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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 number: 000-17119
QUANTRX BIOMEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
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Nevada
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33-0202574
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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10190 SW 90th Avenue, Tualatin, Oregon 97123
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code
(212)
980-2235
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
[ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15 (d) of
the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed
all reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. [X]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
[ ] No [ X]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company or emerging growth company. See
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non–Accelerated filer
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☐
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Smaller reporting company
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☒
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Emerging growth company
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☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [
]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid
and asked price of such common equity, as of the last business day
of the registrant’s most recently completed second fiscal
quarter (June 30, 2017): $529,337
Indicate the number of shares outstanding of each of the
registrant’s classes of common stock, as of April 17,
2018: 78,696,461 shares.
QUANTRX BIOMEDICAL CORPORATION
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
THIS
ANNUAL REPORT ON FORM 10-K, INCLUDING EXHIBITS HERETO OR
INCORPORATED BY REFERENCE HEREIN, 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,” “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 THE
SECTION TITLED “RISK FACTORS” HEREIN. THE COMPANY
ASSUMES NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS
TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN
OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
PART I
As
used in this Annual Report on Form 10-K, the terms
“we,” “us,” “our,”
“QuantRx,” and “Company” refer to QuantRx
Biomedical Corporation, unless the context otherwise
requires.
ITEM 1. Business
QuantRx
Biomedical Corporation was incorporated on December 5, 1986, in the
State of Nevada. The Company’s principal business office is
located at 10190 SW 90th Avenue, Tualatin, Oregon
97123.
Overview
We have developed and
are working towards commercializing our patented miniform pads
(“PADs”)
and PAD based over-the-counter products for the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, general
catamenial uses and other medical needs. We are also developing and
intend to commercialize genomic diagnostics for the laboratory
market, based on our lateral flow patents. Our platforms include:
inSync®, UniqueTM, and OEM branded
over-the-counter and laboratory testing products based on the
Company’s core intellectual property related to its PAD
technology.
The
continuation of our operations remains contingent upon the receipt
of additional financing required to execute our business and
operating plan, which is currently focused on the commercialization
of our PAD technology either directly or through a joint venture or
other relationship intended to increase shareholder value. In the
interim, we have nominal operations, focused principally on
maintaining our intellectual property portfolio and maintaining
compliance with the public company reporting requirements. In order
to continue as a going concern, we will need to raise capital,
which may include the issuance of debt and/or equity securities. No
assurances can be given that the Company will obtain financing, or
otherwise successfully develop a business and operating plan or
enter into an alternative relationship to commercialize the
Company’s PAD technology.
Our principal business line consists of
over-the-counter commercialization of our InSync feminine hygienic
interlabial pad, the Unique® Miniform for hemorrhoid
application, and other treated miniforms (the
“OTC
Business”), as well as
maintaining established and continuing licensing relationships
related to these products. We also own certain diagnostic testing
technology (the “Diagnostic
Business”) that is based
on the Company’s lateral flow patents. Management believes
this corporate structure permits the Company to more efficiently
explore options to maximize the value of the Company’s
products and intellectual property portfolio, with the objective of
maximizing the value of the Businesses for the benefit of the
Company and its shareholders.
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) commercialize its
over the-counter products either directly or through joint
ventures, mergers or similar transactions intended to capitalize on
potential commercial opportunities; (ii) contract manufacturing of
its over-the counter products to third parties while maintaining
control over the manufacturing process; (iii) maintain the
Company’s intellectual property portfolio with respect to
patents and licenses pertaining to both the OTC Business and the
Diagnostics Business; and (iv) maximize the value of the
Company’s investments in non-core assets. As a result of
its current financial condition, however, the Company’s
efforts in the short-term will be focused on obtaining financing
necessary to maintain the Company as a going concern.
Recent Developments
Preprogen
Transaction. On December 15, 2017
(“Closing
Date”), as earlier
contemplated in a memorandum of understanding
(“MOU”)
entered into by the parties on February 27, 2017, the Company
executed an agreement with Preprogen LLC
(“Preprogen”),
pursuant to which the parties agreed to the sale, assignment, and
license-back of certain assets of the Company pertaining to its
Diagnostic Business (the “Purchased
Assets”).
Under this agreement, 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.
As set forth in the
Asset Purchase Agreement (“APA”)
executed by the parties, as consideration for the sale, assignment
and transfer of the Purchased Assets (the
“Preprogen
Transaction”) on
the Closing Date, Preprogen (A) paid to the Company $1.0 million
(“Cash Amount”) as follows: (i) approximately $38,000 was
paid to the City of Portland to payoff certain indebtedness owed by
the Company to the City of Portland, (ii) $65,000 principal amount
of notes held by Preprogen was credited toward the purchase
price as a result of the cancellation and termination of those
certain promissory notes payable to Preprogen by the Company, which
notes were issued to Preprogen in connection with the earlier MOU,
and (iii) the remaining balance was paid to the Company in cash at
closing (the “Closing
Balance”); and (B) issued
to the Company that number of membership interests in Preprogen
equal to 15% of the issued and outstanding membership interests in
Preprogen on a fully diluted basis as of the Closing Date. Under
the terms of the APA, Preprogen is obligated to pay to the Company
such additional amounts calculated based on the aggregate gross
revenue generated by Preprogen from the sale of products after the
Closing Date that utilize, or royalty payments or licensing fees
received by Preprogen with respect to, the Purchased Assets, if
any, as more particularly set forth in the APA.
At closing, and as
required by the APA, the Company deposited $400,000 of the Cash
Balance in escrow, which funds shall be used to fund up to 50% of
the costs incurred by Preprogen in connection with the development
and manufacturing of materials to be used by the Company for its
over the counter miniform products and to be used by Preprogen for
diagnostic products related to the Purchased Assets. As additional
consideration for the Purchased Assets, the Company issued a
warrant to Preprogen’s designee to purchase up to 15.0
million shares of the Company’s common stock, par value $0.01
per share (“Common
Stock”), at an
exercise price of $0.05 per share (the “Warrant”).
The Warrant is immediately exercisable and expires on December 14,
2022.
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.
Our Business
Management’s
objective is to develop the Company’s innovative PAD based
products through genomic testing, although commercialization
efforts are conditioned upon securing adequate
financing. Assuming the availability of adequate working
capital, the Company’s objective is to target significant
market opportunities for its products through the following
platforms.
PAD/ Health and
Wellness
PAD
products are based on the Company’s non-woven disposable
absorbent pad technology, with products for aiding the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, the
over-the-counter catamenial markets, and other medical needs,
including diagnostic sampling products which enable self-collection
and worldwide transport for indications such as various cancers,
premature delivery, and genomic testing.
Lateral Flow Diagnostics
The Company’s Diagnostic
Business is focused on the development RapidSense®
point-of-care testing products and and related oral fluid
collection technologies based on the Company’s core
intellectual property related to lateral flow methods, devices, and
processes for the consumer and healthcare professional
markets.
Product and Product Candidates
The
Company has historically operated under a two-fold product
development strategy: (i) maximize the value of internally
developed products that are market-ready for near-term
distribution, and (ii) aggressively develop technology platforms
for products the Company believes will address medical diagnostic
and treatment issues into the future.
When
introducing its PAD product lines and other products, the Company
sought to align itself with experienced marketing partners that
have established distribution channels. The Company teamed with a
manufacturing partner in Asia, as well as niche United States
manufacturers, in order to bring products to market in an efficient
manner while controlling product quality. The Company is
currently evaluating new manufacturing relationships in the U.S.,
consistent with the terms of the Preprogen APA.
Our
miniform PAD is a patented technology that provides the basis for a
line of products that address an array of consumer health issues,
including temporary relief of hemorrhoid and minor vaginal
infection itch and discomfort, feminine urinary incontinence,
catamenial needs, drug delivery, and medical sample collection and
transport for diagnostic testing.
The
Company’s PAD products for the consumer markets are FDA Class
I over-the-counter devices, and are easy to use, non-invasive,
fully biodegradable, highly absorbent pads. Additionally, the
unique non-woven technology utilized for the PADs allows for a PAD
to be used as a sample collection device, providing a sample for
diagnostic purposes, or to provide local or systemic
therapy.
Unique®
Miniforms
Miniform
is a safe, convenient, and flushable technology for the underserved
over-the-counter hemorrhoid, feminine hygiene and urinary
incontinence markets. The disposable miniform pads contain no
adhesives, requires no insertion, and are small enough to fit in
the palm of a hand.
The Unique®
miniform is available as a treated pad
for the temporary relief of the itch and discomfort associated with
hemorrhoids and minor vaginal infection, and as an untreated pad,
for the daily protection of light urinary, vaginal or anal
leakage.
While the Company initiated a limited web-based
domestic roll-out of the Unique® miniform,
it is in search of a strategic partnership(s) to expand the retail
availability of the product across the United States and
internationally.
The Company has significant experience manufacturing its miniform
and a clear understanding of its costs. The miniform
technology is protected by numerous patents covering various
applications, the manufacturing process, and certain materials. The
Company previously contracted with a firm based in Taiwan to
manufacture its PADs, although the manufacturing relationship is
currently suspended due to the Company’s financial condition
and pending the development of a financing and operation plan that
allows the Company to re-commence active
operations.
Lateral Flow Diagnostics
The Company developed and patented the RapidSense
technology - a one-step lateral flow test with unique features such
as a positive indication for a positive test – which allows
the Company to target quantified point-of-care
(“POC”) diagnostics previously limited to the
diagnostic laboratory. These applications include, but are not
limited to, thyroid disease, therapeutic drug monitoring, cancer
diagnostics, diagnosis of cardiac disease, and other critical
tests. This rapid POC diagnostic technology is ideal for testing
any body fluid, including whole blood, serum, oral fluids and
urine. The Company also patented innovative oral fluid collection
devices specifically designed for its RapidSense technology. These
distinctive collection devices coupled with RapidSense and the
reader platform is intended to ultimately enable us to target the
large and growing markets for diagnostics using oral sample
collections which have previously been limited to blood or urine
testing.
Competition
Our industry
is highly competitive and characterized by rapid and significant
technological changes. Significant competitive factors in our
industry include, among others, product efficacy and safety, the
timing and scope of regulatory approvals, the government
reimbursement rates for and the average selling price of products,
the availability of raw materials and qualified manufacturing
capacity, manufacturing costs, intellectual property and patent
rights and their protection, and sales, marketing and distribution
capabilities.
We
face, and will continue to face, competition from organizations
such as pharmaceutical and biotechnology companies, as well as
academic and research institutions.
Any
product candidates that we successfully develop, which are cleared
for sale by the FDA or similar international regulatory authorities
in other countries, may compete with similar products currently
available or that may become available in the future. Most of our
competitors have substantially greater capital resources than we
have, and greater capabilities and resources for research,
conducting preclinical studies and clinical trials, regulatory
affairs, manufacturing, marketing and sales. As a result, we may
face competitive disadvantages relative to these organizations
should they develop or commercialize a competitive product. In
addition, given our current lack of working capital, our
competitors will have the opportunity to capture market
opportunities missed by the Company as we attempt to secure
additional financing necessary to commercialize our
products.
Raw Materials and Manufacturing
The
Company currently does not have manufacturing capacity for any of
its products, and therefore has historically contracted for the
manufacturing of its products to third-party manufacturers, both in
and outside the United States. All manufactured products are
produced under FDA mandated Good Manufacturing Practices standard
operating procedures developed and controlled by the
Company’s quality system, which specifies approved raw
materials, vendors, and manufacturing methodology. During the
quarter ended June 30, 2012, the Company’s operations were
inspected by the FDA and found to be in full
compliance.
Intellectual Property Rights and Patents
As of December 31, 2017, the Company had
nine (9) patents issued and five
(5) licensed patents. Our issued patents expire between
2018 and 2030; however, the Company may obtain
continuations, which would extend the rights granted under our
issued patents, and additional patents to cover technology in
development. The Company also four (4) registered U.S. and foreign trademarks.
Patents
and other proprietary rights are an integral part of our business.
It is our policy to seek patent protection for our inventions and
also to rely upon trade secrets and continuing technological
innovations and licensing opportunities to develop and maintain our
competitive position. However, our patent positions involve
complex legal and factual questions and, therefore, enforceability
of our patents cannot be predicted with any certainty. Our issued
patents, those licensed to us, and those that may be issued to us
in the future may be challenged, invalidated or circumvented, and
the rights granted thereunder may not provide us with proprietary
protection or competitive advantages against competitors with
similar technology. Furthermore, our competitors may independently
develop similar technologies or duplicate any technology developed
by us. Because of the extensive time required for development,
testing and regulatory review of a potential product, it is
possible that, before any of our product candidates can be approved
for sale and commercialized, our relevant patent rights may expire
or remain in force for only a short period following
commercialization. Expiration of patents we own or license could
adversely affect our ability to protect future product development
and, consequently, our operating results and financial
position.
Licensing, Distribution and Development Agreements
As
noted under “Recent
Developments” above, on December 15, 2017, the Company
entered into an agreement with Preprogen, pursuant to which the
parties agreed to the sale, assignment, and license-back of certain
assets of the Company, including rights to use the intellectual
property transferred to Preprogen necessary to the development,
manufacture, marketing and sale of the Company’s OTC miniform
products for the feminine hygiene and hemorrhoid treatment
markets.
Regulatory Requirements
Some of our products and manufacturing activities
are, or will be subject to regulation by the FDA, and by other
federal, state, local and foreign regulatory authorities. Pursuant
to the Food, Drug and Cosmetic Act of 1938, commonly known as the
FD&C Act, and the regulations promulgated under it, the FDA
regulates the research, development, clinical testing, manufacture,
packaging, labeling, storage, distribution, promotion, advertising
and sampling of medical devices and medical imaging products.
Before a new device or pharmaceutical product can be introduced to
the market, the manufacturer must generally obtain marketing
clearance through a section 510(k) notification, through a
Premarket Approval (“PMA”), or New Drug Approval
(“NDA”).
In
the United States, medical devices intended for human use are
classified into three categories, Class I, II or III, on the basis
of the controls deemed reasonably necessary by the FDA to assure
their safety and effectiveness with Class I requiring the fewest
controls and Class III the most controls. Class I, unless exempted,
and Class II devices are marketed following FDA clearance of a
Section 510(k) premarket notification. Since Class III devices
(e.g., a device whose failure could cause significant human harm or
death) tend to carry the greatest risks, the manufacturer must
demonstrate that such a device is safe and effective for its
intended use by submitting a PMA application. PMA approval by the
FDA is required before a Class III device can be lawfully marketed
in the United States. Usually, the PMA process is significantly
more time consuming and costly than the 510(k)
process.
