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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, 2014

OR
 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________               

Commission File No. 000-17119
 
QUANTRX BIOMEDICAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Nevada
 
33-0202574
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification Number)
 
10190 SW 90th Avenue, Tualatin, Oregon 97123
(Address of Principal Executive Offices) (Zip Code)
 
503-575-9385
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]   No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X] No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[   ]
Smaller reporting company
[X]

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 14, 2014 was 63,341,163.
 
 


 

 
 
TABLE OF CONTENTS

 
PAGE
PART I - FINANCIAL INFORMATION
 
   
ITEM 1.
1
     
  2
     
  3
     
  4
     
  5
     
ITEM 2.
12
     
ITEM 4.
18
     
PART II – OTHER INFORMATION
   
ITEM 1.
19
     
ITEM 2.
19
     
ITEM 3.
19
     
ITEM 4.
19
     
ITEM 5.
19
     
ITEM 6.
19
     
 
 
 
-i-

 
 
PART I – FINANCIAL INFORMATION

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING EXHIBITS HERETO, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS “ANTICIPATES,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FORECASTS,” “PLANS,” “ESTIMATES,” “MAY,” “FUTURE,” “STRATEGY,” OR WORDS OF SIMILAR MEANING.  VARIOUS FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS; INCLUDING THOSE DESCRIBED IN “RISK FACTORS” IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013.  WE ASSUME NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.

 
-1-

 
 
ITEM 1.  Financial Statements

QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS

   
September 30,
2014
(unaudited)
   
December 31,
2013
 
ASSETS
           
Current Assets:
           
Cash and cash equivalents
 
$
253,545
   
$
4,457
 
Accounts receivable
   
-
     
917
 
Inventories
   
446
     
1,978
 
Prepaid expenses
   
33,471
     
30,218
 
Note receivable
   
30,000
     
120,000
 
Total Current Assets
   
317,462
     
157,570
 
                 
Investments
   
200,000
     
200,000
 
Property and equipment, net
   
2,465
     
3,285
 
Intangible assets, net
   
30,664
     
37,092
 
Total Assets
 
$
550,591
   
$
397,947
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
Current Liabilities:
               
Accounts payable
 
$
407,073
   
$
285,412
 
Accrued expenses
   
26,654
     
19,711
 
Notes payable and accrued interest, net of discounts
   
1,063,051
     
738,694
 
Total Current Liabilities
   
1,496,778
     
1,043,817
 
Notes payable, long-term
   
44,000
     
44,000
 
Total Liabilities
   
1,540,778
     
1,087,817
 
                 
Commitments and Contingencies
   
-
     
-
 
                 
Stockholders’ Equity (Deficit):
               
Series B Convertible Preferred Stock; $0.01 par value, 20,500,000 authorized shares, 16,676,942 and 20,416,228 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
   
166,769
     
204,162
 
Common stock; $0.01 par value; 150,000,000 authorized; 63,341,163 and 52,728,644 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
   
633,412
     
527,286
 
Common stock to be issued
   
63,000
     
120,000
 
Additional paid-in capital
   
48,428,723
     
48,138,544
 
Accumulated deficit
   
(50,282,091)
     
(49,679,862
)
Total Stockholders’ Equity (Deficit)
   
(990,187
)
   
(689,870
)
                 
Total Liabilities and Stockholders’ Equity (Deficit)
 
$
550,591
   
$
397,947
 
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
 
-2-

 
 
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 
Three Months Ended 
September 30,
 
Nine Months Ended 
September 30,
 
  
 
2014
   
2013
   
2014
   
2013
 
Revenue:
                       
Revenue
 
$
590
   
$
812
   
$
1,819
   
$
5,118
 
Total Revenue
   
590
     
812
     
1,819
     
5,118
 
                                 
Costs and Operating Expenses:
                               
Cost of goods sold (excluding depreciation and amortization)
   
656
     
230
     
1,532
     
488
 
Sales, general and administrative
   
13,390
     
13,744
     
78,487
     
84,656
 
Professional fees
   
37,242
     
13,388
     
194,927
     
74,433
 
Research and development
   
30,044
     
20,083
     
51,960
     
23,294
 
Amortization
   
2,723
     
1,853
     
6,429
     
5,559
 
Depreciation
   
273
     
273
     
821
     
821
 
Total Costs and Operating Expenses
   
84,328
     
49,571
     
334,156
     
189,251
 
                                 
Loss from Operations
   
(83,738)
     
(48,759)
     
(332,337)
     
(184,133)
 
                                 
Other Income (Expense):
                               
Interest and dividend income
   
808
     
3,085
     
4,175
     
11,085
 
Interest expense
   
(29,340)
     
(12,988)
     
(74,640)
     
(44,951)
 
Gain on exchange of equity investment
   
26,660
     
-
     
26,660
     
40,953
 
Other financing costs
   
(26,660)
     
-
     
(48,420)
     
(27,753)
 
Amortization of debt discount and issuance costs to interest expense
   
(44,669)
     
-
     
(111,342)
     
(2,407)
 
Gain on settlement of note interest
           
-
     
(62,150)
     
16,850
 
Loss on Impairment
   
(808)
     
(3,085)
     
(4,175)
     
(11,085)
 
Total Other Income (Expense), net
   
(74,009)
     
(12,988)
     
(269,892)
     
(17,308)
 
                                 
Loss Before Taxes
   
(157,747)
     
(61,747
)
   
(602,229)
     
(201,441
)
                                 
Provision for Income Taxes
   
-
     
-
     
-
     
-
 
                                 
Net Loss
 
$
(157,747)
   
$
(61,747)
   
$
(602,229)
   
$
(201,441)
 
                                 
Basic and Diluted Net Loss per Common Share
 
(0.00)
   
$
(0.00)
   
$
(0.01)
   
$
(0.00)
 
                                 
Basic and Diluted Weighted Average Shares Used in per Share Calculation
   
63,328,170
     
52,528,644
     
59,585,203
     
52,528,644
 
 
The accompanying condensed notes are an integral part of these interim consolidated financial statements.
 
