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EX-32 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - QUANTRX BIOMEDICAL CORPex32.htm
EX-31 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - QUANTRX BIOMEDICAL CORPex31.htm
EX-10.1 - FORM OF CONVERTIBLE PROMISSORY DEMAND NOTE. - QUANTRX BIOMEDICAL CORPex10-1.htm
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q
 
[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
 
OR
 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________               
 
Commission File No. 000-17119
 
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)
 
(212) 980-2235
(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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 [  ]
Accelerated filer
[  ]
Non-Accelerated filer
 [  ]
Smaller reporting company
[X]
(do not check if a smaller reporting company)
 [  ]
Emerging growth company
[ ]
     
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ]   No [X]
 
The number of shares outstanding of the issuer’s common stock as of November 21, 2017 was 78,696,461.
 
 
 

 
 
TABLE OF CONTENTS
 
 
PAGE
PART I - FINANCIAL INFORMATION
 
 
2
 
 
 
 
2
 
 
 
 
3
 
 
 
 
 4
 
 
 
 
5
 
 
 
12
 
 
 
 16
 
 
 
 
 
 
 17
 
 
 
 17
 
 
 
 17
 
 
 
 17
 
 
 
 17
 
 
 
 17
 
 
 
 17
 
 
 
 18
  
 
 
 
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, 2016.  WE ASSUME NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
 
 
 
 
ITEM 1.  Financial Statements
 
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
 
 
 
September 30,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 $8,914 
 $691 
Prepaid expenses
  - 
  28,094 
Total Current Assets
  8,914 
  28,785 
 
    
    
Investments, net of impairment of $30,051
  169,948 
  169,948 
Intangible assets, net
  11,193 
  13,874 
Total Assets
 $190,055 
 $212,607 
 
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
    
    
Current Liabilities:
    
    
Accounts payable
 $170,613 
 $160,671 
Accrued expenses
  - 
  36,342 
Shareholder loans
  - 
  36,000 
Notes payable and accrued interest
  1,784,187 
  1,059,784 
Notes payable, related party and accrued interest
  117,801 
  558,287 
Current portion of LT notes payable
  3,568 
  2,461 
Total Current Liabilities
  2,076,169 
  1,853,545 
Notes payable, long-term
  35,117 
  37,561 
Total Liabilities
  2,111,286 
  1,891,106 
 
    
    
Commitments and Contingencies
  - 
  - 
 
    
    
Stockholders’ Equity (Deficit):
    
    
Preferred stock; $0.01 par value, 25,000,000 authorized shares; 20,500,000 shares designated as Series B Convertible Preferred Stock; Series B Convertible Preferred shares 16,676,942 issued and outstanding
  166,769 
  166,769 
Common Stock; $0.01 par value; 150,000,000 authorized; 78,696,461 shares issued and outstanding
  786,964 
  786,964 
Additional paid-in capital
  48,739,606 
  48,740,389 
Stock to be issued
  8,600 
  - 
Accumulated deficit
  (51,623,170)
  (51,372,621)
Total Stockholders’ Equity (Deficit)
  (1,921,231)
  (1,678,499)
 
    
    
Total Liabilities and Stockholders’ Equity (Deficit)
 $190,055 
 $212,607 
 
 
The accompanying condensed notes are an integral part of these consolidated financial statements.
 
 
 
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 
 
 
Three Months Ended 
September 30,
 
 
Nine Months Ended 
September 30,
 
  
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Sales, general and administrative
 $16,747 
 $13,319 
 $57,055 
 $53,049 
Professional fees
  15,106 
  12,422 
  44,543 
  47,977 
Amortization
  894 
  893 
  2,682 
  5,181 
Depreciation
  - 
  274 
  - 
  822 
Total Costs and Operating Expenses
  32,747 
  26,908 
  104,280 
  107,029 
 
    
    
    
    
Loss from Operations
  (32,747)
  (26,908)
  (104,280)
  (107,029)
 
    
    
    
    
Other Income (Expense):
    
    
    
    
Interest expense
  (38,252)
  (55,738)
  (150,951)
  (157,716)
Gain/(loss) on impairment
  - 
  (50,000)
  - 
  (50,000)
Discount on notes payable
  (7,818)
  - 
  (7,818)
  - 
Gain/(loss) on disposition
  12,500 
  - 
  12,500 
  540 
Gain/(loss) on settlement of interest for common stock
    
  16,503 
  - 
  16,503 
Total Other Income (Expense), net
  (33,570)
  (89,235)
  (146,269)
  190,673 
 
    
    
    
    
Loss Before Taxes
  (66,317)
  (116,143)
  (250,549)
  (297,702)
 
    
    
    
    
Provision for Income Taxes
  - 
  - 
  - 
  - 
 
    
    
    
    
Net Loss
 $(33,317)
 $(116,143)
 $(250,549)
 $(297,702)
 
    
    
    
    
Basic and Diluted Net Loss per Common Share
 $(0.00)
  (0.00)
 $(0.00)
 $(0.00)
 
    
    
    
    
Basic and Diluted Weighted Average Shares Used in per Share Calculation
 $78,696,461 
  78,696,461 
  78,696,461 
  72,747,432 
 
 
The accompanying condensed notes are an integral part of these interim consolidated financial statements.
 