The
U.S. regulatory scheme for the development and
commercialization of new pharmaceutical products, which includes
the targeted molecular imaging agents, can be divided into three
distinct phases: an investigational phase including both
preclinical and clinical investigations leading up to the
submission of an NDA; a period of FDA review culminating in the
approval or refusal to approve the NDA; and the post-marketing
period.
All
of our over-the-counter products derived from the miniform
technology, including Unique®, are currently classified as
Class I – exempt devices, requiring written notification to
the FDA before marketing.
In
addition, the FD&C Act requires device manufacturers to obtain
a new FDA 510(k) clearance when there is a substantial change or
modification in the intended use of a legally marketed device, or a
change or modification, including product enhancements, changes to
packaging or advertising text and, in some cases, manufacturing
changes, to a legally marketed device that could significantly
affect its safety or effectiveness. Supplements for approved PMA
devices are required for device changes, including some
manufacturing changes that affect safety or effectiveness, or
disclosure to the consumer, such as labeling. For devices marketed
pursuant to 510(k) determinations of substantial equivalence, the
manufacturer must obtain FDA clearance of a new 510(k) notification
prior to marketing the modified device. For devices marketed with
PMA, the manufacturer must obtain FDA approval of a supplement to
the PMA prior to marketing the modified device. Such regulatory
requirements may require the Company to retain records for up to
seven years, and to be subject to periodic regulatory review and
inspection of all facilities and documents by the FDA.
The
FD&C Act requires device manufacturers to comply with Good
Manufacturing Practices regulations. The regulations require that
medical device manufacturers comply with various quality control
requirements pertaining to design controls, purchasing contracts,
organization and personnel, including device and manufacturing
process design, buildings, environmental control, cleaning and
sanitation; equipment and calibration of equipment; medical device
components; manufacturing specifications and processes;
reprocessing of devices; labeling and packaging; in-process and
finished device inspection and acceptance; device failure
investigations; and record keeping requirements including complaint
files and device tracking. Company personnel and non-affiliated
contract auditors periodically inspect the contract manufacturers
to assure they remain in compliance.
Additionally, the Centers for Medicare &
Medicaid Services (“CMS”) regulates all laboratory testing (except
research) performed on humans in the U.S. pursuant to the Clinical
Laboratory Improvement Amendments (“CLIA”). In total, CLIA covers approximately
225,000 laboratory entities. The Division of Laboratory Services,
within the Survey and Certification Group, under the Office of
Clinical Standards and Quality (“OCSQ”) has the responsibility for implementing
the CLIA Program.
The
objective of the CLIA program is to ensure quality laboratory
testing. Although all clinical laboratories must be properly
certified to receive Medicare or Medicaid payments, CLIA has no
direct Medicare or Medicaid program responsibilities. In the event
the Company’s current operating plan includes such a
facility, it will fall under CLIA regulatory
requirements.
Certain
of our product candidates will require significant clinical
validation prior to obtaining marketing clearance from the FDA. The
Company intends to contract with appropriate and experienced CROs
(contract research organizations) to prepare for and review the
results from clinical field trials. The Company engages certain
scientific advisors, consisting of scientific Ph.D.s and
M.D.’s, who contribute to the scientific and medical validity
of its clinical trials when appropriate.
Research and Development Activities
The Company did not engage in any research and development efforts
during the years ended December 31, 2017 and 2016, nor does the
Company expect to engage in any research and development activity
until funding is secured and we develop a plan to commercialize our
products.
Employees
As
of December 31, 2017, we had no employees; however, we have four
part-time consultants providing services to the Company in order to
maintain the Company as a going concern and to protect our
intellectual property portfolio and other assets.
ITEM 1A. RISK
FACTORS
You should consider carefully the following risks, along with other
information contained in this Annual Report on Form 10-K. The
risks and uncertainties described below are not the only ones that
may affect us. Additional risks and uncertainties may also
adversely affect our business and operations, including those
discussed in Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of
Operation. If any of the following risks
actually occur, our business, result of operations, and financial
condition could be adversely affected.
We have a history
of incurring net losses and, currently, we are not generating any
revenue. There can be no assurances that we will generate any
revenue in the future, achieve profitable operations or continue as
a going concern.
As
of the year ended December 31, 2017, the Company had an accumulated
deficit of $50,503,482. Our losses resulted principally from
general and administrative costs relating to our operations.
Currently, we are not generating any revenue from operations, and
we will incur substantial and increasing losses in
2018. Historically, we have financed our operations with the
proceeds from issuances of equity and debt securities, including,
most recently, issuances of promissory notes. In the past, we
also provided for our cash needs by issuing shares of our Common
Stock, options and warrants as payment for certain operating costs,
including consulting and professional fees, as well as divesting
our minority equity interests and equity-linked investments. In
addition, in the fiscal year ended December 31, 2017, we received a
large cash payment in exchange for the sale and transfer of certain
assets to Preprogen.
Our
history of operating losses, limited cash resources and the
absence of an operating plan necessary to capitalize on our assets
raise substantial doubt about our ability to continue as a
going concern, absent a strengthening of our cash
position. Management is currently pursuing various funding
options, including seeking debt or equity financing, licensing
opportunities and the sale of certain investment holdings, as well
as a strategic, merger or other transaction to obtain additional
funding to recommence operation and to continue the development of,
and to successfully commercialize, our products. There can be
no assurance that we will be successful in our efforts. Should
the Company be unable to obtain adequate financing or generate
sufficient revenue in the future, our business, result of
operations, liquidity and financial condition would be materially
and adversely harmed, and we will be unable to continue as a going
concern.
There
can be no assurance that, assuming we are able to strengthen
its cash position, we will achieve adequate revenue or profitable
operations sufficient to continue as a going concern.
Our ability to re-commence and support operations and continue as a
going concern is dependent upon raising adequate
financing. We may not
be able to obtain such capital on a timely basis or under
commercially reasonable terms, if at all.
We
expect that the capital required to re-commence our operations will
be substantial, and the extent of this need will depend on many
factors, some of which are beyond our control, including the
continued development of our product candidates; the costs
associated with maintaining, protecting and expanding our patent
and other intellectual property rights; future payments, if any,
received or made under existing or possible future collaborative
arrangements; the timing of regulatory approvals needed to market
our product candidates; and market acceptance of our products.
Although we are pursuing various funding and related options to
re-commence operations and, ultimately, commercialize our
innovative PAD-based products, management has been unsuccessful to
date in securing sufficient financing. There can be no
assurance that we will be successful in our efforts to obtain
adequate financing. Should we be unable to raise adequate financing
or generate revenue in the future, our business prospects would be
materially and adversely harmed. As a result, management believes
that given the current economic environment and the continuing need
to strengthen our cash position, there is substantial doubt about
our ability to continue as a going concern.
We have promissory notes in the aggregate principal amount of
approximately $1.9 million outstanding that are all currently due
and payable on demand. In the event that demand for repayment
is made, and we are not able to raise sufficient capital to
pay such notes or otherwise restructure the same, we will be in
default and will not be able to continue as a going
concern.
Currently,
we have promissory notes with a principal amount aggregating
approximately $1.9 million outstanding, all of which approximately
are now due and payable on demand. In the event the holders
demand repayment and we are unable to pay such notes or restructure
the notes, the notes will be in default, and the Company may not be
able to continue as a going concern.
Assuming the
Company is able to successfully develop a financing and operating
plan, and therefore re-commence operations, there is no assurance
that the Company’s products will gain market
acceptance.
Efforts
to commercialize our products are conditioned upon the development
of a financing and operating plan that allows us to re-commence
operations. Assuming the successful development of such a
plan, our success will depend in substantial part on the extent to
which our products achieve market acceptance. We cannot predict or
guarantee that physicians, patients, healthcare insurers or
maintenance organizations, or the medical community in general,
will accept or utilize any of our products.
We face intense
competition, including competition from entities that are more
established and may have greater financial resources than we do,
which may make it difficult for us to establish and maintain a
viable market presence.
If
successfully brought into the marketplace, any of our products will
likely compete with several existing products. We anticipate that
we will face intense and increasing competition in the future as
new products enter the market and advanced technologies become
available. We cannot assure that existing products or new products
developed by competitors will not be more effective, or more
effectively marketed and sold than those by us. Competitive
products may render our products obsolete or noncompetitive prior
to our recovery of development and commercialization
expenses.
Many
of our competitors also have significantly greater financial,
technical and human resources and will likely be better equipped to
develop, manufacture and market products. Smaller companies may
also prove to be significant competitors, particularly through
collaborative arrangements with large biotechnology companies.
Furthermore, academic institutions, government agencies and other
public and private research organizations are becoming increasingly
aware of the commercial value of their inventions and are actively
seeking to commercialize the technology they have developed.
Accordingly, competitors may succeed in commercializing products
more rapidly or effectively than us, which would have a material
adverse effect on the Company.
If we fail to
establish marketing and sales capabilities or fail to enter into
effective sales, marketing and distribution arrangements with third
parties, we may not be able to successfully commercialize our
products.
Upon
re-commencement of operations, we will be primarily dependent on
third parties for the sales, marketing and distribution of our
products. We may enter into various agreements providing for the
commercialization of our product candidates. We intend to sell our
product candidates primarily through third parties and establish
relationships with other companies to commercialize them in other
countries around the world. We currently have no internal sales and
marketing capabilities, and only a limited infrastructure to
support such activities. Therefore, our future profitability will
depend in part on our ability to enter into effective marketing
agreements. To the extent that we enter into sales, marketing and
distribution arrangements with other companies to sell our products
in the United States or abroad, our product revenues will depend on
their efforts, which may not be successful.
Further testing of
certain of our product candidates is required and regulatory
approval may be delayed or denied, which would limit or prevent us
from marketing our product candidates and significantly impair our
ability to generate revenues.
Human
pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the
FDA and foreign regulatory authorities. Various federal and foreign
statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and
marketing of pharmaceutical products. The process of obtaining
these approvals and the subsequent compliance with appropriate U.S.
and foreign statutes and regulations is time-consuming and requires
the expenditure of substantial resources. In addition, these
requirements and processes vary widely from country to
country.
To
varying degrees based on the regulatory plan for each product
candidate, the effect of government regulation and the need for FDA
and other regulatory agency approval will delay commercialization
of our product candidates, impose costly procedures upon our
activities, and put us at a disadvantage relative to larger
companies with which we compete. There can be no assurance that FDA
or other regulatory approval for any products developed by us will
be granted on a timely basis, or at all. If we discontinue the
development of one of our product candidates, our business and
stock price may suffer.
Our success will
be dependent upon licenses and proprietary rights we receive from
other parties, and on any patents we may obtain.
Our
success will depend in large part on our ability and that of our
licensors to (i) maintain license and patent protection with
respect to our products, (ii) defend patents and licenses once
obtained, (iii) maintain trade secrets, (iv) operate without
infringing upon the patents and proprietary rights of others, and
(v) maintain and obtain appropriate licenses to patents or
proprietary rights held by third parties if infringement would
otherwise occur, both in the United States and in foreign
countries.
The
patent positions of biomedical companies, including ours, are
uncertain and involve complex legal and factual questions. There is
no guarantee that we, or our licensors, have or will develop or
obtain the rights to products or processes that are patentable,
that patents will issue from any of the pending applications, or
that claims allowed will be sufficient to protect the technology
licensed to us. In addition, we cannot be certain that any patents
issued to or licensed by us will not be challenged, invalidated,
infringed or circumvented, or that the rights granted thereunder
will provide us with competitive advantages.
Litigation,
which could result in substantial cost, may also be necessary to
enforce any patents to which hawse have rights, or to determine the
scope, validity and unenforceability of other parties’
proprietary rights, which may affect our rights. United States
patents carry a presumption of validity and generally can be
invalidated only through clear and convincing evidence. There can
be no assurance that our patents would be held valid by a court or
administrative body or that an alleged infringer would be found to
be infringing. The mere uncertainty resulting from the institution
and continuation of any technology-related litigation or
interference proceeding could have a material adverse effect on us
pending resolution of the disputed matters.
We
may also rely on unpatented trade secrets and know-how to maintain
our competitive position, which we seek to protect, in part, by
confidentiality agreements with employees, consultants and others.
There can be no assurance that these agreements will not be
breached or terminated, that we will have adequate remedies for any
breach, or that trade secrets will not otherwise become known or be
independently discovered by our competitors.
Protecting our
proprietary rights is difficult and costly.
The
patent positions of biotechnology companies can be highly uncertain
and involve complex legal and factual questions. Accordingly, we
cannot predict the breadth of claims allowed in these
companies’ patents or whether we may infringe or be
infringing these claims. Patent disputes are common and could
preclude the commercialization of our products. Patent litigation
is costly in its own right and could subject us to significant
liabilities to third parties. In addition, an adverse decision
could force us to either obtain third-party licenses at a material
cost or cease using the technology or product in
dispute.
We currently do
not have any full-time employees, resulting from our objective of
substantially reducing expenses. At such time as we
re-commence operations, we may be unable to attract skilled
personnel and maintain key relationships.
The
success of our business will depend, in large part, on our ability
to attract and retain highly qualified management, scientific and
other personnel, and on our ability to develop and maintain
important relationships with leading research institutions and
consultants and advisors. Competition for these types of personnel
and relationships is intense among numerous pharmaceutical and
biotechnology companies, universities and other research
institutions. As a result of the suspension of the development
of our PAD based products, we do not have any full-time employees,
and currently rely on consultants and/or contract managers to
manage the business and operations of the Company. There can
be no assurance that we will be able to attract and retain skilled
personnel at such time as we re-commence operations, and the
failure to do so would have a material adverse effect on the
Company.
The Company may
not be able to efficiently develop manufacturing capabilities or
contract for such services from third parties on commercially
acceptable terms.
We
have established relationships with third-party manufacturers for
the commercial production of our products, which relationships have
been suspended due to the suspension of direct, active
operations. There can be no assurance that we will be able to
reestablish or maintain relationships with third-party
manufacturers on commercially acceptable terms or that third-party
manufacturers will be able to manufacture our products on a
cost-effective basis in commercial quantities under good
manufacturing practices mandated by the FDA.
Our
dependence upon third parties for the manufacture of our products
may adversely affect future costs and the ability to develop and
commercialize our products on a timely and competitive basis.
