-the-counter products to third parties while maintaining
control over the manufacturing process; (iii) maintain our
intellectual property portfolio with respect to patents and
licenses pertaining to both the OTC Business and the Diagnostics
Business; and (iv) maximize the value of our investments in
non-core assets. As a result of our current financial
condition, however, our efforts in the short-term will be focused
on obtaining financing necessary to maintain the Company as a going
concern.
We follow the accounting guidance outlined in the Financial
Accounting Standards Board Codification guidelines. The
accompanying unaudited interim 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, 2018 included in the
Company’s Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on April 16, 2019. 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 three months ended March 31,
2019 are not necessarily indicative of the results that may be
expected for the year ending December 31,
2019.
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.
2.
MANAGEMENT STATEMENT REGARDING GOING CONCERN
Currently, we are not generating revenue from operations, and do
not anticipate generating meaningful revenue from operations or
otherwise in the short-term. We have historically financed our
operations primarily through issuances of equity and the proceeds
from the issuance of promissory notes. In the past, we also
provided for our cash needs by issuing common stock, options and
warrants for certain operating costs, including consulting and
professional fees, as well as divesting our minority equity
interests and equity-linked investments. In addition, in the fiscal
year ended December 31, 2018, we received a cash payment as
consideration for the sale and transfer of the certain assets to
Preprogen LLC (“Preprogen”).
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 continue the development of, and to successfully
commercialize, our products. There can be no assurance that we
will be successful in our efforts. Should we 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 our cash position, we 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 three months ended March 31, 2019 and 2018, 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. In the past, the Company has
modified warrants in connection with the issuance of certain notes
and note extensions. These modified warrants were originally issued
in connection with previous private placement investments. In the
case of debt issuances, the warrants were accounted for as original
issuance discount based on their relative fair values. When
modified in connection with a note issuance, the Company recognizes
the incremental value as a part of the debt discount calculation,
using its relative fair value in accordance with ASC Topic 470-20,
“Debt
with Conversion and Other Options.” When modified in connection with note
extensions, the Company recognized the incremental value as prepaid
interest, which is expensed over the term of the
extension.
The fair value of each share-based payment is estimated on the
measurement date using the Black-Scholes model with the following
assumptions, which are determined at the beginning of each year and
utilized in all calculations for that year. During the three months
ended March 31, 2019 and 2018, 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. Diluted earnings per
share, if presented, would include the dilution that would occur
upon the exercise or conversion of all potentially dilutive
securities into common stock using the “treasury stock”
and/or “if converted” methods as applicable. For the
quarter ended March 31, 2019, including potentially dilutive
securities in diluted shares outstanding would be
immaterial.
For the three months ended March 31, 2018 and the three months
ended March 31, 2019, basic and
diluted earnings per share were the same at the reporting dates of
the accompanying financial statements, as including common stock
equivalents in the calculation of diluted earnings per share would
have been antidilutive.
As of March 31, 2019, the Company had outstanding options
exercisable for 2,300,000 shares of its common stock, outstanding
warrants exercisable for 15,000,000 shares of its common stock, and
outstanding preferred shares convertible into 6,196,893 shares of
its common stock, which options, warrants and preferred shares were
deemed to be antidilutive for the three months ended March 31,
2019. At March 31, 2019, the Company had reserved for issuance to
certain investors 860,000 shares of its Series B Convertible
Preferred Stock, convertible into 860,000 shares of its common
stock. As of March 31, 2019, the Company has estimated and reserved
for issuance approximately 20.0 million shares of common stock for
a future conversion of its issued and outstanding Convertible Notes
Payable.
As of March 31, 2018, the Company had outstanding options
exercisable for 2,300,000 shares of its common stock, outstanding
warrants exercisable for 15,000,000 shares of its common stock, and
preferred shares convertible into 16,676,942 shares of its Common
Stock, which options, warrants and preferred shares were deemed to
be antidilutive for the three months ended March 31, 2018. The
Company has reserved for issuance 860,000 shares of its Series B
Preferred Stock to certain investors in connection with the 2017
Notes. As of March 31, 2018, the Company has estimated and reserved
for issuance approximately 20.0 million shares of common stock for
a future conversion of its issued and outstanding Convertible Notes
Payable.
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 revenue
and expense during the reporting period. Accordingly, actual
results may differ from those estimates.
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.
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, 2018, 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, 2017, the Company
recorded a loss of $169,948 to fully impair 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, the Company 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 the Company the 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.
In December 2017, the Company executed an
agreement with Preprogen, pursuant to which the Company sold,
assigned and licensed-back certain assets pertaining to its
Diagnostic Business (the “Preprogen
Transaction”).