 
-3-

 
 
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)

   
Nine Months Ended
 
   
September 30, 2014
   
September 30, 2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
 
$
(602,229
)
 
$
(201,441
)
Adjustments to reconcile net loss to net cash used by operating activities:
               
Depreciation and amortization
   
7,248
     
6,380
 
Loss on deferred financing costs
   
120,019
     
30,160
 
Non-cash gain on exchange of equity investment
   
(26,660)
     
(40,953)
 
Non-cash fair value of common stock issued as compensation
   
21,000
     
30,000
 
Interest receivable
   
(4,175)
     
(11,085)
 
Loss on impairment
   
4,175
     
11,085
 
Non-cash fair value of common stock issued with notes payable
   
63,760
     
-
 
Loss on issuance of common stock in exchange for interest settlement on notes payable
   
62,150
     
16,850
 
(Increase) Decrease in:
               
Accounts receivable
   
917
     
1,997
)
Inventories
   
1,532
     
488
 
Prepaid expenses
   
(3,253)
     
(8,845)
)
Increase (decrease) in:
               
Accounts payable
   
121,661
     
(7,124)
 
Accrued interest and expenses
   
6,943
     
49,966
 
                 
Net Cash Used by Operating Activities
   
(226,912
)
   
(122,522
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Payments received on note receivable
   
90,000
     
50,000
 
                 
Net Cash Provided by Investing Activities
   
90,000
     
50,000
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Cash provided by Notes Payable
   
386,000
     
64,000
 
                 
Net Cash Provided from financing activities
   
386,000
     
64,000
 
                 
Net Increase (Decrease) in Cash and Cash Equivalents
   
249,088
     
(8,522)
 
                 
Cash and Cash Equivalents, Beginning of Period
   
4,457
     
9,989
 
                 
Cash and Cash Equivalents, End of Period
 
$
253,545
   
$
1,467
 
                 
Supplemental Cash Flow Disclosures:
               
Interest expense paid in cash
 
$
     
$
-
 
Income tax paid
 
$
     
$
-
 
                 
NON CASH INVESTING & FINANCING ACTIVITIES:
               
Shares issued for accounts payable
 
$
-
   
$
9,000
 
 
The accompanying condensed notes are an integral part of these interim consolidated financial statements.
 
-4-

 
 
QUANTRX BIOMEDICAL CORPORATION
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 Corporation, a Nevada corporation.
 
We have developed and intend to commercialize our innovative non-woven disposable absorbent PAD products and technology for over-the-counter ("OTC") treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs. We are developing and intend to commercialize genomic diagnostics for the laboratory market, based on our patented PadKit® technology.  Our platforms include: inSync®, Unique™, PadKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology.

Our efforts to commercialize our products remain contingent on the receipt of additional financing required to execute our business and operating plan, which is currently focused on the commercialization of our PAD technology either directly or through a joint venture or other relationship intended to increase shareholder value.  In the interim, we have had nominal operations, focused principally on the limited online sale of our Unique® Miniform PAD product, maintaining and expanding our intellectual property and maintaining compliance with the public company reporting requirements. We have continued to issue promissory notes to continue as a going concern. No assurances can be given that the Company will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize the Company’s PAD products and technology.
 
The Company previously formed a wholly-owned subsidiary, QX Labs, Inc. (“QX”), and proceeded to transfer to QX all intellectual property and assets related to the Company’s diagnostic testing business (“Diagnostics Business”). The Diagnostic Business is based principally on the Company’s proprietary PadKit® technology, which the Company believes provides a patented platform technology for genomic diagnostics, including fetal genomics. Following the transfer of the Diagnostics Business to QX, the Company’s remaining business line consists of its OTC business, including the InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms (the “OTC Business”), as well as established and continuing licensing relationships related to the OTC Business. Management believes the creation of QX permits the Company to more efficiently explore different options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “Businesses”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.
 
The Company’s current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage its broad-based intellectual property (“IP”) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize its OTC Business and its Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets.  As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on limited online sale of our Unique® Miniform PAD product, and obtaining financing necessary to maintain the Company as a going concern.
 
The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the items under Regulation S-K required by the instructions to Form 10-Q.  They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2014.  The interim unaudited financial statements 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, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported losses, total assets or stockholders equity.

 
-5-

 
 
Recent Developments
 
Note Financing
 
In July 2014, the Company’s Board of Directors approved an exchange of outstanding promissory notes, in the aggregate principal amount of up to $870,694, into new convertible promissory demand notes maturing February 28, 2015. The Company anticipates that substantially all of the existing note holders will participate in this exchange. The Board also approved the issuance of an additional $500,000 of convertible promissory demand notes maturing February 28, 2015 (the “New Notes”) to accredited investors (the “New Note Offering”). As additional consideration for participation in the New Note Offering, each purchaser will receive 200,000 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), for every $100,000 invested. As of the date hereof, the Company has issued New Note Notes in the aggregate principal amount of $250,000 and issued or reserved an aggregate total of 500,000 shares of Common Stock in connection with the New Note Offering.

