Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

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, which resulted in employee stock-based compensation expense for the three and six months ended June 30, 2012 of $27,000 and for the three and six months ended June 30, 2011 of $10,000 and $17,950, respectively.

Black Scholes Option Pricing Model. During 2012, the Company has used and average Risk-free interest rate of 2.44% a Dividend Yield of 0%, and an average volatility of 242% to calculate the fair value of equity securities issued for services.

Earnings (Losses) 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 all common stock equivalents outstanding for the three and six months ended June 30, 2012 were deemed to be anti-dilutive. As of June 30, 2012, the Company had (i) outstanding options exercisable for 304,500 shares of common stock with a weighted average exercise price of $0.91 per share and an average remaining term of 2.92 years; (ii) outstanding warrants exercisable into 6,529,873 shares of common stock with a weighted average exercise price of $0.44 per share and average remaining term of 2.75 years; and (iii) Series B Preferred Stock convertible into 20,416,228 shares of common stock. The above options, warrants, and convertible preferred securities were deemed to be anti-dilutive for the six months ended June 30, 2012. 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.

Reclassifications. Certain reclassifications have been made in the presentation of the financial statements for the three and six months ended June 30, 2011to conform to the presentation of the financial statements for the three and six months ended June 30, 2012.

 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.

Description of Business and Basis of Presentation

Recent Developments

Issuance of Additional Promissory Notes.  During the quarter ended June 30, 2012, the Company issued promissory notes to certain investors resulting in gross proceeds to the Company of $95,000 (the “Notes”).  The Notes accrue interest at the rate of 6% annually.  The Notes were due and payable on or before June 30, 2012, on demand (the “Maturity Date”).   The Company currently intends to issue additional Notes to finance its current working capital needs.  There can be no assurance that the Company will be able to issue additional Notes.

The Notes are convertible at the option of the holder into shares of the Company's common stock at a conversion price equal to $0.10 per share.  In addition, at the option of the holder, 110% of the face value of the Notes may be exchanged for securities issued in connection with a qualified financing (the  “Qualified Financing”), which is defined as a financing resulting in gross proceeds to the Company of at least $1.0 million.  Pursuant to the terms of the Notes, the Company issued 50,000 shares of its common stock for each $10,000 in principal amount received in connection with the issuance of the Notes, resulting in the issuance of an additional 475,000 shares of common stock during the quarter ended June 30, 2012   While the Company intends to pay the Notes using proceeds from consummation of the Qualified Financing, a Qualified Financing did not occur prior to the Maturity Date.

The Company entered into agreements with the holders of the Notes with an expiration date of March 31, 2012 to extend the Maturity Date of such Notes to June 30, 2012, for and in consideration for the assignment to the holders of such Notes of warrants to purchase a total of 113,127 shares of common stock of FluoroPharma Medical, Inc. (“FPMI”) held by the Company  (the “FPMI Warrants”).  The number of FPMI Warrants assigned to the holders of the Notes equaled 4,500 FPMI Warrants for each $10,000 principal amount of Notes held by the holder thereof. The FPMI Warrants have an exercise price of $.50 per share, and expire on April 19, 2014.  Subsequent to June 30, 2012, the Company entered into agreements with the holders of all Notes with a Maturity Date of June 30, 2012, including the Notes originally maturing on March 31, 2012, to extend the Maturity Date thereof to November 15, 2012, for and in consideration for the assignment to the holders thereof of an additional 155,877 FPMI Warrants.

Formation of QX Labs, Inc. On June 20, 2012, the Company formed a wholly-owned subsidiary, QX Labs, Inc. (“QX”), to convey and 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 other business line will consist of its over-the-counter business, including the InSync feminine hygienic interlabial pad, the Unique pad 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.

Overview

The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and laboratory markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PadKit® technology for the worldwide healthcare industry. These 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.  These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs. 

The Company’s efforts to commercialize its products are currently contingent on additional financing to execute its business and operating plan which is currently focused on the commercialization of the Company’s PAD technology either directly or through a joint venture or other relationship intended to increase shareholder value.  In the interim, the Company has executed a plan to substantially reduce expenses, including headcount, and to restructure and/or eliminate many of its outstanding liabilities.  This plan was necessary in order for the Company 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.

During the year ended December 31, 2011, the Company had minority investments in Genomics USA, Inc. (“GMS”), which is developing Single Nucleotide Polymorphism (“SNP”) chips, genome-based diagnostic chips for the next generation of genomic and proteomic diagnostic markets.  The Company is currently evaluating its minority equity interest in GMS with the objective of extracting the value of such investment for the benefit of the Company and its shareholders.  The Company currently does not realize any material value in its investment in GMS.

The Company’s current strategy is to develop a 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 transaction 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, including GMS.   As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on obtaining financing necessary to maintain the Company as a going concern.

Management Statement Regarding Going Concern

The Company is currently not generating revenues from operations to meet its operating expenses. 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 has 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.

Management believes that given the current economic environment and the continuing need to strengthen our cash position, there is still doubt about the Company's ability to continue as a going concern. 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 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, results of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.

The Company believes that its ability to execute its business plan, and therefore continue as a going concern, is dependent upon its ability to do the following: 

♦ obtain adequate sources of funding to pay unfunded operating expenses, execute its business plan and fund long-term business operations;

♦ manage or control working capital requirements by continuing to reduce operating expenses; and

♦ develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.

There can be no assurance that the Company will be successful in achieving its short- or long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue as a going concern.  In the event the Company is unable to develop a financing and operating plan to allow the Company to execute its business plan, the Company may be unable to continue as a going concern.

Accounting for Share-Based Payments

The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed, which resulted in employee stock-based compensation expense for the three and six months ended June 30, 2012 of $27,000 and for the three and six months ended June 30, 2011 of $10,000 and $17,950, respectively

Earnings (Losses) 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 all common stock equivalents outstanding for the three and six months ended June 30, 2012 were deemed to be anti-dilutive.  As of June 30, 2012, the Company had (i) outstanding options exercisable for 304,500 shares of common stock with a weighted average exercise price of $0.91 per share and an average remaining term of 2.92 years; (ii) outstanding warrants exercisable into 6,529,873 shares of common stock with a weighted average exercise price of $0.44 per share and average remaining term of 2.75 years; and (iii) Series B Preferred Stock convertible into 20,416,228 shares of common stock.  The above options, warrants, and convertible preferred securities were deemed to be anti-dilutive for the six months ended June 30, 2012.

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.

Reclassifications

Certain reclassifications have been made in the presentation of the financial statements for the three and six months ended June 30, 2011to conform to the presentation of the financial statements for the three and six months ended June 30, 2012.

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.