As a part of the Preprogen
Transaction, the Company acquired a 15% interest in
Preprogen. On October 8, 2018, the Preprogen Agreement
was amended to provide for, among other things, the release of
funds held in escrow related to the manufacture of the miniform
pads (the “Preprogen
Amendment”), which
resulted in both parties receiving $200,583 in cash. As
consideration for the Preprogen Amendment, the Company agreed to
pay Preprogen a royalty of 5% from the sale of all over-the-counter
miniform products; provided,
however, that such royalty
payments shall terminate when Preprogen has received $200,000 in
aggregate consideration from the royalties paid by the Company, and
that the Company shall be entitled to offset such royalty payments
due and payable to Preprogen by amounts equal to certain other
payments otherwise due and payable to the Company by Preprogen
pursuant to the terms of the Preprogen Agreement. At December 31,
2018, we revalued our investment in Preprogen to $222,000,
recording an impairment of $278,000.
5.
INTANGIBLE
ASSETS
On December 15, 2017, the Company entered into an agreement with
Preprogen, pursuant to which the parties agreed to the sale,
assignment, and license-back of certain assets, including
intellectual property transferred to Preprogen necessary to the
development, manufacture, marketing and sale of the Company’s
OTC miniform products for the feminine hygiene and hemorrhoid
treatment markets. At March 31, 2019 and December 31, 2018, the
Company had reduced its capitalized intangible assets to
zero.
6.
CONVERTIBLE NOTES PAYABLE
On January 2, 2015, the Company issued a Bridge Note in the
principal amount of $36,500 and issued 73,000 shares of its common
stock to the purchaser of the Bridge Note. Additionally, the
Company issued 500,000 shares of its common stock in January 2015
to certain investors who purchased Bridge Notes during the year
ended December 31, 2014.
In February 2015, the Company issued an aggregate total of 815,061
shares of its 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 its common stock to the purchasers of
these Bridge Notes. In connection with the issuance of these notes,
the Company recorded debt discount expense totaling $2,830 and has
amortized 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 its 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
its common stock to the Bridge Note holders. These Bridge Notes are
now payable on demand.
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
its common stock to the purchaser of the Bridge 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 the issuance date of March 31, 2016.
The BHA Note is payable on demand as
of December 31, 2016, and was past due as of September 30, 2017. On
April 1, 2017, BHA assigned the BHA Note to certain of its then
employees, including Michael Abrams, who serves as a director of
the Company, under the same terms.
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 certain investors
Bridge Notes in the aggregate principal amount of $86,000 (the
“2017
Bridge Notes”). 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.
In October 2017, the Company issued an additional MOU Note in the
principal amount of $15,000.
The three MOU Notes, with an aggregate principal amount of $65,000,
were all cancelled and applied as part of the purchase price in the
Preprogen Transaction.
In
September 2018, the Company paid three of its note holders an
aggregate of $60,750 to settle $121,500 of note principal plus
$47,637 of accrued interest.
At March 31, 2019 and December 31, 2018, the Company’s
Convertible Notes Payable and Accrued Interest were as
follows:
|
|
March 31,
2019
|
December 31,
2018
|
|
Notes
Payable and accrued interest payable
|
$1,919,759
|
$1,870,685
|
|
Notes
Payable and accrued interest payable, related party
|
139,486
|
135,728
|
|
Total
notes payable
|
$2,059,245
|
$2,006,413
|
Notes Payable, Related Party
As of March 31, 2019, the Company owed Michael Abrams, a director
of the Company, an aggregate total of $139,486 for outstanding
principal and accrued and unpaid interest on certain Bridge
Notes. As of December 31, 2018,
the Company owed Mr. Abrams an aggregate total of $135,728 for
outstanding principal and accrued and unpaid interest on certain
Bridge Notes.
7.
RELATED PARTY
TRANSACTIONS
During
the three months ended March 31, 2019, the Company paid Dr.
Hirschman an aggregate total of $10,500 for his services as
CEO.
During
the three months ended March 31, 2019, the Company accrued fees due
to Mr. Abrams in aggregate of $10,500 for his services as a
Director. As of March 31, 2019, the Company owed Mr. Abrams $17,500
in accrued fees.
As of March 31, 2019, the Company owed Michael Abrams, a director
of the Company, an aggregate total of $139,486 for outstanding
principal and accrued and unpaid interest on certain Bridge
Notes.
8.
PREFERRED STOCK
The Company has authorized 25,000,000 shares of preferred stock, of
which 20,500,000 are designated as Series B Convertible Preferred
Stock, $0.01 par value, with a stated value of approximately
$204,000 (“Series B
Preferred”). The
remaining authorized preferred shares had not been designated by
the Company as of March 31, 2019.