Further, there can be no assurance that manufacturing or quality
control problems will not arise in connection with the manufacture
of our products or that third-party manufacturers will be able to
maintain the necessary governmental licenses and approvals to
continue manufacturing such products. Any failure to establish
relationships with third parties for our manufacturing requirements
on commercially acceptable terms would have a material adverse
effect on the Company. Additionally, we may rely upon foreign
manufacturers. Any event which negatively impacts these
manufacturing facilities, manufacturing systems or equipment, or
suppliers, including, among others, wars, terrorist activities,
natural disasters and outbreaks of infectious disease, could delay
or suspend shipments of products or the release of new
products.
In the future, we
anticipate that we will need to obtain additional or increased
product liability insurance coverage and it is uncertain that such
increased or additional insurance coverage can be obtained on
commercially reasonable terms.
Our
business will expose us to potential product liability risks that
are inherent in the testing, manufacturing and marketing of
pharmaceutical products. There can be no assurance that product
liability claims will not be asserted against us. We have obtained
insurance coverage; however, there can be no assurance that we will
be able to obtain additional product liability insurance on
commercially acceptable terms or that we will be able to maintain
such insurance at a reasonable cost or in sufficient amounts to
protect against potential losses. A successful product liability
claim or series of claims brought against us could have a material
adverse effect on the Company.
Insurance coverage
is increasingly more difficult to obtain or
maintain.
Obtaining
insurance for our business, property and products is increasingly
more costly and narrower in scope, and we may be required to assume
more risk in the future. If we are subject to third-party claims or
suffer a loss or damage in excess of our insurance coverage, we may
be required to share that cost in excess of our insurance limits.
Furthermore, any first- or third-party claims made on any of our
insurance policies may impact our ability to obtain or maintain
insurance coverage at reasonable costs or at all in the
future.
The market price
of our shares, like that of many biotechnology companies, is highly
volatile.
Market
prices for our Common Stock and the securities of other medical and
biomedical technology companies have been highly volatile and may
continue to be highly volatile in the future. Factors such as
announcements of technological innovations or new products by us or
our competitors, government regulatory action, litigation, patent
or proprietary rights developments, and market conditions for
medical and high technology stocks in general can have a
significant impact on any future market for our Common
Stock.
Trading of our
Common Stock is limited, which may make it difficult for you to
sell your shares at times and prices that you feel are
appropriate.
Trading
of our Common Stock, which is conducted on the OTC:PINK, has been
limited. This adversely affects the liquidity of our Common
Stock, not only in terms of the number of shares that can be bought
and sold at a given price, but also through delays in the timing of
transactions and reduction in security analysts and the
media’s coverage of us. This may result in lower prices
for our Common Stock than might otherwise be obtained and could
also result in a larger spread between the bid and ask prices for
our Common Stock.
The issuance of
shares of our preferred stock may adversely affect our Common
Stock.
Our
Board of Directors is authorized to designate one or more series of
preferred stock and to fix the rights, preferences, privileges and
restrictions thereof, without any action by the stockholders. The
designation and issuance of such shares of our preferred stock may
adversely affect our Common Stock if the rights, preferences and
privileges of such preferred stock (i) restrict the declaration or
payment of dividends on our Common Stock, (ii) dilute the voting
power of our Common Stock, (iii) impair the liquidation rights of
our Common Stock, or (iv) delay or prevent a change in control of
the Company from occurring, among other possibilities.
Our Common Stock
is subject to “penny stock” rules.
Our
stock is currently defined as a “penny stock” under
Rule 3a51-1 promulgated under the Exchange Act. “Penny
stocks” are subject to Rules 15g-2 through 15g-7 and Rule
15g-9, which impose additional sales practice requirements on
broker-dealers that sell penny stocks to persons other than
established customers and institutional accredited investors. Among
other things, for transactions covered by these rules, a
broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser’s written consent
to the transaction prior to sale. Consequently, these rules may
affect the ability of broker-dealers to sell our Common Stock and
affect the ability of holders to sell their shares of our Common
Stock in the secondary market. To the extent our Common Stock is
subject to the penny stock regulations, the market liquidity for
our shares will be adversely affected.
Because we do not
expect to pay dividends, you will not realize any income from an
investment in our Common Stock unless and until you sell your
shares at a profit.
We
have never paid dividends on our Common Stock and do not anticipate
paying any dividends for the foreseeable future. You should
not rely on an investment in our stock if you require dividend
income. Further, you will only realize income on an investment
in our shares in the event you sell or otherwise dispose of your
shares at a price higher than the price you paid for your
shares. Such a gain would result only from an increase in the
market price of our Common Stock, which is uncertain and
unpredictable.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We
did not maintain a corporate headquarters during the year ended
December 31, 2017 or 2016, nor do we have any further obligation
under any prior lease agreements. We currently plan to
transfer operations to a new facility pending obtaining financing
to re-commence operations.
ITEM 3. LEGAL PROCEEDINGS
As
of the date hereof, there are no material pending legal proceedings
to which we are a party to or of which any of our property is the
subject.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our Common Stock
Our
Common Stock trades on the OTC:PINK under the symbol
“QTXB.” The prices below are based on high and low
reported sales prices as reported by the OTC Markets during the
calendar quarters indicated. The prices represent quotations
between dealers without adjustment for retail mark-up, mark-down or
commission and do not necessarily represent actual
transactions.
|
|
High
|
Low
|
|
Year ended December 31, 2017
|
|
|
|
Fourth
Quarter
|
$0.018
|
$0.003
|
|
Third
Quarter
|
$0.010
|
$0.003
|
|
Second
Quarter
|
$0.020
|
$0.006
|
|
First
Quarter
|
$0.022
|
$0.007
|
|
|
|
|
|
Year ended December 31, 2016
|
|
|
|
Fourth
Quarter
|
$0.014
|
$0.007
|
|
Third
Quarter
|
$0.018
|
$0.007
|
|
Second
Quarter
|
$0.024
|
$0.011
|
|
First
Quarter
|
$0.029
|
$0.018
|
Stockholders
As of December 31, 2017, there were
approximately 259 shareholders of record of our Common Stock, one
of which was Cede & Co., a nominee for the Depository Trust
Company (“DTC”). Shares of Common Stock that are
held by financial institutions, as nominees for beneficial owners,
are deposited into principal accounts at the DTC and are considered
to be held of record by Cede & Co. as one
stockholder.
Dividends
We
have not declared nor paid any cash dividends on our Common Stock.
We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business,
thus we do not anticipate paying any cash dividends on our Common
Stock in the foreseeable future.
Recent Sales of Unregistered Securities
No unregistered securities were issued during the
fiscal year ended December 31, 2017 that were not previously
reported in a Quarterly Report on Form 10-Q or Current Report on
Form 8-K.
ITEM 6. SELECTED FINANCIAL DATA
Not
required under Regulation S-K for “smaller reporting
companies.”
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We have developed and
are working towards commercializing our patented miniform pads
(“PADs”)
and PAD based over-the-counter products for the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, general
catamenial uses and other medical needs. We are also developing
genomic diagnostics for the laboratory market, based on certain
patented our lateral flow patents. Our platforms include:
inSync®, UniqueTM, and OEM branded
over-the-counter and laboratory testing products based on the
Company’s core intellectual property related to its PAD
technology.
The
continuation of our operations remains contingent upon the receipt
of additional financing required to execute our business and
operating plan, which is currently focused on the commercialization
of our PAD technology either directly or through a joint venture or
other relationship intended to increase shareholder value. In the
interim, we have nominal operations, focused principally on
maintaining our intellectual property portfolio and maintaining
compliance with the public company reporting requirements. In order
to continue as a going concern, we will need to raise capital,
which may include the issuance of debt and/or equity securities. No
assurances can be given that the Company will obtain financing, or
otherwise successfully develop a business and operating plan or
enter into an alternative relationship to commercialize the
Company’s PAD technology.
Our principal business line consists of our OTC
Business, which includes commercialization of our InSync feminine
hygienic interlabial pad, the Unique® Miniform for hemorrhoid
application, and other treated miniforms, as well as maintaining
established and continuing licensing relationships related to the
OTC Business. We also own certain diagnostic testing
technology (the “Diagnostic
Business”) that is based
on the Company’s lateral flow patents. Management believes
this corporate structure permits the Company to more efficiently
explore options to maximize the value of the Businesses, with the
objective of maximizing the value of the Businesses for the benefit
of the Company and its shareholders.
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) commercialize its
over the-counter products either directly or through joint
ventures, mergers or similar transactions intended to capitalize on
potential commercial opportunities; (ii) contract manufacturing of
its over-the counter products to third parties while maintaining
control over the manufacturing process; (iii) maintain the
Company’s intellectual property portfolio with respect to
patents and licenses pertaining to both the OTC Business and the
Diagnostics Business; and (iv) maximize the value of the
Company’s investments in non-core assets. As a result of
its current financial condition, however, the Company’s
efforts in the short-term will be focused on obtaining financing
necessary to maintain the Company as a going concern.
Our Results of Operations
The Company did not generate any revenue during the years
ended December 31, 2017 or 2016. The absence of revenue is due to
no royalty revenue attributable to the Company’s PAD
technology received during the 2017 and 2016 periods. Management
does not anticipate that the Company will generate any
revenue until such time as the Company develops a plan to
commercialize its over-the-counter products, which is contingent on
the receipt of financing.
Total
costs and operating expenses for the years ended December 31, 2017
and 2016 were $165,171 and $138,839, respectively. Highlights of
the major components of our results of operations are detailed and
discussed below:
|
|
Year Ended
December 31,
2017
|
Year Ended
December 31,
2016
|
|
|
|
|
|
Sales, general and administrative
|
$74,015
|
$75,434
|
|
Professional fees
|
$80,300
|
$56,231
|
|
Other operating expense, net
|
$10,856
|
$7,174
|
Sales, general and administrative expense
includes, but is not limited to, consulting expense, office and
insurance expense, accounting and other costs to maintain
compliance with the Company’s reporting requirements to the
Securities and Exchange Commission (the “SEC”). The decrease in sales, general
and administrative expenses in the year ended December 31, 2017
compared to the year ended December 31, 2016 is principally
attributable to lower costs for stock registrar and facility costs,
partially offset by higher costs for Directors and Officers
Liability Insurance.
Professional
fees include the costs of legal, consulting and auditing services
provided to us, each of which were higher in the 2017 period, as
compared to the 2016 period. The period over period increase in
professional fees is directly related to higher overall costs for
legal and professional services over the 2016 period. The increase
in legal fees in the 2017 period are directly related to
documentation and legal services provided in connection with the
sale of assets in December 2017.
The Company did not
incur any research and development costs during the years ended December 31, 2017 or 2016
and did not engage in any
research and development efforts in the 2017 or 2016 periods. The
Company does not expect to engage in any research and development
activity until funding is secured and we develop a plan to
commercialize our products.
Other operating expense for the years ended December 31, 2017 and
2016 was $10,856 and $7,174, respectively. The increase in
other operating expense is attributable to amortization of the
remaining unamortized costs on the Company’s patents as of
December 31, 2017.
Other
income and expense for the years ended December 31, 2017 and 2016
include expenses of $1,034,310 and $259,155,
respectively. Highlights of the major components of other
income and expense our results of operations are detailed and
discussed below:
|
|
Year Ended
December 31,
2017
|
Year Ended
December 31,
2016
|
|
|
|
|
|
Gain on the sale of assets
|
$1,444,989
|
$-
|
|
Interest expense
|
$(245,413)
|
$(196,146)
|
|
Loss on impairment
|
$(169,948)
|
$(80,052)
|
|
Gain (loss) on conversion of shares
|
$-
|
$16,503
|
|
Gain (loss) on settlement of accounts payable
|
$12,500,
|
$540
|
|
Amortization of debt discount to interest expense
|
$(7,818)
|
$-
|
During the year ended December 31, 2017, the Company recorded a
gain on from the transaction with Preprogen totaling $1,444,989.
Included in the calculation of the gain on the asset sale is the
$1,000,000 in proceeds from the sale of the Purchased Assets plus
the valuation of the Company’s ownership of 15% of
Preprogen’s outstanding membership units, valued at $500,000.
Partially offsetting the gain are expenses recorded for the
valuation of the warrant issued to Preprogen to purchase 15,000,000
shares of the Company’s Common Stock, valued at $51,992 as of
the date of the sale, and other costs totaling approximately
$4,900.
During the year ended December 31, 2017, interest
expense increased to $245,413 from $196,146 for the 2016
period. The increase in
interest expense in the 2017 period compared to the 2016 period is
primarily related to a higher balance of outstanding notes payable
and higher interest rate calculated using the default interest rate
during the 2017 periods.
During the years ended December 31, 2017 and 2016, the Company
recorded a non-cash expense of $169,948 and $80,052, respectively,
due to impairment of certain assets during the
periods.
During the years ended December 31, 2017 and 2016, the Company
recorded a net gain on the settlement of accounts payable of
$12,500 and a net loss of $540, respectively.
During the year ended December 31, 2017, the Company recorded
interest expense related to the discount on convertible
notes.
Net profit for the 2017 period was $869,139,
compared to a net loss of $397,994 reported for the 2016
period. The
net income in the 2017 period is primarily attributable to the gain
from the transaction with Preprogen, offset by operating expenses
incurred in the period.
Although the Company anticipates that it will
likely incur net loss in future periods, the Company expects such
net loss to decrease in future periods due to the current
suspension of our active operations and our lack of revenue. We do
not expect to re-commence active operations until we are able to
secure financing necessary to execute our business and operating plan, including
the development and launch of our products, or to otherwise
capitalize on our PAD technology.
Liquidity and Capital Resources
At
December 31, 2017, the Company had cash and cash equivalents of
$460,111, as compared to $691 at December 31, 2016.
During
the year ended December 31, 2017, cash used for operating
activities was $150,613, compared to $94,643 during the year ended
December 31, 2016. The net overall increase in cash used for
operating activities during the year ended December 31, 2017, is
attributable to a higher balance of unpaid interest expense on
convertible notes payable.
Cash provided by
investing activities during the year ended December 31, 2017 was
$496,945, which was attributable to the transaction with
Preprogen.
Cash
provided by financing activities during the year ended December 31,
2017 was $113,088 as compared to $34,256 during the year ended
December 31, 2016. The overall increase in cash provided by
financing activities for the year ended December 31, 2017 is
primarily attributable to the issuance of the 2017 Bridge Notes
received 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. In addition, in the fiscal year
ended December 31, 2017, the Company received a cash payment from
Preprogen as consideration for the sale and transfer of the
Purchased Assets.
