As
used in this Annual Report on Form 10-K, the terms
“we”, “us”, “our”,
“QuantRx” and “Company” refer to QuantRx
Biomedical Corporation, unless the context otherwise
indicates.
ITEM 1. Business
QuantRx
Biomedical Corporation was incorporated on December 5, 1986, in the
State of Nevada. The Company’s principal business office is
located at 10190 SW 90th Avenue, Tualatin, Oregon
97062.
Overview
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 the 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 our OTC
Business, which includes 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 the OTC Business. We also own certain diagnostic
testing technology that is based on our lateral flow patents
(the "Diagnostics
Business", and collectively
with the OTC Business, the "Business"). Management believes this corporate structure
permits us to more efficiently explore options to maximize the
value of the Businesses, with the objective of maximizing the value
of the Businesses for the benefit of the Company and 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.
Preprogen Transaction
On December 15, 2017
(“Closing
Date”), we executed
an agreement with Preprogen LLC (“Preprogen”)
(the “Preprogen
Agreement”), pursuant to
which we agreed to the sale, assignment, and license-back of
certain of our assets pertaining to our Diagnostic Business (the
“Purchased
Assets”).
Under this agreement, we retained all
rights and assets relating to the OTC Business, which includes all
assets necessary to pursue marketing the over-the-counter miniform
products for female hygiene and hemorrhoid
treatment.
As set forth in the
Preprogen Agreement, as consideration for the sale, assignment and
transfer of the Purchased Assets (the “Preprogen
Transaction”) on
the Closing Date, Preprogen (A) paid us $1.0 million
(“Cash Amount”) as follows: (i) approximately $38,000 was
paid to the City of Portland to payoff certain indebtedness owed by
us to the City of Portland, (ii) $65,000 in principal amount of
notes held by Preprogen was credited toward the purchase price as a
result of the cancellation and termination of those certain
promissory notes payable to Preprogen by us, and (iii) the
remaining balance was paid to us in cash at closing (the
“Closing
Balance”); and (B) issued
to us that number of membership interests in Preprogen equal to 15%
of the issued and outstanding membership interests in Preprogen on
a fully diluted basis as of the Closing Date. Under the terms of
the Preprogen
Agreement, Preprogen is
obligated to pay to us such additional amounts calculated based on
the aggregate gross revenue generated by Preprogen from the sale of
products after the Closing Date that utilize, or royalty payments
or licensing fees received by Preprogen with respect to, the
Purchased Assets, if any, as more particularly set forth in
the Preprogen
Agreement.
At closing, and as
required by the Preprogen Agreement, we deposited $400,000 of the
Cash Balance in escrow, which funds were to be used to fund up to
50% of the costs incurred by Preprogen in connection with the
development and manufacturing of materials to be used by us for our
over-the-counter miniform products and to be used by Preprogen for
diagnostic products related to the Purchased Assets. As additional
consideration for the Purchased Assets, we issued a warrant to
Preprogen’s designee to purchase up to 15.0 million shares of
our common stock, par value $0.01 per share
(“Common
Stock”), at an
exercise price of $0.05 per share (the “Warrant”).
The Warrant is immediately exercisable and expires on December 14,
2022.
On October 8,
2018, the Preprogen Agreement was amended to provide for, among
other things, the release of funds held in escrow related to the
manufacture of the miniform pads (the “Preprogen Amendment”), which
resulted in both parties receiving $200,583 in cash. As
consideration for the Preprogen Amendment, we agreed to pay
Preprogen a royalty of 5% from the sale of all over-the-counter
miniform products; provided,
however, that such royalty payments shall terminate when
Preprogen has received $200,000 in aggregate consideration from the
royalties paid by us, and that we shall be entitled to offset such
royalty payments due and payable to Preprogen by amounts equal to
certain other payments otherwise due and payable to us by Preprogen
pursuant to the terms of the Preprogen Agreement. At December 31,
2018, we valued our investment in Preprogen at $222,000 recording
an impairment of $278,000 during the
year ended December 31, 2018. At December 31, 2019, we revalued our
investment in Preprogen to $0, recording an impairment of $222,000
during the year ended December 31, 2019.
Our
Business
Management’s objective is to develop our
innovative PAD based products through genomic testing, although
commercialization efforts are conditioned upon securing adequate
financing. Assuming the availability of adequate working
capital, our objective is to target significant market
opportunities for our products through the following
platforms.
PAD/Health and Wellness
PAD
products are based on our 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 that enable self-collection and worldwide
transport for indications such as various cancers, premature
delivery, and genomic testing.
Lateral Flow Diagnostics
Our Diagnostic Business is focused on
the development RapidSense®
point-of-care testing products and related oral fluid collection
technologies based on our core intellectual property related to
lateral flow methods, devices, and processes for the consumer and
healthcare professional markets.
Product and Product Candidates
We
have 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 we believe
will address medical diagnostic and treatment issues into the
future.
When
introducing our PAD product lines and other products, we sought to
align ourselves with experienced marketing partners that have
established distribution channels. We 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. We currently do not have any
manufacturing partnerships, as we are not currently manufacturing
or selling any of our products; however, we are currently
evaluating new manufacturing relationships in the U.S., consistent
with the terms of the Preprogen Agreement.
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.
Our
PAD products for the consumer markets are designated as FDA Class I
over-the-counter devices, and are easy to use, non-invasive, fully
biodegradable, highly absorbent pads. Additionally, the unique
non-woven technology utilized for the PADs allows for a PAD to be
used as a sample collection device, providing a sample for
diagnostic purposes, or to provide local or systemic
therapy.
Unique®
Miniforms
Miniform
is a safe, convenient, and flushable technology for the underserved
over-the-counter hemorrhoid, feminine hygiene and urinary
incontinence markets. The disposable miniform pads contain no
adhesives, require 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 we previously initiated a limited web-based
domestic roll-out of the Unique® miniform,
we are currently in search of a strategic partnership(s) to expand
the retail availability of the product across the United States and
internationally.