Series B Convertible Preferred Stock
The Series B Preferred ranks senior to the Company’s 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 the
Company’s common stock at a 1:1 conversion
rate.
As disclosed under Note 6 above, in July and August, 2017, the
Company entered into Note Purchase Agreements with two existing
stockholders, pursuant to which the Company issued the 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 to 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 year ended December 31,
2017.
In April 2018, the Company completed the purchase of 10,480,084
shares of Series B Preferred (the “Purchased
Shares”) from an
institutional shareholder for an aggregate purchase price of
$20,000. Following this transaction, the shareholder no longer
holds shares in the Company.
As of March 31, 2019, the Company had 6,196,893 shares of Series B
Preferred issued and outstanding, with a liquidation preference of
$61,969 and convertible into 6,196,893 shares of the
Company’s common stock. As of December 31, 2018, the Company had 6,196,893
shares of Series B Preferred issued and outstanding with a
liquidation preference of $61,969 and convertible into 6,196,893
shares of the Company’s common
stock.
9. COMMON
STOCK, OPTIONS AND WARRANTS
The Company has authorized 150,000,000 shares of its common stock
for issuance, of which 78,696,461 were issued and outstanding at
each of March 31, 2019 and December 31, 2018.
During the three months ended March 31, 2019 and 2018, there were
no warrants issued by the Company. As of March 31, 2019, the
Company has one warrant issued and outstanding, which warrant was
issued in December 2018 to Preprogen’s designee to purchase
up to 15.0 million shares of the Company’s common stock, at
an exercise price of $0.05 per share. The warrant was exercisable
immediately upon issuance, and expires on December 14,
2022.
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 three months ended March 31, 2019 or
2018.
10.
SUBSEQUENT EVENTS
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 no subsequent events occurred that are
reasonably likely to impact these financial
statements.
ITEM 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of our financial condition should be read
in conjunction with the financial statements and notes to financial
statements included elsewhere in this filing. The following
discussion (as well as statements in Item 1 above and elsewhere)
contains forward-looking statements within the meaning of the
Private Securities Litigation Act of 1995 that involve risks and
uncertainties. Some or all of the results anticipated by these
forward-looking statements may not occur. Forward-looking
statements involve known and unknown risks and uncertainties
including, but not limited to, trends in the biotechnology,
healthcare, and pharmaceutical sectors of the economy; competitive
pressures and technological developments from domestic and foreign
genetic research and development organizations which may affect the
nature and potential viability of our business strategy; and
private or public sector demand for products and services similar
to what we plan to commercialize. We disclaim any intention or
obligation to publicly announce the results of any revisions to any
of the forward-looking statements contained herein to reflect
future events or developments.
Unless otherwise indicated or the context otherwise requires, all
references in this report to “we,” “our,”
“ours,” “us,” the “Company” or
similar terms refer to QuantRx Biomedical Corporation, a Nevada
corporation.
Overview
We have developed and intend to commercialize our patented miniform
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
genomic diagnostics for the laboratory market, based on our lateral
flow patents. Our platforms include: inSync®,
UniqueTM, 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 upon 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 through the issuance
of debt and/or equity securities. No assurances can be given that
we will be able to obtain financing on terms favorable to us, if at
all, 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 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 own certain diagnostic testing
technology that is based on our lateral flow patents.
Management believes this corporate structure permits us to more
efficiently explore options to maximize the value of the
Businesses, with the objective of maximizing the value of the
Businesses for the benefit of the Company and our
shareholders.
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) commercialize our over-the-counter
products either directly or through joint ventures, mergers or
similar transactions intended to capitalize on potential commercial
opportunities; (ii) contract manufacturing of our over-the-counter
products to third parties while maintaining control over the
manufacturing process; (iii) maintain our intellectual property
portfolio with respect to patents and licenses pertaining to both
the OTC Business and the Diagnostics Business; and (iv) maximize
the value of our investments in non-core assets. As a result
of our current financial condition, however, our efforts in the
short-term will be focused on obtaining financing necessary to
maintain the Company as a going concern.
The following discussion of our financial condition should be read
together with our financial statements and related notes included
in the Annual Report on Form 10-K, filed on April 16,
2019.
Results of Operations
Comparison of the Three Months Ended March 31, 2019 to the Three
Months Ended March 31, 2018.
The Company did not generate any revenue during the three
months ended March 31, 2019 or the three months ended March 31,
2018. 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 over-the-counter products, which is contingent on
the receipt of financing.
Sales, general and administrative expense for the three months
ended March 31, 2019 and 2018 was $22,579 and $27,980,
respectively. 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 overall decrease in
sales, general and administrative expense for
the three
months ended March 31, 2019 is
principally due to costs incurred during the 2018 period to move
the Company’s facilities. Partially offsetting the overall
decrease in the 2019 period are increased costs for maintenance of
intellectual property in the 2019 period compared to the 2018
period.