 
 
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
  
 
 
Nine Months Ended
 
 
 
September 30,
2017
 
 
September 30,
2016
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net loss
 $(250,549)
 $(297,702)
Adjustments to reconcile net loss to net cash used by operating activities:
    
    
Depreciation and amortization
  2,681 
  6,003 
Non-cash discount on notes payable
  7,818 
  - 
(Gain)/loss on disposition
  (12,500)
  - 
Loss on Impairment
  - 
  50,000 
(Gain)/loss on issuance of common stock for settlement of interest payable
  - 
  (16,503)
(Increase) Decrease in:
    
    
Prepaid expenses
  28,094 
  26,396 
Increase (decrease) in:
    
    
Accounts payable
  9,943 
  31,056 
Accrued interest and expenses
  124,073 
  132,790 
 
    
    
Net Cash Used by Operating Activities
  (90,440)
  (67,960)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
Net Cash Provided by Investing Activities
  - 
  - 
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
Principal payments on long-term debt
  (1,337)
  (962)
Proceeds from the issuance of shareholder loans
  - 
  15,000 
Proceeds from the issuance of notes payable
  100,000 
  - 
Net Cash Provided (used) by financing activities
  98,663 
  14,038 
 
    
    
Net Increase (Decrease) in Cash and Cash Equivalents
  8,223 
  (53,922)
 
    
    
Cash and Cash Equivalents, Beginning of Period
  691 
  61,078 
 
    
    
Cash and Cash Equivalents, End of Period
 $8,914 
 $7,156 
 
    
    
Supplemental Cash Flow Disclosures:
    
    
Interest expense paid in cash
 $1,467 
 $- 
Income tax paid
 $- 
 $- 
 
 
The accompanying condensed notes are an integral part of these interim consolidated financial statements.
 
 
QUANTRX BIOMEDICAL CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.            DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 
Overview
 
QuantRx Biomedical Corporation was incorporated on December 5, 1986, in the State of Nevada. Our principal business office is located at 10190 SW 90th Avenue, Tualatin, Oregon 97123. When used in this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “our,” “ours,” or “us” mean QuantRx Biomedical Corporation, a Nevada corporation.
 
We have developed and intend to commercialize our innovative PAD based products for the over-the-counter markets for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs. We have also developed genomic diagnostics for the laboratory market, based on our patented PadKit® technology.  Our platforms include: inSync®, Unique™, PadKit®, and OEM branded over-the-counter and laboratory testing products based on our core intellectual property related to our PAD technology.
 
The continuation of our operations remains contingent on the receipt of financing required to execute our business and operating plan, which is currently focused on the commercialization of our over-the-counter PAD products either directly or through a joint venture, or other relationship intended to increase shareholder value.  In the interim, we have nominal operations, focused principally on maintaining our intellectual property portfolio and continuing to comply with the public company reporting requirements. No assurances can be given that we will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize our PAD technology.
 
Our principal business line consists of our over-the-counter business (the “OTC Business”), which includes commercialization of our InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms, as well as maintaining established and continuing licensing relationships related to the OTC Business. We also maintain a diagnostic testing business (the “Diagnostic Business”) that is based principally on our proprietary PadKit® technology, which we believe provides a patented platform technology for genomic diagnostics, including fetal genomics. Management believes this corporate structure permits the Company to more efficiently explore options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “Businesses”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.
 
Our current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage our broad-based intellectual property and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize our OTC Business and Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of our investments in non-core assets.  However, as a result of our current financial condition, our efforts in the short-term will be focused on obtaining financing necessary to continue as a going concern.
 
We follow the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the items under Regulation S-X required by the instructions to Form 10-Q.  They may not include all information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2017.  The interim unaudited financial statements presented herein should be read in conjunction with those financial statements included in the Form 10-K.  In the opinion of Management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 
 
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported losses, total assets or stockholders’ equity.
  
Recent Developments
 
Memorandum of Understanding. On February 27, 2017, the Company entered into a memorandum of understanding (“MOU”) with an unrelated third party regarding the sale of certain assets pertaining to the Company’s Diagnostic Business, including the intellectual property, trade-secrets and diagnostic applications related to the Company’s PadKit technology and the lateral flow diagnostics technology. Under the MOU, the Company retains all rights and assets relating to the OTC Business, which includes all assets necessary to pursue marketing the over the counter miniform products for female hygiene and hemorrhoid treatment. If the transaction contemplated by the MOU is consummated, the Company would receive gross proceeds of approximately $1.0 million at closing, a 15% percent ownership interest in the acquiring company and future cash payments ranging from 1.5%-2% of gross revenue generated from the Padkit and lateral flow technologies.   The MOU is subject to numerous contingencies and conditions, and there is no assurance that a transaction will be completed.
 
MOU Notes. During the nine months ended September 30, 2017, the Company issued two convertible promissory demand notes in connection with the MOU in the aggregate principal amount of $50,000 (the "MOU Notes"). The MOU Notes matured on September 30, 2017; however, the maturity date has been extended to December 31, 2017. The MOU Notes accrue interest at a rate of 8% per annum, and are convertible, at the option of the holder, into that number of shares of the Company's common stock, par value $0.001 per share ("Common Stock") equal to the outstanding balance, divided by $0.10.
 