We
have significant experience manufacturing our miniform product and
a clear understanding of its costs. The miniform technology is
protected by numerous patents covering various applications, the
manufacturing process, and certain materials. We previously
contracted with a firm based in Taiwan to manufacture our PADs,
although the manufacturing relationship is currently suspended due
to our financial condition and pending the development of a
financing and operation plan that allows us to re-commence active
operations.
Lateral Flow Diagnostics
We developed and patented the RapidSense
technology, a one-step lateral flow test with unique features such
as a positive indication for a positive test, which allows us to
target quantified point-of-care (“POC”) diagnostics previously limited to the
diagnostic laboratory. These applications include, but are not
limited to, thyroid disease, therapeutic drug monitoring, cancer
diagnostics, diagnosis of cardiac disease, and other critical
tests. This rapid POC diagnostic technology is ideal for testing
all body fluid, including whole blood, serum, oral fluids and
urine. We also patented innovative oral fluid collection devices
specifically designed for our RapidSense technology. These
distinctive collection devices, coupled with RapidSense and the
reader platform, are intended to ultimately enable us to target the
large and growing markets for diagnostics using oral sample
collections, which have previously been limited to blood or urine
testing.
Competition
Our industry
is highly competitive and characterized by rapid and significant
technological changes. Significant competitive factors in our
industry include, among others, product efficacy and safety, the
timing and scope of regulatory approvals, the government
reimbursement rates for and the average selling price of products,
the availability of raw materials and qualified manufacturing
capacity, manufacturing costs, intellectual property and patent
rights and their protection, and sales, marketing and distribution
capabilities.
We
face, and will continue to face, competition from organizations
such as pharmaceutical and biotechnology companies, as well as
academic and research institutions.
Any
product candidates that we successfully develop, which are cleared
for sale by the FDA or similar international regulatory authorities
in other countries, may compete with similar products currently
available or that may become available in the future. Most of our
competitors have substantially greater capital resources than we
have, and greater capabilities and resources for research,
conducting preclinical studies and clinical trials, regulatory
affairs, manufacturing, marketing and sales. As a result, we may
face competitive disadvantages relative to these organizations
should they develop or commercialize a competitive product. In
addition, given our current lack of working capital, our
competitors will have the opportunity to capture market
opportunities missed by us as we attempt to secure additional
financing necessary to commercialize our products.
Raw Materials and Manufacturing
We
currently do not have manufacturing capacity for any of our
products, and therefore have historically contracted for the
manufacturing of our products to third-party manufacturers, both in
and outside the United States. All of our manufactured products
have been, and at such time that we recommence active operations
will be, produced under FDA mandated Good Manufacturing Practices
standard operating procedures developed and controlled by our
quality system, which specifies approved raw materials, vendors,
and manufacturing methodology.
Intellectual Property Rights and Patents
As of December 31,
2020, we had nine (9) patents issued and five (5) licensed patents. Our issued patents
expire between 2019 and 2030; however, we may obtain continuations,
which would extend the rights granted under our issued patents, and
additional patents to cover technology in development. We also
have four (4) registered U.S.
and foreign trademarks.
Patents
and other proprietary rights are an integral part of our business.
It is our policy to seek patent protection for our inventions and
also to rely upon trade secrets and continuing technological
innovations and licensing opportunities to develop and maintain our
competitive position. However, our patent positions involve
complex legal and factual questions and, therefore, enforceability
of our patents cannot be predicted with any certainty. Our issued
patents, those licensed to us, and those that may be issued to us
in the future may be challenged, invalidated or circumvented, and
the rights granted thereunder may not provide us with proprietary
protection or competitive advantages against competitors with
similar technology. Furthermore, our competitors may independently
develop similar technologies or duplicate any technology developed
by us. Because of the extensive time required for development,
testing and regulatory review of a potential product, it is
possible that, before any of our product candidates can be approved
for sale and commercialized, our relevant patent rights may expire
or remain in force for only a short period following
commercialization. Expiration of patents we own or license could
adversely affect our ability to protect future product development
and, consequently, our operating results and financial
position.
Licensing, Distribution and Development Agreements
As
noted above, on December 15, 2017, we entered into an agreement
with Preprogen, which was subsequently amended on October 8, 2018,
pursuant to
which we agreed to the sale, assignment, and license-back of
certain of our assets, including rights to use the intellectual
property transferred to Preprogen necessary to the development,
manufacture, marketing and sale of our OTC miniform products for
the feminine hygiene and hemorrhoid treatment
markets.
Regulatory Requirements
Some of our products and manufacturing activities
are, or will be subject to regulation by the FDA, and by other
federal, state, local and foreign regulatory authorities. Pursuant
to the Food, Drug and Cosmetic Act of 1938, commonly known as the
"FD&C Act", and the regulations promulgated thereunder, 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, a Premarket
Approval (“PMA”) or a New Drug Approval
(“NDA”).
In
the United States, medical devices intended for human use are
classified into three categories, Class I, II or III, on the basis
of the controls deemed reasonably necessary by the FDA to assure
their safety and effectiveness, with Class I requiring the fewest
controls and Class III the most controls. Class I, unless exempted,
and Class II devices are marketed following FDA clearance of a
Section 510(k) premarket notification. Because Class III devices
(e.g., a device whose failure could cause significant human harm or
death) tend to carry the greatest risks, the manufacturer must
demonstrate that such a device is safe and effective for its
intended use by submitting a PMA application. PMA approval by the
FDA is required before a Class III device can be lawfully marketed
in the United States. Usually, the PMA process is significantly
more time consuming and costly than the 510(k)
process.
The
U.S. regulatory scheme for the development and
commercialization of new pharmaceutical products, which includes
the targeted molecular imaging agents, can be divided into three
distinct phases: an investigational phase including both
preclinical and clinical investigations leading up to the
submission of an NDA; a period of FDA review culminating in the
approval or refusal to approve the NDA; and the post-marketing
period.
All
of our over-the-counter products derived from the miniform
technology, including Unique®, are currently classified as
Class I – exempt devices, requiring written notification to
the FDA before marketing.