Management
believes that given the current economic environment and the
continuing need to strengthen our cash position, there is
substantial doubt about our ability to continue as a going concern.
We are pursuing various funding options, including licensing
opportunities and the sale of investment holdings, as well other
financing transactions, to obtain additional funding to continue
the development of our products and bring them to commercial
markets. There can be no assurance that we will be successful in
our efforts. Should we be unable to raise adequate financing or
generate sufficient revenue in the future, the Company’s
business, results of operations, liquidity and financial condition
would be materially and adversely harmed.
The
Company believes that the ability of the Company to re-commence
operations, and therefore continue as a going concern, is dependent
upon its ability to do any or all of the
following:
|
|
●
|
obtain adequate sources of funding to pay operating expenses and
fund long-term business operations;
|
|
|
|
|
|
|
●
|
enter into a licensing or other relationship that allows the
Company to commercialize its products;
|
|
|
|
|
|
|
●
|
manage or control working capital requirements by reducing
operating expenses; and
|
|
|
|
|
|
|
●
|
develop new and enhance existing relationships with product
distributors and other points of distribution for the
Company’s products.
|
There
can be no assurance that the Company will be successful in
achieving its short- or long-term plans as set forth above, or that
such plans, if consummated, will enable the Company to obtain
profitable operations or continue in the long-term as a going
concern.
Off-Balance Sheet Arrangements
We
have not entered into any transactions with unconsolidated entities
in which we have financial guarantees, subordinated retained
interests, derivative instruments or other contingent arrangements
that expose us to material continuing risks, contingent liabilities
or any other obligations under a variable interest in an
unconsolidated entity that provides us with financing, liquidity,
market risk or credit risk support.
Critical Accounting Policies
Revenue Recognition
The
Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin Topic 13 when persuasive evidence of an arrangement exists
and delivery has occurred, provided the fee is fixed or
determinable and collection is probable. The Company assesses
whether the fee is fixed and determinable based on the payment
terms associated with the transaction. If a fee is based upon a
variable such as acceptance by the customer, the Company accounts
for the fee as not being fixed and determinable. In these cases,
the Company defers revenue and recognizes it when it becomes due
and payable. Up-front engagement fees are recorded as deferred
revenue and amortized to income on a straight-line basis over the
term of the agreement, although the fee is due and payable at the
time the agreement is signed or upon annual renewal. Payments
related to substantive, performance-based milestones in an
agreement are recognized as revenue upon the achievement of the
milestones as specified in the underlying agreement when they
represent the culmination of the earnings process.
The
Company assesses the probability of collection based on a number of
factors, including past transaction history with the customer and
the current financial condition of the customer. If the Company
determines that collection of a fee is not reasonably assured,
revenue is deferred until the time collection becomes reasonably
assured. Significant management judgment and estimates must be made
and used in connection with the revenue recognized in any
accounting period. Material differences may result in the amount
and timing of our revenue for any period if our management made
different judgments or utilized different estimates.
The
Company recognizes revenue from nonrefundable minimum royalty
agreements from distributors or resellers upon delivery of product
to the distributor or reseller, provided no significant obligations
remain outstanding, the fee is fixed and determinable, and
collection is probable. Once minimum royalties have been received,
additional royalties are recognized as revenue when earned based on
the distributor’s contractual reporting obligations. The
Company is able to recognize minimum royalty payments on an accrual
basis, as they are specified in the contract. However, since the
Company cannot forecast product sales by licensees, royalty
payments that are based on product sales by the licensees are not
determinable until the licensee has completed their computation of
the royalties due and/or remitted their cash payment to us. Should
information on licensee product sales become available so as to
enable the Company to recognize royalty revenue on an accrual
basis, materially different revenues and results of operations
could occur.
Our
strategy includes entering into collaborative agreements with
strategic partners for the development, commercialization and
distribution of our product candidates. Such collaboration
agreements may have multiple deliverables. In arrangements with
multiple deliverables where we have continuing performance
obligations, contract, milestone and license fees are recognized as
revenue together with any up-front payments over the term of the
arrangement as performance obligations are completed, unless the
deliverable has stand-alone value and there is objective, reliable
evidence of fair value of the undelivered element in the
arrangement. In the case of an arrangement where it is determined
there is a single unit of accounting, all cash flows from the
arrangement are considered in the determination of all revenue to
be recognized. Cash received in advance of revenue recognition is
recorded as deferred revenue.
Reclassifications
Prior
period financial statement amounts have been reclassified to
conform to current period presentation. The reclassifications have
no effect on net loss or earnings per share.
Use of Estimates
The
preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenues and expenses and related disclosures of contingent assets
and liabilities in the financial statements and accompanying notes.
The accounting policies discussed below are considered by
management to be the most important to the Company’s
financial condition and results of operations, and require
management to make its most difficult and subjective judgments due
to the inherent uncertainty associated with these matters. All
significant estimates and assumptions are developed based on the
best information available to us at the time made and are regularly
reviewed and adjusted when necessary. We believe that our estimates
and assumptions are reasonable under the circumstances. However,
actual results may vary from these estimates and assumptions.
Additional information on significant accounting principles is
provided in Note 3 of the attached financial
statements.
Impairment of Assets
We
assess the impairment of long-lived assets, including our other
intangible assets, at least annually, or whenever events or changes
in circumstances indicate that their carrying value may not be
recoverable. The determination of related estimated useful lives
and whether or not these assets are impaired involves significant
judgments, related primarily to the future profitability and/or
future value of the assets. Changes in our strategic plan and/or
market conditions could significantly impact these judgments and
could require adjustments to recorded asset balances. We hold
investments in companies having operations or technologies in areas
which are within or adjacent to our strategic focus when acquired,
all of which are privately held and whose values are difficult to
determine. We record an investment impairment charge if we believe
an investment has experienced a decline in value that is other than
temporary. Future changes in our strategic direction, adverse
changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to
recover the carrying value of the investments that may not be
reflected in an investment’s current carrying value, thereby
possibly requiring an impairment charge in the future.
In
determining fair value of assets, the Company bases estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about carrying values of
assets that are not readily apparent from other sources. Actual
fair value may differ from management estimates resulting in
potential impairments causing material changes to certain assets
and results of operations.
Share-Based Payments
We
grant options to purchase our Common Stock to our employees and
directors under our stock option plan. We estimate the value of
stock option awards on the date of grant using a Black-Scholes
pricing model (Black-Scholes model). The determination of the fair
value of share-based payment awards on the date of grant using the
Black-Scholes model is affected by our stock price as well as
assumptions regarding a number of complex and subjective variables.
These variables include, but are not limited to, our expected stock
price volatility over the term of the awards, actual and projected
employee stock option exercise behaviors, and risk-free interest
rate. If factors change and we employ different assumptions in
future periods, the compensation expense that we record may differ
significantly from what we have recorded in the current
period.
We
determine the fair value of the share-based compensation awards
granted to non-employees as either the fair value of the
consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. If the fair value of
the equity instruments issued is used, it is measured using the
stock price and other measurement assumptions as of the earlier of
either of (i) the date at which a commitment for performance
by the counterparty to earn the equity instruments is reached, or
(ii) the date at which the counterparty’s performance is
complete.
Estimates
of share-based compensation expenses are significant to our
financial statements, but these expenses are based on option
valuation models and will never result in the payment of cash by
us.
The
above listing is not intended to be a comprehensive list of all of
our accounting policies. In most cases, the accounting treatment of
a particular transaction is specifically dictated by accounting
principles generally accepted in the United States.
Deferred Taxes
We
recognize deferred tax assets and liabilities based on differences
between the financial statement carrying amounts and tax bases of
assets and liabilities, which requires management to perform
estimates of future transactions and their respective valuations.
We review our deferred tax assets for recoverability and establish
a valuation allowance if it is more likely than not that the
Company will not realize the benefit of the net deferred tax asset.
At December 31, 2017 and 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.
Transactions with Related Parties
As of December 31, 2017, the Company owed Michael
Abrams, a director of the Company, an aggregate total of $120,611
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 Burnham Hill Advisors, LLC
(“BHA”)
an aggregate total of $556,168 for outstanding principal and
accrued and unpaid interest on certain Bridge Notes (the
“BHA
Notes”). Mr. Abrams is an
employee of BHA.
On April 1, 2017, BHA assigned the BHA Notes,
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
$100,000 of the outstanding principal amount of the BHA Notes, plus
all accrued but unpaid interest on such
amount.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not
required under Regulation S-K for “smaller reporting
companies.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Audited
balance sheets for the years ended December 31, 2017 and 2016 and
audited statements of operations, stockholders’ equity and
cash flows for the years ended December 31, 2017 and 2016 are
included immediately following the signature page to this Annual
Report, beginning on page F-1.
ITEM 9. CHANGE
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation
of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of the design and operations of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”), as of December 31,
2017. Based on this evaluation, and in light of the material
weaknesses in internal controls over financial reporting described
below, the Company’s Chief Executive Officer and Principal
Financial Officer concluded that our disclosure controls and
procedures were not effective.
Management’s Annual Report on Internal Control over Financial
Reporting
Our
Chief Executive Officer/Principal Accounting Officer is responsible
for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) and 15d-(f) under
the Exchange Act. Our internal control over financial reporting are
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with U.S.
generally accepted accounting principles. Our internal control over
financial reporting include those policies and procedures
that:
(i) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
our assets;
(ii) provide
reasonable assurance that transactions are recorded as necessary to
permit the preparation of our consolidated financial statements in
accordance with U.S. generally accepted accounting principles,
and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors;
and
(iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the consolidated financial
statements.
Our Chief Executive Officer/Principal Accounting
Officer assessed the effectiveness of our internal control over
financial reporting presented in conformity with accounting
principles generally accepted in the U.S. as of December 31,
2017. In conducting its assessment, our Chief Executive
Officer/Principal Accounting Officer used the criteria issued by
the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—2013
Integrated Framework. Based on
this assessment, our Chief Executive Officer/Principal Accounting
Officer concluded that, as of December 31, 2017, our internal
control over financial reporting was not effective based on those
criteria due to the material weakness in our entity level control
environment described in the 2010 Annual Report on Form
10-K.
In
an effort to remediate the identified material weaknesses in our
entity level control environment, we have initiated and/or
undertaken the following actions:
Management
has retained, and will continue to retain, additional personnel
with technical knowledge, experience, and training in the
application of generally accepted accounting principles
commensurate with our financial reporting and U.S. GAAP
requirements. Where necessary, we will supplement personnel
with qualified external advisors.
While
the Company has retained competent accounting and finance
professionals necessary to ensure timely and accurate reporting
with the SEC, the weaknesses in our entity level control
environment arguably persist, and will continue to persist pending
financing necessary to allow the Company to recruit additional
accounting and/or finance professionals to address the material
weakness in our entity level control environment.
Changes in Internal Control Over Financial Reporting
There
has been no change in our internal control over financial reporting
that occurred during our most recent fiscal year that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting. There has been no
progress towards remediating our previously disclosed material
weakness due to the lack of funding.
ITEM
9B. OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
following table sets forth the Company’s executive officers
and directors:
|
Directors and Executive Officers
|
|
Age
|
|
Position
|
|
Dr. Shalom Hirschman
|
|
81
|
|
Chief Executive Officer, Principal Accounting Officer and Chairman
of the Board
|
|
Michael Abrams
|
|
48
|
|
Director
|
Shalom
Hirschman, M.D. was appointed Chief Executive Officer and
Principal Accounting Officer on December 31, 2010, and has served
as a Director of the Company since September 2005. Dr. Hirschman
was Professor of Medicine, Director of the Division of Infectious
Diseases and Vice-Chairman of the Department of Medicine at Mt.
Sinai School of Medicine and the Mount Sinai Hospital. He spent
nearly three decades at Mt. Sinai until his retirement in 2004. He
then became the CEO, President and Chief Scientific Officer of
Advanced Viral Research Corp., from which he retired in
2004.
Dr.
Hirschman’s extensive experience in healthcare, in both
academia and as an executive working in advanced clinical research,
contribute to the efforts of the Board of Directors in shaping the
direction of the Company as it seeks to execute its business
plan.
Michael S.
Abrams was appointed to the Board of Directors in March
2012. Mr. Abrams is currently the Chief Financial Officer and
Director of FitLife Brands, Inc., a publicly traded company, and is
a Managing Director of Burnham Hill Partners LLC, a New York-based
investment and merchant banking firm he joined in August of 2003.
Mr. Abrams holds a Master of Business Administration with Honors
from the Booth School of Business at the University of
Chicago.
The
Board of Directors believes that Mr. Abrams’ broad experience
in corporate finance, including restructurings, as well as his
experience as a finance executive working with public companies,
provides necessary and relevant experience to the Board of
Directors given the Company’s financing challenges and
efforts to restructure its business and operations.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act
of 1934, as amended (the “Exchange
Act”), requires the
Company’s Directors and Officers, and persons who own more
than 10% of a registered class of the Company’s equity
securities (“Section 16
Persons”), to file with
the SEC initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the
Company. Section 16 Persons are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports
they file. Based on the Company’s review of the forms it has
received, on other reports filed by Section 16 Persons with the SEC
and on the Company’s records, the Company believes that all
persons subject to the reporting requirements pursuant to Section
(16)(a) filed the required reports on a timely basis with the
Securities and Exchange Commission.
Code of Ethics
The
Company has adopted a code of ethics, which applies to all of our
directors, officers and employees. Our code of ethics is intended
to comply with the requirements of Item 406 of Regulation S-K.
Any person may also obtain a copy of the Company’s code of
ethics without charge by sending a written request addressed to:
QuantRx Biomedical Corporation, 10190 SW 90th Avenue, No. 4690,
Tualatin, Oregon, 97123.
Audit Committee
At
December 31, 2017, the Company did not have an audit committee.
Considering the current suspension of active development of our PAD
based products, together with the costs associated with procuring
and providing the infrastructure to support an independent audit
committee and the Company’s limited number of transactions,
management has concluded that the risks associated with the lack of
an independent audit committee are justified and
manageable. Management will, however, periodically reevaluate
its position with a view to establishing an audit committee in the
event it is deemed to be in the best interests of the
Company’s stockholders.
Compensation Committee
The
Company does not currently have a compensation committee due to the
lack of sufficient independent directors. At such time as the
Company actively recruits additional management in connection with
the recommencement of active operations, the Board of Directors
will establish a compensation committee to administer the
Company’s stock option plans and to re-establish general
policies relating to compensation.
