1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Overview
QuantRx Biomedical Corporation was incorporated on December 5, 1986, in the State of Nevada. Our principal business office is located at 10190 SW 90th Avenue, Tualatin, Oregon 97123. When used in this Quarterly Report on Form 10-Q, the terms “
Company
,” “
we
,” “
our
,” “
ours
,” or “
us
” mean QuantRx Corporation, a Nevada corporation.
We have developed
and intend to commercialize our innovative PAD based products for the OTC 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 OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology.
Our efforts to commercialize our products 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 had nominal operations, focused principally on maintaining and expanding our intellectual property portfolio, and maintaining compliance with the public company reporting requirements. We have continued to issue promissory notes to continue as a going concern. 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.
On June 20, 2012, the Company formed a wholly-owned subsidiary, QX Labs, Inc. (“
QX
”), and proceeded to transfer to QX all intellectual property and assets related to the Company’s diagnostic testing business (“
Diagnostics Business
”). The Diagnostic Business is based principally on the Company’s proprietary PadKit® technology, which the Company believes provides a patented platform technology for genomic diagnostics, including fetal genomics. Following the transfer of the Diagnostics Business to QX, the Company’s remaining business line consists of its 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 the creation of QX permits the Company to more efficiently explore different 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, supplement its management team, and develop a longer term financing and operating plan to: (i) leverage its broad-based intellectual property (“
IP
”) 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 limited online sale of our Unique® Miniform PAD product, and obtaining financing necessary to maintain the Company as a going concern.
The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the items under Regulation S-K required by the instructions to Form 10-Q. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 13, 2016. 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 three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported losses, total assets or stockholders equity.
Recent Developments
BHA Note
. On March 31, 2016, Burnham Hill Advisors, LLC (“
BHA
”) agreed to exchange all amounts owed pursuant to the Advisory Agreement by and between the Company and BHA, dated October 2013 (the “
BHA Agreement
”), for a promissory note, on terms substantially similar to the Bridge Notes (as defined in Note 6, “
Convertible Notes Payable
” below), in the principal amount of $283,000 (the “
BHA Note
”). The BHA Note matures on December 31, 2016.
Global Cancer Diagnostic, Inc. Letter of Intent
. On September 3, 2015, the Company entered into a non-binding letter of intent (the “
Global LOI
”) with Global Cancer Diagnostics, Inc., a privately held laboratory in Tempe, Arizona (“
Global
”), for a proposed business combination of the two entities. If executed, the Company will acquire 100% of the outstanding capital stock of Global in exchange for restricted shares of the Company’s common stock, par value $0.01 per share (“
Common Stock
”), and will continue as the surviving entity, with Global becoming a wholly owned subsidiary of the Company. The Global LOI had an original termination date of October 31, 2015 (the “
Termination Date
”), but may be terminated or extended anytime by the mutual written consent of the parties. Management is currently in active discussions with Global regarding certain matters contained in the Global LOI, including an extension of the Termination Date.
Pursuant to the terms and conditions of the Global LOI, the Company advanced to Global $50,000 during the quarter ended September 30, 2015 (the “
Global Advance
”), which amount is currently due and payable by Global, on demand. In the event the Company and Global execute definitive merger documents, Global will issue to the Company that number of shares of Global’s common stock equal to 10% of the then outstanding shares of Global’s common stock, on a fully-diluted basis, as payment of the Global Advance.
2. MANAGEMENT STATEMENT REGARDING GOING CONCERN
The Company currently generates only nominal revenue from operations. The Company has historically financed its operations primarily through issuances of equity and the proceeds from the issuance of promissory notes. In the past, the Company also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees, as well as divesting its minority equity interests and equity-linked investments.
The Company’s history of operating losses, limited cash resources and the absence of an operating plan necessary to capitalize on the Company’s assets raise substantial doubt about our ability to continue as a going concern, absent a strengthening of our cash position. Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment holdings, as well as a strategic merger or other transaction, to obtain additional funding to continue the development of, and to successfully commercialize, its products. There can be no assurance that the Company will be successful in its efforts. Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.
There can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“
GAAP
”) and have been consistently applied in the preparation of the financial statements.
Accounting for Share-Based Payments.
The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed. During the three months ended March 31, 2016, the Company had no stock compensation expense.
The Company accounts for share-based payments granted to non-employees in accordance with ASC Topic 505, “
Equity Based Payments to Non-Employees
.” The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is complete.