Each New Note accrues interest at a rate of 10% per annum, payable in either cash or shares of Common Stock and matures on February 28, 2015. Each New 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 New 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 all New 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.
  
The Company presently intends to issue additional promissory notes to finance its current working capital needs. However, there can be no assurance that the Company will be able to issue additional promissory notes.

2.  Management Statement Regarding Going Concern

The Company currently generates only nominal revenue from operations.  The Company has historically financed its operations primarily through issuances of equity and the proceeds from the issuance of promissory notes.  In the past, the Company also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees, as well as divesting its minority equity interests and equity-linked investments.
 
The Company’s history of operating losses, limited cash resources and the absence of an operating plan necessary to capitalize on the Company’s assets raise substantial doubt about our ability to continue as a going concern, absent a strengthening of our cash position.  Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment holdings, as well as a strategic merger or other transaction, to obtain additional funding to continue the development of, and to successfully commercialize, its products.  There can be no assurance that the Company will be successful in its efforts.  Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.
 
There can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.

3.  Summary of Significant Accounting Policies

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements.
  
Accounting for Share-Based Payments.  The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed.  During the nine months ended September 30, 2014, the Company did not issue employee stock-based compensation expense.
 
 
-6-

 
 
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 ending September 30, 2014, the Company used an average risk-free interest rate of 2.73%, a dividend yield of 0%, and an average volatility of 242% to calculate the fair value of equity securities issued for services. During the year ended December 31, 2013, the Company used an average risk-free interest rate of 2.6%, expected volatility of 331%, and a dividend yield of 0%.  
 
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, 2014, the Company had outstanding options exercisable for 164,500 shares of its Common Stock, warrants exercisable for 225,000 shares of its Common Stock, and preferred shares convertible into 16,676,942 shares of its Common Stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the nine months ended September 30, 2014.
 
As of September 30, 2013, the Company had outstanding options exercisable for 304,500 shares of its Common Stock, warrants exercisable for 1,785,000 shares of its Common Stock, and preferred shares convertible into 20,416,228 shares of its Common Stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the nine months ended September 30, 2013. 
 
 
-7-

 
 
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.  The following pronouncements were deemed applicable to our financial statements:
 
Stock Compensation
 
In June 2014, FASB issued Accounting Standards Update No. 2014-12 (“Update 2014-12”), Compensation-Stock Compensation, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (Topic 718).  Update 2014-12 provides guidance on how to account for share-based payment awards that require a specific performance target to be achieved in order for the employees to become eligible to vest in the awards.  Update 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015.  Management is still evaluating the applicability and possible impact this update may have on the accounting treatment and its financial statement presentation.
 
4.  Investments
 
In May 2011, FluoroPharma, Inc. (“FPI”) entered into a reverse merger with FluoroPharma Medical, Inc. (“FPMI”). In connection with this transaction, the Company's warrants in FPI were exchanged for warrants in FPMI (the “FPMI Warrants”). During 2012, the Company recognized a gain in the amount of $115,752 as a result of the issuance of certain of these warrants to holders of promissory notes of the Company that matured during the period. During the period ended September 30, 2014, the Company assigned its remaining 109,917 FPMI Warrants, with an exercise price of $1.00 and expiring on February 15, 2019 to Burnham Hill Advisors, LLC (“BHA”) in exchange for the extension of BHA’s previous cash deferral agreement through December 31, 2014. Following the transaction, the Company recognized a gain on the exchange in the amount of $20,660 and no longer held FPMI warrants.
 
5.  Intangible Assets

Intangible assets as of the balance sheet dates consisted of the following:

   
September 30,
2014
   
December 31,
2013
 
Licensed patents and patent rights
 
$
50,000
   
$
50,000
 
Patents
   
41,004
     
41,004
 
NuRx licensed technology
   
13,200
     
13,200
 
Less: accumulated amortization
   
(73,540)
     
(67,112
)
Intangibles, net
 
$
30,664
   
$
37,092
 
  
The Company’s intangible assets consist of patents, licensed patents and patent rights, and website development costs, and are carried at the legal cost to obtain them. Costs to renew or extend the term of intangible assets are expensed when incurred. In 2008, through our formerly majority owned subsidiary, the Company also held technology licenses and other acquired intangibles. Intangible assets are amortized using the straight-line method over the estimated useful life. Useful lives are as follows:

Asset Categories
 
Estimated Useful Life in Years
 
Patents
    17  
Patents under licensing
    10  
Website development costs
    3  
Intangibles acquired in 2008 (weighted average)
    15  

 
-8-

 
 
Amortization expense for the nine months ended September 30, 2014 and 2013 totaled $6,428 and $5,559, respectively.
  
On March 1, 2013, the Company entered into an Exchange Agreement with NuRx Pharmaceuticals, Inc. (“NuRx”) and QN Diagnostics, LLC (“QND”), pursuant to which the Company exchanged the shares of NuRx common stock received under the terms of the settlement agreement with NuRx in July 2011 (the "Settlement Shares") for certain patents, trademarks and other intellect property formerly held by NuRx and QND covering point-of-care lateral flow diagnostics (RapidSense™) and related oral fluid collection technologies. The Company has recorded the value associated with this exchange at $13,200, and will amortize these costs over the remaining useful lives of the intellectual property exchanged.