Nominating Committee
The
Company’s entire Board of Directors participates in
consideration of director nominees. The Board will consider
candidates who have experience as a board member or senior officer
of a company or who are generally recognized in a relevant field as
a well-regarded practitioner, faculty member or senior government
officer. The Board will also evaluate whether the
candidate’s skills and experience are complementary to the
existing Board’s skills and experience as well as the
Board’s need for operational, management, financial,
international, technological or other expertise. The Board will
interview candidates that meet the criteria, and then select
nominees that the Board believes best suit the Company’s
needs.
ITEM 11. EXECUTIVE
COMPENSATION
Summary Compensation
During the years ended December 31, 2017 and 2016, our Chief
Executive Officer, Dr. Shalom Hirschman, was the Company’s
only executive officer and was the only individual considered a
Named Executive Officer. Given the Company’s suspension of
operations and its limited financial resources, Dr. Hirschman did
not receive any compensation from the Company during the years
ended December 31, 2017 or 2016.
Subsequent to December 31, 2017, the Company paid to Dr. Hirschman
a bonus of $10,000 for his significant contributions to the
Company.
Outstanding Equity Awards at Fiscal Year-End
|
|
Option Awards
|
||||
|
Name
|
Number of
Securities Underlying Unexercised
Options (#) Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity Incentive Plan Awards:
Number of
Securities
Underlying Unexercised
Unearned
Options (#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
Dr. Shalom
Hirschman
|
750,000
|
-
|
-
|
$0.04
|
02/03/2020
|
|
Chief Executive Officer and Principal Accounting
Officer
|
|
|
|
|
|
Director Compensation
Given the
Company’s suspension of operations and its limited financial
resources, Dr. Hirschman and Mr. Abrams, the Company’s only
directors, did not receive any compensation from the Company during
the years ended December 31, 2017 or
2016.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information as of April 11,
2018, concerning the ownership of Common Stock by (i) each
stockholder of the Company known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each current member of the Board of
Directors of Company, and (iii) each Executive Officer of the
Company named in the Summary Compensation Table appearing under
“Executive Compensation” above.
The number and percentage of shares beneficially
owned is determined in accordance with Rule 13(d)(3) of the
Securities Exchange Act and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
that rule, beneficial ownership includes any shares as to which the
individual or entity has voting power or investment power and any
shares that the individual has the right to acquire within 60 days
through the exercise of any stock option or other right. Unless
otherwise indicated in the footnotes or table, each person or
entity has sole voting and investment power, or shares such powers
with his or her spouse, with respect to the shares shown as
beneficially owned.
|
Name and Address of Beneficial Owner (1)
|
Amount and Nature of
Beneficial Ownership
as of April 11, 2018
|
Percentage of Class (2)
|
|
|
|
|
|
Officers and Directors
|
|
|
|
Shalom Hirschman (3)
|
2,800,000
|
3.52%
|
|
Chief Executive
Officer
|
|
|
|
Michael Abrams (4)
|
2,026,945
|
2.54%
|
|
Director
|
|
|
|
Total Officers and Directors as a Group
(2 persons)
|
4,826,945
|
6.07%
|
|
|
|
|
|
5% Beneficial Owners
|
|
|
|
Jason T. Adelman (5)
c/o
Cipher Capital Partners LLC
1251
Avenue of Americas, Suite 936
New
York, NY 10020
|
5,979,222
|
7.60%
|
|
|
|
|
|
Matthew Balk (6)
50
North 5th Street, Apt. 5GE
Brooklyn,
NY 11249
|
5,696,780
|
7.24%
|
|
*
|
Less than 1%.
|
|
(1)
|
Unless indicated otherwise, the address of each person listed in
the table is: c/o QuantRx Biomedical Corporation, 10190 SW 90th
Avenue, Tualatin, Oregon 97123.
|
|
(2)
|
The percentage of beneficial ownership of Common Stock is based
on 78,696,461 shares of Common Stock outstanding as of April
11, 2018 and excludes all shares of Common Stock issuable upon the
exercise of outstanding options or warrants to purchase Common
Stock or conversion of any Common Stock equivalents, other than the
shares of Common Stock issuable upon the exercise of options or
warrants to purchase Common Stock held by the named person to the
extent such options or warrants are exercisable within 60 days of
April 11, 2018.
|
|
(3)
|
Includes 750,000 shares issuable upon exercise of stock
options.
|
|
(4)
|
Includes
1,000,000 shares issuable upon exercise of stock options. The
shares exclude Common Stock issuable upon conversion of certain
convertible promissory notes in the principal amount of $102,000
beneficially owned by Mr. Abrams. The terms of the promissory notes
contain provisions preventing their conversion if as a result of
such conversion the holder thereof owns in excess of 4.99% and
9.99%, respectively, of the issued and outstanding shares of the
Company’s Common Stock.
|
|
(5)
|
Shares are owned by Mr. Adelman in JTWROS with Cass G. Adelman, Mr.
Adelman’s spouse. The shares exclude 3,085,336 shares of
Common Stock issuable upon conversion of shares of Series B
Preferred, and Common Stock issuable upon conversion of certain
convertible promissory notes in the principal amount of $636,149
beneficially owned by Mr. Adelman. The terms of the promissory
notes and the Series B Preferred contain provisions preventing
their conversion if as a result of such conversion the holder
thereof owns in excess of 4.99% and 9.99%, respectively, of the
issued and outstanding shares of the Company’s Common
Stock.
|
|
(6)
|
Shares exclude 300,000 shares of Common Stock issuable upon
conversion of shares of Series B Preferred, and Common Stock
issuable upon conversion of certain convertible promissory
notes in the principal amount of $60,544 beneficially
owned by Mr. Balk. The terms of the promissory notes and the
Series B Preferred contain provisions preventing their conversion
if as a result of such conversion or exercise the holder thereof
owns in excess of 4.99% and 9.99%, respectively, of the issued and
outstanding shares of the Company’s Common
Stock.
|
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Transactions with Related Parties
As of December 31, 2017, the Company owed Michael
Abrams, a director of the Company, an aggregate total of $120,611
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 the BHA Notes,
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
$100,000 of the outstanding principal amount of the BHA Notes, plus
all accrued but unpaid interest on such amount.
Director Independence
The
Company has determined that none of its directors were independent
as of December 31, 2017, as determined under Rule 10A-3(b)(1) of
the Securities Exchange Act of 1934 adopted pursuant to the
Sarbanes-Oxley Act.
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Audit Fees
The aggregate fees billed for professional
services rendered by Fruci & Associates II, PLLC
(“Fruci II”), our independent registered public
accounting firm for the years ended December 31, 2017 and 2017, for
the audit of our annual financial statements and the reviews of
financial statements for years 2017 and 2016 were $23,481 and
$26,414, respectively.
Audit-Related Fees
During
the years ended December 31, 2017 and 2016, no assurance or
related services were performed Fruci II that were reasonably
related to the performance of the audit or review of our financial
statements.
Tax Fees
During
the year ended December 31, 2017 and 2016, no fees were billed
by Fruci II for tax compliance, tax advice or tax planning
services.
All Other Fees
During
the years ended December 31, 2017 and 2016, no fees were
billed by Fruci II other than the fees set forth under the captions
“Audit Fees” above.
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT
SCHEDULES
(a) The following documents are filed as part of this
report:
1. Financial
Statements
|
Report of Fruci & Associates II, PLLC
|
F-2
|
|
Consolidated Balance Sheets
|
F-3
|
|
Consolidated Statements of Operations
|
F-4
|
|
Consolidated Statements of Cash Flows
|
F-5
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-6
|
|
Notes to Consolidated Financial Statements
|
F-7
|
2. Financial Statement
Schedules.
3. Exhibits. The following
exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission:
|
Exhibit No.
|
|
Description
|
|
|
Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed with Form 10-KSB
filed on April 16, 2001)
|
|
|
|
Certificate of Amendment to the Articles of Incorporation of the
Company, dated November 30, 2005 (incorporated by reference to
Exhibit 3.2 filed with Form 10-KSB on March 31, 2006)
|
|
|
|
Bylaws of the Company (incorporated by reference to Exhibit 3.2
filed with Form 10KSB40/A filed on September 23, 1999)
|
|
|
|
Certificate of Amendment to the Bylaws of the Company dated
December 2, 2005 (incorporated by reference to Exhibit 3.4 filed
with Form 10-KSB on March 31, 2006)
|
|
|
|
Certificate of Amendment to the Articles of Incorporation dated
January 25, 2010 (incorporated by reference to Exhibit 3.5 filed
with Form 10-K on April 14, 2014)
|
|
|
|
Certificate of Withdrawal of the Series A Convertible Preferred
Stock and Series A-1 Convertible Preferred Stock, dated November
19, 2010 (incorporated by reference to Exhibit 3.6 filed with Form
10-K on April 14, 2014)
|
|
|
|
Certificate of Designation for Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 3.6 filed with Form 10-K on
April 14, 2011)
|
|
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx
Biomedical Corporation, dated October 2007 (incorporated by
reference to Exhibit 10.2 filed with Form 8-K on October 24,
2007)
|
|
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx
issued by QuantRx in favor of Investors (incorporated by reference
to Exhibit 4.2 filed with Form 8-K on January 29,
2008)
|
|
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx,
dated June 2008, issued by QuantRx in favor of lender (incorporated
by reference to Exhibit 4.2 filed with Form 8-K on July 28,
2008)
|
|
|
|
Form of Warrant to Purchase Shares of Common Stock of QuantRx,
dated August 2008, issued by QuantRx in favor of lender.
(incorporated by reference to Exhibit 4.2 filed with Form 8-K on
August 27, 2008)
|
|
|
|
Warrant to Purchase 2,000,000 Shares of Common Stock of QuantRx,
dated July 30, 2009, issued by QuantRx in favor of NuRx
(incorporated by reference to Exhibit 10.4 filed with Form 8-K on
August 5, 2009)
|
|
|
|
Warrant to Purchase 2,000,000 Shares of Common Stock of QuantRx,
dated July 30, 2009, issued by QuantRx in favor of NuRx
(incorporated by reference to Exhibit 10.5 filed with Form 8-K on
August 5, 2009)
|
|
|
|
2007 Incentive and Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit C filed with Schedule 14A on June 5,
2007)
|
|
|
|
Employment Agreement, dated July 30, 2009, by and between QuantRx
and William Fleming (incorporated by reference to Exhibit 10.8
filed with Form 8-K on August 5, 2009)
|
|
|
|
Settlement Agreement and Release, dated as of July 7, 2011, by and
between the Company and NuRx Pharmaceuticals, Inc. (incorporated by
reference to Exhibit 99.1 filed with Form 8-K on July 8,
2011).
|
|
|
Form of Convertible Demand Purchase Note, dated July 1, 2017
(incorporated by reference to Exhibit 10.1 filed with Form 10-Q on
August 20, 2017)
|
|
|
|
Asset Purchase Agreement, dated December 14, 2017, by and between
QuantRx Biomedical Corporation and Preprogen LLC (incorporated by
reference to Exhibit 10.1 filed with Form 8-K on December 21,
2017)
|
|
|
|
Patent Assignment Agreement, dated December 14, 2017, by and
between QuantRx Biomedical Corporation and Preprogen LLC
(incorporated by reference to Exhibit 10.2 filed with Form 8-K on
December 21, 2017)
|
|
|
|
Trademark Assignment Agreement, dated December 14, 2017, by and
between QuantRx Biomedical Corporation and Preprogen LLC
(incorporated by reference to Exhibit 10.3 filed with Form 8-K on
December 21, 2017)
|
|
|
|
Intellectual Property License Agreement, dated December 14, 2017,
by and between QuantRx Biomedical Corporation and Preprogen LLC
(incorporated by reference to Exhibit 10.4 filed with Form 8-K on
December 21, 2017)
|
|
|
|
Escrow Agreement, dated December 14, 2017 (incorporated by
reference to Exhibit 10.5 filed with Form 8-K on December 21,
2017)
|
|
|
|
Warrant to Purchase 15,000,000 Shares of Common Stock of QuantRx,
dated December 14, 2017 (incorporated by reference to Exhibit 10.6
filed with Form 8-K on December 21, 2017)
|
|
|
|
Ethical Guidelines adopted by the Board of Directors of the Company
on May 31, 2005 (incorporated by reference to Exhibit 14.1 filed
with Form 10-KSB on March 31, 2006)
|
|
|
|
Certification of Principal Executive and Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
Certification of Principal Executive and Financial Officer
pursuant to 18 USC Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
|
101.INS**
|
|
XBRL Instance Document
|
|
101.SCH**
|
|
XBRL Taxonomy Extension Schema
|
|
101.CAL**
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101..DEF**
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB**
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE**
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
** Document
is filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
QuantRx Biomedical Corporation
|
|
|
|
|
|
|
Date: April 17, 2018
|
By:
|
/s/
Shalom Hirschman
|
|
|
|
Shalom Hirschman
Principal Executive and Principal Accounting Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
|
QuantRx Biomedical Corporation
|
|
|
|
|
|
|
Date: April 17, 2018
|
By:
|
/s/
Shalom Hirschman
|
|
|
|
Shalom Hirschman
Chief Executive Officer and Director
|
|
|
|
|
|
Date: April 17, 2018
|
By:
|
/s/
Michael Abrams
|
|
|
|
Michael Abrams,
Director
|
FINANCIAL STATEMENTS
Table of Contents
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of QuantRx Biomedical
Corporation
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of QuantRx
Biomedical Corporation as of December 31, 2017 and 2016 and the
related consolidated statements of operations, stockholders’
equity, and cash flows for the years then ended, and the related
notes (collectively referred to as the financial statements). In
our opinion, the financial statements present fairly, in all
material respects, the financial position of QuantRX Biomedical
Corporation as of December 31, 2017 and 2016, and the results of
its operations and its cash flows for each of the two years then
ended, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and we are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Consideration of the Company’s Ability to Continue as a Going
Concern
The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company currently has a history of
operating losses, has limited cash resources, and the absence of an
operating plan necessary to capitalize on the Company’s
assets. These factors, among others, raise substantial doubt about
the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/
Fruci & Associates II, PLLC
Fruci
& Associates II, PLLC
We have
served as the Company’s auditor since 2011.
