QTXB QuantRx Biomedical Corporation (CE)

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PART I

 

 As used in this Annual Report on Form 10-K, “we,” “us,” “our,” “QuantRx” and “Company” refer to QuantRx Biomedical Corporation, unless the context otherwise requires.

 

I TEM 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. When used in this Annual Report on Form 10-K, the terms “Company,” “we,” “our,” “ours,” or “us” refer to QuantRx Corporation, a Nevada corporation.

 

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 patented PadKit ® technology.  Our platforms include: inSync ® , Unique TM , PadKit ® 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 remain contingent on the receipt of additional financing required to execute our business and operating plan, which is currently focused on the commercialization of our PAD technology either directly or through a joint venture or other relationship intended to increase shareholder value.  In the interim, we have 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 diagnostic testing business, operating under our subsidiary QX Labs, Inc. (“ QX ”) (the “ Diagnostic Business ”) is based principally on the Company’s proprietary PadKit® technology, which we believe provides a patented platform technology for genomic diagnostics, including fetal genomics. Outside of the Diagnostic Business, our business line consists of our over-the-counter business, including the InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms (the “ OTC Business ”), as well as established and continuing licensing relationships related to the OTC Business. Management believes this corporate structure permits the Company to more efficiently explore options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “ Businesses ”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.

 

The Company’s current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage its broad-based intellectual property and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize its OTC Business and its Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets.  As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on obtaining financing necessary to maintain the Company as a going concern.

 

  Our Business

 

 Management’s objective is to develop the Company’s innovative PAD based products through genomic testing, although commercialization efforts are conditioned on 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:

 

 

 

 

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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.

  

Diagnostic Products

 

 Diagnostic products historically constitute the core of the Company’s product development focus. The Company’s healthcare technologies are currently in different stages of development, ranging from commercialization to proof of concept. The Company ultimately plans to bring its products to commercialization; however, commercialization of these technologies is contingent on the development of a financing and operating plan that permits the Company to successfully capitalize on its development efforts to date.  Such plan may include seeking a strategic or other partner to economically commercialize or finance the Company’s technologies. The Company’s objective in the interim is to maintain strict cost control measures, as well as maintain control of its technologies, in order to continue as a going concern.  The discussion below assumes the Company continues with the development and commercialization of its technologies, although no assurances can be given.

 

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.  While these relationships are currently in effect, each has been suspended pending the development of a financing and operating plan to commercialize the Company’s products and technology.

  

PADs for Diagnosis and Treatment

 

 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.

  

PADKit ®

 

 The PADKit integrates the Company’s miniform technology with its diagnostic expertise. The PADKit contains a miniform used as a collection device to collect samples for diagnostic evaluation. Vaginally, the miniform collects blood along with numerous cells, vaginal mucous and discharge flushed out by the menstrual flow or during normal daily exfoliation.  The PADKit is designed to provide the preferred sample collection system for use in population scale testing of indications such as HPV, HIV and general health screenings where healthcare professionals are not readily accessible.

 

 

 

 

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 Although significant improvements have been made in the area of Pap test sample reading and sample preparation, clinical indications support broad testing for HPV that will have a greater impact in lowering the incidence of cervical cancer.  The Company believes the PADKit will provide a superior and more consistent sample, as well as a simpler, more comfortable and convenient procedure for HPV testing.  The Company further hopes to demonstrate viability of the PADKit as the basis of various other diagnostic and screening tests.   

 

 The Company holds several patents for the method and apparatus for collecting vaginal fluid and exfoliated vaginal cells for diagnostic purposes, collection of a sample for general diagnostic screening, and the collection of an anal sample for prostate and other diagnostic purposes.  Several clinical studies have been conducted with and on the PADKit, which have provided data needed to show the degree to which the sample collected can be used to replace other accepted samples, ability to provide a genomic testing sample as well as its safety and ease of use.

 

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 recommence active operations.

 

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 attempts to secure additional financing necessary to commercialize our products.

 

 

 

 

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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, 2016, the Company had twelve (12) patents issued, four (4) patents pending, one (1) allowed patent, and two (2) 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 holds six (6) registered U.S. and foreign trademarks and has one (1) pending trademark.

 

 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

  

 On August 14, 2008, the Company entered into a ten-year Technology License Agreement with Church & Dwight Co., Inc. (“ Church & Dwight ”). Under the terms of the Agreement, Church & Dwight acquired exclusive world-wide rights to use certain Company technology related to a jointly developed at-home diagnostic test and began distributing the product in early 2009, resulting in the Company receiving royalties on net sales of the product in 2016 and 2015 of $0 and $156 respectively.

 

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 ”).

 

 

 

 

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 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(R), 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 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.

 

 The Company’s operations are currently in compliance with current FDA requirements.  In the quarter ended June 30, 2012, the FDA audited the Company, and its operations were found to be fully compliant.

   

 Additionally, the Centers for Medicare & Medicaid Services (“ CMS ”) regulates all laboratory testing (except research) performed on humans in the U.S. through 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.

 

 

 

 

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Research and Development Activities

 

 The Company spent $0 and $13,154 on research and development activities during the years ended December 31, 2016 and 2015, respectively.  The Company did not engage in any research and development efforts in the 2016 period, nor does the Company expect to engage in any research and development activity and until funding is secured and we develop a plan to commercialize its products.

 

Employees

 

 As of December 31, 2016, we had no employees; however, the Company has four part-time consultants providing services to the Company in order to maintain the Company as a going concern and to protect the Company’s intellectual property portfolio and other assets.

 

ITEM 1A.  R ISK 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, 2016, the Company had an accumulated deficit of $51,372,621.  Our losses resulted principally from costs related to 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 2017.  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.

 

 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.

 

 

 

 

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Our ability to recommence 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 recommence 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 recommence operations and, ultimately, commercialize our innovative PAD-based products, management has been unsuccessful to date in securing financing other than bridge 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, the Company’s 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 $1.6 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 $1.6 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 recommence operations, there is no assurance that the Company’s products will gain market acceptance .

