CONDENSED NOTES TO FINANCIAL
STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
Overview
As used in this Quarterly Report on Form 10-Q, the terms
“Company”,
“we”,
“our”,
“us”,
“QuantRx”
or the “Company”
refers to QuantRx Biomedical Corporation, unless context otherwise
requires. QuantRx Biomedical
Corporation was incorporated on December 5, 1986, in the State of
Nevada. Our principal business office is located at 10190 SW 90th
Avenue, Tualatin, Oregon 97062.
We have developed and intend to commercialize our patented miniform
pads (“PADs”)
and PAD based over-the-counter products for the treatment of
hemorrhoids, minor vaginal infection, urinary incontinence, general
catamenial uses and other medical needs. We are also developing and
intend to commercialize genomic diagnostics for the laboratory
market, based on our lateral flow patents. Our platforms include:
inSync®, UniqueTM, and OEM branded
over-the-counter and laboratory testing products based on our core
intellectual property related to our PAD
technology.
The continuation of our operations remains contingent upon the
receipt of additional financing required to execute our business
and operating plan, which is currently focused on the
commercialization of our PAD technology either directly or through
a joint venture or other relationship intended to increase
shareholder value. In the interim, we have nominal operations,
focused principally on maintaining our intellectual property
portfolio and maintaining compliance with the public company
reporting requirements. In order to continue as a going concern, we
will need to raise capital, which may include through the issuance
of debt and/or equity securities. No assurances can be given that
we will be able to obtain additional financing under terms
favorable to us, if at all, or otherwise successfully develop a
business and operating plan or enter into an alternative
relationship to commercialize our PAD technology.
Our principal business line consists of over-the-counter
commercialization of our InSync feminine hygienic interlabial pad,
the Unique® Miniform for hemorrhoid application, and other
treated miniforms (the “OTC
Business”), as well as
maintaining established and continuing licensing relationships
related to these products. We also own certain diagnostic testing
technology (the “Diagnostic
Business” and
collectively with the OTC Business, the “Business” or “Businesses”) that
is based on our lateral flow patents. Management believes this
corporate structure permits us to more efficiently explore options
to maximize the value of our products and intellectual property
portfolio, with the objective of maximizing the value of the
Businesses for the benefit of the Company and our
shareholders.
Our current focus is to obtain additional working capital necessary
to continue as a going concern, and to develop a longer term
financing and operating plan to: (i) commercialize our
over-the-counter products either directly or through joint
ventures, mergers or similar transactions intended to capitalize on
potential commercial opportunities; (ii) contract manufacturing of
our over-the-counter products to third parties while maintaining
control over the manufacturing process; (iii) maintain our
intellectual property portfolio with respect to patents and
licenses pertaining to both the OTC Business and the Diagnostics
Business; and (iv) maximize the value of our investments in
non-core assets. As a result of our current financial
condition, however, our efforts in the short-term will be focused
on obtaining financing necessary to maintain the Company as a going
concern.
We follow the accounting guidance outlined in the Financial
Accounting Standards Board Codification guidelines. The
accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted principles for
interim financial information and with the items under Regulation
S-X required by the instructions to Form 10-Q. They may not include
all information and footnotes required by United States Generally
Accepted Accounting Principles (“GAAP”) for complete financial statements.
However, except as disclosed herein, there have been no material
changes in the information disclosed in the notes to the financial
statements for the year ended December 31, 2019 included in the
Company’s Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on April 14, 2020. The interim
unaudited financial statements presented herein should be read in
conjunction with those financial statements included in the Form
10-K. In the opinion of management, all adjustments considered
necessary for a fair presentation, which unless otherwise disclosed
herein, consisting primarily of normal recurring adjustments, have
been made. Operating results for the nine months ended September
30, 2020 are not necessarily indicative of the results that may be
expected for the year ending December 31,
2020.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation. These
reclassifications had no effect on previously reported losses,
total assets or stockholders’ equity.