Subsequent to September 30, 2017, in October 2017, the Company issued an additional MOU Note in the principal amount of $15,000.
 
2017 Bridge Notes. In July and August, 2017, the Company entered into Note Purchase Agreements with two existing stockholders, pursuant to which the Company issued convertible promissory demand notes in the aggregate principal amount of $86,000 (the “2017 Bridge Notes”). As additional consideration for the purchase of the 2017 Bridge Notes, the Company reserved for issuance an aggregate of 860,000 shares of the Company’s Series B Convertible Preferred Stock (“Series B Preferred”) to be issued to the purchasers of the 2017 Bridge Notes.
 
The 2017 Bridge Notes accrue interest at a rate of 10% per annum, payable in either cash or shares of the Company’s Common Stock, and matured on September 30, 2017. The 2017 Bridge Notes are now payable on demand. Each 2017 Bridge Note is convertible, at the option of the holder thereof, into that number of shares of Common Stock equal to the outstanding principal balance of the 2017 Bridge Note, plus accrued but unpaid interest (the “Outstanding Balance”), divided by $0.08 (the “Conversion Shares”). Additionally, in the event the Company completes an equity or equity-linked financing with gross proceeds to the Company of at least $1.5 million (a “Qualified Financing”), the Outstanding Balance of the 2017 Bridge Notes will, at the discretion of each respective holder, either (i) convert into securities sold in the Qualified Financing, or (ii) automatically convert into Conversion Shares.
 
2.            MANAGEMENT STATEMENT REGARDING GOING CONCERN
 
The Company currently is not generating revenue from operations, and does not anticipate generating meaningful revenue from operations or otherwise in the short-term.  The Company has historically financed its operations primarily through issuances of equity and the proceeds from the issuance of promissory notes.  In the past, the Company also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees, as well as divesting its minority equity interests and equity-linked investments.
 
The Company’s history of operating losses, limited cash resources and the absence of an operating plan necessary to capitalize on the Company’s assets raise substantial doubt about our ability to continue as a going concern absent a strengthening of our cash position.  Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment holdings, as well as a strategic, merger or other transaction to obtain additional funding to continue the development of, and to successfully commercialize, its products.  There can be no assurance that the Company will be successful in its efforts.  Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.
 
There can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.
 
3.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the financial statements.
  
Accounting for Share-Based Payments.  The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed.  During the nine months ended September 30, 2017 and 2016, the Company had no stock compensation expense.
 
The Company accounts for share-based payments granted to non-employees in accordance with ASC Topic 505, “Equity Based Payments to Non-Employees.” The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.  If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is complete. 
 
In the case of modifications, the Black-Scholes model is used to value modified warrants on the modification date by applying the revised assumptions. The difference between the fair value of the warrants prior to the modification and after the modification determines the incremental value. The Company has modified warrants in connection with the issuance of certain notes and note extensions. These modified warrants were originally issued in connection with previous private placement investments. In the case of debt issuances, the warrants were accounted for as original issuance discount based on their relative fair values. When modified in connection with a note issuance, the Company recognizes the incremental value as a part of the debt discount calculation, using its relative fair value in accordance with ASC Topic 470-20, “Debt with Conversion and Other Options.” When modified in connection with note extensions, the Company recognized the incremental value as prepaid interest, which is expensed over the term of the extension.
 
The fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year. During the nine months ended September 30, 2017 and 2016, the Company did not make any Black-Scholes model assumptions, as no share-based payments were made during those periods.
 
Risk-Free Interest Rate. The interest rate used is based on the yield of a U.S. Treasury security as of the beginning of the year.
 
Expected Volatility. The Company calculates the expected volatility based on historical volatility of monthly stock prices over a three-year period.
 
Dividend Yield. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield.
 
Expected Term. For options, the Company has no history of employee exercise patterns. Therefore, the Company uses the option term as the expected term. For warrants, the Company uses the actual term of the warrant. 
 
Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures are based on Company experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
 
Earnings per Share.  The Company computes net income (loss) per common share in accordance with ASC Topic 260. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase Common Stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as including Common Stock equivalents in the calculation of diluted earnings per share would have been antidilutive.
  
As of September 30, 2017, the Company had outstanding options exercisable for 2,352,000 shares of its Common Stock, and preferred shares convertible into 16,676,942 shares of its Common Stock, which options and preferred shares were deemed to be antidilutive for the nine months ended September 30, 2017. At September 30, 2017, the Company has reserved for issuance to certain investors, 860,000 preferred shares, convertible into 860,000 shares of its Common Stock.
 
As of September 30, 2016, the Company had outstanding options exercisable for 2,352,000 shares of its Common Stock, and preferred shares convertible into 16,676,942 shares of its Common Stock, which options and preferred shares were deemed to be antidilutive for the nine months ended September 30, 2016.
 
Fair Value.  The Company has adopted ASC Topic 820, "Fair Value Measurements and Disclosures" for both financial and nonfinancial assets and liabilities.  The Company has not elected the fair value option for any of its assets or liabilities.
 