In the case of modifications, the Black-Scholes model is used to value modified warrants on the modification date by applying the revised assumptions. The difference between the fair value of the warrants prior to the modification and after the modification determines the incremental value. The Company has modified warrants in connection with the issuance of certain notes and note extensions. These modified warrants were originally issued in connection with previous private placement investments. In the case of debt issuances, the warrants were accounted for as original issuance discount based on their relative fair values. When modified in connection with a note issuance, the Company recognizes the incremental value as a part of the debt discount calculation, using its relative fair value in accordance with ASC Topic 470-20, “
Debt with Conversion and Other Options
.” When modified in connection with note extensions, the Company recognized the incremental value as prepaid interest, which is expensed over the term of the extension.
The fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year. During 2015, the Company used an average risk free interest rate of 0.52%, a dividend yield of zero, and an average expected volatility of 417%. The Company did not issue any equity securities during the three months ended March 31, 2016.
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, uses the option term as the expected term. For warrants, the Company uses the actual term of the warrant.
Pre-Vesting Forfeitures.
Estimates of pre-vesting option forfeitures are based on Company experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
Earnings per Share.
The Company computes net income (loss) per common share in accordance with ASC Topic 260. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase Common Stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as including Common Stock equivalents in the calculation of diluted earnings per share would have been antidilutive.
The Company had outstanding options exercisable for 2,452,500 shares of its Common Stock as of March 31, 2016 and 2015, and preferred shares convertible into 16,676,942 shares of its Common Stock at each of March 31, 2016 and 2015. These options and preferred shares were deemed to be antidilutive for the three months ended March 31, 2016 and 2015.
Fair Value.
The Company has adopted ASC Topic 820, "
Fair Value Measurements and Disclosures
" for both financial and nonfinancial assets and liabilities. The Company has not elected the fair value option for any of its assets or liabilities.
Use of Estimates.
The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions, which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
Recent Accounting Pronouncements
.
Management has considered all recent accounting pronouncements in the current period and identified no pronouncements that would have an impact on our financial statements.
4. INVESTMENTS
In May 2006, the Company purchased 144,024 shares of common stock of Genomics USA, Inc. (“
GUSA
”) 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 March 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. Genomics USA, Inc. now does business as GMS Biotech.
5. INTANGIBLE ASSETS
Intangible assets as of the balance sheet dates consisted of the following:
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March 31,
2016
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December 31,
2015
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Licensed patents and patent rights
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Less: accumulated amortization
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The Company’s intangible assets consist of patents, licensed patents and patent rights, are carried at the legal cost to obtain them. Costs to renew or extend the term of intangible assets are expensed when incurred. 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:
Asset Categories
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Estimated Useful Life in Years
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Intangibles acquired in 2008 (weighted average)
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Amortization expense for the three months ended March 31, 2016 and 2015 totaled $2,143 and $2,143, respectively.
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.
6. CONVERTIBLE NOTES PAYABLE
2012 Notes and 2013 Notes.
In May 2012, in consideration for the extension of certain promissory notes originally due and payable on March 31, 2012 (the “
2012 Notes
”) to June 30, 2012, the Company assigned to the holders of the 2012 Notes FPMI Warrants to purchase a total of 113,127 shares of FPMI common stock for $0.50 per share (the
“$0.50 FPMI Warrants
”). In August 2012, in consideration for the extension of the maturity date of the 2012 Notes to November 15, 2012, the Company agreed to assign a total of 155,877 $0.50 FPMI Warrants to the holders of the 2012 Notes. As a result, a total of 260,508 $0.50 FPMI Warrants have been assigned to holders of 2012 Notes.
Between August 2012 and July 2013, the Company issued promissory notes in the aggregate principal amount of $114,000 (the “
2013 Notes
”). As additional consideration for the 2013 Notes, the Company issued an aggregate total of 200,000 shares of Common Stock, 8,496 $0.50 FPMI Warrants and 64,000 FPMI Warrants exercisable for $1.00 per share.