In
addition, the FD&C Act requires device manufacturers to obtain
a new FDA 510(k) clearance when there is a substantial change or
modification in the intended use of a legally marketed device, or a
change or modification, including product enhancements, changes to
packaging or advertising text and, in some cases, manufacturing
changes, to a legally marketed device that could significantly
affect its safety or effectiveness. Supplements for approved PMA
devices are required for device changes, including some
manufacturing changes that affect safety or effectiveness, or
disclosure to the consumer, such as labeling. For devices marketed
pursuant to 510(k) determinations of substantial equivalence, the
manufacturer must obtain FDA clearance of a new 510(k) notification
prior to marketing the modified device. For devices marketed with
PMA, the manufacturer must obtain FDA approval of a supplement to
the PMA prior to marketing the modified device. Such regulatory
requirements may require us to retain records for up to seven
years, and to be subject to periodic regulatory review and
inspection of all facilities and documents by the FDA.
The
FD&C Act requires device manufacturers to comply with Good
Manufacturing Practices regulations. The regulations require that
medical device manufacturers comply with various quality control
requirements pertaining to design controls, purchasing contracts,
organization and personnel, including device and manufacturing
process design, buildings, environmental control, cleaning and
sanitation; equipment and calibration of equipment; medical device
components; manufacturing specifications and processes;
reprocessing of devices; labeling and packaging; in-process and
finished device inspection and acceptance; device failure
investigations; and record keeping requirements including complaint
files and device tracking. At such time that we re-commence
operations, if ever, Company personnel and non-affiliated contract
auditors will periodically inspect the contract manufacturers to
assure they remain in compliance.
Additionally, the Centers for Medicare &
Medicaid Services (“CMS”) regulates all laboratory testing (except
research) performed on humans in the U.S. pursuant to the Clinical
Laboratory Improvement Amendments (“CLIA”). In total, CLIA covers approximately
225,000 laboratory entities. The Division of Laboratory Services,
within the Survey and Certification Group, under the Office of
Clinical Standards and Quality (“OCSQ”) has the responsibility for implementing
the CLIA Program.
The
objective of the CLIA program is to ensure quality laboratory
testing. Although all clinical laboratories must be properly
certified to receive Medicare or Medicaid payments, CLIA has no
direct Medicare or Medicaid program responsibilities. In the event
our current operating plan includes such a facility, we will fall
under CLIA regulatory requirements.
Certain
of our product candidates will require significant clinical
validation prior to obtaining marketing clearance from the FDA. We
intend to contract with appropriate and experienced CROs (contract
research organizations) to prepare for and review the results from
clinical field trials. We engage certain scientific advisors,
consisting of scientific Ph.D.s and M.D.’s, who contribute to
the scientific and medical validity of our clinical trials when
appropriate.
Research and Development Activities
We
did not engage in any research and development efforts during the
years ended December 31, 2020 and 2019, nor do we expect to engage
in any research and development activity until funding is secured
and we develop a plan to commercialize our products.
Employees
As
of December 31, 2020, we had no employees, and two part-time
consultants providing services to the Company in order to maintain
the Company as a going concern and to protect our intellectual
property portfolio and other assets.
ITEM 1A. RISK
FACTORS
You should consider carefully the following risks, along with other
information contained in this Annual Report on Form 10-K. The
risks and uncertainties described below are not the only ones that
may affect us. Additional risks and uncertainties may also
adversely affect our business and operations, including those
discussed in Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Operation,
below. 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, 2020, we had an accumulated deficit
of $52,114,986. Our losses resulted principally from general
and administrative costs relating to our operations. Currently, we
are not generating any revenue from operations, and we expect to
incur sizeable and increasing losses in 2020. 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
we 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
our cash position, we will achieve adequate revenue or profitable
operations sufficient to continue as a going concern.
Our ability to re-commence and support operations and continue as a
going concern is dependent upon raising adequate
financing. We may not
be able to obtain such capital on a timely basis or under
commercially reasonable terms, if at all.
We
expect that the capital required to re-commence our operations will
be substantial, and the extent of this need will depend on many
factors, some of which are beyond our control, including the
continued development of our product candidates; the costs
associated with maintaining, protecting and expanding our patent
and other intellectual property rights; future payments, if any,
received or made under existing or possible future collaborative
arrangements, including pursuant to the Preprogen Agreement; the
timing of regulatory approvals needed to market our product
candidates; and market acceptance of our products. Although we are
pursuing various funding and related options to re-commence
operations and, ultimately, commercialize our innovative PAD-based
products, management has been unsuccessful to date in securing
sufficient financing. There can be no assurance that we will
be successful in our efforts to obtain adequate financing. Should
we be unable to raise adequate financing or generate revenue in the
future, our business prospects would be materially and adversely
harmed. As a result, management believes that given the current
economic environment and the continuing need to strengthen our cash
position, there is substantial doubt about our ability to continue
as a going concern.
We have promissory notes in the aggregate principal amount of
approximately $2.4 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 $2.4 million outstanding, all of which 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 we are
able to successfully develop a financing and operating plan, and
therefore re-commence operations, there is no assurance that our
products will gain market acceptance.
Efforts
to commercialize our products are conditioned upon the development
of a financing and operating plan that allows us to re-commence
operations. Assuming the successful development of such a
plan, our success will depend in substantial part on the extent to
which our products achieve market acceptance. We cannot predict or
guarantee that physicians, patients, healthcare insurers or
maintenance organizations, or the medical community in general,
will accept or utilize any of our products.
We face intense
competition, including competition from entities that are more
established and may have greater financial resources than we do,
which may make it difficult for us to establish and maintain a
viable market presence.
If
successfully brought into the marketplace, any of our products will
likely compete with several existing products. We anticipate that
we will face intense and increasing competition in the future as
new products enter the market and advanced technologies become
available. We cannot assure that existing products or new products
developed by competitors will not be more effective, or more
effectively marketed and sold than those by us. Competitive
products may render our products obsolete or noncompetitive prior
to our recovery of development and commercialization
expenses.
Many
of our competitors also have significantly greater financial,
technical and human resources and will likely be better equipped to
develop, manufacture and market products. Smaller companies may
also prove to be significant competitors, particularly through
collaborative arrangements with large biotechnology companies.