2. MANAGEMENT STATEMENT REGARDING GOING CONCERN
We currently are not generating revenue from operations, and do not
anticipate generating meaningful revenue from operations or
otherwise in the short-term. We have historically financed our
operations primarily through issuances of equity and the proceeds
from the issuance of promissory notes. In the past, we also
provided for our cash needs by issuing our common stock, par value
$0.01 per share ("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 2018, we received cash payments
as consideration for the sale, assignment and lease-back
of certain of the Company's assets pertaining to
the Diagnostic Business (the "Purchased
Assets") to Preprogen LLC
("Preprogen") pursuant to an Asset Purchase Agreement dated
December 14, 2017 (the "Preprogen
Agreement"), Patent Assignment
Agreement dated December 14, 2017, Trademark Assignment Agreement
dated December 14, 2017, and Intellectual Property License
Agreement dated December 14, 2017, by and between the Company and
Preprogen (collectively, the "Preprogen
Transaction")..
Our history of operating losses, limited cash resources and
the absence of an operating plan necessary to capitalize on our
assets raise substantial doubt about our ability to continue
as a going concern absent a strengthening of our cash
position. Management is currently pursuing various funding
options, including seeking debt or equity financing, licensing
opportunities and the sale of certain investment holdings, as well
as a strategic, merger or other transaction to obtain additional
funding to continue the development of, and to successfully
commercialize, our products. There can be no assurance that
the Company will be successful in its efforts. Should we 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 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 sufficient revenue or
profitable operations to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is
presented to assist in understanding the Company’s financial
statements. The financial statements and notes are representations
of the Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to
GAAP and have been consistently applied in the preparation of the
financial statements.
Accounting for Share-Based Payments. The Company follows the provisions of ASC Topic
718, which establishes the accounting for transactions in which an
entity exchanges equity securities for services and requires
companies to expense the estimated fair value of these awards over
the requisite service period. The Company uses the Black-Scholes
option pricing model in determining fair value. Accordingly,
compensation cost has been recognized using the fair value method
and expected term accrual requirements as prescribed. During
the three and nine months ended September 30, 2020 and 2019, the
Company had no stock compensation expense.
In June 2018, the FASB issued an accounting pronouncement
(FASB ASU 2018-07) to expand the scope of ASC Topic 718,
Compensation - Stock Compensation, to include share-based payment
transactions for acquiring goods and services from nonemployees.
The pronouncement is effective for fiscal years, and for interim
periods within those fiscal years, beginning after
December 15, 2018, with early adoption permitted (for
“emerging growth company” beginning after
December 15, 2019). The Company has adopted this standard
effective from January 1, 2020 and the adoption of this
standard did not have any significant impact on the unaudited
condensed consolidated interim financial statements.
In the case of modifications, the Black-Scholes model is used to
value modified warrants on the modification date by applying the
revised assumptions. The difference between the fair value of the
warrants prior to the modification and after the modification
determines the incremental value. In the past, the Company has
modified warrants in connection with the issuance of certain notes
and note extensions. These modified warrants were originally issued
in connection with previous private placement investments. In the
case of debt issuances, the warrants were accounted for as original
issuance discount based on their relative fair values. When
modified in connection with a note issuance, the Company recognizes
the incremental value as a part of the debt discount calculation,
using its relative fair value in accordance with ASC Topic 470-20,
“Debt
with Conversion and Other Options”. When modified in connection with note
extensions, the Company recognized the incremental value as prepaid
interest, which is expensed over the term of the
extension.
The fair value of each share-based payment is estimated on the
measurement date using the Black-Scholes model with the following
assumptions, which are determined at the beginning of each year and
utilized in all calculations for that year. During the three and
nine months ended September 30, 2020 and 2019, the Company did not
make any Black-Scholes model assumptions, as no share-based
payments were made during those periods.
Risk-Free Interest Rate. The interest rate used is based on the yield
of a U.S. Treasury security as of the beginning of the
year.