Use of Estimates.  The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions, which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Accordingly, actual results may differ from those estimates.
 
Recent Accounting Pronouncements.
 
Management has considered all recent accounting pronouncements in the current period and identified no pronouncements that would have an impact on our financial statements.  
  
4.            INVESTMENTS
 
In May 2006, the Company purchased 144,024 shares of common stock of GMS Biotech, formerly Genomics USA, Inc. (“GUSA”) for $200,000. After the investment, the Company owned approximately 5% of the total issued and outstanding common stock of GUSA. As of December 31, 2016, the Company’s position had been diluted to approximately 2% of the issued and outstanding common stock of GUSA.  The investment is recorded at historical cost and is assessed at least annually for impairment. During the year ended December 31, 2016, the Company recorded a loss of $30,051 as an impairment on the value of its common stock investment in GUSA. The Company has valued the impairment based on the dilution of the Company’s investment and certain other factors.   
 
On September 3, 2015, we entered into a non-binding letter of intent (the “Global LOI”) with Global Cancer Diagnostics, Inc., a privately held laboratory in Tempe, Arizona (“Global”), for a proposed business combination. The Global LOI had an original termination date of October 31, 2015 (the “Termination Date”), but could be terminated or extended anytime by the mutual written consent of the parties. During the quarter ended September 30, 2016, in accordance with the terms and conditions of the executed Global LOI, the Company deemed the Global LOI terminated. Accordingly, Global is obligated to issue to us a number of shares of Global’s common stock equal to 10% of its then outstanding shares of common stock, on a fully-diluted basis, as payment of the Global Advance. In addition to the share issuance, the Company is evaluating certain additional remedies related to the Global LOI and the $50,000 advance. The Company deemed the $50,000 Global Advance to be fully impaired as of September 30, 2016.
 
5.            INTANGIBLE ASSETS
 
Intangible assets as of the balance sheet dates consisted of the following:
 
 
 
September 30,
2017
(unaudited)
 
 
December 31,
2016
 
Licensed patents and patent rights
 $50,000 
 $50,000 
Patents
  41,044 
  41,044 
Lateral Flow Licensed Technology
  13,200 
  13,200 
Less: accumulated amortization
  (93,051)
  (90,370)
Intangibles, net
 $11,193 
 $13,874 
  
The Company’s intangible assets consist of patents, licensed patents and patent rights, are carried at the legal cost to obtain them. Costs to renew or extend the term of intangible assets are expensed when incurred. Intangible assets are amortized using the straight-line method over the estimated useful life. Useful lives are as follows:
 
Asset Categories
 
Estimated Useful Life in Years
 
Patents
  17 
Patents under licensing
  10 
Intangibles acquired in 2008 (weighted average)
  15 
 
Amortization expense for the nine months ended September 30, 2017 and 2016 totaled $2,681 and $5,182, respectively.
 
6.            CONVERTIBLE NOTES PAYABLE
 
On January 2, 2015, the Company issued an additional Bridge Note in the principal amount of $36,500 and issued 73,000 shares of Common Stock to the purchaser of the additional Bridge Note. Additionally, we issued 500,000 shares of Common Stock in January 2015 to certain investors who purchased Bridge Notes during the year ended December 31, 2014, which were previously classified as shares to be issued.
 
In February 2015, the Company issued an aggregate total of 815,061 shares of Common Stock as payment for accrued interest for the period from July 1, 2014 through December 31, 2014 under certain convertible notes payable.
 
On June 30, 2015, the Company issued two additional Bridge Notes in the aggregate principal amount of $50,000 and issued an aggregate total of 100,000 shares of Common Stock to the purchasers of these Bridge Notes. In connection with the issuance of these notes, the Company recorded debt discount expenses totaling $2,830 and will amortize these costs over the life of the notes.
 
In June 2015, the Company authorized the issuance of an aggregate total of 1,875,691 shares of Common Stock as payment for accrued interest for the period from January 1, 2015 through June 30, 2015 under certain convertible notes payable.  The Company settled a total of $70,256 in accrued interest, recognizing a gain on settlement in the amount of $23,364.  The Company and the holders of the Bridge Notes also agreed to extend the maturity date of the Bridge Notes from June 30, 2015 to December 31, 2015. As consideration for the extension of the maturity date of the Bridge Notes, the Company issued an aggregate total of 286,500 shares of Common Stock to the Bridge Note holders.
 
In July 2015, the Company issued a Bridge Note in the principal amount of $35,000 and issued an aggregate total of 70,000 shares of Common Stock to the purchaser of the Bridge Note.
 
During each of the quarters ended March 31, 2017, and June 30, 2017, the Company issued an MOU Note in the principal amount of $25,000.
 
In July and August 2017, the Company issued 2017 Bridge Notes in the aggregate principal amount of $86,000. Each 2017 Bridge Note accrues interest at a rate of 10% per annum, and matured on September 30, 2017. The 2017 Bridge Notes are now payable on demand.
 