 

 Efforts to commercialize our products are conditioned on the development of a financing and operating plan that allows the Company to recommence operations.  Assuming the successful development of such a plan, the success of the Company 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 products of the Company.

 

The Company faces intense competition .

 

 If successfully brought into the marketplace, any of the Company’s products will likely compete with several existing products. The Company anticipates that it 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 the Company. Competitive products may render the Company’s products obsolete or noncompetitive prior to the Company’s recovery of development and commercialization expenses.

 

 Many of the Company’s 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 the Company, 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 recommencement 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.

 

 

 

 

 

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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.

 

The Company’s success will be dependent on licenses and proprietary rights it receives from other parties, and on any patents it may obtain .

 

 Our success will depend in large part on the ability of the Company and its 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 those of the Company, are uncertain and involve complex legal and factual questions. There is no guarantee that the Company or its 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 the Company. In addition, we cannot be certain that any patents issued to or licensed by the Company will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide competitive disadvantages to the Company.

 

 Litigation, which could result in substantial cost, may also be necessary to enforce any patents to which the Company has rights, or to determine the scope, validity and unenforceability of other parties’ proprietary rights, which may affect the rights of the Company. 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 the Company’s 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 the Company pending resolution of the disputed matters.

 

 The Company may also rely on unpatented trade secrets and know-how to maintain its competitive position, which it seeks 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 the Company will have adequate remedies for any breach, or that trade secrets will not otherwise become known or be independently discovered by 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 the Company 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.

 

 

 

 

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We currently do not have any full-time employees, resulting from our objective of substantially reducing expenses .   At such time as we recommence 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 the Company will be able to attract and retain skilled personnel at such time as it recommences 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 .

 

 The Company has 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 the Company 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.

 

 The dependence upon third parties for the manufacture of 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 its manufacturing requirements on commercially acceptable terms would have a material adverse effect on the Company. Additionally, the Company 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 .

 

 The business of the Company will expose it 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 the Company. The Company has obtained insurance coverage; however, there can be no assurance that the Company will be able to obtain additional product liability insurance on commercially acceptable terms or that the Company 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 the Company 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 risk 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. 

 

 

 

 

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The market price of our shares, like that of many biotechnology companies, is highly volatile .

 

 Market prices for the Company’s 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 the Company or its 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 Common Stock of the Company.

 

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 OTCBB, 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 .

 

 The board of directors of the Company 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.  U NRESOLVED STAFF COMMENTS

 

 None.

 

 

 

 

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ITEM 2.  P ROPERTIES

 

 We did not maintain a corporate headquarters during the year ended December 31, 2016 or 2015, 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 recommence operations.

 

ITEM 3.  L EGAL PROCEEDING S 

 

 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.  M INE SAFETY DISCLOSURES

 

 Not applicable.

PART II

 

ITEM 5.  M ARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our Common Stock

 

 Our common stock, par value $0.01 per share (“ Common Stock ”) trades on the OTCBB 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, 2016
Fourth Quarter	$ 0.01	$ 0.01
Third Quarter	$ 0.02	$ 0.01
Second Quarter	$ 0.02	$ 0.01
First Quarter	$ 0.03	$ 0.02
Year ended December 31, 2015
Fourth Quarter	$ 0.08	$ 0.02
Third Quarter	$ 0.04	$ 0.02
Second Quarter	$ 0.05	$ 0.02
First Quarter	$ 0.05	$ 0.03

 

Stockholders

 

 As of December 31, 2016, there were approximately 735 shareholders of record of our Common Stock, one of which was Cede & Co., a nominee for the Depository Trust Company or 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

 

None.

 

 

 

 

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ITEM 6.  SELECTED F INANCIAL DATA

 

 Not required under Regulation S-K for “smaller reporting companies.”

 

ITEM 7.  M ANAGEMENT'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 and intend to commercialize genomic diagnostics for the laboratory market, based on our patented PadKit ®   technology.  Our platforms include: inSync ® , Unique ® , PadKit ® , and OEM branded 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 remain contingent on the receipt of financing required to execute our business and operating plan, which is currently focused on the commercialization of our PAD technology either directly or through a joint venture, or other relationship intended to increase shareholder value.  In the interim, we have nominal operations, focused principally on maintaining our intellectual property portfolio and continuing to comply with the public company reporting requirements. No assurances can be given that we will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize our PAD technology.

 

Our diagnostic testing business, operating under our subsidiary QX Labs, Inc. (“ QX ”) (the “ Diagnostic Business ”) is based principally on the Company’s proprietary PadKit® technology, which we believe provides a patented platform technology for genomic diagnostics, including fetal genomics. Outside of the Diagnostic Business, our business line consists of our over-the-counter business, including the InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms (the “ OTC Business ”), as well as established and continuing licensing relationships related to the OTC Business. Management believes this corporate structure permits the Company to more efficiently explore options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “ Businesses ”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.

 

Our current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage our broad-based intellectual property and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize our OTC Business and Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of our investments in non-core assets.  However, as a result of our current financial condition, our efforts in the short-term will be focused on obtaining financing necessary to continue as a going concern.

 

Our Results of Operations

 

The Company did not generate any revenue during the year ended December 31, 2016. Total revenue for the for year ended December 31, 2015 was $156.  The absence of revenue is due to no royalty revenue attributable to the Company’s PAD technology received during the 2016 period.  Management does not anticipate that the Company will generate any revenue until such time as the Company develops a plan to commercialize its products, which is contingent on the receipt of financing.