Expected Volatility. The
Company calculates the expected volatility based on historical
volatility of monthly stock prices over a three-year
period.
Dividend Yield. The
Company has never paid cash dividends, and does not currently
intend to pay cash dividends, and thus has assumed a 0% dividend
yield.
Expected Term. For
options, the Company has no history of employee exercise patterns.
Therefore, the Company uses the option term as the expected term.
For warrants, the Company uses the actual term of the
warrant.
Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures
are based on Company experience. The Company will adjust its
estimate of forfeitures over the requisite service period based on
the extent to which actual forfeitures differ, or are expected to
differ, from such estimates. Changes in estimated forfeitures will
be recognized through a cumulative catch-up adjustment in the
period of change and will also impact the amount of compensation
expense to be recognized in future periods.
Earnings per Share. The
Company computes net income (loss) per common share in accordance
with ASC Topic 260. Net income (loss) per share is based upon the
weighted average number of outstanding common shares and the
dilutive effect of common share equivalents, such as options and
warrants to purchase common stock, convertible preferred stock and
convertible notes, if applicable, that are outstanding each
year. Diluted earnings per
share, if presented, would include the dilution that would occur
upon the exercise or conversion of all potentially dilutive
securities into common stock using the “treasury stock”
and/or “if converted” methods as applicable. For the
nine months ended September 30, 2020, including potentially
dilutive securities in diluted shares outstanding would be
“anti-dilutive’.
For the three and nine months ended September 30, 2019 and the
three and nine months ended September 30, 2020,
basic and diluted earnings per
share were the same at the reporting dates of the accompanying
financial statements, as including common stock equivalents in the
calculation of diluted earnings per share would have been
antidilutive.
As of September 30, 2020, the Company has no outstanding options,
as all options expired in early 2020. As of September 30, 2020, the
Company had outstanding warrants exercisable for 15,000,000 shares
of its common stock $0.01 par value (“Common
Stock”), and outstanding
preferred stock, $0.01 par value (“Preferred
Stock”) convertible into
6,196,893 shares of its Common Stock, which options, warrants and
Preferred Stock were deemed to be antidilutive for the three and
months ended September 30, 2020. At September 30, 2020, the Company
had reserved for issuance to certain investors 860,000 shares of
its Series B Convertible Preferred Stock, par
value $0.01 ("Series B
Preferred") convertible into 860,000 shares of its
Common Stock. As of September 30, 2020, 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 September 30, 2019, the Company had outstanding options
exercisable for 2,300,000 shares of its Common Stock, outstanding
warrants exercisable for 15,000,000 shares of its Common Stock, and
outstanding Preferred Stock convertible into 6,196,893 shares of
its Common Stock, which options, warrants and Preferred Stock were
deemed to be antidilutive for the three and nine months ended
September 30, 2019. At September 30, 2019, the Company had reserved
for issuance to certain investors 860,000 shares of its Series B
Preferred convertible into 860,000 shares of its Common Stock. As
of September 30, 2019, the Company has estimated and reserved for
issuance approximately 20.0 million shares of Common Stock for a
future conversion of its issued and outstanding Convertible Notes
Payable.
Fair Value. The
Company has adopted ASC Topic 820, “Fair Value Measurements
and Disclosures” for
both financial and nonfinancial assets and liabilities. The
Company has not elected the fair value option for any of its assets
or liabilities.
Use of Estimates. The
accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America, and include certain estimates and assumptions, which
affect the reported amounts of assets and liabilities at the date
of the financial statements, and the reported amounts of revenue
and expense during the reporting period. Accordingly, actual
results may differ from those estimates.
Reclassifications. Prior period
financial statement amounts have been reclassified to conform to
current period presentation. The reclassifications have no effect
on net loss or earnings per share.
Recent Accounting Pronouncements.
Management has considered all recent accounting pronouncements in
the current period and identified no pronouncements that would have
an impact on our financial statements.