Spokane,
Washington
April
17, 2018
QUANTRX BIOMEDICAL
CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
December 31,
|
|
|
2017
|
2016
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
$460,111
|
$691
|
|
Cash
in escrow
|
402,532
|
-
|
|
Prepaid
expenses
|
28,160
|
28,094
|
|
Total
Current Assets
|
890,803
|
28,785
|
|
|
|
|
|
Investments,
net of impairment of $200,000 and $30,052,
respectively
|
500,000
|
169,948
|
|
Intangible
assets, net
|
-
|
13,874
|
|
Total
Assets
|
$1,390,803
|
$212,607
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$167,900
|
$160,671
|
|
Accrued
expenses
|
26,708
|
36,342
|
|
Shareholder
loans
|
-
|
36,000
|
|
Notes
payable and accrued interest
|
1,825,135
|
1,059,784
|
|
Notes
payable, related party and accrued interest
|
120,611
|
558,287
|
|
Current
portion of LT notes payable
|
-
|
4,376
|
|
Total
Current Liabilities
|
2,140,354
|
1,855,460
|
|
Notes
payable, long-term
|
-
|
35,646
|
|
Total
Liabilities
|
2,140,354
|
1,891,106
|
|
|
|
|
|
Commitments
and Contingencies (See Note 11)
|
-
|
-
|
|
|
|
|
|
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
|
48,791,598
|
48,740,389
|
|
Stock
to be issued
|
8,600
|
-
|
|
Accumulated
deficit
|
(50,503,482)
|
(51,372,621)
|
|
Total
Stockholders’ Equity (Deficit)
|
(749,551)
|
(1,678,499)
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$1,390,803
|
$212,607
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL
CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year Ended December 31,
|
|
|
|
2017
|
2016
|
|
Revenues:
|
|
|
|
Revenues
|
$-
|
$-
|
|
Total
Revenues
|
-
|
-
|
|
|
|
|
|
Costs
and Operating Expenses:
|
|
|
|
Sales,
general and administrative
|
74,015
|
75,434
|
|
Professional
fees
|
80,300
|
56,231
|
|
Amortization
|
10,856
|
6,075
|
|
Depreciation
|
-
|
1,099
|
|
Total
Costs and Operating Expenses
|
165,171
|
138,839
|
|
|
|
|
|
Loss
from Operations
|
(165,171)
|
(138,839)
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
Interest
expense
|
(245,413)
|
(196,146)
|
|
Gain
on sale of assets
|
1,444,989
|
-
|
|
Loss
on impairment
|
(169,948)
|
(80,052)
|
|
Discount
on notes payable
|
(7,818)
|
-
|
|
Gain
(loss) on conversion of shares
|
-
|
16,503
|
|
Gain
(loss) on settlement of accounts payable
|
12,500
|
540
|
|
Total
Other Income (Expense), net
|
1,034,310
|
(259,155)
|
|
|
|
|
|
Income
(Loss) Before Taxes
|
869,139
|
(397,994)
|
|
|
|
|
|
Provision
for Income Taxes
|
-
|
-
|
|
|
|
|
|
Net
Income (Loss)
|
$869,139
|
$(397,994)
|
|
|
|
|
|
Basic
and Diluted Net Income (Loss) per Common Share
|
$0.01
|
$(0.01)
|
|
|
|
|
|
Basic
Weighted Average Shares Used in per Share Calculation
|
78,696,461
|
74,246,914
|
|
Diluted
Weighted Average Shares Used in per Share Calculation
|
130,534,433
|
74,246,914
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
Year Ended December 31,
|
|
|
|
2017
|
2016
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
income (loss)
|
$869,139
|
$(397,994)
|
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
Depreciation
and amortization
|
10,856
|
7,173
|
|
Interest
expense related to amortization of non-cash discount, non-cash
beneficial conversion feature and deferred financing
costs
|
7,818
|
-
|
|
Loss
(gain) on disposition of assets
|
(1,444,989)
|
-
|
|
Interest
earned on escrow account
|
(32)
|
-
|
|
Impairment
on investment
|
169,948
|
80,042
|
|
Loss
(gain) on write-off of accounts payable
|
(12,500)
|
-
|
|
Non-cash
loss on issuance of Common Stock in exchange for interest on notes
payable
|
-
|
68,704
|
|
Non-cash
gain on the conversion of shares
|
-
|
(16,503)
|
|
(Increase)
decrease in:
|
|
|
|
Prepaid
expenses
|
(66)
|
(1,698)
|
|
Increase
(decrease) in:
|
|
|
|
Accounts
payable
|
19,727
|
38,850
|
|
Accrued
expenses
|
229,486
|
126,773
|
|
|
|
|
|
Net
Cash Provided by (Used for) Operating Activities
|
(150,613)
|
(94,643)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Proceeds from the
sale of patents
|
496,945
|
-
|
|
|
|
|
|
Net Cash Provided
by investing activities
|
496,945
|
-
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Principal
payment on long term debt
|
(1,912)
|
(1,744)
|
|
Proceeds
from the issuance of shareholder loans
|
-
|
36,000
|
|
Proceeds
from issuance of convertible promissory notes
|
115,000
|
-
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
113,088
|
34,256
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
459,420
|
(60,387)
|
|
|
|
|
|
Cash
and Cash Equivalents, Beginning of Period
|
691
|
61,078
|
|
|
|
|
|
Cash
and Cash Equivalents, End of Period
|
$460,111
|
$691
|
|
|
|
|
|
Supplemental
Cash Flow Disclosures:
|
|
|
|
Preferred
shares issued for loan fees
|
$7,818
|
$-
|
|
Payment
of principal and interest from the sale of patents
|
$105,555
|
$-
|
|
Receipt
of investment from the sale of patents
|
$500,000
|
$-
|
|
Restricted
cash received from the sale of patents
|
$400,000
|
$-
|
|
Interest
expense paid in cash
|
$1,467
|
$-
|
|
Income
tax paid
|
$-
|
$-
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Activities:
|
|
|
|
Issuance
of warrants from the sale of patents
|
$51,991
|
-
|
|
Common
Stock issued for interest conversion
|
$-
|
$151,700
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL
CORPORATION
CONSOLIDATED STATEMENT OF
STOCKHOLDERS’
EQUITY
|
|
Preferred Stock
|
Common Stock
|
Additional
|
Stock
to
|
|
Total
|
||
|
|
Number
of Shares
|
Amount
|
Number of
Shares
|
Amount
|
Paid-in
Capital
|
Be
Issued
|
Accumulated
Deficit
|
Stockholders’
Equity
|
|
BALANCE, JANUARY 1, 2016
|
16,676,942
|
$166,769
|
69,772,918
|
$697,729
|
$48,677,924
|
$-
|
$(50,974,627)
|
$(1,432,205)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for interest payable
|
-
|
-
|
8,923,543
|
89,235
|
62,465
|
-
|
-
|
151,700
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2016
|
|
|
|
|
|
|
(397,994)
|
(397,994)
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2016
|
16,676,972
|
166,769
|
78,696,461
|
786,964
|
48,740,389
|
-
|
(51,372,621)
|
(1,648,499)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Shares issued on convertible notes payable
|
|
|
|
|
(782)
|
8,600
|
|
7,818
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants from the sale of patents
|
|
|
|
|
51,991
|
|
|
51,991
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31, 2017
|
|
|
|
|
|
|
869,139
|
869,139
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2017
|
16,676,972
|
166,769
|
78,696,461
|
786,964
|
48,791,598
|
8,600
|
(50,503,482)
|
(749,551)
|
The accompanying notes are an integral part of these financial
statements.
QUANTRX BIOMEDICAL
CORPORATION
NOTES TO FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF BUSINESS
|
Overview
We have developed and
are working towards commercializing our patented miniform pads
(“PADs”)
and PAD based over-the-counter products for the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, general
catamenial uses and other medical needs. We are also developing
genomic diagnostics for the laboratory market, based on lateral
flow patents. Our platforms include: inSync®,
UniqueTM, and OEM branded
over-the-counter and laboratory testing products based on the
Company’s core intellectual property related to its PAD
technology.
The
continuation of our operations remains contingent upon the receipt
of additional financing required to execute our business and
operating plan, which is currently focused on the commercialization
of our PAD technology either directly or through a joint venture or
other relationship intended to increase shareholder value. In the
interim, we have nominal operations, focused principally on
maintaining our intellectual property portfolio and maintaining
compliance with the public company reporting requirements. In order
to continue as a going concern, we will need to raise capital,
which may include the issuance of debt and/or equity securities. No
assurances can be given that the Company will obtain financing, or
otherwise successfully develop a business and operating plan or
enter into an alternative relationship to commercialize the
Company’s PAD technology.
Our principal business line consists of
over-the-counter commercialization of our InSync feminine hygienic
interlabial pad, the Unique® Miniform for hemorrhoid
application, and other treated miniforms (the
“OTC
Business”), as well as
maintaining established and continuing licensing relationships
related to these products. We also own certain diagnostic
testing technology (the “Diagnostic
Business”) that is based
on the Company’s lateral flow patents.. Management believes
this corporate structure permits the Company to more efficiently
explore options to maximize the value of the Company’s
products and intellectual property portfolio, with the objective of
maximizing the value of the Businesses for the benefit of the
Company and its shareholders.
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) commercialize its
over the-counter products either directly or through joint
ventures, mergers or similar transactions intended to capitalize on
potential commercial opportunities; (ii) contract manufacturing of
its over-the counter products to third parties while maintaining
control over the manufacturing process; (iii) maintain the
Company’s intellectual property portfolio with respect to
patents and licenses pertaining to both the OTC Business and the
Diagnostics Business; and (iv) maximize the value of the
Company’s investments in non-core assets. As a result of
its current financial condition, however, the Company’s
efforts in the short-term will be focused on obtaining financing
necessary to maintain the Company as a going concern.
Recent Developments
Preprogen
Transaction. On December 15, 2017
(“Closing
Date”), as earlier
contemplated in a memorandum of understanding
(“MOU”)
entered into by the parties on February 27, 2017, the Company
executed an agreement with Preprogen LLC
(“Preprogen”),
pursuant to which the parties agreed to the sale, assignment, and
license-back of certain assets of the Company pertaining to its
Diagnostic Business (the “Purchased
Assets”).
Under the agreement, 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.
As
set forth in the Asset Purchase Agreement
(“APA”)
executed by the parties, as consideration for the sale, assignment
and transfer of the Purchased Assets (the
“Preprogen
Transaction”) on
the Closing Date, Preprogen (A) paid to the Company $1.0 million
(“Cash Amount”) as follows: (i) approximately $38,000 was
paid to the City of Portland to payoff certain indebtedness owed by
the Company to the City of Portland, (ii) $65,000 principal amount
of notes held by Preprogen was credited toward the purchase
price as a result of the cancellation and termination of those
certain promissory notes payable to Preprogen by the Company, which
notes were issued to Preprogen in connection with the earlier MOU,
and (iii) the remaining balance was paid to the Company in cash at
closing (the “Closing
Balance”); and (B) issued
to the Company that number of membership interests in Preprogen
equal to 15% of the issued and outstanding membership interests in
Preprogen on a fully diluted basis as of the Closing Date. Under
the terms of the APA, Preprogen is obligated to pay to the Company
such additional amounts calculated based on the aggregate gross
revenue generated by Preprogen from the sale of products after the
Closing Date that utilize, or royalty payments or licensing fees
received by Preprogen with respect to, the Purchased Assets, if
any, as more particularly set forth in the APA.
At closing, and as
required by the APA, the Company deposited $400,000 of the Cash
Balance in escrow, which funds shall be used to fund up to 50% of
the costs incurred by Preprogen in connection with the development
and manufacturing of materials to be used by the Company for its
over the counter miniform products and to be used by Preprogen for
diagnostic products related to the Purchased Assets. As additional
consideration for the Purchased Assets, the Company issued a
warrant to Preprogen’s designee to purchase up to 15.0
million shares of the Company’s common stock, par value $0.01
per share (“Common
Stock”), at an
exercise price of $0.05 per share (the “Warrant”).
The Warrant is immediately exercisable and expires on December 14,
2022.
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. In addition, in the fiscal year ended December 31,
2017, the Company received a cash payment as consideration for the
sale and transfer of the Purchased Assets to
Preprogen.
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, the Company’s products. There can be no
assurance that the Company will be successful in its
efforts. Should the Company be unable to obtain adequate
financing or generate sufficient revenue in the future, the
Company’s business, result of operations, liquidity and
financial condition would be materially and adversely harmed, and
the Company will be unable to continue as a going
concern.
There
can be no assurance that, assuming the Company is able to
strengthen its cash position, it will achieve sufficient revenue or
profitable operations to continue as a going concern.
|
3.
|
CONSOLIDATED SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
This summary of significant accounting policies of
the Company is presented to assist in understanding the
Company’s consolidated financial statements. The consolidated
financial statements and notes are representations of the
Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to
accounting principles generally accepted in the United States of
America (“GAAP”) and have been consistently applied in the
preparation of the consolidated financial
statements.
Accounting for Share-Based Payments
The
Company follows the provisions of ASC Topic 718, which establishes
the accounting for transactions in which an entity exchanges equity
securities for services and requires companies to expense the
estimated fair value of these awards over the requisite service
period. The Company uses the Black-Scholes option pricing model in
determining fair value. Accordingly, compensation cost has been
recognized using the fair value method and expected term accrual
requirements as prescribed, which resulted in employee stock-based
compensation expense for the years ended December 31, 2017 and 2016
of $0 and $0, respectively.
The Company accounts for share-based payments
granted to non-employees in accordance with ASC Topic 505,
“Equity Based Payments to
Non-Employees.” The
Company determines the fair value of the stock-based payment as
either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably
measurable. If the fair value of the equity instruments issued
is used, it is measured using the stock price and other measurement
assumptions as of the earlier of either (i) the date at which a
commitment for performance by the counterparty to earn the equity
instruments is reached, or (ii) the date at which the
counterparty’s performance is complete. Accordingly,
compensation cost has been recognized for the issuance of Common
Stock to non-employee consultants for the years ended December 31,
2017 and 2016 of $0 and $0, respectively.
In the case of modifications, the Black-Scholes
model is used to value the warrant on the modification date by
applying the revised assumptions. The difference between the fair
value of the warrants prior to the modification and after the
modification determines the incremental value. The Company has
modified warrants in connection with the issuance of certain notes
and note extensions. These modified warrants were originally issued
in connection with previous private placement investments. In the
case of debt issuances, the warrants were accounted for as original
issuance discount based on their relative fair values. When
modified in connection with a note issuance, the Company recognizes
the incremental value as a part of the debt discount calculation,
using its relative fair value in accordance with ASC Topic 470-20,
“Debt
with Conversion and Other Options.” When modified in connection with note
extensions, the Company recognized the incremental value as prepaid
interest, which is expensed over the term of the
extension.