  

 Total costs and operating expenses for the years ended December 31, 2016 and 2015 were $138,839 and $358,865, respectively. Highlights of the major components of our results of operations are detailed and discussed below:

 

 

 

 

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	Year Ended December 31,  2016	Year Ended December 31,  2015
Sales, general and administrative	$ 75,434	$ 219,292
Professional fees	$ 56,231	$ 116,754
Research and development	$ -	$ 13,154
Other operating expense, net	$ 7,174	$ 9,665

 

 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, 2016 compared to the year ended December 31, 2015 is attributable to lower legal fees related to maintaining our intellectual property incurred during the 2016 period. Also included in sales, general and administrative expense for the year ended December 31, 2016. Included in the year ended December 31, 2015, there are non-cash expense of $122,000 related to stock issued as compensation to the Company’s board of directors, and $25,000 related to stock issued as compensation under certain consulting agreements.

 

Professional fees include the costs of legal, consulting and auditing services provided to us, each of which were lower in the 2016 period, as compared to the 2015 period. The period over period decrease in professional fees is directly related to lower overall costs for professional services, including lower non-cash expenses for stock based compensation paid to a consultant, lower general management fees and lower costs of legal, accounting, consulting, and financial services during the year ended December 31, 2016, as compared to the year ended December 31, 2015. 

 

The Company did not incur any research and development costs during  the year ended December 31, 2016.  Research and development expense during fiscal year 2015 primarily reflects technical consulting and expense incurred to support international studies conducted on the Company’s PadKit sampling technology during the year ended December 31, 2015. The Company does not expect to engage in any research and development activity and until funding is secured and we develop a plan to commercialize its products.

 

 Other operating expense for the years ended December 31, 2016 and 2015 was $7,174 and $9,665, respectively. The decrease in other operating expense is attributable to lower costs for amortization and depreciation during the 2016 period.

 

 Other income and expense for the years ended December 31, 2016 and 2015 include expenses of $259,155 and of $109,071, respectively.  Highlights of the major components of other income and expense our results of operations are detailed and discussed below:

 

	Year Ended December 31,  2016	Year Ended December 31,  2015
Gain (loss) on settlement of accounts payable	$ 540	$ 57,066
Amortization of debt discount to interest expense	$ -	$ (35,075 )
Interest expense	$ (196,146 )	$ (123,899 )
Loss on impairment	$ (80,052 )	$ -
Gain (loss) on conversion of shares	$ 16,503	$ (7,163 )

 

 During the year ended December 31, 2016, interest expense increased to $196,146 from $128,899 during the 2015 period, primarily due to an increase in outstanding notes payable in the 2016 period. The increase in interest expense in the 2016 period compared to the 2015 period, is related to a higher balance of outstanding notes payable and higher interest rate calculated using the default interest rate during the 2016 period.

 

 

 

 

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During the year ended December 31, 2016, the Company recorded a non-cash expense of $80,052 due to impairment of certain assets during the year.

 

 Net loss for the 2016 period was $397,994, compared to net loss of $467,780 reported for the 2015 period.   This decrease is primarily attributable to lower expenses, including lower professional fees and sales, general and administrative expense, as discussed above, and was offset by an increase in interest expense in the 2016 period related to a non-cash loss of $80,052 due to losses from the impairment of assets during the year.

 

The Company expects net loss to continue to decrease in future periods due to the current suspension of our active operations and our lack of revenue. We do not expect to recommence active operations until we are able to secure financing necessary to execute our business and operating plan, including the development and launch of its products, or to otherwise capitalize on our PAD technology.

 

Liquidity and Capital Resources

 

 At December 31, 2016, the Company had cash and cash equivalents of $691, as compared to $61,078 at December 31, 2015.

 

 During the year ended December 31, 2016, we used $94,643 of cash for operating activities, as compared to $226,378 during the year ended December 31, 2015. The overall net decrease in cash used for operating activities during the year ended December 31, 2016, is attributable to net losses incurred in the period, partially offset by accrued and unpaid interest of $127,773 and non-expenses related to losses on an impairment of $80,052 and losses due to the issuance of common stock in exchange for interest on notes payable of $52,201.   

 

 Cash provided by financing activities during the year ended December 31, 2016 was $34.256 as compared to $118,910 during the year ended December 31, 2015. The overall net decrease in cash provided by financing activities for the year ended December 31, 2016 is attributable to convertible note financing activities of $0 in 2016 compared to $121,500 in 2015. During 2016, the Company received $36,000 from shareholder loans.

 

             The Company has not generated sufficient revenues from operations to meet its operating expenses. The Company requires additional funding to complete the development and launch of its products, or to otherwise capitalize on its PAD technology. The Company has historically financed its operations primarily through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees.

 

 Management believes that given the current economic environment and the continuing need to strengthen our cash position, there is substantial doubt about our ability to continue as a going concern. We are pursuing various funding options, including licensing opportunities and the sale of investment holdings, as well other financing transactions, to obtain additional funding to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be successful in our efforts. Should we be unable to raise adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed.

 

 The Company believes that the ability of the Company to recommence operations, and therefore continue as a going concern is dependent upon its ability to do any or all of the following: 

 

	●	obtain adequate sources of funding to pay operating expenses and fund long-term business operations;
	●	enter into a licensing or other relationship that allows the Company to commercialize its products;
	●	manage or control working capital requirements by reducing operating expenses; and
	●	develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.

 

 

 

 

 

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 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.

 

 

 

 

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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.

 

 

 

 

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 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, 2016 and 2015, 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

Mr. Michael Abrams, a director of the Company, is an employee of Burnham Hill Advisors, LLC (“ BHA ”). On October 29, 2013, we entered into a new advisory agreement with BHA. Pursuant to this agreement, we agreed to pay a retainer in the amount of $100,000 and $15,000 per month beginning on November 29, 2013. The initial term of the agreement expired on December 31, 2014. BHA agreed to defer the cash fees due under the new agreement until June 30, 2014. On July 1, 2014, the Company and BHA modified the terms of this agreement to provide for a one-time $15,000 payment in August 2014, and deferred all other remaining cash fees under this agreement through December 31, 2014 in consideration for the issuance of the 109,917 FPMI Warrants .

 

           During the first quarter of 2016, 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. This note is past due as of December 31, 2016.