BHA Note. On March 31, 2016, Burnham Hill Advisors, LLC (“BHA”) agreed to exchange the amounts owed to BHA under the October 29, 2013 agreement for a promissory note, on terms substantially similar to the Bridge Notes (the “BHA Note”), in the principal amount of $283,000 with issuance date of March 31, 2016. The BHA Note is payable on demand as of December 31, 2016, and is past due as of September 30, 2017. On April 1, 2017, BHA assigned the BHA Note to certain of its employees, including Michael Abrams who serves as a director of the Company, under the same terms.
 
At September 30, 2017 and December 31, 2016, the Company’s Convertible Notes Payable are as follows:
 
 
 
September 30,
2017
 
 
December 31,
2016
 
Notes Payable
  1,784,187 
  1,059,784 
Notes Payable, related party
  117,801 
  558,287 
Total notes payable
  1,901,988 
  1,618,071 
 
Notes Payable, Related Party.
 
As of September 30, 2017, the Company owed Michael Abrams, a director of the Company, an aggregate total of $117,801 for outstanding principal and accrued and unpaid interest on certain Bridge Notes. As of December 31, 2016, the Company owed Mr. Abrams an aggregate total of $2,059 and BHA an aggregate total of $556,168 for outstanding principal and accrued and unpaid interest on certain Bridge Notes. Mr. Abrams is an employee of BHA.
 
On April 1, 2017, BHA assigned its the BHA Note, including all accrued but unpaid interest to its employees, and is no longer a related party note payable. As noted above, Michael Abrams, one of the Company’s directors and an employee of BHA, was assigned $50,000 of the outstanding principal amount of the BHA Note, plus all accrued but unpaid interest on such amount.
 
7.            LONG-TERM NOTES PAYABLE
 
The Company received a $44,000 loan from the Portland Development Commission in 2007. The loan matures in 20 years and was interest free through February 2010. The terms of the note stipulate monthly interest only payments from April 2010 through December 2014, at a 5% annual rate. Effective January 1, 2015, the Company began a payment program whereby it would make quarterly payments towards principal and interest through the life of the loan. During the nine months ended September 30, 2017, the Company made principal payments of $1,815 and payments towards accrued interest of $1,467. The Company recorded interest expense on this loan of $1,941 and $1,538 for the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017 and December 31, 2016, the balance of the loan payable was $38,685 and $40,022, respectively.
 
8.            OTHER BALANCE SHEET INFORMATION
 
Components of selected captions in the accompanying balance sheets consist of:
 
Prepaid expenses:
 
September 30,
2017
(unaudited)
 
 
December 31,
2016
 
Prepaid insurance
 $- 
 $28,094 
Prepaid expenses
 $- 
 $28,094 
 
    
    
Property and equipment:
    
    
Computers and office furniture, fixtures and equipment
 $28,031 
 $28,031 
Machinery and equipment
  5,475 
  5,475 
Less: accumulated depreciation
  (33,506)
  (33,506)
Property and equipment, net
 $- 
 $- 
 
    
    
Accrued expenses:
    
    
Other Accrued expenses
 $0
  36,342 
Accrued expenses
 $0
  36,342 
 
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment at September 30, 2017 consisted of computer and office equipment, machinery and equipment with estimated useful lives of three to seven years. As of December 31, 2016 and September 30, 2017, the Company’s property and equipment was fully depreciated.
 
Expenditures for repairs and maintenance are expensed as incurred.
 
9.            PREFERRED STOCK
 
The Company has authorized 25,000,000 shares of preferred stock, of which 20,500,000 is designated as Series B Convertible Preferred Stock, $0.01 par value, with a stated value of approximately $204,000. The remaining authorized preferred shares have not been designated by the Company as of September 30, 2017.
 
On November 19, 2010, the Company filed a Certificate of Withdrawal of the Certificates of Designations of the Series A Preferred Stock (“Series A Preferred”) with the Nevada Secretary of State, as there were no shares of Series A Preferred issued and outstanding after the exchange transaction discussed below. 
 
Series B Convertible Preferred Stock
 
The Series B Preferred ranks prior to the Common Stock for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms did not rank senior to the Series B Preferred (“Junior Stock”).  Holders of the Series B Preferred are entitled to receive cash dividends, when, as and if declared by the Board of Directors, and they shall be entitled to receive an amount equal to the cash dividend declared on one share of Common Stock multiplied by the number of shares of Common Stock equal to the outstanding shares of Series B Preferred, on an as converted basis. The holders of Series B Preferred have voting rights to vote as a class on matters a) amending, altering or repealing the provisions of the Series B Preferred so as to adversely affect any right, preference, privilege or voting power of the Series B Preferred; or b) to affect any distribution with respect to Junior Stock.  At any time, the holders of Series B Preferred may, subject to limitations, elect to convert all or any portion of their Series B Preferred into fully paid non-assessable shares of Common Stock at a 1:1 conversion rate.
 
As disclosed under Note 1 above, in July and August, 2017, the Company entered into Note Purchase Agreements with two existing stockholders, pursuant to which the Company issued 2017 Bridge Notes in the aggregate principal amount of $86,000. As additional consideration for the purchase of the 2017 Bridge Notes, the Company has reserved for issuance an aggregate of 860,000 shares of Series B Preferred to be issued the purchasers of the 2017 Bridge Notes. The Company has valued the Series B Preferred and has recorded a discount on the 2017 Bridge Notes of $7,818 which was amortized in full during the three months ended September 30, 2017.
 