6.  Notes Payable

2012 Notes and 2013 Notes. In May 2012, in consideration for the extension of certain promissory notes originally due and payable on March 31, 2012 (the “2012 Notes”) to June 30, 2012, the Company assigned to the holders of the 2012 Notes FPMI Warrants to purchase a total of 113,127 shares of FPMI common stock for $0.50 per share (the “$0.50 FPMI Warrants”).  In August 2012, in consideration for the extension of the maturity date of the 2012 Notes to November 15, 2012, the Company agreed to assign a total of 155,877 $0.50 FPMI Warrants to the holders of the 2012 Notes.  As a result, a total of 260,508 $0.50 FPMI Warrants have been assigned to holders of 2012 Notes.
 
Between August 2012 and July 2013, the Company issued promissory notes in the aggregate principal amount of $114,000 (the “2013 Notes”). As additional consideration for the 2013 Notes, the Company issued an aggregate total of 200,000 shares of Common Stock, 8,496 $0.50 FPMI Warrants and 64,000 FPMI Warrants exercisable for $1.00 per share. 
 
The 2012 and 2013 Notes accrue interest at the rate of 6% annually prior to maturity, and 12% annually thereafter. All 2012 Notes and 2013 Notes have matured and are currently due and payable on demand. The 2012 Notes and 2013 Notes are convertible at the option of each respective holder into shares of Common Stock at a conversion price equal to $0.10 per share. In addition, the holders may exchange the 2012 Notes and 2013 Notes for Common Stock in the event the Company consummates a qualified financing (the “Qualified Financing”), which is defined in the 2012 Notes and 2013 Notes as a financing resulting in gross proceeds to the Company of at least $500,000. While the Company intends to pay the 2012 Notes and 2013 Notes using proceeds from a Qualified Financing, such Qualified Financing may not occur prior to the date the holders of the 2012 Notes and 2013 Notes demand repayment.
 
In connection with the issuance of the 2012 Notes and 2013 Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $106,261 and $28,998, respectively.  The Company will amortize these expenses over the life of the 2012 Notes and 2013 Notes.  As of December 31, 2012, the Company recorded interest expense related to the debt discount of $21,905 and $3,777 related to the beneficial conversion feature.
 
In connection with the issuance of the 2013 Notes, the Company has recorded debt discount and expenses in the amount of $27,753 related to the value of the 64,000 FPMI warrants to the holders of the 2013 Notes.  The Company will amortize the costs over the remaining life of these 2013 Notes.  As of September 30, 2014, the Company recorded other financing costs of $27,753 related to the debt discount on the 2013 Notes.
 
On October 29, 2013, the holder of certain outstanding 2012 Notes and 2013 Notes totaling approximately $217,000 in principal and accrued interest agreed to cancel such notes in exchange for a new promissory note with a face amount of $217,000 maturing on March 31, 2014, and 100,000 FPMI Warrants. Separately, our financial advisor agreed to exchange $216,000 of fees accrued from May 15, 2012 to October 15, 2013, otherwise payable in cash on or before December 31, 2013, for a promissory note with a face amount of $250,000 maturing on March 31, 2014, and 100,000 FPMI Warrants.  These promissory notes accrued interest at a rate of 8% annually prior to maturity, and, following maturity of both promissory notes on March 31, 2014, now accrue interest at rate of 12% annually.
 
2014 Notes. During the nine months ended September 30, 2014, the Company issued promissory notes to certain accredited investors in the aggregate principal amount of $136,000 (the “2014 Notes”). As additional consideration for the purchase of the 2014 Notes, the Company issued an aggregate total of 272,000 shares of Common Stock to the investors.  The Company recorded debt discount of $30,038 related to the 2014 Notes and will amortize the expense over the life of the 2014 Notes.  During the nine months ended September 30, 2014, the Company recorded $15,962of interest expense related to the debt discount on the 2014 Notes.
 
 
-9-

 
 
During the nine months ended September 30, 2014, the Company authorized the issuance of 2,601,233 shares of Common Stock to the holders of all outstanding notes payable with an aggregate outstanding principal balance of $870,693 in order to satisfy all accrued, but unpaid, interest on the notes issued between 2012 and June 2014.  During the period, all of the authorized shares of Common Stock were issued to settle the total outstanding interest payable on the notes, which amounted to $93,924.  The Company recognized a loss of $62,150 in connection with the settlement.
 
New Note Offering. In connection with the New Note Offering described under the heading “Recent Developments” in Note 1 above, during the period ended September 30, 2014 we issued New Notes in the aggregate principal amount of $250,000 and issued or reserved an aggregate total of 500,000 shares of Common Stock in connection with the New Note Offering. Each New Note accrues interest at a rate of 10% per annum, payable in either cash or shares of Common Stock, and matures on February 28, 2015. Each New Note is convertible, at the option of the holder thereof, into that number of Conversion Shares equal to the Outstanding Balance of the New Note, divided by $0.08. Additionally, in the event the Company completes a Qualified Financing, the Outstanding Balance of all New 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.  In connection with the New Note Offering, the Company recorded debt discount and expenses related to the beneficial conversion feature in the amount of $35,944 and $48,375, respectively.  The Company will amortize these amounts over the life of the debt and, accordingly, recorded interest expense related to the debt discount and beneficial conversion feature in the amount of $12,421 and $16,286, respectively.  The Company also incurred $46,000 of costs related to issuance of the New Note Offering, which will also be amortized over the life of the debt.  Total issuance costs recognized during the three months ended September 30, 2014 amounted to $15,962.