Furthermore, academic institutions, government agencies and other
public and private research organizations are becoming increasingly
aware of the commercial value of their inventions and are actively
seeking to commercialize the technology they have developed.
Accordingly, competitors may succeed in commercializing products
more rapidly or effectively than us, which would have a material
adverse effect on the Company.
If we fail to
establish marketing and sales capabilities or fail to enter into
effective sales, marketing and distribution arrangements with third
parties, we may not be able to successfully commercialize our
products.
Upon
re-commencement of active 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 revenue will depend on their efforts, which may
not be successful.
Further
testing of certain of our product candidates is required and
regulatory approval may be delayed or denied, which would limit or
prevent us from marketing our product candidates and significantly
impair our ability to generate revenues.
Human
pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the
FDA and foreign regulatory authorities. Various federal and foreign
statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and
marketing of pharmaceutical products. The process of obtaining
these approvals and the subsequent compliance with appropriate U.S.
and foreign statutes and regulations is time-consuming and requires
the expenditure of substantial resources. In addition, these
requirements and processes vary widely from country to
country.
To
varying degrees based on the regulatory plan for each product
candidate, the effect of government regulation and the need for FDA
and other regulatory agency approval will delay commercialization
of our product candidates, impose costly procedures upon our
activities, and put us at a disadvantage relative to larger
companies with which we compete. There can be no assurance that FDA
or other regulatory approval for any products developed by us will
be granted on a timely basis, or at all. If we discontinue the
development of one of our product candidates, our business and
stock price may suffer.
Our success will
be dependent upon licenses and proprietary rights we receive from
other parties, and on any patents we may obtain.
Our
success will depend in large part on our ability and that of our
licensors to (i) maintain license and patent protection with
respect to our products, (ii) defend patents and licenses once
obtained, (iii) maintain trade secrets, (iv) operate without
infringing upon the patents and proprietary rights of others, and
(v) maintain and obtain appropriate licenses to patents or
proprietary rights held by third parties if infringement would
otherwise occur, both in the United States and in foreign
countries.
The
patent positions of biomedical companies, including ours, are
uncertain and involve complex legal and factual questions. There is
no guarantee that we, or our licensors, have or will develop or
obtain the rights to products or processes that are patentable,
that patents will issue from any of the pending applications, or
that claims allowed will be sufficient to protect the technology
developed by, or licensed to, us. In addition, we cannot be certain
that any patents issued to or licensed by us will not be
challenged, invalidated, infringed or circumvented, or that the
rights granted thereunder will provide us with competitive
advantages.
Litigation,
which could result in substantial cost, may also be necessary to
enforce any patents to which we have rights, or to determine the
scope, validity and unenforceability of other parties’
proprietary rights, which may affect our rights. United States
patents carry a presumption of validity and generally can be
invalidated only through clear and convincing evidence. There can
be no assurance that our patents would be held valid by a court or
administrative body or that an alleged infringer would be found to
be infringing. The mere uncertainty resulting from the institution
and continuation of any technology-related litigation or
interference proceeding could have a material adverse effect on us
pending resolution of the disputed matters.
We
may also rely on unpatented trade secrets and know-how to maintain
our competitive position, which we seek to protect, in part, by
confidentiality agreements with employees, consultants and others.
There can be no assurance that these agreements will not be
breached or terminated, that we will have adequate remedies for any
breach, or that trade secrets will not otherwise become known or be
independently discovered by our competitors.
Protecting our
proprietary rights is difficult and costly.
The
patent positions of biotechnology companies can be highly uncertain
and involve complex legal and factual questions. Accordingly, we
cannot predict the breadth of claims allowed in these
companies’ patents or whether we may infringe or be
infringing these claims. Patent disputes are common and could
preclude the commercialization of our products. Patent litigation
is costly in its own right and could subject us to significant
liabilities to third parties. In addition, an adverse decision
could force us to either obtain third-party licenses at a material
cost or cease using the technology or product in
dispute.
We currently do
not have any employees, resulting from our objective of
substantially reducing our expenses. At such time as we
re-commence operations, if ever, 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, and in connection with our objective to
substantially reduce our expenses, we do not have any employees,
and currently rely on consultants and/or contract managers to
manage the business and operations of the Company. There can
be no assurance that we will be able to attract and retain skilled
personnel at such time as we re-commence operations, and the
failure to do so would have a material adverse effect on the
Company.
We
may not be able to efficiently develop manufacturing capabilities
or contract for such services from third parties on commercially
acceptable terms, if at all.
We
have established relationships with third-party manufacturers for
the commercial production of our products, which relationships have
been suspended due to the suspension of our direct, active
operations. There can be no assurance that we will be able to
reestablish or maintain relationships with third-party
manufacturers on commercially acceptable terms, if at all, or that
third-party manufacturers will be able to manufacture our products
on a cost-effective basis in commercial quantities under Good
Manufacturing Practices mandated by the FDA.
Our
dependence upon third parties for the manufacture of our products
may adversely affect future costs and the ability to develop and
commercialize our products on a timely and competitive basis.
Further, there can be no assurance that manufacturing or quality
control problems will not arise in connection with the manufacture
of our products or that third-party manufacturers will be able to
maintain the necessary governmental licenses and approvals to
continue manufacturing such products. Any failure to establish
relationships with third parties for our manufacturing requirements
on commercially acceptable terms would have a material adverse
effect on the Company. Additionally, we may rely upon foreign
manufacturers. Any event which negatively impacts these
manufacturing facilities, manufacturing systems or equipment, or
suppliers, including, among others, wars, terrorist activities,
natural disasters and outbreaks of infectious disease, could delay
or suspend shipments of products or the release of new
products.
In the future, we
anticipate that we will need to obtain additional or increased
product liability insurance coverage and it is uncertain that such
increased or additional insurance coverage can be obtained on
commercially reasonable terms.