 

As of December 31, 2016, the Company owed Mr. Abrams an aggregate total of $2,059 for outstanding principal and accrued and unpaid interest on certain Bridge Notes.

 
ITEM 7A.  Q UANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 Not required under Regulation S-K for “smaller reporting companies.”

 

ITEM 8.  F INANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 Audited balance sheets for the years ended December 31, 2016 and 2015 and audited statements of operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2016 and 2015 are included immediately following the signature page to this Annual Report, beginning on page F-1.

 

ITEM 9.  C HANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

 None.

  

ITEM 9A.  C ONTROLS 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, 2016. 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

 

 

 

 

 

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 (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, 2016. 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, 2016, 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 I NFORMATION

 

 None.

 

 

 

 

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PART III

 

ITEM 10.  DIRECTORS, E XECUTIVE 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		80		Chief Executive Officer, Principal Accounting Officer and Chairman
Michael Abrams		47		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. 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 Mr. Abrams failed to file a required Section 16 report during 2016.

 

Code of Ethics

 

 The Company has adopted a code of ethics, which applies to all 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.

 

 

 

 

 

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Audit Committee

 

 At December 31, 2016, 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 reestablish general policies relating to compensation.

  

Nominating Committee

 

 The Company’s entire Board 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.  E XECUTIVE COMPENSATION

 

Summary Compensation

 

 The following table sets forth information concerning the compensation paid to the Company’s Chief Executive Officer, and the Company’s two most highly compensated executive officers other than its chief executive officer, who were serving as executive officers as of December 31, 2016 and whose annual compensation exceeded $100,000 during such year (collectively the “ Named Executive Officers ”):

 

Name And Principal Position		Year		Salary ($)			Bonus ($)			Option Awards  ($)			All other Compensation ($)		Total ($)
Dr. Shalom Hirschman		2016 (1)			-			-			-		-			-
Chief Executive Officer and Principal Accounting Officer		2015			-			-			30,000	(2)	20,000	(3)		50,000

 

(1)	Dr. Hirschman did not receive compensation during the year ended December 31, 2016 .
(2)	Amount represents the grant date fair value of stock options to purchase 750,000 shares of Common Stock issued to Dr. Hirschman on February 3, 2015, computed in accordance with FASB guidance.
(3)	Amount represents the fair value of 1,000,000 shares of Common Stock issued to Dr. Hirschman as compensation during 2015.

 

 

 

 

 

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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	2/3/2020
Chief Executive Officer and Principal Accounting Officer

           

Director Compensation

 

Name	Fees earned or Paid in Cash  ($)	Option  Awards  ($)	Stock  Awards  ($)	Total  ($)
None	$ -	$ -	-	-

 

  

ITEM 12.  SECURITY O WNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

 The following table sets forth certain information as of April 10, 2017, 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. 

 

 

 

 

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Name and Address of Beneficial Owner (1)		Amount and Nature of Beneficial Ownership as of April 10, 2017				Percentage of Class (2)
Officers and Directors
Shalom Hirschman (3)			2,800,000				2.54	%
Chief Executive Officer
Michael Abrams (4)			2,026,945				3.52	%
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 10, 2017 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 10, 2017.

 

(3)	Includes 750,000 shares issuable upon exercise of stock options.
(4)	Includes 1,000,000 shares issuable upon exercise of stock options.
(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 $467,000 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 $74,000 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.

  

 

 

 

 

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ITEM 13.  CERTAIN RELATIONSHIPS A ND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Related Parties

 

Mr. Michael Abrams, a director of the Company, is an employee of Burnham Hill Advisors, LLC (“ BHA ”). On October 29, 2013, we entered into a new advisory agreement with BHA. Pursuant to this agreement, we agreed to pay a retainer in the amount of $100,000 and $15,000 per month beginning on November 29, 2013. The initial term of the agreement expired on December 31, 2014. BHA agreed to defer the cash fees due under the new agreement until June 30, 2014. On July 1, 2014, the Company and BHA modified the terms of this agreement to provide for a one-time $15,000 payment in August 2014, and deferred all other remaining cash fees under this agreement through December 31, 2014 in consideration for the issuance of the 109,917 FPMI Warrants .

 

During the first quarter of 2016, 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. This note is past due as of December 31, 2016.

 

As of December 31, 2016, the Company owed Mr. Abrams an aggregate total of $2,059 for outstanding principal and accrued and unpaid interest on certain Bridge Notes.

 

Director Independence

 

 The Company has determined that none of its directors were independent as of December 31, 2016, 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 A CCOUNTING FEES AND SERVICES

 

Audit Fees

 

 The aggregate fees billed for professional services rendered by Fruci & Associates II, PLLC (“ Fruci II ”) for the audit of our annual financial statements and the reviews of financial statements for years 2016 and 2015 were $26,414 and $29,901, respectively.  

 

Audit-Related Fees

 

 During the years ended December 31, 2016 and 2015, 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, 2016 and 2015, 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, 2016 and 2015, no fees were billed by Fruci II other than the fees set forth under the captions “Audit Fees” and “Tax Fees” above.  

 

 

 

 

 

 

25

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ITEM 15.  EXHIBITS AND FINANCIAL S TATEMENT SCHEDULES

 

The following exhibits are filed as part of this annual report:

   

Exhibit No.		Description
3.1		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)
3.2		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)
3.3		Bylaws of the Company (incorporated by reference to Exhibit 3.2 filed with Form 10KSB40/A filed on September 23, 1999)
3.4		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)
3.5		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)
3.6		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)
3.7		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)
4.1		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)
4.2		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)
4.3		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)
4.4		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)
4.5		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)
4.6		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)
10.1		2007 Incentive and Non-Qualified Stock Option Plan (incorporated by reference to Exhibit C filed with Schedule 14A on June 5, 2007)
10.2		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)
10.3		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).
14.1		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)
31**		Certification of Principal Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32**		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.  

