CONDENSED
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Overview
As
used in this Quarterly Report on Form 10-Q, the terms “Company”, “we”, “our”,
“us”, “QuantRx” or the “Company” refers to QuantRx Biomedical Corporation, unless
context otherwise requires. QuantRx Biomedical Corporation was incorporated on December 5, 1986, in the State of Nevada. Our principal
business office is located at 10190 SW 90th Avenue, Tualatin, Oregon 97062.
We
have developed and intend to commercialize our patented miniform pads (“PADs”) and PAD based over-the-counter products
for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs. We
are also developing and intend to commercialize genomic diagnostics for the laboratory market, based on our lateral flow patents. Our
platforms include: inSync®, UniqueTM,
and OEM branded over-the-counter and laboratory testing products based on our core intellectual property related to our PAD technology.
The
continuation of our operations remains contingent upon the receipt of additional financing required to execute our business and operating
plan, which is currently focused on the commercialization of our PAD technology either directly or through a joint venture or other relationship
intended to increase shareholder value. In the interim, we have nominal operations, focused principally on maintaining our intellectual
property portfolio and maintaining compliance with the public company reporting requirements. In order to continue as a going concern,
we will need to raise capital, which may include through the issuance of debt and/or equity securities. No assurances can be given that
we will be able to obtain additional financing under terms favorable to us, if at all, or otherwise successfully develop a business and
operating plan or enter into an alternative relationship to commercialize our PAD technology.
Our
principal business line consists of over-the-counter commercialization of our InSync feminine hygienic interlabial pad, the Unique®
Miniform for hemorrhoid application, and other treated miniforms (the “OTC Business”), as well as maintaining established
and continuing licensing relationships related to these products. We also own certain diagnostic testing technology (the “Diagnostic
Business”, and collectively with the OTC Business, the “Business”) that is based on our lateral flow patents. Management
believes this corporate structure permits us to more efficiently explore options to maximize the value of our products and intellectual
property portfolio, with the objective of maximizing the value of the Businesses for the benefit of the Company and our shareholders.
Our
current focus is to obtain additional working capital necessary to continue as a going concern, and to develop a longer term financing
and operating plan to: (i) commercialize our over-the-counter products either directly or through joint ventures, mergers or similar
transactions intended to capitalize on potential commercial opportunities; (ii) contract manufacturing of our over-the-counter products
to third parties while maintaining control over the manufacturing process; (iii) maintain our intellectual property portfolio with respect
to patents and licenses pertaining to both the OTC Business and the Diagnostics Business; and (iv) maximize the value of our investments
in non-core assets. As a result of our current financial condition, however, our efforts in the short-term will be focused on obtaining
financing necessary to maintain the Company as a going concern.
We
follow the accounting guidance outlined in the Financial Accounting Standards Board (“FASB”) Codification guidelines.
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted principles for interim
financial information and with the items under Regulation S-X required by the instructions to Form 10-Q. They may not include all information
and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements.
However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”)
included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”)
on April 15, 2022. The interim unaudited financial statements presented herein should be read in conjunction with those financial statements
included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, which unless otherwise
disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the three and six months
ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Certain
amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications
had no effect on previously reported losses, total assets or stockholders’ equity.
2.
MANAGEMENT STATEMENT REGARDING GOING CONCERN
We
currently are not generating revenue from operations, and do not anticipate generating meaningful revenue from operations or otherwise
in the short-term. We have historically financed our operations primarily through issuances of equity and the proceeds from the issuance
of promissory notes. In the past, we also provided for our cash needs by issuing our common stock, par value $0.01
per share (“Common Stock”),
options and warrants for certain operating costs, including consulting and professional fees, as well as divesting its minority equity
interests and equity-linked investments.
Our
history of operating losses, limited cash resources and the absence of an operating plan necessary to capitalize on our assets raise
substantial doubt about our ability to continue as a going concern absent a strengthening of our cash position. Management is currently
pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment
holdings, as well as a strategic, merger or other transaction to obtain additional funding to continue the development of, and to successfully
commercialize, our products. There can be no assurance that the Company will be successful in its efforts. Should we be unable to obtain
adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial
condition would be materially and adversely harmed, and we will be unable to continue as a going concern.
There
can be no assurance that, assuming we are able to strengthen its cash position, we will achieve sufficient revenue or profitable operations
to continue as a going concern.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements.
The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and
objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the financial statements.
Accounting
for Share-Based Payments. The Company follows the
provisions of Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation”
(“Topic 718”), which establishes the accounting for transactions in which an entity exchanges equity securities for
services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses
the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value
method and expected term accrual requirements as prescribed. During the three and six months ended June 30, 2022 and 2021, the Company
had no stock
compensation expense.
In June 2018, the FASB issued Accounting Standards
Update (“ASU”) No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting” (“2018-07”) to expand the scope of ASC Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years, and for interim periods within
those fiscal years, beginning after December 15, 2018, with early adoption permitted for an “emerging growth company” beginning
after December 15, 2019. The Company has adopted this standard effective from January 1, 2020 and the adoption of this standard did not
have any significant impact on the unaudited condensed consolidated interim financial statements.