Our
business will expose us to potential product liability risks that
are inherent in the testing, manufacturing and marketing of
pharmaceutical products. There can be no assurance that product
liability claims will not be asserted against us. The Company does
not have product liability coverage, and there can be no assurance
that we will be able to obtain product liability insurance on
commercially acceptable terms or that we will be able to maintain
such insurance at a reasonable cost or in sufficient amounts to
protect against potential losses. A successful product liability
claim or a series of claims brought against us could have a
material adverse effect on the Company.
Insurance coverage
is increasingly more difficult to obtain or
maintain.
Obtaining
insurance for our business, property and products is increasingly
more costly and narrower in scope, and we may be required to assume
more risk in the future. If we are subject to third-party claims or
suffer a loss or damage in excess of our insurance coverage, we may
be required to share that cost in excess of our insurance limits.
Furthermore, any first- or third-party claims made on any of our
insurance policies may impact our ability to obtain or maintain
insurance coverage at reasonable costs or at all in the
future.
The market price
of shares of our Common Stock, like that of many biotechnology
companies, is highly volatile.
Market
prices for our Common Stock and the securities of other medical and
biomedical technology companies have been highly volatile and may
continue to be highly volatile in the future. Factors such as
announcements of technological innovations or new products by us or
our competitors, government regulatory action, litigation, patent
or proprietary rights developments, and market conditions for
medical and high technology stocks in general can have a
significant impact on any future market for our Common
Stock.
Trading of our
Common Stock is limited, which may make it difficult for you to
sell your shares at times and prices that you feel are
appropriate.
Trading
of our Common Stock, which is conducted on the OTC: PINK
marketplace, 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 the holders of
our Common Stock.
Our
Board of Directors is authorized to designate one or more series of
preferred stock and to fix the rights, preferences, privileges and
restrictions thereof, without any action by the stockholders. The
designation and issuance of such shares of our preferred stock may
adversely affect the holders of 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
Common 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 of Common Stock in the event you sell or otherwise
dispose of your shares at a price higher than the price you paid
for your shares. Such a gain would result only from an
increase in the market price of our Common Stock, which is
uncertain and unpredictable.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We
did not maintain a corporate headquarters during the years ended
December 31, 2020 or 2019, nor do we have any further obligation
under any prior lease agreements. We currently plan to
transfer operations to a new facility pending obtaining financing
to re-commence operations.
ITEM 3. LEGAL
PROCEEDINGS
As
of the date hereof, there are no material pending legal proceedings
to which we are a party to or of which any of our property is the
subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not
applicable.
NOTES TO FINANCIAL STATEMENTS
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1.
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DESCRIPTION OF BUSINESS
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Overview
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”) 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.
Preprogen Transaction
On December 15, 2017
(“Closing
Date”), we executed
an agreement with Preprogen LLC (“Preprogen”)
(the “Preprogen
Agreement”), pursuant to
which we agreed to the sale, assignment, and license-back of
certain of our assets pertaining to our Diagnostic Business (the
“Purchased
Assets”).
Under this agreement, we retained all
rights and assets relating to the OTC Business, which includes all
assets necessary to pursue marketing the over-the-counter miniform
products for female hygiene and hemorrhoid
treatment.
As set forth in the
Preprogen Agreement, as consideration for the sale, assignment and
transfer of the Purchased Assets (the “Preprogen
Transaction”) on
the Closing Date, Preprogen (A) paid us $1.0 million
(“Cash Amount”) as follows: (i) approximately $38,000 was
paid to the City of Portland to payoff certain indebtedness owed by
us to the City of Portland, (ii) $65,000 in principal amount
of notes held by Preprogen was credited toward the purchase
price as a result of the cancellation and termination of those
certain promissory notes payable to Preprogen by us, and (iii) the
remaining balance was paid to us in cash at closing (the
“Closing
Balance”); and (B) issued
to us that number of membership interests in Preprogen equal to 15%
of the issued and outstanding membership interests in Preprogen on
a fully diluted basis as of the Closing Date. Under the terms of
the Preprogen
Agreement, Preprogen is
obligated to pay to us such additional amounts calculated based on
the aggregate gross revenue generated by Preprogen from the sale of
products after the Closing Date that utilize, or royalty payments
or licensing fees received by Preprogen with respect to, the
Purchased Assets, if any, as more particularly set forth in
the Preprogen
Agreement.
At closing, and as
required by the Preprogen Agreement, we deposited $400,000 of the
Cash Balance in escrow, which funds were to be used to fund up to
50% of the costs incurred by Preprogen in connection with the
development and manufacturing of materials to be used by us for our
over-the-counter miniform products and to be used by Preprogen for
diagnostic products related to the Purchased Assets. As additional
consideration for the Purchased Assets, we issued a warrant to
Preprogen’s designee to purchase up to 15.0 million shares of
our common stock, par value $0.01 per share
(“Common
Stock”), at an
exercise price of $0.05 per share (the “Warrant”).
The Warrant is immediately exercisable and expires on December 14,
2022.
On October 8,
2018, the Preprogen Agreement was amended to provide for, among
other things, the release of funds held in escrow related to the
manufacture of the miniform pads (the “Preprogen Amendment”), which
resulted in both parties receiving $200,583 in cash. As
consideration for the Preprogen Amendment, we agreed to pay
Preprogen a royalty of 5% from the sale of all over-the-counter
miniform products; provided,
however, that such royalty payments shall terminate when
Preprogen has received $200,000 in aggregate consideration from the
royalties paid by us, and that we shall be entitled to offset such
royalty payments due and payable to Preprogen by amounts equal to
certain other payments otherwise due and payable to us by Preprogen
pursuant to the terms of the Preprogen Agreement. At December 31,
2018, we revalued our investment in Preprogen to $222,000,
recording an impairment of $278,000. At December 31, 2019, we
revalued our investment in Preprogen to $0, recording an impairment
of $222,000.
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2.
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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.