The 2012 and 2013 Notes accrue interest at the rate of 6% annually prior to maturity, and 12% annually thereafter. All 2012 Notes and 2013 Notes have matured and are currently due and payable on demand. The 2012 Notes and 2013 Notes are convertible at the option of each respective holder into shares of Common Stock at a conversion price equal to $0.10 per share. In addition, the holders may exchange the 2012 Notes and 2013 Notes for Common Stock in the event the Company consummates a qualified financing (the “
Qualified Financing
”), which is defined in the 2012 Notes and 2013 Notes as a financing resulting in gross proceeds to the Company of at least $500,000. While the Company intends to pay the 2012 Notes and 2013 Notes using proceeds from a Qualified Financing, such Qualified Financing may not occur prior to the date the holders of the 2012 Notes and 2013 Notes demand repayment.
In connection with the issuance of the 2012 Notes and 2013 Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $106,261 and $28,998, respectively. The Company will amortize these expenses over the life of the 2012 Notes and 2013 Notes. As of December 31, 2012, the Company recorded interest expense related to the debt discount of $21,905 and $3,777 related to the beneficial conversion feature.
In connection with the issuance of the 2013 Notes, the Company has recorded debt discount and expenses in the amount of $27,753 related to the value of the 64,000 FPMI warrants to the holders of the 2013 Notes. The Company will amortize the costs over the remaining life of these 2013 Notes. As of September 30, 2014, the Company recorded other financing costs of $27,753 related to the debt discount on the 2013 Notes.
On October 29, 2013, the holder of certain outstanding 2012 Notes and 2013 Notes totaling approximately $217,000 in principal and accrued interest agreed to cancel such notes in exchange for a new promissory note with a face amount of $217,000 maturing on March 31, 2014, and 100,000 FPMI Warrants. Separately, our financial advisor agreed to exchange $216,000 of fees accrued from May 15, 2012 to October 15, 2013, otherwise payable in cash on or before December 31, 2013, for a promissory note with a face amount of $250,000 maturing on March 31, 2014, and 100,000 FPMI Warrants. These promissory notes accrued interest at a rate of 8% annually prior to maturity, and, following maturity of both promissory notes on March 31, 2014, now accrue interest at rate of 12% annually.
Bridge Notes.
In July 2014, the Company’s Board of Directors approved of a private offering of convertible promissory demand notes (the “
Bridge Notes
”) to certain accredited investors in the aggregate principal amount of up to $500,000. As additional consideration for the purchase of the Bridge Notes, the Board approved of the issuance of 200,000 shares of the Company’s Common Stock to participating investors for every $100,000 invested.
Each Bridge Note accrues interest at a rate of 10% per annum, payable in either cash or shares of the Company’s Common Stock. The Bridge Notes matured on December 31, 2015, and are currently due and payable on demand. Each Bridge Note is convertible, at the option of the holder thereof, into that number of shares of Common Stock equal to the outstanding principal balance of the Bridge Note, plus accrued but unpaid interest (the “
Outstanding Balance
”), divided by $0.08 (the “
Conversion Shares
”). Additionally, in the event the Company completes an equity or equity-linked financing with gross proceeds to the Company of at least $1.5 million (a “
Qualified Financing
”), the Outstanding Balance of all Bridge Notes will, at the discretion of each respective holder, either (i) convert into securities sold in the Qualified Financing, or (ii) automatically convert into Conversion Shares.
During the year ended December 31, 2014, the Company issued Bridge Notes in the aggregate principal amount of $386,000. As additional consideration for the purchase of the Bridge Notes, the Company issued an aggregate total of 772,000 shares of Common Stock to the purchasers of the Bridge Notes.
In connection with the issuance of the Bridge Notes during the year ended December 31, 2014, the Company recorded debt discount and expenses related to the beneficial conversion feature in the amount of $35,944 and $48,444, respectively. The Company will amortize these amounts over the life of the debt and, accordingly, recorded interest expense related to the debt discount and beneficial conversion feature in the amount of $26,958, and $36,333, respectively. The Company also incurred $46,000 of costs related to issuance of the Bridge Notes, which were amortized over the life of the debt. Total issuance costs recognized during the year ended December 31, 2014 amounted to $34,263.
During the year ended December 31, 2014, the Company authorized the issuance of 2,601,233 shares of Common Stock to the holders of all outstanding notes payable with an aggregate outstanding principal balance of $870,693 in order to satisfy all accrued, but unpaid, interest on the notes issued between 2012 and June 2014. During the period, all of the authorized shares of Common Stock were issued to settle the total outstanding interest payable on the notes, which amounted to $93,924. The Company recognized a loss of $62,150 in connection with the settlement.