As of September 30, 2017 and December 31, 2016, the Company had 16,676,942 shares of Series B Preferred issued and outstanding with a liquidation preference of $166,769, respectively, and convertible into 16,676,942 shares of Common Stock. 
 
 
 
-10-
10.            COMMON STOCK, OPTIONS AND WARRANTS
 
The Company has authorized 150,000,000 shares of its Common Stock, of which 78,696,461 were issued and outstanding at each of September 30, 2017 and December 31, 2016.
 
In July 2016, the Company authorized an aggregate total of 8.9 million shares of Common Stock to be issued to certain convertible note holders as payment of accrued and unpaid interest in the amount of $151,700.
 
During the three months ended September 30, 2017 and 2016, there were no warrants issued by the Company.  As of September 30, 2017, the Company had no warrants issued and outstanding.  
 
2007 Incentive and Non-Qualified Stock Option Plan.  The fair value of options granted under the Company’s 2007 Incentive and Non-Qualified Stock Option Plan is recorded as compensation expense over the vesting period, or, for performance based awards, the expected service term.  The Company did not issue any options during the nine months ended September 30, 2017 or 2016.
  
11.            SUBSEQUENT EVENTS
 
In October 2017, the Company issued an additional MOU Note in the principal amount of $15,000.
 
We have evaluated subsequent events through the date of this filing in accordance with the Subsequent Events Topic of the FASB ASC 855, and have determined that, except as disclosed herein, no subsequent events occurred that are reasonably likely to impact these financial statements.
 
 
 
-11-
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 innovative PAD based products for the over-the-counter markets for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs. We have also developed genomic diagnostics for the laboratory market, based on our patented PadKit® technology.  Our platforms include: inSync®, Unique™, PadKit®, and OEM branded over-the-counter and laboratory testing products based on our core intellectual property related to our PAD technology.
 
The continuation of our operations remains contingent on the receipt of financing required to execute our business and operating plan, which is currently focused on the commercialization of our PAD technology either directly or through a joint venture, or other relationship intended to increase shareholder value.  In the interim, we have nominal operations, focused principally on maintaining our intellectual property portfolio and continuing to comply with the public company reporting requirements. No assurances can be given that we will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize our PAD technology.
 
Our principal business line consists of our over-the-counter business (the “OTC Business”), which includes commercialization of our InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms, as well as maintaining established and continuing licensing relationships related to the OTC Business. We also maintain a diagnostic testing business (the “Diagnostic Business”) that is based principally on our proprietary PadKit® technology, which we believe provides a patented platform technology for genomic diagnostics, including fetal genomics. Management believes this corporate structure permits the Company to more efficiently explore options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “Businesses”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.
 
Our current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage our broad-based intellectual property and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize our OTC Business and Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of our investments in non-core assets.  However, as a result of our current financial condition, our efforts in the short-term will be focused on obtaining financing necessary to continue as a going concern.
 
The following discussion of our financial condition should be read together with our financial statements and related notes included in the Annual Report on Form 10-K, filed on April 17, 2017.
 
Recent Developments
 
Memorandum of Understanding
 
On February 27, 2017, the Company entered into a memorandum of understanding (“MOU”) with an unrelated third party regarding the sale of certain assets pertaining to the Company’s Diagnostic Business, including the intellectual property, trade-secrets and diagnostic applications related to the Company’s PadKit technology and the lateral flow diagnostics technology. Under the MOU, the Company retains all rights and assets related to the OTC Business, which includes all assets necessary to pursue marketing the over the counter miniform products for female hygiene and hemorrhoid treatment. If the transaction contemplated by the MOU is consummated, the Company would receive gross proceeds of approximately $1.0 million at closing, a 15% percent ownership interest in the acquiring company and future cash payments ranging from 1.5%-2% of gross revenue generated from the Padkit and lateral flow technologies.   The MOU is subject to numerous contingencies and conditions, and there is no assurance that a transaction will be completed.
  
 
 
-12-
Issuance of Promissory Notes 
 
MOU Notes. During the nine months ended September 30, 2017, the Company issued two convertible promissory demand notes in connection with the MOU in the aggregate principal amount of $50,000 (the "MOU Notes"). The MOU Notes matured on September 30, 2017; however, the maturity date has been extended to December 31, 2017. The MOU Notes accrue interest at a rate of 8% per annum, and are convertible, at the option of the holder, into that number of shares of the Company's common stock, par value $0.001 per share ("Common Stock") equal to the outstanding balance, divided by $0.10.
 
Subsequent to September 30, 2017, in October 2017, the Company issued an additional MOU Note in the principal amount of $15,000.
 
2017 Bridge Notes. Subsequent to June 30, 2017, the Company entered into Note Purchase Agreements with two existing stockholders, pursuant to which the Company issued convertible promissory demand notes in the aggregate principal amount of $86,000 (the “2017 Bridge Notes”). As additional consideration for the purchase of the 2017 Bridge Notes, the Company has reserved for issuance an aggregate of 860,000 shares of Series B Convertible Preferred Stock, (“Series B Preferred”), to be issued the purchasers of the 2017 Bridge Notes.
 