The
Company’s history of operating losses, limited cash
resources and the absence of an operating plan necessary to
capitalize on the Company’s assets raise
substantial doubt about our ability to continue as a going
concern absent a strengthening of our cash
position. Management is currently pursuing various funding
options, including seeking debt or equity financing, licensing
opportunities and the sale of certain investment holdings, as well
as a strategic, merger or other transaction to obtain additional
funding to continue the development of, and to successfully
commercialize, the Company’s products. There can be no
assurance that the Company will be successful in its
efforts. Should the Company be unable to obtain adequate
financing or generate sufficient revenue in the future, the
Company’s business, result of operations, liquidity and
financial condition would be materially and adversely harmed, and
the Company will be unable to continue as a going
concern.
There
can be no assurance that, assuming the Company is able to
strengthen its cash position, it will achieve sufficient revenue or
profitable operations to continue as a going concern.
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3.
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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
(“U.S.
GAAP”) and have been
consistently applied in the preparation of the financial
statements.
Stock-based Compensation
The
Company follows the provisions of ASC Topic 718, which establishes
the accounting for transactions in which an entity exchanges equity
securities for services and requires companies to expense the
estimated fair value of these awards over the requisite service
period. The Company uses the Black-Scholes option pricing model in
determining fair value. Accordingly, compensation cost has been
recognized using the fair value method and expected term accrual
requirements as prescribed. During the three and nine months
ended September 30, 2020 and 2019, the Company had no stock
compensation expense.
In June 2018, the FASB issued an accounting pronouncement
(FASB ASU 2018-07) to expand the scope of ASC Topic 718,
Compensation - Stock Compensation, to include share-based payment
transactions for acquiring goods and services from nonemployees.
The pronouncement is effective for fiscal years, and for interim
periods within those fiscal years, beginning after
December 15, 2018, with early adoption permitted (for
“emerging growth company” beginning after
December 15, 2019). The Company has adopted this standard
effective from January 1, 2020 and the adoption of this
standard did not have any significant impact on the unaudited
condensed consolidated interim financial statements.
In the case of modifications, the Black-Scholes
model is used to value modified warrants on the modification date
by applying the revised assumptions. The difference between the
fair value of the warrants prior to the modification and after the
modification determines the incremental value. In the past, the
Company has modified warrants in connection with the issuance of
certain notes and note extensions. These modified warrants were
originally issued in connection with previous private placement
investments. In the case of debt issuances, the warrants were
accounted for as original issuance discount based on their relative
fair values. When modified in connection with a note issuance, the
Company recognizes the incremental value as a part of the debt
discount calculation, using its relative fair value in accordance
with ASC Topic 470-20, “Debt with Conversion and Other
Options”. When modified
in connection with note extensions, the Company recognized the
incremental value as prepaid interest, which is expensed over the
term of the extension.
The
fair value of each share-based payment is estimated on the
measurement date using the Black-Scholes model with the following
assumptions, which are determined at the beginning of each year and
utilized in all calculations for that year. During the years ended
December 31, 2020 and 2019, the Company did not make any
Black-Scholes model assumptions, as no share-based payments were
made during those periods.
Risk-Free Interest
Rate. The interest rate
used is based on the yield of a U.S. Treasury security as of the
beginning of the year.
Expected
Volatility. The Company
calculates the expected volatility based on historical volatility
of monthly stock prices over a three-year
period.
Dividend
Yield. The Company has
never paid cash dividends, and does not currently intend to pay
cash dividends, and thus has assumed a 0% dividend
yield.
Expected
Term. For options, the
Company has no history of employee exercise patterns. Therefore,
the Company uses the option term as the expected term. For
warrants, the Company uses the actual term of the
warrant.
Pre-Vesting
Forfeitures. Estimates of
pre-vesting option forfeitures are based on Company experience. The
Company will adjust its estimate of forfeitures over the requisite
service period based on the extent to which actual forfeitures
differ, or are expected to differ, from such estimates. Changes in
estimated forfeitures will be recognized through a cumulative
catch-up adjustment in the period of change and will also impact
the amount of compensation expense to be recognized in future
periods.
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.
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, 2020, the Company’s cash balances were within
the federally insured limits.
Earnings per Share
The
Company computes net income (loss) per common share in accordance
with ASC Topic 260. Net income (loss) per share is based upon the
weighted average number of outstanding common shares and the
dilutive effect of common share equivalents, such as options and
warrants to purchase Common Stock, convertible preferred stock and
convertible notes, if applicable, that are outstanding each year.
During the year ended December 31, 2019, 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, 2020, the Company had outstanding warrants
exercisable for 15,000,000 shares of its Common Stock, and
preferred shares convertible into 6,196,893 shares of its Common
Stock. The Company has reserved for issuance 860,000 shares of its
Series B Preferred stock to certain investors in connection with
the 2017 Bridge Notes. As of December 31, 2020, the Company has
estimated and reserved for issuance approximately 20.0 million
shares of Common Stock for a future conversion of its issued and
outstanding Convertible Notes Payable.
As
of December 31, 2019, the Company had outstanding options
exercisable for 2,300,000 shares of its Common Stock (which expired
in 2020), outstanding warrants exercisable for 15,000,000shares of
its Common Stock, and preferred shares convertible into 6,196,893
shares of its Common Stock. The Company has reserved for issuance
860,000 shares of its Series B Preferred stock to certain investors
in connection with the 2017 Bridge Notes. As of December 31, 2019,
the Company has estimated and reserved for issuance approximately
20.0 million shares of Common Stock for a future conversion of its
issued and outstanding Convertible Notes Payable.
Fair Value of Financial Instruments
U.S. GAAP establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurement)
and the lowest priority to unobservable inputs (Level 3
measurement).
The
three levels of the fair value hierarchy are as
follows:
Level 1 – Quoted
prices are available in active markets for identical assets or
liabilities. Active markets are those in which transactions for the
asset or liability occur with sufficient frequency and volume to
provide pricing information on an ongoing
basis.
Level 2 – 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.
The
following are Level 3 Investments under the hierarchy
above:
PREPROGEN LLC:
In determining fair value of our
investment from Preprogen (further described in Note 1), the
Company obtained by third party the estimated fair value of its
membership interests based on using the cost accumulation method,
historical data of similar companies, and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of this investment that are not
readily apparent from other sources.