 

 

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Table of Contents

 

S IGNATURES

 

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, 2017	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, 2017	By:	/s/ Shalom Hirschman
		Shalom Hirschman Chief Executive Officer and Director
Date:  April 17, 2017	By:	/s/ Michael Abrams
		Michael Abrams, Director

 

 

 

 

 

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FINANCIAL STATEMENTS

 

Table of Contents

 

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015		F-3
Consolidated Statements of Operations for the Years Ended December 31, 2016 and 2015		F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015		F-5
Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2016 and 2015		F-6
Notes to Financial Statements		F-7

 

 

 

 

 

Table of Contents

 

REPORT OF INDEPENDENT R EGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of QuantRx Biomedical Corp.

 

We have audited the accompanying balance sheets of QuantRx Biomedical Corp. as of December 31, 2016, and the related statements of operation, stockholders’ equity, and cash flows for the year ended December 31, 2016. QuantRx Biomedical Corp.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of QuantRx Biomedical Corp. as of December 31, 2016, and the results of its operations and its cash flows for the year ended December 31 2016, in conformity with accounting principles generally accepted in the United States of America.

 

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 has not yet established an ongoing source of revenues sufficient to cover its operating costs, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

 

/s/ Fruci & Associates II, PLLC Fruci & Associates II, PLLC Spokane, WA
April 17, 2017

 

 

 

 

 

F-2

Table of Contents

 

QUANTRX BIOMEDICAL CORPORATION

CONSOLIDATED B ALANCE SHEETS

 

	December 31,	December 31,
	2016	2015
ASSETS
Current Assets:
Cash and cash equivalents	$ 691	$ 61,078
Deposit on investment	-	50,000 -
Prepaid expenses	28,094	26,396
Total Current Assets	28,785	137,474
Investments, net of impairment of $30,051	169,948	200,000
Property and equipment, net	-	1,098
Intangible assets, net	13,874	19,949
Total Assets	$ 212,607	$ 358,521
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$ 160,671	$ 121,821
Accounts payable, related party	-	283,000
Accrued expenses	36,342	34,366
Shareholder loans	36,000	-
Notes payable, net of discount	1,059,784	1,042,529
Notes payable, related party	558,287	267,244
Current portion of LT notes payable	4,376	2,336
Total Current Liabilities	1,855,460	1,751,296
Notes payable, long-term	35,646	39,430
Total Liabilities	1,891,106	1,790,726
Commitments and Contingencies	-	-
Stockholders’ Equity (Deficit):
Preferred stock; $0.01 par value, 25,000,000 authorized shares; 20,500,000 shares designated as Series B Convertible Preferred Stock; Series B Convertible Preferred shares 16,676,942 issued and outstanding	166,769	166,769
Common Stock; $0.01 par value; 150,000,000 authorized; 78,696,461 and 69,772,918 shares issued and outstanding, respectively	786,964	697,729
Additional paid-in capital	48,740,389	48,677,924
Accumulated deficit	(51,372,621 )	(50,974,627 )
Total Stockholders’ Equity (Deficit)	(1,678,499 )	(1,432,205 )
Total Liabilities and Stockholders’ Equity (Deficit)	$ 212,607	$ 358,521

QUANTRX BIOMEDICAL CORPORATION

CONSOLIDATED S TATEMENTS OF OPERATIONS

 

	Year Ended December 31,
	2016	2015
Revenues:
Revenues	$ -	$ 156
Total Revenues	-	156
Costs and Operating Expenses:
Sales, general and administrative	75,434	219,292
Professional fees	56,231	116,754
Research and development	-	13,154
Amortization	6,075	8,572
Depreciation	1,099	1,093
Total Costs and Operating Expenses	138,839	358,865
Loss from Operations	(138,839 )	(358,709 )
Other Income (Expense):
Interest expense	(196,146 )	(123,899 )
Amortization of debt discount to interest expense	-	(35,075 )
Loss on impairment	(80,052 )	-
Gain (loss) on conversion of shares	16,503	(7,163 )
Gain (loss) on settlement of accounts payable	540	57,066
Total Other Income (Expense), net	(259,155 )	(109,071 )
Income (Loss) Before Taxes	(397,994 )	(467,780 )
Provision for Income Taxes	-	-
Net Income (Loss)	$ (397,994	$ (467,780 )
Basic and Diluted Net Income (Loss) per Common Share	$ (0.01 )	$ (0.01 )
Basic and Diluted Weighted Average Shares Used in per Share Calculation	74,246,914	66,834,677

QUANTRX BIOMEDICAL CORPORATION

CONSOLIDATED S TATEMENTS OF CASH FLOWS  

 

	Year Ended December 31,
	2016	2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	(397,994 )	$ (467,780
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	7,173	9,665
Interest expense related to amortization of non-cash discount, non-cash beneficial conversion feature and deferred financing costs	-	28,612
Non-cash fair value of Common Stock issued as compensation to management	-	30,000
Non-cash fair value of Common Stock issued as compensation to consultant	-	25,000
Non-cash fair value of Stock Options issued as compensation to management		92,000
Non-cash loss on equity issuance for other financing costs	-	7,163
Non-cash loss on issuance of common stock in exchange for interest on notes payable	68,704	35,700
Non-cash gain on the conversion of shares	(16,503 )	-
Non-cash fair value of Common Stock issued in connection with notes payable	-	99,672
(Increase) decrease in:
Accounts receivable	-	352
Loss on impairment	80,042	-
Inventories		-
Prepaid expenses	(1,698 )	14,506
Increase (decrease) in:
Accounts payable	38,850	(57,485 )
Accrued expenses	(126,783 )	(43,783 )
Net Cash Used by Operating Activities	(94,643 )	(226,378 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit on Investment	-	(50,000 )
Net Cash Provided (Used) by Investing Activities	-	(50,000 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long term debt	(1,744 )	(2,590 )
Proceeds from the issuance of shareholder loans	36,000	-
Proceeds from issuance of convertible promissory notes	-	121,500
Net Cash Provided by Financing Activities	34,256	118,910
Net Increase (Decrease) in Cash and Cash Equivalents	(60,387 )	(157,468 )
Net Cash of Deconsolidated Subsidiary
Cash and Cash Equivalents, Beginning of Period	61,078	218,546
Cash and Cash Equivalents, End of Period	$ 691	$ 61,078
Supplemental Cash Flow Disclosures:
Interest expense paid in cash	$ -	$ -
Income tax paid	$ -	$ -
Supplemental Disclosure of Non-Cash Activities:
Common Stock issued for interest conversion	$ 151,700	$ 81,173