4. INVESTMENTS
In December 2018, the Company acquired a 15% interest in Preprogen
pursuant to the Preprogen Transaction. On October 8,
2018, the Preprogen Agreement was amended to provide for, among
other things, the release of funds held in escrow related to the
manufacture of the miniform pads (the “Preprogen Amendment”), which
resulted in both parties receiving $200,583 in cash. As
consideration for the Preprogen Amendment, the Company agreed to
pay Preprogen a royalty of 5% from the sale of all over-the-counter
miniform products; provided,
however, that such royalty payments shall terminate when
Preprogen has received $200,000 in aggregate consideration from the
royalties paid by us, and that we shall be entitled to offset such
royalty payments due and payable to Preprogen by amounts equal to
certain other payments otherwise due and payable to us by Preprogen
pursuant to the terms of the Preprogen Agreement. At December 31,
2019, we have fully impaired our investment in
Preprogen.
5.
INTANGIBLE ASSETS
On December 15, 2017, the Company entered into an agreement with
Preprogen, pursuant to which the parties agreed to the sale,
assignment, and license-back of certain assets, including
intellectual property transferred to Preprogen necessary to the
development, manufacture, marketing and sale of the Company’s
over-the-counter miniform products for the feminine hygiene and
hemorrhoid treatment markets. At December 31, 2019, the Company had
reduced its capitalized intangible assets to zero.
6. CONVERTIBLE NOTES PAYABLE
During
the years 2014 to 2017, the Company issued a series of Bridge Notes
(the “Bridge
Notes”) in aggregate principal amount of $1,489,694.
The Bridge Notes matured on various dates through 2018. The Bridge
Notes are in default and bear interest rates ranging from 12% to
18%. As of September 30, 2020, the Bridge Notes are due and
payable.
At September 30, 2020 and December 31, 2019, the Company’s
Convertible Notes Payable are as follows:
|
|
|
|
|
Notes
Payable
|
1,387,694
|
1,387,694
|
|
Accrued
Interest
|
815,594
|
664,788
|
|
Notes
Payable, related party
|
102,000
|
102,000
|
|
Accrued
Interest, related Party
|
60,409
|
48,968
|
|
Total
Notes Payable
|
2,365,697
|
2,203,450
|
Notes Payable, Related Party.
As of September 30, 2020 and December 31, 2019, the Company owed
Mr. Abrams, a director of the Company, an aggregate total of
$162,409 and $150,968, respectively, for outstanding principal and
accrued and unpaid interest on certain Bridge Notes. The
Bridge Notes held by Mr. Abrams are in default and bear interest
rates ranging from 12% to 18%. As of September 30, 2020, the Bridge
Notes are due and payable.
7.
RELATED PARTY TRANSACTIONS
In November 2018, the Company authorized payment of $3,500 per
month to Dr. Hirschman for his services as Chief Executive Officer
and $3,500 to Mr. Abrams for his services as a Director. Effective
January 1, 2020, Mr. Abrams has waived the payments of fees for his
services. Effective April 1, 2020, Dr. Hirschman has waived the
payment of is fees as Chief Executive Officer.
During the nine months ended September 30, 2020, Dr. Hirschman
received aggregate compensation of $3,500 of consulting fees for
services as Chief Executive Officer. The Company applied $7,000 of
prepaid consulting fees to services for February and March 2020.
During the three months ended September 30, 2020, Dr. Hirschman did
not receive or accrue new compensation as he has waived his
compensation for services as Chief Executive Officer. During the
year ended December 31, 2019, Dr. Hirschman received aggregate
compensation of $42,000 of consulting fees for services as Chief
Executive Officer.
During the nine months ended September 30, 2020,
Mr. Abrams received payment of accrued
consulting fees for services during 2019 in the amount of $14,085.
During the three and nine months ended September 30, 2020, Mr.
Abrams did not receive or accrue new compensation as he has waived
his compensation for services as a Director. During the year ended
December 31, 2019, Mr. Abrams received aggregate cash payments of
$35,000 for services as a director of the
Company.