Long-Term Notes Payable. The Company received a $44,000 loan from the Portland Development Commission in 2007. The loan matures in 20 years and was interest free through February 2010. The terms of the note stipulate monthly interest only payments from April 2010 through December 2014, at a 5% annual rate.  The Company recorded interest expense on this loan of $741 and $1,851 for the three and nine months ended September 30, 2014. 
 
7.  Other Balance Sheet Information

Components of selected captions in the accompanying balance sheets consist of:

Prepaid expenses:
 
September 30,
2014
   
December 31,
2013
 
Prepaid insurance
 
$
33,154
   
$
23,718
 
Other
   
317
     
6,500
 
Prepaid expenses
 
$
33,471
   
$
30,218
 
                 
                 
Property and equipment:
               
Computers and office furniture, fixtures and equipment
 
$
28,031
   
$
28,031
 
Machinery and equipment
   
5,475
     
5,475
 
Less: accumulated depreciation
   
(31,041)
     
(30,221
)
Property and equipment, net
 
$
2,465
   
$
3,285
 
                 
Accrued expenses:
               
Other Accrued expenses
   
26,654
     
19,711
 
Accrued expenses
 
$
26,654
     
19,711
 
 
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment at September 30, 2014 and 2013 consisted of machinery and equipment with estimated useful lives of one to three years.
 
 
-10-

 
 
Depreciation expense for the three and nine months ended September 30, 2014 and 2013 was $273 and $820, respectively.
 
Expenditures for repairs and maintenance are expensed as incurred.

8.  Preferred Stock

The Company has authorized 25.0 shares of preferred stock, of which 20.5 million shares are designated as Series B Convertible Preferred Stock, $0.01 par value, with a stated value of approximately $204,000 (“Series B Preferred”).  The remaining 4.5 million authorized preferred shares have not been designated by the Company as of September 30, 2014.
 
Series B Convertible Preferred Stock.  The Company has authorized 20.5 million shares of Series B Preferred, $0.01 par value.  The Series B Preferred ranks prior to the Common Stock for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series B Preferred (“Junior Stock”).  Holders of the Series B Preferred are entitled to receive cash dividends only if the Company’s Board of Directors declare a dividend on the Common Stock. In that event, holders of Series B Preferred will 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 issuable upon conversion of the shares of Series B Preferred held. The holders of Series B Preferred have voting rights to vote, as a class, on the following matters: (i) amending, altering or repealing the provisions of the Series B Preferred so as to adversely affect any right, preference, privilege or voting power of the Series B Preferred, or (ii) to effect any distribution with respect to Junior Stock.  At any time, the holders of Series B Preferred may, subject to limitations, elect to convert all or any portion of their Series B Preferred into fully paid non-assessable shares of Common Stock at a 1:1 conversion rate.
 
On May 1, 2014, the Company received and accepted a notice of conversion to, in accordance with the procedures set forth in the Certificate of Designation for the Series B Convertible Preferred Stock, convert 3,739,286 shares of Series B Preferred into the same number of shares of Common Stock.
 
At September 30, 2014, the Company had 16,676,942 shares of Series B Preferred issued and outstanding with a liquidation preference of $166,769, and convertible into 16,676,942 shares of Common Stock.
  
9.  Common Stock, Options and Warrants
 
The Company’s Articles of Incorporation authorize for issuance 150.0 million shares of its Common Stock, of which 63,341,163 and 52,728,644 shares were issued and outstanding at September 30, 2014 and December 31, 2013, respectively.  
 
On May 21, 2013, the Company authorized the issuance of 1.0 million shares of Common Stock to management as compensation for services with a fair value of $30,000.
 
On December 6, 2013, the Company authorized the issuance of 900,000 shares of Common Stock to management as compensation for services with a fair value of $9,000.
 
On May 1, 2014, the Company received and accepted a notice of conversion to, in accordance with the procedures set forth in the Certificate of Designation for the Series B Convertible Preferred Stock, convert 3,739,286 shares of Series B Preferred into the same number of shares of Common Stock.
 
Other than the issuances to certain New Note investors of 500,000 shares of Common Stock, issuances to certain 2014 Note investors of an aggregate total of 272,000 shares of Common Stock, 1.8 million shares of Common Stock issued in connection with the professional services agreement as described in Note 10 below, 300,000 shares of Common Stock issued to a consultant as described in Note 10 below, 300,000 shares of Common Stock issued as settlement of accounts payable, and 1.9 million shares of Common Stock issued to management, no Common Stock, or options to purchase Common Stock, were issued or granted during the nine months ended September 30, 2014.

During the nine months ended September 30, 2014, 140,000 stock options and 1,331,000 warrants to purchase the Company’s Common Stock expired.
 
 
-11-

 
 
2007 Incentive and Non-Qualified Stock Option Plan.  The fair value of options granted under the Company’s 2007 Incentive and Non-Qualified Stock Option Plan is recorded as compensation expense over the vesting period, or, for performance based awards, the expected service term.  During the three and nine months ended September 30, 2014 and 2013, the Company had no compensation expense related to employee stock options. 

10.  Commitments and Contingencies
 
Professional Services Agreement. On May 16, 2011, the Company entered into a consulting agreement with its financial advisor, BHA, pursuant to which BHA provided  business, corporate development, litigation support, financial and strategic consulting services to the Company for and in consideration of the payment of $12,000 per month. Under the terms of the consulting agreement, however, amounts due thereunder, but not paid accrued until the Company's cash balance exceeded $1.5 million, or 24 months from the date of execution. This agreement expired pursuant to its terms in December 2012.
 