QUANTRX BIOMEDICAL CORPORATION

CONSOLIDATED STATEMENT OF S TOCKHOLDERS’ EQUITY

 

	Preferred Stock		Common Stock
	Number of Shares	Amount	Number of Shares	Amount	Additioal Paid-in Capital	Stock to be Issued	Accumulated Defecit	Total  Stockholders’ Equity
BALANCE, DECEMBER 31, 2014	16,676,942	$ 166,769	63,341,163	$ 633,412	$ 48,428,724	$ 63,000	$ (50,506,847 )	$ (1,214,942 )
Issuance of common stock related to notes payable			1,029,500	10,295	46,888	(42,000 )		15,183
Issuance of common stock in exchange for interest payable			2,690,752	26,908	54,265	-		81,173
Issuance of common stock for services to consultant			1,211,503	27,115	41,048	(21,000 )		32,163
Issuance of common stock for services to management			1,500,000		30,000			30,000
Issuance of stock options as compensation					92,000			92,000
Net loss for the year ended December 31, 2015							(467,780 )	(467,780 )
BALANCE, DECEMBER 31, 2015	16,676,942	$ 166,769	69,772,918	$ 697,729	$ 48,677,927	$ -	$ (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 )

NOTES TO FINANCIAL STATEMENTS

 

1.	DESCRIPTION OF BUSINESS

 

Overview

 

We have developed  and intend to commercialize our innovative PAD based products for the over-the-counter markets for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs. We are developing and intend to commercialize genomic diagnostics for the laboratory market, based on our patented PadKit ® technology.  Our platforms include: inSync®, Unique™, PadKit ® , and OEM branded over-the-counter and laboratory testing products based on our core intellectual property related to our PAD technology.

 

The continuation of our operations remain contingent on the receipt of financing required to execute our business and operating plan, which is currently focused on the commercialization of our PAD technology either directly or through a joint venture, or other relationship intended to increase shareholder value.  In the interim, we have nominal operations, focused principally on maintaining our intellectual property portfolio and continuing to comply with the public company reporting requirements. No assurances can be given that we will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize our PAD technology.

 

Our diagnostic testing business, operating under our subsidiary QX Labs, Inc. (“ QX ”) (the “ Diagnostic Business ”) is based principally on the Company’s proprietary PadKit ® technology, which we believe provides a patented platform technology for genomic diagnostics, including fetal genomics. Outside of the Diagnostic Business, our business line consists of our over-the-counter business, including the InSync feminine hygienic interlabial pad, the Unique® Miniform for hemorrhoid application, and other treated miniforms (the “ OTC Business ”), as well as established and continuing licensing relationships related to the OTC Business. Management believes this corporate structure permits the Company to more efficiently explore options to maximize the value of the Diagnostics Business and the OTC Business (collectively, the “ Businesses ”), with the objective of maximizing the value of the Businesses for the benefit of the Company and its stakeholders.

 

Our current focus is to obtain additional working capital necessary to continue as a going concern, and develop a longer term financing and operating plan to: (i) leverage our broad-based intellectual property and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize our OTC Business and Diagnostics Business either directly or through joint ventures, mergers or similar transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of our investments in non-core assets.  However, as a result of our current financial condition, our efforts in the short-term will be focused on obtaining financing necessary to continue as a going concern.

 

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.

 

 

 

 

 

F-7

Table of Contents

 

 

 The Company’s history of operating losses, limited cash resources and the absence of an operating plan necessary to capitalize on the Company’s assets raise substantial doubt about our ability to continue as a going concern absent a strengthening of our cash position.  Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment holdings, as well as a strategic, merger or other transaction to obtain additional funding to continue the development of, and to successfully commercialize, its products.  There can be no assurance that the Company will be successful in its efforts.  Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.

 

 There can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.

  

3.	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, 2016 and 2015 of $0 and $122,000, 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, 2016 and 2015 of $0 and $25,000, 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 2016, the Company had no share based payments.  During 2015, the fair value of each share based payment is estimated on the measurement date using the Black-Scholes model using an average risk free interest rate of 0.52%, expected volatility of 417%, and a dividend yield of zero.   

  

 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.

 

 

 

 

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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, 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, 2016 and 2015.

 

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, 2016 and 2015, our cash was not in excess of these 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, 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. The above options and preferred shares were deemed to be antidilutive for the year ended December 31, 2016.

 

 As of December 31, 2015, the Company had outstanding options exercisable for 2,452,000 shares of its Common Stock, and preferred shares convertible into 16,676,942 shares of its Common Stock. The above options and preferred shares were deemed to be antidilutive for the year ended December 31, 2015.

 

Fair Value of Financial Instruments

 

 Current U.S. generally accepted accounting principles 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).

 

 

 

 

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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 – Pricing 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. 

 

 In determining fair value of our investment from GUSA (which investment is further described in Note 6 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.

 

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.

 

 

 

 

 

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 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.

 

During 2016, the Company recorded losses from impairments totaling $80,042 (the “ 2016 Impairments ”). The 2016 Impairments consist the following:

 

Genomics USA, Inc. (“ GUSA ”) During the year ended December 31, 2016, the Company has recorded a loss of $30,052 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.

 

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, 2016 or 2015, and have not recognized interest and/or penalties in the statement of operations for the years ended December 31, 2016 or 2015. See Note 11, 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, 2016 and 2015, totaled $6,075 and $8,572. The remaining unamortized costs will be amortized through 2024.  The Company estimates its amortization expense for 2017 will be $3,575.