The fair value of each share based payment is estimated on the
measurement date using the Black-Scholes model with the following
assumptions, which are determined at the beginning of each year and
utilized in all calculations for that year. During the year ended
December 31, 2017, the fair value of each share based payment was
estimated on the measurement date using the Black-Scholes model
using an average risk free interest rate of 1.92%, expected
volatility of 298%, and a dividend yield of zero. During the
year ended December 31, 2016, the Company did not make any
Black-Scholes model assumptions, as no share-based payments were
made during the period.
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, it uses the
option term as the expected term. For warrants, the Company uses
the actual term of the warrant.
Pre-Vesting
Forfeitures. Estimates of
pre-vesting option forfeitures are based on Company experience. The
Company will adjust its estimate of forfeitures over the requisite
service period based on the extent to which actual forfeitures
differ, or are expected to differ, from such estimates. Changes in
estimated forfeitures will be recognized through a cumulative
catch-up adjustment in the period of change and will also impact
the amount of compensation expense to be recognized in future
periods.
Cash and Cash Equivalents
The
Company considers all highly liquid investments and short-term debt
instruments with maturities of three months or less from date of
purchase to be cash equivalents. Cash equivalents consisted of
money market funds at December 31, 2017 and 2016.
Concentration of Risks
Financial
instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents. The
Company primarily maintains its cash balances with financial
institutions in federally insured accounts. At times, such balances
may exceed federally insured limits. The Company has not
experienced any losses to date resulting from this practice. At
December 31, 2017 the Company’s cash balances were in excess
of federally insured limits.
Earnings per Share
The
Company computes net income (loss) per common share in accordance
with ASC Topic 260. Net income (loss) per share is based upon the
weighted average number of outstanding common shares and the
dilutive effect of common share equivalents, such as options and
warrants to purchase Common Stock, convertible preferred stock and
convertible notes, if applicable, that are outstanding each year.
Basic and diluted earnings per share were the same at the reporting
dates of the accompanying financial statements, as including Common
Stock equivalents in the calculation of diluted earnings per share
would have been antidilutive.
As
of December 31, 2017, the Company had outstanding options
exercisable for 2,301,000 shares of its Common Stock, outstanding
warrants exercisable for 15,000,000 shares of its Common Stock, and
preferred shares convertible into 16,676,942 shares of its Common
Stock. The Company has reserved for issuance 860,000 shares of its
Series B Preferred Stock to certain investors in connection with
the 2017 Notes. As of December 31, 2017, the Company has estimated
and reserved for issuance approximately 20.0 million shares of
Common Stock for a future conversion of its issued and outstanding
Convertible Notes Payable.
As
of December 31, 2016, the Company had outstanding options
exercisable for 2,352,000 shares of its Common Stock, and preferred
shares convertible into 16,676,942 shares of its Common Stock. As
of December 31, 2016, the Company has estimated and reserved for
issuance approximately 19.0 million shares of Common Stock for a
future conversion of its issued and outstanding Convertible Notes
Payable. The above options and preferred shares were deemed to be
antidilutive for the year ended December 31, 2016.
Fair Value of Financial Instruments
GAAP establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurement)
and the lowest priority to unobservable inputs (Level 3
measurement).
The
three levels of the fair value hierarchy are as
follows:
Level
1 –
Quoted
prices are available in active markets for identical assets or
liabilities. Active markets are those in which transactions for the
asset or liability occur with sufficient frequency and volume to
provide pricing information on an ongoing basis.
Level
2 –
2Pricing
inputs are other than quoted prices in active markets included in
Level 1, which are either directly or indirectly observable as of
the reporting date. Level 2 includes those financial instruments
that are valued using models or other valuation methodologies.
These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and
contractual prices for the underlying instruments, as well as other
relevant economic measures. Substantially all of these assumptions
are observable in the marketplace throughout the full term of the
instrument, can be derived from observable data or are supported by
observable levels at which transactions are executed in the
marketplace.
Level
3 –
Pricing
inputs include significant inputs that are generally unobservable
from objective sources. These inputs may be used with internally
developed methodologies that result in management’s best
estimate of fair value. Level 3 instruments include those that may
be more structured or otherwise tailored to the Company’s
needs.
The Company has adopted ASC Topic 820,
“Fair
Value Measurements and Disclosures” for both financial and nonfinancial assets
and liabilities. The Company has not elected the fair value option
for any of its assets or
liabilities.
GUSA:
In determining fair value of our investment from GUSA (which
investment is further described in Note 5 below), the Company
estimated fair value based on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of this investment that are not
readily apparent from other
sources.
PREPROGEN LLC:
In determining fair value of our
investment from Preprogen (further described in Note 1), the
Company estimated fair value of its membership interests based on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value
of this investment that are not readily apparent from other
sources.
PREPROGEN Warrant: In
determining the fair value of the warrant issued to Preprogen in
December 2017, the Company utilized the Black-Scholes model
using an average risk free interest
rate of 1.92%, expected volatility of 298%, and a dividend yield of
zero.
Impairments
We
assess the impairment of long-lived assets, including our other
intangible assets, at least annually or whenever events or changes
in circumstances indicate that their carrying value may not be
recoverable. The determination of related estimated useful lives
and whether or not these assets are impaired involves significant
judgments, related primarily to the future profitability and/or
future value of the assets. Changes in our strategic plan and/or
market conditions could significantly impact these judgments and
could require adjustments to recorded asset balances. We hold
investments in companies having operations or technologies in
areas, which are within, or adjacent to our strategic focus when
acquired, all of which are privately held and whose values are
difficult to determine. We record an investment impairment charge
if we believe an investment has experienced a decline in value that
is other than temporary. Future changes in our strategic direction,
adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to
recover the carrying value of the investments that may not be
reflected in an investment’s current carrying value, thereby
possibly requiring an impairment charge in the future.
In
determining fair value of assets, the Company bases estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about carrying values of
assets that are not readily apparent from other sources. Actual
fair value may differ from management estimates resulting in
potential impairments causing material changes to certain assets
and results of operations.
Genomics USA, Inc.
(“GUSA”)
During the years ended December 31,
2017 and 2016, the Company has recorded losses of $169,948 and
$30,052, respectively, on an impairment on the value of its common
stock investment in GUSA. The Company has valued the impairment
based on the dilution of the Company’s investment and certain
other factors. As of December 31, 2017, the Company has fully
impaired its investment in GUSA.
Global Cancer
Diagnostics, Inc. (“GCD”):
During 2015, the Company entered into a letter of intent with GCD,
which provided for, among other things, the advance payment of
$50,000 towards a potential business combination. During 2016, the
Company determined the full amount of the advanced payment to be
impaired.
Income Taxes
The
Company accounts for income taxes and the related accounts under
the liability method. Deferred tax assets and liabilities are
determined based on the differences between the financial statement
carrying amounts and the income tax bases of assets and
liabilities. A valuation allowance is applied against any net
deferred tax asset if, based on available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized.
Our
policy is to recognize interest and/or penalties related to income
tax matters in income tax expense. We had no accrual for interest
or penalties on our balance sheets at December 31, 2017 or
2016; and have not recognized interest and/or penalties in the
statement of operations for the years ended December 31, 2017
or 2016. See Note 12, Income Taxes, below.
Intangible Assets
The
Company’s intangible assets consist of patents, licensed
patents and patent rights, and website development costs, and are
carried at the legal cost to obtain them. Costs to renew or extend
the term of intangible assets are expensed when incurred. In 2008,
through our formerly majority owned subsidiary, the Company also
held technology licenses and other acquired intangibles. Intangible
assets are amortized using the straight-line method over the
estimated useful life. Useful lives are as follows: patents, 17
years; patents under licensing, 10 years; website development
costs, three years, and in 2008, acquired intangibles had a
weighted average life of 15 years. Amortization expense for the
years ended December 31, 2017 and 2016, totaled $10,856 and $6,075,
respectively. The Company has fully amortized its Intangible Assets
as of December 31, 2017.
On December 15,
2017, the Company entered into an agreement with Preprogen,
pursuant to
which the parties agreed to the sale, assignment, and license-back
of the Purchased Assets, including intellectual property
transferred to Preprogen necessary to the development, manufacture,
marketing and sale of the Company’s OTC miniform products for
the feminine hygiene and hemorrhoid treatment
markets.
Inventories
Inventories,
consisting solely of products available for sale, are accounted for
using the first-in, first-out (FIFO) method, and are valued at the
lower of cost of market value. This valuation requires us to make
judgments, based on current market conditions, about the likely
method of dispositions and expected recoverable value
inventories.
Property and Equipment
Property
and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the
assets. The Company’s property and equipment at December 31,
2017 and 2016 consisted of computer and office equipment, machinery
and equipment and leasehold improvements with estimated useful
lives of three to seven years. Estimated useful lives of leasehold
improvements do not exceed the remaining lease term. Depreciation
expense was $0 and $1,099 for the years ended December 31, 2017 and
2016, respectively. Expenditures for repairs and maintenance are
expensed as incurred. See Note 4 below.
Research and Development Costs
Research
and development costs are expensed as incurred. The cost of
intellectual property purchased from others that is immediately
marketable or that has an alternative future use is capitalized and
amortized as intangible assets. Capitalized costs are amortized
using the straight-line method over the estimated economic life of
the related asset.
Revenue Recognition
The
Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin Topic 13 when persuasive evidence of an arrangement exists
and delivery or performance has occurred, provided the fee is fixed
or determinable and collection is probable. The Company assesses
whether the fee is fixed and determinable based on the payment
terms associated with the transaction. If a fee is based upon a
variable such as acceptance by the customer, the Company accounts
for the fee as not being fixed and determinable. In these cases,
the Company defers revenue and recognizes it when it becomes due
and payable. Up-front engagement fees are recorded as deferred
revenue and amortized to income on a straight-line basis over the
term of the agreement, although the fee is due and payable at the
time the agreement is signed or upon annual renewal. Payments
related to substantive, performance-based milestones in an
agreement are recognized as revenue upon the achievement of the
milestones as specified in the underlying agreement when they
represent the culmination of the earnings process. The Company
assesses the probability of collection based on a number of
factors, including past transaction history with the customer and
the current financial condition of the customer. If the Company
determines that collection of a fee is not reasonably assured,
revenue is deferred until the time collection becomes reasonably
assured.
The
Company recognizes revenue from nonrefundable minimum royalty
agreements from distributors or resellers upon delivery of product
to the distributor or reseller, provided no significant obligations
remain outstanding, the fee is fixed and determinable, and
collection is probable. Once minimum royalties have been received,
additional royalties are recognized as revenue when earned based on
the distributor’s or reseller’s contractual reporting
obligations.
The Company’s strategy includes entering
into collaborative agreements with strategic partners for the
development, commercialization and distribution of its product
candidates. Such collaborative agreements may have multiple
deliverables. The Company evaluates multiple deliverable
arrangements pursuant to ASC Topic 605-25,
“Revenue Recognition:
Multiple-Element Arrangements.” Pursuant to this Topic, in
arrangements with multiple deliverables where the Company has
continuing performance obligations, contract, milestone and license
fees are recognized together with any up-front payments over the
term of the arrangement as performance obligations are completed,
unless the deliverable has standalone value and there is objective,
reliable evidence of fair value of the undelivered element in the
arrangement. In the case of an arrangement where it is determined
there is a single unit of accounting, all cash flows from the
arrangement are considered in the determination of all revenue to
be recognized. Cash received in advance of revenue recognition is
recorded as deferred revenue.
Development Agreements and Royalties
On December 15,
2017, the Company entered into an agreement with Preprogen,
pursuant to
which the parties agreed to the sale, assignment, and license-back
of the Purchased Assets, including intellectual property
transferred to Preprogen necessary to the development, manufacture,
marketing and sale of the Company’s OTC miniform products for
the feminine hygiene and hemorrhoid treatment
markets.
Reclassifications
Prior
period financial statement amounts have been reclassified to
conform to current period presentation. The reclassifications had
no effect on net loss or earnings per share.
Use of Estimates
The
accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America, and include certain estimates and assumptions which affect
the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results
may differ from those estimates.
Recent Accounting Pronouncements
As of
December 31, 2017 and December 31, 2016, the Company does not
expect any of the recently issued accounting pronouncements to have
a material impact on its financial condition or results of
operations.
|
4.
|
OTHER BALANCE SHEET INFORMATION
|
Components
of selected captions in the accompanying balance sheets as of
December 31, 2017 and 2016 consist of:
|
Prepaid expenses:
|
December 31,
2017
|
December 31,
2016
|
|
Prepaid
insurance
|
$28,160
|
$28,094
|
|
Total Prepaid expenses
|
$28,160
|
$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
|
$26,708
|
$36,342
|
|
Total Accrued expenses
|
$26,708
|
$36,342
|
|
5.
|
INVESTMENTS
|
In
May 2006, the Company purchased 144,024 shares of common stock of
GMS Biotech, formerly 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, 2017, 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 years ended December 31, 2017 and 2016, the
Company has recorded losses of $169,948 and $30,052, respectively,
on an impairment on the value of its common stock investment in
GUSA. The Company has valued the impairment based on the dilution
of the Company’s investment and certain other factors. As of
December 31, 2017, the Company has fully impaired its investment in
GUSA.
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 the number of shares of Global’s
common stock equal to 10% of its then outstanding shares of common
stock, on a fully-diluted basis, as payment of the Global Advance.
In addition to the share issuance, the Company is evaluating
certain additional remedies related to the Global LOI and the
$50,000 advance. The Company deemed the $50,000 Global Advance to
be fully impaired as of September 30, 2016.
In
December 2017, we acquired a 15% interest Preprogen LLC pursuant to
the Preprogen Transaction.
|
6.
|
INTANGIBLE ASSETS
|
Intangible assets as of December 31, 2017 and 2016 consisted
of the following:
|
|
December 31,
2017
|
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:
Cost of Assets Sold
|
(3,019)
|
-
|
|
Less:
accumulated amortization
|
(101,225)
|
(90,370)
|
|
Intangibles,
net
|
$-
|
$13,874
|
On
December 15, 2017, the Company entered into an agreement with
Preprogen, pursuant to which the parties agreed to the sale,
assignment, and license-back of the Purchased Assets, including
intellectual property transferred to Preprogen necessary to the
development, manufacture, marketing and sale of the Company’s
OTC miniform products for the feminine hygiene and hemorrhoid treatment
markets.