In
the case of modifications, the Black-Scholes model is used to value modified warrants on the modification date by applying the revised
assumptions. The difference between the fair value of the warrants prior to the modification and after the modification determines the
incremental value. In the past, the Company has modified warrants in connection with the issuance of certain notes and note extensions.
These modified warrants were originally issued in connection with previous private placement investments. In the case of debt issuances,
the warrants were accounted for as original issuance discount based on their relative fair values. When modified in connection with a
note issuance, the Company recognizes the incremental value as a part of the debt discount calculation, using its relative fair value
in accordance with ASC Topic 470-20, “Debt with Conversion and Other Options”. When modified in connection with note
extensions, the Company recognized the incremental value as prepaid interest, which is expensed over the term of the extension.
The
fair value of each share-based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions,
which are determined at the beginning of each year and utilized in all calculations for that year. During the three and six months ended
June 30, 2022 and 2021, the Company did not make any Black-Scholes model assumptions, as no share-based payments were made during those
periods.
Risk-Free
Interest Rate. The interest rate used is based on the yield of a U.S. Treasury security as of the beginning of the year.
Expected
Volatility. The Company calculates the expected volatility based on historical volatility of monthly stock prices over a three-year
period.
Dividend
Yield. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0%
dividend yield.
Expected
Term. For options, the Company has no history of employee exercise patterns. Therefore, the Company uses the option term as the expected
term. For warrants, the Company uses the actual term of the warrant.
Pre-Vesting
Forfeitures. Estimates of pre-vesting option forfeitures are based on Company experience. The Company will adjust its estimate of
forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from
such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change
and will also impact the amount of compensation expense to be recognized in future periods.
Earnings
per Share. The Company computes net income (loss) per common share in accordance with ASC Topic 260, “Earnings Per Share”
(“Topic 260”). Net income (loss) per share is based upon the weighted average number of outstanding common shares
and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock
and convertible notes, if applicable, that are outstanding each year. Diluted earnings per share,
if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into
common stock using the “treasury stock” and/or “if converted” methods as applicable.
For
the three and six months ended June 30, 2022 and
the three and six months ended June 30, 2021, 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 June 30, 2022 and at June 30, 2021, the Company had outstanding warrants exercisable for 15,000,000 shares of Common Stock, and outstanding
preferred stock, $0.01 par value (“Preferred Stock”) convertible into 6,196,893 shares of its Common Stock, which
options, warrants and Preferred Stock were deemed to be antidilutive for the three and six months ended June 30, 2022 and June 30, 2021.
At June 30, 2022 and June 30, 2021, the Company had reserved for issuance to certain investors 860,000 shares of its Series B Convertible
Preferred Stock, par value $0.01 per share (“Series B Preferred”), convertible into 860,000 shares of its Common Stock.
As of June 30, 2022 and at June 30, 2021, the Company has estimated and reserved for issuance approximately 20.0 million shares of Common
Stock for a future conversion of its issued and outstanding Bridge Notes (See Note 4).
Fair
Value. The Company has adopted ASC Topic 820, “Fair Value Measurements and Disclosures” for both financial and
nonfinancial assets and liabilities. The Company has not elected the fair value option for any of its assets or liabilities.
Use
of Estimates. The accompanying financial statements are prepared in conformity with GAAP, and include certain estimates and assumptions,
which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue
and expense during the reporting period. Accordingly, actual results may differ from those estimates.
Recent
Accounting Pronouncements.
Management
has considered all recent accounting pronouncements in the current period and identified no pronouncements that would have an impact
on our financial statements.
4.
CONVERTIBLE NOTES PAYABLE
During
the years 2014 to 2017, the Company issued a series of Bridge Notes (the “Bridge Notes”) in the aggregate
principal amount of $1,489,694.
The Bridge Notes matured on various dates through 2018. The Bridge Notes are in default and bear interest rates ranging from 12%
to 18%.
As of June 30, 2022, the Bridge Notes are due and payable.
At
June 30, 2022 and December 31, 2021, the Company’s Convertible Notes Payable are as follows:
SCHEDULE
OF CONVERTIBLE NOTES PAYABLE
| | |
| | | |
| | |
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Notes Payable | |
$ | 1,387,694 | | |
$ | 1,387,694 | |
| Accrued Interest | |
$ | 1,167,808 | | |
$ | 1,067,644 | |
| Notes Payable, related party | |
$ | 102,000 | | |
$ | 102,000 | |
| Accrued Interest, related Party | |
$ | 87,089 | | |
$ | 79,490 | |
| Total Notes Payable | |
$ | 2,744,591 | | |
$ | 2,636,828 | |
Notes
Payable, Related Party.
