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Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 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 are 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 nine months ended September 30, 2012 of $27,000, and for the three and nine months ended September 30, 2011 of $7,950 and $23,042, respectively.

 

Black Scholes Option Pricing Model. During 2012, the Company has used an 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 nine months ended September 30, 2012 were deemed to be anti-dilutive. As of September 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 2.67 years; (ii) outstanding warrants exercisable into 2,771,000 shares of common stock with a weighted average exercise price of $0.66 per share and average remaining term of 1.14 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 nine months ended September 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 nine months ended September 30, 2011 to conform to the presentation of the financial statements for the three and nine months ended September 30, 2012. These reclassifications had no effect on reported losses, total assets, or stockholders’ equity as previously reported.

 

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

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.

 

For the period ending September 30, 2012, the Company had minority investments in Genomics USA, Inc. ("GUSA"). The Company is currently evaluating its minority equity interest in GUSA 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 GUSA.

 

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.

 

The Company’s current focus 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 transactions intended to capitalize on commercial opportunities presented by each of the Businesses; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GUSA. 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.

 

Recent Developments

 

Issuance of Additional Promissory Notes. During the quarter ended September 30, 2012, the Company issued promissory notes to two investors in the principal amount of $25,000 (the “$25K Note”) and $10,000 (the “$10K Note”) (together, the “Notes”). The Notes accrue interest at the rate of 6% annually. The Notes are due and payable on or before November 15, 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 $25K Note, the Company issued 125,000 shares of its common stock, representing 25,000 shares for each $5,000 in principal amount received in connection with the issuance of the $25K Note. In connection with the $10K Note, the Company assigned to the note holder a warrant to purchase 8,496 shares of common Stock of FluoroPharma Medical, Inc. (“FPMI”) held by the Company. While the Company intends to pay the Notes using proceeds from consummation of the Qualified Financing, a Qualified Financing may not occur prior to the Maturity Date.

 

The Company entered into agreements with the holders of the Notes with an expiration date of June 30, 2012 to extend the Maturity Date of such Notes to November 15, 2012, for and in consideration for the assignment to the holders of such Notes of warrants to purchase a total of 269,004 shares of common stock of 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, including the FPMI Warrants issued in connection with the issuance of the $10K Note, have an exercise price of $.50 per share, and expire on April 19, 2014.

Management Statement Regarding Going Concern

The Company currently is not generating sufficient revenue 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 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 the Company has a history of operating losses, has limited cash resources, and its viability is dependent on its ability to meet the future financing requirements. These factors raise substantial doubt about our ability to continue as a going concern absent a strengthening of our cash position. Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment holdings, as well as a strategic, merger or other transaction to obtain additional funding to continue the development of, and to successfully commercialize, its products. There can be no assurance that the Company will be successful in its efforts. Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.

 

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

Accounting for Share-Based Payments

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 nine months ended September 30, 2012 of $27,000, and for the three and nine months ended September 30, 2011 of $7,950 and $23,042, respectively.

 

Earnings (Losses) per Share

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 nine months ended September 30, 2012 were deemed to be anti-dilutive. As of September 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 2.67 years; (ii) outstanding warrants exercisable into 2,771,000 shares of common stock with a weighted average exercise price of $0.66 per share and average remaining term of 1.14 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 nine months ended September 30, 2012.

Fair value

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

Reclassifications. Certain reclassifications have been made in the presentation of the financial statements for the three and nine months ended September 30, 2011 to conform to the presentation of the financial statements for the three and nine months ended September 30, 2012. These reclassifications had no effect on reported losses, total assets, or stockholders’ equity as previously reported.

Use of Estimates

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.