The Company’s intangible assets consist of patents, licensed
patents and patent rights, which 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
|
Patent under Licensing
The
Company licenses patent rights and know-how for certain hemorrhoid
treatment pads and related coatings from The Procter & Gamble
Company. The five-year license agreement was entered into July 2006
and has a five-year automatic renewal option. Although the
Company renewed the agreement in 2011, payments have been suspended
due to the Company’s current financial
condition. The Company subsequently filed for
a patent to address the technology used in its treated miniforms,
which was issued during 2015.
|
7.
|
CONVERTIBLE NOTES PAYABLE
|
On
January 2, 2015, the Company issued an additional Bridge Note in
the principal amount of $36,500 and issued 73,000 shares of Common
Stock to the purchaser of the additional Bridge Note. Additionally,
we issued 500,000 shares of Common Stock in January 2015 to certain
investors who purchased Bridge Notes during the year ended December
31, 2014, which were previously classified as shares to be
issued.
In
February 2015, the Company issued an aggregate total of 815,061
shares of Common Stock as payment for accrued interest for the
period from July 1, 2014 through December 31, 2014 under
certain convertible notes payable.
On
June 30, 2015, the Company issued two additional Bridge Notes in
the aggregate principal amount of $50,000 and issued an aggregate
total of 100,000 shares of Common Stock to the purchasers of these
Bridge Notes. In connection with the issuance of these notes, the
Company recorded debt discount expenses totaling $2,830 and
amortized these costs up to the maturity dates 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.
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 December 31, 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.
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.
In
October 2017, the Company issued an additional MOU Note in the
principal amount of $15,000.
The three MOU
Notes, with an aggregate principal amount of $65,000, were all
cancelled and applied as part of the purchase price in the
transaction with Preprogen.
At
December 31, 2017 and 2016, the Company’s Convertible Notes
Payable are as follows:
|
|
December 31,
2017
|
December 31,
2016
|
|
Notes
Payable
|
$1,825,135
|
$1,059,784
|
|
Notes
Payable, related party
|
120,611
|
558,287
|
|
Total
notes payable
|
$1,945,746
|
$1,618,071
|
Notes Payable, Related Party.
As of December 31, 2017, the Company owed Michael
Abrams, a director of the Company, an aggregate total of $120,611
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 Burnham Hill Advisors, LLC
(“BHA”)
an aggregate total of $556,168 for outstanding principal and
accrued and unpaid interest on certain Bridge Notes (the
“BHA
Notes”). Mr. Abrams is an
employee of BHA.
On April 1, 2017, BHA assigned
the BHA Notes, 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 $100,000 of the outstanding principal amount of the BHA
Notes, plus all accrued but unpaid interest on such
amount.
|
10.
|
LONG-TERM NOTES PAYABLE
|
The
Company received a $44,000 loan from the Portland Development
Commission in 2007. The loan matures in 20 years and was interest
free through February 2010. The terms of the note stipulate monthly
interest only payments from April 2010 through December 2014, at a
5% annual rate. Effective January 1, 2015, the Company began a
payment program whereby it would make quarterly payments towards
principal and interest through the life of the loan. During the
year ended December 31, 2017, the Company paid the remaining
outstanding balance due under the loan, which amounted to principal
payments of $40,496 and payments towards accrued interest of
$2,415. During the year ended
December 31, 2016, the Company made principal payments of $1,744
and payments towards accrued interest of $1,539. The Company
recorded interest expense on this loan of $2,415 and $2,040 for the
year ended December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, the balance of the
loan payable was $0 and $40,022, respectively. As of December 31,
2017, the Company had no further obligation under the
loan.
|
11.
|
COMMITMENTS AND CONTINGENCIES
|
In December 2017,
Company committed to share in fees and costs of 50% the of the
future manufacturing costs for the miniform pads. The Company and
Preprogen agreed that the Company’s expenses shall not exceed
$400,000. The Company has reserved that same amount in an escrow
account until an acceptable manufacturer is identified by Preprogen
and the Company.
|
12.
|
INCOME TAXES
|
Pursuant
to ASC 740, income taxes are provided for based upon the liability
method of accounting. Under this approach, deferred income taxes
are recorded to reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end.
We
are subject to taxation in the U.S. and the state of Oregon. The
Company is not current on its tax filings and is subject to
examination until the filings take place.
At
December 31, 2017 and 2016, the Company had gross deferred tax
assets calculated at an expected blended rate of 30% and 38%,
respectively, of approximately $8,500,000 and $10,800,000,
respectively, principally arising from net operating loss
carryforwards for income tax purposes. As management of the Company
cannot determine that it is more likely than not that the Company
will realize the benefit of the deferred tax asset, a valuation
allowance of $8,500,000 and $10,800,000 has been established at
December 31, 2017 and 2016, respectively.
Topic
740 in the Accounting Standards Codification (ASC 740) prescribes
recognition threshold and measurement attributes for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. ASC 740 also provides
guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. At
December 31, 2017, the Company had taken no tax positions that
would require disclosure under ASC 740.
The
Company has analyzed its filing positions in all jurisdictions
where it is required to file income tax returns and found no
positions that would require a liability for unrecognized income
tax benefits to be recognized. We are subject to examinations for
all unfiled tax years. We deduct interest and penalties as interest
expense on the financial statements.
Additionally,
the future utilization of our net operating loss and R&D credit
carryforwards to offset future taxable income may be subject to an
annual limitation, pursuant to IRC Sections 382 and 383, as a
result of ownership changes that may have occurred previously or
that could occur in the future.
There
is no unrecognized tax benefit included in the balance sheet that
would, if recognized, affect the effective tax
rate.
|
|
2017
|
2016
|
|
Gross deferred tax
assets:
|
|
|
|
Net operating loss
carryforwards
|
$7,500,000
|
$9,800,000
|
|
Stock based
expenses
|
250,000
|
250,000
|
|
Tax credit
carryforwards
|
200,000
|
200,000
|
|
All
others
|
550,000
|
550,000
|
|
|
8,500,00
|
10,800,000
|
|
|
|
|
|
Deferred tax asset
valuation allowance
|
(8,500,000)
|
(10,800,000)
|
|
Net deferred tax
asset (liability)
|
$-
|
-
|
At
December 31, 2017, the Company has net operating loss carryforwards
of approximately $7,500,000, which expire in the years 2017 through
2033. The net change in the allowance account was a decrease of
approximately $2,300,000 for the year ended December 31, 2017 and
an increase of approximately $100,000 for the year ended December
31, 2016.
In December 2017, the Tax
Cuts and Jobs Act (the “Tax
Act”) was enacted into
law and the new legislation contains several key tax provisions
that affected the Company, including a reduction of the corporate
income tax rate to 21% effective January 1, 2018, among others. The
Company is required to recognize the effect of the tax law changes
in the period of enactment, such as determining the transition tax,
remeasuring deferred tax assets and liabilities, as well as
reassessing the net realizability of our deferred tax assets and
liabilities. In December 2017, the SEC staff issued Staff
Accounting Bulletin No. 118, Income Tax Accounting Implications of
the Tax Cuts and Jobs Act (SAB 118), which allows us to record
provisional amounts during a measurement period not to extend
beyond one year of the enactment date. Since the Tax Act was passed
late in the fourth quarter of 2017, and ongoing guidance and
accounting interpretation are expected over the next 12 months, we
consider the accounting of the transition tax, deferred tax
re-measurements, and other items to be incomplete due to the
forthcoming guidance and our ongoing analysis of final year-end
data and tax positions. We expect to complete our analysis within
the measurement period in accordance with SAB
118.
|
13.
|
CAPITAL STOCK
|
Preferred Stock
The Company has authorized 25,000,000 shares of
preferred stock, of which 20,500,000 is designated as Series B
Convertible Preferred Stock, $0.01 par value, with a stated value
of approximately $204,000 (“Series B
Preferred”). The
remaining authorized preferred shares have not been designated by
the Company as of December 31,
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 Company has authorized 20,500,000 shares of
Series B Preferred, $0.01 par value. The Series B Preferred
ranks prior to the Common Stock for purposes of liquidation
preference, and to all other classes and series of equity
securities of the Company that by their terms did not rank senior
to the Series B Preferred (“Junior
Stock”). Holders of
the Series B Preferred are entitled to receive cash dividends,
when, as and if declared by the Board of Directors, and they shall
be entitled to receive an amount equal to the cash dividend
declared on one share of Common Stock multiplied by the number of
shares of Common Stock equal to the outstanding shares of Series B
Preferred, on an as converted basis. The holders of Series B
Preferred have voting rights to vote as a class on matters a)
amending, altering or repealing the provisions of the Series B
Preferred so as to adversely affect any right, preference,
privilege or voting power of the Series B Preferred; or b) to
effect any distribution with respect to Junior Stock. At any
time, the holders of Series B Preferred may, subject to
limitations, elect to convert all or any portion of their Series B
Preferred into fully paid nonassessable shares of Common Stock at a
1:1 conversion rate.
As
of December 31, 2017 and 2016, the Company had 16,676,942 shares of
Series B Preferred Stock issued and outstanding with a liquidation
preference of $166,769 and convertible into 16,676,942 shares of
Common Stock.
As of
December 31, 2017, the Company had reserved for issuance 860,000
shares of its Series B Preferred Stock in connection with
Convertible Notes Payable.
Common Stock
The
Company has authorized 150,000,000 shares of its Common Stock,
$0.01 par value. The Company had issued and outstanding 78,696,461
shares of its Common Stock at December 31, 2017 and
2016.
On
February 3, 2015, the Board of Directors granted an aggregate of
2.3 million stock options to its executive management at an
exercise price of $0.04 per share. The options have a
five-year term and are fully vested on the date of
grant.
In
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.
|
14.
|
STOCK PURCHASE WARRANTS
|
On December 15, 2017, in connection with the transaction with
Preprogen, the Company issued a warrant to Preprogen’s
designee to purchase up to 15.0 million shares of the
Company’s Common Stock, at an exercise price of $0.05 per
share, which warrant was immediately exercisable, and expires on
December 14, 2022. During the year ended December 31, 2017, the
Company did not issue any other warrants, and had no other warrants
issued and outstanding.
During
the year ended December 31, 2016, there were no warrants issued by
the Company.
|
15.
|
COMMON STOCK OPTIONS
|
In 2007, the Company adopted the 2007 Incentive
and Non-Qualified Stock Option Plan (hereinafter the
“Plan”), which replaced the 1997 Incentive and
Non-Qualified Stock Option Plan, as amended in 2001, and under
which 8,000,000 shares of Common Stock are reserved for issuance
under qualified options, nonqualified options, stock appreciation
rights and other awards as set forth in the
Plan.
Under
the Plan, qualified options are available for issuance to employees
of the Company and non-qualified options are available for issuance
to consultants and advisors. The Plan provides that the
exercise price of a qualified option cannot be less than the fair
market value on the date of grant and the exercise price of a
nonqualified option must be determined on the date of grant.
Options granted under the Plan generally vest three to five years
from the date of grant and generally expire ten years from the date
of grant.
During the years ended December 31, 2017 and 2016, no stock options
were granted by the Company.
The
following is a summary of all Common Stock option activity during
the year ended December 31, 2017 and 2016:
|
|
Shares Under
Options Outstanding
|
Weighted Average
Exercise Price
|
|
Outstanding
at December 31, 2015
|
2,452,000
|
0.12
|
|
Options
granted
|
-
|
|
|
Options forfeited
|
(100,000)
|
$1.60
|
|
Options
exercised
|
|
|
|
Outstanding
at December 31, 2016
|
2,352,000
|
$0.06
|
|
Options
granted
|
-
|
|
|
Options
forfeited
|
(51,000)
|
$0.85
|
|
Options
exercised
|
|
|
|
Outstanding
at December 31, 2017
|
2,301,000
|
$0.04
|
|
|
Options
Exercisable
|
Weighted Average Exercise Price Per Share
|
|
Exercisable
at December 31, 2016
|
2,352,000
|
$0.06
|
|
Exercisable
at December 31, 2017
|
2,301,000
|
$0.04
|
The
following represents additional information related to Common Stock
options outstanding and exercisable at December 31,
2017:
|
|
|
Outstanding
|
Exercisable
|
||
|
Exercise
Price
|
Number of
Shares
|
Weighted Average
Remaining
Contract Life in Years
|
Weighted
Average
Exercise Price
|
Number of
Shares
|
Weighted Average
Exercise Price
|
|
$0.04
|
2,300,000
|
2.09
|
$0.04
|
2,300,000
|
$0.04
|
|
$0.80
|
1,000
|
0.16
|
$0.80
|
1,000
|
$0.80
|
|
|
2,301,000
|
2.09
|
$0.04
|
2,301,000
|
$0.04
|
The
weighted average remaining contractual term for both fully vested
share options (exercisable, above) and options expected to vest
(outstanding, above) is 2 years.
A
summary of the status of the Company’s nonvested stock
options as of December 31, 2017 and changes during the year ended
December 31, 2017 is presented below:
|
Nonvested Stock Options
|
Shares
|
Weighted Average Grant Date Fair Value
|
|
Nonvested
at December 31, 2015
|
100,000
|
$100.000
|
|
Options
granted
|
|
|
|
Options
vested
|
|
|
|
Options
forfeited
|
(100,000)
|
(100,000)
|
|
Nonvested
at December 31, 2016
|
-
|
-
|
|
Options
granted
|
-
|
-
|
|
Options
vested
|
-
|
-
|
|
Options
forfeited
|
-
|
|
|
Nonvested
at December 31, 2017
|
-
|
-
|
|
16.
|
SUBSEQUENT EVENTS
|
In April 2018 the
Company completed the purchase of 10,480,084 shares of Series B
Convertible Preferred Stock (the “Purchased Shares”) from an
institutional shareholder for an aggregate purchase price of
$20,000. Following this transaction, the shareholder no longer
holds shares in the Company. Subsequent to the purchase, the
Company cancelled the Purchased Shares.
In March 2018, the
Company paid its CEO, Dr. Shalom Hirschman, a bonus of $10,000 for
his significant contributions to the
Company.
We have evaluated subsequent events through the date of this filing
in accordance with the Subsequent Events Topic of the FASB ASC 855,
and have determined that, except as disclosed in this note, no
subsequent events occurred that are reasonably likely to impact
these financial statements.
F-20