On August 1, 2012, the consulting agreement was amended to extend the deferral period for accrued cash compensation from May 16, 2013 to December 31, 2013, and to require the Company to issue 100,000 shares of restricted Common Stock for the remaining term of the agreement  in lieu of the agreement’s previous requirement of monthly issuances of warrants to purchase Common Stock. The warrants previously issued under the consulting agreement were exchanged for shares of Common Stock at a ratio of one share for every two warrants issued under the agreement resulting in the cancellation of warrants to issue 3.0 million shares of Common Stock in exchange for a total of 1.5 million shares of restricted Common Stock.
 
On October 29, 2013, we entered into a new advisory agreement with BHA.  Pursuant to this agreement, we agreed to pay a retainer in the amount of $100,000 and $15,000 per month beginning on November 29, 2013. The initial term of the agreement expires on December 31, 2014. BHA agreed to defer the cash fees due under the new agreement until June 30, 2014. On July 1, 2014, the Company and BHA modified the terms of this agreement to provide for a one-time $15,000 payment in August 2014, and deferral of all other remaining cash fees until December 31, 2014 in consideration for the issuance of the 109,917 FPMI Warrants.
 
On May 28, 2014, we entered into a Consulting Services Agreement for financial related services from Mayer & Associates (Mayer) through November 30, 2014. Under the terms of the agreement, Mayer will receive 300,000 shares of Common Stock and four payments of $12,500. During the nine months ended September 31, 2014, the Company paid Mayer a total of $25,000 and has reserved for issuance 300,000 shares of its Common Stock in connection with this agreement.

11.  Subsequent Events
 
In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events through the date of this filing, and have determined that no subsequent events are reasonably likely to impact the 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.
 
 
-12-

 

Overview
 
We have developed and intend to commercialize our innovative PAD based products for the OTC markets for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs. We are developing and intend to commercialize genomic diagnostics for the laboratory market, based on our patented PadKit® technology.  Our platforms include: inSync®, Unique™, PadKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology.
 
Our efforts to commercialize our products remain contingent on the receipt of additional financing required to execute our business and operating plan, which is currently focused on the commercialization of our PAD technology either directly or through a joint venture or other relationship intended to increase shareholder value.  In the interim, we have had nominal operations, focused principally on the limited online sale of our Unique® Miniform PAD product, maintaining and expanding our intellectual property and maintaining compliance with the public company reporting requirements. We have continued to issue promissory notes to continue as a going concern. No assurances can be given that the Company will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize the Company’s PAD technology.
 
On June 20, 2012, the Company formed a wholly-owned subsidiary, QX Labs, Inc. (“QX”), and proceeded to transfer to QX all intellectual property and assets related to the Company’s diagnostic testing business ("Diagnostics Business"). The Diagnostic Business is based principally on the Company’s proprietary PadKit® technology, which the Company believes provides a patented platform technology for genomic diagnostics, including fetal genomics. Following the transfer of the Diagnostics Business to QX, the Company’s remaining business line consists of its over-the-counter business, including the InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms (the “OTC Business”), as well as established and continuing licensing relationships related to the OTC Business. Management believes the creation of QX permits the Company to more efficiently explore different options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “Businesses”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.
 
The Company’s current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage its broad-based intellectual property (“IP”) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize its OTC Business and its Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets.  As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on limited online sale of our Unique® Miniform PAD product, and obtaining financing necessary to maintain the Company as a going concern.
 
The following discussion of our financial condition should be read together with our financial statements and related notes included in the Annual Report on Form 10-K, filed on April 14, 2014.

Recent Developments
 
Note Financing.  In July 2014, the Company’s Board of Directors approved an exchange of existing promissory notes, in the aggregate principal amount of up to $870,694, into new convertible promissory demand notes maturing February 28, 2015. The Company anticipates that substantially all of the existing note holders will participate in this exchange. The Board also approved the issuance of an additional $500,000 of New Notes. As additional consideration for participation in the $500,000 New Note Offering, the purchasers shall be issued 200,000 shares of Common Stock for every $100,000 invested. As of the date hereof, the Company has issued New Note Notes in the aggregate principal amount of $250,000 and issued or reserved an aggregate total of 500,000 shares of Common Stock in connection with the New Note Offering.
 
Each New Note accrues interest at a rate of 10% per annum, payable in either cash or shares of Common Stock and matures on February 28, 2015. Each New Note is convertible, at the option of the holder thereof, into Conversion Shares equal to the Outstanding Balance of the New Notes, divided by $0.08. Additionally, in the event the Company completes a Qualified Financing with gross proceeds to the Company of at least $1.5 million, the Outstanding Balance of all New 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.
 
 
-13-

 
 
The Company presently intends to issue additional promissory notes to finance its current working capital needs. However, there can be no assurance that the Company will be able to issue additional promissory notes.
 
Consolidated Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2014 to the Three and Nine Months Ended September 30, 2013

Total revenue for the three months ended September 30, 2014 and 2013 was $590 and $812, respectively.  Total revenue for the nine months ended September 30, 2014 and 2013 was $1,819 and $5,118, respectively.  The decrease in revenue during the 2014 period, as compared to the same period in 2013, is due to decreases in royalty revenue attributable to the Company’s PAD technology. Until such time as the Company develops a plan to commercialize its products, which is contingent on the receipt of additional financing, management does not anticipate that revenue will materially increase above amounts received in the current fiscal quarter.
 