The 2017 Bridge Notes accrue interest at a rate of 10% per annum, payable in either cash or shares of the Company’s Common Stock, and matured on September 30, 2017. The 2017 Notes are currently payable on demand. Each 2017 Bridge Note is convertible, at the option of the holder thereof, into that number of shares of Common Stock equal to the outstanding principal balance of the 2017 Bridge Note, plus accrued but unpaid interest (the “Outstanding Balance”), divided by $0.08 (the “Conversion Shares”). Additionally, in the event the Company completes an equity or equity-linked financing with gross proceeds to the Company of at least $1.5 million (a “Qualified Financing”), the Outstanding Balance of the 2017 Bridge Notes will, at the discretion of each respective holder, either (i) convert into securities sold in the Qualified Financing, or (ii) automatically convert into Conversion Shares.
 
Consolidated Results of Operations
 
Comparison of the Three and Nine Months Ended September 30, 2017 to the Three and Nine Months Ended September 30, 2016.
 
The Company did not generate any revenue during the three and nine months ended September 30, 2017 or the three and nine months ended September 30, 2016.  The absence of revenue is due to no royalty revenue attributable to the Company’s PAD technology received during the periods.  Management does not anticipate that the Company will generate any revenue until such time as the Company develops a plan to commercialize its products, which is contingent on the receipt of financing.
 
Sales, general and administrative expense for the three months ended September 30, 2017 and 2016 was $16,747 and $13,319, respectively.  Sales, general and administrative expense for the nine months ended September 30, 2017 and 2016 was $57,055 and $53,049, respectively.  The increase in sales, general and administrative expense for the three and nine months ended September 30, 2017 is principally attributable to higher costs for maintaining our intellectual property portfolio in the 2017 period, as compared to the 2016 period.
 
Professional fees for the three months ended September 30, 2017 and 2016 were $15,106 and $12,422, respectively. Professional fees for the nine months ended September 30, 2017 and 2016 were $44,543 and $47,977, respectively.  Professional fees include the costs of legal, consulting and auditing services provided to us.  The decrease in professional fees for the 2017 periods compared to the 2016 periods is related to lower overall costs for professional services during the 2017 periods. 
 
The Company did not incur any research and development costs during the three and nine months ended September 30, 2017 or the three and nine months ended September 30, 2016. The Company did not engage in any research and development efforts in the 2017 period, nor does the Company expect to engage in any research and development activity and until funding is secured and we develop a plan to commercialize its products.
 
Interest expense for the three months ended September 30, 2017 and 2016 was $38,352 and $55,738, respectively. Interest expense for the nine months ended September 30, 2017 and 2016 was $150,951 and $157,716, respectively.  The decrease in interest expense in the 2017 periods compared to the 2016 periods is related to a higher balance of outstanding notes payable and higher interest rate calculated using the default interest rate during the 2016 periods.
 
During the three and nine months ended September 30, 2017, the Company recorded amortization expense of $7,818 related to the discount on the 2017 Bridge Notes.
 
During the three and nine months ended September 30, 2017, the Company recorded a gain on a disposition in the amount of $12,500 related to a previously accrued liability under a contract that was terminated.
   
 
-13-
The Company’s net loss for the three months ended September 30, 2017 was $66,317 compared to net loss for the three months ended September 30, 2016 of $116,143. The Company’s net loss for the nine months ended September 30, 2017 was $250,549 compared to net loss for the nine months ended September 30, 2016 of $297,702.  The decrease in net losses in the three and nine months period ending September 30, 2017 compared to the comparable periods in 2016 is due to higher expenses, including higher professional fees and sales, general and administrative expense, as discussed above.
 
The Company expects net loss to continue to decrease in future periods due to the current suspension of our active operations and our lack of revenue. We do not expect to recommence active operations until we are able to secure financing necessary to execute our business and operating plan, including the development and launch of its products, or to otherwise capitalize on our PAD technology.
  
Liquidity and Capital Resources
 
At September 30, 2017, the Company had cash and cash equivalents of $8,914, as compared to $7,156 at September 30, 2016. During the nine months ended September 30, 2017, the Company used $90,440 for operating activities, compared to $67,960 used during the nine months ended September 30, 2016.
 
During the nine months ended September 30, 2017, the Company had $98,663 provided by financing activities, as compared to $14,038 during the nine months ended September 30, 2016. The overall increase in cash provided by financing activities for the nine months ended September 30, 2017 is primarily attributable to the issuance of the 2017 Bridge Notes during the period.
 
The Company has not generated sufficient revenues from operations to meet its operating expenses. The Company requires additional funding to complete the development and launch of its products, or to otherwise capitalize on its PAD technology. The Company has historically financed its operations primarily through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees. 
 
Management believes that given the current economic environment and the continuing need to strengthen our cash position, there is substantial doubt about our ability to continue as a going concern. We are pursuing various funding options, including licensing opportunities and the sale of investment holdings, as well other financing transactions, to obtain additional funding to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be successful in our efforts. Should we be unable to raise adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed.
 