Professional fees for the three months ended March 31, 2019 and
2018 were $36,425 and $18,323, respectively. Professional fees
include the costs of legal, consulting and auditing services
provided to us. The increase in
professional fees for the three months ended March 31, 2019
relates to higher consulting fees paid to Dr. Hirschman for
services as CEO and Mr. Abrams for their services as a Director.
Also contributing to the increased expenses in the 2019 period are
higher costs of legal and audit fees during the 2019
period.
The Company did not incur any research and development costs
during the three months ended
March 31, 2019 or
2018. The Company did not
engage in any research and development efforts in the 2019 period,
nor does the Company expect to engage in any research and
development activity until funding is secured and it develops a
plan to commercialize its products.
Interest expense for the three months ended March 31, 2019 and 2018
was $53,213 and $58,916, respectively. The decrease in
interest expense in the 2019 periods compared to the 2018 periods
is related to lower convertible notes outstanding partially offset
by higher interest rate calculations on certain notes payable
during the 2019 periods.
During the three months ended March 31, 2019, the Company recorded
net loss of $112,217 compared to net loss for the three months
ended March 31, 2018 of $105,000. Net loss for the three months ended March 31, 2019
is directly attributable to higher costs for professional services,
as described above.
The Company expects net loss to decrease in future periods due to
the current suspension of its active operations and its lack of
revenue. The Company does not expect to re-commence active
operations until it is able to secure financing necessary
to execute its business and operating plan, including the
development and launch of its over-the-counter products, or to
otherwise capitalize on our PAD technology.
Liquidity and Capital Resources
At March 31, 2019, the Company had cash and cash equivalents of
$281,920, as compared to $322,024 at December 31,
2018.
The Company had cash and cash equivalents of $402,863 at March 31,
2018. The decrease in cash and cash equivalents between the 2019
and 2018 periods of approximately $120,000 is primarily
attributable to cash used for operations in the 2018 and 2019
periods partially offset by the receipt of escrow funds in December
2018 related to the sale of certain assets pertaining to its
Diagnostic Business to Preprogen LLC
(“Preprogen”)
in 2017. Also participating in
the decrease in cash is a one-time payment of $20,000 to settle
certain convertible notes payable during the second quarter of
2018.
During the three months ended March 31, 2019, the Company used
$40,104 for operating activities, compared to $57,248 used during
the three months ended March 31, 2018. The net overall decrease in
cash used for operating activities during the three months ended
March 31, 2019 is attributable to higher payments of accounts
payable during the 2018 period, partially offset by a higher
balance of unpaid interest expense on convertible notes
payable.
The Company has not generated sufficient revenue from operations to
meet its operating expense. The Company requires additional funding
to complete the development and launch of its over-the-counter
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
shares of its common stock, options and warrants for certain
operating costs, including consulting and professional
fees. In addition, in the fiscal year ended December 31, 2018,
the Company received a large cash payment from Preprogen as
consideration for the sale and transfer of the certain
assets.
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 re-commence
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 expense 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
expense; 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
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, revenue
and expense 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 those 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.
Genomics USA, Inc. (“GUSA”):
During the years ended December 31,
2018 and 2017, the Company had recorded losses of $0 and $169,948,
respectively, 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. As of December 31, 2018, the Company has fully impaired
its investment in GUSA.
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 2017, the
Company determined the full amount of the advanced payment to be
impaired.
Preprogen: During the year ended December 31, 2018, the
Company recorded a loss of $278,000 on an impairment on the value
of its investment in Preprogen. The Company has valued the
impairment based on an evaluation by a third-party using the value
of similar investments in comparable companies.
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 expense are significant to
our financial statements, but such expense is 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 March 31, 2019 and December 31, 2018, a valuation
allowance has been established. The likelihood of a material change
in the valuation allowance depends on our ability to generate
sufficient future taxable income. In the future, if management
determines that the likelihood exists to utilize the
Company’s deferred tax assets, a reduction of the valuation
allowance could materially increase the Company’s net
deferred tax asset.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer 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 March 31,
2019. 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.
PART II - OTHER INFORMATION
ITEM 1. 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 1A. Risk Factors
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, 2018, filed on
April 16, 2019. 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 March 31, 2019, there have been no material changes
to the disclosures made in the above-referenced Form
10-K.
ITEM 2. Unregistered Sales of Equity Securities, and Use
of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety
Disclosures
Not Applicable.
ITEM 5. Other Information
None.
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Exhibit
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Description
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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, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
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Date: May 20, 2019
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/s/
Shalom Hirschman
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Shalom Hirschman
Principal Executive, Financial and Accounting Officer
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-19-