As of September 30, 2020 and December 31, 2019, the Company owed
Mr. Abrams, a director of the Company, an aggregate total of
$162,409 and $150,968, respectively, for outstanding principal and
accrued and unpaid interest on certain Bridge Notes.
8. PREFERRED STOCK
The Company has authorized 25,000,000 shares of Preferred Stock, of
which 20,500,000 are designated as Series B Preferred Stock, with a
stated value of approximately $204,000 (“Series B
Preferred”). The
remaining authorized preferred shares had not been designated by
the Company as of September 30, 2020.
Series B Convertible Preferred Stock
The Series B Preferred ranks senior to the Company’s Common
Stock for purposes of liquidation preference, and to all other
classes and series of equity securities of the Company that by
their terms did not rank senior to the Series B Preferred
(“Junior
Stock”). Holders of
the Series B Preferred are entitled to receive cash dividends,
when, as and if declared by the Board of Directors, and they shall
be entitled to receive an amount equal to the cash dividend
declared on one share of Common Stock multiplied by the number of
shares of Common Stock equal to the outstanding shares of Series B
Preferred, on an as converted basis. The holders of Series B
Preferred have voting rights to vote as a class on matters (a)
amending, altering or repealing the provisions of the Series B
Preferred so as to adversely affect any right, preference,
privilege or voting power of the Series B Preferred; or (b) to
affect any distribution with respect to Junior Stock. At any
time, the holders of Series B Preferred may, subject to
limitations, elect to convert all or any portion of their Series B
Preferred into fully paid non-assessable shares of the
Company’s Common Stock at a 1:1 conversion
rate.
In July and August, 2017, the Company entered into Note Purchase
Agreements with two existing stockholders, pursuant to which the
Company issued the 2017 Bridge Notes in the aggregate principal
amount of $86,000. As additional consideration for the purchase of
the 2017 Bridge Notes, the Company has reserved for issuance an
aggregate of 860,000 shares of Series B Preferred to be issued to
the purchasers of the 2017 Bridge Notes. The Company has valued the
Series B Preferred and has recorded a discount on the 2017 Bridge
Notes of $7,818, which was amortized in full during the year ended
December 31, 2017.
In April 2018, the Company completed the purchase of 10,480,049
shares of Series B Preferred (the “Purchased
Shares”) from an
institutional shareholder for an aggregate purchase price of
$20,000. Following this transaction, the shareholder no longer
holds shares in the Company.
As of September 30, 2020 and December 31, 2019, the Company had
6,196,893 shares of Series B Preferred issued and outstanding, with
a liquidation preference of $61,969 and convertible into 6,196,893
shares of the Company’s Common Stock.
9. COMMON STOCK, OPTIONS AND WARRANTS
The Company has authorized 150,000,000 shares of its Common Stock
for issuance, of which 78,696,461 were issued and outstanding at
each of September 30, 2020 and December 31, 2019.
During the three and nine months ended September 30, 2020 and 2019,
there were no warrants issued by the Company. As of September
30, 2020, the Company has one warrant issued and outstanding, this
warrant was issued in December 2018 to Preprogen’s designee
to purchase up to 15.0 million shares of the Company’s Common
Stock, at an exercise price of $0.05 per share. The warrant was
exercisable immediately upon issuance, and expires on December 14,
2022.
2007 Incentive and Non-Qualified Stock Option Plan.
The fair value of options
granted under the Company’s 2007 Incentive and Non-Qualified
Stock Option Plan is recorded as compensation expense over the
vesting period, or, for performance based awards, the expected
service term. The Company did not
issue any options during the three and nine months ended September
30, 2020 or 2019. As of September 30, 2020, the Company has no
options issued and outstanding.
10. SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of this filing
in accordance with the Subsequent Events Topic of the FASB ASC 855,
and have determined that no subsequent events occurred that are
reasonably likely to impact these financial
statements.