 

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, 2016 and 2015 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 $1,099 and $1,093 for the years ended December 31, 2016 and 2015. Expenditures for repairs and maintenance are expensed as incurred. See Note 4below.

 

 

 

 

 

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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

 

 In 2007, the Company entered into a development agreement for an at-home diagnostic test with Church & Dwight Co., Inc.  (“ C&D ”). The C&D agreement included milestone based payments, which were recognized in 2007 and 2008. On August 14, 2008, the Company entered into a Technology License Agreement with C&D.  Under the terms of the agreement, C&D acquired exclusive worldwide rights to use certain Company technology related to the jointly developed test. Under the ten-year agreement, the Company received royalties on net sales of the product of $0 and $156 in 2016 and 2015, respectively.

 

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

 

 

 

 

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 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, 2016 and December 31, 2015, 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, 2016 and 2015 consist of:

 

	2016	2015
Prepaid expenses:
Prepaid insurance	28,094	26,396
Other		-
Prepaid expenses	$ 28,094	$ 26,396
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 )	(32,408 )
Property and equipment, net	$ -	$ 1,098
Accrued expenses:
Other accrued expenses	36,342	34,366
Accrued expenses	$ 36,342	$ 34,366

  

5.	INVESTMENTS

 

In May 2006, the Company purchased 144,024 shares of common stock of for $200,000. After the investment, QuantRx owned approximately 5% of the total issued and outstanding common stock of GUSA. As of the end of December 31, 2016, the Company’s position had been diluted to approximately 2% of the issued and outstanding common stock of GUSA.  The investment is recorded at historical cost and is assessed at least annually for impairment. During the year ended December 31, 2016, the Company has recorded a loss of $30,052 as an impairment on the value of its common stock investment in GUSA. The Company has valued the impairment based on the dilution of the Company’s investment and certain other factors.   Genomics USA, Inc. now does business as GMS Biotech.

 

6.	INTANGIBLE ASSETS

 

 Intangible assets as of December 31, 2016 and 2015 consisted of the following:

 

	2016	2015
Licensed patents and patent rights	$ 50,000	$ 50,000
Patents	41,044	41,044
NuRx licensed technology	13,200	13,200
Less: accumulated amortization	(90,370 )	(84,295 )
Intangibles, net	$ 13,874	$ 19,949

 

 

 

 

 

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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 has 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 will amortize these costs over the life of the notes.

 

In June 2015, the Company authorized the issuance of an aggregate total of 1,875,691 shares of Common Stock as payment for accrued interest for the period from January 1, 2015 through June 30, 2015 under certain convertible notes payable.  The Company settled a total of $70,256 in accrued interest, recognizing a gain on settlement in the amount of $23,364.  The Company and the holders of the Bridge Notes also agreed to extend the maturity date of the Bridge Notes from June 30, 2015 to December 31, 2015. As consideration for the extension of the maturity date of the Bridge Notes, the Company issued an aggregate total of 286,500 shares of Common Stock to the Bridge Note holders.

 

In July 2015, the Company issued a Bridge Note in the principal amount of $35,000 and issued an aggregate total of 70,000 shares of Common Stock to the purchaser of the Bridge Note.

 

BHA Note . On March 31, 2016, Burnham Hill Advisors, LLC (“ BHA ”) agreed to exchange the amounts owed to BHA under the October 29, 2013 agreement for a promissory note, on terms substantially similar to the Bridge Notes (the “ BHA Note ”), in the principal amount of $283,000 with issuance date of March 31, 2016. The BHA Note is payable on demand as of December 31, 2016. This note is past due as of December 31, 2016.

 

At December 31, 2016 and 2015, the Company’s Convertible Notes Payable are as follows:

 

	December 31,
	2016	2015
Notes Payable	1,058,784	1,042,529
Notes Payable, related party	558,287	267,244
Total notes payable, net of discount	1,618,071	1,309,773

 

Notes Payable, Related Party.

 

As of December 31, 2016, the Company owed Mr. Michael Abrams, a director of the Company, an aggregate total of $2,059 for outstanding principal and accrued and unpaid interest on certain Bridge Notes. As of December 31, 2016, the Company owes 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.

 

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 towards principal and interest through the life of the loan. During the year ended December 31, 2016, the Company made principal payments of $1,744 and payments towards accrued interest of $1,539. During the year ended December 31, 2015, the Company made principal payments of $2,234 and payments towards accrued interest of $2,137. The Company recorded interest expense on this loan of $2,040 and $2,137 for the year ended December 31, 2016 and 2015, respectively.

 

 

 

 

 

 

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11.	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, 2016 and 2015, the Company had gross deferred tax assets calculated at an expected blended rate of 38% of approximately $10,800,000 and $10,700,000, 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 $10,800,000 and $10,700,000 has been established at December 31, 2016 and 2015, 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, 2016, 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. 

 

	2016	2015
Gross deferred tax assets:
Net operating loss carryforwards	$ 9,800,000	$ 9,700,000
Difference between book and tax basis of former subsidiary stock held
Stock based expenses	250,000	250,000
Tax credit carryforwards	200,000	200,000
All others	550,000	550,000
	10,800,000	10,700,000
Deferred tax asset valuation allowance	(10,800,000 )	(10,700,000 )
Net deferred tax asset (liability)	$ -	-

 

At December 31, 2016, the Company has net operating loss carryforwards of approximately $9,800,000, which expire in the years 2015 through 2033. The net change in the allowance account was an increase of approximately $100,000 for the year ended December 31, 2016 and approximately $150,000 for the year ended December 31, 2015.

 

 

 

 

 

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12.	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, 2016.  

 

 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, 2016 and 2015, 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.

 

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 and 69,772,918 shares of its Common Stock at December 31, 2016 and 2015.