PREPROGEN WARRANT: In
determining the fair value of the warrant issued to Preprogen in
December 2017, the Company utilized the Black-Scholes model
using an average risk-free interest
rate of 1.92%, expected volatility of 298%, and a dividend yield of
zero.
Impairments
We
assess the impairment of long-lived assets, including our other
intangible assets, at least annually or whenever events or changes
in circumstances indicate that their carrying value may not be
recoverable. The determination of related estimated useful lives
and whether or not these assets are impaired involves significant
judgments, related primarily to the future profitability and/or
future value of the assets. Changes in our strategic plan and/or
market conditions could significantly impact these judgments and
could require adjustments to recorded asset balances. We hold
investments in companies having operations or technologies in
areas, which are within, or adjacent to our strategic focus when
acquired, all of which are privately held and whose values are
difficult to determine. We record an investment impairment charge
if we believe an investment has experienced a decline in value that
is other than temporary. Future changes in our strategic direction,
adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to
recover the carrying value of the investments that may not be
reflected in an investment’s current carrying value, thereby
possibly requiring an impairment charge in the future.
In
determining fair value of assets, the Company bases estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about carrying values of
assets that are not readily apparent from other sources. Actual
fair value may differ from management estimates resulting in
potential impairments causing material changes to certain assets
and results of operations.
PREPROGEN: During the years ended
December 31, 2019 and 2018, we recorded non-cash expense of
$278,000 and $222,000, respectively on the value of its
investment in Preprogen. As of December 31, 2019, the Company has
fully impaired its investment in PREPROGEN due to continued delays
in material and sustainable progress related to
operations.
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, 2020 or
2019; and have not recognized interest and/or penalties in the
statement of operations for the years ended December 31, 2020
or 2019. See Note 7, 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. The Company has fully amortized
its Intangible Assets as of December 31, 2020.
On
December 15, 2017, the Company entered into an agreement with
Preprogen, as amended October 8, 2018, pursuant to which the
parties agreed to the sale, assignment, and license-back of the
Purchased Assets, including intellectual property transferred to
Preprogen necessary to the development, manufacture, marketing and
sale of the Company’s OTC miniform products for the feminine
hygiene and hemorrhoid treatment markets.
Inventories
Inventories, consisting solely of products
available for sale, are accounted for using the first-in, first-out
(“FIFO”) method, and are valued at the lower of
cost of market value. This valuation requires us to make judgments,
based on current market conditions, about the likely method of
dispositions and expected recoverable value
inventories.
Property and Equipment
Property
and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the
assets. The Company’s property and equipment at December 31,
2020 and 2019 consisted of computer and office equipment, machinery
and equipment and leasehold improvements with estimated useful
lives of three to seven years. Estimated useful lives of leasehold
improvements do not exceed the remaining lease term. Depreciation
expense was $0 and $0 for the years ended December 31, 2020 and
2019, respectively. Expenditures for repairs and maintenance are
expensed as incurred.
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.
Use of Estimates
The
accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America, and include certain estimates and assumptions which affect
the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results
may differ from those estimates.
Recent Accounting Pronouncements
As of
December 31, 2020, 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.
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4.
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CONVERTIBLE NOTES PAYABLE
|
In July
2014, the Company issued Bridge Notes in aggregate principal amount
of $768,694 to outside investors and $102,000 to Mr. Michael
Abrams, a director of the Company. The notes matured on June 30,
2015 and are currently in default.
During
2014 and 2015, the Company issued Bridge Notes in aggregate
principal amount of $371,500. The notes matured on December 31,
2015 and are currently in default.
In
March 2016, the Company issued a promissory note in aggregate
principal amount of $283,000. The note matured on December 31, 2018
and is currently in default.
In
July and August 2017, the Company issued Bridge Notes in the
aggregate principal amount of $86,000. The notes matured on
September 30, 2017 and are currently in default.
During
the year ended December 31, 2018, the Company paid three
noteholders an aggregate of $60,750 to settle $121,500 of note
principal plus $47,635 of accrued interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
$768,694
|
$371,500
|
$283,000
|
$86,000
|
$1,509,194
|
|
Repurchased
|
$-
|
$(121,500)
|
$-
|
$-
|
$(121,500)
|
|
Related
Party
|
$102,000
|
$-
|
$-
|
$-
|
$102,000
|
|
|
$870,694
|
$250,000
|
$283,000
|
$86,000
|
$1,489,694
|
|
|
|
|
|
|
|
|
Maturity
Date
|
|
|
|
|
|
|
Stated
Interest
|
8%
|
10%
|
10%
|
10%
|
|
|
Default
Interest
|
12%
|
18%
|
18%
|
18%
|
|
At
December 31, 2020 and 2019, the Company’s Convertible Notes
Payable are as follows:
|
|
|
|
|
Notes
Payable
|
$1,387,694
|
$1,387,694
|
|
Accrued
Interest
|
866,226
|
664,788
|
|
Notes
Payable, related party
|
102,000
|
102,000
|
|
Accrued
Interest, related party
|
64,251
|
48,968
|
|
Total
notes payable
|
$2,420,171
|
$2,203,450
|
Notes Payable, Related Party.
As
of December 31, 2020 and 2019, the Company owed Mr. Abrams, a
director of the Company, an aggregate total of $166,251 and
$150,968, respectively, for outstanding principal and accrued and
unpaid interest on certain Bridge Notes.
|
5.
|
COMMITMENTS AND CONTINGENCIES
|
In
December 2017, Company committed to share in fees and costs of 50%
the of the future manufacturing costs for the miniform pads. The
Company and Preprogen agreed that the Company’s expenses
shall not exceed $400,000. The Company has reserved that same
amount in an escrow account until an acceptable manufacturer is
identified by Preprogen and the Company. On October 8, 2018, the
agreement was amended to provide for, among other things, the
release of funds held in escrow related to the manufacture of the
miniform pads, which resulted in both parties receiving $200,583 in
cash. As consideration for the Preprogen Amendment, the Company
agreed to pay Preprogen a royalty of 5% from the sale of all
over-the-counter miniform products; provided, however, that such
royalty payments shall terminate when Preprogen has received
$200,000 in aggregate consideration from the royalties paid by the
Company, and that the Company shall be entitled to offset such
royalty payments due and payable to Preprogen by amounts equal to
certain other payments otherwise due and payable to the Company by
Preprogen pursuant to the terms of the Preprogen
Agreement.