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, BHA agreed to exchange all amounts owed to BHA under the BHA Agreement for a promissory note, on terms substantially similar to the Bridge Notes, in the principal amount of $283,000. The BHA Note matures on December 31, 2016.
At March 31, 2016 and December 31, 2015, the Company’s Convertible Notes Payable are as follows:
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March 31,
2016
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December 31,
2015
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Notes Payable
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$
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844,174
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$
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814,433
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Notes Payable, related party
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794,411
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495,340
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Total notes payable, net of discount
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$
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1,638,585
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$
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1,309,773
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7. LONG-TERM NOTES PAYABLE
The Company received a $44,000 loan from the Portland Development Commission in 2007. The loan matures in 20 years and was interest free through February 2010. The terms of the note stipulated monthly interest only payments from April 2010 through December 2014, at a 5% annual rate. The Company recorded interest expense on this loan of $518 and $545 for the three months ended March 31, 2016 and 2015, respectively. The loan balance as of March 31, 2016 and 2015 was $41,190 (current portion of $2,370) and $43,451 (current portion of $2,255), respectively.
8. OTHER BALANCE SHEET INFORMATION
Components of selected captions in the accompanying balance sheets consist of:
Prepaid expenses:
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March 16, 2016
(unaudited)
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December 31,
2015
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Computers and office furniture, fixtures and equipment
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Less: accumulated depreciation
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Property and equipment, net
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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 March 31, 2016 consisted of computer and office equipment, machinery and equipment with estimated useful lives of three to seven years. Depreciation expense for each of the three months ended March 31, 2016 and 2015 was $273.
Expenditures for repairs and maintenance are expensed as incurred.
9. PREFERRED STOCK
The Company has authorized 20,500,000 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 March 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 March 31, 2016 and December 31, 2015, the Company had 16,676,942 shares of Series B Preferred Stock issued and outstanding with a liquidation preference of $166,769, respectively, and convertible into 16,676,942 shares of Common Stock.
10. COMMON STOCK, OPTIONS AND WARRANTS
The Company has authorized 150,000,000 shares of its Common Stock, of which 69,772,918 shares were issued and outstanding at each of March 31, 2016 and December 31, 2015.
On January 2, 2015, the Company issued 73,000 shares of Common Stock to the purchaser of a Bridge Note in the principal amount of $36,500. 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. As of March 31, 2016, these shares were still outstanding.
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 during the quarter ended December 31, 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.
During the three months ended March 31, 2016 and 2015, there were no warrants issued by the Company. As of March 31, 2016, the Company had no warrants issued and outstanding.
2007 Incentive and Non-Qualified Stock Option Plan.
The fair value of options granted under the Company’s 2007 Incentive and Non-Qualified Stock Option Plan is recorded as compensation expense over the vesting period, or, for performance based awards, the expected service term. During the three months ended March 31, 2015, the Company recorded stock compensation expense related to options issued for director fees in the amount of $56,000. The Company did not issue any options during the three months ended March 31, 2016.
11. COMMITMENTS AND CONTINGENCIES
Professional Services Agreement.
On October 29, 2013, we entered into the BHA Agreement. 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 this 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 deferral of all other remaining cash fees until December 31, 2014 in consideration for the issuance of the 109,917 FPMI Warrants.
On March 31, 2016, BHA agreed to exchange all amounts owed to BHA under the BHA Agreement for a promissory note, on terms substantially similar to the Bridge Notes (the “
BHA Note
”), in the principal amount of $283,000. The BHA Note matures on December 31, 2016.
On May 28, 2014, we entered into a Consulting Services Agreement for financial related services from 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.
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 will receive a total of 2.5 million restricted shares of Common Stock as compensation under the agreement. The initial payment of 625,003 shares will be issued provided the Company receives gross proceeds of at least $500,000 of equity capital (the “
Initial Capital Raise
”). As of December 31, 2014, the requirements under this agreement had not been met.
Although the Company has yet to receive proceeds sufficient to constitute an Initial Capital Raise (as defined above), in February 2015, the Company agreed to issue 300,000 shares of Common Stock to Mayer and 625,003 shares to JFS Investments as consideration for services rendered under the agreements thus far. 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.
12. SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of this filing in accordance with the Subsequent Events Topic of the FASB ASC 855, and have determined that no subsequent events occurred that are reasonably likely to impact these financial statements