 

On January 2, 2015, the Company issued 73,000 shares of Common Stock to the purchaser of a $36,500 note. Additionally, we issued 500,000 shares of Common Stock 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 agreed to issue Common Stock to two consultants for services rendered under the terms of their respective agreements, although neither consultant had fully completed the obligations of their agreements. An aggregate of 925,003 common shares were issued during the three months ended March 31, 2015.

 

In February 2015, the Company issued 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 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 May 2013, the executive management received an aggregate of 1.0 million shares of Common Stock as compensation for the completion of certain objectives. On February 20, 2015, the Board of Directors agreed to cancel these shares, as the Company had failed to meet the specified objectives. 

 

 

 

 

 

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In June 2015, the Company’s Board of Directors authorized the following issuances of Common Stock: (i) an aggregate total of 286,500 shares issuable to the Bridge Note holders as consideration for the extension of the maturity date of the Bridge Notes to December 31, 2015; (ii) an aggregate total of 1,875,691 shares of Common Stock as payment of accrued but unpaid interest on certain of the Company’s convertible promissory notes; and (iii) an aggregate total of 100,000 shares of Common Stock to certain investors who purchased Bridge Notes in the aggregate principal amount of $50,000 during the three months ended June 30, 2015.

 

In July 2015, the Company issued an aggregate total of 70,000 shares of Common Stock to the purchaser of a $35,000 Bridge Note.

 

In September 2015, the Company authorized an aggregate total of 1.5 million shares of Common Stock to its officers and directors as consideration for services rendered to the Company, subject to certain vesting schedules. These shares were issued subsequent to September 30, 2015, and all shares were fully vested as of December 31, 2015. Since the shares fully vested during the year ended December 31, 2015, the Company elected to expense the full amount during the 2015 period, rather than amortizing the amount over multiple periods.

 

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.

 

13.	STOCK PURCHASE WARRANTS

During the years ended December 31, 2016 and 2015, there were no warrants issued by the Company.  As of December 31, 2016, the Company had no warrants issued and outstanding. 

 

14.	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 year ended December 31, 2016, no stock options were granted by the Company. During the year ended December 31, 2015, the Company issued options to purchase 2,300,000 shares of common stock to its management team. Each option has an expiration date of February 3, 2020, and are exercisable for $0.04 per share.

 

 The following is a summary of all Common Stock option activity during the year ended December 31, 2016 and 2015:

 

		Shares Under Options Outstanding				Weighted Average Exercise Price
Outstanding at December 31, 2014			152,000			$	1.34
Options granted			2,300,000				0.04
Options forfeited			-			$	-
Options exercised			-				-
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

 

 

 

 

 

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	Options Exercisable	Weighted Average Exercise Price Per Share
Exercisable at December 31, 2015	2,352,000	$ 0.06
Exercisable at December 31, 2016	2,352,000	$ 0.06

 

 The following represents additional information related to Common Stock options outstanding and exercisable at December 31, 2016:

 

	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	3.09	$ 0.04	2,300,000	$ 0.04
$ 0.80	1,000	1.16	$ 0.80	1,000	$ 0.80
$ 0.85	51,000	0.77	$ 0.85	51,000	$ 0.85
			$		$
	2,352,000	2.00	$ 0.06	2,352,000	$ 0.06

 

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, 2016 and changes during the year ended December 31, 2016 is presented below:

 

Nonvested Stock Options	Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2014	100,500	$ 100,000
Options granted	-	-
Options vested	-	$ -
Options forfeited		-
Nonvested at December 31, 2015	100,000	$ 100.000
Options granted
Options vested
Options forfeited	(100,000 )	(100,000 )
Nonvested at December 31, 2016	-	-

 

15.	COMMITMENTS AND CONTINGENCIES

 

On May 28, 2014, we entered into a Consulting Services Agreement for financial related services with Mayer & Associates (“ Mayer ”) through November 30, 2014. Under the terms of the agreement, Mayer will receive 300,000 shares of Common Stock and four payments of $12,500. During the year ended December 31, 2014, the Company has recorded the expenses under this agreement totaling $50,000 of which $25,000 has been paid, additionally the Company has reserved for issuance 300,000 shares of its Common Stock in connection with this agreement. Although the Company has yet to receive proceeds sufficient to constitute an initial capital raise of $500,000, in February 2015, the Company agreed to issue 300,000 shares of Common Stock to Mayer as consideration for services rendered under the agreement.  In June 2015, the Company also authorized the issuance of an aggregate total of 286,500 shares of Common Stock to Mayer for services rendered under the Consulting Services Agreement first executed on May 28, 2014. As of December 31, 2016, the requirements under the Mayer agreement had not been met and the Company has terminated this agreement and no further compensation is due or will be paid.

 

On May 28, 2014, the Company entered into a Consulting Services Agreement for financial related services from JFS Investments PR LLC ( “JFS” ).  Under the terms of the agreement, JFS could receive a total of 2.5 million restricted shares of Common Stock as compensation under the agreement. In February 2015, the Company agreed to issue an initial payment of 625,003 shares as consideration for services rendered. As of September 30, 2016, the requirements under the JFS agreement had not been met and the Company has terminated this agreement and no further compensation is due or will be paid.

 

16.	SUBSEQUENT EVENTS

 

For the quarter ended March 31, 2017, the Company received proceeds of $75,000 from the issuance of promissory notes.

 

On February 27, 2017, the Company entered into a memorandum of understanding (“ MOU ”) with an unrelated third party regarding the sale of certain assets of QX Labs, including the intellectual property, trade-secrets and diagnostic applications related to the Company’s PadKit technology and the lateral flow diagnostics technology. Under the MOU, the Company retains all rights and assets necessary to pursue marketing the over the counter miniform products for female hygiene and hemorrhoid treatment. If the transaction outlined in the MOU is completed, the Company would receive a $1.0 million cash payment at closing, a 15% percent ownership interest in the acquiring company and future cash payments ranging from 1.5%-2% of gross revenue generated from the Padkit and lateral flow technologies.   The MOU is subject to numerous contingencies and conditions, and there is no assurance that a transaction will be completed.

 

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-18