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, 2020 and 2019, the Company had gross deferred tax
assets calculated at an expected blended rate of 21% and 21%,
respectively, of approximately $6,411,000 and $6,390,000,
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 $6,411,000 and $6,390,000 has been established at
December 31, 2020 and 2019, 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, 2020, 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.
|
|
|
|
|
Gross deferred tax
assets:
|
|
|
|
Net operating loss
carryforwards
|
$5,581,000
|
$5,530,000
|
|
Stock based
expenses
|
70,000
|
100,000
|
|
Tax credit
carryforwards
|
200,000
|
200,000
|
|
All
others
|
560,000
|
560,000
|
|
|
6,411,000
|
6,390,000
|
|
|
|
|
|
Deferred tax asset
valuation allowance
|
(6,411,000)
|
(6,390,000)
|
|
Net deferred tax
asset (liability)
|
|
$-
|
At
December 31, 2020, the Company has net operating loss carryforwards
of approximately $6,390,000. The net change in the allowance
account was an increase of approximately $21,000 and a decrease of
approximately $2,100,000 for the years ended December 31, 2020 and
2019, respectively.
In December
2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the
Tax Cut and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws
that affects 2018 and future years, including a reduction in the
U.S. federal corporate income tax rate to 21% effective January 1,
2018, for certain deferred tax assets and deferred tax
liabilities. In December 2017, the
SEC staff issued Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act
(“SAB
118”), which allows
us to record provisional amounts during a measurement period not to
extend beyond one year of the enactment date. The Company has
evaluated SAB 118, and has determined that no provisional amounts
are necessary due to on-going losses.
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 an aggregate
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, 2020.
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
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 nonassessable shares of Common Stock at a
1:1 conversion rate.
During the year ended December 31, 2018, the
Company completed the purchase of 10,480,049 shares of Series B
Preferred (the “Purchased
Shares”) from an
institutional shareholder for an aggregate purchase price of
$20,000. Following this transaction, the shareholder no longer
holds shares in the Company.
As
of December 31, 2020 and 2019, the Company had 6,196,893 shares of
Series B Preferred Stock issued and outstanding. As of December 31,
2019, the Series B Preferred Stock had a liquidation preference of
$61,969 and convertible into 6,196,893 shares of Common
Stock.
As of
December 31, 2020, the Company had reserved for issuance 860,000
shares of its Series B Preferred Stock in connection with
Convertible Notes Payable.
Common Stock
The
Company has authorized 150,000,000 shares of its Common Stock,
$0.01 par value. The Company had issued and outstanding 78,696,461
shares of its Common Stock at December 31, 2020 and
2019.
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. As of
December 31, 2020, the options expired and are no longer issued and
outstanding.
In 2007, the Company adopted the 2007 Incentive
and Non-Qualified Stock Option Plan (the “Plan”), which replaced the 1997 Incentive and
Non-Qualified Stock Option Plan, as amended in 2001, and under
which 8,000,000 shares of Common Stock are reserved for issuance
under qualified options, nonqualified options, stock appreciation
rights and other awards as set forth in the
Plan.
Under
the Plan, qualified options are available for issuance to employees
of the Company and non-qualified options are available for issuance
to consultants and advisors. The Plan provides that the
exercise price of a qualified option cannot be less than the fair
market value on the date of grant and the exercise price of a
nonqualified option must be determined on the date of grant.
Options granted under the Plan generally vest three to five years
from the date of grant and generally expire ten years from the date
of grant.
During the years ended December 31, 2020 and 2019, no stock options
were granted by the Company.
The
following is a summary of all Common Stock option activity during
the year ended December 31, 2020 and 2019:
|
|
Shares Under
Options Outstanding
|
Weighted Average
Exercise Price
|
|
Outstanding
at December 31, 2018
|
2,300,000
|
$0.04
|
|
Options
granted
|
-
|
-
|
|
Options forfeited
|
-
|
-
|
|
Options
exercised
|
-
|
-
|
|
Outstanding
at December 31, 2019
|
2,300,000
|
0.04
|
|
Options
granted
|
-
|
-
|
|
Options
forfeited
|
(2,300,000)
|
0.04
|
|
Options
exercised
|
-
|
-
|
|
Outstanding
at December 31, 2020
|
-
|
$-
|
|
|
|
Weighted Average Exercise Price Per Share
|
|
Exercisable
at December 31, 2019
|
2,300,000
|
$0.04
|
|
Exercisable
at December 31, 2020
|
-
|
$-
|
The
following represents additional information related to Common Stock
options outstanding and exercisable at December 31,
2020:
|
|
|
Outstanding
and Exercisable
|
|
|
|
Weighted Average
Remaining
Contract Life in Years
|
Weighted
Average
Exercise Price
|
|
$-
|
-
|
-
|
$-
|
The
options outstanding at December 31, 2019, expired unexercised
during 2020.
During
the year ended December 31, 2019, the Company’s stock options
were fully vested.
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. Dr.
Hirschman and Mr. Abrams waived his fees for services for the
calendar year 2020.
During the year ended December 31, 2020, Dr. Hirschman received
aggregate compensation of $3,500 of consulting fees for services as
Chief Executive Officer. During the year ended December 31, 2019,
Dr. Hirschman received aggregate compensation of $43,000 of
consulting fees for services as Chief Executive
Officer.
During
the year ended December 31, 2019, Mr. Abrams received aggregate
cash payments of $35,000 for services as a director of the Company.
As of December 31, 2019, we owed Mr. Abrams $14,085 in accrued and
unpaid consulting fees.
As
of December 31, 2020 and 2019, we owed Mr. Abrams, a director of
the Company, an aggregate of $166,251 and $150,968, respectively,
for outstanding principal and accrued and unpaid interest due
pursuant to certain Bridge Notes. There are no amounts due at
December 31, 20210 and director services payments have been
waived.
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.
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