As
of June 30, 2022 and December 31, 2021, the Company owed Mr. Abrams, a director of the Company, an aggregate total of $189,089 and $181,490,
respectively, for outstanding principal and accrued and unpaid interest on certain Bridge Notes. The Bridge Notes held by Mr. Abrams
are in default and bear interest rates ranging from 12% to 18%. As of June 30, 2022, the Bridge Notes are due and payable.
5.
SHAREHOLDER LOAN
During
the six months ended June 30, 2022, the Company received a shareholder loan in the amount of $25,000
to support its operations. The parties are currently negotiating the terms of the shareholder loan,
although it is currently anticipated that such loan will be in the form of a convertible promissory note with interest accruing beginning
after the date of this Report.
6.
RELATED PARTY TRANSACTIONS
In November 2018, the Company authorized payment of
$3,500 per month to Dr. Hirschman for his services as Chief Executive Officer and $3,500 to Mr. Abrams for his services as a director.
Effective January 1, 2020, Mr. Abrams has waived the payments of fees for his services. Effective April 1, 2020, Dr. Hirschman has waived
the payment of his fees as Chief Executive Officer.
As
of June 30, 2022, and December 31, 2021, the Company owed Mr. Abrams, a director of the Company, an aggregate total of $189,089 and $181,490,
respectively, for outstanding principal and accrued and unpaid interest on certain Bridge Notes. See Note 4 above.
7.
PREFERRED STOCK
The
Company has authorized 25,000,000 shares of Preferred Stock, of which 20,500,000 are designated as Series B Preferred, with a stated
value of approximately $204,000 (“Series B Preferred”). The remaining authorized shares of Preferred Stock had not
been designated by the Company as of June 30, 2022.
Series
B Convertible Preferred Stock
The
Series B Preferred ranks senior to the Company’s Common Stock for purposes of liquidation preference, and to all other classes
and series of equity securities of the Company that by their terms did not rank senior to the Series B Preferred (“Junior Stock”).
Holders of the Series B Preferred are entitled to receive cash dividends, when, as and if declared by the Board of Directors, and they
shall be entitled to receive an amount equal to the cash dividend declared on one share of Common Stock multiplied by the number of shares
of Common Stock equal to the outstanding shares of Series B Preferred, on an as converted basis. The holders of Series B Preferred have
voting rights to vote as a class on matters (a) amending, altering or repealing the provisions of the Series B Preferred so as to adversely
affect any right, preference, privilege or voting power of the Series B Preferred; or (b) to affect any distribution with respect to
Junior Stock. At any time, the holders of Series B Preferred may, subject to limitations, elect to convert all or any portion of their
Series B Preferred into fully paid non-assessable shares of the Company’s Common Stock at a 1:1 conversion rate.
In
July and August, 2017, the Company entered into Note Purchase Agreements with two existing stockholders, pursuant to which the Company
issued certain Bridge Notes (the “2017 Bridge Notes”) in the aggregate principal amount of $86,000. As additional
consideration for the purchase of the 2017 Bridge Notes, the Company has reserved for issuance an aggregate of 860,000 shares of Series
B Preferred to be issued to the purchasers of the 2017 Bridge Notes. The Company has valued the Series B Preferred and has recorded a
discount on the 2017 Bridge Notes of $7,818, which was amortized in full during the year ended December 31, 2017.
In
April 2018, the Company completed the purchase of 10,480,049 shares of Series B Preferred from an institutional shareholder for an aggregate
purchase price of $20,000. Following this transaction, the shareholder no longer holds shares in the Company.
As
of June 30, 2022, and December 31, 2021, the Company had 6,196,893 shares of Series B Preferred issued and outstanding, with a liquidation
preference of $61,969 and convertible into 6,196,893 shares of the Company’s Common Stock.
8.
COMMON STOCK, OPTIONS AND WARRANTS
The
Company has authorized 150,000,000 shares of its Common Stock for issuance, of which 78,696,461 were issued and outstanding at each June
30, 2022, and December 31, 2021.
During
the three months ended June 30, 2022 and June 30, 2021, there were no warrants issued by the Company. As of June 30, 2022, the Company
has one warrant issued and outstanding, this warrant was issued in December 2018 to Preprogen’s designee to purchase up to 15.0
million shares of the Company’s Common Stock, at an exercise price of $0.05 per share. The warrant was exercisable immediately
upon issuance, and expires on December 14, 2022.
2007
Incentive and Non-Qualified Stock Option Plan. The fair value of options granted under the Company’s 2007 Incentive and Non-Qualified
Stock Option Plan is recorded as compensation expense over the vesting period, or, for performance-based awards, the expected service
term. The Company did not issue any options during the three and six months ended June 30, 2022,
or 2021. As of June 30, 2022, the Company has no options issued and outstanding.
9.
SUBSEQUENT EVENTS
On
August 16, 2022, the Company received a shareholder loan in the amount of $8,000.
The parties are currently negotiating the terms of the shareholder loan, although it is currently anticipated that such loan will be
in the form of a convertible promissory note.