Sales, general and administrative expense for the three months ended September 30, 2014 and 2013 was $13,390 and $13,744 respectively. Sales, general and administrative expense for the nine months ended September 30, 2014 and 2013 was $78,487 and $84,656 respectively. The decrease in sales, general and administrative expense is due to stock compensation expense incurred during the nine months ended September 30, 2013 not present in the 2014 period, partially offset by higher costs for patent and trademark fees incurred in the 2014 period.
 
Professional fees for the three months ended September 30, 2014 and 2013 were $37,242 and $13,388, respectively. Professional fees include the costs of legal, consulting and auditing services provided to us.  The increase in professional fees in the 2014 periods is directly related to increased costs of consulting and professional services provided to the Company, principally consisting of financial advisory services.  Professional fees for the nine months ended September 30, 2014 and 2013 were $194,927 and $74,433, respectively.  

Research and development costs for the three months ended September 30, 2014 and 2013 were $30,044 and $20,083, respectively.  The increase in research and development fees in the 2014 period is directly attributable to the costs associated with clinical trial expense in the 2014 period. Research and development costs for the nine months ended September 30, 2014 and 2013 were $51,960 and $23,294, respectively.  
 
Interest income for the three months ended September 30, 2014 and 2013, was $808 and $3,085, respectively.  Interest income for the nine months ended September 30, 2014 and 2013 was $4,175 and $11,085, respectively. The interest income related to the Company’s investment(s) has been deemed to be fully impaired therefore, accordingly, the Company recorded a loss on impairment during the three and nine months ended September 30, 2014 in the amount of $808 and $4,175, respectively.

Interest expense for the three months ended September 30, 2014 and 2013, was $29,340 and $12,988, respectively.  The increase in interest expense in the 2014 period is related to a higher notes payable balance. Interest expense for the nine months ended September 30, 2014 and 2013, was $74,640 and $44,951.
 
During the three and nine months ended September 30, 2014, the Company recorded non-cash interest expense related to the amortization of debt discount, beneficial conversion features, and debt issuance costs of notes payable of $44,669 and $111,342 respectively.  During the three and nine months ended September 30, 2013, non-cash interest expense related to the amortization of debt discount on notes payable was zero and $2,407, respectively.   

During the three months ended September 30, 2014, the Company recorded $26,660 in non-cash other financing costs related to the assignment of FPMI Warrants in connection with the consulting service deferral extension with BHA.  During the nine months ended September 30, 2014 and 2013, the Company recorded non-cash other financing expenses related to the exchange of FPMI Warrants of $48,420 and $27,753, respectively.

During the three and nine months ended September 30, 2014, the Company recorded non-cash loss on the issuance of Common Stock in exchange of accrued interest payable on notes payable in the amount of $62,150.
 
During the three months ended September 30, 2014, and 2013, the Company recorded a gain on equity investment of $25,852 and $40,953, respectively,.  During the nine months ended September 30, 2014 and 2013, the Company recorded a gain on equity investment of $22,485 and $40,953,  The gains recorded in the 2014 periods primarelyrepresent gains related to the exchange of FPMI Warrants in the amount of $25,852.  Gains recorded in the 2013 periods represent gains related to the exchange of the FPMI Warrants in the amount of $27,753 and the reacquisition of the NuRx intellectual property in the amount of $13,200.
 
 
-14-

 
 
The Company’s net loss for the three months ended September 30, 2014 was $157,747 compared to net loss for the three months ended September 30, 2013 of $61,747.  The increase in net losses in the three month periods ended September 30, 2014 compared to the comparable periods in 2013 is due to higher expenses related to higher intellectual property and higher professional fees during the 2014 period. Net loss for the nine months ended September 30, 2014 was $602,229 compared to net loss for the nine months ended September 30, 2013 of $201,441.

Liquidity and Capital Resources
 
As of September 30, 2014, the Company had cash and cash equivalents of $253,545, compared to cash and cash equivalents of $4,457 as of December 31, 2013.  During the nine months ended September 30, 2014, the Company’s cash flows from investing activities totaled $90,000 and cash flows from financing activities totaled $386,000.  The overall net increase in cash of $249,088 for the nine months ended September 30, 2014, is principally attributable to net cash received from financing activities.  
 
The Company has not generated sufficient revenues from operations to meet its operating expenses. The Company will require additional funding to complete the development and launch of its products, or to otherwise capitalize on its PAD technology. The Company has historically financed its operations primarily through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees.
 
Management believes that, given the current economic environment and the continuing need to strengthen our cash position, there is substantial doubt about our ability to continue as a going concern. We are pursuing various funding options, including licensing opportunities and the sale of investment holdings, as well as a strategic transaction with our joint venture partner, to obtain additional funding to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be successful in our efforts. Should we be unable to raise adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed.
  
The Company believes that the ability of the Company to launch commercial 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.
 
 
-15-

 
 
Critical Accounting Policies

Revenue Recognition

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue and recognizes it when it becomes due and payable. Up-front engagement fees are recorded as deferred revenue and amortized to income on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings process.
 
The Company assesses the probability of collection based on a number of factors, including past transaction history with the customer and the current financial condition of the customer. If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes reasonably assured. Significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.