The Company believes that the ability of the Company to recommence operations, and therefore continue as a going concern is dependent upon its ability to do any or all of the following: 
 
obtain adequate sources of funding to pay operating expenses and fund long-term business operations;
 
enter into a licensing or other relationship that allows the Company to commercialize its products;
 
manage or control working capital requirements by reducing operating expenses; and
 
develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.
 
There can be no assurance that the Company will be successful in achieving its short- or long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern. 
 
Off-Balance Sheet Arrangements
 
We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
  
 
-14-
Critical Accounting Policies
 
Revenue Recognition
 
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue and recognizes it when it becomes due and payable. Up-front engagement fees are recorded as deferred revenue and amortized to income on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings process.
  
The Company assesses the probability of collection based on a number of factors, including past transaction history with the customer and the current financial condition of the customer. If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes reasonably assured. Significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.
  
The Company recognizes revenue from nonrefundable minimum royalty agreements from distributors or resellers upon delivery of product to the distributor or reseller, provided no significant obligations remain outstanding, the fee is fixed and determinable, and collection is probable. Once minimum royalties have been received, additional royalties are recognized as revenue when earned based on the distributor’s contractual reporting obligations. The Company is able to recognize minimum royalty payments on an accrual basis, as they are specified in the contract. However, since the Company cannot forecast product sales by licensees, royalty payments that are based on product sales by the licensees are not determinable until the licensee has completed their computation of the royalties due and/or remitted their cash payment to us. Should information on licensee product sales become available so as to enable the Company to recognize royalty revenue on an accrual basis, materially different revenues and results of operations could occur.
 
Reclassifications
 
Prior period financial statement amounts have been reclassified to conform to current period presentation. The reclassifications have no effect on net loss or earnings per share.
 
Use of Estimates
 
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The accounting policies discussed below are considered by management to be the most important to the Company’s financial condition and results of operations, and require management to make its most difficult and subjective judgments due to the inherent uncertainty associated with these matters. All significant estimates and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and adjusted when necessary. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may vary from these estimates and assumptions. Additional information on significant accounting principles is provided in Note 3 of the attached financial statements.
 
Impairment of Assets
 
We assess the impairment of long-lived assets, including our other intangible assets, at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. Changes in our strategic plan and/or market conditions could significantly impact these judgments and could require adjustments to recorded asset balances. We hold investments in companies having operations or technologies in areas which are within or adjacent to our strategic focus when acquired, all of which are privately held and whose values are difficult to determine. We record an investment impairment charge if we believe an investment has experienced a decline in value that is other than temporary. Future changes in our strategic direction, adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.
 
In determining fair value of assets, the Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets that are not readily apparent from other sources. Actual fair value may differ from management estimates resulting in potential impairments causing material changes to certain assets and results of operations.  
 
 
-15-
Share-Based Payments
 
We grant options to purchase our Common Stock to our employees and directors under our stock option plan. We estimate the value of stock option awards on the date of grant using a Black-Scholes pricing model (Black-Scholes model). The determination of the fair value of share-based payment awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, and risk-free interest rate. If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
 
 We determine the fair value of the share-based compensation awards granted to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is complete. 
 
Estimates of share-based compensation expenses are significant to our financial statements, but these expenses are based on option valuation models and will never result in the payment of cash by us.
 
The above listing is not intended to be a comprehensive list of all of our accounting policies. In most cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States.
 
Deferred Taxes
 
We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and tax bases of assets and liabilities, which requires management to perform estimates of future transactions and their respective valuations. We review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that the Company will not realize the benefit of the net deferred tax asset. At September 30, 2017 and December 31, 2016, a valuation allowance has been established. The likelihood of a material change in the valuation allowance depends on our ability to generate sufficient future taxable income. In the future, if management determines that the likelihood exists to utilize the Company’s deferred tax assets, a reduction of the valuation allowance could materially increase the Company’s net deferred tax asset.
 
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 September 30, 2017. Based on this evaluation, and in light of the previously disclosed material weaknesses in internal controls over financial reporting, the Company’s Chief Executive Officer, who also serves as its Principal Financial Officer, concluded that our disclosure controls and procedures were not effective.
 
(b)  Changes in internal controls over financial reporting.
 
There has been no change in our internal control over financial reporting that occurred during our most recent fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There has been no progress towards remediating our previously disclosed material weakness due to the lack of funding. In addition, as a result of the death of our Chief Scientific Officer, any progress toward remediating our material weaknesses will continue to be delayed.
  
 
-16-
PART II - OTHER INFORMATION
 
ITE M 1.  Legal Proceedings
 
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 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, 2016, filed on April 17, 2017. You should carefully consider these risk factors in conjunction with the other information contained in this Quarterly Report. Should any of these risks materialize, our business, financial condition and future prospects could be negatively impacted. As of September 30, 2017, there have been no material changes to the disclosures made in the above-referenced Form 10-K.
 
ITE M 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
 
Form of Convertible Promissory Demand Note.
 
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.
 
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
 
 
 
 
 
-17-
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date:  November 20, 2017
/s/ Shalom Hirschman
 
Shalom Hirschman
Principal Executive, Financial and Accounting Officer
 
 
 
 
 
-18-