The Company recognizes revenue from nonrefundable minimum royalty agreements from distributors or resellers upon delivery of product to the distributor or reseller, provided no significant obligations remain outstanding, the fee is fixed and determinable, and collection is probable. Once minimum royalties have been received, additional royalties are recognized as revenue when earned based on the distributor’s contractual reporting obligations. The Company is able to recognize minimum royalty payments on an accrual basis, as they are specified in the contract. However, since the Company cannot forecast product sales by licensees, royalty payments that are based on product sales by the licensees are not determinable until the licensee has completed their computation of the royalties due and/or remitted their cash payment to us. Should information on licensee product sales become available so as to enable the Company to recognize royalty revenue on an accrual basis, materially different revenues and results of operations could occur. 
  
Our strategy includes entering into collaborative agreements with strategic partners for the development, commercialization and distribution of our product candidates. Such collaboration agreements may have multiple deliverables. In arrangements with multiple deliverables where we have continuing performance obligations, contract, milestone and license fees are recognized as revenue together with any up-front payments over the term of the arrangement as performance obligations are completed, unless the deliverable has stand-alone value and there is objective, reliable evidence of fair value of the undelivered element in the arrangement. In the case of an arrangement where it is determined there is a single unit of accounting, all cash flows from the arrangement are considered in the determination of all revenue to be recognized. Cash received in advance of revenue recognition is recorded as deferred revenue.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The accounting policies discussed below are considered by management to be the most important to the Company’s financial condition and results of operations, and require management to make its most difficult and subjective judgments due to the inherent uncertainty associated with these matters. All significant estimates and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and adjusted when necessary. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may vary from these estimates and assumptions. Additional information on significant accounting principles is provided in Note 3 of the attached financial statements.
 
 
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Impairment of Assets

We assess the impairment of long-lived assets, including our other intangible assets, at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. Changes in our strategic plan and/or market conditions could significantly impact these judgments and could require adjustments to recorded asset balances. We hold investments in companies having operations or technologies in areas which are within or adjacent to our strategic focus when acquired, all of which are privately held and whose values are difficult to determine. We record an investment impairment charge if we believe an investment has experienced a decline in value that is other than temporary. Future changes in our strategic direction, adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.
 
In determining fair value of assets, the Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets that are not readily apparent from other sources. Actual fair value may differ from management estimates resulting in potential impairments causing material changes to certain assets and results of operations.

Share-Based Payments

We grant options to purchase our Common Stock to our employees and directors under our stock option plan. We estimate the value of stock option awards on the date of grant using a Black-Scholes pricing model (Black-Scholes model). The determination of the fair value of share-based payment awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, and risk-free interest rate. If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
  
We determine the fair value of the share-based compensation awards granted to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is complete.
 
Estimates of share-based compensation expenses are significant to our financial statements, but these expenses are based on option valuation models and will never result in the payment of cash by us.
 
The above listing is not intended to be a comprehensive list of all of our accounting policies. In most cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States.

Deferred Taxes
 
We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and tax bases of assets and liabilities, which requires management to perform estimates of future transactions and their respective valuations. We review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that the Company will not realize the benefit of the net deferred tax asset. At December 31, 2013 and 2012, a valuation allowance has been established. The likelihood of a material change in the valuation allowance depends on our ability to generate sufficient future taxable income. In the future, if management determines that the likelihood exists to utilize the Company’s deferred tax assets, a reduction of the valuation allowance could materially increase the Company’s net deferred tax asset.
 
 
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ITEM 4.  Controls and Procedures

(a)  Evaluation of disclosure controls and procedures.
 
Under the supervision and with the participation of our management, including our principal executive officer/ principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of September 30, 2014. Based on this evaluation, the Company’s principal executive officer/ principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed in the reports submitted under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer/ principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
(b)  Changes in internal controls over financial reporting.

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  There has been no progress towards remediating our previously disclosed material weakness due to the lack of funding.
  
 
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PART II - OTHER INFORMATION
 
ITEM 1.  Legal Proceedings
 
On April 8, 2013, the Company filed a Summary Judgment in Lieu of Complaint (the "Complaint") against Genomics USA, Inc. ("GUSA") to recover all amounts due the Company under the terms of a promissory note in the principal amount of $200,000 (the "GUSA Note").  The Complaint was filed in the Supreme Court of the State of New York, and sought repayment of all amounts due under the terms of the GUSA Note, and accrued interest thereon, plus attorney's fees.   On May 24, 2013, the Company and GUSA settled the Company’s complaint.  The settlement agreement entered into by the parties provides for the payment to the Company of $200,000, of which $20,000 was paid on June 7, 2013, and $10,000 per month shall be paid on the 7th day of each consecutive month thereafter for a total of 18 months.

As of the date hereof, there are no additional material pending legal proceedings to which we are a party to or of which any of our property is the subject.

ITEM 2.  Unregistered Sales of Equity Securities, and Use of Proceeds

None.

ITEM 3.  Defaults Upon Senior Securities

None.

ITEM 4.  Mine Safety Disclosures

Not Applicable.

ITEM 5.  Other Information

None.
 
ITEM 6.  Exhibits

Exhibit
 
Description
31
 
Certification of Chief Executive Officer and Principal Financial and Accounting Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended.
32
 
Certification of Chief Executive Officer and Principal Financial and Accounting Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
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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.

 
Date:  November 18, 2014
/s/ Shalom Hirschman
 
Shalom Hirschman
Principal Executive, Financial and Accounting Officer